SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(Mark One)

            (X)   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2006
                                            -----------------

            ( )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from ______ to ______

                  Commission file number: 001-05439
                                          ---------

                             DEL LABORATORIES, INC.
             (Exact name of registrant as specified in its charter)

            Delaware                                         13-1953103
            --------                                         ----------
(State or other jurisdiction of                    (I.R.S. Employer I.D. Number)
 incorporation or organization)

726 RexCorp Plaza, P.O. Box 9357,Uniondale, NY               11553-9357
----------------------------------------------               ----------
   (address of Principal Executive Offices)                  (Zip Code)

Registrant's telephone number, including area code: (516) 844-2020
                                                    --------------

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
                                      NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to section 13 or Section 15(d) of the Act Yes [ ] No [X]

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one):

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell Company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]

The number of shares of Common Stock outstanding as of April 30, 2007 was 1,000
shares.
<PAGE>

EXPLANATORY NOTE -- RESTATEMENTS

In this Annual Report on Form 10-K, Del Laboratories, Inc. (the "Company") is
restating its consolidated balance sheet as of December 31, 2005 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the period February 1, 2005 to December 31, 2005 (the "2005 Successor Period"),
the consolidated statement of shareholders' equity for the period January 1,
2005 to January 31, 2005 (the "2005 Predecessor Period") and the consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 2004, principally as a result of (a) an error in the Company's
income tax provision for the 2005 Successor Period that overstated the net loss
and (b) understatements of certain customer liabilities relating to prior
financial periods. The Company also corrected certain other errors previously
considered immaterial. Additionally, the Company is restating the unaudited
quarterly financial information for the interim periods of 2006 and 2005.

The Company has also included under Item 6, "Selected Consolidated Financial
Data," restated financial information as of December 31, 2005 and for the 2005
Successor Period and as of December 31, 2004, 2003 and 2002 and for the years
then ended, and under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" restated financial information for the 2005
Successor Period and the year ended December 31, 2004. Refer to Note 3,
"Restatements", in the Notes to the Consolidated Financial Statements for
additional information.

Previously filed Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q
affected by the restatements have not been amended and should no longer be
relied upon and should be read in conjunction with information contained in this
Annual Report on Form 10-K.

The Company was acquired on January 27, 2005 and utilized January 31, 2005 as
the acquisition date for accounting purposes. The periods prior to January 31,
2005 are referred to as the Predecessor Period and the periods subsequent to
January 31, 2005 are referred to as the Successor Period.

The error in the income tax provision related to the use of an incorrect
estimated state income tax rate due to a change in New York State tax laws. This
error resulted in an understatement of the benefit from income taxes for the
2005 Successor Period of $4.3 million and a corresponding overstatement of the
net deferred state tax liability as of December 31, 2005. The Company corrected
this error by restating its consolidated financial statements as of December 31,
2005 and for the 2005 Successor Period.

The understatements of customer liabilities pertained to reserves required for
future sales returns and markdowns due to incorrect assumptions and methodology
and an accrual required for cooperative and promotional advertising programs.
Accordingly, the Company restated its predecessor consolidated financial
statements as of January 31, 2005 and as of December 31, 2004, 2003 and 2002 and
for the years then ended, to record these additional liabilities and related
income tax effect and restated its consolidated financial statements as of
December 31, 2005 and for the 2005 Successor Period to record additional changes
in these liabilities and related income tax effect including the revised fair
market values of assets acquired and liabilities assumed included in goodwill in
connection with the acquisition.



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<PAGE>

Part I

Item 1 - Business

OVERVIEW

The Company is a leading fully integrated manufacturer and marketer of cosmetics
and over-the-counter, or OTC, pharmaceuticals and was incorporated in Delaware
in 1961. On January 27, 2005, DLI Acquisition Corp., an indirect, wholly-owned
subsidiary of DLI Holding Corp. and a direct, wholly-owned subsidiary of DLI
Holding II Corp. merged with and into Del Laboratories, Inc., with Del
Laboratories, Inc. surviving, which is referred to as the Merger.

SALLY HANSEN(R), the Company's flagship cosmetics brand, is the market leader in
nail care and bleaches and depilatories. The Company also markets cosmetics
products under other brand names, including LACROSS(R) and N.Y.C. NEW YORK
COLOR(R). ORAJEL(R), the Company's flagship OTC pharmaceuticals brand, is the
market leader in oral analgesics and infant and toddler gum cleansers and
toothpastes. The Company also markets specialty OTC pharmaceutical products
including DERMAREST(R) and GENTLE NATURALS(R), among others. The Company has
been able to successfully leverage its well-established and well-recognized
brands by introducing new and innovative products that appeal to consumers.

The Company's principal cosmetic products are nail treatments, nail enamels,
beauty implements, face and lip color cosmetics, bleaches and depilatories,
personal care products and other related beauty items. The Company's principal
OTC pharmaceutical products include oral analgesics, infant care products, first
aid products and eye and ear medications.

The Company primarily markets its products to major drug store chains, mass
merchandisers and food retailers, which together account for a significant
portion of the mass cosmetics and OTC pharmaceuticals markets. The Company's
position in these channels is strong and it is frequently appointed by its
customers as the category captain in nail care and the category validator in
oral analgesics. Internationally, the Company has experienced strong historical
growth from its direct operations in Canada, the United Kingdom and Puerto Rico
and through distributors, licensees and joint venture relationships in over 60
other countries.

COMPETITIVE STRENGTHS

DIVERSIFIED PORTFOLIO OF ESTABLISHED AND WELL-RECOGNIZED BRANDS. The Company's
principal brand names, SALLY HANSEN(R), LACROSS(R) and N.Y.C. NEW YORK COLOR(R)
in its cosmetics business, and ORAJEL(R) in its OTC pharmaceuticals business,
are among the most recognized brands in their targeted markets and often define
the category through their market leadership and innovative products.

o     SALLY HANSEN(R), the Company's largest cosmetics brand, was originally
      introduced in the 1950's and redefined nail care with the introduction of
      the first nail strengthener, HARD AS NAILS(R), in 1958.

o     LACROSS(R), a leader in beauty implements, was introduced over 100 years
      ago, and the Company believes it is widely known by consumers for its high
      quality.

o     N.Y.C. NEW YORK COLOR(R), conceived as a value brand within an industry in
      which the competition generally serves higher price points, was introduced
      in 1999 and is the number two value cosmetics brand.

o     ORAJEL(R), the Company's largest OTC pharmaceutical brand, was originally
      introduced over 40 years ago. ORAJEL(R) is the number one oral analgesic
      in the United States (based on market share) and the number one
      pharmacist-recommended brand in the teething segment.

The Company also owns several other established OTC pharmaceutical brands,
including DERMAREST(R), GENTLE NATURALS(R), STYE(TM), PRONTO(R), AURO-DRI(R),
SKIN SHIELD(R) and BOIL-EASE(R), that compete in niche markets in which the
Company is often the market leader and at times is the only branded product
offered in the category.


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<PAGE>

LEADING MARKET POSITIONS. The Company's key brands are market leaders in the
product categories in which they compete. SALLY HANSEN(R) is a leader in the
cosmetics market as demonstrated by its number one market position in the nail
care category. Additionally, SALLY HANSEN(R) has the number one market position
in the nail enamel and nail treatment segments of the nail care category with a
37.5% and 48.7% market share, respectively, for the year ended December 31,
2006. SALLY HANSEN(R) is also the market leader in the bleaches and depilatories
category with a 34.3% market share. LACROSS(R) is a market leader in the beauty
implements category with a 16.1% market share for the year ended December 31,
2006. ORAJEL(R) is the market leader in the oral analgesics market with a 32.6%
market share for the year ended December 31, 2006. Additionally, ORAJEL(R) has
the number one market position in the toothache pain and teething segments of
the oral analgesics category with a 56.5% and 64.0% market share, respectively,
for the year ended December 31, 2006. ORAJEL(R) is also the market leader in the
infant and toddler tooth cleaning category with a 62.8% market share for the
year ended December 31, 2006. The Company is also a market leader in a number of
specialty OTC pharmaceutical product categories.

HISTORY OF INNOVATION AND SUCCESSFUL PRODUCT LAUNCHES. The Company dedicates
significant resources and attention to product innovation and consumer research
in order to develop differentiated products with new and distinctive features,
which it believes provides increased benefits, convenience and value to its
customers. The Company's marketing departments, supported by its in-house
research and development teams, drive the Company's product development efforts.
Some examples of recently introduced brands or products include SALLY HANSEN(R)
HARD AS NAILS(R) EXTREME WEAR, MIRACLE CURE AND FIRE OPALS, in the Company's
cosmetics business and ORAJEL(R) TODDLER TOOTHPASTE, ORAJEL(R) SWABS, ORAJEL(R)
PROTECTIVE MOUTH SORE DISCS and ORAJEL(R) TOOTH DESENSITIZER in the Company's
OTC pharmaceuticals business. In 2006, the Company continued its history of
expansion into new categories with its JUST FEET and LIP TREATMENT introductions
in the Company's cosmetics business and ORAJEL(R) KIDS SORE THROAT RELIEF
STRIPS with the licensed Scooby Doo character prominently displayed, in the
Company's OTC pharmaceutical business. The Company believes its product
development capabilities allow it to identify and respond to consumer trends
enabling it to better serve its consumers. In addition, the Company and its
products have received a number of awards from well-known publications such as
WOMEN'S WEAR DAILY, ALLURE, GLAMOUR, COSMOPOLITAN, AND COSMETICS EXECUTIVE WOMEN
(CEW) ORGANIZATIONS.

STRONG AND ESTABLISHED CUSTOMER RELATIONSHIPS. The Company has developed strong
relationships and a high degree of customer satisfaction by creating a culture
focused on customer responsiveness. Members of senior management allocate a
significant portion of their time to nurturing these customer relationships and
take an active role in the selling process. The Company believes that its
long-term relationships with its key customers are a result of its ability to
provide a quality product offering that is regularly updated with new
introductions, to deliver its products on-time and in the specification and
quantity ordered and to provide consistent marketing support and value-added
services, including category management services and customized promotional
programs. In addition, the Company believes its products are highly productive
to its customers. The Company is frequently appointed by its customers as the
category captain in nail care and the category validator in oral analgesics.

EXPERIENCED MANAGEMENT TEAM. Led by Charles J. Hinkaty, President and Chief
Executive Officer, the Company has an experienced senior management team
averaging ten years with the Company and approximately 24 years of industry
experience. Other key members of the management team include Harvey P. Alstodt,
President of Del Cosmetics, Joseph Sinicropi, Executive Vice President and Chief
Financial Officer, Cary C. Newman, Executive Vice President, Global Operations,
and Shawn Smith, Senior Vice President, General Counsel and Secretary. The
Company's management team has a history of successfully implementing revenue
building and cost savings programs, both at the Company and other
well-established consumer products and pharmaceutical companies.

BUSINESS STRATEGIES

The Company's objective is to expand its position as a leading manufacturer and
marketer of cosmetics and OTC pharmaceuticals. To achieve this objective, the
Company plans to continue implementing the following strategies:


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<PAGE>

CONTINUE TO GROW CORE BRANDS AND EXPAND INTO NEW CATEGORIES AND DISTRIBUTION
CHANNELS. The Company's well-recognized cosmetics and OTC pharmaceutical brands,
significant market shares and proven ability to develop and launch innovative
new products create a strong foundation for growth. The Company intends to
utilize this foundation to continue to grow its core brands and expand into new
categories and channels.

CONTINUE TO STRENGTHEN ITS RELATIONSHIP WITH RETAILERS. The Company will
continue to identify market trends and fill unmet consumer needs, allowing it to
strengthen its relationships with retailers. In addition, the Company will
continue to provide its retail customers with products that are innovative and
provide increased features, benefits, convenience and value.

EXPAND ITS INTERNATIONAL PRESENCE. The Company plans to increase its
international presence by taking advantage of the significant opportunity that
exists for its products in Europe, Asia and South America. The Company's
international sales and distribution strategy is to establish additional direct
operations in selected foreign markets, expand its presence in existing markets
and increase the number of markets in which it operates through distributors.

REALIZE COST SAVINGS AND OPERATIONAL IMPROVEMENTS. The Company continues to
focus on lowering its costs and improving the overall efficiency of its
operations. In mid-2005, the Company engaged Synergetics Installations
Worldwide, Inc., or Synergetics, a leading management consulting firm
specializing in providing supply chain management advice to manufacturing
companies, to assist the Company in realizing previously identified cost savings
as well as identifying and implementing additional cost saving opportunities.
The Company expects to continue to realize cost savings over the course of 2007
from initiatives it has implemented and expects to implement in the near term.

THE COMPANY'S PRODUCTS

The Company currently markets and sells a diversified portfolio of branded
cosmetic and OTC pharmaceutical segments. See note 18 to the Notes to the
Consolidated Financial Statements for additional information related to the
cosmetic and OTC pharmaceutical segments. The Company's principal cosmetic
products are nail treatments, nail enamels, beauty implements, face and lip
color cosmetics, bleaches and depilatories, personal care products and other
related beauty items. The Company's principal OTC pharmaceutical products
include oral analgesics, infant care products, first aid products and eye and
ear medications.

The following table identifies and sets forth certain historical domestic gross
sales information with respect to major brands within each of the Company's
segments which accounted for over 10% of the Company's gross sales for at least
one of the last three fiscal years:

<TABLE>
<CAPTION>
                                                                            PERCENTAGE OF TOTAL GROSS
                                                                                SALES FOR THE YEAR
                                                                                ENDED DECEMBER 31,
                                                                            -------------------------
BUSINESS SEGMENT                 MAJOR BRANDS (CATEGORIES)                  2006      2005      2004
----------------                 -------------------------                  ----      ----      ----
<S>                    <C>                          <C>                     <C>       <C>       <C>
Cosmetics:             SALLY HANSEN(R)              (Nail enamel)           19.6%     17.9%     17.1%
                       SALLY HANSEN(R)              (Nail treatment)        10.7%     12.0%     12.3%
                       SALLY HANSEN(R)/LACROSS(R)   (Beauty implements)      8.6%      9.9%     10.1%

OTC Pharmaceuticals:   ORAJEL(R)                                            13.3%     12.7%     12.5%
</TABLE>

COSMETICS

SALLY HANSEN(R). The Company currently offers the largest portfolio of nail care
products in the United States mass market. Since the introduction of the
Company's HARD AS NAILS(R) nail treatment product in 1958, SALLY HANSEN(R) has
been an industry leader in nail care, by providing efficacious treatments that
provide quality and value. Over the past 44 years, the Company has built upon
its core nail care franchise and leveraged the SALLY HANSEN(R) brand into other
product categories including lip, hand, foot and leg treatments and bleaches and
depilatories. The SALLY HANSEN(R) brand is built on the foundation of providing
consumers with problem-solving beauty products that combine treatment and
cosmetic benefits.


                                       5
<PAGE>

NAIL TREATMENT. The SALLY HANSEN(R) collection of nail treatment products leads
the United States mass market in market share and breadth of products. SALLY
HANSEN(R) competes in all of the sub-segments of nail treatment with specialty
products to address the problems women face to strengthen, grow and maintain
their nails. The first SALLY HANSEN(R) nail treatment, HARD AS NAILS(R), was
introduced in 1958 to prevent nail breakage. From this one product, the SALLY
HANSEN(R) brand has evolved into the dominant brand in the nail treatment
segment. In 2006, the Company launched MIRACLE CURE, the number one new product
in the category.

NAIL ENAMEL. SALLY HANSEN(R) manufactures and markets a variety of nail enamel
products that provide gorgeous color with a treatment benefit. HARD AS NAILS(R)
STRENGTHENING COLOR, introduced in 1966, was the Company's first product that
combined nail enamel with a nail hardener. Since that launch, the Company has
extended this technology to include a variety of products that address various
nail care needs. HARD AS NAILS(R) EXTREME WEAR AND FIRE OPALS were launched in
2006 driving dollar share of the market in 2006 to an all time high of 37.5%.

BLEACHES AND DEPILATORIES. SALLY HANSEN(R) entered the bleaches and depilatories
category in 1981. Since that time the brand has expanded into a wide variety of
products to address unwanted facial and body hair for women of all ages,
lifestyles and ethnicities. The product line includes bleaches which chemically
lighten hair, waxes which manually remove hair and depilatories which chemically
remove hair. While many of the products launched over ten years ago remain
leaders in their respective categories, the Company has continually brought new
products and methods of application to the marketplace. In 2006, new product
launches entrenched the Company's number one position for the year, increasing
its lead to a 34.3% dollar share of the market.

OTHER. The Company has leveraged the SALLY HANSEN(R) brand into complementary
product categories which include color cosmetics, lip, hand, foot and leg
treatments and nail polish removers. SALLY HANSEN (R) LIP INFLATION was the
first lip plumping product introduced to the mass market and was the number one
lip sku in the mass market category in 2006. In 2006, SALLY HANSEN(R) rolled out
an anti-aging hand care line and its JUST FEET line of complete foot care for
women to the mass market.

LACROSS(R). The LACROSS(R) brand name was introduced in the early 1900s. The
Company acquired the brand in 1978 and began co-branding the line "A Quality
Sally Hansen Product" in the late 1980s. Today, LACROSS(R) offers the most
complete line of precision-crafted eye, nail, foot and grooming implements in
the United States mass retailing marketplace, at moderate prices. The LACROSS(R)
line includes over 90 beauty tools, from tweezers and eye lash curlers to nail
files and manicure scissors.

N.Y.C. NEW YORK COLOR(R). The Company launched N.Y.C. NEW YORK COLOR(R) in 1999
to target value conscious women, ages 16 and older of all lifestyles and
ethnicities. The Company offers high quality packages and fashionable shades of
premium quality products featuring advanced formulas at price points from $0.99
to $4.99. N.Y.C. NEW YORK COLOR(R) covers each of the four color cosmetic
categories of eye, lip, face and nail. Many of the brands items are similar in
both formula and package to more expensive department store items.

OTC PHARMACEUTICALS

ORAJEL(R). The ORAJEL(R) family of products is the United States mass market
leader in both oral pain relief products for adults and oral pain and oral
hygiene products for infants and toddlers. ORAJEL(R) is a well-known brand name
which has been trusted by consumers to treat oral pain for over 40 years.
ORAJEL(R) has built its market leadership position through the identification
and development of products for each type of oral pain or pediatric oral hygiene
need. Through an ongoing process of market research and product development,
ORAJEL(R) has become the market leader in toothache pain relief products for
adults and teething pain relief and fluoride free oral hygiene products for
infants and toddlers. The brand also has meaningful market positions in
treatments for mouth sores and denture pain.

TOOTHACHE PAIN. ORAJEL(R) toothache products provide immediate relief from
toothache pain as a temporary expedient until consumers are able to reach a
dentist. ORAJEL(R) is the number one brand by market share for toothache pain
relief with a variety of forms and strengths.


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<PAGE>

TEETHING. BABY ORAJEL(R) teething products provide immediate relief of teething
pain. BABY ORAJEL(R) is the market leader in teething pain relief and is the
number one teething remedy recommended by pharmacists. BABY ORAJEL(R) offers a
variety of products to meet the needs of parents with teething babies.

MOUTH SORE. ORAJEL(R) provides a full range of products to meet the needs of
mouth sore sufferers. Mouth sores are the largest segment of the oral pain
relief category and sufferers have different product needs for sores inside
versus outside the mouth.

INFANT AND TODDLER TOOTH CLEANSING. ORAJEL(R) is the leader in the infant and
toddler tooth cleansing category, having created the category with the
introduction of BABY ORAJEL(R) TOOTH & GUM CLEANSER in 1991 to address the
specific needs of babies. Although children from four to forty-eight months need
their teeth and gums cleansed regularly, swallowing excessive fluoride can
result in a condition known as fluorosis, or white spots on permanent teeth.
Since young children lack the motor skills required to spit out the toothpaste
after brushing, they should not use a fluoride toothpaste. ORAJEL(R)'S infant
and toddler tooth cleansing products utilize a fluoride-free patented
ingredient, MICRODENT(R), to clean the teeth and gums and remove the plaque-like
film that can form from sugars in food and milk. MICRODENT(R) is ideal for young
children because it cleans teeth and is safe to swallow. The Company has adapted
this technology to satisfy the needs of both infants and toddlers.

BABY ORAJEL(R) TOOTH & GUM CLEANSER is formulated for use by children from four
to eighteen months old and comes with an easy to use finger cot or infant
toothbrush to help parents clean delicate teeth and gums. BABY ORAJEL(R) TOOTH &
GUM CLEANSER comes in two flavors, Mixed Fruit and Apple-Banana, which the
Company believes are desirable alternatives to mint-flavored products offered by
the Company's competitors.

ORAJEL(R) TODDLER TRAINING TOOTHPASTE, introduced in 2001, addresses the needs
of toddlers eighteen to forty-eight months old. Children in this age group
continue to need the fluoride free benefits of MICRODENT(R), while requiring the
additional breath freshening this product provides. ORAJEL(R) TODDLER TRAINING
TOOTHPASTE comes in three flavors, Fruit Splash, Bubble Burst and Berry Blast,
which the Company believes are desirable alternatives to mint-flavored products
offered by the Company's competitors. Berry Blast, which was launched in August
2003, also contains added breath freshener and calcium. The Company's ORAJEL(R)
toddler products license LITTLE BEAR(R), a popular character among children two
to five years of age, for use in the United States, Puerto Rico and Canada on
its packages and in its advertising, as the Company has found that a parent's
purchase decision can be impacted by their toddler's attraction to this
well-known cartoon character. In 2006, the Company expanded the TODDLER TRAINING
TOOTHPASTE line with a product featuring THOMAS THE TANK ENGINE(R), which comes
in a "Tooty Fruity" flavor.

DERMAREST(R). DERMAREST(R) is a leading line of OTC pharmaceutical products for
the treatment of psoriasis and eczema and is positioned by the Company as the
skin treatment specialist. The Company believes DERMAREST(R) PSORIASIS,
introduced in 2000, is the most complete line of scalp and skin OTC
pharmaceutical products to meet the needs of approximately seven million
psoriasis sufferers. DERMAREST(R) PSORIASIS products utilize salicylic acid, an
ingredient which relieves itching and irritation, prevents the recurrence of
symptoms, and helps remove scales so healthy skin can grow. DERMAREST(R)
PSORIASIS products are all coal-tar free so there is no staining or odor and
contain a combination of natural extracts and oils that help moisturize
psoriatic skin. DERMAREST(R) PSORIASIS comes in various forms such as shampoos,
treatments, mousses and moisturizers. DERMAREST(R) ECZEMA is a leading line of
OTC pharmaceutical products to meet the needs of approximately 15 million eczema
sufferers. DERMAREST(R) ECZEMA MEDICATED LOTION contains hydrocortisone to
provide fast itch relief, plus a rich moisturizing formula for dry sensitive
skin. DERMAREST(R) ECZEMA LONG LASTING MOISTURIZER is a gel that moisturizes dry
skin for hours. The film coating formula provides continuous moisturizing, while
protecting the skin by keeping irritants out.

GENTLE NATURALS(R). GENTLE NATURALS(R), introduced in 2002 in response to the
growing trend toward natural healthcare among parents of young children, is a
line of naturally based infant care products targeting specific, underserved
infant needs. The GENTLE NATURALS(R) product line addresses a variety of infant
care needs, including infant eczema, cradle cap, stomach discomfort, skin
irritation, colds, earaches and bug repellency. All of the GENTLE NATURALS(R)
skin care products contain a combination of aloe, calendula, jojoba oil and
Vitamins A, D and E to speed healing, reduce irritation and moisturize infant
skin. During the third quarter of 2006, the Company revitalized this line with
new packaging and advertising, featuring Disney's(C) Baby Pooh characters.


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<PAGE>

OTHER OTC PHARMACEUTICALS. The Company markets a variety of other OTC
pharmaceutical products in targeted categories with strong market share
positions, including PRONTO(R)PLUS, AURO-DRI(R), STYE(TM), BOIL-EASE(R) and SKIN
SHIELD(R). PRONTO(R)PLUS is a line of lice treatment products including
shampoos, conditioners and household sprays. These products which are available
in various forms (mousse, warm oil treatment, hair and scalp masque), include
vitamins and are combined with fun fragrances making the treatment process
easier and more child friendly. AURO-DRI(R) is the number one product for
relieving water clogged ears, a condition that can lead to swimmer's ear if not
taken care of promptly. STYE(TM) is the leading medicated eye ointment that is
positioned to relieve the symptoms of eye irritations, like styes and other eye
irritations. BOIL-EASE(R) is the only branded pain relieving ointment to provide
temporary relief from boil pain. SKIN SHIELD(R) is a liquid bandage that is
uniquely positioned as the only product of this type to contain both a pain
reliever and an antiseptic.

MARKETING, SALES AND DISTRIBUTION

ADVERTISING AND PROMOTION

The Company seeks to build brand awareness and product usage in both its
cosmetics and OTC pharmaceuticals businesses through extensive and
cost-effective advertising strategies that emphasize the strengths of its
products. The Company's goal is to increase market share for its brands through
focused marketing of its existing products and product line extensions. The
Company advertises its products primarily on television, in magazines and on the
radio. The Company strives to achieve cost efficiencies in its advertising by
being opportunistic in its purchase of media and controlling production costs.
Advertising media is selected based upon its ability to efficiently and
effectively reach the core target audience for each product and is scheduled in
line with each brand's volume potential and seasonality, if applicable. In
November 2006, the Company hired an outside firm to serve as the Company's
exclusive advertising agency for creative and production services for all of the
SALLY HANSEN(R) brands.

Additionally, the Company has various cooperative programs with retailers to
further enhance consumer awareness of its products and brands. The Company works
directly with retailers to design the planograms for its brands, as well as to
develop in-store displays, special events and promotional activities and
campaigns for its products. These programs, which include cooperative
advertising, temporary price reductions and in-store displays, are designed to
obtain or enhance distribution at the retail level and to provide incentives to
consumers at the point-of-purchase. For example, a comprehensive secondary
display program is designed to provide multiple locations for key cosmetics and
OTC pharmaceutical products at retail outlets. The Company also utilizes
consumer promotions such as direct mail programs targeted at specific audiences,
like parents, as well as on-package offers to encourage trial and repeat
purchase at the point-of-sale.

The Company's expenditures on advertising, including cooperative advertising
programs, were approximately $37.2 million or 8.7% of net sales in 2006, $34.2
million or 9.0% of net sales in the 2005 Successor Period, $2.6 million or 14.2%
of net sales in the 2005 Predecessor Period and $36.8 million or 9.3% of net
sales in 2004.



                                       8
<PAGE>

CUSTOMERS

The Company's senior management team and two dedicated sales organizations, one
for each of its cosmetics and OTC pharmaceuticals businesses, maintain
long-standing relationships with the Company's top 25 customers which represent
over 78% of the Company's gross sales for the year ended December 31, 2006. The
Company distributes its products domestically through a well-established,
diversified sales platform that includes mass merchandisers, food retailers,
drug chains and wholesalers that collectively account for a significant portion
of the cosmetics and OTC pharmaceuticals markets. The Company believes its
position in these channels is strong and it is frequently appointed by its
customers as the category captain in nail care and the category validator in
oral analgesics. A category captain recommends the placement and stocking of all
products within a category and a category validator coordinates with a category
captain to recommend the placement and stocking of products within a segment of
a particular category. Internationally, the Company has a growing presence and
strong sales from its direct operations in Canada, the United Kingdom and Puerto
Rico and through distributor, licensee and joint venture relationships in over
60 other countries. For the year ended December 31, 2006, the Company's eight
largest customers represented approximately 67.7% of the Company's gross sales,
which allows the Company to target its selling efforts to its key customers and
tailor specific programs to meet their needs. Other than Wal-Mart, Walgreens and
CVS, which accounted for approximately 26.5%, 11.9% and 11.6%, respectively, of
the Company's gross sales for the year ended December 31, 2006, no single
customer accounted for more than 10% of the Company's total gross sales for the
year ended December 31, 2006.

As is customary in the cosmetic and OTC pharmaceutical industries, the Company
does not enter into long-term or exclusive contracts with its customers. Sales
to customers are generally made pursuant to purchase orders. The Company
believes that its long-term customer relationships with its key customers are a
result of its ability to provide a quality product offering that is regularly
updated with new introductions, to deliver its products on-time and in the
specification and quantity ordered and to provide consistent marketing support
and value-added services, including category management services and customized
promotional programs. See "Risk Factors--Risks Related to the Company--The
Company depends on a limited number of customers for a large portion of its
sales and the loss of one or more of these customers could reduce its sales."

SALES AND DISTRIBUTION

The Company's domestic sales efforts are organized into two separate in-house
national sales organizations responsible for selling its cosmetics and OTC
pharmaceutical product lines. As of December 31, 2006, the Company employed
approximately 100 people in its domestic cosmetics sales organization and 40
people in its domestic OTC pharmaceutical sales organization, which includes
sales people, customer marketing and category management personnel. In certain
circumstances, the Company employs brokers where a full-time sales employee is
not economically justified or where such brokers can help provide retail
merchandising support. Both of the Company's cosmetics and OTC pharmaceutical
sales organizations are supported by a sales support department that performs
significant customer, consumer and market analysis which helps both the
Company's sales people and its customers understand sales patterns and create
appropriate promotions and merchandising aids for its products. The Company's
sales organization works in conjunction with its marketing and product
development organizations to identify trends and help to develop new products
and brand extensions.

The Company's customers expect quick response times on standard merchandise
orders and the Company does not have a material order backlog. Most of the
Company's products, regardless of where they are manufactured, are shipped from
its distribution facilities in Rocky Point, North Carolina and Leland, North
Carolina. Consistent with the packaged goods industry, the Company accepts
authorized returns of unmerchantable, defective or discontinued products. The
Company sells to customers primarily in the food, drug and mass merchandiser
channels. Seasonality has not had a significant effect on either the Company's
cosmetic or OTC pharmaceutical segments, in each case taken as a whole. See
"Risk Factors--Risks Related to the Company--Adverse occurrences at the
Company's Rocky Point facility could negatively impact its business."



                                       9
<PAGE>

The Company's international business represented approximately 17% of its net
sales in 2006, with cosmetics volume constituting approximately 91% of total
international net sales. Canada accounted for approximately 53% of the Company's
total international net sales in 2006. The Company operates in Canada through
operating subsidiaries that employ their own marketing and sales organizations.
The Company has distributor, licensee and joint venture relationships in over 60
other countries. These relationships accounted for 37% of the Company's total
international net sales in 2006. The Company's United Kingdom and Mexican
subsidiaries and branch operations in Puerto Rico account for the balance of its
international net sales. The Company's international sales and distribution
strategy is to continue to support in-market sales within the countries
presently served and expand the number of countries in which distribution is
taking place.

Export net sales (which exclude sales in Canada, Puerto Rico, United Kingdom and
Mexico) represented approximately 6%, 5%, 4%, and 4% of the Company's total net
sales in 2006, the 2005 Successor Period, the 2005 Predecessor Period and 2004.

For information regarding the Company's net sales and long-lived assets by
geographic region, see note 18 of the Notes to the Consolidated Financial
Statements.

For a discussion of risks related to doing business outside of the United
States, see "Risk Factors - Risks Related to the Company - The Company is
subject to the risk associated with doing business outside of the United
States."

COMPETITION

Competition in both the cosmetics and OTC pharmaceuticals markets is intense. In
addition, the cosmetics industry is subject to rapidly changing consumer
preferences and industry trends. Many of the Company's principal competitors
have substantially greater financial and marketing resources than the Company.
Frequent new product introductions and attendant advertising characterize both
industry segments in which the Company operates. The Company competes on the
basis of brand name recognition, quality of product, assortment and continuity
of merchandise selection, price, reliable order fulfillment and delivery, level
of in-store merchandising support and advertising. The Company's main
competitors in the cosmetics market include Revlon, Inc., Procter & Gamble Co.
(COVER GIRL and MAX FACTOR) and L'Oreal USA (MAYBELLINE and L'OREAL). The
Company's main competitors in the OTC pharmaceuticals market include Wyeth
Corp., Procter & Gamble Co., Glaxo SmithKline plc, Colgate Palmolive Co.,
Chattem, Inc., Bayer Corp. and Johnson and Johnson, Inc.

Part of the Company's strategy to offset the level of competition is to develop
certain products and brands that focus on niche or sub-segments of larger
markets. By focusing on these areas, the Company believes it is able to limit
the degree of competition it faces, as many of these smaller markets do not draw
the attention of the large multi-national consumer product companies, or they
choose not to dedicate resources to these smaller, albeit potentially profitable
brands.

NEW PRODUCT DEVELOPMENT

The Company cultivates an environment and corporate culture that fosters
innovation and creativity as one of its core competencies. Significant resources
and attention are dedicated to developing new products and brands, as well as
extensions of its existing products. The Company's intent is to continually
deliver new and improved features, benefits, convenience and value to consumers.
The Company has been regularly recognized for its efforts in product innovation
and development and has received numerous awards for its achievements. In 2003,
the Company won Women's Wear Daily's "Most Innovative Marketer of the Year"
award in the mass market category recognizing its continuous flow of innovation
in its cosmetics brands. In 2004, the Company won Allure Magazine's Best of
Beauty "Breakthrough Product of the Year" award and Women's Wear Daily's
"Breakthrough Product of the Year" award for SALLY HANSEN(R) AIRBRUSH LEGS, an
aerosol makeup for legs. Additionally, ORAJEL(R) DRY MOUTH won the Diana Award
from the Healthcare Distribution and Manufacturing Association for the best new
OTC pharmaceutical product of the year. In 2005, SALLY HANSEN(R) DIAMOND
STRENGTH NAIL COLOR won the Allure Reader's Choice Big Breakthrough of the Year
and a Cosmopolitan Beauty Award. NAILGROWTH MIRACLE SALON TREATMENT won the
Allure Editor's Choice Hall of Fame Award and HARD AS NAILS(R) won CosmoGirl
Reader's Kiss for Best Nail Polish. Continued success in 2006 followed with
EXTREME WEAR NAIL COLOR winning Star's Superstar Beauty Award, INVISIBLE LIP
LINER winning Redbook's MVP Award, NO CHIP TOP COAT winning Allure's Best of
Beauty, and DIAMOND STRENGTH and MAXIMUM PLUMPING LIP TREATMENT each winning a
Seventeen's Spring Beauty Award.


                                       10
<PAGE>

The Company's marketing organization works in conjunction with the in-house
research and development teams as well as outside product development firms to
identify trends, consumer needs and unfulfilled markets. Once identified, these
individuals work with the creative services, manufacturing and package
development teams to develop, test and manufacture products that meet high
quality standards and fulfill these needs. The Company's research and
development teams are located in its Plainview, New York facility.

The Company has introduced a number of product line extensions, new products and
new brands in the past few years. For example, in 2002, the Company launched
ORAJEL(R) SWABS and the GENTLE NATURALS(R) product line. ORAJEL(R) SWABS is a
patented unit dose delivery system combining medication and applicator in one.
It is currently available for adult toothache and mouth sore applications, as
well as for teething. The GENTLE NATURALS(R) product line addresses a variety of
infant care needs, including infant eczema, cradle cap, stomach discomfort, skin
irritation, colds, earaches and bug repellency. In 2004, the Company launched
SALLY HANSEN(R) AIRBRUSH LEGS, an aerosol makeup made for legs that simulates
pantyhose and helps make legs look gorgeous and feel soft and smooth. SALLY
HANSEN(R) also addressed an unmet consumer need with the launch of JUST FEET,
the first full line of foot care in the mass market designed for the specific
needs of women. Comprised of pedicure nail colors, treatments and unique
implements, JUST FEET has been successful at a major retailer and was rolled out
to national distribution in 2006. SALLY HANSEN (R) LIP INFLATION was the first
lip plumping product introduced to the mass market and was the number one lip
sku in the mass market category in 2006.

In the first quarter of 2006, the Company launched ORAJEL(R)PROTECTIVE MOUTH
SORE DISCS, a revolutionary, patent pending product that is placed over a mouth
sore to provide immediate symptom relief of mouth sore discomfort and then forms
a gel like bandage that blocks irritation for hours, allowing the sore to heal.
In June 2006, the Company entered the market for children's sore throat relief
products with the launch of ORAJEL(R) KIDS SORE THROAT RELIEF STRIPS with Scooby
Doo. ORAJEL(R) SORE THROAT RELIEF STRIPS provide effective sore throat relief in
an easy to use, good tasting, dissolvable strip form.

MANUFACTURING AND QUALITY CONTROL

In 2001, the Company began the process of consolidating and modernizing its
domestic manufacturing and distribution operations. In the context of its
consolidation efforts, the Rocky Point facility, originally acquired in 1997,
was expanded to 430,000 square feet. It is now a fully integrated,
manufacturing, packaging and distribution complex for both the Company's
cosmetic and OTC pharmaceutical products and produced approximately 62% of the
Company's domestic production volume for the year ended December 31, 2006. As a
result of its consolidation efforts and the expansion of the Rocky Point
facility, the Company expects cost savings relating to the elimination of
redundant, non-value added activities, reduction of interplant transportation,
reduction of outside warehousing costs and simplification of intra-plant
workflow, which are expected to reduce material handling costs, as well as the
corresponding clerical support functions. The relocation of a significant part
of the Company's operations to Rocky Point, North Carolina also resulted in
reduced labor, employee benefit, freight and utilities costs and lower state and
local taxes.

The Company also leases a 160,000 square foot facility in Leland, North Carolina
which supplements the Rocky Point facility and is used for the production,
warehousing and distribution of both the Company's cosmetics and OTC
pharmaceutical products.

The Little Falls facility, a 163,000 square foot manufacturing and warehouse
complex, produced approximately 16% of the Company's domestic production volume
for the year ended December 31, 2006. On January 13, 2006, the Company announced
that it planned to cease the manufacturing activities at this facility as part
of the Company's ongoing efforts to increase productivity and reduce costs. The
Company transferred a majority of the manufacturing operations performed to the
Company's Rocky Point facility, and outsourced the remainder. The Company has
converted the Little Falls facility to a warehouse to store a portion of its
inventory and is in the process of closing several of its short-term leased
warehouse facilities in upstate New York. In January 2007, the Company sold the
land and buildings located in Little Falls, New York to an unrelated third party
for $3.0 million and leased back the properties for a six year term.

                                       11
<PAGE>

A smaller, sister plant in nearby Canajoharie, New York (the "Canajoharie
Plant"), supplies Rocky Point with many components, including bottles, jars,
caps, blister packs and displays. On February 12, 2007, the Company announced
plans to transfer the manufacturing activities currently performed at the
Canajoharie Plant to independent contractors in North Carolina. The transfer,
which will result in the termination of approximately 80 employees, will be
conducted in phases beginning by mid April 2007, and is expected to be completed
by June 1, 2007. As a result, the Company expects to record a first quarter 2007
pre-tax charge of approximately $0.6 million to $0.8 million, consisting
primarily of severance and employee related charges, with cash payouts occurring
throughout the balance of 2007. The Company anticipates utilizing the
Canajoharie Plant for warehousing and office requirements at this time.

Third party contract manufacturers represented approximately 22% of the
Company's domestic production volume for the year ended December 31, 2006. A
portion of the Company's products are packaged by third-party manufacturers for
resale by the Company to its customers and the remainder are produced by
third-party manufacturers and packaged by the Company. In recent years, the
Company has increased its use of third party manufacturing because it has
produced cost savings and profit improvement opportunities. Going forward, the
Company plans to evaluate and undertake further cost savings opportunities
related to third party manufacturing. The balance of the Company's production
volume for the year ended December 31, 2006 was manufactured at a facility in
Barrie, Ontario, Canada. This facility primarily serves the Canadian market and
provides backup for selected products for both the domestic and United Kingdom
markets, as necessary. See "Risk Factors--Risks Related to the Company--Certain
of its products are manufactured by a limited number of third party suppliers,
which limits its control of the manufacturing process and may cause variations
in quality or delays in its ability to fill orders."

The recent expansion of the Company's Rocky Point facility has doubled the
square footage of laboratory space for testing and quality control and has
enabled the Company to improve its quality assurance, quality control and
regulatory processes. The Company's Rocky Point facility is equipped with
state-of-the-art incoming, analytical and microbiology laboratories. To
supplement its in-house quality control efforts, the Company retains from time
to time a third party Good Manufacturing Process ("GMP") auditing company to
audit regulatory compliance.

The Company expended approximately $8.1 million, $7.7 million, $0.6 million and
$9.0 million in 2006, the 2005 Successor Period, the 2005 Predecessor Period and
2004, respectively, on clinical and regulatory affairs, quality control and
research activities relating to the development of new products, all of which
are conducted internally by the Company.

RAW MATERIALS

The Company purchases the raw materials, components and semi-finished goods used
in its manufacturing processes from various third-party manufacturers,
paperboard suppliers and packaging component distributors. The Company has not
experienced any difficulty obtaining raw materials and believes that such
materials are readily available. The Company believes that its current sources
of supply, together with potential alternative sources, will be adequate to meet
future production demands. The Company continually evaluates opportunities to
improve efficiencies and reduce costs by either out-sourcing or in-sourcing the
production of certain components and raw materials.

PATENTS AND TRADEMARKS

The Company owns or has rights to trademarks, service marks or trade names that
it uses in connection with the operation of its business. Some of its more
important trademarks and service marks that appear in this Form 10-K include
SALLY HANSEN(R), HARD AS NAILS(R), N.Y.C. NEW YORK COLOR(R), LACROSS(R),
ORAJEL(R), BABY ORAJEL(R), DERMAREST(R) and GENTLE NATURALS(R), which are
registered in the United States and may be registered in other jurisdictions.


                                       12
<PAGE>

The Company considers its trademarks to be material assets, and the registration
and protection of its trademarks in the aggregate to be important to its
business, in that the success of certain of its products is due at least in part
to the goodwill associated with its primary brand names. The Company has
registered or applied to register many of these trademarks, both in the United
States and in foreign countries. The Company has also been issued several United
States patents, expiring at various times through 2020 and has licensed certain
intellectual property from third parties. Many of the products the Company
refers to as patented in this Annual Report on Form 10-K utilize patented
technology that it licenses from third parties and does not own. While the
Company believes its patents and patent licenses to be important, the Company
does not consider its business as a whole to be dependent on such patent
licenses or patent protection. The Company is involved in various intellectual
property claims and legal actions arising in the ordinary course of business.
While the effect of the final resolutions of these matters is not known,
management is of the opinion that they will not have a material adverse effect
on the Company's consolidated financial position.

GOVERNMENT REGULATIONS

The formulation, manufacturing, packaging, labeling, registration, distribution,
advertising, importation, sale and storage of the Company's OTC drug and
cosmetic products are subject to regulation by various federal agencies,
including the FDA and the FTC.

All of the Company's OTC pharmaceutical products are regulated pursuant to the
FDA's OTC monograph system. The monographs, both tentative and final, set out
the active ingredients and labeling indications and claims that are permitted
for certain broad categories of OTC pharmaceutical products such as oral
analgesics. Where the FDA has promulgated a final monograph, it has concluded
that a properly labeled product formulation is generally recognized as safe and
effective and is not misbranded. A tentative final monograph indicates that the
FDA has not yet made a final determination about products in a category to
establish safety and effectiveness for a product and its uses. However, unless
there is a serious safety or effectiveness issue, the FDA will exercise
enforcement discretion and permit companies to sell existing products until the
final monograph is promulgated. Products that comply with either final or
tentative final monograph standards do not require pre-market approval from the
FDA. Clinical efforts are presently in progress to validate whether all labeling
and advertising claims will be covered by monographs once the final rulings are
published. OTC drugs marketed pursuant to either a final monograph or a proposed
monograph are subject to the FDA's current GMP requirements. OTC drug
manufacturing facilities are subject to FDA inspection, and failure to comply
with applicable regulatory requirements may lead to administrative or judicially
imposed penalties.

Under the Food, Drug, and Cosmetic Act (the "FDCA"), cosmetics are defined as
articles "intended to be rubbed, poured, sprinkled, or sprayed on, introduced
into, or otherwise applied to the human body for cleansing, beautifying,
promoting attractiveness, or altering the appearance." Cosmetic products cannot
be intended to affect any structure or function of the body or to have a
therapeutic effect. The FDCA requires that cosmetics and their individual
ingredients be safe and that labeling be truthful and not misleading. The FDA
can take immediate action to stop the sale of any cosmetic product that does not
meet these standards.

Cosmetic products and ingredients are not subject to FDA pre-market approval.
However, cosmetic ingredients are reviewed by the Cosmetic Ingredient Review
(the "CIR"), an independent, non-profit scientific body that holds open public
meetings and publishes its findings in a peer reviewed journal. In addition,
under the authority of the Fair Packaging and Labeling Act (the "FPLA"), the FDA
requires an ingredient declaration on cosmetic packages or at point of sale to
enable consumers to make informed purchasing decisions. Cosmetics that fail to
comply with the FPLA are considered misbranded.

The FDA is authorized to conduct inspections of cosmetic firms to assure
compliance with applicable laws and regulations, to determine whether cosmetics
are safe and properly labeled, and to identify possible health risks and other
violations of the law. Failure to comply with applicable regulatory requirements
may lead to administrative or judicially imposed penalties.


                                       13
<PAGE>

ENVIRONMENTAL

The Company is subject to a broad range of frequently changing federal, state
and local environmental, health and safety laws and regulations, including those
governing discharges to air, soil and water, the handling and disposal of, and
exposure to, hazardous substances and the investigation and remediation of
contamination resulting from the release of hazardous substances. The Company
believes that its business operations and facilities are in material compliance
with all applicable environmental, health and safety laws and regulations,
though future expenditures may continue to be necessary in order to maintain
such compliance. However, some of its current and former facilities are
currently involved in environmental investigations and remediations resulting
from past releases of hazardous substances or the presence of other
contaminants. While the Company does not believe that any investigation or
remediation obligations that it has identified will have a material adverse
effect on its operating results or financial condition, there can be no
assurance provided that such obligations will not arise in the future.

EMPLOYEES

As of December 31, 2006, the Company had approximately 1,700 employees. None of
the Company's employees are represented by a labor union. The Company has not
experienced any work stoppages and considers its employee and labor relations to
be satisfactory.


                                       14
<PAGE>

Item 1A - Risk Factors

RISKS RELATED TO THE COMPANY

THE COMPANY'S SUBSTANTIAL LEVERAGE MAY IMPAIR ITS FINANCIAL CONDITION AND
PREVENT IT FROM FULFILLING ITS DEBT OBLIGATIONS.

The Company has a substantial amount of debt. As of December 31, 2006, the
Company's total debt was $370.4 million; consisting primarily of $185.0 million
aggregate principal amount of senior secured floating rate notes (the "Notes"),
$175.0 million principal amount of senior subordinated notes (the "Subordinated
Notes") and $10.0 million of senior debt outstanding under its asset based
revolving credit facility ("the ABL Credit Facility"). As of December 31, 2006,
the Company had, $74.0 million of unutilized commitments under the ABL Credit
Facility and $71.2 million of availability thereunder. For the fiscal year ended
December 31, 2006, the Company's earnings would have been insufficient to cover
fixed charges by $30.2 million.

The Company's substantial debt could have important consequences, including:

      o     making it more difficult for the Company to satisfy its obligations
            with respect to the Notes and the Subordinated Notes;

      o     increasing its vulnerability to general adverse economic and
            industry conditions by making it more difficult for the Company to
            react quickly to changing conditions;

      o     limiting its ability to realize expected cost savings and
            operational improvements;

      o     limiting its ability to obtain additional financing to fund future
            working capital, capital expenditures, acquisitions, and other
            general corporate requirements;

      o     requiring a substantial portion of its cash flow from operations for
            the payment of interest on its debt and reducing its ability to use
            its cash flow to fund working capital, capital expenditures,
            acquisitions, and general corporate requirements;

      o     exposing the Company to risks inherent in interest rate fluctuations
            because some of the borrowings will be at variable rates of
            interest, which could result in higher interest expense in the event
            of increases in interest rates;

      o     limiting its flexibility in planning for, or reacting to, changes in
            its business, and the industry in which the Company operates; and

      o     placing the Company at a competitive disadvantage compared with its
            competitors that have less debt.

DESPITE CURRENT INDEBTEDNESS LEVELS, THE COMPANY AND ITS SUBSIDIARIES MAY STILL
BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE
RISKS ASSOCIATED WITH ITS SUBSTANTIAL LEVERAGE.

Subject to specified limitations, the indenture governing the Notes, the credit
agreement governing the ABL Credit Facility and the indenture governing the
Subordinated Notes permit the Company and its subsidiaries to incur substantial
additional debt. If new debt is added to the Company and its subsidiaries'
current debt levels, the risks described above could intensify.


                                       15
<PAGE>

COVENANT RESTRICTIONS UNDER THE COMPANY'S INDEBTEDNESS MAY LIMIT ITS ABILITY TO
OPERATE ITS BUSINESS.

The indenture governing the Notes, the credit agreement governing the ABL Credit
Facility and the indenture governing the Subordinated Notes do, and the
Company's future debt agreements may, contain covenants that may restrict the
Company's ability to finance future operations or capital needs or to engage in
other business activities. The ABL Credit Facility and the indentures restrict,
among other things, the Company's ability and the ability of its restricted
subsidiaries to:

      o     borrow money;

      o     incur liens;

      o     pay dividends or make other distributions;

      o     make other restricted payments and investments;

      o     issue preferred stock;

      o     enter into transactions with affiliates;

      o     merge or consolidate; and

      o     transfer or sell assets.

In addition, the ABL Credit Facility requires the Company to satisfy a minimum
fixed charge coverage ratio test if excess availability falls below specified
levels. Events beyond the Company's control, including changes in general
economic and business conditions, may affect its ability to comply with the
covenants in its debt instruments. A breach of any of these covenants would
result in a default under the ABL Credit Facility and the indentures. If an
event of default under the ABL Credit Facility occurs, the lenders could elect
to declare all amounts outstanding thereunder, together with accrued interest,
to be immediately due and payable. If the debt under the ABL Credit Facility and
indentures is accelerated, there can be no assurance provided that the Company
would have sufficient assets to pay amounts due under the ABL Credit Facility,
the Notes, the Subordinated Notes or other debt then outstanding.

THE COMPANY WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND ITS ABILITY TO
GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS DEPENDS UPON MANY FACTORS, SOME OF
WHICH ARE BEYOND ITS CONTROL.

The Company's ability to make payments on and refinance its debt and to fund
working capital needs and planned capital expenditures depends on its ability to
generate cash flow in the future. To some extent, this is subject to general
economic, financial, competitive, legislative, and regulatory factors and other
factors that are beyond the Company's control. For example, the Company's need
to stock substantial inventory could increase its working capital needs. The
Company expects that anticipated cash flow from operating activities and
expected available borrowings under the ABL Credit Facility will provide
sufficient working capital to operate its business, to fund expected capital
expenditures and to meet foreseeable liquidity requirements, including debt
service on its outstanding debt. However, there can be no assurance provided
that the Company's business will continue to generate cash flow from operations
or that its cash needs will not increase. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt and meet
its other needs, the Company may have to refinance all or a portion of its
existing debt or obtain additional financing or reduce expenditures that the
Company deems necessary to its business. There can be no assurance provided that
any refinancing of this kind would be possible or that any additional financing
could be obtained. The inability to obtain additional financing could have a
material adverse effect on the Company's financial condition and on its ability
to meet its obligations under the ABL Credit Facility, the Notes and the
Subordinated Notes.


                                       16
<PAGE>

As of December 31, 2006, the Company's total debt was $370.4 million; consisting
primarily of $185.0 million aggregate principal amount of Notes, $175.0 million
principal amount of Subordinated Notes and $10.0 million of senior debt
outstanding under the ABL Credit Facility. As of December 31, 2006, the Company
had $74.0 million of unutilized commitments under the ABL Credit Facility and
$71.2 million of availability thereunder. For the fiscal year ended December 31,
2006, the Company's earnings would have been insufficient to cover fixed charges
by $30.2 million.

The Company expects that its total expenditures for machinery and equipment and
display fixtures will be approximately $22.0 million in 2007. The Company
anticipates that its debt service requirements in 2007 will be approximately
$34.6 million.

THE COMPANY MAY NOT SUCCESSFULLY IMPLEMENT ITS BUSINESS STRATEGIES OR REALIZE
ALL OF THE EXPECTED COST SAVINGS.

The Company may not be able to fully implement the business strategies described
under "Business--Business Strategies" or realize, in whole or in part within the
time frames anticipated, the expected cost savings and efficiency improvements.
The Company's business strategies include realizing approximately $6.0 million
of additional annualized cost savings in 2007 from operational efficiency
improvements by completing the implementation of a number of sales and
operational process initiatives designed to improve sales forecasting, demand
planning and production scheduling, and continuing to improve the efficiency
level of the manufacturing facilities and the process of identifying, evaluating
and selling promotional products. The Company's business strategies, including
ongoing efficiency improvements that are currently being implemented, are
subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Company's control. Therefore, the
Company may not fully achieve its expected cost savings and efficiency
improvements. The Company's business strategy may also change from time to time.
As a result, the Company may not be able to achieve its expected results of
operations.

THE HIGH LEVEL OF COMPETITION IN THE COMPANY'S INDUSTRY COULD MATERIALLY
ADVERSELY AFFECT ITS BUSINESS.

The business of selling branded consumer products in both the cosmetics and OTC
pharmaceuticals markets is highly competitive. These markets include numerous
manufacturers, distributors, marketers and retailers that actively compete for
consumers' business both in the United States and abroad. Some of these
competitors are larger, have substantially greater resources than the Company
has and are less leveraged. Therefore, these companies may be able to grow more
quickly through strategic acquisitions, to spend more aggressively on
advertising and marketing and to respond more flexibly to changing business and
economic conditions than the Company.

The Company competes on the basis of numerous factors, including brand
recognition, product quality, performance, price and product availability at
retail stores. Advertising, promotion, merchandising, packaging, the
availability of wall display space, the timing of new product introductions and
line extensions also have a significant impact on customer's buying decisions
and, as a result, on the Company's sales. The structure and quality of the
Company's sales force, as well as consumer consumption of the Company's
products, affects in-store position, wall display space and inventory levels in
retail outlets. The Company's markets also are highly sensitive to the
introduction of new products, which may rapidly capture a significant share of
the market. In addition, the Company's products are at the risk of becoming
obsolete due to new product introductions, medical advances or new technologies.
An increase in the amount of competition that the Company faces could have a
material adverse effect on the Company's operating results.

In addition, competitors may attempt to gain market share by offering products
at prices at or below those typically offered by the Company. Competitive
pricing may require price reductions by the Company, may decrease the Company's
profitability, and may result in lost sales. There can be no assurance that
future price or product changes by the Company's competitors will not have a
material adverse effect on the Company or that the Company will be able to react
with price or product changes of its own to maintain its current market
position.


                                       17
<PAGE>

CERTAIN OF THE COMPANY'S PRODUCTS ARE MANUFACTURED BY A LIMITED NUMBER OF THIRD
PARTY SUPPLIERS, WHICH LIMITS ITS CONTROL OF THE MANUFACTURING PROCESS AND MAY
CAUSE VARIATIONS IN QUALITY OR DELAYS IN ITS ABILITY TO FILL ORDERS.

Certain of the products the Company sells are manufactured for it under contract
by a limited number of suppliers located in China, Dubai, Pakistan and Canada.
Third party contract manufacturers represented approximately 22% of the
Company's domestic production volume for the year ended December 31, 2006. The
Company depends on these suppliers to deliver products that are free from
defects, that comply with the Company's specifications, that meet the Company's
delivery requirements and that are competitive in cost. If the Company's
suppliers deliver products that are not free from defects or that otherwise do
not meet the Company's specifications, the Company's product failure and return
rates may increase and the reliability and reputation of the Company's products
may suffer. In addition, if the Company's suppliers do not meet the Company's
delivery requirements or cease doing business with it for any reason (including,
for example, because of a supplier's financial failure or bankruptcy), the
Company might miss its customers' delivery requirements, which could in turn
cause its customers to cancel orders, refuse to accept deliveries, demand
reduced prices or reduce future orders. Even if acceptable alternative suppliers
are found, the process of locating and securing such alternatives is likely to
disrupt the Company's business and there can be no assurance that it will be
able to secure alternative suppliers on acceptable terms, which could adversely
affect the Company's results of operations and financial condition. Extended
unavailability of necessary components or finished goods could cause the Company
to cease marketing one or more of its products for a period of time. See "--The
Company's success depends on its quality control and on its ability to deliver
products in a timely manner."

ADVERSE OCCURRENCES AT THE COMPANY'S ROCKY POINT FACILITY COULD NEGATIVELY
IMPACT ITS BUSINESS.

The Company operates a facility in Rocky Point, North Carolina, which serves as
the main manufacturing and distribution facility. In comparison to the Company's
total distribution network, the distribution needs of the customers the Company
serves are heavily dependent on products manufactured at and/or delivered
through the Company's Rocky Point facility. If operational complications arise
with the Company's Rocky Point facility or if its Rocky Point facility is
severely damaged or destroyed, the Company's other manufacturing and
distribution facilities will not be able to support the resulting additional
distribution and manufacturing demands. The Company's customers expect quick
response time on product orders and any such complications could adversely
affect the Company's ability to deliver products to its customers on a timely
basis or that are free from defects. If the Company misses its customers'
delivery requirements or if its products fail to meet their specifications, the
Company's relationships with its customers could suffer and the Company could
lose market share. See "--The Company's success depends on its quality control
and on its ability to deliver products in a timely manner" and "--In the event
of a catastrophic loss of any one or more key manufacturing and distribution
facilities, the Company's business would be materially adversely affected."

THE COMPANY DEPENDS ON A LIMITED NUMBER OF CUSTOMERS FOR A LARGE PORTION OF ITS
SALES AND THE LOSS OF ONE OR MORE OF THESE CUSTOMERS COULD REDUCE ITS SALES.

The Company depends on its core customer relationships for a large portion of
its sales, including the Company's relationships with Wal-Mart, Walgreens and
CVS. For the year ended December 31, 2006, Wal-Mart accounted for approximately
26.5%, Walgreens accounted for approximately 11.9% and CVS accounted for
approximately 11.6% of the Company's gross sales. None of the Company's other
customers individually accounted for more than 10% of its gross sales for the
year ended December 31, 2006. The loss of one or more of the Company's top
customers, that individually or in the aggregate, account for a significant
portion of its sales, or any significant decrease in sales to those customers,
or any significant decrease in its retail display space in any one or more of
those customers' stores, could reduce the Company's sales and therefore could
have a material adverse effect on its business, financial condition and results
of operations.


                                       18
<PAGE>

In addition, the Company's business is based upon purchase orders. Accordingly,
its customers could cease buying its products from the Company at any time and
for any reason. The fact that the Company does not have long-term contracts with
its customers means that the Company has no recourse in the event a customer no
longer wants to purchase products from it. If any significant customer or any
significant number of the Company's customers elects not to purchase products
from the Company, its business, prospects, financial condition and results of
operations could be materially adversely affected.

THE COMPANY MAY BE MATERIALLY ADVERSELY AFFECTED BY FLUCTUATIONS IN BUYING
DECISIONS OF MASS MERCHANDISERS, THE TREND TOWARD RETAIL TRADE CONSOLIDATION,
AND CHANGING POLICIES AND DEMANDS OF ITS RETAIL TRADE CUSTOMERS.

The Company sells its products principally to mass merchandisers in the United
States. Consequently, its sales are affected by fluctuations in the buying
patterns of these customers. These fluctuations may result from economic
conditions or other factors. In addition, with the growing trend towards retail
consolidation, the Company is increasingly dependent upon a few leading
retailers, such as Wal-Mart, Walgreens, CVS, Target and Rite Aid, whose
bargaining strength continues to grow due to their size. Such retailers have
demanded, and may continue to demand, increased service and order accommodations
as well as incremental promotional investments. As a result, the Company may
face increased expenses to meet these demands, which would reduce its margins.
The Company also may be negatively affected by changes in the policies and
demands of its retail trade customers relating to service levels, inventory
destocking, limitations on access to wall display space, radio frequency
identification tagging of products and other conditions.

THE COMPANY'S SUCCESS DEPENDS ON ITS ABILITY TO ANTICIPATE AND RESPOND IN A
TIMELY MANNER TO CHANGING CONSUMER DEMANDS.

The Company's success depends on its products' appeal to a broad range of
consumers whose preferences cannot be predicted with certainty and are subject
to change. If its current products do not meet consumer demands, the Company's
sales may decline. In addition, the Company's growth depends upon its ability to
develop new products, product line extensions and product improvements, which
involve numerous risks. The Company may not be able to accurately identify
consumer preferences or translate its knowledge into consumer-accepted products
or successfully integrate those products with its existing product platform or
operations. The Company may also experience increased expenses incurred in
connection with product development, marketing and advertising that are not
subsequently supported by a sufficient level of sales, which would negatively
affect its margins. Furthermore, product development may divert management's
attention from other business concerns, which could cause sales of its existing
products to suffer. There can be no assurance provided that the Company will be
able to successfully develop new products in the future or that newly developed
products will contribute favorably to its operating results.

CONSUMERS MAY REDUCE DISCRETIONARY PURCHASES OF THE COMPANY'S PRODUCTS AS A
RESULT OF A GENERAL ECONOMIC DOWNTURN.

The Company believes that consumer spending on cosmetics products is influenced
by general economic conditions and the availability of discretionary income.
Accordingly, the Company may experience sustained periods of declines in sales
during economic downturns, or in the event of terrorism affecting consumer
purchasing patterns. In addition, a general economic downturn may result in
reduced traffic in its customers' stores which may, in turn, result in reduced
sales to its customers. Any resulting material reduction in the Company's sales
could have a material adverse effect on its business, prospects, results of
operations and financial condition.

IF THE COMPANY IS UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS ITS ABILITY
TO COMPETE COULD BE NEGATIVELY IMPACTED.

The Company attempts to protect its intellectual property rights through a
combination of patent, trademark and copyright laws, as well as licensing
agreements. However, the Company's failure to obtain or maintain adequate
protection of its intellectual property rights for any reason could have a
material adverse effect on its business, results of operations or financial
condition. In addition, there can be no assurance provided that the Company's
intellectual property rights will receive the same degree of protection in
foreign countries as they would in the United States.


                                       19
<PAGE>

The market for the Company's products depends to a significant extent upon the
goodwill associated with its trademarks and trade names. The Company owns the
material trademarks and trade name rights used in connection with the packaging,
marketing and sale of its products. Therefore, trademark and trade name
protection is critical to its business. Although the Company has registered or
applied to register many of its trademarks in the United States and in certain
foreign countries, there can be no assurance provided that all of the Company's
trademark applications will be approved. Third parties may also oppose the
Company's trademark applications, or otherwise challenge its use of the
trademarks. Further, there can be no assurance provided that competitors will
not infringe the Company's trademarks, or that the Company will have adequate
resources to enforce its trademarks.

The Company owns a small number of patents that relate to certain of its
products. The patents the Company owns could be challenged, invalidated or
circumvented by others and may not be of sufficient scope or strength to provide
the Company with any meaningful protection or commercial advantage. Further,
there can be no assurance provided that competitors will not infringe the
Company's patents, or that the Company will have adequate resources to enforce
its patents.

A substantial portion of the intellectual property used in the Company's
products, particularly patented technology, is licensed from third parties.
There can be no assurance provided that these third parties can successfully
maintain their patents and other intellectual property rights. In addition, the
sale of these products relies on the Company's ability to maintain and extend
its licensing agreements with third parties, and there can be no assurance
provided that the Company will be successful in maintaining these licensing
agreements. Any significant impairment of the intellectual property covered by
these licenses, or in the Company's rights to use intellectual property, may
cause its sales to decline.

Other parties may infringe on the Company's intellectual property rights. Any
such infringement of its intellectual property rights would also likely result
in a commitment of the Company's time and resources to protect its rights
through litigation or otherwise. There can be no assurance provided that the
Company will have the resources to enforce its intellectual property rights, or
that it will be successful in doing so.

The Company faces the risk of claims that it has infringed third parties'
intellectual property rights. Any claims of intellectual property infringement,
even those without merit, could be expensive and time consuming to defend; cause
the Company to cease making, licensing or using products that incorporate the
challenged intellectual property; require the Company to redesign, reengineer or
rebrand its products or packaging, if feasible; divert management's attention
and resources; or require the Company, if possible, to enter into royalty or
licensing agreements in order to obtain the right to use a third party's
intellectual property.

REGULATORY MATTERS GOVERNING THE COMPANY'S INDUSTRY COULD HAVE A SIGNIFICANT
NEGATIVE EFFECT ON ITS BUSINESS.

In both the Company's United States and foreign markets, the Company is affected
by extensive laws, governmental regulations, administrative determinations,
court decisions and similar constraints. Such laws, regulations and other
constraints may exist at the federal, state or local levels in the United States
and at all levels of government in foreign jurisdictions.

The formulation, manufacturing, packaging, labeling, registration, advertising,
distribution, importation, sale and storage of the Company's OTC drug and
cosmetic products are subject to extensive regulation by various federal
agencies, including the Food and Drug Administration, or the FDA, the Federal
Trade Commission, or the FTC, the Consumer Product Safety Commission, the
Environmental Protection Agency, or the EPA, and by various agencies of the
states, localities and foreign countries in which the Company's products are
manufactured, distributed and sold. Failure by the Company or its manufacturers
to comply with those laws and regulations could lead to enforcement action and
the imposition of significant penalties or claims, resulting in significant loss
of sales, and could materially adversely affect the Company's business. In
addition, the adoption of new laws or regulations or changes in the
interpretations of existing laws or regulations may result in significant
compliance costs or discontinuation of product sales and may materially
adversely affect the marketing of the Company's products, resulting in
significant loss of sales.


                                       20
<PAGE>

All of the Company's OTC drug products are regulated pursuant to the FDA's OTC
drug monograph system. The monographs, both tentative and final, set out the
active ingredients and labeling indications and claims that are permitted for
certain broad categories of OTC pharmaceutical products such as oral analgesics.
Where the FDA has finalized a particular monograph, it has concluded that a
properly labeled product formulation is generally recognized as safe and
effective and not misbranded. A tentative final monograph indicates that the FDA
has not yet made a final determination about products in a category to establish
safety and effectiveness for a product and its uses. However unless there is a
serious safety or effectiveness issue, the FDA will typically exercise
enforcement discretion and permit companies to continue to sell products until
the final monograph is promulgated. Products that comply with either final or
tentative final monograph standards do not require pre-market approval from the
FDA.

Certain of the Company's ORAJEL(R) products are currently marketed under an FDA
tentative final monograph. The Company faces the risk that the FDA may finalize
a monograph and exclude a labeling claim or a product formulation in a manner
that would negatively affect one or more of such ORAJEL(R) products. If the
Company desires to continue to sell a product that is outside the scope of a
monograph, the Company would relabel or reformulate the product, if possible, to
comply with the final monograph or submit a new drug application, or NDA, to
have its existing formulation approved by the FDA. The submission of an NDA
could require the preparation and submission of clinical tests, which may be
time-consuming and expensive. The Company may not receive FDA approval of any
application in a timely manner or at all. If the Company was not able to conform
its product to the conditions described in a final monograph or submit an NDA
and obtain approval in a timely manner, the Company would be required to
discontinue selling the affected product. Changes in monographs could also
require the Company to revise its labeling or formulation, modify its production
process or provide additional scientific data each of which would involve
additional costs, which may be prohibitive.

If the Company fails to comply with federal, state or foreign laws and
regulations, the Company could be required to:

      o     suspend manufacturing operations;

      o     change product formulations;

      o     suspend the sale of products with non-complying specifications;

      o     initiate product recalls; and/or

      o     change product labeling, packaging or advertising or take other
            corrective action.

Any of these actions could materially adversely affect the Company's financial
results.

In addition, the Company's failure to comply with FDA, FTC, EPA or state laws
and regulations, or with laws and regulations in foreign markets that cover its
product claims and advertising, including direct claims and advertising by the
Company, may result in enforcement actions and imposition of penalties or
otherwise materially adversely affect the distribution and sale of its products.

Furthermore, the Company also is subject to a variety of other laws and
regulations in various foreign markets. The Company's failure to comply, or
assertions that the Company fails to comply, with these laws and regulations
could have a material adverse effect on its business in a particular market or
in general. To the extent the Company decides to commence or expand operations
in additional countries, laws and regulations in those countries, or the cost of
complying with such laws and regulations, may prevent or delay entry into or
expansion of operations in those markets. In addition, the Company's ability to
sustain satisfactory levels of sales in its markets is dependent in significant
part on its ability to introduce additional products into the markets. However,
government laws and regulations in both its domestic and international markets
can delay or prevent the introduction, or require the reformulation or
withdrawal, of some of the Company's products.


                                       21
<PAGE>

THE COMPANY'S SUCCESS DEPENDS ON ITS QUALITY CONTROL AND ON ITS ABILITY TO
DELIVER PRODUCTS IN A TIMELY MANNER.

The Company's success depends upon its quality control and on its ability to
deliver products in a timely manner. If the Company's products are not delivered
according to customers' delivery requirements or are found to be defective or
not to specification, the Company's relationship with consumers could suffer,
its brands could become diluted and the Company could lose its market share,
experience increased return rates or become subject to liability claims, any of
which could have an adverse effect on the Company's business and results of
operations.

PRODUCT LIABILITY CLAIMS COULD HURT THE COMPANY'S BUSINESS.

The Company may be required to pay for losses or injuries purportedly caused by
its products. The Company has been, and may in the future be, subject to various
product liability claims. Claims could be based on allegations that, among other
things, the Company's products contain contaminants, include inadequate
instructions or provide inadequate warnings concerning side effects or
interactions with other substances. In addition, product liability claims may
result in negative publicity that may materially adversely affect the Company's
sales. Also, if one of the Company's products is found to be defective it may be
required to recall it, which may result in substantial expense and adverse
publicity and materially adversely affect the Company's sales. For example, in
June 2005, the Company initiated a voluntary recall of all lots of the ORAJEL(R)
TODDLER YELLOW MANUAL TOOTHBRUSH following receipt of reports of these
toothbrushes breaking during use. Although the Company maintains product
liability insurance coverage, potential product liability claims may exceed the
amount of the Company's insurance coverage or potential product liability claims
may be excluded under the terms of its policy, which could hurt the Company's
financial condition. In addition, the Company may be required to pay higher
premiums and accept higher deductibles in order to secure adequate insurance
coverage in the future.

IN THE EVENT OF A CATASTROPHIC LOSS OF ANY ONE OR MORE KEY MANUFACTURING AND
DISTRIBUTION FACILITIES, THE COMPANY'S BUSINESS WOULD BE MATERIALLY ADVERSELY
AFFECTED.

The Company faces the risk of a catastrophic loss of the use of all or a portion
of any of its manufacturing and distribution centers due to accident, terrorist
attack, labor issues, weather conditions, other natural disasters or otherwise.
Such a catastrophic loss could have a material adverse effect on the Company's
business, including its results of operations and financial condition. Although
the Company maintains insurance covering its manufacturing facilities, including
business interruption insurance, there can be no assurance provided that the
Company's insurance coverage will be adequate to cover all of its losses in the
event of a catastrophic loss of any of these facilities. In addition, such
insurance, including business interruption insurance, could in the future become
more expensive and difficult to maintain and may not be available on
commercially reasonable terms or at all.

THE COMPANY'S BUSINESS MAY BE SUBJECT TO SIGNIFICANT ENVIRONMENTAL
INVESTIGATION, REMEDIATION AND COMPLIANCE COSTS.

The Company is subject to a broad range of frequently changing federal, state
and local environmental, health and safety laws and regulations, including those
governing discharges to air, soil and water, the handling and disposal of, and
exposure to, hazardous substances and the investigation and remediation of
contamination resulting from the release of hazardous substances. The Company
believes that its business operations and facilities are in material compliance
with all applicable environmental, health and safety laws and regulations,
though future expenditures may continue to be necessary in order to maintain
such compliance. However, some of the Company's current and former facilities
are currently involved in environmental investigations and remediations
resulting from past releases of hazardous substances or the presence of other
contaminants. While the Company does not believe that any investigation or
remediation obligations that it has identified will have a material adverse
effect on its operating results or financial condition, there can be no
assurance provided that such obligations will not arise in the future. For a
discussion of existing environmental issues relating to the Company, see
"Business--Environmental."


                                       22
<PAGE>

THE COMPANY IS SUBJECT TO THE RISK ASSOCIATED WITH DOING BUSINESS OUTSIDE OF THE
UNITED STATES.

For the year ended December 31, 2006, approximately 17% of the Company's net
sales were attributable to the Company's business outside of the United States,
which is conducted through certain of the Company's subsidiaries and
distributors, licensees and joint venture relationships. Accordingly, the
Company may encounter risks of doing business outside of the United States
including:

      o     unexpected changes in, or impositions of, laws or regulatory
            requirements;

      o     fluctuations in foreign exchange rates, which could cause
            fluctuations in the price of the Company's products in foreign
            markets or cause fluctuations in the cost of certain raw materials
            purchased by the Company;

      o     delays resulting from difficulty in obtaining export licenses,
            tariffs and other barriers and restrictions, potentially longer
            payment cycles, greater difficulty in accounts receivable collection
            and potentially adverse tax treatment;

      o     potential trade restrictions and exchange controls;

      o     differences in protection of the Company's intellectual property
            rights; and

      o     the burden of complying with a variety of foreign laws and
            regulations.

In addition, the Company will be increasingly subject to general geopolitical
risks in foreign countries where it operates, such as political and economic
instability and changes in diplomatic and trade relationships, which could
affect, among other things, customers' inventory levels and consumer purchasing,
and which could cause the Company's results to fluctuate and its sales to
decline. It has not been the Company's practice to engage in foreign exchange
hedging transactions to manage the risk of fluctuations in foreign exchange
rates because of the limited nature of the Company's past international
operations. The potential translation and transaction loss resulting from a
hypothetical 10% adverse change in the quoted foreign currency exchange rate
amounts to approximately $1.4 million at December 31, 2006.

THE COMPANY DEPENDS ON ITS KEY PERSONNEL AND THE LOSS OF THE SERVICES PROVIDED
BY ANY OF ITS EXECUTIVE OFFICERS OR OTHER KEY EMPLOYEES COULD HARM ITS BUSINESS
AND RESULTS OF OPERATIONS.

The Company's success depends to a significant degree upon the continued
contributions of its senior management, many of whom would be difficult to
replace. Generally, these employees may voluntarily terminate their employment
with the Company at any time. In such event, the Company may not be able to
successfully retain existing personnel or identify, hire and integrate new
personnel. Accordingly, there can be no assurance that the Company's business
would not be materially adversely affected if one or more of these key
individuals left. The Company does not maintain any key-man or similar insurance
policies covering any of its senior management or key personnel.

RISKS RELATING TO THE COMPANY'S RELATIONSHIP WITH KELSO

THE COMPANY IS CONTROLLED BY AFFILIATES OF KELSO

Certain private equity funds affiliated with Kelso own a substantial majority of
the Company's equity. The Kelso affiliates can elect all of the Company's
directors, appoint new management and approve any action requiring the vote of
the Company's outstanding common stock, including amendments of the Company's
certificate of incorporation, mergers or sales of substantially all of the
Company's assets. The directors elected by the Kelso affiliates can make
decisions affecting the Company's capital structure, including decisions to
issue additional capital stock and incur additional debt.


                                       23
<PAGE>

Item 1B - Unresolved Staff Comments

Not applicable.

Item 2 - Properties

The Company's corporate and administrative offices are located in approximately
88,000 square feet of leased space in Uniondale, New York.

The Company's primary research and development facility is located in
approximately 21,000 square feet of leased space in Plainview, New York.

The Company's principal manufacturing facility and distribution center for both
the cosmetic and pharmaceutical segments are located in two Company-owned
buildings containing approximately 430,000 square feet, in Rocky Point, North
Carolina. Both buildings are of insulated metal building construction.

The Company leases approximately 160,000 square feet of space in Leland, North
Carolina to supplement the Rocky Point, North Carolina location.

The Company owns property located in Canajoharie, New York, consisting of a
two-story brick and steel building with approximately 50,000 square feet of
floor space. This building is used by the cosmetic segment. On February 12,
2007, the Company announced plans to transfer the manufacturing activities
currently performed at the Canajoharie Plant to independent contractors in
North Carolina. The transfer will be conducted in phases beginning by mid April
2007, and is expected to be completed by June 1, 2007. The Company anticipates
utilizing the Canajoharie Plant for warehousing and office requirements at this
time.

The Company owns property located in the City of Barrie, Province of Ontario,
Canada, consisting of a building with approximately 68,000 square feet of floor
space. The facility is used for manufacturing and shipping and contains the
administrative offices of its Canadian subsidiaries.

The Company owns two properties located in the City of Little Falls, New York,
consisting of a building with approximately 63,000 square feet of floor space
and a second 100,000 square foot facility. As of December 31, 2006, both
buildings are being used to warehouse a portion of the Company's inventory. In
January 2007, the Company sold these properties to an unrelated third party for
$3.0 million and leased back the properties for a six year term.

The Company also has short-term leases for space in public warehouses used
primarily for the cosmetics segment.

The Company believes that its facilities are adequate to meet operating needs at
reasonable levels of production.

Item 3 - Legal Proceedings

The Company is involved in various claims and legal actions arising in the
ordinary course of business, including environmental matters. The effect of
final resolution of these matters on the Company's results of operations or
liquidity in a particular reporting period is not known. Management is of the
opinion that the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position.

Item 4 - Submission of Matters to a Vote of Security Holders

None.


                                       24
<PAGE>

Part II

Item 5 - Market for Company's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

There is no established public trading market for the Company's common stock. As
of December 31, 2006, there was one holder of record of the Company's 1,000
shares of common stock, $0.01 par value.

The Company has not issued a dividend on its common stock. The Company is
currently restricted from paying dividends under the terms of certain of its
borrowing agreements.

As of December 31, 2006, options to purchase 133,250 shares of common stock were
outstanding pursuant to the DLI Holding Corp. Option Incentive Plan. All of
theses options were granted at an exercise price per share of $35.00.
Approximately 33% of the options generally vest in equal annual installments on
each of the first three anniversaries of the grant date. The remaining options
will generally become exercisable only if Kelso is able to sell its equity
investment in DLI at a price equal to at least two times its initial investment
and achieve at least a 14% internal rate return, subject to certain exceptions.
The options will expire ten years from the grant date. See Note 11 to the Notes
to the Consolidated Financial Statements.

As of December 31, 2006, 294,485 Override Units in DLI Holding LLC ("DLI LLC")
were granted to certain executives. The Override Units have two sub-classes:
Operating Units and Value Units. Subject to forfeiture and participation
provisions (including the applicable Benchmark Amount of $32.718857) as detailed
in the DLI LLC Agreement, the holders of Override Units will have voting rights
with respect to their Override Units and shall have the rights with respect to
profits and losses of DLI LLC and distributions from DLI LLC as set forth in the
DLI LLC Agreement. The Override Units are not convertible into common stock and
are not saleable or generally transferable. In total, thirty three percent of
the Override Units granted were Operating Units which may be forfeited, on a
pro-rata basis, if any executive ceases to be employed by the Company during the
three year period following the grant of such Operating Units. The remaining
sixty seven percent of the Override Units granted were Value Units which
participate in distributions only upon certain change of control or liquidation
events and only if, upon the occurrence of such an event, Kelso receives an
internal rate of return, compounded annually, on its investment in DLI LLC of at
least 14% and the Final Value, as defined in the DLI LLC Agreement, is at least
greater than two times the Initial Price, as defined in the DLI LLC Agreement.
All Value Units will participate in distributions if the Final Value is at least
four times the Initial Price, and the Value Units will participate in
distribution on a ratable basis in the event that the Final Value is greater
than two times but less than four times the Initial Price. Value Units granted
to an executive are subject to forfeiture if the executive ceases to be employed
by the Company prior to a change in control. Value Units not eligible to
participate in distributions are automatically forfeited. See Note 11 to the
Notes to the Consolidated Financial Statements.


The securities issued in the transactions described above were deemed exempt
from registration under the Securities Act in reliance upon Regulation D,
Section 4(2) or Rule 701 of the Securities Act as transactions by an issuer not
involving a public offering, or transactions pursuant to compensatory benefit
plans and contracts relating to compensation. The employees received the
securities described above in exchange for the performance of services by them
for the Company.



                                       25
<PAGE>

Item 6 - Selected Consolidated Financial Data

The selected consolidated financial data as of December 31, 2006 and for the
fiscal year then ended, as of December 31, 2005 and for the periods February 1,
2005 to December 31, 2005 (the "2005 Successor Period") and January 1, 2005 to
January 31, 2005 (the "2005 Predecessor Period") and as of December 31, 2004,
2003 and 2002 and for the fiscal years then ended have been derived from the
audited consolidated financial statements of Del Laboratories, Inc. and its
subsidiaries. The audited consolidated financial statements as of December 31,
2006 and 2005 and for the fiscal year ended December 31, 2006, for the 2005
Successor Period and the 2005 Predecessor Period and for the fiscal year ended
December 31, 2004 are included elsewhere in this Annual Report on Form 10-K.

The Merger was completed on January 27, 2005. Since the actual results between
the period January 28, 2005 and January 31, 2005 were not material to the 2005
Successor Period for the quarter or the annual results, the Company has utilized
January 31, 2005 as the acquisition date. As a result of the Merger, the
Company's capital structure and its basis of accounting differ from those prior
to the Merger. The Company's financial data in respect of all reporting periods
subsequent to January 31, 2005 reflect the Merger under the purchase method of
accounting. Therefore, the Company's financial data for the period before the
Merger (which is referred to as the Predecessor Period) generally will not be
comparable to the Company's financial data for the period after the Merger
(which is referred to as the Successor Period). As a result of the Merger, the
Company's consolidated statements of operations for the Successor Period include
interest expense and amortization expense related to debt issuance costs related
to acquisition indebtedness, original issue discount amortization and management
fees that did not exist prior to the acquisition. Further, as a result of
purchase accounting, the fair values of the Company's inventories, intangible
assets, and fixed assets on the date of the Merger became their new "cost"
basis. Accordingly, the cost of inventories, the amortization of intangible
assets with determinable lives and the depreciation of fixed assets in the
Successor Period are based upon their newly established cost basis.
Additionally, the fair value of the Company's pension assets and liabilities
were adjusted as a result of purchase accounting; therefore, pension expense for
the Successor Period is based upon the newly established fair values. Other
effects of purchase accounting in the Successor Period are not considered
significant.

The financial information as of December 31, 2005 and for the 2005 Successor
Period and as of December 31, 2004, 2003 and 2002 and for the years then ended
has been restated principally as a result of (a) an error in the Company's
income tax provision for the 2005 Successor Period that overstated the net loss
and (b) understatements of certain customer liabilities relating to prior
financial periods. These restatements are more fully described in Note 3 to the
Notes to the Consolidated Financial Statements.

The data shown below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and related notes and other financial
information included elsewhere in this Annual Report on Form 10-K.


                                       26
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>


                                                SUCCESSOR PERIOD                             PREDECESSOR PERIOD
                                            -------------------------     -------------------------------------------------------
                                               YEAR        FEBRUARY 1,    JANUARY 1,
                                              ENDED          2005 -          2005 -               YEAR ENDED DECEMBER 31,
                                           DECEMBER 31,   DECEMBER 31,    JANUARY 31,    ----------------------------------------
                                               2006           2005           2005           2004           2003           2002
                                           ------------   ------------    -----------    ----------     ----------     ----------
                                                          Restated (1)                  Restated (1)   Restated (1)    Restated (1)
                                                                                    ($000)
<S>                                         <C>            <C>            <C>            <C>            <C>            <C>
Statement of Operations Data:
Net sales                               $ 426,896         $ 379,358     $  18,206         $ 395,174     $ 383,629     $ 343,502
Cost of goods sold (2)                    242,378           211,014         9,718           198,425       185,772       171,346
                                        ---------         ---------     ---------         ---------     ---------     ---------
Gross profit                              184,518           168,344         8,488           196,749       197,857       172,156
Selling and administrative expenses       177,258           158,562        11,475           167,078       161,168       145,721
Severance expenses                            632             3,250          --                  20         2,033            45
Merger expenses                              --               4,711        18,974             1,415          --            --
                                        ---------         ---------     ---------         ---------     ---------     ---------

Income (loss) from operations               6,628             1,821       (21,961)           28,236        34,656        26,390
Other income (expense), net
   Interest expense, net                  (37,132)          (27,661)         (264)           (3,584)       (4,185)       (4,663)
   Loss on early extinguishment of debt      --              (6,449)         --                --            --            --
   Gain (loss) on sale of property             41               555          --                (146)         --           2,428
   Other, net                                 313               531          (232)              331           579          (144)
                                        ---------         ---------     ---------         ---------     ---------     ---------
Other expense, net                        (36,778)          (33,024)         (496)           (3,399)       (3,606)       (2,379)
                                        ---------         ---------     ---------         ---------     ---------     ---------

Earnings (loss) before income taxes       (30,150)          (31,203)      (22,457)           24,837        31,050        24,011
Income tax expense (benefit)              (11,018)          (15,359)      (24,434)           10,159        11,750         8,645
                                        ---------         ---------     ---------         ---------     ---------     ---------
Net income (loss)                       $ (19,132)        $ (15,844)    $   1,977         $  14,678     $  19,300     $  15,366
                                        =========         =========     =========         =========     =========     =========

Other Financial Data:
Depreciation and amortization           $  26,093         $  20,217     $   1,512         $  17,472     $  14,534     $  11,052
Capital expenditures                        7,447             6,327           797             9,525        18,200         9,078
Cash interest expense                      34,236            17,376           140             3,674         3,970         4,467

Statement of Cash Data:
Net cash provided by (used in):
  Operating activities                  $  17,299         $ (28,446)    $     190         $   7,209     $   8,740     $  13,798
  Investing activities                     (6,740)         (382,985)         (797)           (4,714)      (18,025)       (6,138)
  Financing activities                    (13,153)          411,744          (868)             (812)       11,091        (9,833)


                                                   Successor Period                     Predecessor Period
                                              ---------------------------  ---------------------------------------------
                                                                           As of December 31,
                                                  2006          2005            2004           2003             2002
                                               ----------    --------         --------       --------        ---------
                                                           Restated (1)     Restated (1)    Restated (1)    Restated (1)
                                                                         ($000)
Balance Sheet Data
Cash and cash equivalents                       $     42      $  2,602        $  3,873        $  2,113        $    501
Working capital (3)                              105,255       121,372         112,657          92,271          73,879
Property, plant and equipment, net                44,647        48,993          46,769          49,274          37,434
Total assets                                     689,774       712,167         274,568         252,467         202,012
Total debt (including current portion of
   long-term debt) (4)                           370,404       382,426          71,734          72,133          58,984
Shareholders' equity                             111,706       129,972         105,926          90,612          69,283

(1) As disclosed under the "Explanatory Note - Restatements" immediately
preceding Part I, Item I of this Annual Report on Form 10-K, the Company has
restated certain financial data as of December 31, 2005 and for the 2005
Successor Period and as of December 31, 2004, 2003 and 2002 and for the years
then ended. Please refer to Note 3 in the Notes to the Consolidated Financial
Statements for additional information on the restatements. (2) Included in cost
of goods sold for the year ended December 31, 2006 is an incremental charge of
$25,054 relating to the provision for excess and slow moving inventory. Included
in cost of goods sold for the period February 1, 2005 to December 31, 2005 is
$8,083 related to the step-up of inventory recorded under purchase accounting
and amortized during the year. (3) Working capital is defined as current assets
(excluding cash and cash equivalents) less current liabilities (excluding
current portion of long-term debt and short-term debt). Working capital is as
follows:
</TABLE>





                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                 SUCCESSOR PERIOD                 PREDECESSOR PERIOD
                                             ------------------------    --------------------------------------
                                                                    AS OF DECEMBER 31,
                                                2006          2005          2004          2003          2002
                                             ----------    ----------    ----------    ----------    ----------
                                                         Restated (1)   Restated (1)  Restated (1)  Restated (1)
                                                                           ($000)
<S>                                          <C>           <C>           <C>           <C>           <C>
Current Assets:
Accounts receivable, net                     $ 61,563        $ 51,692     $ 54,447     $ 51,984        $ 30,922
Inventories                                    95,062         122,297      111,235       92,518          79,913
Deferred income taxes                          29,995          18,327       18,684       18,514          17,486
Prepaid expenses and other current assets       6,409           5,309        3,685        2,671           4,300
                                             --------        --------     --------     --------        --------

Total current assets                         $193,029        $197,625     $188,051     $165,687        $132,621
                                             --------        --------     --------     --------        --------

Current Liabilities:
Accounts payable                             $ 40,127        $ 35,138     $ 50,530     $ 43,872        $ 32,397
Accrued liabilities                            47,647          41,115       24,864       29,237          26,345
Income taxes payable                             --              --           --            307            --
                                             --------        --------     --------     --------        --------

Total current liabilities                    $ 87,774        $ 76,253     $ 75,394     $ 73,416        $ 58,742
                                             --------        --------     --------     --------        --------

Working Capital                              $105,255        $121,372     $112,657     $ 92,271        $ 73,879
                                             ========        ========     ========     ========        ========


(4) Total debt is calculated as follows:

                                                   Successor Period                          Predecessor Period
                                            -------------------------       ----------------------------------------
                                                                        As of December 31,
                                              2006            2005            2004            2003            2002
                                            --------        --------        --------        --------        --------
                                                                             ($000)
Current portion of long-term debt           $    165        $    185        $    501        $  8,760        $  8,396
Senior secured notes                         185,000         185,000            --              --              --
8% senior subordinated notes, net of
   unamortized discount                      174,103         173,966            --              --              --
Other long-term debt                          11,136          23,275          71,233          63,373          50,588
                                            --------        --------        --------        --------        --------

Total debt                                  $370,404        $382,426        $ 71,734        $ 72,133        $ 58,984
                                            ========        ========        ========        ========        ========
</TABLE>




                                       28
<PAGE>

Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations

OVERVIEW

The Company is a fully integrated manufacturing and marketing company operating
in two major segments of the packaged consumer products business: cosmetics and
OTC pharmaceuticals. Each of the Company's marketing divisions is responsible
for branded lines fitting into one of these two general categories and develops
its own plans and goals consistent with its operating environment and the
Company's corporate objectives.

The Company owns a portfolio of highly recognized branded products, which are
easy to use, competitively priced and trusted by consumers and retailers. As
reported by ACNielsen or Information Resources, Inc. ("IRI"), many of the
Company's brands have leading market positions in their product categories. In
the Company's cosmetics segment, the SALLY HANSEN(R) brand is the number one
brand in the mass market nail care category with market leadership positions in
nail enamel, nail treatment and bleaches and depilatories. The LACROSS(R) brand
is a leader in nail and beauty implements, providing a line of high quality
beauty implements including nail clippers, files, scissors, tweezers and eyelash
curlers. N.Y.C. NEW YORK COLOR(R) is a highly recognizable brand of value
cosmetics offering a complete collection of high quality products at opening
price points. In the Company's OTC pharmaceutical segment, ORAJEL(R) is the
number one oral analgesic in the United States (based on market share), and the
number one pharmacist-recommended brand in the teething segment. The ORAJEL(R)
family of products has been developed with formulations specifically targeted at
distinct oral pain and infant care indications. The Company's DERMAREST(R) brand
is the most complete line of non-prescription products for relief of psoriasis
and eczema and is the market share leader in the psoriasis/eczema treatment
category.

The Company believes that it has strong customer relationships with a
diversified group of prominent retailers and wholesalers across multiple
distribution channels including mass merchandisers, drug chains, drug
wholesalers and food retailers and wholesalers. The Company has a strong track
record of developing innovative new products and successful brand extensions.
The Company's in-house research and development departments focus on product
development, clinical and regulatory affairs and quality control.

RESTATEMENT

The information below for periods prior to 2006 has been adjusted to reflect the
restatement of the Company's financial results which is more fully described in
the "Explanatory Note-Restatements" immediately preceding Part I of this Annual
Report on Form 10-K and in Note 3, "Restatements" in the Notes to the
Consolidated Financial Statements.

RECENT DEVELOPMENTS

Retirement Plan Amendments

On January 26, 2007, the Company announced that it is amending its Employees'
Pension Plan (the "Employees' Pension Plan"), a defined benefit plan and has
redesigned its 401(k) savings plan, effective April 1, 2007. The Company
believes these changes will help address the volatility of the defined benefit
plan expenses by providing the Company with the more predictable cost structure
of a defined contribution plan and will also provide employees with a retirement
program more in line with current trends. The changes include:

(a) The amendment of the Employees' Pension Plan effective April 1, 2007 (the
"Effective Date") which closes the Employees' Pension Plan to new employees and
discontinues the accrual of future benefits to current employees after the
Effective Date. All retirement benefits that employees will have earned as of
the Effective Date will be fully preserved. Employees' ongoing service with the
Company will continue to be credited for vesting purposes.

(b) The redesigning of the Company's 401(k) savings plan, effective on April 2,
2007, including the following material changes: (i) automatic enrollment for all
eligible employees; (ii) Company matching contributions of 100% of an employee's
contributions up to 3% of eligible compensation, and 50% of the next 2%
contributed; and (iii) an additional automatic Company contribution of 3% of
eligible compensation for employees who, as of the Effective Date, were at least
50 years of age and had 10 or more years of vesting service.


                                       29
<PAGE>

The amendment to the Employees' Pension Plan will result in a curtailment of the
plan. The Company anticipates recording a one-time pre-tax benefit of
approximately $5.0 million to $6.0 million in the first quarter of 2007.

Closing of the Manufacturing Activities at the Canajoharie Facility

On February 12, 2007, the Company announced plans to transfer the manufacturing
activities currently performed at the Canajoharie Plant to independent
contractors in North Carolina. The transfer, which will result in the
termination of approximately 80 employees, will be conducted in phases beginning
by mid April 2007, and is expected to be completed by June 1, 2007. As a result,
the Company expects to record a 2007 first quarter pre-tax charge of
approximately $0.6 million to $0.8 million, consisting primarily of severance
and employee related charges, with cash payouts occurring throughout the balance
of 2007. The Company anticipates utilizing the Canajoharie Plant for warehousing
and office requirements at this time.

Operational Initiatives

In addition to the Company's focus on realizing cost savings, the Company is
committed to improving the efficiency of its operations. In mid-2005, the
Company engaged Synergetics Installations Worldwide, Inc., or Synergetics, a
leading management consulting firm specializing in providing supply chain
management advice to manufacturing companies, to assist the Company in realizing
previously identified cost savings as well as identifying and implementing
additional cost saving opportunities. The Company has substantially completed
the implementation of sales and operational process initiatives designed to
improve sales forecasting, demand planning and production scheduling, the
efficiency level of the manufacturing facilities, and the process of
identifying, evaluating and selling promotional products. The Company
anticipates incremental annualized cost savings in 2007 of approximately $6.0
million. The Company has incurred one-time consulting fees and implementation
costs associated with its 2005 and 2006 cost savings activities of approximately
$1.2 million and $3.7 million, respectively.

In the fourth quarter of 2006, the Company recorded an incremental $25.1 million
charge to cost of goods sold to increase its reserves for excess and slow moving
inventory. The $25.1 million change in estimate is a result of the execution of
various initiatives designed to enhance the value of the Company's brands;
specifically SALLY HANSEN(R) and ORAJEL(R). These initiatives are consistent
with the Company's revised strategic plan which was approved by senior
management and certain members of the Board of Directors in December 2006. The
Company undertook a process to evaluate its product mix, required inventory
levels to support the service level demands of its customers and the
appropriateness of its inventory reserves, in relation to the revised strategic
plan. This evaluation addressed the usage of existing inventory either within
current products, or through the production and sale of promotional inventory or
special products. A significant portion of the additional reserve resulted from
the Company (i) exiting non-core product lines, (ii) refining its sales
forecasting and demand planning activities, (iii) increasing the volume of
finished goods produced at third parties which hindered the usefulness of
existing inventory components, (iv) incurring increasing losses on the
disposition of certain slow moving products and (v) experiencing changes in
market conditions for close-out inventory product offerings.

Provisions and write-downs for excess and slow moving inventories for the twelve
months ended December 31, 2006 have increased to $35.7 million from $13.3
million and $6.5 million for the 2005 Successor Period and 2004, respectively.

Inventory reserves are estimates, which could vary significantly, either
favorably or unfavorably, from actual requirements if future economic
conditions, the timing of new product introductions, customer inventory levels,
retailer consolidations, fashion - oriented color cosmetic trends or competitive
conditions differ from expectations.


                                       30
<PAGE>

THE MERGER TRANSACTIONS

The Merger Transactions

In January 2005, the following transactions were consummated in connection with
the Merger:

o     DLI Acquisition Corp., an indirect, wholly-owned subsidiary of DLI Holding
      Corp. and a direct, wholly-owned subsidiary of DLI Holding II Corp.,
      merged with and into Del Laboratories, Inc., with Del Laboratories, Inc.
      surviving, which the Company refers to as the Merger. In connection with
      the Merger, affiliates of Kelso, a third-party investor and others
      contributed $138.2 million in cash in exchange for interests in DLI
      LLC, which in turn holds all of the outstanding shares of common
      stock of DLI Holding Corp. In addition, certain members of the Company's
      senior management prior to and following the Merger who the Company refers
      to as the continuing investors, exchanged stock options of Del
      Laboratories, Inc. with an aggregate spread value of $4.5 million into
      stock options of DLI Holding Corp. with an equivalent spread value.

o     DLI Acquisition Corp. issued the senior subordinated notes due 2012, (the
      "Subordinated Notes"), and entered into the prior senior credit
      facilities, comprised of a $50.0 million revolving credit facility, or the
      prior revolver, and a $200.0 million term loan facility, or the prior term
      loan facility (together the "Senior Debt"). Concurrently therewith, in
      connection with the Merger, the rights and obligations of DLI Acquisition
      Corp. under the Subordinated Notes, the indenture, the prior senior credit
      facilities and related agreements were assumed by Del Laboratories, Inc.

o     The net proceeds from the purchase of interests in DLI LLC by
      affiliates of Kelso, a third-party investor and the continuing investors,
      the offering of the Subordinated Notes and the borrowings under the prior
      senior credit facilities were used, among other things, to fund the cash
      consideration payable in connection with the Merger to the old
      stockholders and option holders of Del Laboratories, Inc. and repay
      certain of the Company's indebtedness existing immediately prior to the
      Merger, including payment of accrued interest and related prepayment
      premiums thereunder.

The Company refers to the merger and the related transactions described above as
the Merger.

Accounting for the Merger

Pursuant to the Merger, all of the Company's outstanding common stock was
acquired for $35 a share. The aggregate purchase price paid for all of the
Company's outstanding common stock including options exchanged and transaction
costs was approximately $416.7 million, comprised of $377.2 million for the
acquisition of the outstanding shares and options exercised, $6.9 million
representing the fair value of the options exchanged, $18.5 million in severance
payments, $1.0 million of prepayment penalties and $13.1 million of transaction
related costs. The Merger has been accounted for in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standard ("SFAS")
No. 141, "Business Combinations."

The Merger was completed on January 27, 2005. Since the actual results between
the period January 28, 2005 to January 31, 2005 were not material to the
Successor Period for the quarter or the annual results, the Company has utilized
January 31, 2005 as the acquisition date. As a result of the Merger, the
Company's capital structure and its basis of accounting differ from those prior
to the Merger. The Company's financial data in respect of all reporting periods
subsequent to January 31, 2005 reflect the Merger under the purchase method of
accounting. Therefore, the Company's financial data for the period before the
Merger (which is referred to as the Predecessor Period) generally will not be
comparable to the financial data for the period after the Merger (which is
referred to as the Successor Period). As a result of the Merger, the
consolidated statements of operations for the Successor Period include interest
expense and amortization expense related to debt issuance costs related to
acquisition indebtedness, original issue discount amortization and management
fees that did not exist prior to the acquisition. Further, as a result of
purchase accounting, the fair values of inventories, intangible assets, and
fixed assets on the date of the Merger became their new "cost" basis.
Accordingly, the cost of inventories, the amortization of intangible assets with
determinable lives and the depreciation of fixed assets in the Successor Period
are based upon their newly established cost basis. Additionally, the fair value
of pension assets and liabilities were adjusted as a result of purchase
accounting; therefore, pension expense for the Successor Period is based upon
the newly established fair values. Other effects of purchase accounting in the
Successor Period are not considered significant.


                                       31
<PAGE>

Refinancing Transactions

On October 28, 2005, the Company refinanced its Senior Debt with the issuance of
$185.0 million of senior secured floating rate notes (the "Notes") and $27.5
million of borrowings under a new two-year $75.0 million revolving credit
facility, or the Interim Revolver.

On December 29, 2005 (as subsequently amended), the Company entered into a
five-year $85.0 million asset-based revolving credit facility, or the ABL Credit
Facility. Upon the closing of the ABL Credit Facility, all borrowings under the
Interim Revolver were repaid and the Interim Revolver was terminated.


                                       32
<PAGE>

SUMMARY HISTORICAL PERCENTAGES

The following table sets forth certain financial data as a percentage of net
sales for the year ended December 31, 2006, the Successor Period February 1,
2005 to December 31, 2005, the Predecessor Period January 1, 2005 to January 31,
2005 and the year ended December 31, 2004:

<TABLE>
<CAPTION>
                                                    SUCCESSOR PERIOD             PREDECESSOR PERIOD
                                                -------------------------     -------------------------
                                                   YEAR       FEBRUARY 1,     JANUARY 1,        YEAR
                                                  ENDED          2005 -         2005 -         ENDED
                                               DECEMBER 31,   DECEMBER 31,    JANUARY 31,   DECEMBER 31,
                                                   2006           2005           2005           2004
                                               ------------   ------------   ------------   ------------
                                                              Restated (1)                  Restated (1)
<S>                                                  <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:

Net sales ...................................        100.0%         100.0%         100.0%         100.0%

Cost of goods sold ..........................         56.8%          55.6%          53.4%          50.2%
                                               ------------   ------------   ------------   ------------

Gross profit ................................         43.2%          44.4%          46.6%          49.8%

Selling and administrative expenses .........         41.5%          41.8%          63.0%          42.3%
Severance expenses ..........................          0.1%           0.9%           0.0%           0.0%
Merger expenses .............................          0.0%           1.2%         104.2%           0.4%
                                               ------------   ------------   ------------   ------------

    Operating income (loss) .................          1.6%           0.5%        -120.6%           7.1%

Other income (expense), net
   Gain (loss) on sale of property ..........          0.0%           0.2%           0.0%           0.0%
   Loss on early extinguishment of debt .....          0.0%          -1.7%           0.0%           0.0%
   Interest expense, net ....................         -8.7%          -7.3%          -1.4%          -0.9%
   Other income (expense), net ..............          0.0%           0.1%          -1.3%           0.1%
                                               ------------   ------------   ------------   ------------

Earnings (loss) before income taxes .........         -7.1%          -8.2%        -123.3%           6.3%
                                               ============   ============   ============   ============
</TABLE>

(1) As disclosed under the "Explanatory Note - Restatements" immediately
preceding Part I, Item I of this Annual Report on Form 10-K, the Company has
restated certain financial data for the 2005 Successor Period and for the year
ended December 31, 2004. Please refer to Note 3 in the Notes to the Consolidated
Financial Statements for additional information on the restatements.

(2) Included in cost of goods sold for the year ended December 31, 2006 is an
incremental charge of $25,054 relating to the provision for excess and slow
moving inventory. Included in cost of goods sold for the period February 1, 2005
to December 31, 2005 is $8,083 related to the step-up of inventory recorded
under purchase accounting and amortized during the year.


                                       33
<PAGE>

RESULTS OF OPERATIONS

As discussed above in "Accounting for the Merger", the Company's financial data
in respect of all reporting periods subsequent to January 31, 2005 reflect the
purchase method of accounting. Financial data for the Predecessor Period
generally will not be comparable to financial data for the Successor Period.

Twelve Months ended December 31, 2006 compared to Twelve Months ended December
31, 2005


The following table sets forth the Company's results of operations for the year
ended December 31, 2006, the Successor Period February 1, 2005 to December 31,
2005 and the Predecessor Period January 1, 2005 to January 31, 2005. The table
also sets forth the Combined Successor Period and Predecessor Period net sales
for the twelve months ended December 31, 2005. See Note 3 to the Notes to the
Consolidated Financial Statements for additional information related to the
restatements.

<TABLE>
<CAPTION>

                                              Twelve Months
                                                  Ended
                                              Dec 31, 2006            Twelve Months Ended Dec 31, 2005
                                              ------------            --------------------------------
                                                 ($000)                            ($000)

                                               Jan 1, 2006 -     Feb 1, 2005 -  Jan 1, 2005 -
                                               Dec 31, 2006      Dec 31, 2005    Jan 31, 2005
                                               ------------      ------------    ------------
                                                                   Restated
                                                         SUCCESSOR                PREDECESSOR
                                                           PERIOD                    PERIOD            COMBINED
                                                           ------                    ------            --------

Net Sales
<S>                                             <C>               <C>               <C>               <C>
      Cosmetic segment                          $ 338,652         $ 300,284         $  14,756         $ 315,040
      Pharmaceutical segment                       88,244            79,074             3,450            82,524
                                                ---------         ---------         ---------         ---------
Total net sales                                   426,896           379,358            18,206           397,564

Cost of goods sold                                242,378           211,014             9,718
                                                ---------         ---------         ---------

Gross profit                                      184,518           168,344             8,488

Selling and administrative expenses               177,258           158,562            11,475
Severance expenses                                    632             3,250              --
Merger expenses                                      --               4,711            18,974
                                                ---------         ---------         ---------

Operating income (loss)                             6,628             1,821           (21,961)

Other income (expense):
    Gain on sale of land and building                  41               555              --
    Loss on early extinguishment of debt             --              (6,449)             --
    Interest expense, net                         (37,132)          (27,661)             (264)
    Other income (expense), net                       313               531              (232)
                                                ---------         ---------         ---------

Loss before income taxes                          (30,150)          (31,203)          (22,457)
Benefit from income taxes                         (11,018)          (15,359)          (24,434)
                                                ---------         ---------         ---------
Net earnings (loss)                             $ (19,132)        $ (15,844)        $   1,977
                                                =========         =========         =========
</TABLE>


The Company's net sales for the twelve months ended December 31, 2006 were
$426.9 million, an increase of $29.3 million, or 7.4% compared to net sales of
$397.6 million for the twelve months ended December 31, 2005.




                                       34
<PAGE>

The Cosmetic segment of the business generated net sales for the twelve months
ended December 31, 2006 of $338.7 million, an increase of $23.6 million, or 7.5%
compared to net sales of $315.1 million for the twelve months ended December 31,
2005. Net sales increased primarily due to $5.8 million of lower returns and
allowances as compared to 2005, higher shipments of the SALLY HANSEN(R) nail
enamel, lip, JUST FEET, and the bleaches and depilatories product lines, as well
as higher international net sales (a 22.2% increase over 2005), partially offset
by lower shipments in LACROSS(R), N.Y.C. NEW YORK COLOR(R) and non-core product
lines. As reported by ACNielsen, the SALLY HANSEN(R) brand remains the number
one brand in the mass market nail care category with a 24.9% share of market for
the year. In nail enamel, the SALLY HANSEN(R) brand increased its number one
market share position to a 37.5% share of market. SALLY HANSEN(R) has the number
one market share position in nail treatment with a 48.7% share of market for the
year, down from 52.4% in the prior year. The decrease is primarily the result of
significant growth in the anti-fungal category in which the Company does not
aggressively participate. The Company holds the number one market share position
in bleaches and depilatories with a 34.3% share of market for the year, a 2.7%
increase in market share from the prior year. LACROSS(R) has the number two
market share position in nail and beautY implements with a 16.1% share of the
market for the year, a decrease of 4.8% in market share resulting from the loss
of a major mass market customer due to aggressive competitor pricing.

The over-the-counter Pharmaceutical segment of the business generated net sales
for the twelve months ended December 31, 2006 of $88.2 million, an increase of
$5.7 million, or 6.9% compared to net sales of $82.5 million for the twelve
months ended December 31, 2005. Net sales increased primarily due to higher
shipments in the ORAJEL(R) line of oral analgesics. ORAJEL(R), the core brand of
the Pharmaceutical segment, increased its leadership position in the oral
analgesics category with a 32.6% share of market for the year, as reported by
IRI.

Cost of goods sold for the twelve months ended December 31, 2006 was $242.4
million, or 56.8% of net sales. Cost of goods sold for the twelve months ended
December 31, 2006 includes a provision and write-down for excess and slow moving
inventories of $35.7 million, an increase of $22.4 million over the comparable
prior year period. See "Recent Developments-Operational Initiatives." In
addition, in accordance with SFAS No. 151, the Company recorded a charge to cost
of goods sold of $5.6 million, or 1.3% of net sales of which $4.4 million
related to unabsorbed overhead costs in connection with the closure of the
Little Falls manufacturing facility and $1.2 million related to manufacturing
inefficiencies at the Company's Rocky Point facility due principally to
transition and training costs. Cost of goods sold for the 2005 Successor Period
was $211.0 million, or 55.6% of net sales. Cost of goods sold for the period
includes approximately $8.1 million, or 2.1% of net sales related to the
amortization of the inventory step-up to fair value as a result of purchase
accounting and a charge of $13.3 million, or 3.5% of net sales for the provision
and write-down for excess and slow moving inventories. Excluding the impact of
these charges in both periods, the improvement in cost of goods sold reflects
cost savings achieved as a result of continued operational improvements and a
continued trend in the Company's business towards higher margin products,
primarily in the Cosmetic segment.

Cost of goods sold for the Predecessor Period January 1, 2005 to January 31,
2005 was $9.7 million, or 53.4% of net sales.

Selling and administrative expenses for the twelve months ended December 31,
2006 was $177.3 million, or 41.5% of net sales. Additional costs included in
selling and administrative expenses for the twelve months ended December 31,
2006 over the prior year combined period were $3.3 million related to the
Company's Management Incentive Plan, $2.1 million of incremental consulting fees
and expenses associated with Synergetics and $1.2 million of increased display
fixtures amortization.

Selling and administrative expenses for the 2005 Successor Period was $158.6
million, or 41.8% of net sales. Fuel surcharges and higher shipping costs due to
an increase in expedited shipments negatively impacted selling and
administrative charges by approximately $1.1 million.

Selling and administrative expenses for the Predecessor Period January 1, 2005
to January 31, 2005 was $11.5 million, or 63.0% of net sales. Whereas selling
and administrative expenses remain fairly constant on a monthly basis, net sales
for the monthly period January 1, 2005 to January 31, 2005 represent
approximately 5% of sales for the combined period.


                                       35
<PAGE>

Merger expenses for the 2005 Successor Period of $4.7 million were primarily
related to change of control payments and legal and advisory fees and expenses
incurred in connection with the Merger.

Merger expenses for the Predecessor Period January 1, 2005 to January 31, 2005
of $19.0 million, were primarily related to the payment of $18.8 million issued
upon closing of the transaction on January 27, 2005 in connection with the
separation agreement with the former Chairman, and approximately $0.2 million of
legal and advisory fees and expenses incurred in connection with the Merger.

On January 13, 2006, the Company announced that it planned to cease the
manufacturing activities at its facility in Little Falls, New York. The Company
transferred a majority of these manufacturing operations to its Rocky Point,
North Carolina manufacturing facility and outsourced the remainder. The Company
has converted the Little Falls facility to a warehouse to store a portion of its
inventory and is in the process of closing several of its short-term leased
warehouse facilities in upstate New York. Pursuant to the Company's formal
severance policy, a charge of $1.2 million for severance costs and related
benefits for approximately 289 employees was recorded in December 2005.
Additional severance benefits for future services by employees being terminated
are being recognized as a charge in the consolidated financial statements as
such severance benefits are earned. During the year ended 2006, a charge of $0.2
million was recorded for such earned benefits and for an adjustment to the
initial accrual. Remaining cash payments relating to severance costs and related
benefits of approximately $0.2 million are expected to be made through the end
of the second quarter of 2007. As a result of the closure of the Little Falls
facility, there was a partial curtailment of the Employees' Pension Plan,
resulting in the recording of a benefit of $1.0 million during the third quarter
of 2006. Additional severance costs of $0.4 million were recorded during the
year ended 2006 as a result of workforce reductions.

The Company recorded severance costs totaling $3.3 million during the 2005
Successor Period relating to the closure of the Little Falls manufacturing
facility and other workforce reduction programs.

Net interest expense for the twelve months ended December 31, 2006 of $37.1
million was primarily attributable to interest incurred on the Notes, the
Subordinated Notes and the ABL Credit Facility.

Net interest expense for the 2005 Successor Period of $27.7 million was
primarily attributable to interest incurred on the $200.0 million prior term
loan facility and the Subordinated Notes. As a result of the refinancing on
October 28, 2005, the Company incurred a non-cash charge, reflected as a loss on
early extinguishment of debt, of $6.5 million due to the write-off of deferred
finance charges related to the prior senior credit agreement.

Net interest expense for the Predecessor Period January 1, 2005 to January 31,
2005 of $0.3 million, was attributable to debt existing prior to the Merger.

The Company recorded an income tax benefit of $11.0 million for 2006 based upon
the Company's annual effective tax rate of 36.5% for the year ended December 31,
2006.

The Company recorded an income tax benefit of $15.4 million for the 2005
Successor Period. The income tax benefit was based on the Company's effective
tax rate of 35.3% for the 2005 Successor Period, as well as the recording of a
benefit of $4.3 million relating to a reduction of the net deferred tax
liabilities due to a change in the New York State tax laws. See Note 3 to the
Notes to the Consolidated Financial Statements.

Income tax benefit for the Predecessor Period January 1, 2005 to January 31,
2005 of $24.4 million was comprised of an anticipated income tax refund
(received on October 27, 2005) of approximately $11.3 million attributable to
the utilization of a net operating loss carryback, the recording of deferred tax
assets of approximately $13.4 million attributable to net operating loss
carryforwards, and the recording of approximately $0.3 million of deferred tax
expense related to temporary differences.

Net earnings for the Predecessor Period January 1, 2005 to January 31, 2005 of
$2.0 million were attributable to the recording of the income tax benefit of
$24.4 million discussed above, which offset the $22.4 million loss before income
taxes.

The Company believes that inflation has had no significant impact on earnings
from operations during the last three years.

                                       36
<PAGE>

Twelve Months ended December 31, 2005 compared to Twelve Months ended December
31, 2004

The following table sets forth the results of operations for the Successor
Period February 1, 2005 to December 31, 2005, the Predecessor Period January 1,
2005 to January 31, 2005 and the Predecessor Period January 1, 2004 to December
31, 2004. The table also sets forth the Combined Successor Period and
Predecessor Period net sales for the twelve months ended December 31, 2005. See
Note 3 to the Notes to the Consolidated Financial Statements for additional
information related to the restatements.

<TABLE>
<CAPTION>

                                                                                                   TWELVE MONTHS
                                                              TWELVE MONTHS ENDED                       ENDED
                                                                 DEC 31, 2005                       DEC 31, 2004
                                                                 ------------                       ------------
                                                                    ($000)                              ($000)

                                                Feb 1, 2005       Jan 1, 2005                        Jan 1, 2004
                                               Dec 31, 2005      Jan 31, 2005                        Dec 31, 2004
                                               ------------      ------------                        ------------
                                                 Restated                                              Restated
                                                 SUCCESSOR        PREDECESSOR                         PREDECESSOR
                                                  PERIOD            PERIOD           COMBINED           PERIOD
                                                  ------            ------           --------           ------

Net Sales
<S>                                              <C>               <C>               <C>               <C>
      Cosmetic segment                           $ 300,284         $  14,756         $ 315,040         $ 314,094
      Pharmaceutical segment                        79,074             3,450            82,524            81,080
                                                 ---------         ---------         ---------         ---------
Total net sales                                    379,358            18,206           397,564           395,174

Cost of goods sold                                 211,014             9,718                             198,425
                                                 ---------         ---------                           ---------

Gross profit                                       168,344             8,488                             196,749

Selling and administrative expenses                158,562            11,475                             167,078
Severance expenses                                   3,250              --                                    20
Merger expenses                                      4,711            18,974                               1,415
                                                 ---------         ---------                           ---------

Operating income (loss)                              1,821           (21,961)                             28,236

Other income (expense):
    Gain (loss) on sale of property                    555              --                                  (146)
    Loss on early extinguishment of debt            (6,449)             --                                  --
    Interest expense, net                          (27,661)             (264)                             (3,584)
    Other income (expense), net                        531              (232)                                331
                                                 ---------         ---------                           ---------

Earnings (loss) before income taxes                (31,203)          (22,457)                             24,837
Provision for (benefit from) income taxes          (15,359)          (24,434)                             10,159
                                                 ---------         ---------                           ---------
Net earnings (loss)                              $ (15,844)        $   1,977                           $  14,678
                                                 =========         =========                           =========
</TABLE>

The Company's net sales for the twelve months ended December 31, 2005 were
$397.6 million, an increase of $2.4 million, or 0.6% compared to net sales of
$395.2 million for the twelve months ended December 31, 2004.

The Cosmetic segment of the business generated net sales for the twelve months
ended December 31, 2005 of $315.1 million, an increase of $1.0 million, or 0.3%
compared to net sales of $314.1 million for the twelve months ended December 31,
2004. The increase in net sales was principally due to higher shipments, offset
by an increase in returns and sales incentives of $5.1 million. As reported by
ACNielsen, the SALLY HANSEN(R) brand remains the number one brand in the mass
market nail care category with a 26.1% share of market for the year. SALLY
HANSEN(R) also maintained its number one market share position in nail treatment
with a 52.4% market share for the year. Additionally, in bleaches and
depilatories, the SALLY HANSEN(R) brand increased its number one market share
position to 31.6% for the year. However, market share in LACROSS(R) decreased
from 21.8% in 2004 to 20.9% in 2005 due to aggressive pricing from the Company's
competitors.


                                       37
<PAGE>

The over-the-counter Pharmaceutical segment of the business generated net sales
for the twelve months ended December 31, 2005 of $82.5 million, an increase of
$1.4 million, or 1.8% compared to net sales of $81.1 million for the twelve
months ended December 31, 2004. ORAJEL(R), the core brand of the Pharmaceutical
segment increased its leadership position in the oral analgesics category with a
29.5% share of market for the year, as reported by IRI.

Cost of goods sold for the 2005 Successor Period was $211.0 million, or 55.6% of
net sales. Cost of goods sold for the 2005 Successor Period includes
approximately $8.1 million, or 2.1% of net sales related to the amortization of
the inventory step-up to fair value as a result of purchase accounting and a
charge of $13.3 million or 3.5% of net sales for the provision to the inventory
reserve for scrap and obsolescence. During 2005, the Company incurred
approximately $3.9 million (1.0% of net sales) of incremental inbound freight
charges principally associated with fuel surcharges, rate increases and
inefficiencies associated with outsourced manufacturing. Cost of goods sold as a
percentage of net sales was also negatively impacted by higher returns and sales
incentives, as discussed above.

Cost of goods sold for the Predecessor Period January 1, 2004 to December 31,
2004 was $198.4 million, or 50.2% of net sales. Cost of goods includes a charge
of $6.5 million or 1.6% of net sales for the provision to the inventory reserve
for scrap and obsolescence.

Selling and administrative expenses for the 2005 Successor Period was $158.6
million, or 41.8% of net sales. Selling and administrative expenses for the 2005
Successor Period include approximately $4.8 million or 1.3% of net sales related
to the amortization of intangible assets arising from the Merger, $1.1 million
of management fees and $1.2 million of consulting fees and expenses associated
with Synergetics. Fuel surcharges and higher shipping costs due to an increase
in expediting shipments negatively impacted selling and administrative charges
by approximately $1.1 million.

Selling and administrative expenses for the Predecessor Period January 1, 2004
to December 31, 2004 was $167.1 million, or 42.3% of net sales.

Merger expenses for the 2005 Successor Period of $4.7 million are primarily
related to change of control payments and legal and advisory fees and expenses
incurred in connection with the Merger.

Merger expenses for the Predecessor Period January 1, 2005 to January 31, 2005
of $19.0 million are primarily related to the payment of $18.8 million upon the
closing of the transaction on January 27, 2005 in connection with the separation
agreement with the former Chairman, and approximately $0.2 million of legal and
advisory fees and expenses incurred in connection with the Merger.

Merger expenses for the Predecessor Period January 1, 2004 to December 31, 2004
were $1.4 million consisting principally of legal and advisory fees and expenses
incurred in connection with the Merger.

As part of the Company's efforts to streamline its organization and reduce
costs, the Company completed a workforce reduction program in September 2005.
The program entailed an assessment of its workforce requirements across all of
its major departments and resulted in the elimination of 55 positions at various
levels. The workforce reduction was anticipated to save approximately $6.7
million annually. In connection with the workforce reduction program, a one-time
severance charge of $2.0 million (approximately $1.5 million due to the terms of
the Severance Agreement with Mr. McMenemy) was recorded in September 2005.
Additionally, the Company recorded a charge of $1.2 million for severance costs
and related benefits associated with the ceasing of manufacturing activities at
its facility in Little Falls, New York.

Net interest expense for the 2005 Successor Period of $27.7 million was
primarily attributable to interest incurred on the prior senior credit
agreement, and the Subordinated Notes issued on January 27, 2005 in connection
with the Merger. As a result of the refinancing on October 28, 2005, the Company
incurred a non-cash charge, reflected as a loss on early extinguishment of debt,
of $6.5 million due to the write-off of deferred finance charges related to the
prior senior credit agreement.


                                       38
<PAGE>

Net interest expense for the Predecessor Period January 1, 2004 to December 31,
2004 of $3.6 million was primarily attributable to outstanding borrowings of the
Predecessor Company under its 9.5% senior notes, its revolving credit facility
and outstanding mortgages on the North Carolina and the Barrie, Ontario
facilities.

The Company recorded an income tax benefit of $15.4 million for the 2005
Successor Period. The income tax benefit was based on the Company's effective
tax rate of 35.3% for the 2005 Successor Period, as well as the recording of a
benefit of $4.3 million relating to a reduction of the net deferred tax
liabilities due to a change in the New York State tax laws. See Note 3 to the
Notes to the Consolidated Financial Statements.

The income tax benefit for the Predecessor Period January 1, 2005 to January 31,
2005 of $24.4 million was comprised of an anticipated income tax refund
(received on October 27, 2005) of approximately $11.3 million attributable to
the utilization of a net operating loss carryback, the recording of deferred tax
assets of approximately $13.4 million attributable to net operating loss
carryforwards, and the recording of approximately $0.3 million of deferred tax
expense related to temporary differences.

Income taxes for the Predecessor Period January 1, 2004 to December 31, 2004 of
$10.2 million were based on the Company's annual effective tax rate of 40.9%.

Net loss for the 2005 Successor Period of $15.8 million is primarily
attributable to net interest expense.

Net earnings for the Predecessor Period January 1, 2004 to December 31, 2004 of
$14.7 million are primarily attributable to the operating income generated by
the Predecessor Company.

                                       39
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity needs arise primarily from debt service on its
substantial indebtedness and from funding of capital expenditures, ongoing
operating costs and working capital.

In connection with the Merger in January 2005, substantially all of the
Company's then outstanding indebtedness was redeemed, repurchased or otherwise
repaid and replaced. The Company issued $175 million of senior subordinated
notes due 2012 (the "Subordinated Notes"), and closed on the prior senior credit
facilities which provided for aggregate maximum borrowings of $250.0 million,
consisting of a prior term loan facility of $200.0 million and a prior revolving
credit facility of $50.0 million. On October 28, 2005, the Company refinanced
and terminated the prior senior credit facilities through the issuance of $185.0
million of senior secured floating rate notes due November 1, 2011 (the
"Notes"), and a $75.0 million credit agreement. This agreement was used as
interim financing until December 29, 2005, when it was replaced with an $85.0
million asset-based revolving credit facility, as subsequently amended (the "ABL
Credit Facility").

Principal and interest payments under the Notes, the ABL Credit Facility and the
Subordinated Notes will represent significant liquidity requirements for the
Company. The Company expects that cash flow from operating activities and
expected available borrowings under the ABL Credit Facility will provide
sufficient working capital to operate the Company's business, to fund expected
capital expenditures and to meet foreseeable liquidity requirements, including
debt service on the Company's outstanding debt. The Company's ability to borrow
under the ABL Credit Facility is subject to a borrowing base consisting of a
percentage of eligible accounts receivable and eligible inventory. No assurance
can be given, however, that the Company's business will, in fact, generate
sufficient cash flows or that future borrowings will, in fact, be available in
an amount sufficient to enable the Company to service its debt or to fund its
other liquidity needs.

The Subordinated Notes

The Subordinated Notes bear interest at 8% and are guaranteed by certain of the
existing and future domestic subsidiaries of the Company. The Subordinated Notes
and guarantees are unsecured senior subordinated obligations and rank equally
with all future subordinated indebtedness and are subordinated to the current
and future senior indebtedness and other liabilities of the Company and its
subsidiaries. Interest on the Subordinated Notes is payable semi-annually on
February 1 and August 1, which commenced on August 1, 2005.

The Subordinated Notes contain covenants that, among other things, limit the
issuance of additional indebtedness, the incurrence of liens, the payment of
dividends or other distributions, the distributions from certain subsidiaries,
the issuance of preferred stock, the sale of assets and subsidiary stock,
transactions with affiliates and consolidations, mergers and transfers of
assets. All of these limitations and prohibitions, however, are subject to a
number of important qualifications, set forth in the indenture.

The Notes

The Notes bear interest at a rate per annum equal to three-month LIBOR plus
5.0%. The Notes are guaranteed by certain of the existing and future domestic
subsidiaries of the Company. The Notes and guarantees are secured by a first
priority security interest in substantially all of the Company's and guarantors'
assets, other than inventory, receivables, equity interest in the Company's
subsidiaries and other specified excluded assets and by a second priority
security interest in substantially all the Company's and guarantors' inventory,
receivables and other specified liquid assets. The Notes and guarantees rank
equally with all existing and future senior indebtedness and rank senior to all
existing and future subordinated indebtedness, including the Subordinated Notes
and related guarantees. Interest on the Notes is payable quarterly on February
1, May 1, August 1 and November 1, which commenced on February 1, 2006.



                                       40
<PAGE>

The Notes contain covenants that, among, other things, limit the issuance of
additional indebtedness, the incurrence of liens, the payment of dividends or
other distributions, distributions from certain subsidiaries, the issuance of
preferred stock, the sale of assets and subsidiary stock, transactions with
affiliates and consolidations, mergers and transfers of assets. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications, set forth in the indenture.

The ABL Credit Facility

The ABL Credit Facility, which was subsequently amended on February 23, 2006 and
November 29, 2006, matures on December 29, 2010 and provides for aggregate
maximum borrowings of $85.0 million. The ABL Credit Facility is guaranteed by
DLI Holding II Corp. and by certain of the Company's existing and future
domestic subsidiaries. The ABL Credit Facility is an asset-based facility with a
first priority security interest in substantially all accounts receivable and
inventory and a second priority security interest in substantially all tangible
and intangible assets. The ABL Credit Facility is also secured on a first
priority basis by the capital stock of the Company's domestic subsidiaries.
Also, the guarantee by DLI Holding II Corp., is secured by a pledge of all of
its assets. The Company and the subsidiary guarantors, the credit facility
collateral agent and the Trustee for the Notes and the note collateral agent
entered into an Intercreditor Agreement.

Borrowings under the ABL Credit Facility are determined by a formula which
provides eligibility of up to 85% of the net book value of domestic accounts
receivable and a range of 35% to 65% of domestic inventory. Borrowings under the
ABL Credit Facility bear interest at the Company's option at either: (i) an
alternate base rate which is equal to the higher of 0.50% per year above the
federal funds effective rate and the base rate announced by the ABL Credit
Facility's administrative agent as its prime rate plus an applicable margin
ranging from 0.25% to 0.75% (0.25% at December 31, 2006) based on the Company's
borrowing base availability, or (ii) an Adjusted LIBOR rate plus an applicable
margin ranging from 1.25% to 1.75% (1.25% at December 31, 2006) based on the
Company's borrowing base availability. The terms of the ABL Credit Facility
include a commitment fee of .375% based on unused commitments of the lenders,
letter of credit fees on the aggregate face amount of outstanding letters of
credit and underwriting and administrative fees.

The ABL Credit Facility includes covenants, that among other things, limit or
restrict the Company's and its subsidiaries abilities to dispose of assets,
incur additional indebtedness, incur guarantee obligations, prepay other
indebtedness, make dividends, create liens, make investments, make acquisitions,
modify the terms of the documents governing the indebtedness, engage in mergers
or make capital expenditures or engage in certain transactions with affiliates.
The ABL Credit Facility also requires the Company to comply with a minimum
coverage ratio of Consolidated EBITDA to fixed charges whenever excess borrowing
availability is less than $10.0 million on any day. As of December 31, 2006, the
Company had $10.0 million of senior debt and $1.0 million of letters of credit
outstanding under the ABL Credit Facility, $74.0 million of unutilized
commitments and $71.2 million of availability thereunder. As of March 31, 2007,
the Company had $18.0 million of senior debt and $1.0 million of letters of
credit outstanding under the ABL Credit Facility, $66.0 million of unutilized
commitments and $60.3 million of availability thereunder.

The ABL Credit Facility requires the Company to enter into interest rate
protection agreements to provide interest rate protection for a minimum of 45%
of the Company's consolidated funded indebtedness for two years. Effective
February 1, 2006, the Company entered into a cap/floor collar agreement (the
"Collar") with JPMorgan Chase Bank, N.A to provide the required interest rate
protection and to manage its exposure to changes in LIBOR. The Collar is for a
notional amount of $100.0 million expiring on February 1, 2009 and has a cap
rate of 5.5% and a floor rate of 4.29%. The Collar has been designated as a cash
flow hedge of the variability of the cash flows due to changes in LIBOR and has
been deemed to be highly effective. Accordingly, the Company records the fair
value of the Collar as an asset or liability on its consolidated balance sheet,
and any unrealized gain or loss is included in accumulated other comprehensive
income (loss). As of December 31, 2006, the Company recorded an asset of $3 in
the accompanying consolidated balance sheet and recorded an after-tax net gain
of $2 in accumulated other comprehensive income (loss) during the year ended
December 31, 2006. No hedge ineffectiveness was recorded during the year ended
December 31, 2006.


                                       41
<PAGE>

Financial Covenants

Borrowings under the ABL Credit Facility are subject to certain conditions and
limitations described above. The indentures governing the Subordinated Notes and
the Notes contain significant financial and operating covenants, including
prohibitions on the Company's ability to incur certain additional indebtedness
or to pay dividends. The ABL Credit Facility contains borrowing conditions and
customary events of default, including nonpayment of interest, violation of
covenants, inaccuracy of representations and warranties, cross-defaults to other
indebtedness, bankruptcy and other insolvency events.

On March 31, 2007, the Company entered into a Waiver and Consent to the ABL
Credit Facility. Among other things, the Waiver and Consent (i) waives certain
Defaults or Events of Default relating to any potential restatement or revision
of the Company's consolidated financial statements delivered prior to the date
of the Waiver and Consent, and (ii) extends the date on which audited financial
statements with respect to the fiscal year ended December 31, 2006, and certain
other documents under the ABL Credit Facility, are required to be delivered to
April 30, 2007 from March 31, 2007.

The ABL Credit Facility has a minimum fixed charge coverage ratio financial
covenant that is effective if the minimum excess availability under the ABL
Credit Facility is less than specified levels. Under the terms of the ABL Credit
Facility, the minimum fixed charge coverage ratio test would not have applied as
of December 31, 2006 as borrowing availability under the ABL Credit Facility
would have exceeded the specified threshold. The minimum fixed charge coverage
ratio test requires the Company to comply with a minimum coverage ratio of
consolidated EBITDA to fixed charges of at least 1:1 whenever excess
availability is less than $10.0 million (which amount will be increased in
proportion to any increase in commitments under the ABL Credit Facility).

Credit Agreement EBITDA as presented herein is a financial measure that is used
in the credit agreement for the Company's ABL Credit Facility. Credit Agreement
EBITDA is not a defined term under U.S. GAAP and should not be considered as an
alternative to operating income or net income, as a measure of operating results
or cash flows or as a measure of liquidity. Credit Agreement EBITDA differs from
the term "EBITDA" as it is commonly used. Credit Agreement EBITDA, as that term
is defined in the ABL Credit Facility and used as part of the calculation of the
term "Consolidated Coverage Ratio" which is used for a number of purposes,
including the Company's ability to incur additional indebtedness, consists of
consolidated net income, adjusted to exclude income tax expense, interest
expense, and depreciation and amortization, as well as certain other items and
expenses, including amortization of intangibles, extraordinary, unusual or
non-recurring gains or losses, consultation fees and expense reimbursements
associated with implementing process improvements and cost reductions developed
by the Company in conjunction with the Synergetics Installations Worldwide, Inc.
consulting group, certain non-cash charges or expenses deducted in determining
net income, certain cash restructuring charges, loss or gain associated with the
sale or write down of assets not in the ordinary course of business, the amount
of any net minority expense, and certain losses relating to the disposition of
excess or surplus inventory.


                                       42
<PAGE>

The calculation of Credit Agreement EBITDA for the periods indicated is set
forth below. (in 000's)

                                                      Year           Year
                                                      Ended          Ended
                                                      2006           2005
                                                      ----           ----
                                                                 (Restated)

Net loss                                          $ (19,132)      $(13,867)
Income tax benefit                                  (11,018)       (39,793)
Interest expense, net                                37,132         27,925
Loss on extinguishment of debt                            -          6,449
Depreciation and amortization                        26,093         21,729
Purchase accounting                                       -          8,083
Losses related to inventory impairment (1)            5,000          8,627
Little Falls closure costs (2)                        4,768              -
Synergetics fees and expenses                         3,278          1,227
Non-cash stock compensation charges                     770            311
Other (3)                                             1,561         27,484
Credit agreement add back(4)                             -           5,493
                                                  ---------        -------
Credit Agreement EBITDA (5)                         $48,452        $53,668
                                                  =========        =======

(1) The Company recorded an incremtal $25,054 provision for excess and slow
moving inventory in the fourth quarter of 2006. The credit agreement limits the
add back of losses related to disposition of excess, surplus or obsolete
inventory to $5,000 per fiscal year and $15,000 in the aggregate, commencing
with the fourth quarter of 2005.

(2) Represents unabsorbed overhead costs of $4,376 charged to cost of goods
sold, in accordance with SFAS No. 151, and $392 of implementation costs in
connection with the closure of the Little Falls manufacturing facility.

(3) Other represents extraordinary, unusual or non-recurring items, and other
permitted add backs under the credit agreement.

(4) Credit Agreement EBITDA, as restated, excluding fixed credit agreement add
backs of $5,493 was $48,175 for the year ended 2005.

(5) Credit Agreement EBITDA for the year ended 2006 would have been $68,506,
excluding the additional $20,054 in the provision for excess and slow moving
inventory that can not be added back pursuant to the credit agreement.


Operating Activities

Net cash provided by operating activities for the year ended December 31, 2006
of $17.3 million was principally the result of $31.6 million in cash generated
(pre-tax loss of $30.2 million plus the provision for excess and slow moving
inventory of $35.7 million, depreciation and amortization of $15.7 million and
amortization of display fixtures of $10.4 million), as well as an increase in
accounts payable and accrued expenses of $13.5 million offset by an increase in
accounts receivable of $10.3 million, inventories of $8.4 million and other
assets of $9.9 million. Accounts payable and inventories increased due to the
timing of material purchases to support projected sales levels. Accounts
receivable increased due to the timing of shipments during the fourth quarter.
Accrued liabilities increased primarily due to increases in accruals for
salaries, wages and other employee related benefits and an increase in the
accrual for management fees. Other assets increased primarily due to the
purchase and shipment of display fixtures to customers.

Net cash used in operating activities of $28.4 million for the 2005 Successor
Period was due to an increase in deferred income taxes of $16.9 million, a net
loss of $15.8 million, a decrease in accrued liabilities of $8.2 million and an
increase in other assets of $9.0 million partially offset by a decrease in
income taxes receivable of $10.2 million, depreciation and amortization of $11.8
million and the early extinguishment of debt of $6.5 million. Accrued
liabilities decreased primarily as a result of the $18.5 million separation
payment to the former Chairman, offset by increases in interest, severance and
pension. Other assets increased due mainly to the capitalization of deferred
financing fees as a result of the refinancing.


                                       43
<PAGE>

Net cash provided by operating activities for the Predecessor Period January 1,
2005 to January 31, 2005 of $0.2 million was primarily due to a decrease in
accounts receivable of $6.0 million, partially offset by an increase in
inventories of $6.1 million. The increase in accrued liabilities of $21.7
million is primarily related to $18.5 million for a payment due under a
separation agreement with the former Chairman and approximately $2.8 million for
advertising and promotion. The increase in income taxes receivable/payable of
$11.6 million is primarily related to the recording of an anticipated income tax
refund of approximately $11.4 million attributable to the utilization of a net
operating loss carryback. The recording of deferred tax assets of approximately
$13.0 million is primarily attributable to net operating loss carryforwards.

Net cash provided by operating activities for the year ended December 31, 2004
was $7.2 million, due primarily to net earnings of $14.7 million, depreciation
and amortization of $8.5 million, amortization of display fixtures of $9.0
million, a provision for excess and slow moving inventory of $6.5 million and an
increase in accounts payable of $6.5 million. This cash provided by operating
activities was partially offset by an increase in inventories of $24.3 million,
an increase in other assets of $9.8 million and a decrease in accrued
liabilities of $3.8 million. The increase in inventories and accounts payable is
due to the timing of material purchases to support projected sales levels. The
increase in other assets is primarily related to display fixtures shipped to
customers. The decrease in accrued liabilities is due primarily to a reduction
in bonus liabilities, and a reduction in the severance liability related to the
relocation of the Farmingdale, N.Y. plant to Rocky Point, N.C.

Investing Activities

Net cash used in investing activities of $6.7 million for the year ended
December 31, 2006 was primarily related to capital spending for tooling, plates
and dies, and manufacturing machinery and equipment.

Net cash used in investing activities of $383.0 million for the 2005 Successor
Period was primarily due to $377.2 million used for the purchase of outstanding
common stock and stock options of Del Laboratories, Inc. in connection with the
Merger.

Net cash used in investing activities for the Predecessor Period January 1, 2005
to January 31, 2005 of $0.8 million was primarily related to capital spending
for tooling, plates and dies, and manufacturing machinery and equipment.

Net cash used in investing activities for the year ended December 31, 2004 was
$4.7 million. Approximately $9.5 million was used for capital spending primarily
related to manufacturing machinery and equipment, and $4.8 million was provided
from the sale of land and buildings.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2006 of
$13.2 million was primarily for repayments under the Company's ABL Credit
Facility. Cash paid for interest during the year ended December 31, 2006 was
$34.2 million. The Company anticipates that its debt service requirements in
2007 will be approximately $34.6 million.

Net cash provided by financing activities for the 2005 Successor Period of
$411.7 million was primarily due to proceeds of $185.0 million received from the
issuance of the Notes, proceeds of $173.8 million received from the issuance of
$175.0 million of Subordinated Notes at 99.34%, proceeds of $138.2 million
contributed by affiliates of Kelso, the continuing investors and a third party
investor and proceeds of $22.0 million from borrowings under the ABL Credit
Facility. Proceeds of $69.3 million were used to repay existing debt, $30.6
million was used to pay financing, legal, advisory, accounting and certain other
fees incurred in connection with the Merger and $7.2 million was used to pay
financing, legal, advisory, accounting and certain other fees incurred in
connection with the issuance of the ABL Credit Facility.

Net cash used in financing activities for the Predecessor Period January 1, 2005
to January 31, 2005 of $0.9 million was primarily to reduce a portion of the
outstanding balance on the revolving credit agreement.

                                       44
<PAGE>

Net cash used in financing activities of $0.8 million for the year ended
December 31, 2004 was due to the acquisition of treasury stock of $0.7 million
in connection with the exercise of stock options, principal payments under
mortgages of $0.4 million, and payment of capital lease obligations of $0.1
million, partially offset by the receipt of proceeds of $0.4 million from the
exercise of stock options.

The Company does not use any off-balance sheet financing arrangements. The
Company anticipates that it may, from time to time, purchase its debt securities
through the open market.

Disclosures About Contractual Obligations

In order to aggregate all contractual obligations as of December 31, 2006, the
Company has included the following table:

<TABLE>
<CAPTION>
                                                            Payments Due By Period
                                                            ----------------------
                                                                    ($000)

                                                      Less      1 - 2     2 - 3      3 - 5      After 5
                                           Total     1 Year     Years     Years      Years       Years
                                           -----     ------     -----     -----      -----       -----
<S>                                      <C>         <C>       <C>       <C>       <C>         <C>
Subordinated Notes (a)                   $175,000    $   --    $   --    $   --    $     --    $175,000
Notes (a)                                 185,000        --        --        --     185,000          --
ABL Credit Facility                        10,000        --        --        --      10,000          --
Mortgage on land and buildings              1,194        60        63     1,071          --          --
Capital leases                                107       105         2        --          --          --
Operating leases                           30,937     4,904     4,630     3,612       7,174      10,617
                                         --------    ------    ------    ------    --------    --------
Total contractual obligations (b)(c)(d)  $402,238    $5,069    $4,695    $4,683    $202,174    $185,617
                                         ========    ======    ======    ======    ========    ========
</TABLE>

(a) The Company is required to offer to repurchase the Subordinated Notes and
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any, to the repurchase date under
some circumstances involved upon the occurrence of a Change in Control. The
Company must also repurchase the Subordinated Notes and Notes at a price equal
to par, plus accrued and unpaid interest and liquidated damages, if any, to the
repurchase date, if the Company sells assets under certain circumstances.

(b) The Company expects to contribute approximately $3.0 million in fiscal year
2007 to fund its defined benefit pension plans. These expected defined benefit
pension contributions are not included in the above table. For further
information regarding defined benefit pension contributions, see Note 10(a) of
the Notes to Consolidated Financial Statements.

(c) On December 16, 2005, the Company entered into two agreements with a third
party. The first agreement stipulated that the Company sell inventory in
exchange for $1.0 million in cash. The second agreement stipulated that the
Company is to purchase approximately $6.4 million of advertising from the third
party during a period not to extend beyond March 2009. The inventory sold was
deemed to have no value. The Company recognized a deferred liability in
connection with the transaction in the amount of $1.0 million, which was
reflected on the consolidated balance sheet as of December 31, 2005. The
deferred liability is being recognized ratably as a reduction to advertising
expense as the advertising is incurred.

(d) The Company expects that its total expenditures for machinery and equipment
and display fixtures will be approximately $22.0 million in 2007. These
expenditures are not included in the above table.


                                       45
<PAGE>

DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company makes estimates and assumptions in the preparation of its financial
statements in conformity with U.S. generally accepted accounting principles.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company's financial condition and
results of operations and which require management's most difficult and
subjective judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. Note 2 of the Notes to the
Consolidated Financial Statements includes a summary of the significant
accounting policies used in the preparation of the accompanying consolidated
financial statements. The following is a brief discussion of the more critical
accounting policies employed by the Company.

Business Acquisitions

The Company accounts for acquired businesses using the purchase method of
accounting which requires that the assets acquired and liabilities assumed be
recorded at the date of acquisition at their respective fair values. The
Company's consolidated financial statements and results of operations reflect an
acquired business after the completion of the acquisition and are not restated.
The cost to acquire a business, including transaction costs, is allocated to the
underlying net assets of the acquired business in proportion to their respective
fair values. Any excess of the purchase price over the estimated fair values of
the net assets acquired is recorded as goodwill.

Stock-Based Compensation

With the adoption of Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" ("SFAS No. 123(R)") on January 1, 2006, the Company is
required to record the fair value of stock-based compensation awards as an
expense. In order to determine the fair value of these awards on the date of
grant, the Company used the Black-Scholes option-pricing model to value the
Service Options and the Operating Units and used a lattice-based valuation model
to value the Exit Options and the Value Units. Inherent in these models are
assumptions related to expected stock-price volatility, option/unit life,
risk-free interest rate and dividend yield. While the risk-free interest rate
and dividend yield are less subjective assumptions, typically based on factual
data derived from public sources, the expected stock-price volatility and
option/unit life assumptions require a greater level of judgment which makes
them critical accounting estimates.

Because the Company's common stock is not publicly traded, the Company used an
expected stock-price volatility assumption that was determined based on an
examination of the historical volatility of the stock price of the Predecessor
Company; the historical and implied volatility of stock prices of selected
comparable companies and the nature of those companies; and other relevant
factors. The Company used a stock-price volatility of 45% for stock options and
Override Units granted during the year ended December 31, 2006.

With respect to the weighted-average option/unit life assumption, the Company
considered Kelso's investment behavior relating to other comparable investments
(exit strategy, return on investment and holding period). The Company used a
weighted-average expected option/unit life assumption of 3.8 years for the
Service Options and Exit Options and 3.99 years for the Operating Units and
Value Units. For the lattice-based valuation models, the Company used an early
exercise factor at the time at which Kelso would sell the Company to generate a
multiple of 2.8 times their initial investment.

                                       46
<PAGE>

Revenue Recognition

The Company sells its products to chain drug stores, mass volume retailers,
supermarkets, wholesalers and overseas distributors. Sales of such products are
denominated in U.S. dollars, Canadian dollars, British pounds and Euros. The
Company's accounts receivable reflect the granting of credit to these customers.
The Company generally grants credit based upon analysis of the customer's
financial position and previously established buying and selling patterns. The
Company does not bill customers for shipping and handling costs and,
accordingly, classifies such costs as selling and administrative expense. Sales
are recognized when revenue is realized or realizable and has been earned.
Revenues are recognized and discounts are recorded when merchandise is shipped.
Net sales are comprised of gross revenues less expected returns, various
promotional allowances, markdowns, coupons and trade discounts and allowances.
The Company allows customers to return their unsold products when they meet
certain criteria as outlined in the Company's sales policies.

The Company regularly reviews and revises, as deemed necessary, its estimates of
reserves for future sales returns based primarily upon actual return rates by
product, planned product discontinuances, new product launches, and information
provided by major customers regarding their inventory levels. The Company
records estimated reserves for future sales returns as a reduction of sales,
cost of sales and accounts receivable. Returned products which are recorded as
inventories are valued based on estimated realizable value. The physical
condition and marketability of the returned products are the major factors
considered by the Company in estimating realizable value. Actual returns, as
well as estimated realizable values of returned products, may differ
significantly, either favorably or unfavorably, from estimates if factors such
as product discontinuances, customer inventory levels or competitive conditions
differ from the Company's estimates and expectations and, in the case of actual
returns, if economic conditions differ significantly from the Company's
estimates and expectations.

Promotional Allowances and Cooperative Advertising

The Company has various performance-based arrangements with retailers to
reimburse them for all or a portion of their promotional activities related to
the Company's products. These sales incentives, offered voluntarily by the
Company to customers, without charge, can be used in or are exercisable by a
customer as a result of a single exchange transaction, are recorded as a
reduction of net sales at the later of the sale or the offer, and primarily
allow customers to take deductions against amounts owed to the Company for
product purchases. The Company also has cooperative advertising arrangements
with retail customers to reimburse them for all or a portion of their
advertising of the Company's products. The estimated liabilities for these
cooperative advertising arrangements are recorded as advertising expense as
incurred, or in the period the related revenue is recognized, depending on the
terms of the arrangement, and are included in selling and administrative
expenses, since the Company receives an identifiable benefit from retail
customers for an amount equal to or less than the fair value of such advertising
cost. These arrangements primarily allow retail customers to take deductions
against amounts owed to the Company for product purchases. The Company regularly
reviews and revises the estimated accruals for these promotional allowance and
cooperative advertising programs. Actual costs incurred by the Company may
differ significantly, either favorably or unfavorably, from estimates if factors
such as the level and success of the retailers' programs or other conditions
differ from the Company's expectations.

Accounts Receivable

In estimating the collectibility of the Company's trade receivables, the Company
evaluates specific accounts when it becomes aware of information indicating that
a customer may not be able to meet its financial obligations due to
deterioration of its financial condition, lower credit ratings or bankruptcy.
The Company also reviews the related aging of past due receivables in assessing
the realization of these receivables. The allowance for doubtful accounts are
determined based on the best information available on specific accounts and is
also developed by using percentages applied to certain receivables.

                                       47
<PAGE>

Inventories

Inventories are stated at the lower of cost or market value. Cost is principally
determined by the first-in, first-out method. The Company records an inventory
obsolescence reserve a to the cost of inventories based upon its forecasted
plans to sell, historical and projected scrap and disposal rates and the
physical condition of the inventories. This reserve is calculated using an
estimated obsolescence percentage applied to the inventories based on age,
historical trends and requirements to support forecasted sales. In addition, the
Company may establish specific reserves for future known or anticipated events.
These reserves are estimates, which could vary significantly, either favorably
or unfavorably, from actual requirements if future economic conditions, the
timing of new product introductions, customer inventory levels, retailer
consolidations, fashion-oriented color cosmetic trends or competitive conditions
differ from the Company's expectations.

Property, Plant and Equipment and Other Long-Lived Assets

Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Leasehold
improvements are amortized on a straight-line basis over the lesser of the
estimated useful lives or the lease term. Changes in circumstances, such as
technological advances, changes to the Company's business model or changes in
the Company's capital strategy could result in the actual useful lives differing
from the Company's estimates. In those cases where the Company determines that
the useful life of property, plant and equipment should be shortened, the
Company would depreciate the net book value in excess of the salvage value, over
its revised remaining useful life, thereby increasing depreciation expense.
Factors such as changes in the planned use of equipment, fixtures, software or
planned closing of facilities could result in shortened useful lives.

The Company constructs and purchases display fixtures to be used in the stores
of its cosmetic segment retail customers to attract customer attention and to
display products available under the Company's various brands. The display is
included in inventory by the Company until it is shipped to the retail customer,
at which time it is reclassified from inventory to other assets and amortized as
a selling expense over the estimated useful life of twenty four months from date
of shipment.

Intangible assets with determinable lives and other long-lived assets, other
than goodwill, are reviewed by the Company for impairment whenever events or
changes in circumstances indicate that the carrying amount of any such asset may
not be recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to the future net cash flows
expected to be generated by the asset. If the sum of the undiscounted cash flows
(excluding interest) is less than the carrying value, the Company recognizes an
impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset. The estimate of cash flow is based upon, among other
things, certain assumptions about expected future operating performance. The
Company's estimates of undiscounted cash flow may differ from actual cash flow
due to, among other things, technological changes, economic conditions, changes
to its business model or changes in its operating performance.

Goodwill and other indefinite long lived assets must be tested annually for
impairment. Goodwill is tested at the reporting unit level. The Company's
reporting units are its Cosmetic and Pharmaceutical segments. If an indication
of impairment exists, the Company is required to determine if such reporting
unit's implied fair value is less than its carrying value in order to determine
the amount, if any, of the impairment loss required to be recorded. Indefinite
long lived assets would be impaired if the fair value of the assets is less than
its carrying value. Subsequent to the Merger, the Company established January 1,
as its annual impairment testing date. The annual testing performed as of
January 1, 2007, indicated that there was no impairment to goodwill or
indefinite long lived assets.

The remaining useful lives of intangible assets subject to amortization are
evaluated each reporting period to determine whether events and circumstances
warrant a revision to the remaining period of amortization. If the estimate of
an intangible asset's remaining useful life is changed, the remaining carrying
amount of the intangible asset should be amortized prospectively over that
revised remaining useful life.


                                       48
<PAGE>

Pension Benefits

The Company sponsors pension and other retirement plans in various forms
covering all eligible employees. Several statistical and other factors which
attempt to anticipate future events are used in calculating the expense and
liability related to the plans. These factors include assumptions about the
discount rate, expected return on plan assets and rate of future compensation
increases as determined by the Company, within certain guidelines and in
conjunction with its actuarial consultants. In addition, the actuarial valuation
incorporates subjective factors such as withdrawal and mortality rates to
estimate the expense and liability related to these plans. The actuarial
assumptions used by the Company may differ significantly, either favorably or
unfavorably, from actual results due to changing market and economic conditions,
higher or lower withdrawal rates or longer or shorter life spans of
participants.

The Company's results of operations include the impact of significant pension
benefits that are measured using actuarial valuations. Inherent in these
valuations are key assumptions, including assumptions about discount rates and
expected return on plan assets. These assumptions are updated on an annual basis
at the beginning of each fiscal year or more often upon the occurrence of
significant events. Changes in the related pension costs may occur due to
changes in the assumptions. The Company's net pension cost was $3.2 million,
$3.9 million, $0.4 million and $4.8 million for 2006, the 2005 Successor Period,
the 2005 Predecessor Period and 2004, respectively. These amounts are included
in the calculation of operating income or loss.

The expected rate of return on pension plan assets used to develop pension cost
was 8.50% for the Employees' Pension Plan and 6.50% for LaCross Pension Plan for
2006, the 2005 Successor Period, the 2005 Predecessor Period, and 2004. The
Company plans to use an expected rate of return of 8.00% for the Employees'
Pension Plan and 5.00% for the LaCross Pension Plan during fiscal 2007.

The discount rate used to determine pension cost was 5.50%, 5.75%, 5.75% and
6.25% for 2006, the 2005 Successor Period, the 2005 Predecessor Period and 2004
respectively. The discount rate is determined at the beginning of the period.
The Company plans to use a discount rate of 6.00% for fiscal 2007. Changes in
the discount rate were due to declining long-term interest rates on high quality
corporate bonds (e.g. Moody AA bonds). The discount rate is also somewhat
volatile because it is determined based upon the prevailing rate as of the
measurement date. A lower discount rate increases the plan obligations and
increases net pension cost for those plans.

The expected rate of return on pension assets and the discount rate as well as
the amortization of unrecognized actuarial gains and losses were determined in
accordance with consistent methodologies, as described in Note 10 to the
Company's Consolidated Financial Statements and as required under SFAS No. 87.
The salary growth assumptions reflect long-term actual experience and future and
near-term outlook.

Holding all other assumptions constant, a 0.5% increase or decrease in the
discount rate would have decreased or increased the fiscal 2006 net pension cost
by approximately $0.4 million, not including any change in the curtailment gain
recognized during the quarter ended September 30, 2006. The impact in the
discount rate is different if the resulting actuarial gains and losses are
subject to amortization. A 0.5% increase or decrease in the expected return on
plan assets would have decreased or increased the fiscal 2006 pension cost by
approximately $0.2 million.

The Company does not expect to record any pension costs in 2007 related to the
Employees' Pension Plan due to an amendment of the plan that is effective April
1, 2007. As a result of this amendment, the plan will be closed to new employees
and the accrual of future benefits to current employees will be discontinued.
All retirement benefits that employees will have earned as of April 1, 2007 will
be fully preserved. Employees' ongoing service with the Company will continue to
be credited for vesting purposes. The Company's discount rate for pension plans
reflects the market rates for high-quality corporate bonds currently available.
The Company's discount rate was determined by considering the average pension
yield curves constructed of a large population of high quality corporate bonds.
The resulting discount rate reflects the matching of plan liability cash flows
to the yield curves.

The Company's funding requirements consist of annual contributions at a rate
that provides for future plan benefits and maintains appropriate funded
percentages. Such contributions are not less than the minimum required by the
Employee Retirement Income Security Act of 1974, and subsequent pension
legislation and are not more than the maximum amount deductible for income tax
purposes.


                                       49
<PAGE>

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement establishes financial accounting
and reporting standards for the effects of income taxes that result from an
enterprise's activities during the current and preceding years. It requires an
asset and liability approach for financial accounting and reporting of income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

The realization of tax benefits of deductible temporary differences and
operating loss or tax credit carryforwards will depend on whether the Company
will have sufficient taxable income of an appropriate character within the
carryback and carryforward period permitted by the tax law to allow for
utilization of the deductible amounts and carryforwards. Without sufficient
taxable income to offset the deductible amounts and carryforwards, the related
tax benefits would expire unused. A valuation allowance is recorded when
management determines that it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies, among other factors, in making this assessment. In
the event the Company were to determine that it would not be able to realize
some portion or all of its deferred tax assets in the future, an adjustment to
the deferred tax assets would be charged to earnings in the period such
determination was made. There was no valuation allowance as of December 31, 2006
and 2005 as the Company believes it is more likely than not that the deferred
tax assets will be realized.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS No. 157 applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement does
not require any new fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the impact, if any, the adoption of SFAS No. 157 will have on its
consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132(R)" ("SFAS No. 158"). SFAS No. 158 requires an employer to recognize the
over-funded or under-funded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position, measure a plan's
assets and its obligations as of the end of the employer's fiscal year-end and
recognize changes in the funded status in the year in which the changes occur
through comprehensive income. SFAS No. 158 is effective for financial statements
of employers without publicly traded equity securities as of the year of the
fiscal year ending after June 15, 2007. The Company is currently evaluating the
impact, if any, that SFAS No. 158 will have on its consolidated financial
statements.


                                       50
<PAGE>

In June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB No. 109" ("FIN No. 48"). FIN No. 48 establishes a
recognition threshold and measurement for income tax positions recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
"Accounting for Income Taxes." FIN No. 48 also prescribes a two-step evaluation
process for tax positions. The first step is recognition and the second is
measurement. For recognition, an enterprise judgmentally determines whether it
is more-likely-than-not that a tax position will be sustained upon examination,
including resolution of related appeals or litigation processes, based on the
technical merits of the position. If the tax position meets the
more-likely-than-not recognition threshold it is measured and recognized in the
financial statements as the largest amount of tax benefit that is greater than
50% likely of being realized. If a tax position does not meet the
more-likely-than-not recognition threshold, the benefit of that position is not
recognized in the financial statements.

Tax positions that meet the more-likely-than-not recognition threshold at the
effective date of FIN No. 48 may be recognized or, continue to be recognized,
upon adoption of the Interpretation. The cumulative effect of applying the
provisions of FIN No. 48 shall be reported as an adjustment to the opening
balance of retained earnings for that fiscal year. FIN No. 48 is effective for
fiscal years beginning after December 15, 2006. Accordingly, the Company plans
to adopt FIN No. 48 on January 1, 2007. The Company is evaluating the impact of
adoption of FIN No. 48 and is unable, at this time, to quantify the impact, if
any, to retained earnings at the time of adoption.

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

The market risk inherent in the Company's market risk sensitive instruments is
the potential loss arising from material adverse changes in interest rates and
foreign currency exchange rates.

Interest Rate Risk

The Company's borrowings at December 31, 2006 under the Notes and the ABL Credit
Facility expose earnings to changes in short-term interest rates. Interest rates
on the underlying obligations are either variable or fixed for such a short
period of time as to effectively become variable. Effective February 1, 2006,
the Company entered into a Collar with JPMorgan Chase Bank, N.A. for a notional
amount of $100.0 million to hedge its exposure to changes in interest rates on a
portion of the Notes. For the year ended December 31, 2006, the Company believes
that a hypothetical 10% increase in interest rates would increase annual
interest expense by approximately $0.6 million and that a hypothetical 10%
decrease in interest rates would decrease annual interest expense by
approximately $1.0 million.

Foreign Exchange Risk

The Company is subject to risk from changes in the foreign exchange rate for its
foreign subsidiaries which use a foreign currency as their functional currency
and is translated into U.S. dollars. Such changes result in cumulative
translation adjustments which are included in shareholders' equity and in the
determination of other comprehensive income (loss). Intercompany transactions
between the Company and its foreign subsidiaries are recorded by the foreign
subsidiaries in their functional currency. The potential translation and
transaction loss resulting from a hypothetical 10% adverse change in the quoted
foreign currency exchange rate amounts to approximately $1.4 million at December
31, 2006.


                                       51
<PAGE>

Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Annual Report Form 10-K include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, (the "Exchange Act"). All statements other than statements of
historical facts included in this Annual Report Form 10-K, including, without
limitation, statements regarding the Company's future financial results,
economic conditions, trends, certain risks and uncertainties, expected
efficiency improvements, and expected future cost savings are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate," "should," "look forward to," "indications,"
"plan," "momentum," "believe" or "continue" or the negative thereof or
variations thereon or similar terminology. Although the Company believes that
the expectations reflected in these forward-looking statements are reasonable,
the Company can give no assurance that such expectations will prove to have been
correct. Important factors that could cause actual results to differ materially
from the Company's expectations, or "cautionary statements," include, without
limitation:

      o     delays in introducing new products or failure of consumers to accept
            new products;

      o     actions by competitors which may result in mergers, technology
            improvement or new product introductions;

      o     the Company's ability to realize cost savings and operational
            improvements;

      o     the Company's estimates of required inventory reserves if future
            economic conditions, the timing of new product introductions,
            customer inventory levels, retailer consolidations, fashion-oriented
            color cosmetic trends or competitive conditions differ from
            expectations;

      o     the Company's dependence on certain national chain drug stores, food
            stores and mass merchandiser relationships due to the concentration
            of sales generated by such chains;

      o     changes in fashion-oriented color cosmetic trends;

      o     the effect on sales of lower retailer inventory targets;

      o     the effect on sales of political and/or economic conditions;

      o     the Company's estimates of costs and benefits, cash flow from
            operations and capital expenditures;

      o     interest rate or foreign exchange rate changes affecting the
            Company;

      o     regulatory requirements and government regulatory action;

      o     failure to maintain satisfactory compliance with good manufacturing
            practice, or GMP, requirements;

      o     changes in product mix to products which are less profitable;

      o     shipment delays;

      o     depletion of inventory and increased production costs resulting from
            disruptions of operations at any of its manufacturing or
            distribution facilities;

      o     foreign currency fluctuations affecting the Company's results of
            operations and the value of its foreign assets and liabilities;


                                       52
<PAGE>

      o     the relative prices at which the Company sells its products and its
            competitors sell their products in the same market;

      o     the Company's operating and manufacturing costs outside of the
            United States;

      o     changes in the laws, regulations and policies, including changes in
            accounting standards, that affect, or will affect, the Company in
            the United States and/or abroad; and/or

      o     trends in the general economy.

In addition to the foregoing, other important factors are disclosed under "Risk
Factors" and elsewhere in this Annual Report Form 10-K. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis, judgment, belief or expectation only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. In addition to the disclosure contained herein, readers should
carefully review any disclosure of risks and uncertainties contained in other
documents the Company files or has filed from time to time with the Securities
and Exchange Commission pursuant to the Exchange Act.

Item 8 - Financial Statements and Supplementary Data

See consolidated financial statements and schedule included separately herein.

Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9A - Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified by the SEC's rules and forms, and that such information
is accumulated and communicated to its management team, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure. As of December 31, 2006, the
Company's management, under the supervision and with the participation of its
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the Company's disclosure controls and procedures (as defined in Exchange Act
Rule 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of that date, the Company's
disclosure controls and procedures were not effective at a reasonable assurance
level due to the material weaknesses in the Company's internal control over
financial reporting described below. A material weakness is a significant
deficiency, or combination of significant deficiencies, that results in there
being a more than a remote likelihood that a material misstatement of the annual
or interim financial statements will not be prevented or detected.

In connection with the preparation of its annual financial statements for the
year ended December 31, 2006 and the related audit by its independent registered
public accounting firm, KPMG LLP, the Company identified the following material
weaknesses in its internal control over financial reporting.

(1) The Company did not maintain sufficient personnel with an appropriate level
of technical accounting knowledge, experience and training in the application of
generally accepted accounting principles commensurate with the Company's
financial accounting and reporting requirements. This deficiency resulted in a
material error in the accounting for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes". In addition, the Company did not effectively
perform and document procedures to annually test goodwill and indefinite long
lived assets for impairment in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets".


                                       53
<PAGE>

(2) The Company did not maintain effective policies and procedures relating to
the computation of the sales return reserve. Specifically, the Company's
policies and procedures did not provide for sufficient review and validation of
the underlying assumptions and methodologies utilized in determining the
adequacy of the reserve.

(3) The Company had inadequate review controls over the accounting for and
reporting of non-routine transactions and complex accounting matters. This
deficiency resulted in the recording of an audit adjustment to the 2006
consolidated financial statements in connection with the computation of the
fourth quarter incremental inventory reserve.

These deficiencies caused or have the potential to cause a material misstatement
and/or inadequate disclosures in the Company's consolidated financial
statements.

The material weaknesses identified in (1) and (2) above resulted in a
restatement of the Company's prior consolidated financial statements as
described in Note 3 to the Notes to the Consolidated Financial Statements.

The Company is currently in the process of developing and implementing
remediation plans to address its material weaknesses. Specific remedial actions
that have or are being taken for each of the material weaknesses described above
are as follows:

(1) Technical accounting knowledge, experience and training in the application
of generally accepted accounting principles

o     Engaged outside tax experts, under the supervision of the Chief Financial
      Officer and Treasurer, to assist with the preparation of the tax provision
      in accordance with SFAS No. 109 and to supplement the Company's overall
      level of tax expertise.

o     Implementing new policies and procedures to ensure that the tax provision
      is properly prepared and reviewed on a timely basis.

o     Assessing the technical accounting capabilities of its personnel to ensure
      the right complement of knowledge, skills and training.

(2) Computation of the sales return reserve

o     Created an enhanced database that more closely measures sales returns to
      the periods of original sale.

o     Implemented new policies and procedures requiring a detailed and
      comprehensive review of the underlying information supporting the amounts
      and estimates used to compute the reserve.

o     Enhanced communication and collaboration between the accounting department
      and the sales department.

o     Hired a financial analyst within the sales department to focus on customer
      liabilities relating to the cosmetic business segment.

o     Assigning monitoring and control activities to the Treasurer and upgraded
      the accounting function through the hiring of additional accountants with
      relevant experience.

(3) Review controls over the accounting for and reporting of non-routine
transactions and complex accounting matters

o     Hired additional technical accounting personnel to address complex
      accounting and financial reporting requirements.

o     Assessing the technical accounting capabilities of its personnel to ensure
      the right complement of knowledge, skills and training.

o     Implementing a process that ensures the timely review and approval of
      complex accounting transactions by qualified accounting personnel.

o     Requiring analyses of all significant non-routine transactions be reviewed
      by senior management.

o     Developing improved monitoring controls in the accounting department.

Other than the foregoing measures, which were not fully implemented as of
December 31, 2006, to remediate the material weaknesses described above, there
has been no change in the Company's internal control over financial reporting
during the quarter ended December 31, 2006, that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.


                                       54
<PAGE>

The certifications of the Company's Chief Executive Officer and Chief Financial
Officer included as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K
include, in paragraph 4 of such certifications, information concerning the
Company's disclosure controls and procedures and internal control over financial
reporting. Such certifications should be read in conjunction with the
information contained in this Item 9A Controls and Procedures, for a more
complete understanding of the matters covered by such certifications.

The Company is continuing to perform the systems and process evaluation testing
of its internal controls over financial reporting, as required by Section 404 of
the Sarbanes-Oxley Act, in order to allow management to report on the internal
controls over financial reporting which will be required for the fiscal year
ending December 31, 2007.

Item 9B - Other Information

Not applicable.

Part III

Item 10 - Directors, Executive Officers and Corporate Governance

EXECUTIVES AND DIRECTORS

The following table sets forth certain information concerning the Directors and
executive officers of the Company at December 31, 2006. Each Director holds
office until a successor is elected or qualified or until his death, resignation
or removal.

<TABLE>
<CAPTION>
                                                                                         Year In
                                                                                       Which Began
                                                                                       to Serve in
                                                                                     Position or as
Name                    Position                                        Age         Executive Officer
----                    --------                                        ---         -----------------

<S>                                                                      <C>               <C>
Charles J. Hinkaty      President and Chief Executive Officer,
                        Director                                         57                1985

Harvey P. Alstodt       President of Del Cosmetics, Director             67                1988

Joseph Sinicropi        Executive Vice President,
                        Chief Financial Officer                          53                2005

Cary C. Newman          Executive Vice President, Global Operations      57                2005

Shawn A. Smith          Senior Vice President, General Counsel
                        and Secretary                                    48                2005

Philip E. Berney        Director                                         43                2005

Church M. Moore         Director                                         34                2005
</TABLE>

There is no arrangement or understanding between any executive officer and any
other person pursuant to which he/she was selected as an officer. No family
relationship exists among any of the executive officers and directors of the
Company.

During the past five years, the principal occupation and employment of each of
the Company's executive officers has been his/her service in the respective
position shown in the above table, except as follows:


                                       55
<PAGE>

Charles J. Hinkaty has been President and Chief Executive Officer since August
2005. Previously, he had served as Chief Operating Officer since January 2005
and Vice President and President of Del Pharmaceuticals since 1985. He has also
served as a Director of the Company since 1986.

Harvey P. Alstodt has been President of Del Cosmetics since August 2005 and a
Director of the Company since January 2005. Previously, he had served as
President of Global Business and Executive Vice President of Sales, Cosmetic
Division, North America since 1985.

Joseph Sinicropi has served as Executive Vice President and Chief Financial
Officer since September 2005. He held various Chief Financial Officer positions
since 1995 at IdeaSphere, Inc., Twin Laboratories, Inc. and SI Corporation. Twin
Laboratories, Inc. filed a petition for protection under the federal bankruptcy
laws in 2003 and was subsequently acquired in an auction process by IdeaSphere,
Inc.

Cary C. Newman joined the Company as Executive Vice President, Global Operations
in July 2005. From 2004 through July 2005, he owned SCN Outsourcing, a contract
packaging and assembly company. From 1995 to 2003, he was Senior Vice President
of Operations of Colomer USA (formerly Revlon Professional), prior to which he
held senior management positions at Herbalife International, Redken
Laboratories, Revlon, Procter & Gamble, and Avon.

Shawn A. Smith rejoined the Company as Vice President, General Counsel and
Secretary in June 2005 and was promoted to Senior Vice President in August 2006.
She previously held the same positions with the Company from 1996 through 1999.
From 2000 through June 2005, she was Founder and President of Next Level
Consulting, LLC, a legal and management consulting firm.

Philip E. Berney is a Managing Director at Kelso & Company, an affiliate of the
Company, having joined Kelso in 1999. Mr. Berney has served as a director since
January 2005. Additionally, Mr. Berney is a director of Custom Building
Products, Inc. and DS Waters Enterprises, Inc.

Church M. Moore is a Vice President at Kelso & Company, an affiliate of the
Company, having joined Kelso in 1998. Prior to joining Kelso, he worked as an
associate at Investcorp International, Inc. Previously, Mr. Moore was an
associate in the corporate finance group at BT Securities Corporation. Mr. Moore
has served as a director since January 2005. Mr. Moore is a director of DS
Waters Enterprises, Inc., Ellis Communications Group, LLC, Insurance Auto
Auctions, Inc. and U.S. Electrical Services, LLC.

Compensation of Directors

None of the Company's directors receive compensation for their services.

Principal Executive Officer and Principal Financial Officer Code of Ethics

The Company has adopted a Code of Ethics that applies to the Company's Chief
Executive Officer, Chief Financial Officer, Controller, Treasurer, and Financial
Reporting Officer, or persons performing similar functions. A copy of the
Company's Code of Ethics is filed as Exhibit 14.1 hereto.

Audit Committee

The Company's securities are not listed on any national securities exchange and
the Company is not required to have an audit committee. The Audit Committee of
the Board of Directors for fiscal year 2006 was composed of three directors. The
members of the Audit Committee were Church M. Moore (Chair), Philip E. Berney
and Charles J. Hinkaty. The Board of Directors has determined that Church M.
Moore is an audit committee financial expert. See "Item 13 - Certain
Relationships and Related Transactions, and Director Independence - Director
Independence."


                                       56
<PAGE>

Item 11 - Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

OVERVIEW OF OBJECTIVES

The Company's executive compensation program is designed to create strong
financial incentives for its officers to increase revenues, profits, operating
efficiency and stakeholder returns, and other business goals set by the Company,
and to reward executives for achieving these goals. The Company believes that a
strong management team, comprised of the most talented individuals in key
positions, is critical to the success of the Company, and that the Company's
executive compensation program is a key tool for attracting and retaining such
individuals.

The Company's executive compensation program has a pay-for-performance
philosophy designed to support annual and long-term business goals for
profitable growth and sustained value. The objectives are to (i) attract,
motivate and retain highly qualified executives; (ii) link total compensation to
both individual and Company performance, and (iii) appropriately balance
short-term and long-term performance.

The Compensation Committee

The Compensation Committee (the "Committee") of the Board of Directors is
responsible for making recommendations to the Board, and in approving where
appropriate, matters related to the compensation of the Company's executive
officers. The Committee generally meets in conjunction with the Company's
regular Board meetings, but also holds special meetings when deemed appropriate.
The Committee is composed of two outside directors, Philip E. Berney and Church
M. Moore, and the President and Chief Executive Officer of the Company, Charles
J. Hinkaty. Mr. Hinkaty does not participate in determinations regarding his own
compensation.

The Committee evaluates the Company's compensation plans and policies on an
ongoing basis against current and emerging compensation practices, legal and
regulatory developments and corporate governance trends, and makes changes as
appropriate.

The Committee's goal is to establish total executive compensation levels that
are competitive with the market in which the Company competes for executive
talent. The Committee has not historically used peer group comparables to
determine compensation. In 2006, the Committee decided that in making
compensation determinations for the executive officers named in the compensation
disclosures below (the "Named Executive Officers") for 2007 and subsequent
years, the Committee would consider data from a peer group comparable to the
Company in industry, geographic area and/or size (in terms of annual revenue).
The peer group compiled at the end of 2006 was based upon a list of companies
used by the independent third-party valuation experts that were retained to
conduct a valuation of the Company, supplemented with certain other Long
Island-based and/or similarly sized companies in order to create the most
accurate picture of the market in which the Company competes. The data was
adjusted to take into account differences in revenues, end-user markets and
industry-specific factors among companies in the peer group. The Committee looks
to the peer group as a point of reference, but does not intend to apply any
mathematical or statistical formulas in making executive compensation decisions.
The peer group consists of the following companies:

      o     Pall Corporation
      o     NBTY, Inc.
      o     Hain Celestial Group, Inc.
      o     Audiovox Corporation
      o     Aeroflex Incorporated
      o     Lifetime Brands Inc.
      o     Revlon, Inc.
      o     Chattem, Inc.
      o     Church & Dwight Co., Inc.
      o     Playtex Products, Inc.
      o     Prestige Brands Holdings, Inc.
      o     Adams Respiratory Therapeutics, Inc.


                                       57
<PAGE>

ELEMENTS OF THE COMPENSATION PROGRAM

The Company's executive compensation program includes three key elements: base
salary, annual incentives and long-term incentives.

BASE SALARY

Base salary is the fixed annual compensation the Company pays to an executive
for performing specific job responsibilities. It represents the minimum income
an executive may receive in any given year. In establishing and adjusting base
salaries for the Named Executive Officers, the Committee considers:

      o     Data from the Company's peer group
      o     The individual's experience and background
      o     The individual's performance during the course of the year
      o     General salary trends in the marketplace
      o     The Company's financial and operating results

Messrs. Hinkaty, Alstodt, Sinicropi and Newman did not receive base salary
increases in 2006. In January 2007, the Committee approved merit increases for
such individuals, so that their 2007 base salary amounts are: Mr. Hinkaty,
$500,000; Mr. Alstodt, $450,000; Mr. Sinicropi, $375,000 and Mr. Newman,
$300,000.

ANNUAL INCENTIVES

Executives are eligible for annual incentive compensation under the Company's
Management Incentive Plan ("MIP"). The MIP is intended to establish a direct
correlation between the annual incentives awarded to participants, the financial
performance of the Company and or individual strategic objectives. The Committee
recommended, and the Board approved, the target levels, set as a percentage of
base salary, for each participating executive, including the Named Executive
Officers. Messrs. Hinkaty and Alstodt's annual incentive targets are 100% of
base salary. Messrs. Sinicropi and Newman's targets are 75% of base salary. Ms.
Smith's target is 40% of base salary. Executives can receive an award in excess
of their targets in the event that the Company and the individual exceed their
annual goals, up to a designated maximum payout. The maximum payouts for Messrs.
Hinkaty and Alstodt are set at 200% of base salary. The maximum payouts as a
percentage of base salary for Mr. Sinicropi, Mr. Newman and Ms. Smith are 150%,
113% and 60%, respectively. Executives may receive an award that is less than
their targets if performance does not meet targeted objectives. The threshold
payouts for Messrs. Hinkaty and Alstodt are set at 64% of base salary and the
threshold payouts for Messrs. Sinicropi, Newman and Ms. Smith are set at 48%,
48% and 22%, respectively.

The annual incentives of Messrs. Hinkaty, Alstodt, Sinicropi and Newman are
weighted 100% on the Company's performance. Ms. Smith's annual incentive is
weighted 90% on the Company's performance and 10% on individual performance. The
Named Executive Officers have a higher-weighted Company performance component
than other participants in the MIP, as the Committee believes that the
performance of the Company as a whole is the best indicator of the effectiveness
of its top executives.

The corporate performance component of the MIP is recommended by the Committee
and approved by the Board on an annual basis, based on the determination of the
most critical priorities and objectives for the year. For 2006, the corporate
performance component was based on the Company's attainment of financial metrics
as measured by EBITDA, and improvements in the Company's inventory position. The
Company believes that the MIP keeps management focused on attaining strong
near-term financial performance.

Company performance goals include a threshold level below which no award will be
payable. Threshold performance is set at 80% of the budgeted goal. Target
performance is set at the budgeted goal level for the year, and maximum
performance is set at 120% of the budgeted goal. The threshold level is set to
pay for, expected but not assured, performance. Target level is set to incent
management to achieve budgeted goals. Maximum levels are set to reward the
Company executives for achieving superior performance.

In 2006, the Company attained approximately 98% of the corporate performance
component of the MIP.


                                       58
<PAGE>

LONG TERM INCENTIVES

The Company's long term incentive programs were established to ensure that
senior management maximizes its focus on increasing stakeholder value through
long-term growth. While long term incentives form a meaningful part of the
compensation of the Named Executive Officers, the Company is limited in its
ability to grant long term equity-based incentives due to its capital structure
and the arrangements negotiated with Kelso as of the time of the Merger. There
are a limited number of Override Units and options under the Option Incentive
Plan (both discussed below) available for grant. As all of the available
Override Units and most of the available options under the Option Incentive Plan
have been granted, continued grants will not be a feature of the compensation of
the Named Executive Officers for 2007 and subsequent years.

Override Units

The Company's major stakeholders believe that it is in the best interests of the
Company for the executive officers to have a financial interest in the long-term
results of their business. Accordingly, Messrs. Hinkaty, Alstodt, Sinicropi and
Newman were granted certain profit interests (the "Override Units") in DLI
Holding LLC ("DLI LLC"), the indirect parent of the Company, as a result of
their investment in DLI LLC. The number of Override Units granted to Messrs.
Hinkaty and Alstodt was negotiated at the time of the Merger. The remaining
Override Units were granted to Messrs. Sinicropi and Newman as determined by
management of DLI LLC.

The Override Units have two sub-classes: Operating Units and Value Units.
Subject to forfeiture and participation provisions (including the applicable
Benchmark Amount of $32.718857) as detailed in the DLI LLC Agreement, the
holders of Override Units will have voting rights with respect to their Override
Units and shall have the rights with respect to profits and losses of DLI LLC
and distributions from DLI LLC as set forth in DLI LLC Agreement. In total,
one-third of the Override Units granted are Operating Units, which may be
forfeited, on a pro rata basis, if the executive ceases to be employed by the
Company prior to the third anniversary of the date of grant. The remaining
two-thirds of the Override Units are Value Units, which will participate in
distributions upon certain Change of Control or liquidation events only if, upon
the occurrence of such an event, Kelso receives an internal rate of return,
compounded annually, on its investment in DLI LLC of at least 14%, and the Final
Value (as defined in DLI LLC Agreement), is at least greater than two times the
Initial Price (as defined in the DLI LLC Agreement). All Value Units will
participate in distributions if the Final Value is at least four times the
Initial Price. If the Final Value is greater than two times, but less than four
times, the Initial Price, the Value Units will participate in the distribution
on a ratable basis. Value Units not eligible to participate in distributions
will be automatically forfeited. If an executive ceases employment with the
Company prior to the Change in Control event, the Value Units will be forfeited.

Each Operating Unit that has not been forfeited will automatically convert into
one Value Unit on the tenth anniversary of its issuance. After the tenth
anniversary of the date of issuance, all Value Units will only participate in
distributions if the Final Value is at least greater than twelve times the
Initial Price. If the Final Value is greater than ten times, but less than
twelve times, the Initial Price, the Value Units will participate in the
distribution on a ratable basis.

The Override Units are not convertible into common stock, and are generally not
transferable.

The terms described above were the result of negotiations with the Company's
major stockholders, who believe that owning an indirect interest in the
Company, with performance targets directly tied to the stockholders' investment
return, gives executives a personal financial stake in their business decisions.
Additionally, this incentive is intended to keep participants focused on
sustained growth, as well as motivate them to continue their employment
commitment to the Company over the long-term. In 2006, Mr. Sinicropi and Mr.
Newman each invested $20,000 in DLI LLC, and were granted 61,855 and 30,852
Override Units, respectively.


                                       59
<PAGE>

OPTION INCENTIVE PLAN

The Option Incentive Plan was adopted by DLI Holding Corp. (the Company's direct
parent) effective January 27, 2005, to support retention and to align the
interests of executives and key employees of the Company with those of its
stakeholders by tying a portion of compensation to the long-term appreciation of
the value of the Company. A total of 180,000 shares were reserved for issuance
under this plan. Participation in the Option Incentive Plan is limited to a
small number of employees who have the ability, through their leadership and
strategic actions, to significantly impact the growth of the Company over the
long term. The number of options granted to each participant was determined by
the Committee, with input from senior management, based upon the Committee's
assessment of each individual's capacity to contribute to the Company's long
term growth.

The exercise price of the options are determined by the Committee, in
conjunction with a third-party valuation, provided that the exercise price
cannot be less than the fair market value of the DLI Holding Corp. common stock
as of the date of grant. While the Option Incentive Plan provides that the
Committee may grant incentive stock options within the meaning of Section 422 of
the Internal Revenue Code, it is anticipated that all options granted thereunder
will be non-qualified stock options for federal income tax purposes.

Under the Option Incentive Plan, one-third of the total amount of each such
grant are Service Options, and two-thirds of the amount of each such grant are
Exit Options. Service Options are generally exercisable in three equal annual
installments, commencing on the first anniversary of the grant date. The first
group of Service Options granted under the plan on March 1, 2006 provided that
such options would begin vesting on the later to occur of (a) January 27, 2005
or (b) the date the employee commenced employment with the Company. Exit Options
are performance options, and generally become exercisable only after a Change in
Control (as defined in the Option Incentive Plan), if Kelso is able to sell its
equity investment in DLI LLC at a price equal to at least two times its initial
investment, and achieve at least a 14% internal rate of return (the "Floor
Value"), subject to certain exceptions. All Exit Options will become exercisable
if Kelso is able to sell its equity investment in DLI LLC at a price equal to at
least four times its initial investment, and will become partially exercisable
on a ratable basis at a price in excess of the Floor Value. All remaining Exit
Options that have not become exercisable at the time of a Change in Control will
be cancelled.

Option rights are not transferable other than by will or by the laws of descent
and distribution or, if permitted by the Committee. All of the shares acquired
upon exercise of any option will be subject to the security-holder arrangements
described below. See "Certain Relationships and Related
Transactions-Stockholders Agreement."

Messrs. Hinkaty, Alstodt, Sinicropi and Newman do not participate in the Option
Incentive Plan. In 2006, Ms. Smith was granted a total of 5,000 stock options,
1,666.67 of which are Service Options, and 3,333.33 of which are Exit Options.
The exercise price of all options granted under the Option Incentive Plan in
2006 is $35 per share.

EXCHANGE OPTIONS

On January 27, 2005, in connection with the Merger, Messrs. Hinkaty and Alstodt
entered into exchange agreements with DLI Holding Corp., the parent of the
Company, under which they exchanged, effective as of the closing of the Merger,
options to purchase common stock of Del Laboratories, Inc. for options to
purchase DLI Holding Corp. common stock with an equivalent spread value. The
value of the options exchanged by Mr. Hinkaty and Mr. Alstodt was approximately
$2,000,000 and $500,000, respectively. As a result of these exchange agreements,
Mr. Hinkaty and Mr. Alstodt hold options to purchase DLI Holding Corp. stock
representing in the aggregate approximately 3.64% of the diluted equity of DLI
Holding Corp. immediately after the Merger. In addition, they own, through their
common interests in DLI LLC, common stock of DLI Holding Corp. representing, in
the aggregate, less than 0.1% of the diluted equity of DLI Holding Corp.


                                       60
<PAGE>

RETIREMENT BENEFITS

401(K)

The Company offers a defined contribution 401(k) savings plan to all regular,
full-time employees in the United States. The Company provides this program to
assist its employees in saving some amount of their cash compensation for
retirement in a tax-efficient manner. Plan participants are allowed to
contribute specified percentages of their base salary, subject to limits
established under the Internal Revenue Code of 1986. Although the Company
retained the right to make contributions under this plan, no contributions were
made in 2006. The Committee approved an amendment to this plan, effective April
2, 2007, providing a 100% Company match of the first 3% of participating
employees' contributions, and a 50% match of up to the next 2%. In addition, to
compensate those long-term employees of the Company who are closer to retirement
age for the freezing of the Employees' Pension Plan (described below), employees
who, as of April 1, 2007, have at least 10 years of vesting service with the
Company and are at least fifty years of age, will receive an additional
automatic contribution to the plan in the amount of 3% of eligible compensation.

PENSION PLAN

As part of their post employment compensation, the Named Executive Officers
participate in the Company's Employees' Pension Plan. The Employees' Pension
Plan is open to all eligible non-union employees of the Company hired prior to
July 1, 2006, and is a tax-qualified defined benefit plan. The Employees'
Pension Plan provides for an annual benefit equal to 36% of a participant's
"final average earnings" which is reduced by 1/30th for each year of credited
service that is less than 30 years at retirement date. "Final average earnings"
is the participant's monthly compensation over the five consecutive Employees'
Pension Plan years which produce the highest monthly average within the last ten
completed years of participation. Covered compensation under the Employees'
Pension Plan includes salary and annual incentive payments, subject to Internal
Revenue Code compensation limits. Upon completion of five years of credited
service, a participant is 100% vested. There is no partial vesting for
participants with less than five years of credited service. Under the terms of
the Employees' Pension Plan, participants are eligible for monthly benefit
payments upon reaching age 65. Early retirement benefits, proportionately
reduced, are available for all participants having attained age 55 with at least
five years of service.

The Employees' Pension Plan was frozen, effective April 1, 2007, and all benefit
accruals ceased after that date. All benefits accrued prior to April 1, 2007
will be preserved. For a further discussion of the freeze of the Employees'
Pension Plan, see "Management's Financial Condition and Results of Operations -
Recent Developments".

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Certain of the Company's management, including Mr. Hinkaty and Mr. Alstodt,
participate in the Company's Supplemental Executive Retirement Plan (the
"SERP"), a nonqualified defined benefit plan designed to provide pension
benefits that cannot be provided under the Employees' Pension Plan due to
Internal Revenue Code compensation limits on qualified plans. Except as
indicated, the material terms of the SERP are the same as those of the
Employees' Pension Plan. The SERP provides an annual benefit equal to 1.20% of
"Average Compensation" multiplied by number of years of service not to exceed 25
or 30 years. The annual benefit amount is then reduced by the Employees' Pension
Plan benefit earned by the participant. For Mr. Hinkaty and Mr. Alstodt,
"Average Compensation" is the monthly average of all compensation paid to him in
1996. For all other participants, "Average Compensation" is the average of the
annual earnings during the five consecutive years out of the last ten years of
credited service before retirement, such that included earnings are the highest.

The Company does not offer benefits under the SERP to other present or future
executive officers.


                                       61
<PAGE>

OTHER BENEFITS AND PERQUISITES

The Company maintains medical, disability and life insurance policies for all of
its eligible employees. The Named Executive Officers are eligible to participate
in these programs on the same basis as other employees. In addition, the Company
provides its officers, including the Named Executive Officers, with perquisites
and other personal benefits that the Company and the Committee believe are
reasonable, and consistent with the overall goals of the compensation program.
Officers of the Company, including the Named Executive Officers, are provided
the choice of (i) use of a Company automobile or (ii) a car allowance, and
participation in the Company's Medical Executive Reimbursement plan as a
supplement to the medical and dental benefits offered to all employees.

In addition, Messrs. Hinkaty and Alstodt are provided split dollar life
insurance, which is reported in the Summary Compensation Table. See "Summary
Compensation Table--Column (i)--All Other Compensation." This benefit is
provided as part of a legacy plan, and is not offered as a continuing part of
the Company's benefit program.

EMPLOYMENT AND SEVERANCE AGREEMENTS

The Company has entered into employment or severance agreements with the Named
Executive Officers. These employment agreements enable the Company to attract
and retain top executive talent, and ensure that the terms applicable to
employment, including separation of service, are agreed upon in advance and not
subject to future negotiation. These agreements also provide for severance
benefits in the event that employment is terminated after a change in control of
the Company, in order to encourage retention and focus during a change in
control event. The terminated executive is also bound by confidentiality,
non-solicitation and non-compete provisions that protect the best interests of
the Company and its stakeholders.

The employment agreements of Messrs. Hinkaty, Alstodt and Sinicropi can be
terminated due to certain specified events, and provide for severance payments
of up to three years for Messrs. Hinkaty and Alstodt, and two years for Mr.
Sinicropi. The Company renewed its two-year employment agreement with Mr. Newman
in December 2006, extending the term of his agreement through July 5, 2009. In
March 2007, the Company entered into a severance arrangement with Ms. Smith,
providing for severance payments and other benefits in certain events of her
termination. For a detailed discussion of the termination features and severance
benefits of the Named Executive Officers, see "Potential Payments Under
Termination or Change in Control".

TAX TREATMENT OF EXECUTIVE COMPENSATION

If any payments or benefits, made to or for the benefit of any of the Named
Executive Officers by the Company or any entity which effectuates a change in
control, would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, then the payments or benefits shall be reduced to the
maximum amount that could be paid to the executive that would not give rise to
an excise tax. However, commercially reasonable best efforts will be used to
seek the approval of the Company's and/or its direct and indirect parents'
shareholders in the manner provided in Section 280G(b)(5) of the Internal
Revenue Code with respect to the reduced payments or benefits so that such
amounts would not be subject to the reduction described above.


                                       62
<PAGE>

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Company has reviewed and discussed the
Compensation Discussion and Analysis ("CD&A") required by Item 402(b) of
Regulation S-K with management, and, based upon such review and discussion, the
Compensation Committee recommended to the Board that the Compensation Discussion
and Analysis be included in this Annual Report on Form 10-K.

                                            THE COMPENSATION COMMITTEE

                                            Philip E. Berney
                                            Church M. Moore
                                            Charles J. Hinkaty


                                       63
<PAGE>

                           SUMMARY COMPENSATION TABLE

The table below summarizes the total compensation paid or earned by the
Principal Executive Officer, Principal Financial Officer and each of three other
most highly compensated executive officers (collectively, the "Named Executive
Officers") for the fiscal year ended December 31, 2006.

<TABLE>
<CAPTION>
               (a)              (b)      (c)      (d)     (e)       (f)          (g)            (h)            (i)           (j)
               ---              ---      ---      ---     ---       ---          ---            ---            ---           ---
                                                                                            Change in
                                                                                             Pension
                                                                                            Value and
                                                                                           Nonqualified
                                                                             Non-Equity      Deferred
                                                         Stock    Option   Incentive Plan  Compensation    All Other
       Name and Principal              Salary    Bonus   Awards   Awards    Compensation     Earnings     Compensation      Total
            Position           Year      ($)      ($)     ($)     ($)(1)       ($)(2)         ($)(3)      ($)(4)(5)(6)       ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>    <C>         <C>     <C>    <C>          <C>             <C>            <C>         <C>
Charles J. Hinkaty             2006   $416,416     --      --    $158,479     $408,660        $18,583        $41,777     $1,025,332
President and
Principal Executive Officer

Harvey P. Alstodt              2006   $416,416     --      --    $158,479     $408,660        $24,073        $68,157     $1,051,712
President,
Del Cosmetics

Joseph Sinicropi               2006   $325,000     --      --    $ 77,779     $239,210             --        $17,460     $  659,449
Executive Vice President
Principal Financial Officer

Cary C. Newman                 2006   $275,000     --      --    $ 38,776     $202,408             --        $54,538     $  570,722
Executive Vice President,
Global Operations

Shawn Smith                    2006   $265,833     --      --    $ 10,713     $108,156        $18,626        $ 2,511     $  387,213
Senior Vice President
General Counsel and Secretary
</TABLE>

(1) The amounts in column (f) reflect the accounting charge for compensation
expense incurred by the Company for financial reporting purposes for the year
ended December 31, 2006, in accordance with SFAS No. 123 (R), from awards
granted in and prior to 2006. These amounts reflect the Company's accounting
expense for these awards, and do not correspond to the actual value that will be
recognized by the Named Executive Officer. These awards include options granted
pursuant to the Option Incentive Plan (Service Options) and certain profit
interests (Operating Units) in DLI LLC that were granted to certain of the
Company's executives who made an investment in DLI LLC. For additional
information on the valuation assumptions used in the calculations of these
amounts, see Note 11 to the Notes to the Consolidated Financial Statements. See
the Grants of Plan-Based Awards Table for information on the options and
Override Units granted in 2006.

(2) The amounts in column (g) represent awards granted under the Company's MIP.
Messrs. Hinkaty and Alstodt's annual incentive targets were 100% of base salary.
Messrs. Sinicropi and Newman's targets were 75% of base salary. Ms. Smith's
target was 40% of base salary.

In 2006, the Company attained approximately 98% of the corporate performance
component of the MIP resulting in the achievement of approximately 98% of base
salary for Messrs. Hinkaty and Alstodt, approximately 73% for Messrs. Sinicropi
and Newman and approximately 39% for Ms. Smith.

(3) The amounts in column (h) reflect the aggregate change in the actuarial
present value of the Named Executive Officer's benefits under all pension plans
established by the Company determined using interest rate and mortality rate
assumptions consistent with those used in the Company's consolidated financial
statements and includes amounts which the Named Executive Officer may not
currently be entitled to receive because such amounts are not vested. See the
Pension Benefits Table for additional information.

(4) The amounts in column (i) reflect for each Named Executive Officer:
      o     Insurance premiums paid for such officers under the Company's
            Medical Executive Reimbursement Plan;
      o     The value attributable to personal use of Company provided
            automobiles and/or automobile allowances (each as calculated in
            accordance with IRS guidelines), the cost of financial planning
            services and the cost of parking garage fees reimbursed by the
            Company, which are included as compensation on the W-2 of the Named
            Executive Officers who receive such benefits. Each such Named
            Executive Officer is responsible for paying income tax on such
            amount.

The amount attributable to each such perquisite or benefit for each Named
Executive Officer does not exceed the greater of $25,000 or 10% of the total
amount of perquisites received by such Named Executive Officer.


                                       64
<PAGE>

(5) In addition to the items noted in footnote (4) above, the amount in column
(i) includes $25,238 and $46,858 of the dollar value (calculated in accordance
with SEC guidelines) of the premiums paid by the Company with respect to "split
dollar" life insurance polices maintained by the Company for Mr. Hinkaty and Mr.
Alstodt, respectively.

(6) In addition to the items noted in footnote (4) above, the amount shown in
column (i) includes $39,840 of relocation reimbursements and allowances received
by Mr. Newman, pursuant to the terms of his 2005 employment agreement.

                           GRANTS OF PLAN BASED AWARDS

<TABLE>
<CAPTION>
        (a)           (b)         (c)        (d)        (e)         (f)      (g)    (h)       (i)        (j)        (k)       (l)
        ---           ---         ---        ---        ---         ---      ---    ---       ---        ---        ---       ---
                                                                                           All Other
                                                                                             Stock    All Other
                                                                     Estimated Future       Awards:    Option    Exercise    Grant
                                                                       Payouts Under        Number     Awards:    or Base  Date Fair
                              Estimated Future Payouts Under         Equity Incentive         of      Number of    Price    Value of
                             Non-Equity Incentive Plan Awards(1)        Plan Awards         Shares   Securities     of     Stock and
                             ----------------------------------- ------------------------  of Stock  Underlying   Option     Option
                     Grant    Threshold    Target    Maximum     Threshold Target Maximum  or Units    Options    Awards     Awards
        Name          Date        ($)        ($)        ($)         (#)      (#)    (#)       (#)        (#)      ($/sh)      ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>        <C>        <C>        <C>           <C>      <C>    <C>       <C>       <C>        <C>      <C>
Charles J. Hinkaty             $     --   $416,416   $832,832

Harvey P. Alstodt              $     --   $416,416   $832,832

Joseph Sinicropi(2)            $150,000   $243,750   $487,500
                    01/31/06                                                                           18,195     $32.72   $254,548
                    01/31/06                                       2,183     --    43,660     --           --     $32.72   $444,459

Cary C. Newman(2)              $     --   $206,250   $310,750
                    01/31/06                                                                            9,071     $32.72   $126,903
                    01/31/06                                       1,089     --    21,781     --           --     $32.72   $221,731

Shawn Smith(3)                 $     --   $110,000   $165,000
                    03/01/06                                                                            1,500     $35.00   $ 19,755
                    03/01/06                                         150     --     3,000     --           --     $35.00   $ 28,950
                    08/08/06                                                                              167     $35.00   $  2,065
                    08/08/06                                          17     --       333     --           --     $35.00   $  2,917
</TABLE>

(1) These columns show the potential payout for each Named Executive Officer
under the Company's MIP which was approved by the Compensation Committee of the
Board of Directors. The final cash payout to each Named Executive Officer is
determined using a multiple of financial and non-financial performance-driven
measurements. The amounts shown in column (c) reflect the minimum payment under
the Company's plan which is 0%, except for Mr. Sinicropi who was guaranteed a
minimum payment amount pursuant to the terms of his 2005 employment agreement.
The amounts shown in column (d) reflect the target payment that the Named
Executive Officers could have received under the MIP, if 100% of the annual
incentive targets were achieved. The amounts shown in column (e) reflect the
maximum potential payment that the Named Executive Officers could have received
under the Company's MIP. The amounts expected to be paid to the Named Executive
Officers are shown in column (g) of the Summary Compensation Table.


                                       65
<PAGE>

(2) DLI LLC granted certain profit interests (Override Units) in DLI LLC to
certain of the Company's executives who made an investment in DLI LLC. The
Override Units have two sub-classes: Operating Units and Value Units. In 2006,
Mr. Sinicropi and Mr. Newman were granted 18,195 and 9,071 Operating Units,
respectively, and 43,660 and 21,781 Value Units, respectively. Subject to
forfeiture and participation provisions (including the applicable Benchmark
Amount of $32.718857) as detailed in the DLI LLC Agreement, the holders of
Override Units will have voting rights with respect to their Override Units and
shall have the rights with respect to profits and losses of DLI LLC and
distributions from DLI LLC as set forth in the DLI LLC Agreement. The Override
Units are not convertible to common stock and are not saleable or generally
transferable. In total, thirty three percent of the total Override Units granted
were Operating Units which may be forfeited, on a pro-rata basis, if the
executive ceases to be employed by the Company during the three year period
following the grant of such Operating Units. The remaining sixty seven percent
of the Override Units granted were Value Units which participate in
distributions only upon certain change of control or liquidation events and only
if, upon the occurrence of such an event, Kelso receives an internal rate of
return, compounded annually, on its investment in DLI LLC of at least 14% and
the Final Value, as defined in the DLI LLC Agreement, is at least greater than
two times the Initial Price, as defined in the DLI LLC Agreement. All Value
Units will participate in distributions if the Final Value is at least four
times the Initial Price, and the Value Units will participate in distributions
on a ratable basis in the event that the Final Value is greater than two times
but less than four times the Initial Price. Value Units granted to an executive
are subject to forfeiture if the executive ceases to be employed by the Company
prior to a change in control. Value Units not eligible to participate in
distributions are automatically forfeited. Any Operating Unit, not forfeited, on
the 10th anniversary of its issuance shall automatically convert into one Value
Unit. Any Value Unit, not forfeited, on the 10th anniversary of its issuance
shall have its terms modified by increasing the previously discussed multiples
of the Initial Price from two times to ten times and from four times to twelve
times. The amounts recorded in column (f) as the threshold number represent
Value Units which will participate in distributions if Kelso receives an
internal rate of return, compounded annually, on its investment in DLI LLC of at
least 14% and the Final Value is at least greater than two times the Initial
Price. The amounts recorded in column (h) as the maximum number represent Value
Units which will participate in distributions if the Final Value is as least
four times the Initial Price.

(3) DLI Holding Corp. granted options pursuant to the Option Incentive Plan
which provides for the granting of two types of options to officers or key
employees of the Company. Ms. Smith was granted 1,500 Service Options and 3,000
Exit Options in March 2006. Options generally become exercisable in three equal
annual installments commencing on the first anniversary of the grant date,
however, the vesting of the service options pursuant to this grant commenced
effective on her hire date. Ms. Smith was also granted 167 Service Options and
333 Exit Options in August 2006. The Exit Options (performance options)
generally become exercisable only if Kelso is able to sell its equity investment
in DLI LLC at a price equal to at least two times its initial investment and
achieve at least a 14% internal rate of return (the "Floor Value"), subject to
certain exceptions. All Exit Options will become exercisable if Kelso is able to
sell its equity investment in DLI LLC at a price equal to at least four times
its initial investment and will become partially exercisable on a ratable basis
at a price in excess of the Floor Value. The amounts recorded in column (f) as
the threshold number represents Exit Options which will become exercisable if
Kelso is able to sell its equity investment in DLI LLC at the Floor Value. The
amounts recorded in column (h) as the maximum number represents Exit Options
which will become exercisable if Kelso is able to sell its equity investment in
DLI LLC at a price equal to at least four times its initial investment and
achieves at least a 14% internal rate of return.

                                       66
<PAGE>

                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table provides information related to any outstanding stock option
or Override Unit as of December 31, 2006 for the Named Executive Officers. Each
grant is shown separately for each Named Executive Officer.

<TABLE>
<CAPTION>
                                                  Option Award                                      Stock Awards
                       ------------------------------------------------------------ ------------------------------------------------
        (a)                (b)           (c)           (d)         (e)      (f)        (g)         (h)         (i)           (j)
        ---                ---           ---           ---         ---      ---        ---         ---         ---           ---
                                                                                                                           Equity
                                                                                                                          Incentive
                                                                                                             Equity     Plan Awards:
                                                     Equity                                                 Incentive     Market or
                                                    Incentive                                             Plan Awards:     Payout
                                                      Plan                           Number                 Number of     Value of
                                                     Awards:                        of Shares    Market     Unearned      Unearned
                        Number of     Number of     Number of                       or Units    Value of     Shares,       Shares,
                       Securities    Securities    Securities                       of Stock    Shares or     Units       Units or
                       Underlying    Underlying    Underlying    Option               That      Units of    or Other        Other
                       Unexercised   Unexercised   Unexercised  Exercise   Option   Have Not   Stock That  Rights That   Rights That
                       Options (#)   Options (#)    Unearned      Price  Expiration  Vested     Have Not    Have Not      Have Not
        Name           Exercisable  Unexercisable  Options (#)     ($)      Date       (#)     Vested ($)  Vested (#)    Vested ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>           <C>           <C>        <C>      <C>          <C>        <C>         <C>           <C>
Charles J. Hinkaty
 Exchange Options(1)      21,819            --            --     $18.65   01/27/15      --         --          --            --
                          22,910            --            --     $ 8.97   01/27/15      --         --          --            --
                           7,224            --            --     $ 9.08   01/27/15      --         --          --            --
                           6,121            --            --     $21.45   01/27/15      --         --          --            --
                          12,484            --            --     $22.04   01/27/15      --         --          --            --
                          55,276            --            --     $21.62   01/27/15      --         --          --            --
                           9,170            --            --     $15.01   01/27/15      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
 Operating Units(2)(6)    19,087        13,634            --     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
 Value Units(3)               --            --        65,441     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
Harvey P. Alstodt
 Exchange Options(1)      21,819            --            --     $18.65   01/27/15      --         --          --            --
                           8,126            --            --     $ 8.97   01/27/15      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
 Operating Units(2)(6)    19,087        13,634            --     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
 Value Units(3)               --            --        65,441     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
Joseph Sinicropi
------------------------------------------------------------------------------------------------------------------------------------
 Operating Units(2)(7)     4,549        13,646            --     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
 Value Units(3)               --            --        43,660     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
Cary C. Newman
------------------------------------------------------------------------------------------------------------------------------------
 Operating Units(2)(8)     2,268         6,803            --     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
 Value Units(3)               --            --        21,781     $32.72         --      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
Shawn Smith
 Service Options(4)(9)       500         1,000            --     $35.00   03/01/16      --         --          --            --
                  (10)        --           167            --     $35.00   08/08/16      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
 Exit Options(5)              --            --         3,000     $35.00   03/01/16      --         --          --            --
                              --            --           333     $35.00   08/08/16      --         --          --            --
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) On January 27, 2005, Mr. Hinkaty and Mr. Alstodt each entered into separate
exchange agreements with DLI Holding Corp., under which each exchanged,
effective as of the closing of the Merger, options to purchase common stock of
Del Laboratories, Inc. for options to purchase DLI Holding Corp. common stock
("Exchange Options") with an equivalent spread value. Mr. Hinkaty and Mr.
Alstodt became 100% vested in these options on January 27, 2005.


                                       67
<PAGE>

(2) Operating Units are a sub-class of certain profit interests in DLI LLC that
were granted to certain of the Company's executives who made an investment in
DLI LLC. Subject to forfeiture and participation provisions (including the
applicable Benchmark Amount of $32.718857) as detailed in the DLI LLC Agreement,
the holders of Operating Units will have voting rights with respect to their
Operating Units and shall have the rights with respect to profits and losses of
DLI LLC and distributions from DLI LLC as set forth in the DLI LLC Agreement.
The Operating Units are not convertible to common stock and are not saleable or
generally transferable. The Operating Units may be forfeited, on a pro-rata
basis, if any executive ceases to be employed by the Company during the three
year period following the date of grant. Any Operating Unit, not forfeited, on
the 10th anniversary of its issuance shall automatically convert into one Value
Unit.

(3) Value Units are a sub-class of certain profit interests in DLI LLC that were
granted to certain of the Company's executives who made an investment in DLI
LLC. Subject to forfeiture and participation provisions (including the
applicable Benchmark Amount of $32.718857) as detailed in the DLI LLC Agreement,
the holders of Value Units will have voting rights with respect to their Value
Units and shall have the rights with respect to profits and losses of DLI LLC
and distributions from DLI LLC as set forth in the DLI LLC Agreement. Value
Units participate in distributions only upon certain change of control or
liquidation events and only if, upon the occurrence of such an event, Kelso
receives an internal rate of return, compounded annually, on its investment in
DLI LLC of at least 14% and the Final Value, as defined in the DLI LLC
Agreement, is at least greater than two times the Initial Price, as defined in
the DLI LLC Agreement. All Value Units will participate in distributions if the
Final Value is at least four times the Initial Price, and the Value Units will
participate in distributions on a ratable basis in the event that the Final
Value is greater than two times but less than four times the Initial Price.
Value Units granted to an executive are subject to forfeiture if the executive
ceases to be employed by the Company prior to a change in control. Value Units
not eligible to participate in distributions are automatically forfeited. Any
Value Unit, not forfeited, on the 10th anniversary of its issuance shall have
its terms modified by increasing the previously discussed multiples of the
Initial Price from two times to ten times and from four times to twelve times.

(4) Service Options are granted according to the provisions of the Option
Incentive Plan. Service Options generally become exercisable in three equal
annual installments commencing on the first anniversary of the grant date.
However, Service Options granted to Ms. Smith on March 1, 2006 commenced vesting
effective on her hire date.

(5) Exit Options are granted according to the provisions of the Option Incentive
Plan. Exit Options (performance options) generally become exercisable only if
Kelso is able to sell its equity investment in DLI LLC at a price equal to at
least two times its initial investment and achieve at least a 14% internal rate
of return (the "Floor Value"), subject to certain exceptions. All Exit Options
will become exercisable if Kelso is able to sell its equity investment in DLI
LLC at a price equal to at least four times its initial investment and will
become partially exercisable on a ratable basis at a price in excess of the
Floor Value.

(6) The Operating Units become exempt from forfeiture as follows: 10,907 in 2007
and 2,727 in 2008.

(7) The Operating Units become exempt from forfeiture as follows: 6,065 in 2007,
6,065 in 2008 and 1,516 in 2009.

(8) The Operating Units become exempt from forfeiture as follows: 3,024 in 2007,
3,024 in 2008 and 755 in 2009.

(9) The Service Options will vest as follows: 500 in 2007 and 500 in 2008.

(10) The Service Options will vest as follows: 56 in 2007, 56 in 2008 and 55 in
2009.


                                       68
<PAGE>

                        OPTION EXERCISES AND STOCK VESTED

The Named Executive Officers did not exercise any stock options during the year
ended December 31, 2006.

                                PENSION BENEFITS

The table below shows the present value of accumulated benefits payable to each
of the Named Executive Officers, as of December 31, 2006, including the number
of years of service credited to each such Named Executive Officer, under the
Employees' Pension Plan and Supplemental Executive Retirement Plan determined
using interest rate and mortality rate assumptions consistent with those used by
the Company for financial reporting purposes. See Note 10(a) to the Notes to the
Consolidated Financial Statements for additional information on the rates and
assumptions used.

<TABLE>
<CAPTION>
        (a)                                (b)                        (c)              (d)             (e)
        ---                                ---                        ---              ---             ---
                                                                  Number of
                                                                     Years        Present Value     Payments
                                                                   Credited      of Accumulated    During Last
                                                                    Service          Benefit       Fiscal Year
       Name                             Plan Name                     (#)              ($)             ($)
--------------------------------------------------------------------------------------------------------------
<S>                      <C>                                          <C>            <C>               <C>
Charles J. Hinkaty       Employees' Pension Plan (1)                   22            $313,779           --
                         Supplemental Executive Retirement Plan (2)    22            $274,302           --

Harvey P. Alstodt        Employees' Pension Plan (1)                   21            $530,093           --
                         Supplemental Executive Retirement Plan (2)    21            $513,225           --

Joseph Sinicropi         Employees' Pension Plan (1)                   --                  --           --

Cary C. Newman           Employees' Pension Plan (1)                   --                  --           --

Shawn Smith              Employees' Pension Plan (1)                    2            $ 18,626           --
</TABLE>

(1) The Named Executive Officers participate in the Company's Employees' Pension
Plan. The Employees' Pension Plan is open to all eligible non-union employees of
the Company hired prior to July 1, 2006, and is a tax-qualified defined benefit
plan. The Employees' Pension Plan provides for an annual benefit equal to 36% of
a participant's "final average earnings" which is reduced by 1/30th for each
year of credited service that is less than 30 years at retirement date. "Final
average earnings" is the participant's monthly compensation over the five
consecutive Employees' Pension Plan years which produce the highest monthly
average within the last ten completed years of participation. Covered
compensation under the Employees' Pension Plan includes salary and annual
incentive payments, subject to Internal Revenue Code compensation limits. Upon
completion of five years of credited service, a participant is 100% vested.
There is no partial vesting for participants with less than five years of
credited service. Under the terms of the Employees' Pension Plan, participants
are eligible for monthly benefit payments upon reaching age 65. Early retirement
benefits, proportionately reduced, are available for all participants having
attained age 55 with at least five years of service. The Employees' Pension Plan
was frozen, effective April 1, 2007, and all benefit accruals will cease after
that date. All benefits accrued prior to April 1, 2007 will be preserved.

(2) Certain of the Company's management, including Mr. Hinkaty and Mr. Alstodt,
participate in the Company's SERP, a nonqualified defined benefit plan designed
to provide pension benefits that cannot be provided under the Employees' Pension
Plan due to Internal Revenue Code compensation limits on qualified plans. Except
as indicated, the material terms of the SERP are the same as those of the
Employees' Pension Plan. The SERP provides an annual benefit equal to 1.20% of
"Average Compensation" multiplied by number of years of service not to exceed 25
or 30 years. The annual benefit amount is then reduced by the Employees' Pension
Plan benefit earned by the participant. For Mr. Hinkaty and Mr. Alstodt,
"Average Compensation" is the monthly average of all compensation paid to him in
1996. For all other participants, "Average Compensation" is the average of the
annual earnings during the five consecutive years out of the last ten years of
credited service before retirement, such that included earnings are the highest.
The Company does not offer benefits under the SERP to other present or future
executive officers.



                        NONQUALFIED DEFERRED COMPENSATION

The Company does not have any nonqualified defined contribution and other
nonqualified compensation plans.


                                       69
<PAGE>

            POTENTIAL PAYMENTS UNDER TERMINATION OR CHANGE IN CONTROL

The tables below reflect the amount of compensation to each of the Named
Executive Officers of the Company in the event of the termination of such
executive's employment under several different circumstances. The amounts shown
assume that such termination was effective as of December 31, 2006, and thus
includes amounts earned through such time and are estimates of the amounts that
would be paid out to the executive upon their termination. The actual amounts to
be paid out can only be determined at the time of such executive's separation
from the Company.

All of the Named Executive Officers except Ms. Smith have entered into executive
employment agreements. Under the terms of the agreements of Messrs. Hinkaty,
Alstodt, and Sinicropi, employment shall terminate prior to the end of the
agreement term on the first to occur of (i) his death, (ii) his disability (as
defined in his agreement), (iii) his termination for cause (as defined in his
agreement), (iv) 30 days after written notice delivered to the executive by the
Company of his termination without cause, (v) his termination for Good Reason
(as defined in his agreement), or (vi) 30 days after written notice delivered to
the Company by the executive of his resignation without Good Reason. If the
employment of Mr. Hinkaty or Mr. Alstodt terminates for any reason, he shall be
entitled to the following payments, (collectively, the "Accrued Benefits"): (i)
any earned but unpaid base salary, (ii) any accrued but unused vacation for
calendar years prior to 2005, (iii) any accrued but unused vacation for the year
in which the termination occurs, and (iv) any amounts to which he is entitled
under any plan, policy, practice or program of or agreement with the Company. If
the employment of Mr. Hinkaty or Mr. Alstodt terminates due to his death or
disability, in addition to the Accrued Benefits, he is entitled to (i) a
pro-rata portion of the annual bonus under the Company's MIP for the year the
termination occurs (the "Pro-rata Bonus") and (ii) six months' salary (in the
case of death) or twelve months' salary (in the event of disability). If either
Mr. Hinkaty's or Mr. Alstodt's employment is terminated by the Company other
than for cause or by the executive for Good Reason, then upon his execution of a
release of claims against the Company and its affiliates, in addition to the
Accrued Benefits, the executive is entitled to (i) a Pro-rata Bonus, (ii) an
amount equal to three times the executive's base salary payable in equal monthly
installments over the 18 months following his termination and (iii) continued
health insurance for the executive and his eligible dependents for 36 months.

Mr. Sinicropi's employment agreement provides that if his employment is
terminated for any reason, he will receive his base salary through the
termination date. If his employment terminates due to his death or disability,
in addition to his base salary through the termination date, he will receive a
Pro-rata Bonus. If his employment is terminated by the Company other than for
cause or if he terminates his employment for Good Reason, then he will receive
(i) an amount equal to two times his base salary, payable in equal monthly
installments over 24 months following termination; (ii) any amounts vested or
otherwise owing to him under any plan, policy, practice or program of the
Company; and (iii) accrued, unused vacation for the calendar year in which the
termination occurs. In addition, upon the execution of a release of claims
against the Company and its affiliates, Mr. Sinicropi is entitled to (i) the
Pro-rata Bonus and (ii) continued health care insurance for him and his eligible
dependents for 24 months.

Mr. Newman's employment agreement may terminate prior to July 5, 2009, on the
first to occur of: (i) his death; (ii) his disability (as defined in his
agreement); (iii) his termination for cause (as defined in his agreement); and
(iv) 120 days after his written notice of his voluntary resignation, except the
Company may waive the 120 days' notice and request his immediate termination, at
any time during the notice period, by paying 30 days compensation at his annual
base rate. If the Company terminates Mr. Newman's employment agreement for any
reason, the Company shall have the option to retain his services as a consultant
for up to 12 months at his then-current base salary. If Mr. Newman's employment
terminates due to his death, his legal representative will be entitled to an
amount equal to his base salary for three months plus any amounts due for past
services. If Mr. Newman's employment terminates due to disability, the Company
will pay him or his legal representative an amount equal to his base salary for
the greater of three months or until he is eligible for long term disability
coverage under the Company's long term disability plan, plus any amounts due for
past services. The Company is obligated to provide six months' notice of its
intent not to renew the agreement.

In March 2007, the Company entered into a letter agreement with Ms. Smith
providing that, in the event of (a) the termination of her employment by the
Company for any reason except Cause (as defined in the agreement) or (b) the
termination of her employment by her for Good Reason (as defined in the
agreement), she will be entitled to receive (i) base salary through her
termination date; (ii) an amount equal to one years' base salary, payable in 12
monthly installments; (iii) continuation of health care insurance for a period
of 12 months; (iv) accrued, unused vacation pay through the date of termination;
and (v) any amounts vested or otherwise owing to her under any plan, policy,
practice or program of the Company.

Each executive is subject to customary non-competition, non-solicitation and
confidentiality provisions.


                                       70
<PAGE>

                 EXECUTIVE BENEFITS AND PAYMENTS UPON SEPARATION

<TABLE>
<CAPTION>
                                                                           Involuntary
                                                                             Without         For
                                  Voluntary     Change in       Normal      For Cause       Cause
           Executive             Termination     Control      Retirement   Termination   Termination      Death       Disability
               and                    on            on            on            on            on            on            on
            Benefits               12/31/06      12/31/06      12/31/06      12/31/06      12/31/06      12/31/06      12/31/06
                                 -----------    ----------    ----------   -----------   -----------    ----------    ----------
<S>                               <C>           <C>           <C>           <C>           <C>           <C>           <C>
Charles J. Hinkaty
   Severance                              --            --            --    $1,249,248            --    $  208,208    $  416,616
   Exchange Options (1)                   --            --            --            --            --            --            --
   Override Units (2)                     --            --            --            --            --            --            --
   Retirement Plans               $  588,081    $  588,081    $  588,081    $  588,081    $  588,081    $  588,081    $  588,081
   Health and Welfare Benefits            --    $   61,341            --    $   61,341            --            --            --
   Accrued Vacation Pay           $   92,893    $   92,893    $   92,893    $   92,893    $   92,893    $   92,893    $   92,893
   Annual Incentive                       --    $  408,660            --    $  408,660            --    $  408,660    $  408,660

Harvey P. Alstodt
   Severance                              --            --            --    $1,249,248            --    $  208,208    $  416,616
   Exchange Options (1)                   --            --            --            --            --            --            --
   Override Units (2)                     --            --            --            --            --            --            --
   Retirement Plans               $1,043,318    $1,043,318    $1,043,318    $1,043,318    $1,043,318    $1,043,318    $1,043,318
   Health and Welfare Benefits            --    $   47,408            --    $   47,408            --            --            --
   Accrued Vacation Pay           $   53,654    $   53,654    $   53,654    $   53,654    $   53,654    $   53,654    $   53,654
   Annual Incentive                       --    $  408,660            --    $  408,660            --    $  408,660    $  408,660

Joseph Sinicropi
   Severance                              --            --            --    $  650,000            --            --            --
   Override Units (2)                     --            --            --            --            --            --            --
   Retirement Plans                       --            --            --            --            --            --            --
   Health and Welfare Benefits            --    $   40,894            --    $   40,894            --            --            --
   Accrued Vacation Pay                   --            --            --            --            --            --            --
   Annual Incentive                       --    $  239,210            --    $  239,210            --    $  239,210    $  239,210

Cary C. Newman
   Severance                              --            --            --    $  687,500            --    $   68,750    $  137,500
   Override Units (2)                     --            --            --            --            --            --            --
   Retirement Plans                       --            --            --            --            --            --            --
   Health and Welfare Benefits            --            --            --            --            --            --            --
   Accrued Vacation Pay                   --            --            --            --            --            --            --
   Annual Incentive                       --    $  202,408            --    $  202,408            --            --            --

Shawn Smith
   Severance                              --            --            --            --            --            --            --
   Stock Options (3)                      --            --            --            --            --            --            --
   Retirement Plans                       --            --            --            --            --            --            --
   Health and Welfare Benefits            --            --            --            --            --            --            --
   Accrued Vacation Pay           $   13,750    $   13,750    $   13,750    $   13,750    $   13,750    $   13,750    $   13,750
   Annual Incentive                       --    $  108,156            --    $  108,156            --            --            --
</TABLE>

(1)   For a description of the Exchange Options, please refer to the "CD&A -
      Elements of the Compensation Program - Exchange Options."
(2)   For a description of the Override Units, please refer to the "CD&A -
      Elements of The Compensation Program - Override Units."
(3)   For a description of the Stock Options, please refer to the "CD&A -
      Elements of The Compensation Program - Option Incentive Plan."


                                       71
<PAGE>

Item 12 - Security Ownership of Certain Beneficial Owners and Management

DLI Holding Corp. owns, through DLI Holding II Corp., 100% of the Company's
equity interests. The following table sets forth certain information as of April
30, 2007 with respect to the beneficial ownership of DLI Holding Corp.'s equity
securities by: (1) each person or entity who owns of record or beneficially 5%
or more of any class of DLI Holding Corp.'s voting securities; (2) each of the
Company's named executive officers and directors; and (3) all of the Company's
directors and named executive officers as a group. To the Company's knowledge,
each stockholder will have sole voting and investment power with respect to the
shares indicated as beneficially owned, unless otherwise indicated in a footnote
to the following table. Unless otherwise indicated in a footnote, the business
address of each person is the Company's corporate address.

<TABLE>
<CAPTION>
                                                                     SHARES BENEFICIALLY OWNED
                                                                  -------------------------------
                                                                     NUMBER OF
                                                                     SHARES OF        PERCENTAGE
NAME                                                              COMMON STOCK(1)     OF CLASS(2)
---------------------------------------------------------------   ---------------     -----------
<S>                                                                  <C>                 <C>
Principal Shareholder:

        DLI Holding LLC(3) ....................................      4,224,515           99.99%

                Kelso Investment Associates VII, L.P.(3)(4) ...      4,160,904            98.5%

                KEP VI, LLC(3)(4) .............................      4,160,904            98.5%

Named Executive Officers and Directors:

        Charles J. Hinkaty(5)(6)(10) ..........................        135,004             3.1%

        Harvey P. Alstodt(5)(7)(10) ...........................         29,945               *

        Joseph Sinicropi(10) ..................................              0               0

        Cary C. Newman(10) ....................................              0               0

        Shawn Smith(8) ........................................            500               *

        Church M. Moore(3)(5)(9) ..............................              0               0

        Philip E. Berney(3)(4)(5) .............................      4,160,904            98.5%

Executive Officers and Directors as a group (7 persons)(11) ...      4,326,353            98.6%
</TABLE>

*     Less than one percent.
(1)   The number of shares includes shares of common stock subject to options
      exercisable within 60 days of April 30, 2007.
(2)   Shares subject to options exercisable within 60 days of April 30, 2007 are
      considered outstanding for the purpose of determining the percent of the
      class held by the holder of such option, but not for the purpose of
      computing the percentage held by others.
(3)   The business address for these persons is c/o Kelso & Company, 320 Park
      Avenue, 24th Floor, New York, NY 10022.
(4)   Includes shares of common stock held by: (i) Kelso Investment Associates
      VII, L.P., a Delaware limited partnership, or KIA VII, and (ii) KEP VI,
      LLC, a Delaware limited liability company, or KEP VI. KIA VII and KEP VI
      may be deemed to share beneficial ownership of shares of common stock
      owned of record by DLI Holding LLC, by virtue of their ownership interests
      in DLI Holding LLC. KIA VII and KEP VI, due to their common control, could
      be deemed to beneficially own each of the other's shares. Each of KIA VII
      and KEP VI disclaim such beneficial ownership. Messrs. Nickell, Wall,
      Matelich, Goldberg, Wahrhaftig, Bynum, Berney, Loverro and Connors may be
      deemed to share beneficial ownership of shares of common stock owned of
      record by DLI Holding LLC, by virtue of their status as managing members
      of KEP VI and of Kelso GP VII, LLC, a Delaware limited liability company,
      the principal business of which is serving as the general partner of Kelso
      GP VII, L.P., a Delaware limited partnership, the principal business of
      which is serving as the general partner of KIA VII. Each of Messrs.
      Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum, Berney, Loverro and
      Connors share investment and voting power with respect to the ownership
      interests owned by KIA VII and KEP VI but disclaim beneficial ownership of
      such interests.
(5)   Members of DLI Holding Corp.'s board of directors.
(6)   Includes 135,004 shares of common stock issuable pursuant to options that
      are currently exercisable.
(7)   Includes 29,945 shares of common stock issuable pursuant to options that
      are currently exercisable.
(8)   Includes 500 shares of common stock issuable pursuant to options that are
      currently exercisable.
(9)   Mr. Moore may be deemed to share beneficial ownership of shares of common
      stock owned of record by DLI Holding LLC, by virtue of his status as a
      non-managing member of KEP VI and a limited partner of Kelso GP VII, L.P.,
      the principal business of which is serving as the general partner of KIA
      VII. Mr. Moore disclaims beneficial ownership of such interests.


                                       72
<PAGE>

(10)  Each of Messrs. Hinkaty, Alstodt, Sinicropi and Newman has made an
      investment in DLI Holding LLC and, as a result, each owns 611 common
      interests in the LLC. These ownership interests give Messrs. Hinkaty,
      Alstodt, Sinicropi and Newman certain indirect economic rights with
      respect to DLI Holding Corp. common stock, including an entitlement in
      certain circumstances to a liquidating distribution of approximately 0.05%
      of the outstanding shares of such stock in the aggregate.
(11)  Includes shares of common stock the beneficial ownership of which Mr.
      Berney may be deemed to share, as described in note 4 above.

Item 13 - Certain Relationships and Related Transactions, and Director
Independence

STOCKHOLDERS ARRANGEMENTS

STOCKHOLDERS AGREEMENT

The Company is a direct wholly-owned subsidiary of DLI Holding II Corp. and an
indirect wholly-owned subsidiary of DLI Holding Corp. On January 27, 2005, DLI
Holding Corp. entered into a stockholders agreement with DLI Holding LLC, which
currently owns 99.99% of DLI Holding Corp.'s issued and outstanding common
stock, and the continuing investors who currently hold options to purchase
common stock of DLI Holding Corp. The board of directors of DLI Holding Corp.
consists of five directors. Pursuant to the stockholders agreement, DLI Holding
LLC has the right to designate all of the directors.

The stockholders agreement generally restricts the transfer of shares of common
stock owned by the continuing investors and any of the Company's employees who
at the closing of the Merger were or who thereafter will become parties to the
agreement. Exceptions to this restriction include transfers in connection with a
registered offering, certain transfers for estate planning purposes, certain
pledges and certain involuntary transfers in connection with a default,
foreclosure, forfeiture, divorce, court order or otherwise than by a voluntary
decision of the continuing investor or employee (so long as DLI Holding Corp.
has been given the opportunity to purchase the common stock subject to such
involuntary transfer). The stockholders agreement also generally restricts the
transfer of shares of common stock owned by DLI Holding LLC. Exceptions to this
restriction include transfers in connection with a registered offering, certain
transfers to affiliates of DLI Holding LLC, transfers to the continuing
investors or any of the Company's employees who may become members of DLI
Holding LLC in connection with distributions provided for pursuant to the
limited liability company agreement for DLI Holding LLC, or the DLI Holding LLC
agreement, and certain involuntary transfers by DLI Holding LLC similar to those
described above.

In addition, the parties to the stockholders agreement have "tag-along" rights
to sell their shares on a pro rata basis with DLI Holding LLC in significant
sales to third parties. Similarly, DLI Holding LLC has "drag-along" rights to
cause the other parties to the stockholders agreement to sell their shares on a
pro rata basis with DLI Holding LLC in significant sales to third parties. The
continuing investors and the Company's other employees who are parties to the
stockholders agreement are subject to "put" and "call" rights, which entitle
these persons to require DLI Holding Corp. to purchase their shares, and which
entitle DLI Holding Corp. to require these persons to sell their shares to DLI
Holding Corp., upon certain terminations of the stockholder's employment with
DLI Holding Corp., at differing prices, depending upon the circumstances of the
termination.

On February 15, 2007, DLI Holding Corp. and DLI Holding LLC entered into an
Equity Settlement Agreement (the "Equity Settlement Agreement") with William
McMenemy, a director and former officer of the Company. Pursuant to the Equity
Settlement Agreement, DLI Holding Corp. agreed to pay Mr. McMenemy a total of
$2.0 million to repurchase (i) 571.42 shares of the common stock of DLI Holding
Corp. (the "Shares") and (ii) options to purchase 134,821 shares of the common
stock of DLI Holding Corp. ("the Options"). The payment was funded by the
Company. Also in connection with this transaction, Mr. McMenemy agreed to
forfeit the 5,454.42 operating units he held in DLI Holding LLC. The Shares were
repurchased pursuant to the terms of the Transition Arrangements Agreement,
dated as of August 15, 2005, among Mr. McMenemy, DLI Holding Corp. and DLI
Holding LLC. The Options were repurchased pursuant to the Rollover Stock Option
Agreement, dated as of January 27, 2005, between DLI Holding Corp. and Mr.
McMenemy. The Shares, the Options, and the operating units in DLI Holding LLC
constituted Mr. McMenemy's entire equity interest in the Company and its
affiliates.

Effective February 15, 2007, Mr. McMenemy resigned from the Board of Directors
of the Company, pursuant to the Equity Settlement Agreement.


                                       73
<PAGE>

REGISTRATION RIGHTS AGREEMENT

On January 27, 2005, DLI Holding Corp. also entered into a registration rights
agreement with the other parties to the stockholders agreement. Pursuant to this
agreement, DLI Holding LLC has the right to make an unlimited number of requests
that DLI Holding Corp. use its best efforts to register its shares under the
Securities Act. In any demand registration, all of the parties to the
registration rights agreement have the right to participate on a pro rata basis,
subject to certain conditions. In addition, if DLI Holding Corp. proposes to
register any of its shares (other than registrations related to exchange offers,
benefit plans and certain other exceptions), all of the holders party to the
registration rights agreement have the right to include their shares in the
registration statement, subject to certain conditions.

DLI HOLDING LLC AGREEMENT

On January 27, 2005, the Kelso affiliates, Magnetite Asset Investors III L.L.C.,
or Magnetite, and the continuing investors entered into the DLI Holding LLC
agreement. The Kelso affiliates and Magnetite own approximately 99.99% of the
common interests in DLI Holding LLC (which interests were acquired for an
aggregate purchase price of approximately $138.2 million). Messrs. Hinkaty,
Alstodt, Sinicropi and Newman collectively own less than 0.1% of the common
interests (which interests were acquired for an aggregate purchase price of
$80,000) in DLI Holding LLC. Magnetite owns, in the aggregate, approximately
1.4% of the common interests in DLI Holding LLC. The continuing investors of the
Merger together with Messrs. Sinicropi and Newman currently hold profit
interests in DLI Holding LLC that may entitle them to approximately 4% to 5%, in
the aggregate, of any appreciation in the value of the assets of DLI Holding LLC
following the closing of the Merger.

The DLI Holding LLC agreement generally restricts the transfer of interests in
DLI Holding LLC owned by the continuing investors and the third party investor,
if any. Exceptions to this restriction include transfers by the continuing
investors for certain estate planning purposes and certain involuntary transfers
by the continuing investors and the third party investor, if any, in connection
with a default, foreclosure, forfeiture, divorce, court order or otherwise than
by a voluntary decision of the continuing investor (so long as DLI Holding LLC
has been given the opportunity to purchase the interests subject to such
involuntary transfer). In addition, the continuing investors and the third party
investor, if any, have "tag-along" rights to sell their interests on a pro rata
basis with the Kelso affiliates in significant sales to third parties.
Similarly, the Kelso affiliates have "drag-along" rights to cause the continuing
investors and the third party investor, if any, to sell their shares on a pro
rata basis with the Kelso affiliates in significant sales to third parties.

The board of directors of DLI Holding LLC consists of three directors. The Kelso
affiliates have the right to designate all of the directors. Pursuant to the DLI
Holding LLC agreement, DLI Holding LLC will be dissolved and its affairs wound
up upon the occurrence of: (i) the vote of the board of directors and members or
(ii) any event which under applicable law would cause the dissolution of DLI
Holding LLC.

EXCHANGE AGREEMENTS

On January 27, 2005, each of the continuing investors entered into a separate
exchange agreement with DLI Holding Corp. under which he exchanged, effective as
of the closing of the Merger, options to purchase common stock of Del
Laboratories, Inc. having an aggregate spread value of approximately $4.5
million for options to purchase DLI Holding Corp. common stock with an
equivalent spread value. As a result of these exchange agreements, the
continuing investors held options to purchase DLI Holding Corp. stock
representing in the aggregate approximately 6.6% of the diluted equity of DLI
Holding Corp. immediately after the Merger. Mr. McMenemy also received a
distribution of shares of DLI Holding Corp. in connection with his resignation
representing, in the aggregate, approximately 0.01% of the diluted equity of DLI
Holding Corp. In addition, the continuing investors, excluding Mr. McMenemy (see
Stockholders Agreement above), own, through their common interests in DLI
Holding LLC, common stock of DLI Holding Corp. representing, in the aggregate,
less than 0.1% of the fully diluted equity of DLI Holding Corp.


                                       74
<PAGE>

FINANCIAL ADVISORY AGREEMENT

In connection with the Merger, DLI Holding Corp. paid to Kelso a one-time fee of
$3.2 million for investment banking services. In addition, DLI Holding Corp.
entered into a financial advisory agreement with Kelso for services to be
provided by Kelso to the Company in return for financial advisory fees to be
paid quarterly in advance to Kelso by DLI Holding Corp. The aggregate annual
amount of the advisory fee payable to Kelso is $1.2 million. Kelso has agreed to
receive approximately $1.8 million ($0.6 million relating to 2005 and $1.2
million relating to 2006) of such advisory fees at a later date to be determined
between Kelso and the Company. The financial advisory agreement provides that
DLI Holding Corp. indemnify Kelso and certain of Kelso's officers, directors,
affiliates' respective partners, employees, agents and control persons (as such
term is used in the Securities Act and the rules and regulations thereunder) in
connection with the Merger, Kelso's investment in DLI Holding Corp., Kelso's
control of DLI Holding Corp. or any of its subsidiaries (including Del) and the
services rendered to DLI Holding Corp. under the financial advisory agreement.
It also provides that DLI Holding Corp. reimburse Kelso's expenses incurred in
connection with the Merger, including with respect to the financing of the
Merger, and with respect to services to be provided to DLI Holding Corp. on a
going-forward basis. The financial advisory agreement also provides for the
payment of certain fees by DLI Holding Corp. to Kelso in connection with future
investment banking services and for the reimbursement by DLI Holding Corp. of
expenses incurred by Kelso in connection with such services.

RELATED PERSON TRANSACTION POLICIES

The Company does not currently have any formal documented policies or procedures
for the review, approval or ratification of any related person transaction
required to be reported in its filings with the Securities and Exchange
Commission.

DIRECTOR INDEPENDENCE

The Company's securities are not listed on any national securities or electronic
exchange and therefore is not subject to the requirements of the New York Stock
Exchange ("NYSE"), Nasdaq Stock Market or any other national exchange in
regards to director independence. None of the members of the Company's board of
directors or members of the Company's audit or compensation committees are
considered independent according to the requirements of independence of the NYSE
or Nasdaq Stock Market.

Item 14 - Principal Accountant Fees and Services

KPMG LLP, is the Company's independent registered public accounting firm and has
served in such capacity since 1968. The Audit Committee of the Board of
Directors has appointed KPMG LLP for the current fiscal year.

The aggregate fees billed for professional services by KPMG LLP in 2006 and 2005
were:

           Type of Fees:                     2006                 2005
                                             ----                 ----

      Audit Fees (1)                      $1,053,000           $1,270,000
      Audit-Related Fees (2)                 108,000              672,500
      Tax Fees (3)                            44,275              160,700
                                          ----------           ----------
      Total                               $1,205,275           $2,103,200
                                          ===========          ==========

(1) Audit fees consisted of professional services rendered for the audit of the
Company's annual consolidated financial statements included in the Company's
Form 10-K, the quarterly reviews of the Company's consolidated financial
statements included in the Company's Form 10-Q's, and in 2005, preparation of
SOX 404 requirements.


                                       75
<PAGE>

(2) Audit-related fees consisted of professional services rendered in connection
with the Company's 144A debt offerings, Form S-4 filings, services rendered in
connection with the acquisition, and the issuance of a comfort letter and
consent. Audit related fees also include fees for the audit of the financial
statements of the Company's ESOP, two pension plans and 401(k) plan.

(3) Tax fees consisted principally of professional services rendered in
connection with tax compliance and reporting.

The 2006 services described above were approved by the Audit Committee pursuant
to the SEC rule that requires audit committee pre-approval of audit and
non-audit services provided by the Company's independent auditors.

On an ongoing basis, management communicates specific projects and categories of
services for which advance approval of the Audit Committee is required. The
Audit Committee reviews these requests and advises management and the
independent registered public accounting firm if the Audit Committee
pre-approves the engagement of the independent registered public accounting firm
for such projects and services. On a periodic basis, the independent registered
public accounting firm reports to the Audit Committee the actual spending for
such projects and services compared to the approved amounts. The Audit Committee
may delegate the ability to pre-approve audit and permitted non-audit services
to the Chair of the Audit Committee, provided that any such pre-approvals are
reported at the next Audit Committee meeting.

Audit Committee Report

The Audit Committee reviewed the Company's financial reporting process on behalf
of the Board of Directors. The Audit Committee has reviewed and discussed the
Company's audited consolidated financial statements with management, which has
primary responsibility for the financial statements. KPMG LLP, the Company's
independent registered public accounting firm is responsible for expressing an
opinion on the conformity of the Company's audited consolidated financial
statements with accounting principles generally accepted in the United States of
America. The Audit Committee has discussed with KPMG LLP the matters that are
required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committee). KPMG LLP has provided to the Audit
Committee the written disclosures and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Audit Committee discussed with KPMG LLP that firm's independence. The
Committee also considered whether KPMG's provision of non-audit services to the
Company is compatible with KPMG's independence.

Based on the consideration referred to above, the Audit Committee recommended to
the Board of Directors that the audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for 2006. The foregoing
report is provided by the following directors, who constitute the Audit
Committee.

                        Church M. Moore, Chair
                        Philip E. Berney
                        Charles J. Hinkaty


                                       76
<PAGE>

Part IV

Item 15 - Exhibits, Financial Statement Schedules

a) Documents filed as part of this report:

      (1) and (2) See Consolidated Financial Statements and Schedule included
      herein.

      (3) Exhibit Index.


                                       77
<PAGE>

                                      INDEX

EXHIBIT
NUMBER    DESCRIPTION
-------   ----------------------------------------------------------------------
  2.1     Agreement and Plan of Merger, dated as of July 1, 2004, among DLI
          Holding Corp., DLI Acquisition Corp. and Del Laboratories, Inc. Filed
          as Annex A to Del Laboratories, Inc.'s Preliminary Proxy Statement on
          Amendment No. 1 to Schedule 14A filed November 10, 2004 (Commission
          File No. 001-05439) and incorporated herein by reference.

  3.1     Amended and Restated Certificate of Incorporation of Del Laboratories,
          Inc. Filed as Exhibit 3.1 to Del Laboratories, Inc.'s Registration
          Statement on Form S-4 filed April 27, 2005 (Commission File No.
          333-124360) and incorporated herein by reference.

  3.2     Amended and Restated By-Laws of Del Laboratories, Inc. Filed as
          Exhibit 3.2 to Del Laboratories, Inc.'s Registration Statement on Form
          S-4 filed April 27, 2005 (Commission File No. 333-124360) and
          incorporated herein by reference.

  3.3     Certificate of Incorporation of Del Pharmaceuticals, Inc., as amended.
          Filed as Exhibit 3.3 to Del Laboratories, Inc.'s Registration
          Statement on Form S-4 filed April 27, 2005 (Commission File No.
          333-124360) and incorporated herein by reference.

  3.4     Amended and Restated By-Laws of Del Pharmaceuticals, Inc. Filed as
          Exhibit 3.4 to Del Laboratories, Inc.'s Registration Statement on Form
          S-4 filed April 27, 2005 (Commission File No. 333-124360) and
          incorporated herein by reference.

  3.5     Certificate of Incorporation of 565 Broad Hollow Realty Corp., as
          amended. Filed as Exhibit 3.9 to Del Laboratories, Inc.'s Registration
          Statement on Form S-4 filed April 27, 2005 (Commission File No.
          333-124360) and incorporated herein by reference.

  3.6     Amended and Restated By-Laws of 565 Broad Hollow Realty Corp. Filed as
          Exhibit 3.10 to Del Laboratories, Inc.'s Registration Statement on
          Form S-4 filed April 27, 2005 (Commission File No. 333-124360) and
          incorporated herein by reference.

  3.7     Certificate of Incorporation of Del Professional Products, Inc. Filed
          as Exhibit 3.11 to Del Laboratories, Inc.'s Registration Statement on
          Form S-4 filed April 27, 2005 (Commission File No. 333-124360) and
          incorporated herein by reference.

  3.8     By-Laws of Del Professional Products, Inc. Filed as Exhibit 3.12 to
          Del Laboratories, Inc.'s Registration Statement on Form S-4 filed
          April 27, 2005 (Commission File No. 333-124360) and incorporated
          herein by reference.


                                       78
<PAGE>

EXHIBIT
NUMBER    DESCRIPTION
-------   ----------------------------------------------------------------------
  4.1     Credit Agreement, dated as of December 29, 2005, among DLI Holding II
          Corp., Del Laboratories, Inc., as borrower, the several lenders from
          time to time parties thereto and JPMorgan Chase Bank, N.A., as
          administrative agent. Filed as Exhibit 10.1 to Del Laboratories,
          Inc.'s Current Report on Form 8-K filed January 4, 2006 (Commission
          File No. 001-05439) and incorporated herein by reference.

  4.2     First Amendment to Credit Agreement, dated as of February 23, 2006
          among DLI Holding II Corp., Del Laboratories, Inc., as borrower and
          JPMorgan Chase Bank, N.A. as administrative agent and lender. Filed as
          Exhibit 10.1 to Del Laboratories, Inc.'s Current Report on Form 8-K
          filed March 1, 2006 (Commission File No. 001-05439) and incorporated
          herein by reference.

  4.3     Indenture, dated as of October 28, 2005, among Del Laboratories, Inc.,
          each of the subsidiary guarantors from time to time party thereto and
          Wells Fargo Bank, National Association, as trustee. Filed as Exhibit
          10.1 to Del Laboratories, Inc.'s Current Report on Form 8-K filed
          November 2, 2005 (Commission File No. 001-05439) and incorporated
          herein by reference.

  4.4     Form of Senior Secured Floating Rate Notes due 2011 of Del
          Laboratories, Inc. (included in Exhibit 4.3 hereto).

  4.5     Indenture, dated as of January 27, 2005, by and among DLI Acquisition
          Corp., which merged with and into Del Laboratories, Inc. with Del
          Laboratories, Inc. continuing as the surviving corporation, Del
          Pharmaceuticals, Inc., Del Professional Products, Inc., Royce & Rader,
          Inc., 565 Broad Hollow Realty Corp. and Parfums Schiaparelli, Inc. and
          Wells Fargo Bank, National Association, as trustee. Filed as Exhibit
          4.4 to Del Laboratories, Inc.'s Registration Statement on Form S-4
          filed April 27, 2005 (Commission File No. 333-124360) and incorporated
          herein by reference.

  4.6     Supplemental Indenture, dated as of January 27, 2005, by and among Del
          Laboratories, Inc., Del Pharmaceuticals, Inc., Del Professional
          Products, Inc., Royce & Rader, Inc., 565 Broad Hollow Realty Corp. and
          Parfums Schiaparelli, Inc. and Wells Fargo Bank, National Association,
          as trustee. Filed as Exhibit 4.5 to Del Laboratories, Inc.'s
          Registration Statement on Form S-4 filed April 27, 2005 (Commission
          File No. 333-124360) and incorporated herein by reference.

  4.7     Form of 8.00% Senior Subordinated Notes due 2012 of Del Laboratories,
          Inc., as successor by merger to DLI Acquisition Corp. (included in
          Exhibit 4.5 hereto). Filed as Exhibit 4.8 to Del Laboratories, Inc.'s
          Registration Statement on Form S-4 filed April 27, 2005 (Commission
          File No. 333-124360) and incorporated herein by reference.

  4.8     Second Amendment to Credit Agreement dated as of November 29, 2006
          among DLI Holding II Corp., Del Laboratories, Inc., as borrower and
          JPMorgan Chase Bank, N.A. as administrative agent and lender.

  4.9     Waiver and Consent dated March 31, 2007 among DLI Holding II Corp.,
          Del Laboratories, Inc., as borrower and JPMorgan Chase Bank, N.A. as
          administrative agent and lender. Filed as Exhibit 4.1 to Del
          Laboratories, Inc.'s Current Report on Form 8-K filed April 2, 2007
          (Commission File No. 001-05439) and incorporated herein by reference.


                                       79
<PAGE>

EXHIBIT
NUMBER    DESCRIPTION
-------   ----------------------------------------------------------------------
  10.1    Financial Advisory Agreement, dated as of January 27, 2005, by and
          among DLI Holding Corp. and Kelso & Company, L.P. Filed as Exhibit
          10.1 to Del Laboratories, Inc.'s Registration Statement on Form S-4
          filed April 27, 2005 (Commission File No. 333-124360) and incorporated
          herein by reference.

  10.2    Employment Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp. and William McMenemy. Filed as Exhibit 10.2 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.*

  10.3    Transition Arrangement by and among DLI Holding Corp., DLI Holding LLC
          and William McMenemy dated August 15, 2005. Filed as Exhibit 10.1 to
          Del Laboratories, Inc.'s Current Report on Form 8-K filed August 19,
          2005 (Commission File No. 001-05439) and incorporated herein by
          reference.*

  10.4    Employment Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp. and Charles J. Hinkaty. Filed as Exhibit 10.3 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.*

  10.5    Amendment No. 1 to Employment Agreement between Charles J. Hinkaty and
          DLI Holding Corp., effective August 19, 2005. Filed as Exhibit 10.2 to
          Del Laboratories, Inc.'s Current Report on Form 8- K filed August 19,
          2005 (Commission File No. 001-05439) and incorporated herein by
          reference.*

  10.6    Employment Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp. and Harvey P. Alstodt. Filed as Exhibit 10.4 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.*

  10.7    Employment Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp. and Enzo J. Vialardi. Filed as Exhibit 10.5 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.*

  10.8    Stockholders Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp., DLI Holding LLC, William McMenemy, Charles J. Hinkaty
          and Harvey P. Alstodt. Filed as Exhibit 10.6 to Del Laboratories,
          Inc.'s Registration Statement on Form S-4 filed April 27, 2005
          (Commission File No. 333-124360) and incorporated herein by reference.

  10.9    Registration Rights Agreement, dated as of January 27, 2005, by and
          among DLI Holding Corp., DLI Holding LLC, William McMenemy, Charles J.
          Hinkaty and Harvey P. Alstodt. Filed as Exhibit 10.7 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.

  10.10   DLI Holding Corp. Stock Incentive Plan. Filed as Exhibit 10.8 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.*

  10.11   Form of Option Agreement under DLI Holding Corp. Stock Incentive Plan.
          Filed as Exhibit 10.9 to Del Laboratories, Inc.'s Registration
          Statement on Form S-4 filed April 27, 2005 (Commission File No.
          333-124360) and incorporated herein by reference.*

  10.12   Exchange Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp. and William McMenemy. Filed as Exhibit 10.10 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.

  10.13   Exchange Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp. and Charles J. Hinkaty. Filed as Exhibit 10.11 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.

  10.14   Exchange Agreement, dated as of January 27, 2005, by and among DLI
          Holding Corp. and Harvey P. Alstodt. Filed as Exhibit 10.12 to Del
          Laboratories, Inc.'s Registration Statement on Form S-4 filed April
          27, 2005 (Commission File No. 333-124360) and incorporated herein by
          reference.

  10.15   Rollover Stock Option Agreement, dated as of January 27, 2005, by and
          among DLI Holding Corp. and William McMenemy. Filed as Exhibit 10.13
          to Del Laboratories, Inc.'s Registration Statement on Form S-4 filed
          April 27, 2005 (Commission File No. 333-124360) and incorporated
          herein by reference.*


                                       80
<PAGE>

EXHIBIT
NUMBER    DESCRIPTION
-------   ----------------------------------------------------------------------
  10.16   Rollover Stock Option Agreement, dated as of January 27, 2005, by and
          among DLI Holding Corp. and Charles J. Hinkaty. Filed as Exhibit 10.14
          to Del Laboratories, Inc.'s Registration Statement on Form S-4 filed
          April 27, 2005 (Commission File No. 333-124360) and incorporated
          herein by reference.*

  10.17   Rollover Stock Option Agreement, dated as of January 27, 2005, by and
          among DLI Holding Corp. and Harvey P. Alstodt. Filed as Exhibit 10.15
          to Del Laboratories, Inc.'s Registration Statement on Form S-4 filed
          April 27, 2005 (Commission File No. 333-124360) and incorporated
          herein by reference.*

  10.18   Letter of Understanding, dated as of November 10, 2004, by and among
          DLI Holding Corp., Del Laboratories, Inc. and Dan K. Wassong. Filed as
          Exhibit 10.16 to Del Laboratories, Inc.'s Registration Statement on
          Form S-4 filed April 27, 2005 (Commission File No. 333-124360) and
          incorporated herein by reference.*

  10.19   Employee Pension Plan, effective January 1, 1997 (amended and
          restated). Filed as Exhibit 10.1 to Del Laboratories, Inc.'s Annual
          Report on Form 10-K filed March 28, 2002 (Commission File No.
          001-05439) and incorporated herein by reference.*

  10.20   Amendment No. 1 to Employee Pension Plan. Filed as Exhibit 10.2 to Del
          Laboratories, Inc.'s Annual Report on Form 10-K filed March 28, 2003
          (Commission File No. 001-05439) and incorporated herein by reference.*

  10.21   Amendment No. 2 to Employee Pension Plan. Filed as Exhibit 10.3 to Del
          Laboratories, Inc.'s Annual Report on Form 10-K filed March 12, 2004
          (Commission File No. 001-05439) and incorporated herein by reference.*

  10.22   Employee Stock Ownership Plan, effective January 1, 1997 (amended and
          restated). Filed as Exhibit 10.2 to Del Laboratories, Inc.'s Annual
          Report on Form 10-K filed March 28, 2002 (Commission File No.
          001-05439) and incorporated herein by reference.*

  10.23   Amendment No. 1 to Employee Stock Ownership Plan. Filed as Exhibit
          10.4 to Del Laboratories, Inc.'s Annual Report on Form 10-K filed
          March 28, 2003 (Commission File No. 001-05439) and incorporated herein
          by reference.*

  10.24   Amendment No. 2 to Employee Stock Ownership Plan. Filed as Exhibit
          10.6 to Del Laboratories, Inc.'s Annual Report on Form 10-K filed
          March 12, 2004 (Commission File No. 001-05439) and incorporated herein
          by reference.*

  10.25   Amendment No. 3 to Employee Stock Ownership Plan. Filed as Exhibit
          10.7 to Del Laboratories, Inc.'s Annual Report on Form 10-K filed
          March 12, 2004 (Commission File No. 001-05439) and incorporated herein
          by reference.*

  10.26   401(k) Plan effective January 1, 1997 (amended and restated). Filed as
          Exhibit 10.3 to Del Laboratories, Inc.'s Annual Report on Form 10-K
          filed March 28, 2002 (Commission File No. 001-05439) and incorporated
          herein by reference.

  10.27   Amendment No. 1 to 401(k) Plan. Filed as Exhibit 10.6 to Del
          Laboratories, Inc.'s Annual Report on Form 10-K filed March 28, 2003
          (Commission File No. 001-05439) and incorporated herein by reference.

  10.28   Amendment No. 2 to 401(k) Plan. Filed as Exhibit 10.7 to Del
          Laboratories, Inc.'s Annual Report on Form 10-K filed March 28, 2003
          (Commission File No. 001-05439) and incorporated herein by reference.


                                       81
<PAGE>

EXHIBIT
NUMBER    DESCRIPTION
-------   ----------------------------------------------------------------------
  10.29   Amendment No. 3 to 401(k) Plan. Filed as Exhibit 10.11 to Del
          Laboratories, Inc.'s Annual Report on Form 10-K filed March 12, 2004
          (Commission File No. 001-05439) and incorporated herein by reference.

  10.30   Amended and Restated Supplemental Executive Retirement Plan. Filed as
          Exhibit 10.8 to Del Laboratories, Inc.'s Annual Report on Form 10-K
          filed March 28, 2003 (Commission File No. 001-05439) and incorporated
          herein by reference.*

  10.31   Amended and Restated Employment Agreement, dated as of July 1, 1999,
          between Del Laboratories, Inc. and Dan K. Wassong. Filed as Exhibit
          10.14 to Del Laboratories, Inc.'s Annual Report on Form 10-K filed
          March 30, 2000 (Commission File No. 001-05439) and incorporated herein
          by reference.*

  10.32   Amendment, dated as of April 22, 2002, to Dan K. Wassong Employment
          Agreement. Filed as Exhibit 10.12 to Del Laboratories, Inc.'s Annual
          Report on Form 10-K filed March 28, 2003 (Commission File No.
          001-05439) and incorporated herein by reference.*

  10.33   Life Insurance Agreement, dated as of February 18, 1993. Filed as
          Exhibit 9 to Del Laboratories, Inc.'s Annual Report on Form 10-K filed
          March 31, 1994 (Commission File No. 001-05439) and incorporated herein
          by reference.

  10.34   Limited Liability Company Agreement by and among Kelso Investment
          Associates VII, L.P., KEP VI, LLC, William McMenemy, Charles J.
          Hinkaty, Harvey P. Alstodt and Magnetite Asset Investors III L.L.C.,
          for DLI Holding LLC. Filed as Exhibit 10.32 to Del Laboratories,
          Inc.'s Registration Statement on Form S-4 filed April 27, 2005
          (Commission File No. 333-124360) and incorporated herein by reference.

  10.35   Employment Agreement with Joseph Sinicropi, dated as of July 25, 2005.
          Filed as Exhibit 10.1 to Del Laboratories, Inc.'s Current Report on
          Form 8-K filed August 8, 2005 (Commission File No. 001-05439) and
          incorporated herein by reference.*

  10.36   Employment Agreement with Cary Newman, dated as of June 10, 2005.
          Filed as Exhibit 10.34 to Del Laboratories, Inc.'s Registration
          Statement on Form S-4 filed January 26, 2006 (Commission File No.
          333-131293) and incorporated herein by reference.*

  10.37   Guarantee and Collateral Agreement, dated as of December 29, 2005,
          made by DLI Holding II Corp., Del Laboratories, Inc. and certain of
          its subsidiaries in favor of JPMorgan Chase Bank, N.A., as
          administrative agent. Filed as Exhibit 10.2 to Del Laboratories,
          Inc.'s Current Report on Form 8-K filed January 4, 2006 (Commission
          File No. 001-05439) and incorporated herein by reference.

  10.38   Intellectual Property Security Agreement, dated as of October 28,
          2005, made by Del Laboratories, Inc. and certain of its subsidiaries
          in favor of Wells Fargo Bank, National Association, as collateral
          agent. Filed as Exhibit 10.6 to Del Laboratories, Inc.'s Current
          Report on Form 8-K filed November 2, 2005 (Commission File No.
          001-05439) and incorporated herein by reference.

  10.39   Intellectual Property Security Agreement, dated as of December 29,
          2005, made by Del Laboratories, Inc. and certain of its subsidiaries
          in favor of JPMorgan Chase Bank, N.A., as administrative agent. Filed
          as Exhibit 10.3 to Del Laboratories, Inc.'s Current Report on Form 8-K
          filed January 4, 2006 (Commission File No. 001-05439) and incorporated
          herein by reference.

  10.40   Intercreditor Agreement, dated as of October 28, 2005, among Del
          Laboratories, Inc., the other grantors from time to time party
          thereto, JPMorgan Chase Bank, N.A., as administrative agent and as
          credit facility collateral agent, and Wells Fargo Bank, National
          Association, as trustee and as note collateral agent. Filed as Exhibit
          10.8 to Del Laboratories, Inc.'s Current Report on Form 8-K filed
          November 2, 2005 (Commission File No. 001-05439) and incorporated
          herein by reference.

  10.41   Intercreditor Confirmation Letter, dated December 29, 2005, from Del
          Laboratories, Inc and the other grantors, to JPMorgan Chase Bank,
          N.A., as administrative agent and as credit facility collateral agent,
          and Wells Fargo Bank, National Association, as trustee and note
          collateral agent. Filed as Exhibit 10.39 to Del Laboratories, Inc.'s
          Registration Statement on Form S-4 filed January 26, 2006 (commission
          File No. 333-131293) and incorporated herein by reference.


                                       82
<PAGE>

EXHIBIT
NUMBER    DESCRIPTION
-------   ----------------------------------------------------------------------
  10.42   Deed of Trust, Assignment of Leases and Rents, Security Agreement,
          Financing Statement and Fixture Filing, dated as of October 28, 2005,
          from Del Laboratories, Inc. to Biberstein & Nunalee, LLP, as trustee,
          for the benefit of Wells Fargo Bank, National Association, as note
          collateral agent. Filed as Exhibit 10.9 to Del Laboratories, Inc.'s
          Current Report on Form 8-K filed November 2, 2005 (Commission File No.
          001-05439) and incorporated herein by reference.

  10.43   Second Lien Deed of Trust, Assignment of Leases and Rents, Security
          Agreement, Financing Statement and Fixture Filing, dated as of
          December 29, 2005 from Del Laboratories, Inc. to Biberstein & Nunalee,
          LLP, as trustee, for the benefit of JPMorgan Chase Bank, N.A. Filed as
          Exhibit 10.4 to Del Laboratories, Inc.'s Current Report on Form 8-K
          filed January 4, 2006 (Commission File No. 001-05439) and incorporated
          herein by reference.

  10.44   Amendment to Employment Agreement with Cary Newman, dated as of
          December 28, 2006*.

  10.45   Letter Agreement Regarding Employment with Shawn Smith, dated as of
          March 13, 2007*.

  12.1    Computation of Ratio of Earnings to Fixed Charges.

  14.1    Code of Ethics.

  21.1    List of subsidiaries.

  31.1    Certification of Chief Executive Officer.

  31.2    Certification of Chief Financial Officer.

  32.1    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
          1350.

  32.2    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
          1350.

* Management contract or compensatory plan or arrangement.


                                       83
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

DEL LABORATORIES, INC.
(Registrant)

By  /s/ Charles J. Hinkaty                                        April 30, 2007
    ---------------------------------------------------------
    Charles J. Hinkaty, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.

By  /s/ Charles J. Hinkaty                                        April 30, 2007
    ---------------------------------------------------------
    Charles J. Hinkaty, President and
    Chief Executive Officer (Principal Executive Officer), Director

By  /s/ Harvey P. Alstodt                                         April 30, 2007
    ---------------------------------------------------------
    Harvey P. Alstodt, President Del Cosmetics, Director

By  /s/ Philip E. Berney                                          April 30, 2007
    ---------------------------------------------------------
    Philip E. Berney, Director

By  /s/ Church M. Moore                                           April 30, 2007
    ---------------------------------------------------------
    Church M. Moore, Director

By  /s/ Joseph Sinicropi                                          April 30, 2007
    ---------------------------------------------------------
    Joseph Sinicropi, Executive Vice President,
    Chief Financial Officer (Principal Accounting and Financial Officer)


                            Supplemental Information

No annual report to security holders covering the Company's last fiscal year or
proxy statement, form of proxy or other proxy soliciting material has been sent
to security holders.


                                       84
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES

             Index to Consolidated Financial Statements and Schedule

Report of Independent Registered Public Accounting Firm                      F-2

Financial Statements:

      Consolidated Balance Sheets as of December 31, 2006 and 2005
      (restated)                                                             F-3

      Consolidated Statements of Operations for the twelve months
      ended December 31, 2006 (Successor), eleven months ended
      December 31, 2005 (Successor) (restated), one month ended
      January 31, 2005 (Predecessor) and the twelve months ended
      December 31, 2004 (Predecessor) (restated)                             F-4

      Consolidated Statements of Shareholders' Equity for the twelve
      months ended December 31, 2006 (Successor), eleven months ended
      December 31, 2005 (Successor) (restated), one month ended
      January 31, 2005 (Predecessor) (restated) and the twelve months
      ended December 31, 2004 (Predecessor) (restated)                       F-5

      Consolidated Statements of Cash Flows for the twelve months
      ended December 31, 2006 (Successor), eleven months ended
      December 31, 2005 (Successor) (restated), one month ended
      January 31, 2005 (Predecessor) and the twelve months ended
      December 31, 2004 (Predecessor) (restated)                             F-6

      Notes to Consolidated Financial Statements                             F-7

Financial Statement Schedule:

II    Valuation and Qualifying Accounts for the twelve months ended
      December 31, 2006 (Successor), eleven months ended December 31,
      2005 (Successor), one month ended January 31, 2005 (Predecessor)
      and the twelve months ended December 31, 2004 (Predecessor)

All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.


                                       F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Del Laboratories, Inc.:

We have audited the accompanying consolidated balance sheets of Del
Laboratories, Inc. and subsidiaries (the Company) as of December 31, 2006 and
2005 (Successor Periods), and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year ended December 31, 2006
(Successor Period), the period from February 1, 2005 to December 31, 2005
(Successor Period), the period from January 1, to January 31, 2005 (Predecessor
Period) and the year ended December 31, 2004 (Predecessor Period). In connection
with our audits of the consolidated financial statements, we also audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Del Laboratories,
Inc. and subsidiaries at December 31, 2006 and 2005 (Successor Periods), and the
results of their operations and their cash flows for the year ended December 31,
2006 (Successor Period), the period from February 1, 2005 to December 31, 2005
(Successor Period), the period from January 1, to January 31, 2005 (Predecessor
Period) and the year ended December 31, 2004 (Predecessor Period), in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As discussed in Note 3, the consolidated balance sheet as of December 31, 2005
(Successor Period) and the related consolidated statements of operations,
shareholders' equity, and cash flows for the period from February 1, 2005 to
December 31, 2005 (Successor Period), the consolidated statement of
shareholders' equity for the period from January 1, to January 31, 2005
(Predecessor Period), the consolidated statements of operations, shareholders'
equity, and cash flows for the year ended December 31, 2004 (Predecessor Period)
and shareholders' equity as of December 31, 2003 (Predecessor Period) have been
restated.

As discussed in notes 11 and 5, respectively, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 123(R) "Shared-Based Payment", and
SFAS No.151 "Inventory Costs and Amendment of ARB No. 4 Chapter 4" as of January
1, 2006.


/s/ KPMG LLP

Melville, New York
April 30, 2007


                                       F-2
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                     December 31, 2006 and December 31, 2005
                                 (In thousands)

<TABLE>
<CAPTION>
       ASSETS                                                          2006            2005
                                                                   ------------    ------------
                                                                                     Restated
<S>                                                                <C>             <C>
Current assets:
       Cash and cash equivalents                                   $         42    $      2,602
       Accounts receivable, less allowance for doubtful accounts
         of $2,113 in 2006 and $1,674 in 2005                            61,563          51,692
       Inventories                                                       95,062         122,297
       Deferred income taxes                                             29,995          18,327
       Prepaid expenses and other current assets                          6,409           5,309
                                                                   ------------    ------------
                   Total current assets                                 193,071         200,227
                                                                   ------------    ------------

Property, plant and equipment, net                                       44,647          48,993
Intangibles arising from acquisitions, net                              254,037         259,287
Goodwill                                                                145,318         145,318
Other assets                                                             27,662          30,076
Deferred income taxes                                                    25,039          28,266
                                                                   ------------    ------------

                   Total assets                                    $    689,774    $    712,167
                                                                   ============    ============

       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
       Current portion of long-term debt                           $        165    $        185
       Accounts payable                                                  40,127          35,138
       Accrued liabilities                                               47,647          41,115
                                                                   ------------    ------------
                   Total current liabilities                             87,939          76,438

Long-term debt, less current portion                                    370,239         382,241
Long-term pension liability, less current portion                        19,943          20,447
Deferred liability                                                        1,492           1,062
Deferred income taxes                                                    98,455         102,007
                                                                   ------------    ------------
                   Total liabilities                                    578,068         582,195
                                                                   ------------    ------------

Shareholders' equity:
       Common stock $.01 par value, 1,000 shares authorized
         and issued                                                          --              --
       Additional paid-in capital                                       146,261         145,451
       Accumulated other comprehensive income                               421             365
       Accumulated deficit                                              (34,976)        (15,844)
                                                                   ------------    ------------
                   Total shareholders' equity                           111,706         129,972
                                                                   ------------    ------------

                   Total liabilities and shareholders' equity      $    689,774    $    712,167
                                                                   ============    ============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-3
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                       SUCCESSOR PERIOD                         PREDECESSOR PERIOD
                                            --------------------------------------    --------------------------------------
                                                Year Ended       February 1, 2005-     January 1, 2005-       Year Ended
                                            December 31, 2006    December 31, 2005     January 31, 2005    December 31, 2004
                                            -----------------    -----------------    -----------------    -----------------
                                                                      Restated                                  Restated
<S>                                         <C>                  <C>                  <C>                  <C>
Net sales                                   $         426,896    $         379,358    $          18,206    $         395,174

Cost of goods sold                                    242,378              211,014                9,718              198,425
                                            -----------------    -----------------    -----------------    -----------------

Gross profit                                          184,518              168,344                8,488              196.749

Selling and administrative expenses                   177,258              158,562               11,475              167,078
Severance expenses (note 13)                              632                3,250                   --                   20
Merger expenses (note 1)                                   --                4,711               18,974                1,415
                                            -----------------    -----------------    -----------------    -----------------

    Operating income (loss)                             6,628                1,821             (21,961)               28,236

Other income (expense):
    Gain (loss) on sale of property                        41                  555                   --                 (146)
    Loss on early extinguishment of debt                   --               (6,449)                  --                   --
    Interest expense, net                             (37,132)             (27,661)                (264)              (3,584)
    Other income (expense), net                           313                  531                 (232)                 331
                                            -----------------    -----------------    -----------------    -----------------

Earnings (loss) before income taxes                   (30,150)             (31,203)             (22,457)              24,837
Provision for (benefit from) income taxes             (11,018)             (15,359)             (24,434)              10,159
                                            -----------------    -----------------    -----------------    -----------------
    Net earnings (loss)                     $         (19,132)   $         (15,844)   $           1,977    $          14,678
                                            =================    =================    =================    =================
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-4
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     SUCCESSOR PERIOD AND PREDECESSOR PERIOD
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                        Accumulated      Retained
                                                                                         Additional        Other         Earnings
                                                                            Common         Paid-In     Comprehensive   (Accumulated
                                                                             Stock         Capital     Income (Loss)     Deficit)
                                                                         ------------   ------------   ------------    ------------
<S>                                                                      <C>            <C>            <C>             <C>
Predecessor Period:
Balances at December 31, 2003, as previously reported                    $     10,000   $      8,822   $     (2,593)   $     95,309
Restatement adjustment                                                             --             --           (277)        (14,682)
                                                                         ------------   ------------   ------------    ------------
Balances at December 31, 2003, as restated                                     10,000          8,822         (2,870)         80,627
Transactions arising from stock option exercises:
     Income tax benefit                                                            --            716             --              --
     Issuance of treasury stock (131,483 shares)                                   --           (190)            --              --
     Acquisition of treasury stock (84,728 shares)                                 --             --             --              --
Repayment of receivables                                                           --             --             --              --
Net earnings, as restated                                                          --             --             --          14,678
Foreign currency translation adjustment, as restated                               --             --            678              --
Minimum pension liability adjustment, net of tax                                   --             --           (580)             --
   Total comprehensive income, as restated                                         --             --             --              --
                                                                         ------------   ------------   ------------    ------------
Balances at December 31, 2004, as restated                                     10,000          9,348         (2,772)         95,305
                                                                         ------------   ------------   ------------    ------------
Transactions arising from stock option exercises:
     Income tax benefit                                                            --             57             --              --
     Issuance of treasury stock (12,294 shares)                                    --              3             --              --
     Acquisition of treasury stock (9,399 shares)                                  --             --             --              --
Net earnings                                                                       --             --             --           1,977
Foreign currency translation adjustment                                            --             --           (347)             --
   Total comprehensive income                                                      --             --             --              --
                                                                         ------------   ------------   ------------    ------------
Balances at January 31, 2005, as restated                                      10,000          9,408         (3,119)         97,282
                                                                         ------------   ------------   ------------    ------------

Successor Period:
Elimination of predecessor period balances, as restated                       (10,000)        (9,408)         3,119         (97,282)
Issuance of shares and acquisition of Del Laboratories, Inc.                       --        145,140             --              --
Stock based compensation expense, as restated                                      --            311             --              --
Net loss, as restated                                                              --             --             --         (15,844)
Foreign currency translation adjustment, as restated                               --             --            621              --
Minimum pension liability adjustment, net of tax, as restated                      --             --           (256)             --
   Total comprehensive (loss), as restated                                         --             --             --              --
                                                                         ------------   ------------   ------------    ------------
 Balances at December 31, 2005, as restated                                        --        145,451            365         (15,844)
                                                                         ------------   ------------   ------------    ------------
Stock based compensation expense                                                   --            770             --              --
Contributed capital                                                                --             40             --              --
Net loss                                                                           --             --             --         (19,132)
Foreign currency translation adjustment                                            --             --            (18)             --
Minimum pension liability adjustment, net of tax                                   --             --             72              --
Change in fair value of interest rate Collar, net of tax                           --             --              2              --
   Total comprehensive (loss)                                                      --             --             --              --
                                                                         ------------   ------------   ------------    ------------
 Balances at December 31, 2006                                           $         --   $    146,261   $        421    $    (34,976)
                                                                         ============   ============   ============    ============

<CAPTION>
                                                                                          Receivables
                                                                                           For Stock
                                                                           Treasury         Options      Shareholders'
                                                                             Stock         Exercised        Equity
                                                                         ------------    ------------    ------------
<S>                                                                      <C>             <C>             <C>
Predecessor Period:
Balances at December 31, 2003, as previously reported                    $     (5,325)   $       (642)   $    105,571
Restatement adjustment                                                             --              --         (14,959)
                                                                         ------------    ------------    ------------
Balances at December 31, 2003, as restated                                     (5,325)           (642)         90,612
Transactions arising from stock option exercises:
     Income tax benefit                                                            --              --             716
     Issuance of treasury stock (131,483 shares)                                2,594              --           2,404
     Acquisition of treasury stock (84,728 shares)                             (2,722)             --          (2,722)
Repayment of receivables                                                           --             140             140
Net earnings, as restated                                                          --              --              --
Foreign currency translation adjustment, as restated                               --              --              --
Minimum pension liability adjustment, net of tax                                   --              --              --
   Total comprehensive income, as restated                                         --              --          14,776
                                                                         ------------    ------------    ------------
Balances at December 31, 2004, as restated                                     (5,453)           (502)        105,926
                                                                         ------------    ------------    ------------
Transactions arising from stock option exercises:
     Income tax benefit                                                            --              --              57
     Issuance of treasury stock (12,294 shares)                                   276              --             279
     Acquisition of treasury stock (9,399 shares)                                (325)             --            (325)
Net loss, as restated                                                              --              --              --
Foreign currency translation adjustment, as restated                               --              --              --
   Total comprehensive income, as restated                                         --              --           1,630
                                                                         ------------    ------------    ------------
Balances at January 31, 2005, as restated                                      (5,502)           (502)        107,567
                                                                         ------------    ------------    ------------

Successor Period:
Elimination of predecessor period balances, as restated                         5,502             502        (107,567)
Issuance of shares and acquisition of Del Laboratories, Inc.                       --              --         145,140
Stock based compensation expense, as restated                                      --              --             311
Net loss, as restated                                                              --              --              --
Foreign currency translation adjustment, as restated                               --              --              --
Minimum pension liability adjustment, net of tax, as restated                      --              --              --
   Total comprehensive (loss), as restated                                         --              --         (15,479)
                                                                         ------------    ------------    ------------
 Balances at December 31, 2005, as restated                                        --              --         129,972
                                                                         ------------    ------------    ------------
Stock based compensation expense                                                   --              --             770
Contributed capital                                                                --              --              40
Net loss                                                                           --              --              --
Foreign currency translation adjustment                                            --              --              --
Minimum pension liability adjustment, net of tax                                   --              --              --
Change in fair value of interest rate Collar, net of tax                           --              --              --
   Total comprehensive (loss)                                                      --              --         (19,076)
                                                                         ------------    ------------    ------------
 Balances at December 31, 2006                                           $         --    $         --    $    111,706
                                                                         ============    ============    ============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-5
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                             SUCCESSOR PERIOD                         PREDECESSOR PERIOD
                                                  --------------------------------------    --------------------------------------
                                                      Year Ended       February 1, 2005-     January 1, 2005-       Year Ended
                                                  December 31, 2006    December 31, 2005     January 31, 2005    December 31, 2004
                                                  -----------------    -----------------    -----------------    -----------------
                                                                            Restated                                  Restated
<S>                                               <C>                  <C>                  <C>                  <C>
Cash flows from operating activities:
Net earnings (loss)                               $         (19,132)   $         (15,844)   $           1,977    $          14,678
Adjustments to reconcile net earnings
 (loss) to net cash provided by (used in)
 operating activities:
Depreciation and amortization                                15,666               11,778                  748                8,502
Amortization of display fixtures                             10,427                8,439                  764                8,970
Amortization of inventory fair
 value adjustment                                                --                8,083                   --                   --
Amortization of deferred financing fees
 and original issue discount                                  2,747                2,269                   20                  184
Non-cash stock compensation                                     770                  311                   --                   --
Deferred income taxes                                       (12,062)             (16,939)             (13,030)               2,591
Provision for excess and slow moving inventory               35,665               13,315                   17                6,516
Provision for (recovery on) doubtful accounts                   435                 (128)                  26                   53
Tax benefit on stock options exercised                           --                   --                   57                  716
Loss (gain) on sale of property                                 (41)                (562)                  --                  146
Loss on early extinguishment of debt                             --                6,449                   --                   --
Other non-cash operating items                                  191                 (506)                 219                 (484)
Changes in operating assets and liabilities:
      Accounts receivable                                   (10,319)              (4,547)               5,973               (2,215)
      Inventories                                            (8,400)             (17,869)              (6,080)             (24,320)
      Prepaid expenses and other current assets              (1,481)              (1,356)                (379)                (958)
      Other assets                                           (9,885)              (8,954)              (1,686)              (9,811)
      Accounts payable                                        5,002              (15,861)                 405                6,480
      Accrued liabilities                                     8,480               (8,165)              21,720               (3,769)
      Deferred liability                                        430                1,062                1,367                   71
      Pension liability (net)                                (1,556)                 333                 (330)                 305
      Income taxes receivable / payable                         362               10,246              (11,598)                (446)
                                                  -----------------    -----------------    -----------------    -----------------

        Net cash provided by (used in)
         operating activities                                17,299              (28,446)                 190                7,209
                                                  -----------------    -----------------    -----------------    -----------------

Cash flows provided by (used in) investing
 activities:
      Net proceeds from sales of property                       707                  575                   --                4,816
      Intangible assets acquired                                 --                   --                   --                   (5)
      Property, plant and equipment additions                (7,447)              (6,327)                (797)              (9,525)
      Purchase of Del Laboratories, Inc.                         --             (377,233)                  --                   --
                                                  -----------------    -----------------    -----------------    -----------------

        Net cash used in investing activities                (6,740)            (382,985)                (797)              (4,714)
                                                  -----------------    -----------------    -----------------    -----------------

Cash flows provided by (used in) financing
 activities:
      Principal borrowings (payments) under
       revolving credit agreement, net                      (12,000)              22,000                 (800)                  --
      Principal payments under mortgages                        (57)                 (53)                 (23)                (381)
      Principal repayments under term loan                       --               (1,500)                  --                   --
      Repayment of existing debt in connection
       with Merger                                               --              (69,316)                  --                   --
      Issuance of senior subordinated notes                      --              173,845                   --                   --
      Issuance of senior secured notes                           --              185,000                   --                   --
      Issuance of term loan                                      --              200,000                   --                   --
      Repayment of term loan                                     --             (198,500)                  --                   --
      Payment of deferred financing and other
       Merger related fees                                       --              (30,575)                  --                   --
      Payment of deferred financing fees                     (1,036)              (7,237)                  --                   --
      Contributed capital                                        40              138,200                   --                   --
      Payment of capital lease obligations                     (100)                (120)                  --                 (112)
      Proceeds from the exercise of stock
       options                                                   --                   --                   12                  364
      Acquisition of treasury stock                              --                   --                  (57)                (683)
                                                  -----------------    -----------------    -----------------    -----------------

          Net cash provided by (used in)
           financing activities                             (13,153)             411,744                 (868)                (812)
                                                  -----------------    -----------------    -----------------    -----------------

Effect of exchange rate changes on cash                          34                  (88)                 (21)                  77
                                                  -----------------    -----------------    -----------------    -----------------

Net increase (decrease) in cash and
 cash equivalents                                            (2,560)                 225               (1,496)               1,760

Cash and cash equivalents at beginning
 of period                                                    2,602                2,377                3,873                2,113
                                                  -----------------    -----------------    -----------------    -----------------

Cash and cash equivalents at end of period        $              42    $           2,602    $           2,377    $           3,873
                                                  =================    =================    =================    =================
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-6
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (IN THOUSANDS)

(1) Organization and Other Matters

On January 27, 2005, DLI Acquisition Corp ("Sub"), a Delaware corporation and an
affiliate of Kelso & Company ("Kelso"), was merged (the "Merger") with and into
Del Laboratories, Inc., a Delaware corporation ("Del" ), pursuant to an
Agreement and Plan of Merger, dated July 1, 2004 (the "Merger Agreement"), by
and among Sub, Del and DLI Holding Corp., a Delaware corporation. Following the
Merger, Del ceased to be a publicly traded company and is now a wholly-owned
subsidiary of DLI Holding II Corp., a Delaware corporation which, in turn, is
owned by DLI Holding Corp. and is an indirect, wholly-owned subsidiary of DLI
Holding LLC, a Delaware limited liability company affiliated with Kelso ("DLI
LLC"). In connection with the Merger, Del issued 1,000 shares with a $.01 par
value. Following the completion of the Merger, affiliates of Kelso have the
right to designate, directly or indirectly, the board of directors of each of
DLI LLC, DLI Holding Corp., DLI Holding II Corp. and Del.

In connection with the Merger, certain investment partnerships affiliated with
Kelso invested approximately $136,140 in DLI LLC, as a result of which such
entities now own approximately 98.5% of the interests of DLI LLC. Certain
members of Del's senior management prior to and following the Merger
("Continuing Investors"), invested, in the aggregate, $60 in DLI LLC for
approximately 0.1% of the interests in DLI LLC. A third party investor invested
$2,000 in DLI LLC for the balance of the interests in DLI LLC. The foregoing
parties entered into a limited liability company agreement relating to their
ownership of interests in DLI LLC (the "DLI LLC Agreement").

Pursuant to separate exchange agreements dated January 27, 2005 (the "Exchange
Agreements"), the Continuing Investors elected to exchange, immediately prior to
the effective time of the Merger, fully-vested options to purchase Del common
stock for options to purchase DLI Holding Corp. common stock, constituting
approximately 6.6% of the diluted share capital of DLI Holding Corp. immediately
after the Merger. The estimated fair value of these exchange options was
included in the calculation of the aggregate purchase price.

In anticipation of the Merger, Sub issued in a private placement offering
$175,000 of 8% Senior Subordinated Notes due 2012. Such notes and all related
obligations were assumed by Del upon the consummation of the Merger. The notes
are guaranteed by certain of the existing domestic subsidiaries of Del. On May
13, 2005, a registration statement filed pursuant to the Securities Act of 1933,
as amended, registering the exchange offer for these notes became effective. On
June 22, 2005, Del completed the exchange offer of the privately placed notes
for SEC registered notes.

Immediately prior to the Merger, Sub also entered into a credit facility
providing for aggregate maximum borrowings of $250,000 consisting of a term loan
facility in an aggregate principal amount of $200,000 (all of which amount was
drawn in connection with the Merger,) and a revolving credit facility, providing
for up to $50,000 of revolving loans outstanding at any time. The obligations
under the credit agreement were assumed by Del upon the consummation of the
Merger. Del repaid all borrowings under the agreement and the agreement was
terminated in October 2005.

See Note 9 for information regarding the refinancing transaction completed on
October 28, 2005.


                                       F-7
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Pursuant to the Merger, all of the Company's outstanding common stock was
acquired for $35 per share. The aggregate purchase price paid for all of the
Company's outstanding common stock including options exchanged and transaction
costs was approximately $416,686, comprised of $377,233 for the acquisition of
the outstanding shares and options exercised, $6,940 representing the fair value
of the options exchanged, $18,500 in severance payments, $957 of prepayment
penalties and $13,056 of transaction related costs. The acquisition, as
described above, has been accounted for in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standard ("SFAS") No. 141,
"Business Combinations". The following table summarizes the estimated fair value
of the assets acquired and liabilities assumed at the date of acquisition.

                                                       Restated
                                                       --------
              Current assets                          $  221,892
              Property, plant and equipment               49,362
              Intangibles arising from acquisitions      264,100
              Goodwill                                   145,318
              Other assets                                31,577
              Deferred income taxes                       22,289
                                                      ----------

                 Total assets acquired                   734,538
                                                      ----------

              Current liabilities                         84,762
              Long-term pension liability                 22,143
              Deferred income taxes                      109,272
              Long-term debt                             373,221
                                                      ----------

                 Total liabilities assumed               589,398
                                                      ----------

                 Net assets acquired                  $  145,140
                                                      ==========

Current assets include inventories at a fair value of $124,959 which represents
an increase of $8,083 over the acquired book value.

The components of the increase to the fair value of inventory over the acquired
book value were as follows:

                   Work in process                  $1,538
                   Finished goods                    6,545
                                                    ------

                                                    $8,083
                                                    ======

The fair value of inventory was developed in consultation with independent
valuation specialists. Work in process was based upon the estimated selling
price, less the cost to complete, cost of disposal and a normal selling profit.
Finished goods were based upon the estimated selling price less the cost of
disposal and a normal selling profit. The fair value of raw materials was based
upon the estimated replacement cost, which equaled the Company's historical
cost. As of the end of the third quarter of 2005, all of the inventory step-up
was expensed.

Property, plant and equipment at an original fair value of $49,362 represented
an increase of $2,622 over the acquired book value. Of the increase, $3,902 was
applicable to land and buildings and $1,280 represented a decrease to machinery
and equipment.


                                       F-8
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Intangible assets of $264,100 include $159,100 related to trade names of the
Company's various product lines and $105,000 related to customer relationships.
In addition, a deferred tax liability of $99,096, which is due principally to
the recognition of the intangible asset of $264,100, was recorded with a
corresponding increase to goodwill. These fair values were based on assistance
received from a valuation specialist. The valuations are based on information
that was available as of the acquisition date and expectations and assumptions
that have been deemed reasonable by management. No assurance can be given,
however, that the underlying assumptions or events associated with such assets
will occur as projected. For these reasons, among others, the actual results may
vary from the projected results. The trade names are an indefinite-lived
intangible asset which is not subject to amortization, but does require
impairment evaluation during each annual reporting period to determine whether
events and circumstances continue to support its value and indefinite useful
life. The customer relationships are being amortized over a 20 year life.

The Merger was completed on January 27, 2005. Since the actual results between
the period January 28, 2005 and January 31, 2005 were not material to the
Successor Period for the quarter or the annual results, the Company has utilized
January 31, 2005 as the acquisition date.

As a result of the acquisition, the capital structure of and the basis of
accounting under the "purchase" method for the Company differs from those of the
Company prior to the acquisition. Financial data of the Company for all
reporting periods subsequent to January 31, 2005 (Successor Period) reflect the
acquisition under the purchase method of accounting. Therefore, the Company's
Successor Period financial data generally will not be comparable to the
Company's Predecessor financial data. As a result of the acquisition, the
consolidated statements of operation for the Successor Period include interest
expense and amortization expense related to debt issuance costs related to
acquisition indebtedness, original issue discount amortization and management
fees that did not exist prior to the acquisition. Also, as a result of purchase
accounting, the fair values of inventories, identifiable intangibles with
definitive lives and property, plant and equipment at the date of acquisition
became their new "cost" basis and depreciation and amortization of these assets
in the Successor Period are based upon their newly established cost basis.
Additionally, the fair value of the Company's pension assets and liabilities
were adjusted as a result of purchase accounting; therefore pension expense for
the Successor Period is based upon the newly established fair values. Also, the
deferred tax balances were adjusted as a result of the purchase accounting
adjustments. Other effects of purchase accounting in the Successor Period are
not considered material.

Merger expenses for the Predecessor Period January 1, 2005 to January 31, 2005
(the "2005 Predecessor Period") consist of the payment of $18,768 upon the
closing of the transaction on January 27, 2005 in connection with the separation
agreement with the former Chairman and $206 of legal and advisory fees and
expenses incurred in connection with the Merger.

Merger expenses for the Successor Period February 1, 2005 to December 31, 2005
(the "2005 Successor Period") of $4,711 are primarily related to $3,769 for
change of control payments and $942 for other merger related expenses incurred
in connection with the Merger.


                                       F-9
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The following table summarizes fiscal 2005 pro forma results as if the
acquisition occurred on January 1, 2005:

                                                           2005
                                                           ----
                                                         Restated

             Net sales                                  $ 397,564
             Loss before income taxes                   $ (56,809)
             Net loss                                   $ (15,804)

The pro forma financial information reflects increased cost of goods sold,
increased interest expense, additional amortization of intangibles and lower
depreciation expense, new management fees, lower pension expense and savings due
to the retirement of the former CEO.

(2) Summary of Significant Accounting Policies

Description of Business

Del Laboratories, Inc. and subsidiaries (the "Company") is a manufacturer and
distributor of cosmetic and proprietary OTC pharmaceutical products. The
principal products in the cosmetics segment are nail care, nail color, color
cosmetics, beauty implements, bleaches and depilatories, personal care products
and other related cosmetic items. The principal products in the pharmaceutical
segment are of a proprietary nature and range from oral analgesics to skin
treatment products and first aid products.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of all
wholly-owned domestic and foreign subsidiaries. The accounts of foreign
subsidiaries are translated in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." As
such, balance sheet accounts are translated at the exchange rate as of December
31 of each year and statement of operations accounts are translated at average
exchange rates during the period. The resulting translation adjustments are
recorded as a component of shareholders' equity. Gains or losses resulting from
foreign currency transactions are included in other income (expense). All
intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations

The Company accounts for acquired businesses using the purchase method of
accounting which requires that the assets acquired and liabilities assumed be
recorded at the date of acquisition at their respective fair values. The
Company's consolidated financial statements and results of operations reflect an
acquired business after the completion of the acquisition and are not restated.
The cost to acquire a business, including transaction costs, is allocated to the
underlying net assets of the acquired business in proportion to their respective
fair values. Any excess of the purchase price over the estimated fair values of
the net assets acquired is recorded as goodwill.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. At December 31, 2006
and 2005, cash equivalents were $28 and $27, respectively.


                                      F-10
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Accounts Receivable

In estimating the collectibility of the Company's trade receivables, the Company
evaluates specific accounts when it becomes aware of information indicating that
a customer may not be able to meet its financial obligations due to a
deterioration of its financial condition, lower credit ratings or bankruptcy.
The Company also reviews the related aging of past due receivables in assessing
the realization of these receivables. The allowance for doubtful accounts is
determined based on the best information available on specific accounts and is
also developed by using percentages applied to certain receivables.

Inventories

Inventories are valued at the lower of cost (principally first-in/first-out) or
market value. The Company records an inventory obsolescence reserve to the cost
of inventories based upon its forecasted plans to sell, historical and projected
scrap and disposal rates and physical condition of the inventories. This reserve
is calculated using an estimated obsolescence percentage applied to the
inventories based on age, historical trends and requirements to support
forecasted sales. In addition, the Company may establish specific reserves for
future known or anticipated events. These reserves are estimates, which could
vary significantly, either favorably or unfavorably, from actual requirements if
future economic conditions, the timing of new product introductions, customer
inventory levels, retailer consolidations, fashion-oriented color cosmetic
trends or competitive conditions differ from expectations.

The Company constructs and purchases display fixtures to be used in the stores
of its cosmetic segment retail customers to attract customer attention and to
display products available under the Company's various brands. The display is
included in inventory by the Company until it is shipped to the retail customer,
at which time it is reclassified from inventory to other assets and amortized as
a selling expense over the estimated useful life of twenty four months from date
of shipment.

Property, Plant and Equipment

The Company provides for depreciation on the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful lives or the lease
term. The ranges of estimated lives applicable to the assets are as follows:

      Building                                             25 to 40 years
      Building improvements                                10 to 40 years
      Leasehold improvements                                3 to 12 years
      Machinery and equipment                               2 to 15 years
      Furniture and fixtures                                3 to 10 years

Deferred Financing Fees

The Company includes within other assets the capitalization of deferred
financing fees associated with the issuance of debt instruments. These fees are
amortized over the lives of the related debt instruments. The Company amortized
$2,609, $2,148, $20 and $184 of deferred financing fees in 2006, the 2005
Successor Period, the 2005 Predecessor Period and 2004, respectively. For 2006
and the 2005 Successor Period, fees amortized of $1,182 and $1,852,
respectively, related to the debt issued in connection with the Merger and
$1,427 and $296, respectively, related to the debt refinancing. Also as a result
of the debt refinancing, the Company recorded a loss on the early extinguishment
of debt of $6,449 due to the write-off of deferred financing fees that were
capitalized in association with the issuance of the $200,000 term loan incurred
as a result of the Merger. Amortization of deferred financing fees for 2007,
2008, 2009, 2010 and 2011 is expected to be $2,725, $2,620, $2,620, $2,617 and
$1,952, respectively. As of December 31, 2006, the net balance of deferred
financing fees to be amortized was $12,630.


                                      F-11
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Goodwill and Other Intangible Assets

The Company accounts for goodwill and other intangible assets in accordance with
the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," which
requires that goodwill and other indefinite long lived assets be tested annually
for impairment. Goodwill is tested at the reporting unit level. The Company's
reporting units are its Cosmetic and Pharmaceutical segments. If an indication
of impairment exists, the Company is required to determine if such reporting
unit's implied fair value is less than its carrying value in order to determine
the amount, if any, of the impairment loss required to be recorded. Subsequent
to the Merger, the Company established January 1 as its annual impairment
testing date. The annual testing performed as of January 1, 2007 indicated there
was no impairment to goodwill or indefinite long lived assets.

Additionally under SFAS No. 142, intangible assets with determinable lives,
other than goodwill, must be amortized over their useful lives. The remaining
useful lives of intangible assets are evaluated each reporting period to
determine whether events or circumstances warrant a revision to the remaining
period of amortization. If the estimate of an intangible asset's remaining
useful life is changed, the carrying amount of the intangible asset should be
amortized prospectively over that revised remaining useful life.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company accounts for long-lived assets, other than goodwill, in accordance
with the provisions of SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets" which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The Company reviews long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of any such asset may not be recoverable. The Company bases
its evaluation on impairment indicators such as the nature of the assets, future
economic benefit of the assets and any historical or future profitability
measurements, as well as other external market conditions or factors that may be
present. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future net cash flows
expected to be generated by the asset. If the sum of the undiscounted cash flows
(excluding interest) is less than the carrying value, the Company recognizes an
impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset. The estimate of cash flow is based upon, among other
things, certain assumptions about expected future operating performance. The
Company's estimates of undiscounted cash flow may differ from actual cash flow
due to, among other things, technological changes, economic conditions, changes
to its business model or changes in its operating performance.

Revenue Recognition

The Company sells its products to chain drug stores, mass volume retailers,
supermarkets, wholesalers and overseas distributors. Sales of such products are
denominated in U.S. dollars, Canadian dollars, British pounds and Euros. The
Company's accounts receivable reflect the granting of credit to these customers.
The Company generally grants credit based upon analysis of the customer's
financial position and previously established buying and selling patterns. The
Company does not bill customers for shipping and handling costs and,
accordingly, classifies such costs as selling and administrative expense. Sales
are recognized when revenue is realized or realizable and has been earned.
Revenues are recognized and discounts are recorded when merchandise is shipped.
Net sales are comprised of gross revenues less expected returns, various
promotional allowances, markdowns, coupons and trade discounts and allowances.
The Company allows customers to return their unsold products when they meet
certain criteria as outlined in the Company's sales policies.


                                      F-12
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The Company regularly reviews and revises, as deemed necessary, its estimates of
reserves for future sales returns based primarily upon actual return rates by
product, planned product discontinuances, new product launches, and information
provided by major customers regarding their inventory levels. The Company
records estimated reserves for future sales returns as a reduction of sales,
cost of sales and accounts receivable. Returned products which are recorded as
inventories are valued based on estimated realizable value. The physical
condition and marketability of the returned products are the major factors
considered by the Company in estimating realizable value. Actual returns, as
well as estimated realizable values of returned products, may differ
significantly, either favorably or unfavorably, from estimates if factors such
as product discontinuances, customer inventory levels or competitive conditions
differ from the Company's estimates and expectations and, in the case of actual
returns, if economic conditions, differ significantly from the Company's
estimates and expectations.

Advertising Costs and Promotional Allowances

The Company advertises on television, radio and in magazines. Additionally, the
Company has various cooperative advertising programs with retailers. Advertising
costs are expensed as incurred. Advertising expenses, including cooperative
advertising programs, were $37,180, $34,206, $2,579 and $36,834 in 2006, the
2005 Successor Period, the 2005 Predecessor Period and 2004, respectively. The
Company also has various performance-based arrangements with retailers to
reimburse them for all or a portion of their promotional activities related to
the Company's products. These sales incentives, offered voluntarily by the
Company to customers, without charge, can be used in or are exercisable by a
customer as a result of a single exchange transaction, are recorded as a
reduction of net sales at the later of the sale or the offer, and primarily
allow customers to take deductions against amounts owed to the Company for
product purchases. The Company also has cooperative advertising arrangements
with retail customers to reimburse them for all or a portion of their
advertising of the Company's products. The estimated liabilities for these
cooperative advertising arrangements are recorded as advertising expense as
incurred, or in the period the related revenue is recognized, depending on the
terms of the arrangement, and included in selling and administrative expenses,
since the Company receives an identifiable benefit from retail customers for an
amount equal to or less than the fair value of such advertising cost. These
arrangements primarily allow retail customers to take deductions against amounts
owed to the Company for product purchases. The Company regularly reviews and
revises the estimated accruals for these promotional allowance and cooperative
advertising programs. Actual costs incurred by the Company may differ
significantly, either favorably or unfavorably, from estimates if factors such
as the level and success of the retailers' programs or other conditions differ
from the Company's expectations.

Distribution Costs

Distribution costs, including the costs of shipping and handling, are included
in selling and administrative expenses and were $23,448, $22,206, $1,164 and
$21,661 in 2006, the 2005 Successor Period, the 2005 Predecessor Period and
2004, respectively.

Stock-Based Compensation

With the adoption of Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" ("SFAS No. 123(R)") on January 1, 2006, the Company is
required to record the fair value of stock-based compensation awards as an
expense. In order to determine the fair value of these awards on the date of
grant, the Company used the Black-Scholes option-pricing model to value the
Service Options and the Operating Units and used a lattice-based valuation model
to value the Exit Options and the Value Units (see Note 11 for a description of
the awards). Inherent in these models are assumptions related to expected
stock-price volatility, option/unit life, risk-free interest rate and dividend
yield. While the risk-free interest rate and dividend yield are less subjective
assumptions, typically based on factual data derived from public sources, the
expected stock-price volatility and option/unit life assumptions require a
greater level of judgment which makes them critical accounting estimates.


                                      F-13
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Because the Company's common stock is not publicly traded, the Company used an
expected stock-price volatility assumption that was determined based on an
examination of the historical volatility of the stock price of the Predecessor
Company; the historical and implied volatility of stock prices of selected
comparable companies and the nature of those companies; and other relevant
factors. The Company used a stock-price volatility of 45% for stock options and
Override Units granted during the twelve months ended December 31, 2006.

With respect to the weighted-average option/unit life assumption, the Company
considered Kelso's investment behavior relating to other comparable investments
(exit strategy, return on investment and holding period). The Company used a
weighted-average expected option/unit life assumption of 3.8 years for the
Service Options and Exit Options and 3.99 years for the Operating Units and
Value Units. For the lattice-based valuation models, the Company used an early
exercise factor at the time at which Kelso would sell the Company to generate a
multiple of 2.8 times their initial investment.

Research and Development

The Company expended $8,120, $7,697, $581 and $8,966 in 2006, the 2005 Successor
Period, the 2005 Predecessor Period and 2004, respectively, for research and
development relating to the development of new products, clinical and regulatory
affairs, and quality control and assurance of the Company's product lines. All
costs associated with research and development are expensed as incurred and
included in selling and administrative expenses in the accompanying consolidated
statements of operations.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications were made to prior year amounts in order to conform to
the current year's presentation. Income taxes receivable, previously reported as
a separate line item in the consolidated balance sheet, has been reclassified
and included within prepaid expenses and other current assets. In addition, the
provision for excess and slow moving inventory, previously included in the
consolidated statements of cash flows in inventories as net cash provided by
operating activities, has been reclassified as a separate line item, provision
for excess and slow moving inventory, in net cash provided by operating
activities.


                                      F-14
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS No. 157 applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement does
not require any new fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the impact, if any, the adoption of SFAS No. 157 will have on its
consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132(R)" ("SFAS No. 158"). SFAS No. 158 requires an employer to recognize the
over-funded or under-funded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position, measure a plan's
assets and its obligations as of the end of the employer's fiscal year-end and
recognize changes in the funded status in the year in which the changes occur
through comprehensive income. SFAS No. 158 is effective for financial statements
of employers without publicly traded equity securities as of the year of the
fiscal year ending after June 15, 2007. The Company is currently evaluating the
impact, if any, that SFAS No. 158 will have on its consolidated financial
statements.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB No. 109" ("FIN No. 48").
FIN No. 48 establishes a recognition threshold and measurement for income tax
positions recognized in an enterprise's financial statements in accordance with
FASB Statement No. 109, "Accounting for Income Taxes". FIN No. 48 also
prescribes a two-step evaluation process for tax positions. The first step is
recognition and the second is measurement. For recognition, an enterprise
judgmentally determines whether it is more-likely-than-not that a tax position
will be sustained upon examination, including resolution of related appeals or
litigation processes, based on the technical merits of the position. If the tax
position meets the more-likely-than-not recognition threshold, it is measured
and recognized in the financial statements as the largest amount of tax benefit
that is greater than 50% likely of being realized. If a tax position does not
meet the more-likely-than-not recognition threshold, the benefit of that
position is not recognized in the financial statements. Tax positions that meet
the more-likely-than-not recognition threshold at the effective date of FIN No.
48 may be recognized or, continue to be recognized, upon adoption of the
Interpretation. The cumulative effect of applying the provisions of FIN No. 48
shall be reported as an adjustment to the opening balance of retained earnings
for that fiscal year. FIN No. 48 is effective for fiscal years beginning after
December 15, 2006. Accordingly, the Company plans to adopt FIN No. 48 on January
1, 2007. The Company is evaluating the impact of the adoption of FIN No. 48 and
is unable, at this time, to quantify the impact, if any, to retained earnings at
the time of adoption.


                                      F-15
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(3) Restatements

The Company's consolidated balance sheet as of December 31, 2005 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the 2005 Successor Period, the consolidated statement of shareholders' equity
for the 2005 Predecessor Period, the consolidated statements of operations,
shareholders' equity, and cash flows for the year ended December 31, 2004 and
the beginning balance of consolidated shareholders' equity as of December 31,
2003 have been restated, principally as a result of (a) an error in the
Company's income tax provision for the 2005 Successor Period that overstated the
net loss and (b) understatements of certain customer liabilities relating to
prior financial periods. The Company also corrected certain other errors
previously considered immaterial individually and in the aggregate.
Additionally, the Company is restating the unaudited quarterly financial
information for the interim periods of 2006 and 2005. See Note 19.

The error in the income tax provision related to the use of an incorrect
estimated state income tax rate due to a change in New York State tax laws. This
error resulted in an understatement of the benefit from income taxes for the
2005 Successor Period of $4,330 and a corresponding overstatement of the net
deferred state tax liability as of December 31, 2005. The Company corrected this
error by restating its consolidated financial statements as of December 31, 2005
and for the 2005 Successor Period.

The understatements of customer liabilities pertained to reserves required for
future sales returns and markdowns due to incorrect assumptions and methodology
and an accrual required for cooperative and promotional advertising programs.
Accordingly, the Company restated its predecessor beginning balance of
shareholders' equity as of December 31, 2003, its consolidated financial
statements for the year ended December 31, 2004 and its consolidated
shareholders' equity as of January 31, 2005 to record these additional
liabilities and related income tax effect, and restated its consolidated
financial statements as of December 31, 2005 and for the 2005 Successor Period
to record additional changes in these liabilities and related income tax effect
including the revised fair market values of assets acquired and liabilities
assumed included in goodwill in connection with the acquisition.



                                      F-16
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The following table presents the effects of the restatements made to the
Company's previously reported consolidated balance sheet as of December 31, 2005
for the income tax provision error, understatements of certain customer
liabilities and corrections of other immaterial errors described above.

<TABLE>
<CAPTION>

                                                                      December 31, 2005
                                                 ------------------------------------------------------
                                                 As Previously
BALANCE SHEET DATA                                 Reported          Adjustments              Restated

<S>                                               <C>               <C>                      <C>
Accounts receivable                               $  72,311         $ (20,619)(a)            $  51,692
Deferred income taxes-current                        11,153             7,174(b),(c),(d)        18,327
Total current assets                                213,672           (13,445)                 200,227
Property, plant and equipment, net                   49,493              (500)(e)               48,993
Goodwill                                            125,983            19,335(f),(k)           145,318
Deferred income taxes-non-current                    27,744               522(c),(d)            28,266
Total assets                                        706,255             5,912                  712,167
Accrued liabilities                                  35,474             5,641(g),(h),(i),(k)    41,115
Total current liabilities                            70,797             5,641                   76,438
Deferred income taxes                               106,857            (4,850)(c),(d),(i)      102,007
Total liabilities                                   581,404               791                  582,195
Additional paid-in capital                          145,140               311(k)               145,451
Accumulated other comprehensive income                  453               (88)(j)                  365
Accumulated deficit                                 (20,742)            4,898                  (15,844)
Total shareholders' equity                          124,851             5,121                  129,972
Total liabilities and shareholders' equity          706,255             5,912                  712,167

<FN>

(a) Adjustment recorded to reflect an increase in the reserve for future sale returns.
(b) Adjustment recorded to reflect the income tax effect of adjustments recorded in footnotes (a), (g), (h) and (k).
(c) Adjustment recorded to current deferred tax assets of $(497), non-current deferred tax assets of $(932)
and deferred tax liabilities of $(5,751) to reflect the decrease in the effective state income tax rate.
(d) Adjustment recorded to reclass current deferred tax assets of $(1,515), non-current deferred tax assets of
of $1,337 and deferred tax liabilities of $901 to conform to the current year presentation.
(e) Adjustment recorded in connection with purchase accounting to reduce the fair value of land and buildings
based upon the receipt of a final valuation of property.
(f) Adjustment recorded to reflect the revised fair market values of assets acquired and liabilities assumed
as a result of adjustments recorded in footnotes (a), (b), (e), (g), (h), (i) and (j).
(g) Adjustment recorded to reflect an increase in the reserve for future sales markdowns of $1,728.
(h) Adjustment recorded to reflect an increase in the liability for cooperative and promotional advertising of $1,202.
(i) Adjustment recorded to reflect an increase in pre acquisition income tax liabilities of $1,505.
(j) Adjustment recorded to reflect the effects of foreign currency changes as a result of the adjustments.
(k) Adjustment recorded to reflect the effect of unrecorded adjustments that were previously deemed
immaterial as of December 31, 2005, as follows:
</FN>
</TABLE>

                                                               Increase
        Account                                               (Decrease)
        -------                                               ----------
        Goodwill                                                  $ 240
        Accrued liabilities                                       1,206
        Additional paid-in capital                                  311
        Accumulated deficit                                      (1,277)




                                      F-17
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The following information presents the effects of the restatements made to the
Company's previously reported consolidated statements of operations for the 2005
Successor Period and for the year ended December 31, 2004 for the errors
described above.

STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                                                     Successor Period                         Predecessor Period
                                           February 1, 2005 - December 31, 2005         Year Ended December 31, 2004
                                          ---------------------------------------  -------------------------------------
                                   As Previously                            As Previously
                                      Reported     Adjustments   Restated      Reported    Adjustments   Restated
                                      --------     -----------   --------      --------    -----------   --------
<S>                                 <C>            <C>           <C>          <C>          <C>           <C>
Net sales                           $ 375,399      $  3,959(a)   $ 379,358    $ 396,675    $ (1,501)(a)  $ 395,174
Selling and administrative
  expenses                            157,142         1,420(b)     158,562      166,732         346(b)     167,078
Operating income (loss)                  (718)        2,539          1,821       30,083      (1,847)        28,236
Earnings (loss) before taxes          (33,742)        2,539        (31,203)      26,684      (1,847)        24,837
Provision for (benefit from)
  income taxes                        (13,000)       (2,359)(c)    (15,359)      11,075        (916)(c)     10,159
Net earnings (loss)                   (20,742)        4,898        (15,844)      15,609        (931)        14,678

(a) Adjustment recorded to the reserves for future sale returns and markdowns
and the liability for cooperative and promotional advertising.
(b) Adjustment recorded to the liability for cooperative and promotional
advertising and for the correction of other immaterial errors.
(c) Adjustment recorded to reflect the income tax effect of adjustments recorded
in footnotes (a) and (b) and in the 2005 Successor Period, to reflect the
decrease in the effective state income tax rate.
</TABLE>


The predecessor Company's retained earnings as of December 31, 2003 was reduced
by $14,682 as a result of the restatements.

The restatements did not impact net cash flows from operating, investing or
financing activities.





(4) Supplemental Cash Flow Information

The following is supplemental information relating to the consolidated
statements of cash flows:
<TABLE>
<CAPTION>

                                            Successor Period                 Predecessor Period
                                        -----------------------------  ---------------------------
                                                          February 1,  January 1,
                                        Year Ended          2005 -       2005 -      Year Ended
                                         December 31,    December 31,  January 31,    December 31,
                                           2006              2005         2005          2004

Cash paid for:
<S>                                       <C>             <C>             <C>          <C>
   Interest                               $ 34,236        $ 17,376        $ 140        $3,674
                                          ========        ========        =====        ======
   Income taxes                           $  2,231        $  3,505        $ 136        $7,573
                                          ========        ========        =====        ======

Non-cash transactions:
   Shares tendered by optionees to
     exercise stock options               $   --          $   --          $ 269        $2,039
                                          ========        ========        =====        ======
   Shares exchanged by optionees          $   --          $  6,940        $--          $ --
                                          ========        ========        =====        ======
</TABLE>






                                      F-18
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(5) Inventories

The components of inventories were as follows:

                                                   December 31,   December 31,
  Gross Inventories                                   2006           2005
  -----------------                                   ----           ----

  Raw materials                                     $ 52,803       $ 52,707
  Work in process                                      5,687          5,678
  Finished goods                                      80,896         81,323
                                                    --------       --------
  Total gross inventories                            139,386        139,708

  Reserve for excess and slow moving inventories      44,324         17,411
                                                    --------       --------

  Inventories, net                                  $ 95,062       $122,297
                                                    ========       ========

Inventories are valued at the lower of cost (principally first-in/first-out) or
market value. The Company records an inventory obsolescence reserve to the cost
of inventories based upon its forecasted plans to sell, historical and projected
scrap and disposal rates and physical condition of the inventories. This reserve
is calculated using an estimated obsolescence percentage applied to the
inventories based on age, historical trends and requirements to support
forecasted sales. In addition, the Company may establish specific reserves for
future known or anticipated events. These reserves are estimates, which could
vary significantly, either favorably or unfavorably, from actual requirements if
future economic conditions, the timing of new product introductions, customer
inventory levels, retailer consolidations, fashion-oriented color cosmetic
trends or competitive conditions differ from expectations.

In the fourth quarter of 2006, the Company recorded an incremental $25,054
charge to cost of goods sold to increase its reserves for excess and slow moving
inventory. The $25,054 change in estimate is a result of the execution of
various initiatives designed to enhance the value of the Company's brands;
specifically SALLY HANSEN(R) and ORAJEL(R). These initiatives are consistent
with the Company's revised strategic plan which was approved by senior
management and certain members of the Board of Directors in December 2006.
The Company undertook a process to evaluate its product mix, required inventory
levels to support the service level demands of its customers and the
appropriateness of its inventory reserves, in relation to the revised strategic
plan. This evaluation addressed the usage of existing inventory either within
current products, or through the production and sale of promotional inventory or
special products. A significant portion of the additional reserve results from
the Company (i) exiting non-core product lines, (ii) refining its sales
forecasting and demand planning activities, (iii) increasing the volume of
finished goods produced at third parties which hindered the usefulness of
existing inventory components, (iv) incurring increasing losses on the
disposition of certain slow moving products and (v) experiencing changes in
market conditions for close-out inventory product offerings.

Provisions and write-downs for excess and slow moving inventories for the twelve
months ended December 31, 2006 have increased to $35,665 from $13,315, $17 and
$6,516 for the 2005 Successor Period, the 2005 Predecessor Period and 2004,
respectively.

In accordance with SFAS No. 151, "Inventory Costs", the Company charged $5,591
to cost of goods sold during the year ended December 31, 2006 of which $4,376
related to unabsorbed overhead costs in connection with the closure of the
Little Falls manufacturing facility (see Note 13) and $1,215 related to
manufacturing inefficiencies at the Company's Rocky Point facility due
principally to transition and training costs.


                                      F-19
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(6) Property, Plant and Equipment

The components of property, plant and equipment, net, were as follows:

<TABLE>
<CAPTION>
                                                                2006          2005
                                                                ----          ----
                                                                            Restated
<S>                                                          <C>           <C>
Land                                                         $    2,358    $    2,586
Building, building improvements and leasehold improvements       24,032        24,671
Machinery and equipment                                          30,826        25,205
Furniture and fixtures                                            4,190         3,247
Construction in progress                                            455           259
                                                             ----------    ----------
                                                                 61,861    $   55,968
Less accumulated depreciation and amortization                  (17,214)       (6,975)
                                                             ----------    ----------
                                                             $   44,647    $   48,993
                                                             ==========    ==========
</TABLE>

Property, plant and equipment were stated at historical cost for the Predecessor
Period through January 31, 2005 at which time the Company adjusted property,
plant and equipment to fair value in accordance with purchase accounting,
resulting in an increase to property, plant and equipment of $2,622.
Depreciation expense for 2006, the 2005 Successor Period, the 2005 Predecessor
Period and 2004 was $10,416, $6,965, $703 and $7,821, respectively.

(7) Goodwill and Other Intangibles Arising From Acquisitions

Goodwill represents the excess of the purchase prices paid for companies and
product lines over amounts assigned to the fair value of the net tangible assets
as well as purchased intellectual property rights and trademarks. Total goodwill
(restated) is comprised of $92,858 for the Cosmetic segment and $52,460 for the
Pharmaceutical segment. Based upon the Company's annual impairment test,
goodwill of $145,318 is not impaired under the provisions of SFAS No. 142.

Trade names have an indefinite life and relate to several of the Company's
product lines, including SALLY HANSEN(R), LACROSS(R), N.Y.C. NEW YORK COLOR(R),
CORNSILK(R), ORAJEL(R), DERMAREST(R), STYE(TM), GENTLE NATURALS(R) AND
PRONTO(R). These trade names have indefinite lives and are used in the
advertising and marketing of the products and are widely recognized and accepted
by consumers in the Company's respective markets. Customer relationships are
being amortized on a straight-line basis over 20 years.

The components of intangible assets arising from acquisitions were as follows:

                                             December 31, 2006
                                             -----------------
                                Gross Carrying    Accumulated    Net Book
                                     Value       Amortization      Value
                                     -----       ------------      -----
      Trade names                  $159,100        $     --      $159,100
      Customer relationships        105,000          10,063        94,937
                                   --------        --------      --------
                                   $264,100        $ 10,063      $254,037
                                   ========        ========      ========


                                      F-20
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                                             December 31, 2005
                                             -----------------
                                Gross Carrying    Accumulated    Net Book
                                     Value       Amortization      Value
                                     -----       ------------      -----
      Trade names                  $159,100        $     --      $159,100
      Customer relationships        105,000           4,813       100,187
                                   --------        --------      --------
                                   $264,100        $  4,813      $259,287
                                   ========        ========      ========

Amortization expense amounted to $5,250, $4,813, $45 and $681 for 2006, the 2005
Successor Period, the 2005 Predecessor Period and 2004, respectively. The
estimated amortization expense for the years ending December 31, 2007, 2008,
2009, 2010 and 2011 is $5,250, in each of the five years.

(8) Income Taxes

The Company recorded an income tax benefit of $11,018 for 2006 based upon the
Company's annual effective tax rate of 36.5% for the year ended December 31,
2006.

The Company recorded an income tax benefit of $15,359 (restated) for the 2005
Successor Period. The income tax benefit was based on the Company's effective
tax rate of 35.3% for the 2005 Successor Period, as well as the recording of a
benefit of $4,330 relating to a reduction of the net deferred tax liabilities
due to a change in the New York State tax laws.

The income tax benefit for the Predecessor Period January 1, 2005 to January 31,
2005 of $24,434 was comprised of an anticipated income tax refund (received on
October 27, 2005) of approximately $11,242 attributable to the utilization of a
net operating loss carryback, the recording of deferred tax assets of
approximately $13,454 attributable to net operating loss carryforwards, and the
recording of approximately $262 of deferred tax expense related to temporary
differences.

Income taxes for the Predecessor Period January 1, 2004 to December 31, 2004 of
$10,159 (restated) were based on the Company's annual effective tax rate of
40.9% for the year 2004.


                                      F-21
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The components of income tax expense (benefit) were as follows:

<TABLE>
<CAPTION>
SUCCESSOR PERIO
                                              Federal            State         Foreign          Total
                                           ------------     ------------     ------------    ------------
<S>                                        <C>           <C>                  <C>          <C>
Year Ended December 31, 2006
    Current tax                            $   --           $    473         $   (782)        $   (309)
    Deferred tax                            (10,400)          (1,547)           1,238          (10,709)
                                           --------         --------         --------         --------
                                           $(10,400)        $ (1,074)        $    456         $(11,018)
                                           ========         ========         ========         ========

 February 1, 2005 - December 31, 2005
  (Restated)
    Current tax                            $   --           $     71         $  1,229         $  1,300
    Deferred tax                            (11,248)          (5,084)            (327)         (16,659)
                                           --------         --------         --------         --------
                                           $(11,248)        $ (5,013)        $    902         $(15,359)
                                           ========         ========         ========         ========

 Predecessor Period

 January 1, 2005 - January 31, 2005
    Current tax                            $   --           $      6         $    (69)        $    (63)
    Deferred tax                            (20,796)          (3,575)            --            (24,371)
                                           --------         --------         --------         --------
                                           $(20,796)        $ (3,569)        $    (69)        $(24,434)
                                           ========         ========         ========         ========

 Year Ended December 31, 2004
  (Restated)
    Current tax                            $  4,464         $    871         $  2,162         $  7,497
    Deferred tax                              2,784             (313)             191            2,662
                                           --------         --------         --------         --------
                                           $  7,248         $    558         $  2,353         $ 10,159
                                           ========         ========         ========         ========
</TABLE>


Total income tax expense differed from the statutory rate of 35% of earnings
(loss) before income taxes, as a result of the following items:

<TABLE>
<CAPTION>

                                                 Successor Period                               Predecessor Period
                                                 -----------------------------------  -------------------------------------
                                                  Year Ended       February 1, 2005   January 1, 2005 -     Year Ended
                                              December 31, 2006    December 31, 2005  January 31, 2005   December 31, 2004
                                                                      Restated                                Restated


<S>                                               <C>                <C>                <C>                <C>
Tax provision at statutory rate                   $(10,553)          $(10,921)          $ (7,860)          $  8,693
Increase (decrease) in tax resulting from:
Change in New York State tax law
  relating to apportionment calculation               --               (4,330)              --                 --
State income taxes, net of Federal
   income tax benefit                                 (698)              (444)            (2,368)               362
Repurchase of stock options
   due to acquisition                                 --                 --              (12,662)              --
Merger expenses                                       --                 --               (1,349)               436
Other, net                                             233                336               (195)               668
                                                  --------           --------           --------           --------
Actual provision for income taxes                 $(11,018)          $(15,359)          $(24,434)          $ 10,159
                                                  ========           ========           ========           ========
</TABLE>



                                      F-22
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For presentation
purposes, certain of such tax assets and liabilities are shown net on the
accompanying consolidated balance sheets. Significant components of the
Company's deferred tax assets and liabilities as of December 31, 2006 and 2005
were as follows:

                                                          2006          2005
                                                       ----------    ----------
Deferred tax assets:                                                  Restated

     Accounts receivable, principally                  $    8,990    $    9,146
          due to allowance for doubtful accounts
          and future sales returns

     Inventory reserve                                     15,314         5,850

     Accrued liabilities                                    5,526         3,195

     Pension accrual for financial reporting purposes       5,424         6,243

     Supplemental executive retirement plan
          accrual for financial statement purposes          2,707         2,491

     Tax credits and NOL carryforwards                     15,735        17,770

     Other                                                  1,338         1,898
                                                       ----------    ----------

Deferred tax assets                                        55,034        46,593
                                                       ----------    ----------

Deferred tax liabilities

     Identifiable intangibles                             (92,705)      (94,797)

     Property, plant and equipment                         (5,513)       (6,999)

     Other                                                   (237)         (211)
                                                       ----------    ----------


Deferred tax liabilities                                  (98,455)     (102,007)
                                                       ----------    ----------

Net deferred tax (liabilities) assets                  $  (43,421)   $  (55,414)
                                                       ==========    ==========

At December 31, 2006 and 2005, deferred tax assets of $291 and $154,
respectively, were recorded on the consolidated balance sheet relating to the
additional minimum pension liability (note 9(a)). Such liability, net of the
related deferred tax asset, was recorded as a component of accumulated other
comprehensive income, in accordance with SFAS No. 87, "Employers' Accounting for
Pensions" and SFAS No. 130, "Reporting Comprehensive Income."

A valuation allowance is recorded when management determines that it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The Company considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies, among
other factors, in making this assessment. There was no valuation allowance as of
December 31, 2006 or 2005 as the Company believes it is more likely than not
that the net deferred tax assets will be realized.


                                      F-23
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(9) Long-Term Debt

Long-term debt consisted of the following:

                                                          2006        2005
                                                          ----        ----
    8% senior subordinated notes, net of unamortized
      discount of $897 in 2006 and $1,034 in 2005       $174,103    $173,966
    Senior secured floating rate notes                   185,000     185,000
    Revolving credit facility                             10,000      22,000
    Mortgages on land and buildings                        1,194       1,254
    Obligations under capital leases                         107         206
                                                        --------    --------
                                                         370,404     382,426
    Less current portion                                     165         185
                                                        --------    --------
                                                        $370,239    $382,241
                                                        ========    ========

On January 27, 2005, the Company completed a private offering of $175,000 8%
senior subordinated notes (the "Subordinated Notes") due 2012. The Subordinated
Notes were issued at 99.34% of par, resulting in net proceeds of $173,845 before
expenses. The Subordinated Notes are guaranteed by certain of the existing and
future domestic subsidiaries of the Company. The Subordinated Notes and
guarantees are unsecured senior subordinated obligations and rank equally with
all future subordinated indebtedness and are subordinated to the current and
future senior indebtedness and other liabilities of the Company and its
subsidiaries. Interest on the Subordinated Notes is payable semi-annually on
February 1 and August 1, which commenced on August 1, 2005.

On May 13, 2005, a registration statement filed pursuant to the Securities Act
of 1933, as amended, registering the exchange offer for the Subordinated Notes
became effective. On June 22, 2005, the Company completed the exchange offer of
the privately placed notes for SEC registered notes.

The Subordinated Notes may be redeemed at the option of the Company in whole or
in part at any time on or after February 1, 2008 at the redemption prices set
forth in the Subordinated Notes indenture, plus accrued and unpaid interest and
liquidated damages, if any, to the date of redemption. The Company may also
redeem up to 35% of the original aggregate principal amount of the Subordinated
Notes prior to February 1, 2008 with the proceeds of one or more public equity
offerings, at a redemption price equal to 108% of the principal amount thereof,
plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date. The Company may also redeem all the Subordinated Notes upon the
occurrence of a Change in Control (as defined therein), prior to February 1,
2008, at a redemption price equal to 108% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, to the redemption
date. The Company is required to offer to repurchase the Subordinated Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, to the repurchase date under some
circumstances involved upon the occurrence of a Change in Control. The Company
must also repurchase the Subordinated Notes at a price equal to par, plus
accrued and unpaid interest and liquidated damages, if any, to the repurchase
date, if the Company sells assets under certain circumstances.

The Subordinated Notes contain covenants that, among other things, limit the
issuance of additional indebtedness, the incurrence of liens, the payment of
dividends or other distributions, the distributions from certain subsidiaries,
the issuance of preferred stock, the sale of assets and subsidiary stock,
transactions with affiliates and consolidations, mergers and transfers of
assets. All of these limitations and prohibitions, however, are subject to a
number of important qualifications, set forth in the indenture.


                                      F-24
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Concurrently with the offering of the Subordinated Notes, the Company entered
into a credit agreement, as amended with JPMorgan Chase Bank, N.A., as
administrative agent, Bear Stearns Corporate Lending Inc., as syndication agent,
Deutsche Bank Securities Inc., as co-agent and documentation agent and the
lenders party thereto from time to time. The agreement provided for maximum
borrowings of $250,000 consisting of a term loan facility in an aggregate
principal amount of $200,000 and a revolving credit facility, which provided for
up to $50,000 of revolving loans outstanding at any time (including letters of
credit of up to $15,000). The Company repaid all borrowings under this agreement
and the agreement was terminated in October 2005. As a result of the termination
and repayment of this agreement, $6,449 of deferred financing fees were written
off during the 2005 Successor Period which has been reflected as a loss on the
early extinguishment of debt on the Company's consolidated financial statements.

On October 28, 2005, the Company completed a private offering of $185,000 in
principal amount of senior secured floating rate notes (the "Notes") due
November 1, 2011. The Notes bear interest at a rate per annum equal to
three-month LIBOR plus 5.0%. The Notes are guaranteed by certain of the existing
and future domestic subsidiaries of the Company. The Notes and guarantees are
secured by a first priority security interest in substantially all of the
Company's and guarantors' assets, other than inventory, receivables, equity
interest in the Company's subsidiaries and other specified excluded assets and
by a second priority security interest in substantially all the Company's and
guarantors' inventory, receivables and other specified liquid assets. The Notes
and guarantees rank equally with all existing and future senior indebtedness and
rank senior to all existing and future subordinated indebtedness, including the
Subordinated Notes and related guarantees. Interest on the Notes is payable
quarterly on February 1, May 1, August 1 and November 1, which commenced on
February 1, 2006.

On July 14, 2006, a registration statement filed pursuant to the Securities Act
of 1933, as amended, registering the exchange offer for the Notes became
effective. On August 11, 2006, the Company completed the exchange offer of the
privately placed notes for SEC registered notes.

The Notes may be redeemed by the Company in whole or in part at any time on or
after November 1, 2007 at the redemption prices set forth in the Notes
indenture, plus accrued and unpaid interest and liquidated damages, if any, to
the redemption date. The Company may also redeem up to 35% of the original
aggregate principal amount of the Notes prior to November 1, 2007 with the
proceeds of one or more public equity offerings, at a redemption price equal to
100% of the principal amount thereof plus the applicable Eurodollar rate then in
effect, plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date. The Company is required to offer to repurchase the Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, to the repurchase date under some
circumstances involved upon the occurrence of a Change in Control. The Company
must also repurchase the Notes at a price equal to par, plus accrued and unpaid
interest and liquidated damages, if any, to the repurchase date, if the Company
sells assets under certain circumstances.

The Notes contain covenants that, among, other things, limit the issuance of
additional indebtedness, the incurrence of liens, the payment of dividends or
other distributions, the distributions from certain subsidiaries, the issuance
of preferred stock, the sale of assets and subsidiary stock, transactions with
affiliates and consolidations, mergers and transfer of assets. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications, set forth in the indenture.

On December 29, 2005, the Company entered into an $85,000 asset-based revolving
credit facility, which was subsequently amended on February 23, 2006 and
November 29, 2006, (the "ABL Credit Facility") among the Company, DLI Holding II
Corp., the several lenders from time to time parties thereto and JPMorgan Chase
Bank, N.A., as administrative agent. The ABL Credit Facility matures on December
29, 2010 and provides for aggregate maximum borrowings of $85,000. The ABL
Credit Facility is guaranteed by DLI Holding II Corp. and by certain of the
Company's existing and future domestic subsidiaries. The ABL Credit Facility is
an asset-based facility with a first priority security interest in substantially
all accounts receivable and inventory and a second priority security interest in
substantially all tangible and intangible assets. The ABL Credit Facility is
also secured on a first priority basis by the capital stock of the Company's
domestic subsidiaries. Also, the guarantee by DLI Holding II Corp., is secured
by a pledge of all of its assets. The Company and the subsidiary guarantors, the
credit facility collateral agent and the Trustee for the Notes and the note
collateral agent entered into an Intercreditor Agreement.


                                      F-25
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Borrowings under the ABL Credit Facility are determined by a formula which
provides eligibility of up to 85% of the net book value of domestic accounts
receivable and a range of 35% to 65% of domestic inventory. Borrowings under the
ABL Credit Facility bear interest at the Company's option at either: (i) an
alternate base rate which is equal to the higher of 0.50% per year above the
federal funds effective rate and the base rate announced by the ABL Credit
Facility's administrative agent as its prime rate plus an applicable margin
ranging from 0.25% to 0.75% (0.25% at December 31, 2006) based on the Company's
borrowing base availability, or (ii) an Adjusted LIBOR rate plus an applicable
margin ranging from 1.25% to 1.75% (1.25% at December 31, 2006) based on the
Company's borrowing base availability. The terms of the ABL Credit Facility
include a commitment fee of .375% based on unused commitments of the lenders,
letter of credit fees on the aggregate face amount of outstanding letters of
credit and underwriting and administrative fees.

The ABL Credit Facility includes covenants, that among other things, limit or
restrict the Company's and its subsidiaries abilities to dispose of assets,
incur additional indebtedness, incur guarantee obligations, prepay other
indebtedness, make dividends, create liens, make investments, make acquisitions,
modify the terms of the documents governing the indebtedness, engage in mergers
or make capital expenditures or engage in certain transactions with affiliates.
The ABL Credit Facility also requires the Company to comply with a minimum
coverage ratio of Consolidated EBITDA to fixed charges whenever excess borrowing
availability is less than $10,000 on any day. As borrowing availability under
the ABL Credit Facility exceeds the specified threshold at December 31, 2006,
the ratio test is not applicable. As of December 31, 2006, the Company had
$10,000 of senior debt and $1,000 of letters of credit outstanding under the ABL
Credit Facility, $74,000 of unutilized commitments and $71,246 of availability
thereunder.

On March 31, 2007, the Company entered into a Waiver and Consent to the ABL
Credit Facility. Among other things, the Waiver and Consent (i) waives certain
Defaults or Events of Default relating to any potential restatement or revision
of the Company's consolidated financial statements delivered prior to the date
of the Waiver and Consent, and (ii) extends the date on which audited financial
statements with respect to the fiscal year ended December 31, 2006, and certain
other documents under the ABL Credit Facility, are required to be delivered to
April 30, 2007 from March 31, 2007.

The ABL Credit Facility requires the Company to enter into interest rate
protection agreements to provide interest rate protection for a minimum of 45%
of the Company's consolidated funded indebtedness for two years. Effective
February 1, 2006, the Company entered into a cap/floor collar agreement (the
"Collar") with JPMorgan Chase Bank, N.A to provide the required interest rate
protection and to manage its exposure to changes in LIBOR. The Collar is for a
notional amount of $100,000, expires on February 1, 2009 and has a cap rate of
5.5% and a floor rate of 4.29%. The Collar has been designated as a cash flow
hedge of the variability of the cash flows due to changes in LIBOR and has been
deemed to be highly effective. Accordingly, the Company records the fair value
of the Collar as an asset or liability on its consolidated balance sheet, and
any unrealized gain or loss is included in accumulated other comprehensive
income (loss). As of December 31, 2006, the Company recorded an asset of $3 in
the accompanying consolidated balance sheet and recorded an after-tax net gain
of $2 in accumulated other comprehensive income (loss) during the year ended
December 31, 2006. No hedge ineffectiveness was recorded during the year ended
December 31, 2006.

On February 22, 2000, the Company purchased a manufacturing, warehousing and
office facility in Barrie, Ontario for $1,828. The purchase was financed with a
combination of a mortgage bridge loan and a five-year mortgage which was
modified on April 1, 2004 to extend the maturity to April 1, 2009 and reduce the
interest rate to 6.37%. Upon completion of the Merger on January 27, 2005, the
obligations under the mortgage were assumed. The outstanding balance of this
mortgage at December 31, 2006 is $1,194.


                                      F-26
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The Company also leases certain equipment under long-term capital leases, some
of which include options to purchase the equipment for a nominal cost at the
termination of the lease.

The aggregate maturities of long-term debt and minimum payments under capital
lease obligations for each of the five years subsequent to December 31, 2006 and
thereafter, are as follows:

                           2007                $    165
                           2008                      65
                           2009                   1,071
                           2010                  10,000
                           2011                 185,000
                        Thereafter              175,000
                                               --------
                                               $371,301
                                               ========

(10) Employee Retirement Plans

(a) Pension Plans

The Company maintains two non-contributory defined benefit pension plans
covering all U.S. eligible employees: the Employees' Pension Plan and the
LaCross Pension Plan. The Employees' Pension Plan formula is based on years of
service and the employee's compensation during the five years before retirement.
The LaCross Pension Plan formula is based on years of service. The LaCross
Pension Plan covers former employees of the Company's Newark, New Jersey
facility which ceased operations during 2002. As a result of this closure, more
than 20% of plan participants in the LaCross Pension Plan were terminated which
resulted in a partial termination of the plan. Due to the partial termination of
the plan, all affected participants became fully vested in their accrued
benefits at their termination date. In November 2006, the Board of Directors of
the Company approved the termination of the LaCross Pension Plan. The Company
has applied for a determination letter from the Internal Revenue Service for
approval of the termination of the LaCross Pension Plan. As a result of the
closure of the Company's Little Falls facility (see Note 13 for further
information), there was a partial curtailment of the Employees' Pension Plan,
resulting in a reduction of the benefit obligation of $1,356, a reduction in the
unrecognized net actuarial loss of $362 and the recording of a benefit of $994
during the third quarter of 2006.

Effective April 1, 2007 (approved January 15, 2007 by the Board of Directors of
the Company), the Company amended the Employees' Pension Plan. As a result
of this amendment, the plan will be closed to new employees and the accrual of
future benefits to current employees will be discontinued. All retirement
benefits that employees will have earned as of April 1, 2007 will be fully
preserved. Employees' ongoing service with the Company will continue to be
credited for vesting purposes. The amendment of the Employee's Pension Plan will
result in a curtailment of the plan. The Company anticipates that it will record
a one-time pre-tax benefit of approximately $5,000 to $6,000 in the first
quarter of 2007.

The Company also has a defined benefit supplemental executive retirement plan
(SERP) for certain of its executives. The SERP is a non-qualified plan under the
Internal Revenue Code. The assets in the SERP trust, which were $2,720 and
$3,471 as of December 31, 2006 and 2005, respectively, are considered assets of
the Company, not plan assets, and as such, are included in other assets on the
accompanying consolidated balance sheets. The assets of the SERP, which consist
of cash and cash equivalents, are held-to-maturity securities and, as such, are
carried at cost plus accrued interest. The Company made no contributions during
2006, the 2005 Successor Period, the 2005 Predecessor Period or 2004 to the SERP
trust.

The Company made contributions to these plans (including contributions from the
SERP trust) of $5,474, $4,061, $773 and $4,292 in 2006, the 2005 Successor
Period, the 2005 Predecessor Period and 2004, respectively. Assets held by these
plans consist of cash and cash equivalents, fixed income securities consisting
of U.S. government and corporate bonds and common stocks.


                                      F-27
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

As a result of the Merger, the Company recorded a fair value adjustment to its
pension assets and liabilities of $10,548 during the 2005 Successor Period. The
adjustment was the result of an increase of $9,870 in liabilities and a
reduction of plan assets of $678.

Total pension expense for 2006, the 2005 Successor Period, the 2005 Predecessor
Period and 2004 amounted to $3,167, $3,879, $449 and $4,774, respectively. The
change in benefit obligation, change in plan assets and funded status as of
December 31, 2006 and 2005 and components of net periodic cost for 2006, the
2005 Successor Period, the 2005 Predecessor Period and 2004 of the Company's
domestic plans are set forth in the following tables:

<TABLE>
<CAPTION>
                                                                                    2006
                                                                --------------------------------------------
                                                                  Employees'       LaCross
                                                                Pension Plan     Pension Plan         SERP
                                                                ------------     ------------         ----
<S>                                                               <C>              <C>              <C>
Change in benefit obligation:
Benefit obligation at the beginning of the year                   $ 52,720         $  1,297         $  7,958
     Service cost                                                    3,708               --               16
     Interest cost                                                   2,848               65              412
     Actuarial (gain) loss                                          (4,695)            (124)              41
     Curtailment                                                    (1,356)              --               --
     Benefits paid                                                  (1,879)             (96)            (889)
                                                                  --------         --------         --------
     Benefit obligation at the end of the year                    $ 51,346         $  1,142         $  7,538
                                                                  --------         --------         --------

Change in plan assets:
     Fair value of assets at the beginning of the year            $ 31,902         $  1,031         $     --
     Actual gain on plan assets                                      3,227               45               --
     Employer contributions                                          4,585               --              889
     Benefits paid                                                  (1,879)             (96)            (889)
                                                                  --------         --------         --------
     Fair value of assets at the end of the year                  $ 37,835         $    980         $     --
                                                                  --------         --------         --------

     Funded status                                                $(13,511)        $   (162)        $ (7,538)
     Unamortized prior service cost                                     --               --               --
     Unrecognized net actuarial (gain) loss                         (2,539)             (46)             291
                                                                  --------         --------         --------
     Net amount recognized                                        $(16,050)        $   (208)        $ (7,247)
                                                                  ========         ========         ========

Amounts recognized in the balance sheet consist of:
     Accrued liability                                            $(16,050)        $   (208)        $ (7,538)
     Intangible asset (included in other long-term assets)              --               --               --
     Accumulated other comprehensive loss                               --               --              291
                                                                  --------         --------         --------
     Net amount recognized                                        $(16,050)        $   (208)        $ (7,247)
                                                                  ========         ========         ========

Accumulated benefit obligation:                                   $ 42,880         $  1,142         $  7,538
                                                                  ========         ========         ========
</TABLE>


                                      F-28
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
<CAPTION>
                                                                                 2005
                                                             ----------------------------------------------
                                                               Employees'       LaCross
                                                             Pension Plan     Pension Plan         SERP
                                                             ------------     ------------         ----
<S>                                                          <C>              <C>              <C>
Change in benefit obligation:
Benefit obligation at the beginning of the year              $     45,228     $      1,314     $      7,935
    Service cost                                                    3,657               --               32
    Interest cost                                                   2,591               72              430
    Actuarial loss                                                  2,469                5              356
    Benefits paid                                                  (1,225)             (94)            (795)
                                                             ------------     ------------     ------------
    Benefit obligation at the end of the year                $     52,720     $      1,297     $      7,958
                                                             ------------     ------------     ------------

Change in plan assets:
    Fair value of assets at the beginning of the year        $     27,544     $      1,096     $         --
    Actual gain on plan assets                                      1,545               29               --
    Employer contributions                                          4,038               --              796
    Benefits paid                                                  (1,225)             (94)            (796)
                                                             ------------     ------------     ------------
    Fair value of assets at the end of the year              $     31,902     $      1,031     $         --
                                                             ------------     ------------     ------------

    Funded status                                            $    (20,818)    $       (266)    $     (7,958)
    Unamortized prior service cost                                     --               --               --
    Unrecognized net actuarial loss                                 2,790               59              381
                                                             ------------     ------------     ------------
    Net amount recognized                                    $    (18,028)    $       (207)    $     (7,577)
                                                             ============     ============     ============

Amounts recognized in the balance sheet consist of:
    Accrued liability                                        $    (18,028)    $       (266)    $     (7,928)
    Intangible asset (included in other long-term assets)              --               --               --
    Accumulated other comprehensive loss                               --               59              351
                                                             ------------     ------------     ------------
    Net amount recognized                                    $    (18,028)    $       (207)    $     (7,577)
                                                             ============     ============     ============

Accumulated benefit obligation:                              $     41,804     $      1,297     $      7,928
                                                             ============     ============     ============

<CAPTION>
                                                                            SUCCESSER PERIOD
                                                                      Year Ended December 31, 2006
                                                             ----------------------------------------------
                                                               Employees'       LaCross
                                                             Pension Plan     Pension Plan         SERP
                                                             ------------     ------------         ----
<S>                                                          <C>              <C>              <C>
Components of net periodic cost:
    Service cost                                             $      3,708     $         --     $         16
    Interest cost                                                   2,848               65              412
    Expected return on plan assets                                 (2,955)             (64)              --
    Recognized net loss                                                --               --              131
    Curtailment                                                      (994)              --               --
                                                             ------------     ------------     ------------
    Net periodic cost                                        $      2,607     $          1     $        559
                                                             ============     ============     ============
</TABLE>


                                      F-29
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
<CAPTION>
                                               February 1, 2005 - December 31, 2005
                                           --------------------------------------------
                                            Employees'       LaCross
                                           Pension Plan    Pension Plan        SERP
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Components of net periodic cost:
   Service cost                            $      3,357    $         --    $         29
   Interest cost                                  2,377              66             394
   Expected return on plan assets                (2,285)            (62)             --
   Recognized net loss                                3              --              --
                                           ------------    ------------    ------------
   Net periodic cost                       $      3,452    $          4    $        423
                                           ============    ============    ============

<CAPTION>
                                   PREDECESSOR PERIOD
---------------------------------------------------------------------------------------
                                                January 1, 2005 - January 31, 2005
                                           --------------------------------------------
                                            Employees'       LaCross
                                           Pension Plan    Pension Plan        SERP
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Components of net periodic cost:
   Service cost                            $        300    $         --    $          3
   Interest cost                                    214               6              36
   Expected return on plan assets                  (206)             (6)             --
   Recognized prior service cost                      4              --              12
   Recognized net loss                               77               2               7
                                           ------------    ------------    ------------
   Net periodic cost                       $        389    $          2    $         58
                                           ============    ============    ============

<CAPTION>
                                                   Year Ended December 31, 2004
                                           --------------------------------------------
                                            Employees'       LaCross
                                           Pension Plan    Pension Plan        SERP
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Components of net periodic cost:
   Service cost                            $      3,080    $         --    $         52
   Interest cost                                  2,312              77             423
   Expected return on plan assets                (2,063)            (74)             --
   Recognized prior service cost                     50              --             147
   Recognized net (gain) loss                       765              18             (13)
                                           ------------    ------------    ------------
   Net periodic cost                       $      4,144    $         21    $        609
                                           ============    ============    ============
</TABLE>

The weighted-average actuarial assumptions used to determine net periodic costs
for the year ended December 31, 2006, the 2005 Successor Period, the 2005
Predecessor Period and the year ended December 31, 2004, respectively, were:

<TABLE>
<CAPTION>
                                                          SUCCESSOR PERIOD             PREDECESSOR PERIOD
                                                    ---------------------------    --------------------------
                                                     Year Ended    February 1,-    January 1,-    Year Ended
                                                    December 31,   December 31,    January 31,   December 31,
                                                        2006           2005           2005           2004
                                                        ----           ----           ----           ----
<S>                                                     <C>            <C>            <C>            <C>
Discount rate                                           5.50%          5.75%          5.75%          6.25%
Rate of compensation increase                           4.50%          4.50%          4.50%          4.50%
Expected long-term rate of return on plan assets*       8.50%          8.50%          8.50%          8.50%
</TABLE>

* The expected long-term rate of return on plan assets for the LaCross Union
Plan for 2004, 2005 and 2006 was 6.50%.

The expected long-term return on assets was developed using the Building Block
Method covered under the Actuarial Standard of Practice No. 27. Under this
approach, the weighted average return is developed based on applying historical
average total returns by asset class to the plan's current asset allocation. The
calculation of the weighted average expected long-term rate of return uses the
50-year historical market performance over the period from 1953 - 2002. The
50-year period was selected as a reasonable estimate of the runout period of
expected future benefit payments.


                                      F-30
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The weighted-average actuarial assumptions used to determine benefit obligations
at December 31, 2006 and 2005 were:

                                                   2006            2005
                                                   ----            ----
      Discount rate                                6.00%           5.50%
      Rate of compensation increase                4.50%           4.50%

Plan Assets

The Company's Investment Committee has adopted an investment policy designed to
meet or exceed the assumption for the expected rate of return on plan assets of
the Employees' Pension Plan. The Company retains an investment advisor to assist
the Company in selecting and evaluating the performance of professional
investment managers that invest the plan assets in equity and fixed income
securities. The investments are generally well-diversified to avoid undue
exposure to any single economic or industry sector, or individual security. All
assets have a readily ascertainable market value and are readily marketable.
Equity investments are listed on the New York, American or principal regional
exchanges or traded on the over-the-counter market with the requirement that
such investments have adequate market liquidity.

The Company has established target ranges for the investment of the Employees'
Pension Plan assets of 45% to 55% for equities and 45% to 55% for fixed income
securities. Within the equity securities asset class, the investment policy
provides for investments in a wide range of publicly-traded securities
encompassing large, mid-size, and small capitalization stocks. The mix of equity
securities allocates approximately 70% to value style investing and
approximately 30% to growth style investing. Within the fixed income portfolio,
the investment policy provides for investments in a wide range of
publicly-traded debt securities consisting of investment grade, liquid
securities such as certificates of deposit, commercial paper, U.S. Treasury
bills and other Treasury obligations, government agency paper, and high quality,
short-term corporate securities.

The Company has currently established a policy of investing 100% of the assets
of the LaCross Pension Plan in fixed income securities as it intends to
terminate the plan.

The Company's pension plan weighted-average asset allocations were approximately
as follows:

                                                            2006
                                           -------------------------------------
                                            Employees'       LaCross
                                           Pension Plan    Pension Plan    SERP
                                           ------------    ------------    ----
Asset Category
     Equity Securities                           53%             0%           0%
     Debt Securities                              0%             0%           0%
     US Government Obligations                   37%             0%           0%
     Other (Principally Cash and Money
       Market Funds)                             10%           100%         100%
                                                ---            ---          ---
     Total                                      100%           100%         100%
                                                ===            ===          ===


                                      F-31
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                                                            2005
                                           -------------------------------------
                                            Employees'       LaCross
                                           Pension Plan    Pension Plan    SERP
                                           ------------    ------------    ----
Asset Category
     Equity Securities                           51%             0%           0%
     Debt Securities                             40%             0%           0%
     US Government Obligations                    0%             0%           0%
     Other (Principally Cash and Money
       Market Funds)                              9%           100%         100%
                                                ---            ---          ---
     Total                                      100%           100%         100%
                                                ===            ===          ===

Employer Contributions

The Company expects to contribute approximately $2,963 and $890 to its
Employees' Pension Plan and SERP, respectively, in 2007. Contributions to the
SERP will be made from the existing assets in the SERP trust. In connection with
the termination of the LaCross Pension Plan, the Company intends to fully fund
the final distribution of benefits expected to approximate $250 to $350.

Expected Benefit Payments

                                            Employees'       LaCross
                                           Pension Plan    Pension Plan    SERP
                                           ------------    ------------    ----
                     2007                    $ 1,675           $ 93       $  890
                     2008                      1,771             93          881
                     2009                      1,905             94          834
                     2010                      2,055             92          785
                     2011                      2,256             91          772
                  Thereafter                  15,985            465        3,208

Minimum pension liabilities for the underfunded Employees' Pension Plan and SERP
are included in the long-term pension liability on the accompanying consolidated
balance sheets. The minimum pension liability of $291 and $410 at December 31,
2006 and 2005, respectively, has been recorded with a corresponding amount of
accumulated other comprehensive losses of $291 and $410 at December 31, 2006 and
2005, respectively, net of deferred income taxes of $115 and $162, respectively.

In 2004, the Company contributed to a multi-employer pension plan for the
benefit of its former union employees. This plan was a defined benefit plan
based on years of service and the costs recognized for 2004 were approximately
$65. In 2004, all union employees were terminated, in association with the
relocation of manufacturing operations from Farmingdale, New York to Rocky
Point, North Carolina. See Note 13 for further information on this relocation.

The Company maintains a defined contribution plan for the benefit of its
Canadian employees. The costs recognized for 2006, the 2005 Successor Period,
the 2005 Predecessor Period and 2004 were approximately $115, $97, $7 and $98 in
U.S. dollars, respectively.


                                      F-32
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(b) Employee Stock Ownership Plan

The Predecessor Company had an employee stock ownership plan and related trust,
covering substantially all full-time non-union employees. Under the terms of the
plan, the Predecessor Company made contributions to the trust in cash, shares of
Predecessor Company stock or other property in amounts as determined by the
Board of Directors. The Board of Directors authorized contributions of $300 for
2004. On December 16, 2004, the Predecessor Company funded its 2004 contribution
of $300 to the employee stock ownership trust with cash.

On January 27, 2005, all shares of Del Laboratories, Inc. capital stock held in
the employee stock ownership trust were exchanged for cash of $35 per share and
the plan was terminated. All participants became fully vested and were given
various alternatives for the distribution of their balances.

(c) Employee 401(k) Savings Plan

The Company maintains an Employee 401(k) Savings Plan (the "401(K) Plan"). The
401(K) plan is a defined contribution plan which is administered by the Company.
All regular, full-time employees are eligible for voluntary participation on the
first day of the month following the date of hire and having attained the age of
twenty-one. The 401(K) Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. Plan participants are
allowed to contribute a specified percentage of their base salary. The Company
retains the right to make optional contributions for any plan year. Optional
contributions were not made by the Company in 2006, the 2005 Successor Period,
the 2005 Predecessor Period or 2004.

The 401(K) plan has been redesigned, effective April 2, 2007, as a result of the
Company's amendment of its Employee Pension Plan. The following represent the
material changes to the 401(K) plan: (i) automatic enrollment for all eligible
employees; (ii) Company matching contributions of employee's contributions up to
3% of eligible compensation, and 50% of the next 2% contributed; and (iii) a
Company additional automatic contribution of 3% of eligible compensation for
employees who on April 1, 2007 were at least 50 years of age and had 10 or more
years of vesting service.

(11) Shareholders' Equity

(a) Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based
Payment" . SFAS No. 123(R) requires an entity to recognize the grant-date fair
value of stock options and other equity-based compensation issued to employees
in the financial statements. The Company adopted SFAS 123(R) using the modified
prospective transition method. Accordingly, the Company applied the provisions
of SFAS No. 123(R) to all awards granted subsequent to December 31, 2005 and
will apply the provisions to awards previously granted to the extent that these
awards are subsequently modified, repurchased or cancelled.

Prior to January 1, 2006, the Company followed the disclosure-only provisions of
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS No. 148"), an amendment of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") and accounted for stock-based
compensation for stock options issued to employees using the intrinsic value
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), and related interpretations.
Under APB No. 25, no compensation expense was recognized for employee stock
option grants because the exercise price of the options granted equaled the
market price of the underlying shares on the date of grant. SFAS No. 123
required that the Company provide pro forma information regarding net earnings
as if compensation cost for the Company's stock-based awards had been determined
in accordance with the fair value method prescribed therein.


                                      F-33
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The following table illustrates the effect on net earnings (loss) if the Company
had applied the fair value recognition provisions of SFAS No. 123 to stock based
employee compensation. In determining such fair values, the Company used the
Black-Scholes option-pricing model to determine the pro forma effect. The
Company did not issue any new options during 2005 or 2004.

<TABLE>
<CAPTION>
                                               Successor Period          Predecessor Period
                                               ----------------          ------------------
                                              February 1, 2005-  January 1, 2005-      Year Ended
                                              December 31, 2005  January 31, 2005  December 31, 2004
                                              -----------------  ----------------  -----------------
                                                 (Restated)                           (Restated)
<S>                                               <C>                <C>               <C>
Net earnings (loss)                               $(15,844)          $ 1,977           $ 14,678
Deduct:  Total stock-based employee
   compensation expense determined
   under fair value based method for
   all awards net of related tax effects                --              (125)            (1,875)
                                                  --------           -------           --------
Pro forma net earnings (loss)                     $(15,844)          $ 1,852           $ 12,803
                                                  ========           =======           ========
</TABLE>

As a result of the acquisition and pursuant to the terms of the 1994 Stock Plan,
all outstanding unvested options of the Predecessor Company became fully-vested
and exercisable. As of the acquisition date, there were 2,152 options
outstanding, of which 1,727 were fully vested and 425 unvested. The Predecessor
Company acquired all of the outstanding options at $35 per share, less the
exercise price of the stock option. The Successor Company did not issue any
stock options during the 2005 Successor Period nor were any options exercised.
The total intrinsic value of options exercised during the 2005 Predecessor
Period and 2004 was $145 and $1,823, respectively.

Option Incentive Plan

Effective January 27, 2005, DLI Holding Corp. adopted a new stock option
incentive plan (the "Option Incentive Plan"). The Option Incentive Plan provides
for grants of two types of options to officers or key employees of the Company:
Service Options and Exit Options.

      (a)   Service Options generally become exercisable in three equal annual
            installments commencing on the first anniversary of the grant date.
            However, vesting of service options granted during the three months
            ended March 31, 2006 commenced on the later of January 27, 2005 or
            the employees hire date; and

      (b)   Exit Options (performance options) generally become exercisable only
            if Kelso is able to sell its equity investment in DLI LLC at a price
            equal to at least two times its initial investment and achieves at
            least a 14% internal rate of return (the "Floor Value"), subject to
            certain exceptions. All Exit Options will become exercisable if
            Kelso is able to sell its equity investment in DLI LLC at a price
            equal to at least four times its initial investment and will become
            partially exercisable on a ratable basis at a price in excess of the
            Floor Value.

Under the Option Incentive Plan, 180,000 options are reserved for issuance which
represents approximately 4.3% of the outstanding shares of DLI Holding Corp.
common stock as of the effective date of the Merger. Under the Incentive Plan,
33% of the granted options are Service Options and 67% are Exit Options.


                                      F-34
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The exercise price of each option under the Option Incentive Plan is determined
by the compensation committee, provided that the exercise price cannot be less
than the fair market value of the DLI Holding Corp. common stock on the date of
grant. While the Option Incentive Plan provides that the compensation committee
may grant incentive stock options within the meaning of Section 422 of the
Internal Revenue Code, it is anticipated that all options granted under the
Option Incentive Plan will be non-qualified stock options for federal income tax
purposes. The options will expire ten years from the grant date. Options are not
transferable other than by will or by the laws of descent and distribution or,
if permitted by the compensation committee.

Unless otherwise determined by the compensation committee at the time of grant,
upon a change in control (as defined in the Option Incentive Plan), each
outstanding Service Option (whether or not then exercisable), together with any
outstanding Exit Option that, prior to or in connection with such Change in
Control, has become exercisable, will be canceled in exchange for a payment in
cash of an amount equal to the excess of the price paid in the Change in Control
transaction over the exercise price of such option. All remaining Exit Options
that have not become exercisable at the time of the Change in Control will be
canceled. Notwithstanding the foregoing, as provided in the option agreement, no
compelled exercise, cancellation, acceleration of exercisability, vesting, cash
settlement or other payment will occur upon a Change in Control with respect to
any option if the compensation committee reasonably determines in good faith
prior to the Change in Control that such option will be honored or assumed, or
new rights substituted therefore by a participant's employer (or the parent or a
subsidiary of such employer) immediately following the Change in Control. To be
approved by the compensation committee, any honored, assumed or new rights must
provide the participant with equivalent or better rights and entitlements than
the rights available under the current options, have substantially equivalent
economic value to the current options and have terms and conditions which
provide that in the event the participant's employment is involuntarily
terminated following a Change in Control, any conditions on a participant's
rights or restrictions on transfer or exercisability (including vesting) will be
waived or lapse.

A summary of option activity under the Option Incentive Plan as of December 31,
2006 and changes during the year ended December 31, 2006 is presented below:

<TABLE>
<CAPTION>
                                                               Weighted-
                                                                Average
                                               Weighted-       Remaining    Aggregate
                                                Average       Contractual   Intrinsic
          Service Options           Shares   Exercise Price      Term       Value (1)
          ---------------           ------   --------------      ----       ---------
<S>                                 <C>          <C>           <C>           <C>
Outstanding at January 1, 2006          --       $   --                      $   --
     Granted                        46,234        35.00                         694
     Exercised                          --           --
     Forfeited                      (1,817)       35.00                         (27)
                                    ------                                   ------
Outstanding at December 31, 2006    44,417       $35.00        9.2 years     $  667
                                    ======       ======        =========     ======
Exercisable at December 31, 2006    11,356       $35.00        9.2 years     $  170
                                    ======       ======        =========     ======
</TABLE>


                                      F-35
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
<CAPTION>
                                                               Weighted-
                                                                Average
                                               Weighted-       Remaining    Aggregate
                                                Average       Contractual   Intrinsic
           Exit Options             Shares   Exercise Price       Term      Value (1)
           ------------             ------   --------------       ----      ---------
<S>                                 <C>          <C>           <C>           <C>
Outstanding at January 1, 2006          --       $    --                     $   --
  Granted                           92,466         35.00                      1,387
  Exercised                             --            --                         --
  Forfeited                         (3,633)        35.00                        (54)
                                    ------                                   ------
Outstanding at December 31, 2006    88,833       $ 35.00       9.2 years     $1,333
                                    ======       =======       =========     ======
</TABLE>

(1) The intrinsic value is the amount by which the current market value of the
underlying stock exceeds the exercise price of the option. Current market value
was developed in consultation with independent valuation specialists.

The weighted-average grant-date fair value of Service Options and Exit Options
granted during the year ended December 31, 2006 was $13.04 and $9.49,
respectively.

The Company recorded compensation expense of $313 relating to the Service
Options for the year ended December 31, 2006. The Company has not recorded
compensation expense relating to the Exit Options as the Company has determined
it is not probable that the performance conditions contained in the Exit Options
will be achieved. Compensation expense relating to the fair value of the Exit
Options will be measured and recorded upon the occurrence of a change in
control. As of December 31, 2006, the total unrecognized compensation cost
related to the non-vested Service Options was $270 and the related
weighted-average period over which this cost is expected to be recognized is
approximately 1.6 years.

The fair value of each Service Option was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions in the calculations for the year ended December 31, 2006: dividend
yield 0%; expected life of 3.8 years; risk-free interest rate 4.73%; and
expected volatility of 45%. Because the Company's common stock is not publicly
traded, the expected volatility used was determined based on an examination of
the historical volatility of the stock price of the Predecessor Company; the
historical and implied volatility of the stock prices of selected comparable
companies and the nature of those companies; and other relevant factors.

The fair value of each Exit Option granted was estimated on the date of grant
using a lattice-based valuation model with the following weighted average
assumptions in the calculations for the year ended December 31, 2006: dividend
yield 0%; expected life of 3.8 years; early exercise factor at the time at which
Kelso would sell the Company to generate a multiple of 2.8 times their initial
investment; termination rate of 1.5%; risk-free interest rate 4.73%; and
expected volatility of 45%.


                                      F-36
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Override Units

Certain of the Company's executives made an investment in DLI LLC, and have been
granted certain profit interests (the "Override Units") in DLI LLC, the indirect
parent of the Company. The Override Units have two sub-classes: Operating Units
and Value Units. Subject to forfeiture and participation provisions (including
the applicable Benchmark Amount of $32.718857) as detailed in the DLI LLC
Agreement, the holders of Override Units will have voting rights with respect to
their Override Units and shall have the rights with respect to profits and
losses of DLI LLC and distributions from DLI LLC as set forth in the DLI LLC
Agreement. The Override Units are not convertible into common stock and are not
saleable or generally transferable.

DLI LLC's board approved 294,486 Override Units, as defined available for grant,
of which 201,778 Override Units were granted as of December 31, 2005 and an
additional 92,707 Override Units were granted on January 31, 2006. The Override
Units were granted to Company executives at no cost to the executives.

In total, thirty three percent of the Override Units granted were Operating
Units which may be forfeited, on a pro-rata basis, if any executive ceases to be
employed by the Company during the three year period following the grant of such
Operating Units. The remaining sixty seven percent of the Override Units granted
were Value Units which participate in distributions only upon certain change of
control or liquidation events and only if, upon the occurrence of such an event,
Kelso receives an internal rate of return, compounded annually, on its
investment in DLI LLC of at least 14% and the Final Value, as defined in the DLI
LLC Agreement, is at least greater than two times the Initial Price, as defined
in the DLI LLC Agreement. All Value Units will participate in distributions if
the Final Value is at least four times the Initial Price, and the Value Units
will participate in distribution on a ratable basis in the event that the Final
Value is greater than two times but less than four times the Initial Price.
Value Units granted to an executive are subject to forfeiture if the executive
ceases to be employed by the Company prior to a change in control. Value Units
not eligible to participate in distributions are automatically forfeited. Each
Operating Unit that has not been forfeited will automatically convert into one
Value Unit on the tenth anniversary of its issuance. After the tenth anniversary
of the date of issuance, all Value Units will only participate in distributions
if Kelso receives an internal rate of return, compounded annually, on its
investment in DLI LLC of at least 14% and the Final Value is at least greater
than twelve times the Initial Price. If the Final Value is greater than ten
times, but less than twelve times the Initial Price, the Value Units will
participate in the distribution on a ratable basis.

A summary of the Override Units granted as of December 31, 2006 and changes
during the year ended December 31, 2006 is presented below:

                                                                      Grant-Date
                    Operating Units                          Units    Fair Value
                    ---------------                          -----    ----------
Operating Units subject to forfeiture at January 1, 2006     70,896     $14.53
     Granted                                                 27,266      13.99
     Exempt from forfeiture                                 (50,445)     14.46
     Forfeited                                                   --         --
                                                             ------
Operating Units subject to forfeiture at December 31, 2006   47,717     $14.30
                                                             ======     ======

                                                                      Grant-Date
                      Value Units                            Units    Fair Value
                      -----------                            -----    ----------
Value Units subject to forfeiture at January 1, 2006        130,882     $14.53
     Granted                                                 65,441      10.18
     Exempt from forfeiture                                      --         --
     Forfeited                                                   --         --
                                                            -------
Value Units subject to forfeiture at December 31, 2006      196,323     $13.08
                                                            =======     ======


                                      F-37
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Total compensation expense recorded in connection with the Operating Units was
$457 and $311 (restated) for the year ended December 31, 2006 and the 2005
Successor Period, respectively. The Company has not recorded compensation
expense relating to the Value Units as the Company has determined it is not
probable that the performance conditions contained in the Value Units will be
achieved. Compensation expense relating to the fair value of the Value Units
will be measured and recorded upon the occurrence of a change in control. As of
December 31, 2006, the total unrecognized compensation cost related to Operating
Units subject to forfeiture was $631 and the related weighted-average period
over which this cost is expected to be recognized is approximately 1.5 years.

In accordance with APB No. 25, the fair value of each Operating Unit and Value
Unit granted prior to January 1, 2006 was estimated on the date of grant using
the Black-Scholes option-pricing model. The fair value of each Operating Unit
granted subsequent to January 1, 2006 was estimated on the date of grant using
the Black-Scholes option-pricing model. The fair value of each Value Unit
granted subsequent to January 1, 2006 was estimated on the date of grant using a
lattice-based valuation model.

(b) Stock Repurchase

On February 15, 2007, DLI Holding Corp. and DLI LLC entered into an Equity
Settlement Agreement (the "Equity Settlement Agreement") with William McMenemy,
a director and former officer of the Company. Pursuant to the Equity Settlement
Agreement, DLI Holding Corp. agreed to pay Mr. McMenemy a total of $2,000 to
repurchase (i) 571.42 shares of the common stock of DLI Holding Corp. (the
"Shares") and (ii) options to purchase 134,821 shares of the common stock of DLI
Holding Corp. ("the Options"). The payment was funded by the Company. Also in
connection with this transaction, Mr. McMenemy agreed to forfeit the 5,454.42
operating units he held in DLI LLC. The Shares were repurchased pursuant to the
terms of the Transition Arrangements Agreement, dated as of August 15, 2005,
among Mr. McMenemy, DLI Holding Corp. and DLI LLC. The Options were repurchased
pursuant to the Rollover Stock Option Agreement, dated as of January 27, 2005,
between DLI Holding Corp. and Mr. McMenemy. The Shares, the Options, and the
operating units in DLI LLC constituted Mr. McMenemy's entire equity interest in
the Company and its affiliates.

(12) Accrued Liabilities

Accrued liabilities at December 31, 2006 and 2005 consisted of the following:

                                                          2006          2005
                                                          ----          ----
                                                                     Restated

Salaries, wages, commissions and employee benefits      $10,641       $ 5,666
Pension liabilities, current portion                      3,853         5,776
Interest                                                  9,226         9,038
Advertising and promotion costs                          13,925        10,744
Plant closure liabilities (note 13)                         377         2,381
Other                                                     9,625         7,510
                                                        -------       -------
                                                        $47,647       $41,115
                                                        =======       =======


                                      F-38
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(13) Restructuring and Severance

On May 30, 2003, the Company announced the formal plan for the transfer of its
principal manufacturing operations, for both the Cosmetic and Pharmaceutical
segments, to Rocky Point, North Carolina from Farmingdale, New York. Pursuant to
the Company's formal severance policy for non-union employees and, severance
benefits due under the union contract resulting from the plant closure, a charge
of $2,033 for severance costs and related benefits for approximately 360 union
and non-union employees associated with this move was recorded during 2003, net
of adjustments of $59 to the initial accrual. Additional severance benefits
earned by employees terminated were recognized as a charge in the financial
statements as such severance benefits were earned. During 2004, charges of $20
were recorded for such earned severance benefits, net of adjustments of $69 to
the initial accrual. During 2005, a provision of $4 was recorded for such earned
severance benefits. During 2005 and 2004, $(3) and $135, respectively, of
relocation and other move related costs were expensed as incurred. As of
December 31, 2005, all union and non-union employees had been terminated and
$2,057 in severance benefits was paid.

On August 15, 2005, Mr. McMenemy resigned as President and Chief Executive
Officer effective August 19, 2005 but remained on the Board of Directors of the
Company. Also in August 2005, the Company announced a workforce reduction
program which was implemented in September 2005 to streamline the Company's
organization and reduce costs. As of December 31, 2005, 55 positions, including
long-term consultants were eliminated. Pursuant to Mr. McMenemy's severance
agreement and the Company's formal severance policy, a charge of $2,003 of
severance costs and related benefits was recorded during the 2005 Successor
Period of which $1,732 was paid as of December 31, 2006 and an adjustment to the
accrual of $(132) was recorded. The balance has been paid. During 2006,
additional severance costs of $598 were recorded, of which $547 was paid as of
December 31, 2006. The balance has been paid.

On January 13, 2006, the Company announced that it planned to cease the
manufacturing activities at its facility in Little Falls, New York. The Company
transferred a majority of these manufacturing operations to its Rocky Point,
North Carolina manufacturing facility and outsourced the remainder. The Company
has converted the Little Falls facility to a warehouse to store a portion of its
inventory and is in the process of closing several of its short-term leased
warehouse facilities in upstate New York.

Pursuant to the Company's formal severance policy, a charge of $1,243 for
severance costs and related benefits for approximately 289 employees was
recorded in December 2005 in accordance with SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". Additional severance benefits earned
for future services by employees being terminated were recognized as a charge in
the consolidated financial statements as such severance benefits were earned.
During the year ended December 31, 2006, a charge of $289 was recorded for such
earned benefits, in addition to an adjustment of $(123) to the initial accrual.
Also during the year ended December 31, 2006, the Company recorded charges to
cost of goods sold of $392 related to moving costs for relocated inventory,
break down, moving and start-up costs associated with equipment transfers and
other related charges. As of December 31, 2006, $1,221 of severance benefits has
been paid and all employees have been terminated. During 2006, $52 of relocation
costs was expensed as incurred. Any additional relocation costs will be charged
to the Cosmetic segment. Remaining cash payments relating to severance costs and
related benefits of approximately $188 are expected to be made through the end
of the second quarter of 2007.


                                      F-39
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

A summary of the activity in the accrual for the Little Falls restructuring is
as follows:

         Balance at December 31, 2005                        $1,243
                     Provision                                  289
                     Payments                                (1,221)
                     Adjustments                               (123)
                                                             ------
         Balance at December 31, 2006                        $  188
                                                             ======

In January 2007, the Company sold land and buildings located in Little Falls,
New York to an unrelated third party for $2,999 and leased back the properties
for a six year term. The land and buildings had a net book value of $3,118 as of
December 31, 2006. In connection with this sale, the Company recorded an
impairment loss of approximately $347 in 2006.

On February 12, 2007, the Company announced plans to transfer the manufacturing
activities currently performed at its plant in Canajoharie, New York (the
"Canajoharie Plant") to independent contractors in North Carolina. The transfer,
which will result in the termination of approximately 80 employees, will be
conducted in phases beginning by mid April 2007, and is expected to be completed
by June 1, 2007. As a result, the Company expects to record a first quarter 2007
pre-tax charge of approximately $600 to $800, consisting primarily of severance
and employee related charges, with cash payouts occurring throughout the balance
of 2007. The Company anticipates utilizing the Canajoharie Plant for warehousing
and office requirements at this time.


                                      F-40
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(14) Commitments and Contingencies

The Company is involved in various claims and legal actions arising in the
ordinary course of business, including environmental matters. The final
resolution of these matters on the Company's results of operations or liquidity
in a particular reporting period is not known. Management is of the opinion that
the ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position.

The Company leases executive office space, furniture, data processing equipment,
transportation equipment and warehouse space under terms of leases expiring
through 2015. Rent expense under these operating leases aggregated approximately
$7,171, $6,203, $486 and $6,488 in 2006, the 2005 Successor Period, the 2005
Predecessor Period and 2004, respectively. The Company's obligations under
non-cancelable leases are summarized as follows:

                    2007                          $ 4,904
                    2008                            4,630
                    2009                            3,612
                    2010                            3,545
                    2011                            3,629
                    Thereafter                     10,617
                                                  -------
                                                  $30,937
                                                  =======

On December 16, 2005, the Company entered into two agreements with a third
party. The first agreement stipulated that the Company sell inventory in
exchange for $1,000 in cash. The second agreement stipulated that the Company is
to purchase approximately $6,400 of advertising from the third party during a
period not to extend beyond March 2009. The inventory sold was deemed to have no
value. The Company recognized a deferred liability in connection with the
transaction in the amount of $1,000 which was reflected on the consolidated
balance sheet as of December 31, 2005. The deferred liability is being
recognized ratably as a reduction to advertising expense as the advertising is
incurred.

On January 27, 2005, DLI Holding Corp. entered into a financial advisory
agreement with Kelso to provide consulting and advisory services to the Company
in exchange for fees of $1,200 per year, plus out of pocket expenses, commencing
on that date with a term ending on the date on which Kelso and its affiliates
ceases to own any share of common stock of the Company. These fees and expenses
are payable by the Company. In 2006, the Company paid $12 of fees and expenses
and has accrued $1,800 at December 31, 2006 for fees relating to 2006 and the
2005 Successor Period.

In addition, in connection with the Merger, an advisory fee was paid to Kelso in
the amount of $3,200 of which $1,920 has been included in the determination of
the purchase price and $1,280 has been capitalized as deferred financing fees in
connection with the issuance of the Subordinated Notes.


                                      F-41
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(15) Financial Instruments

The carrying value of all financial instruments classified as a current asset or
current liability are deemed to approximate fair value because of the short
maturity of these instruments.

The carrying value of the Company's borrowings under the ABL Credit Facility
approximates fair value as such borrowings bear variable interest rates which
fluctuate with market conditions.

The fair value of the Subordinated Notes was less than the carrying value at
December 31, 2006 by approximately $10,938 and the fair value of the Notes
exceeded the carrying value at December 31, 2006 by approximately $6,938. The
fair values of both notes are based upon their fair market prices at December
31, 2006. The Company continually evaluates the benefits of refinancing versus
the related prepayment penalties. Because considerable judgment is required in
interpreting market data to develop estimates of fair value, the estimates are
not necessarily indicative of the amounts that could be realized or would be
paid in a current market exchange. The effect of using different market
assumptions or estimation methodologies may be material to the estimated fair
value amount.

(16) Sale of Property

In June 2006, the Company sold land and a building located in Newark, New Jersey
to an unrelated third party for net proceeds of $493 and incurred additional
closing costs of $2. The land and building had a net book value of $450,
resulting in a gain on the sale of $41.

On November 29, 2005, the Company sold 1,180 shares of capital stock in The
Carlyle, LLC and assigned the proprietary lease of the Apartment allocated to
Suite 1002-4 in the building commonly known as The Hotel Carlyle in New York,
New York to an unrelated third party for net proceeds of $567. The shares of the
capital stock had a book value of $12 resulting in a gain on the sale of $555.

On February 13, 2002, the Company sold 13.5 acres of vacant land in Farmingdale,
New York to an unrelated third party. In connection with this sale, an option
was granted to the buyer for the remaining 8.5 acres of improved land and
buildings owned by the Company which was exercised by the buyer on June 30,
2004. The improved land and buildings were sold for net proceeds of $4,367. The
improved land and buildings had a book value of $4,513 resulting in a loss on
the sale of $146.


                                      F-42
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(17) Comprehensive Income (Loss)

The Company's items of other comprehensive income (loss) include a foreign
currency translation adjustment, a minimum pension liability adjustment, net of
the related tax effect and a change in the fair value of the interest rate
Collar, net of the related tax effect. The components of accumulated other
comprehensive income (loss) at December 31, 2006, December 31, 2005, January 31,
2005 and December 31, 2004 are as follows:

<TABLE>
<CAPTION>
                                                           Accumulated Other Comprehensive Income (Loss)
                                                   ------------------------------------------------------------
                                                     Foreign           Minimum        Change in
                                                     Currency          Pension      Fair Value of
                                                   Translation        Liability     Interest Rate
                                                    Adjustment       Adjustment         Collar           Total
                                                    ----------       ----------         ------           -----
                                                     Restated         Restated                         Restated
<S>                                                  <C>              <C>              <C>             <C>
PREDECESSOR PERIOD:
Balance at December 31, 2003                         $    194         $ (3,064)        $     --        $ (2,870)

Foreign currency translation adjustment                   678               --               --             678
Minimum pension liability adjustment,
     net of taxes of $530                                  --             (580)              --            (580)
                                                     --------         --------         --------        --------

Balance at December 31, 2004                              872           (3,644)              --          (2,772)

Foreign currency translation adjustment                  (347)              --               --            (347)
Elimination of predecessor period balances               (525)           3,644               --           3,119
                                                     --------         --------         --------        --------

Balance at January 31, 2005                                --               --               --              --

SUCCESSOR PERIOD:

Foreign currency translation adjustment                   621               --               --             621
Minimum pension liability adjustment,
     net of taxes of $154                                  --             (256)              --            (256)
                                                     --------         --------         --------        --------

Balance at December 31, 2005                              621             (256)              --             365

Foreign currency translation adjustment                   (18)               --               --            (18)
Minimum pension liability adjustment,
     net of taxes of $(47)                                 --               72               --              72
Change in fair value of interest rate Collar,
     net of taxes of $1                                    --               --                2               2
                                                     --------         --------         --------        --------

Balance at December 31, 2006                         $    603         $   (184)        $      2        $    421
                                                     ========         ========         ========        ========
</TABLE>


                                      F-43
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(18) Segment Information

The Company operates in two segments, Cosmetic and Pharmaceutical, that have
been organized by the products and services they offer. The Cosmetic segment's
principal products are nail care, nail color, color cosmetics, beauty
implements, bleaches and depilatories, personal care products and other related
cosmetic items. The Pharmaceutical segment's principal products are proprietary
oral analgesics, oral hygiene, eye/ear products, and first aid products. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates the
performance of its operating segments based on operating income. Certain assets,
including property, plant and equipment and deferred tax assets, are not
allocated to the identifiable segments; depreciation of unallocated assets is
charged to the Cosmetic segment.

<TABLE>
<CAPTION>
                                                       Successor Period            Predecessor Period
                                                       ----------------            ------------------
                                                  Year Ended    Feb 1, 2005-   Jan 1, 2005-    Year Ended
                                                 Dec 31, 2006   Dec 31, 2005   Jan 31, 2005   Dec 31, 2004
                                                 ------------   ------------   ------------   ------------
                                                                  Restated                      Restated
<S>                                               <C>            <C>            <C>            <C>
Net sales
                Cosmetic                          $  338,652     $  300,284     $   14,756     $  314,094
                Pharmaceutical                        88,244         79,074          3,450         81,080
                                                  ----------     ----------     ----------     ----------
                Consolidated                      $  426,896     $  379,358     $   18,206     $  395,174
                                                  ----------     ----------     ----------     ----------

Operating income (loss)
                Cosmetic                          $   (7,643)    $   (8,653)    $  (17,714)    $   12,709
                Pharmaceutical                        14,271         10,474         (4,247)        15,527
                                                  ----------     ----------     ----------     ----------
                Consolidated                           6,628          1,821        (21,961)        28,236
                                                  ----------     ----------     ----------     ----------

Gain (loss) on sale of property                           41            555             --           (146)
Loss on early extinguishment of debt                      --          6,449             --             --
Interest expense, net                                 37,132         27,661            264          3,584
Other income (expense), net                              313            531           (232)           331
                                                  ----------     ----------     ----------     ----------
Earnings (loss) before income taxes               $  (30,150)    $  (31,203)    $  (22,457)    $   24,837
                                                  ==========     ==========     ==========     ==========
Depreciation and amortization
                Cosmetic                          $   12,456     $    9,094     $      707     $    8,041
                Pharmaceutical                         3,210          2,684             41            461
                                                  ----------     ----------     ----------     ----------
                Consolidated                      $   15,666     $   11,778     $      748     $    8,502
                                                  ==========     ==========     ==========     ==========

Amortization of display fixtures
                Cosmetic                          $   10,427     $    8,439     $      764     $    8,970
                Pharmaceutical                            --             --             --             --
                                                  ----------     ----------     ----------     ----------
                Consolidated                      $   10,427     $    8,439     $      764     $    8,970
                                                  ==========     ==========     ==========     ==========

Expenditures for property, plant and equipment
  and long-lived assets
                Cosmetic                          $    7,135     $    5,835     $      797     $    2,305
                Pharmaceutical                           312            492             --            469
                Corporate (unallocated assets)            --             --             --          6,756
                                                  ----------     ----------     ----------     ----------
                Consolidated                      $    7,447     $    6,327     $      797     $    9,530
                                                  ==========     ==========     ==========     ==========

<CAPTION>
                                                                     As of December 31,
                                                  -------------------------------------------------------
                                                     2006           2005                          2004
                                                  ----------     ----------                    ----------
                                                                  Restated                      Restated
<S>                                               <C>            <C>                           <C>
Identifiable assets
                Cosmetic                          $  526,243     $  549,065                    $  209,945
                Pharmaceutical                       163,531        163,102                        26,150
                Corporate (unallocated assets)            --             --                        38,473
                                                  ----------     ----------                    ----------
                Consolidated                      $  689,774     $  712,167                    $  274,568
                                                  ==========     ==========                    ==========
</TABLE>


                                      F-44
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Sales to one customer by the Cosmetic and Pharmaceutical segments combined were
27.9%, 27.6%, 26.1% and 25.4% of consolidated net sales for 2006, the 2005
Successor Period, the 2005 Predecessor Period and 2004, respectively; combined
sales to another customer were 11.6%, 11.1%, 12.5% and 10.5% of consolidated net
sales for 2006, the 2005 Successor Period, the 2005 Predecessor Period and 2004,
respectively; and combined sales to another customer were 12.0% and 10.4% of
consolidated net sales for 2006 and the 2005 Predecessor Period. No other sales
to this customer were greater than 10% in the other respective periods.

Three customers accounted for 52.4% and 48.1% of the Company's accounts
receivable at December 31, 2006 and 2005, respectively.

The following table displays the Company's net sales from the Company's external
customers in the United States, Canada and all other international countries:

<TABLE>
<CAPTION>
                                     Successor Period                          Predecessor Period
                                     ----------------                          ------------------
                             Year Ended       February 1, 2005-      January 1, 2005-        Year Ended
                         December 31, 2006    December 31, 2005      January 31, 2005    December 31, 2004
                         -----------------    -----------------      ----------------    -----------------
                                                  (Restated)                                 (Restated)
<S>                           <C>                  <C>                   <C>                  <C>
Net sales
  United States               $353,167             $321,541              $ 15,405             $337,179
  Canada                        38,950               34,550                 1,668               37,121
  Other International           34,779               23,267                 1,133               20,874
                              --------             --------              --------             --------
                              $426,896             $379,358              $ 18,206             $395,174
                              ========             ========              ========             ========
</TABLE>

The following table displays the Company's long-lived assets (net) located in
the United States, Canada and all other international countries:

                                              As of December 31,
                                      ---------------------------------
                                        2006         2005         2004
                                        ----         ----         ----

        Long-lived assets (net)
          United States               $40,900      $44,928      $43,090
          Canada                        3,721        4,038        3,664
          Other International              26           27           15
                                      -------      -------      -------
                                      $44,647      $48,993      $46,769
                                      =======      =======      =======

Operating loss for 2006 and the 2005 Successor Period includes severance expense
of $466 and $2,003, respectively, associated with the workforce reduction
program. Of these amounts, $466 and $1,641 were charged to the Cosmetic segment
in 2006 and the 2005 Successor Period, respectively, and $362 was charged to the
Pharmaceutical segment in the 2005 Successor Period. Operating loss for 2006 and
the 2005 Successor Period also includes severance expense of $166 and $1,243,
respectively, associated with the closure of the Little Falls manufacturing
facility which was all charged to the Cosmetic segment.

Operating income for 2004 includes severance expense of $20. Of this amount, $13
was charged to the Cosmetic segment and $7 was charged to the Pharmaceutical
segment.


                                      F-45
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              Notes to Consolidated Financial Statements, Continued

(19) QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth quarterly supplementary data for each of the
years in the two-year period ended December 31, 2006. Please refer to Note 3 for
additional information on the restatements.

The following tables set forth the Company's balance sheets as of March 31, June
30, and September 30, 2006 and as of March 31, June 30, and September 30, 2005,
restated to correct adjustments described in Note 3. In addition, the 2006 and
2005 quarterly balance sheets were adjusted to reflect the final adjustments
recorded in connection with purchase accounting.

<TABLE>
<CAPTION>
                                                                      MARCH 31, 2006
                                                    --------------------------------------------------
                                                    As Previously
                                                      Reported          Adjustments         Restated
                                                      --------          -----------         --------
<S>                                                  <C>                <C>                <C>
Accounts receivable                                  $   78,201         $  (20,028)        $   58,173
Deferred income taxes                                    11,153              6,459             17,612
Total current assets                                    217,207            (13,569)           203,638
Property, plant and equipment, net                       48,504                 --             48,504
Goodwill                                                127,987             17,331            145,318
Deferred income taxes                                    29,881                522             30,403
Total assets                                            712,880              4,284            717,164
Accrued liabilities                                      35,628              3,269             38,897
Total current liabilities                                67,686              3,269             70,955
Deferred income taxes                                   106,963             (4,850)           102,113
Total liabilities                                       592,057             (1,581)           590,476
Additional paid-in capital                              145,524                190            145,714
Accumulated other comprehensive income                      550                (79)               471
Accumulated deficit                                     (25,251)             5,754            (19,497)
Total shareholders' equity                              120,823              5,865            126,688
Total liabilities and shareholders' equity              712,880              4,284            717,164

<CAPTION>
                                                                       JUNE 30, 2006
                                                    --------------------------------------------------
                                                    As Previously
                                                      Reported          Adjustments         Restated
                                                      --------          -----------         --------
<S>                                                  <C>                <C>                <C>
Accounts receivable                                  $   80,635         $  (19,765)        $   60,870
Deferred income taxes                                    11,153              6,341             17,494
Total current assets                                    212,737            (13,424)           199,313
Property, plant and equipment, net                       46,649                 --             46,649
Goodwill                                                127,987             17,331            145,318
Deferred income taxes                                    31,656                522             32,178
Total assets                                            705,793              4,429            710,222
Accrued liabilities                                      39,686              3,550             43,236
Total current liabilities                                69,321              3,550             72,871
Deferred income taxes                                   107,094             (4,850)           102,244
Total liabilities                                       585,463             (1,300)           584,163
Additional paid-in capital                              145,936                 --            145,936
Accumulated other comprehensive income                    1,490                (80)             1,410
Accumulated deficit                                     (27,096)             5,809            (21,287)
Total shareholders' equity                              120,330              5,729            126,059
Total liabilities and shareholders' equity              705,793              4,429            710,222

<CAPTION>
                                                                    SEPTEMBER 30, 2006
                                                    --------------------------------------------------
                                                    As Previously
                                                      Reported          Adjustments         Restated
                                                      --------          -----------         --------
<S>                                                  <C>                <C>                <C>
Accounts receivable                                  $   73,970         $  (20,504)        $   53,466
Deferred income taxes                                    10,209              8,478             18,687
Total current assets                                    201,701            (12,026)           189,675
Property, plant and equipment, net                       45,460                 --             45,460
Goodwill                                                129,295             16,023            145,318
Deferred income taxes                                    33,280               (815)            32,465
Total assets                                            695,134              3,182            698,316
Accrued liabilities                                      38,812              3,375             42,187
Total current liabilities                                68,673              3,375             72,048
Deferred income taxes                                   108,178             (5,980)           102,198
Total liabilities                                       574,881             (2,605)           572,276
Additional paid-in capital                              146,097                 --            146,097
Accumulated other comprehensive income                    1,084                (79)             1,005
Accumulated deficit                                     (26,928)             5,866            (21,062)
Total shareholders' equity                              120,253              5,787            126,040
Total liabilities and shareholders' equity              695,134              3,182            698,316
</TABLE>

<TABLE>
<CAPTION>
                                                                      MARCH 31, 2005
                                                    --------------------------------------------------
                                                    As Previously
                                                      Reported          Adjustments         Restated
                                                      --------          -----------         --------
<S>                                                  <C>                <C>                <C>
Accounts receivable                                  $   79,636         $  (25,966)        $   53,670
Inventories                                             121,159              4,442            125,601
Deferred income taxes                                    25,175             10,623             35,798
Total current assets                                    248,745            (10,901)           237,844
Property, plant and equipment, net                       50,107             (1,147)            48,960
Goodwill                                                146,220               (902)           145,318
Other assets                                             29,424              2,238             31,662
Deferred income taxes                                    20,213              2,882             23,095
Total assets                                            757,934             (7,830)           750,104
Accrued liabilities                                      27,411              6,281             33,692
Total current liabilities                                76,823              6,281             83,104
Long-term pension liability                              22,143                (10)            22,133
Deferred income taxes                                   146,494            (17,261)           129,233
Total liabilities                                       618,194            (10,990)           607,204
Additional paid-in capital                              142,658              2,497            145,155
Accumulated other comprehensive income                      262                (89)               173
Accumulated deficit                                      (3,222)               752             (2,470)
Total shareholders' equity                              139,740              3,160            142,900
Total liabilities and shareholders' equity              757,934             (7,830)           750,104

<CAPTION>
                                                                       JUNE 30, 2005
                                                    --------------------------------------------------
                                                    As Previously
                                                      Reported          Adjustments         Restated
                                                      --------          -----------         --------
<S>                                                  <C>                <C>                <C>
Accounts receivable                                  $   90,621         $  (24,821)        $   65,800
Inventories                                             114,946                272            115,218
Deferred income taxes                                    26,818             13,534             40,352
Total current assets                                    254,980            (11,015)           243,965
Property, plant and equipment, net                       50,022               (835)            49,187
Goodwill                                                132,763             12,555            145,318
Other assets                                             28,262              2,297             30,559
Deferred income taxes                                     5,889             11,001             16,890
Total assets                                            733,829             14,003            747,832
Accrued liabilities                                      30,367              6,761             37,128
Total current liabilities                                80,452              6,761             87,213
Long-term pension liability                              22,143                (10)            22,133
Deferred income taxes                                   124,525             (2,758)           121,767
Total liabilities                                       604,327              3,993            608,320
Additional paid-in capital                              142,659              2,581            145,240
Accumulated other comprehensive income                      137                (92)                45
Accumulated deficit                                     (13,336)             7,521             (5,815)
Total shareholders' equity                              129,502             10,010            139,512
Total liabilities and shareholders' equity              733,829             14,003            747,832

<CAPTION>
                                                                    SEPTEMBER 30, 2005
                                                    --------------------------------------------------
                                                    As Previously
                                                      Reported          Adjustments         Restated
                                                      --------          -----------         --------
<S>                                                  <C>                <C>                <C>
Accounts receivable                                  $   83,532         $  (22,990)        $   60,542
Inventories                                             111,061                 --            111,061
Deferred income taxes                                     5,516             29,100             34,616
Total current assets                                    221,728              6,110            227,838
Property, plant and equipment, net                       49,790               (850)            48,940
Goodwill                                                140,810              4,508            145,318
Other assets                                             30,190                (55)            30,135
Deferred income taxes                                    26,946             (2,852)            24,094
Total assets                                            730,064              6,861            736,925
Accrued liabilities                                      27,727              5,785             33,512
Total current liabilities                                74,778              5,785             80,563
Long-term pension liability                              21,349                (10)            21,339
Deferred income taxes                                   122,663             (2,390)           120,273
Total liabilities                                       595,546              3,385            598,931
Additional paid-in capital                              145,141                226            145,367
Accumulated other comprehensive income                      781                (93)               688
Accumulated deficit                                     (11,404)             3,343             (8,061)
Total shareholders' equity                              134,518              3,476            137,994
Total liabilities and shareholders' equity              730,064              6,861            736,925
</TABLE>


                                      F-46
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The following tables present the effects of the adjustments made to the
Company's previously reported quarterly financial information for the year ended
December 31, 2006 and for the 2005 Successor Period. There were no effects of
these adjustments on the Statement of Operations for the 2005 Predecessor
Period. The period October 1, 2006 to December 31, 2006 is presented for
comparative purposes.

<TABLE>
<CAPTION>
                                                                             SUCCESSOR PERIOD
                                           -------------------------------------------------------------------------------------
                                                January 1, 2006 - March 31, 2006           February 1, 2005 - March 31, 2005
                                           -----------------------------------------   -----------------------------------------
                                           As Previously                               As Previously
                                              Reported     Adjustments    Restated        Reported     Adjustments    Restated
                                              --------     -----------    --------        --------     -----------    --------
<S>                                          <C>           <C>           <C>             <C>           <C>           <C>
Net sales                                    $   92,125    $    1,045    $   93,170      $   70,917    $      453    $   71,370
Selling and administrative expenses              41,949          (530)       41,419          28,905            (7)       28,898
Operating income (loss)                           1,502         1,575         3,077            (645)          460          (185)
Loss before taxes                                (7,332)        1,575        (5,757)         (5,325)          460        (4,865)
Benefit from income taxes                        (2,823)          719        (2,104)         (2,103)         (292)       (2,395)
Net loss                                         (4,509)          856        (3,653)         (3,222)          752        (2,470)

<CAPTION>
                                            PREDECESSOR
                                               PERIOD
                                          ----------------
                                          January 1, 2005-
                                          January 31, 2005
                                          ----------------
<S>                                          <C>
Net sales                                    $   18,206
Selling and administrative expenses              11,475
Operating income (loss)                         (21,961)
Loss before taxes                               (22,457)
Benefit from income taxes                       (24,434)
Net loss                                          1,977

<CAPTION>
                                                 April 30, 2006 - June 30, 2006              April 30, 2005 - June 30, 2005
                                           -----------------------------------------   -----------------------------------------
                                           As Previously                               As Previously
                                              Reported     Adjustments    Restated        Reported     Adjustments    Restated
                                              --------     -----------    --------        --------     -----------    --------
<S>                                          <C>           <C>           <C>             <C>           <C>           <C>
Net sales                                    $  112,109    $     (121)   $  111,988      $  108,904    $    1,132    $  110,036
Selling and administrative expenses              47,944          (300)       47,644          44,258           172        44,430
Operating income (loss)                           6,108           179         6,287            (573)          960           387
Loss before taxes                                (2,999)          179        (2,820)         (7,548)          960        (6,588)
Provision for (benefit from) income taxes        (1,154)          124        (1,030)          2,566        (5,809)       (3,243)
Net loss                                         (1,845)           55        (1,790)        (10,114)        6,769        (3,345)

<CAPTION>
                                              July 31, 2006 - September 30, 2006          July 31, 2005 - September 30, 2005
                                           -----------------------------------------   -----------------------------------------
                                           As Previously                               As Previously
                                              Reported     Adjustments    Restated        Reported     Adjustments    Restated
                                              --------     -----------    --------        --------     -----------    --------
<S>                                          <C>           <C>           <C>             <C>           <C>           <C>
Net sales                                    $  111,606    $     (706)   $  110,900      $  104,792    $    1,585    $  106,377
Selling and administrative expenses              42,910          (145)       42,765          41,158         1,284        42,442
Operating income                                 10,257          (561)        9,696           2,151           301         2,452
Earnings (loss) before taxes                        915          (561)          354          (4,726)          301        (4,425)
Provision for (benefit from) income taxes           747          (618)          129          (6,658)        4,479        (2,179)
Net earnings (loss)                                 168            57           225           1,932        (4,178)       (2,246)

<CAPTION>
                                              October 1, 2006 - December 31, 2006         October 1, 2005 - December 31, 2005
                                           -----------------------------------------   -----------------------------------------
                                                                                       As Previously
                                                                                          Reported     Adjustments    Restated
                                                                                          --------     -----------    --------
<S>                                          <C>           <C>           <C>             <C>           <C>           <C>
Net sales                                                                $  110,838      $   90,786    $      789    $   91,575
Selling and administrative expenses                                          45,430          42,821           (29)       42,792
Operating loss                                                              (12,432)         (1,651)          818          (833)
Loss before taxes                                                           (21,927)        (16,143)          818       (15,325)
Benefit from income taxes                                                    (8,013)         (6,805)         (737)       (7,542)
Net loss                                                                    (13,914)         (9,338)        1,555        (7,783)
</TABLE>


                                      F-47
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(20) Condensed Consolidating Financial Information

The Company's obligations related to its ABL Credit Facility, Notes and
Subordinated Notes are guaranteed jointly and severally by the Company's direct
and indirect present and future domestic restricted subsidiaries (the
"Guarantors"). The following financial information sets forth, on a condensed
consolidating basis, balance sheets, statements of operations and statements of
cash flows for domestic subsidiaries of the Company that are Guarantors
(collectively,the "Guarantor Subsidiaries") and foreign subsidiaries of the
Company that are not Gurantors (collectively, the "Non-Guarantor Subsidiaries").
Separate financial statements for the Subsidiary Guarantors of the Company are
not presented because the Company has determined that such financial statements
would not be material to investors. The accounting policies of the parent
company, the Subsidiary Guarantors and the Subsidiary Nonguarantors are the same
as those described for the Company in the Summary of Significant Accounting
Policies in Note 2 and include recently adopted accounting pronouncements
described in Note 2. See Note 3 for information relating to the restatements.

                           CONSOLIDATING BALANCE SHEET
                                December 31, 2006

<TABLE>
<CAPTION>
                                                                           Guarantor     Non-Guarantor
         ASSETS                                                 Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                                                ------    ------------    ------------   ------------   ------------
<S>                                                           <C>          <C>             <C>            <C>            <C>
Current assets:
         Cash and cash equivalents                            $      343   $     (599)     $      298     $       --     $       42
         Accounts receivable, net                                 49,088        9,799           2,676             --         61,563
         Inventories                                              76,445        8,755          10,331           (469)        95,062
         Deferred income taxes                                    24,008        4,955           1,032             --         29,995
         Prepaid expenses and other current assets                 3,457          494           2,458             --          6,409
                                                              ----------   ----------      ----------     ----------     ----------
                 Total current assets                            153,341       23,404          16,795           (469)       193,071

Property, plant and equipment, net                                39,262        1,638           3,747             --         44,647
Intercompany                                                     134,931     (116,585)        (18,346)            --             --
Intangibles arising from acquisitions, net                       168,118       85,919              --             --        254,037
Goodwill                                                          92,858       47,460           5,000             --        145,318
Other assets                                                      25,801            1           1,860             --         27,662
Note receivable                                                    6,430           --              --         (6,430)            --
Deferred income taxes                                             24,776           --             263             --         25,039
                                                              ----------   ----------      ----------     ----------     ----------
                 Total assets                                 $  645,517   $   41,837      $    9,319     $   (6,899)    $  689,774
                                                              ==========   ==========      ==========     ==========     ==========

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                    $      105   $       --      $       60     $       --     $      165
         Accounts payable                                         33,904        3,746           2,477             --         40,127
         Accrued liabilities                                      38,334        6,794           2,519             --         47,647
                                                              ----------   ----------      ----------     ----------     ----------
                 Total current liabilities                        72,343       10,540           5,056             --         87,939

Long-term debt, less current portion                             369,105           --           1,134             --        370,239
Long-term pension liability, less current portion                 19,943           --              --             --         19,943
Deferred liability                                                 1,492           --              --             --          1,492
Deferred income taxes                                             65,964       32,356             135             --         98,455
Note payable                                                          --           --           6,430         (6,430)            --
                                                              ----------   ----------      ----------     ----------     ----------
                 Total liabilities                               528,847       42,896          12,755         (6,430)       578,068
                                                              ----------   ----------      ----------     ----------     ----------

Shareholders' equity:
         Common stock $.01 par value, authorized
            1,000 shares; issued 1,000 shares                         --           --              --             --             --
         Additional paid-in capital                              146,256           --               5             --        146,261
         Accumulated other comprehensive income (loss)              (260)          --             681             --            421
         Accumulated deficit                                     (29,326)      (1,059)         (4,122)          (469)       (34,976)
                                                              ----------   ----------      ----------     ----------     ----------

                 Total shareholders' equity                      116,670       (1,059)         (3,436)          (469)       111,706
                                                              ----------   ----------      ----------     ----------     ----------

                 Total liabilities and shareholders' equity   $  645,517   $   41,837      $    9,319     $   (6,899)    $  689,774
                                                              ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-48
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                           CONSOLIDATING BALANCE SHEET
                                December 31, 2005
                                    Restated

<TABLE>
<CAPTION>
                                                                           Guarantor     Non-Guarantor
         ASSETS                                                 Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                                                ------    ------------    ------------   ------------   ------------
<S>                                                           <C>          <C>             <C>            <C>            <C>
Current assets:
         Cash and cash equivalents                            $    1,862   $     (434)     $    1,174     $       --     $    2,602
         Accounts receivable, net                                 40,933        9,477           1,282             --         51,692
         Inventories                                              96,609       10,878          14,810             --        122,297
         Deferred income taxes                                    18,141          186              --             --         18,327
         Prepaid expenses and other current assets                 3,345          478           1,486             --          5,309
                                                              ----------   ----------      ----------     ----------     ----------
                 Total current assets                            160,890       20,585          18,752             --        200,227

Property, plant and equipment, net                                42,714        2,214           4,065             --         48,993
Intercompany                                                     129,154     (116,606)        (12,548)            --             --
Intangibles arising from acquisitions, net                       170,978       88,309              --             --        259,287
Goodwill                                                          97,858       47,460              --             --        145,318
Other assets                                                      28,880           --           1,196             --         30,076
Note receivable                                                    6,430           --              --         (6,430)            --
Deferred income taxes                                             28,266           --              --             --         28,266
                                                              ----------   ----------      ----------     ----------     ----------
                 Total assets                                 $  665,170   $   41,962     $   11,465     $   (6,430)    $  712,167
                                                              ==========   ==========      ==========     ==========     ==========

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                    $      129   $       --      $       56     $       --     $      185
         Accounts payable                                         29,870        3,324           1,944             --         35,138
         Accrued liabilities                                      34,496        4,898           1,721             --         41,115
                                                              ----------   ----------      ----------     ----------     ----------
                 Total current liabilities                        64,495        8,222           3,721             --         76,438

Long-term debt, less current portion                             381,044           --           1,197             --        382,241
Long-term pension liability, less current portion                 20,447           --              --             --         20,447
Deferred liability                                                 1,062           --              --             --          1,062
Deferred income taxes                                             66,130       35,863              14             --        102,007
Note payable                                                          --           --           6,430         (6,430)            --
                                                              ----------   ----------      ----------     ----------     ----------
                 Total liabilities                              533,178       44,085          11,362         (6,430)       582,195
                                                              ----------   ----------      ----------     ----------     ----------

Shareholders' equity:
         Common stock $.01 par value, authorized
            1,000 shares; issued 1,000 shares                         --           --              --             --             --
         Additional paid-in capital                              145,446           --               5             --        145,451
         Accumulated other comprehensive loss                       (256)          --             621             --            365
         Accumulated deficit                                     (13,198)      (2,123)           (523)            --        (15,844)
                                                              ----------   ----------      ----------     ----------     ----------

                 Total shareholders' equity                      131,992       (2,123)            103             --        129,972
                                                              ----------   ----------      ----------     ----------     ----------

                 Total liabilities and shareholders' equity   $  665,170   $   41,962      $   11,465     $   (6,430)    $  712,167
                                                              ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-49
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                      CONSOLIDATING STATEMENT OF OPERATIONS
                                SUCCESSOR PERIOD
                          Year ended December 31, 2006

<TABLE>
<CAPTION>
                                                         Guarantor     Non-Guarantor
                                              Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                              ------    ------------    ------------   ------------   ------------
<S>                                         <C>          <C>             <C>            <C>            <C>
Net sales                                   $  301,223   $   83,483      $   42,765     $     (575)    $  426,896

Cost of goods sold                             191,541       26,557          24,386           (106)       242,378
                                            ----------   ----------      ----------     ----------     ----------

Gross profit                                   109,682       56,926          18,379           (469)       184,518

Selling and administrative expenses             99,912       55,687          21,659             --        177,258
Severance expenses                                 632           --              --             --            632
                                            ----------   ----------      ----------     ----------     ----------

      Operating income (loss)                    9,138        1,239          (3,280)          (469)         6,628

Other income (expense):
      Gain on sale of property                      41           --              --             --             41
      Interest expense, net                    (36,860)         450            (722)            --        (37,132)
      Other income (expense), net                   56            5             252             --            313
                                            ----------   ----------      ----------     ----------     ----------

Earnings (loss) before income taxes            (27,625)       1,694          (3,750)          (469)       (30,150)
Provision for (benefit from) income taxes      (11,497)         630            (151)            --        (11,018)
                                            ----------   ----------      ----------     ----------     ----------

      Net earnings (loss)                   $  (16,128)  $    1,064      $   (3,599)    $     (469)    $  (19,132)
                                            ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-50
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                      CONSOLIDATING STATEMENT OF OPERATIONS
                                SUCCESSOR PERIOD
                      February 1, 2005 - December 31, 2005
                                    Restated

<TABLE>
<CAPTION>
                                                         Guarantor     Non-Guarantor
                                              Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                              ------    ------------    ------------   ------------   ------------
<S>                                         <C>          <C>             <C>            <C>            <C>
Net sales                                   $  268,448   $   75,042      $   35,868     $       --     $  379,358

Cost of goods sold                             166,190       24,765          20,059             --        211,014
                                            ----------   ----------      ----------     ----------     ----------

Gross profit                                   102,258       50,277          15,809             --        168,344

Selling and administrative expenses             88,930       53,243          16,389             --        158,562
Severance expenses                               2,888          362              --             --          3,250
Merger expenses                                  4,010          701              --             --          4,711
                                            ----------   ----------      ----------     ----------     ----------

      Operating income (loss)                    6,430       (4,029)           (580)            --          1,821

Other income (expense):
      Gain on sale of property                     555           --              --             --            555
      Loss on early extinguishment of debt      (6,449)          --              --             --         (6,449)
      Interest expense, net                    (27,398)          --            (263)            --        (27,661)
      Other income, net                             53           13             465             --            531
                                            ----------   ----------      ----------     ----------     ----------

Loss before income taxes                       (26,809)      (4,016)           (378)             --        (31,203)
Provision for (benefit from) income taxes      (13,611)      (1,893)            145             --        (15,359)
                                            ----------   ----------      ----------     ----------     ----------

      Net loss                              $  (13,198)  $   (2,123)     $     (523)    $       --     $  (15,844)
                                            ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-51
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


                      CONSOLIDATING STATEMENT OF OPERATIONS
                               PREDECESSOR PERIOD
                       January 1, 2005 - January 31, 2005

<TABLE>
<CAPTION>
                                                         Guarantor     Non-Guarantor
                                              Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                              ------    ------------    ------------   ------------   ------------
<S>                                         <C>          <C>             <C>            <C>            <C>
Net sales                                   $   13,389   $    3,129      $    1,688     $       --     $   18,206

Cost of goods sold                               7,890          952             876             --          9,718
                                            ----------   ----------      ----------     ----------     ----------

Gross profit                                     5,499        2,177             812             --          8,488

Selling and administrative expenses              7,140        3,270           1,065             --         11,475
Merger expenses                                 15,483        3,491              --             --         18,974
                                            ----------   ----------      ----------     ----------     ----------

      Operating loss                           (17,124)      (4,584)           (253)            --        (21,961)

Other income (expense):
      Interest expense, net                       (239)          --             (25)            --           (264)
      Other expense, net                           (11)          --            (221)            --           (232)
                                            ----------   ----------      ----------     ----------     ----------

Loss before income taxes                       (17,374)      (4,584)           (499)            --        (22,457)
Benefit from income taxes                      (24,273)          --            (161)            --        (24,434)
                                            ----------   ----------      ----------     ----------     ----------

      Net earnings (loss)                   $    6,899   $   (4,584)     $     (338)    $       --     $    1,977
                                            ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-52
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                      CONSOLIDATING STATEMENT OF OPERATIONS
                               PREDECESSOR PERIOD
                          Year ended December 31, 2004
                                    Restated

<TABLE>
<CAPTION>
                                                         Guarantor     Non-Guarantor
                                              Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                              ------    ------------    ------------   ------------   ------------
<S>                                         <C>          <C>             <C>            <C>            <C>
Net sales                                   $  280,450   $   77,424      $   37,300     $       --     $  395,174

Cost of goods sold                             160,514       19,571          18,340             --        198,425
                                            ----------   ----------      ----------     ----------     ----------

Gross profit                                   119,936       57,853          18,960             --        196,749

Selling and administrative expenses            106,796       44,263          16,019             --        167,078
Severance expenses                                  13            7              --             --             20
Merger expenses                                  1,415           --              --             --          1,415
                                            ----------   ----------      ----------     ----------     ----------

      Operating income                          11,712       13,583           2,941            --         28,236

Other income (expense):
      Loss on sale of land and building           (146)          --              --             --           (146)
      Interest expense, net                     (3,274)          --            (310)            --         (3,584)
      Other income (expense), net                 (144)         (28)            503             --            331
                                            ----------   ----------      ----------     ----------     ----------

Earnings before income taxes                     8,148       13,555           3,134             --         24,837
Provison for income taxes                        3,636        5,203           1,320             --         10,159
                                            ----------   ----------      ----------     ----------     ----------

      Net earnings                          $    4,512   $    8,352      $    1,814     $       --     $   14,678
                                            ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-53
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                                SUCCESSOR PERIOD
                          Year ended December 31, 2006

<TABLE>
<CAPTION>
                                                                           Guarantor     Non-Guarantor
                                                                Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                                                ------    ------------    ------------   ------------   ------------
<S>                                                           <C>          <C>             <C>            <C>            <C>
Cash flows from operating activities:
Net earnings (loss)                                           $(16,128)      $  1,064      $ (3,591)     $   (477)      $(19,132)
Adjustments to reconcile net earnings
  (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                   12,008          3,297           367            (6)        15,666
Amortization of display fixtures                                 9,870           --             557          --           10,427
Amortization of deferred financing
  fees and original issue discount                               2,747           --            --            --            2,747
Non-cash stock compensation                                        770           --            --            --              770
Deferred income taxes                                           (2,592)        (8,276)       (1,194)         --          (12,062)
Provision for excess and slow moving inventory                  28,286          3,978         3,401          --           35,665
Provision for (recovery from) doubtful accounts                    482            (55)            8          --              435
Loss on sale of assets                                             (41)          --            --            --              (41)
Other non-cash operating items                                   5,173           --          (4,960)          (22)           191
Changes in operating assets and liabilities:
  Accounts receivable                                           (8,636)          (267)       (1,416)         --          (10,319)
  Inventories                                                   (8,122)        (1,855)        1,108           469         (8,400)
  Prepaid expenses and other current assets                       (474)           (16)         (991)         --           (1,481)
  Other assets                                                  (8,664)            (1)       (1,220)         --           (9,885)
  Accounts payable                                               4,035            422           545          --            5,002
  Accrued liabilities                                            5,759          1,896           817             8          8,480
  Deferred liability                                               430           --            --            --              430
  Pension liability (net)                                       (1,556)          --            --            --           (1,556)
  Income taxes receivable / payable                                362           --            --            --              362
  Intercompany receivables / payables                           (5,778)           (21)        5,747            52           --
                                                              --------       --------      --------      --------       --------

    Net cash provided by (used in)
      operating activities                                      17,931            166          (822)           24         17,299
                                                              --------       --------      --------      --------       --------

Cash flows provided by (used in) investing activities:
    Net proceeds from sale of assets                               707           --            --            --              707
    Property, plant and equipment additions                     (7,061)          (331)          (55)         --           (7,447)
                                                              --------       --------      --------      --------       --------

      Net cash used in investing activities                     (6,354)          (331)          (55)         --           (6,740)
                                                              --------       --------      --------      --------       --------

Cash flows provided by (used in) financing activities:
    Principal payments under revolving
      credit agreement, net                                    (12,000)          --            --            --          (12,000)
    Principal payments under mortgages                            --             --             (57)         --              (57)
    Payment of deferred financing fees                          (1,036)          --            --            --           (1,036)
    Contributed capital                                             40           --            --            --               40
    Payment of capital lease obligations                          (100)          --            --            --             (100)
                                                              --------       --------      --------      --------       --------

      Net cash used in financing activities                    (13,096)          --             (57)         --          (13,153)
                                                              --------       --------      --------      --------       --------

Effect of exchange rate changes on cash                           --             --              58           (24)            34
                                                              --------       --------      --------      --------       --------

Net decrease in cash and cash equivalents                       (1,519)          (165)         (876)         --           (2,560)

Cash and cash equivalents at beginning of year                   1,862           (434)        1,174          --            2,602
                                                              --------       --------      --------      --------       --------

Cash and cash equivalents at end of year                      $    343       $   (599)     $    298      $   --         $     42
                                                              ========       ========      ========      ========       ========
</TABLE>


                                      F-54
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                                SUCCESSOR PERIOD
                      February 1, 2005 - December 31, 2005
                                    Restated

<TABLE>
<CAPTION>
                                                                           Guarantor     Non-Guarantor
                                                                Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                                                ------    ------------    ------------   ------------   ------------
<S>                                                           <C>          <C>             <C>            <C>            <C>
Cash flows from operating activities:
Net earnings (loss)                                           $  (13,198)  $   (2,123)     $     (529)    $        6     $  (15,844)
Adjustments to reconcile net earnings (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                      8,588        2,749             424             17         11,778
Amortization of display fixtures                                   7,802           --             637             --          8,439
Amortization of inventory fair value adjustment                    4,945        2,278             860             --          8,083
Amortization of deferred financing fees and original
 issue discount                                                    2,269           --              --             --          2,269
Non-cash stock compensation                                          311           --              --             --            311
Deferred income taxes                                            (16,486)        (453)             --             --        (16,939)
Provision for excess and slow moving inventory                    10,346        2,453             516             --         13,315
Recovery from doubtful accounts                                      (66)         (62)             --             --           (128)
Gain on sale of property                                            (562)          --              --             --           (562)
Loss on early extinguishment of debt                               6,449           --              --             --          6,449
Other non-cash operating items                                         1           --            (507)            --           (506)
Changes in operating assets and liabilities:
       Accounts receivable                                        (2,518)      (1,482)           (547)            --         (4,547)
       Inventories                                               (14,613)      (1,421)         (1,835)            --        (17,869)
       Prepaid expenses and other current assets                    (834)         225            (747)            --         (1,356)
       Other assets                                               (7,817)          15          (1,152)            --         (8,954)
       Accounts payable                                          (14,468)        (826)           (567)            --        (15,861)
       Accrued liabilities                                        (8,363)         (88)            286             --         (8,165)
       Deferred liability                                          1,062           --              --             --          1,062
       Pension liability (net)                                       333           --              --             --            333
       Income taxes receivable / payable                          10,252           --              --             (6)        10,246
       Intercompany receivables / payables                        (2,160)        (928)          3,059             29             --
                                                              ----------   ----------      ----------     ----------     ----------

         Net cash provided by (used in) operating activities     (28,727)         337            (102)            46        (28,446)
                                                              ----------   ----------      ----------     ----------     ----------

Cash flows provided by (used in) investing activities:
       Net proceeds from sale of property                            575           --              --             --            575
       Property, plant and equipment additions                    (5,604)        (656)            (67)            --         (6,327)
       Purchase of Del Laboratories, Inc.                       (377,233)          --              --             --       (377,233)
                                                              ----------   ----------      ----------     ----------     ----------

         Net cash used in investing activities                  (382,262)        (656)            (67)            --       (382,985)
                                                              ----------   ----------      ----------     ----------     ----------

Cash flows provided by (used in) financing activities:
       Principal borrowings (payments) under revolving
        credit agreement, net                                     22,000           --              --             --         22,000
       Principal payments under mortgages                             --           --             (53)            --            (53)
       Principal repayments under term loan                       (1,500)          --              --             --         (1,500)
       Repayment of term loan                                   (198,500)          --              --             --       (198,500)
       Repayment of existing debt in connection with Merger      (69,316)          --              --             --        (69,316)
       Issuance of senior subordinated notes                     173,845           --              --             --        173,845
       Issuance of term loan                                     200,000           --              --             --        200,000
       Issuance of senior secured notes                          185,000           --              --             --        185,000
       Payment of deferred financing and other merger
        related fees                                             (30,575)          --              --             --        (30,575)
       Payment of deferred financing fees                         (7,237)          --              --             --         (7,237)
       Contributed capital                                       138,200           --              --             --        138,200
       Payment of capital lease obligations                         (120)          --              --             --           (120)
                                                              ----------   ----------      ----------     ----------     ----------

         Net cash provided by (used in) financing activities     411,797           --             (53)            --        411,744
                                                              ----------   ----------      ----------     ----------     ----------

Effect of exchange rate changes on cash                               --           --             (42)           (46)           (88)
                                                              ----------   ----------      ----------     ----------     ----------

Net increase (decrease) in cash and cash equivalents                 808         (319)           (264)            --            225

Cash and cash equivalents at beginning of period                   1,054         (115)          1,438             --          2,377
                                                              ----------   ----------      ----------     ----------     ----------

Cash and cash equivalents at end of period                    $    1,862   $     (434)     $    1,174     $       --     $    2,602
                                                              ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-55
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                               PREDECESSOR PERIOD
                       January 1, 2005 - January 31, 2005

<TABLE>
<CAPTION>
                                                                           Guarantor     Non-Guarantor
                                                                Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                                                ------    ------------    ------------   ------------   ------------
<S>                                                           <C>          <C>             <C>            <C>            <C>
Cash flows from operating activities:
Net earnings (loss)                                           $    6,899   $   (4,584)     $     (338)    $       --     $    1,977
Adjustments to reconcile net earnings (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                        673           40              35             --            748
Amortization of display fixtures                                     723           --              41             --            764
Amortization of deferred financing fees                               20           --              --             --             20
Deferred income taxes                                            (13,030)          --              --             --        (13,030)
Provision for excess and slow moving inventory                        --           --              17             --             17
Provision for doubtful accounts                                       25           --               1             --             26
Tax benefit on stock options exercised                                57           --              --             --             57
Other non-cash operating items                                       (14)          --             233             --            219
Changes in operating assets and liabilities:
       Accounts receivable                                         2,740        2,635             598             --          5,973
       Inventories                                                (4,838)        (104)         (1,138)            --         (6,080)
       Prepaid expenses and other current assets                     (32)        (377)             30             --           (379)
       Other assets                                               (1,609)           3             (80)            --         (1,686)
       Accounts payable                                           (1,945)       1,150           1,200             --            405
       Accrued liabilities                                        21,827         (133)             26             --         21,720
       Deferred liability                                          1,367           --              --             --          1,367
       Pension liability (net)                                      (330)          --              --             --           (330)
       Income taxes receivable / payable                         (11,344)          --            (254)            --        (11,598)
       Intercompany receivables / payables                        (2,091)       1,665             438            (12)            --
                                                              ----------   ----------      ----------     ----------     ----------

         Net cash provided by (used in) operating activities        (902)         295             809            (12)           190
                                                              ----------   ----------      ----------     ----------     ----------

Cash flows provided by (used in) investing activities:
       Property, plant and equipment additions                      (781)         (12)             (4)            --           (797)
                                                              ----------   ----------      ----------     ----------     ----------

         Net cash used in investing activities                      (781)         (12)             (4)            --           (797)
                                                              ----------   ----------      ----------     ----------     ----------

Cash flows provided by (used in) financing activities:
       Principal payments under revolving credit
        agreement, net                                              (800)          --              --             --           (800)
       Principal payments under mortgages                            (25)          --               2             --            (23)
       Proceeds from the exercise of treasury stock                   12           --              --             --             12
       Acquisition of treasury stock                                 (57)          --              --             --            (57)
                                                              ----------   ----------      ----------     ----------     ----------

         Net cash provided by (used in) financing activities        (870)          --               2             --           (868)
                                                              ----------   ----------      ----------     ----------     ----------

Effect of exchange rate changes on cash                               --           --             (33)            12            (21)
                                                              ----------   ----------      ----------     ----------     ----------

Net increase (decrease) in cash and cash equivalents              (2,553)         283             774             --         (1,496)

Cash and cash equivalents at beginning of period                   3,607         (398)            664             --          3,873
                                                              ----------   ----------      ----------     ----------     ----------

Cash and cash equivalents at end of period                    $    1,054   $     (115)     $    1,438     $       --     $    2,377
                                                              ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-56
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                               PREDECESSOR PERIOD
                          Year ended December 31, 2004
                                    Restated

<TABLE>
<CAPTION>
                                                                           Guarantor     Non-Guarantor
                                                                Issuer    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                                                ------    ------------    ------------   ------------   ------------
<S>                                                           <C>          <C>             <C>            <C>            <C>
Cash flows from operating activities:
Net earnings                                                  $    4,512   $    8,352      $    1,805     $        9     $   14,678
Adjustments to reconcile net earnings to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                      7,604          456             420             22          8,502
Amortization of display fixtures                                   8,492           --             478             --          8,970
Amortization of deferred financing fees                              184           --              --             --            184
Deferred income taxes                                              2,701         (110)             --             --          2,591
Provision for excess and slow moving inventory                     5,593          482             441             --          6,516
Provision for (recovery from) doubtful accounts                       83          (30)             --             --             53
Tax benefit on stock options exercised                               716           --              --             --            716
Loss on sale of land                                                 146           --              --             --            146
Other non-cash operating items                                       143           --            (627)            --           (484)
Changes in operating assets and liabilities:
        Accounts receivable                                       (1,947)      (1,172)            904             --         (2,215)
        Inventories                                              (22,174)      (2,414)            268             --        (24,320)
        Prepaid expenses and other current assets                   (919)          32             (71)            --           (958)
        Other assets                                              (9,519)          35            (327)            --         (9,811)
        Accounts payable                                          10,226         (263)         (3,483)            --          6,480
        Accrued liabilities                                       (2,577)      (1,113)            (79)            --         (3,769)
        Deferred liability                                            71           --              --             --             71
        Pension liability (net)                                      305           --              --             --            305
        Income taxes receivable / payable                         (5,943)       5,079             427             (9)          (446)
        Intercompany receivables / payables                        9,099       (9,010)            (39)           (50)            --
                                                              ----------   ----------      ----------     ----------     ----------

          Net cash provided by (used in)
           operating activities                                    6,796          324             117            (28)         7,209
                                                              ----------   ----------      ----------     ----------     ----------

Cash flows provided by (used in) investing activities:
        Net proceeds from sales of land and facility               4,816           --              --             --          4,816
        Intangible assets acquired                                    --           (5)             --             --             (5)
        Property, plant and equipment additions                   (8,986)        (463)            (76)            --         (9,525)
                                                              ----------   ----------      ----------     ----------     ----------

          Net cash used in investing activities                   (4,170)        (468)            (76)            --         (4,714)
                                                              ----------   ----------      ----------     ----------     ----------

Cash flows provided by (used in) financing activities:
        Principal payments under mortgages                          (338)          --             (43)            --           (381)
        Payment of capital lease obligations                        (112)          --              --             --           (112)
        Proceeds from the exercise of stock options                  364           --              --             --            364
        Acquisition of treasury stock                               (683)          --              --             --           (683)
                                                              ----------   ----------      ----------     ----------     ----------

          Net cash used in financing activities                     (769)          --             (43)            --           (812)
                                                              ----------   ----------      ----------     ----------     ----------

Effect of exchange rate changes on cash                               --           --              49             28             77
                                                              ----------   ----------      ----------     ----------     ----------

Net increase (decrease) in cash and cash equivalents               1,857         (144)             47             --          1,760

Cash and cash equivalents at beginning of year                     1,750         (254)            617             --          2,113
                                                              ----------   ----------      ----------     ----------     ----------

Cash and cash equivalents at end of year                      $    3,607   $     (398)     $      664     $       --     $    3,873
                                                              ==========   ==========      ==========     ==========     ==========
</TABLE>


                                      F-57
<PAGE>

                                   SCHEDULE II

                     DEL LABORATORIES, INC. AND SUBSIDIARIES

                        Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                                 Additions
                                                                 (Credits)
                                               Balance at        charged to                           Balance at
                                               beginning         costs and                                end
Description                                    of period          expenses         Deductions(1)       of period
-----------                                    ---------          --------         -------------       ---------
<S>                                             <C>               <C>                <C>                <C>
Successor Period:
Year ended
     December 31, 2006                          $  1,674          $    435           $     (4)          $  2,113
                                                ========          ========           ========           ========
               allowances for doubtful
               accounts

February 1, 2005 -
    December 31, 2005                           $  1,750          $   (128)          $    (52)          $  1,674
                                                ========          ========           ========           ========
               allowances for doubtful
               accounts

Predecessor Period:

January 1, 2005 -
    January 31, 2005                            $  1,726          $     26           $      2           $  1,750
                                                ========          ========           ========           ========
               allowances for doubtful
               accounts

Year ended
    December 31, 2004                           $  4,390          $    538           $  2,717           $  1,726
                                                ========          ========           ========           ========
               allowances for doubtful
               accounts
</TABLE>

(1)   Uncollectible accounts written off and net recoveries. Included for the
      year ended December 31, 2004 is a charge against the allowance for
      doubtful accounts of $2,753 which represents the write off of the
      outstanding accounts receivable balance related to the K-Mart Chapter XI
      bankruptcy filing which was expensed in prior years.