**U.
        S. SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **FORM
        10-Q**
 
 **[
        X ]**  **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 
 **For
        the quarterly period ended** **June
        30, 2006**
 
 **PRESTIGE
        BRANDS HOLDINGS, INC.**
 **Delaware**
              **20-1297589**
              **001-32433**(State
                  of Incorporation)
              (I.R.S.
                  Employer Identification No.)
              (Commission
                  File Number)
 
 **PRESTIGE
        BRANDS INTERNATIONAL, LLC**
 **Delaware**
              **20-0941337**
              **333-117152-18**(State
                  of Incorporation)
              (I.R.S.
                  Employer Identification No.)
              (Commission
                  File Number)
 (Exact
        name of Registrants as specified in their charters)
  **90
                  North Broadway**
                **Irvington,
                  New York 10533**
              **(914)
                  524-6810**(Address
                  of Registrants’ Principal Executive Offices)
              (Registrants’
                  telephone number, including area
                  code)
 
  
  This
        Quarterly Report on Form 10-Q is a combined quarterly report being filed
        separately by Prestige Brands Holdings, Inc. and Prestige Brands International
        LLC, both Registrants. Prestige Brands International, LLC, an indirect
        wholly-owned subsidiary of Prestige Brands Holdings, Inc. is the indirect
        parent
        company of Prestige Brands, Inc., the issuer of our 91⁄4% senior subordinated
        notes due 2012, and the parent guarantor of such notes. As the indirect holding
        company of Prestige Brands International, LLC, Prestige Brands Holdings,
        Inc.
        does not conduct ongoing business operations. As a result, the financial
        information for Prestige Brands Holdings, Inc. and Prestige Brands
        International, LLC is identical for the purposes of the discussion of operating
        results in “Management’s Discussion and Analysis of Financial Condition and
        Results of Operations.” Unless otherwise indicated, we have presented
        information throughout this Form 10-Q for Prestige Brands Holdings, Inc.
        and its
        consolidated subsidiaries, including Prestige Brands International, LLC.
        The
        information contained herein relating to each individual Registrant is filed
        by
        such Registrant on its own behalf. Neither Registrant makes any representation
        as to information relating to the other Registrant. Prestige Brands
        International, LLC meets the conditions set forth in general instructions
        (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with
        the
        reduced disclosure format.
 
 Indicate
        by check mark if the Registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act.
 Prestige
        Brands Holdings, Inc.  Yes [ ] No x
 Prestige
        Brands International, LLC  Yes
        [ x]            No [ ]
 
 Indicate
        by check mark whether the Registrants (1) have 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 Registrants were
        required to file such reports), and (2) have been subject to such filing
        requirements for the past 90 days. Yes x No o
 
 Indicate
        by check mark whether each Registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.
 
 **Large**
                **Accelerated**
                **Filer**
              
              **Accelerated**
                **Filer**
              
              **Non**
                **Accelerated**
                **Filer**Prestige
                  Brands Holdings, Inc.
              
              
              XPrestige
                  Brands International, LLC
              
              
              
              
              X
 
 Indicate
        by check mark whether the Registrants are shell companies (as defined in
        Rule
        12-b-2 of the Exchange Act).
 Yes
        [
        ] No x
 
 As
        of
        July 31, 2006, Prestige Brands Holdings, Inc. had 50,034,239 shares of common
        stock outstanding. As of such date, Prestige International Holdings, LLC,
        a
        wholly-owned subsidiary of Prestige Brands Holdings, Inc., owned 100% of
        the
        uncertificated ownership interests of Prestige Brands International,
        LLC.
 
 
 **Prestige
              Brands Holdings, Inc.**
 **Form
              10-Q**
 **Index**
 **PART
              I. **FINANCIAL
              INFORMATION****
  Item
                            1.
                          Consolidated
                            Financial Statements
                            **Prestige
                              Brands Holdings, Inc.**
                            Consolidated
                              Statements of Operations - three months
                              ended June 30, 2006
                            and
                              2005 (unaudited)
                          2Consolidated
                            Balance Sheets - June 30, 2006 and March 31, 2006 (unaudited)
                          3Consolidated
                            Statement of Changes in Stockholders’ Equity and
                            Comprehensive
                              Income - three months ended June
                              30, 2006 (unaudited)
                          4Consolidated Statements of Cash Flows
                            - three months
                            ended

                            June
                              30, 2006 and 2005 (unaudited)
                          5Notes to Unaudited Consolidated Financial
                            Statements
                          6**Prestige Brands International,
                            LLC**Consolidated
                            Statements of Operations - three months ended June 30,
                            2006and 2005 (unaudited)
                          20Consolidated
                            Balance Sheets - June 30, 2006 and March 31, 2006 (unaudited)
                          21Consolidated
                            Statement of Changes in Members’ Equity - three monthsended
                            June 30, 2006 (unaudited)
                          22Consolidated
                              Statements of Cash Flows - three months endedJune
                              30, 2006 and 2005 (unaudited)
                          23Notes
                              to Unaudited Consolidated Financial Statements
                          24Item 2.
                          Management’s
                              Discussion and Analysis of Financial Conditionand
                              Results of Operations
                          38Item 3.
                          Quantitative
                            and Qualitative Disclosure About Market Risk
                          51Item 4.
                          Controls
                              and Procedures
                          51**PART II.**
                          **OTHER INFORMATION**Item 1.
                          Legal Proceedings
                          52Item 1A.
                          Risk Factors
                          53Item 2.
                          Unregistered Sales of Equity Securities
                            and Use of
                            Proceeds
                          53Item 3.
                          Defaults Upon Senior Securities
                          53Item 4.
                          Submission of Matters to a Vote of Security
                            Holders
                          54Item 5.
                          Other Information
                          54Item 6.
                          Exhibits
                          54Signatures
                          55
  
 ****
 -1-
 **P** **ART
                                          I**  **FINANCIAL
                                          INFORMATION**
 
 **Item
        1.**  **FINANCIAL
        STATEMENTS**
 
 **Prestige
        Brands Holdings, Inc.**
 **Consolidated
        Statements of Operations**
 ***(Unaudited)***
 
 
 **Three
                  Months Ended June 30*****(In
                  thousands, except share data)***
              
              **2006**
              
              **2005****Revenues**Net
                  sales
              
              $
              75,567
              
              $
              63,428Other
                  revenues
              
              
              356
              
              
              25Total
                  revenues
              
              
              75,923
              
              
              63,453**Costs
                  of Sales**Costs
                  of sales
              
              
              36,325
              
              
              28,949Gross
                  profit
              
              
              39,598
              
              
              34,504**Operating
                  Expenses**Advertising
                  and promotion
              
              
              7,402
              
              
              8,705General
                  and administrative
              
              
              6,434
              
              
              4,911Depreciation
              
              
              220
              
              
              483Amortization
                  of intangible assets
              
              
              2,193
              
              
              2,148Total
                  operating expenses
              
              
              16,249
              
              
              16,247Operating
                  income
              
              
              23,349
              
              
              18,257**Other
                  income (expense)**Interest
                  income
              
              
              185
              
              
              81Interest
                  expense
              
              
              (9,977
              )
              
              (8,591
              )Total
                  other income (expense)
              
              
              (9,792
              )
              
              (8,510
              )Income
                  before income taxes
              
              
              13,557
              
              
              9,747Provision
                  for income taxes
              
              
              5,301
              
              
              3,818Net
                  income
              
              $
              8,256
              
              $
              5,929Basic
                  earnings per share
              
              $
              0.17
              
              $
              0.12Diluted
                  earnings per share
              
              $
              0.17
              
              $
              0.12Weighted
                  average shares outstanding:Basic
              
              
              49,372
              
              
              48,722Diluted
              
              
              50,005
              
              
              49,998
 
 *See
        accompanying notes.*
 
  -2-
  **Prestige
        Brands Holdings, Inc.**
 **Consolidated
        Balance Sheets**
 ***(Unaudited*** **)**
 
 ***(In
                  thousands)***
              
              **June
                  30, 2006**
              
              **March
                  31, 2006****Assets**Current
                  assetsCash
              
              $
              21,460
              
              $
              8,200Accounts
                  receivable
              
              
              34,201
              
              
              40,042Inventories
              
              
              31,370
              
              
              33,841Deferred
                  income tax assets
              
              
              3,262
              
              
              3,227Prepaid
                  expenses and other current assets
              
              
              2,882
              
              
              701Total
                  current assets
              
              
              93,175
              
              
              86,011Property
                  and equipment
              
              
              1,730
              
              
              1,653Goodwill
              
              
              297,951
              
              
              297,935Intangible
                  assets
              
              
              635,004
              
              
              637,197Other
                  long-term assets
              
              
              15,230
              
              
              15,849Total
                  Assets
              
              $
              1,043,090
              
              $
              1,038,645**Liabilities
                  and Stockholders’ Equity**Current
                  liabilitiesAccounts
                  payable
              
              $
              18,052
              
              $
              18,065Accrued
                  interest payable
              
              
              4,755
              
              
              7,563Income
                  taxes payable
              
              
              1,778
              
              
              1,795Other
                  accrued liabilities
              
              
              8,658
              
              
              4,582Current
                  portion of long-term debt
              
              
              3,730
              
              
              3,730Total
                  current liabilities
              
              
              36,973
              
              
              35,735Long-term
                  debt
              
              
              486,968
              
              
              494,900Deferred
                  income tax liabilities
              
              
              101,263
              
              
              98,603Total
                  liabilities
              
              
              625,204
              
              
              629,238**Commitments
                  and Contingencies - Note 13****Stockholders’
                  Equity**Preferred
                  stock - $0.01 par valueAuthorized
                  - 5,000 sharesIssued
                  and outstanding - None
              
              
              --
              
              
              --Common
                  stock - $0.01 par valueAuthorized
                  - 250,000 sharesIssued
                  and outstanding - 50,056 shares at June 30, 2006 and March 31,
                  2006
              
              
              501
              
              
              501Additional
                  paid-in capital
              
              
              378,561
              
              
              378,570Treasury
                  stock, at cost - 22 shares at June 30, 2006 and 18 shares at March
                  31,
                  2006
              
              
              (36
              )
              
              (30
              )Accumulated
                  other comprehensive income
              
              
              1,347
              
              
              1,109Retained
                  earnings
              
              
              37,513
              
              
              29,257Total
                  stockholders’ equity
              
              
              417,886
              
              
              409,407Total
                  Liabilities and Stockholders’ Equity
              
              $
              1,043,090
              
              $
              1,038,645
 *See
        accompanying notes.*
 
 -3-
  **Prestige
        Brands Holdings, Inc.**
 **Consolidated
        Statement of Changes in Stockholders’ Equity**
 **and
        Comprehensive Income**
 **Three
        Months Ended June 30, 2006**
 ***(Unaudited)***
 
 
 **Common
                    Stock**
                  **Par**
                  **Shares****Value**
              
              **Additional**
                **Paid-in**
                **Capital**
              
              **Treasury Stock**
                **Shares****Amount**
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **Income**
              
              **Retained**
                **Earnings**
              
              **Totals*****(In
                  thousands)***Balances
                  - March 31, 2006
              
              
              50,056
              
              $
              501
              
              $
              378,570
              
              
              18
              
              $
              (30
              )
              $
              1,109
              
              $
              29,257
              
              $
              409,407Stock-based
                  compensation
              
              
              
              
              
              
              
              
              (9
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (9
              )Purchase
                  of common stock for treasury
              
              
              
              
              
              
              
              
              
              
              
              4
              
              
              (6
              )
              
              
              
              
              
              
              
              (6
              )Components
                  of comprehensive incomeNet
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,256
              
              
              8,256Amortization
                  of interest rate caps
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              288
              
              
              
              
              
              288Unrealized
                  gain on interest rate caps, net of income tax expense of
                  $32
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (50
              )
              
              
              
              
              (50
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,494Balances
                  - June 30, 2006
              
              
              50,056
              
              $
              501
              
              $
              378,561
              
              
              22
              
              $
              (36
              )
              $
              1,347
              
              $
              37,513
              
              $
              417,886
 
 *See
        accompanying notes.*
 
 -4-
  **Prestige
        Brands Holdings, Inc.**
 **Consolidated
        Statements of Cash Flows**
 ***(Unaudited)***
 
 ***(In
                  thousands)***
              
              **Three
                  Months Ended June 30****2006**
              
              **2005****Operating
                  Activities**Net
                  income
              
              $
              8,256
              
              $
              5,929Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              2,413
              
              
              2,635Deferred
                  income taxes
              
              
              2,657
              
              
              3,184Amortization
                  of deferred financing costs
              
              
              825
              
              
              534Stock-based
                  compensation
              
              
              (9
              )
              
              --Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              5,841
              
              
              9,476Inventories
              
              
              2,471
              
              
              (5,756
              )Prepaid
                  expenses and other current assets
              
              
              (2,181
              )
              
              (887
              )Accounts
                  payable
              
              
              (13
              )
              
              (3,079
              )Income
                  taxes payable
              
              
              (17
              )
              
              198Accrued
                  liabilities
              
              
              1,252
              
              
              (2,422
              )Net
                  cash provided by operating activities
              
              
              21,495
              
              
              9,812**Investing
                  Activities**Purchases
                  of equipment
              
              
              (297
              )
              
              (206
              )Net
                  cash used for investing activities
              
              
              (297
              )
              
              (206
              )**Financing
                  Activities**Repayment
                  of notes
              
              
              (7,932
              )
              
              (932
              )Purchase
                  of common stock for treasury
              
              
              (6
              )
              
              --Additional
                  costs associated with initial public offering
              
              
              --
              
              
              (63
              )Net
                  cash used for financing activities
              
              
              (7,938
              )
              
              (995
              )Increase
                  in cash
              
              
              13,260
              
              
              8,611Cash
                  - beginning of period
              
              
              8,200
              
              
              5,334Cash
                  - end of period
              
              $
              21,460
              
              $
              13,945**Supplemental
                  Cash Flow Information**Interest
                  paid
              
              $
              11,961
              
              $
              8,051Income
                  taxes paid
              
              $
              2,609
              
              $
              422
 
 *See
        accompanying notes.*
 -5-
  **Prestige
        Brands Holdings, Inc.**
 **Notes
        to Consolidated Financial Statements**
 
 
 **1.**
              **Business
                  and Basis of Presentation**
 
 ***Nature of Business***
 Prestige
        Brands Holdings, Inc. and its subsidiaries (the “Company”) are engaged in the
        marketing, sales and distribution of over-the-counter drug, personal care
        and
        household cleaning brands to mass merchandisers, drug stores, supermarkets
        and
        club stores primarily in the United States and Canada.
 
 ***Basis of Presentation***
 The
        unaudited consolidated financial statements presented herein have been prepared
        in accordance with generally accepted accounting principles for interim
        financial reporting and with the instructions to Form 10-Q and Article 10
        of
        Regulation S-X. Accordingly, they do not include all of the information and
        footnotes required by generally accepted accounting principles for complete
        financial statements. In the opinion of management, the financial statements
        include all adjustments, consisting of normal recurring adjustments that
        are
        considered necessary for a fair presentation of the Company’s financial
        position, results of operations and cash flows for the interim periods.
        Operating results for the three month period ended June 30, 2006 are not
        necessarily indicative of results that may be expected for the year ending
        March
        31, 2007. This financial information should be read in conjunction with the
        Company’s financial statements and notes thereto included in the Company’s
        Annual Report on Form 10-K for the year ended March 31, 2006.
 
 ***Use
        of Estimates***
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements, as well as the reported amounts of revenues and
        expenses during the reporting period. Although these estimates are based
        on the
        Company’s knowledge of current events and actions that the Company may undertake
        in the future, actual results could differ from those estimates. As discussed
        below, the Company’s most significant estimates include those made in connection
        with the valuation of intangible assets, sales returns and allowances, trade
        promotional allowances and inventory obsolescence.
  ***Cash
        and Cash Equivalents***
 The
        Company considers all short-term deposits and investments with original
        maturities of three months or less to be cash equivalents. Substantially
        all of
        the Company’s cash is held by one bank located in Wyoming. The Company does not
        believe that, as a result of this concentration, it is subject to any unusual
        financial risk beyond the normal risk associated with commercial banking
        relationships.
 
 ***Accounts
        Receivable***
 The
        Company extends non-interest bearing trade credit to its customers in the
        ordinary course of business. The Company maintains an allowance for doubtful
        accounts receivable based upon historical collection experience and expected
        collectibility of the accounts receivable. In
        an
        effort to reduce credit risk, the Company (i) has established credit limits
        for
        all of its customer relationships, (ii) performs ongoing credit evaluations
        of
        customers’ financial condition, (iii) monitors the payment history and aging of
        customers’ receivables, and (iv) monitors open orders against an individual
        customer’s outstanding receivable balance.
 
 ***Inventories***
 Inventories
        are stated at the lower of cost or fair value, where cost is determined by
        using
        the first-in, first-out method. The Company provides an allowance for slow
        moving and obsolete inventory, whereby it reduces
        inventories for the diminution of value, resulting from product obsolescence,
        damage or other issues affecting marketability, equal to the difference between
        the cost of the inventory and its estimated market value. Factors utilized
        in
        the determination of estimated market value include (i) current sales data
        and
        historical return rates, (ii)
  -6-
 estimates
        of future demand, (iii) competitive pricing pressures, (iv) new product
        introductions, (v) product expiration dates, and (vi) component and packaging
        obsolescence.
 
 ***Property
        and Equipment***
 Property
        and equipment are stated at cost and are depreciated using the straight-line
        method based on the following estimated useful lives:
 **Years**Machinery
              
              5Computer
                  equipment
              
              3Furniture
                  and fixtures
              
              7Leasehold
                  improvements
              
              5
 
 Expenditures
        for maintenance and repairs are charged to expense as incurred. When an asset
        is
        sold or otherwise disposed of, the cost and associated accumulated depreciation
        are removed from the accounts and the resulting gain or loss is recognized
        in
        the consolidated statement of operations.
  Property
        and equipment are reviewed for impairment whenever events or changes in
        circumstances indicate that the carrying amount of such assets may not be
        recoverable. An impairment loss is recognized if the carrying amount of the
        asset exceeds its fair value.
  ***Goodwill***
 The
        excess of the purchase price over the fair market value of assets acquired
        and
        liabilities assumed in purchase business combinations is classified as goodwill.
        In accordance with Financial Accounting Standards Board (“FASB”) Statement of
        Financial Accounting Standards (“Statement”) No. 142, “Goodwill and Other
        Intangible Assets,” the Company does not amortize goodwill, but performs
        impairment tests of the carrying value at least annually. The Company tests
        goodwill for impairment at the “brand” level, which is one level below the
        operating segment level.
 
 ***Intangible
        Assets***
 Intangible
        assets are stated at cost less accumulated amortization. For intangible assets
        with finite lives, amortization is computed on the straight-line method over
        estimated useful lives ranging from five to 30 years.
 
 Indefinite
        lived intangible assets are tested for impairment at least annually, while
        intangible assets with finite lives are reviewed for impairment whenever
        events
        or changes in circumstances indicate that the carrying amount of such assets
        may
        not be recoverable. An impairment loss is recognized if the carrying amount
        of
        the asset exceeds its fair value.
 
 ***Deferred
        Financing Costs***
 The
        Company has incurred debt issuance costs in connection with its long-term
        debt.
        These costs are capitalized as deferred financing costs and amortized using
        the
        effective interest method over the term of the related debt.
 
 ***Revenue
        Recognition***
 Revenues
        are recognized in accordance with Securities and Exchange Commission Staff
        Accounting Bulletin 104, “Revenue Recognition,” when the following criteria are
        met: (1) persuasive evidence of an arrangement exists; (2) the product has
        been
        shipped and the customer takes ownership and assumes risk of loss; (3) the
        selling price is fixed or determinable; and (4) collection of the resulting
        receivable is reasonably assured. The Company has determined that the transfer
        of risk of loss generally occurs when product is received by the customer
        and,
        accordingly, recognizes revenue at that time. Provision is made for estimated
        discounts related to customer payment terms and estimated product returns
        at the
        time of sale based on the Company’s historical experience.
 
 As
        is
        customary in the consumer products industry, t he
        Company participates in the
        promotional programs of its customers to enhance the sale of its products. The
        cost
        of these promotional programs varies based on the actual number of units
        sold
        during a finite period of time . The
        Company estimates the cost of such promotional programs at their inception
        based
        on historical experience and current market conditions and reduces sales
        by such
        estimates . These
        promotional programs consist of direct to consumer incentives such as coupons
        and temporary price reductions, as well as incentives to the Company’s
        customers, such as slotting fees and
  -7-
 cooperative
        advertising. Estimates of the costs of these promotional programs are based
        on
        (i) historical sales experience, (ii) the current offering, (iii) forecasted
        data, (iv) current market conditions, and (v) communication with customer
        purchasing/marketing personnel. At
        the
        completion of the promotional program, the estimated amounts are adjusted
        to
        actual results.
 
 Due
        to
        the nature of the consumer products industry, the Company is required to
        estimate future product returns. Accordingly, the Company records an estimate
        of
        product returns concurrent with recording sales which is made after analyzing
        (i) historical return rates, (ii) current economic trends, (iii) changes
        in
        customer demand, (iv) product acceptance, (v) seasonality of the Company’s
        product offerings, and (vi) the impact of changes in product formulation,
        packaging and advertising.
 
 ***Costs
        of Sales***
 Costs
        of
        sales include product costs, warehousing costs, inbound and outbound shipping
        costs, and handling and storage costs. Shipping, warehousing and handling
        costs
        were $5.6 million and $5.5 million for the three month periods ended June
        30,
        2006 and 2005, respectively.
 
 ***Advertising
        and Promotion Costs***
 Advertising
        and promotion costs are expensed as incurred. Slotting fees associated with
        products are recognized as a reduction of sales. Under slotting arrangements,
        the retailers allow the Company’s products to be placed on the stores’ shelves
        in exchange for such fees. Direct reimbursements of advertising costs are
        reflected as a reduction of advertising costs in the period earned.
 
 ***Stock-based
        Compensation***
 The
        Company adopted FASB, Statement No. 123(R), “Share-Based Payment” (“Statement
        No. 123(R)”), effective April 1, 2005, with the grants of restricted stock and
        options to purchase common stock to employees and directors in accordance
        with
        the provisions of the Company’s 2005 Long-Term
        Equity Incentive Plan (the “Plan”). Statement No. 123(R) requires the Company to
        measure the cost of services to be rendered based on the grant-date fair
        value
        of the equity award. Compensation expense is to be recognized over the period
        an
        employee is required to provide service in exchange for the award, generally
        referred to as the requisite service period. The Company recorded a net non-cash
        compensation credit of $9,000 during the three month period ended June 30,
        2006
        due to the reversal of compensation charges in the amount of $142,000 associated
        with the departure of a former member of management. There were no stock-based
        compensation charges incurred during the three month period ended June 30,
        2005.
 
 ***Income
        Taxes***
 Income
        taxes are recorded in accordance with the provisions of FASB Statement No.
        109,
“Accounting for Income Taxes” (“Statement No. 109”). Pursuant to Statement No.
        109, deferred tax assets and liabilities are determined based on the differences
        between the financial reporting and tax bases of assets and liabilities using
        the enacted tax rates and laws that will be in effect when the differences
        are
        expected to reverse. A valuation allowance is established when necessary
        to
        reduce deferred tax assets to the amounts expected to be realized.
 
 ***Derivative
        Instruments***
 FASB
        Statement No. 133, “Accounting for Derivative Instruments and Hedging
        Activities” (“Statement No. 133”), requires companies to recognize derivative
        instruments as either assets or liabilities in the balance sheet at fair
        value.
        The accounting for changes in the fair value of a derivative instrument depends
        on whether it has been designated and qualifies as part of a hedging
        relationship and further, on the type of hedging relationship. For those
        derivative instruments that are designated and qualify as hedging instruments,
        a
        company must designate the hedging instrument, based upon the exposure being
        hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment
        in a foreign operation.
 
 The
        Company has designated its derivative financial instruments as cash flow
        hedges
        because they hedge exposure to variability in expected future cash flows
        that
        are attributable to interest rate risk. For these hedges, the effective portion
        of the gain or loss on the derivative instrument is reported as a component
        of
        other comprehensive income (loss) and reclassified into earnings in the same
        line item associated with the forecasted
  -8-
 transaction
        in the same period or periods during which the hedged transaction affects
        earnings. Any ineffective portion of the gain or loss on the derivative
        instruments is recorded in results of operations immediately.
 
 ***Earnings
        Per Share***
 Basic
        earnings per share is calculated based on income available to common
        stockholders and the weighted-average number of shares outstanding during
        the
        reporting period. Diluted earnings per share is calculated based on income
        available to common stockholders and the weighted-average number of common
        and
        potential common shares outstanding during the reporting period. Potential
        common shares, composed of the incremental common shares issuable upon the
        exercise of stock options and unvested restricted shares, are included in
        the
        earnings per share calculation to the extent that they are
        dilutive.
 
 ***Fair
        Value of Financial Instruments***
 The
        carrying value of cash, accounts receivable and accounts payable at June
        30,
        2006 and March 31, 2006 approximates fair value due to the short-term nature
        of
        these instruments. The carrying value of long-term debt at June 30, 2006
        and
        March 31, 2006 approximates fair value based on interest rates for instruments
        with similar terms and maturities.
 
 ***Recently
        Issued Accounting Standards***
 In
        November 2004, the FASB issued Statement of Financial Accounting Standards
        (“SFAS”) No. 151, “Inventory Costs” (“Statement No. 151”). Statement No. 151
        amended the guidance in Accounting Research Bulletin No. 43, Chapter 4,
“Inventory Pricing”, and requires the exclusion of certain costs, such as
        abnormal amounts of freight, handling costs and manufacturing overhead, from
        inventories. Additionally, Statement No. 151 requires the allocation of fixed
        production overhead to inventory based on normal capacity of the production
        facilities. The provisions of Statement No. 151 are effective for costs incurred
        during fiscal years beginning after June 15, 2005. The adoption of Statement
        No.
        151 did not have a material impact on the Company’s financial condition, results
        of operations or cash flows for the three month period ended June 30,
        2006.
 
 In
        June
        2006, the FASB issued
        FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes--an
        interpretation of FASB Statement 109” (“FIN 48”) which clarifies the accounting
        for uncertainty in income taxes recognized in a company’s financial statements
        in accordance with FASB Statement 109. FIN 48 is effective for fiscal years
        beginning after December 15, 2006, and prescribes a recognition threshold
        and
        measurement attributes for the financial statement recognition and measurement
        of a tax position taken or expected to be taken in a tax return. While the
        Company has not completed a comprehensive analysis of FIN 48, the adoption
        of
        FIN 48 is not expected to have a material impact on the Company’s financial
        position, results of operations or cash flows.
 
 
 **2.**
              **Accounts
                  Receivable**
 
 Accounts
        receivable consist of the following (in thousands):
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Accounts
                  receivable
              
              $
              33,724
              
              $
              40,140Other
                  receivables
              
              
              2,219
              
              
              1,87035,943
              
              
              42,010Less
                  allowances for discounts, returns and
                uncollectible accounts
              
              
              (1,742
              )
              
              (1,968
              )$
              34,201
              
              $
              40,042
 
 
  -9-
 **3.**
              **Inventories**
 
 Inventories
        consist of the following (in thousands):
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2005**Packaging
                  and raw materials
              
              $
              3,830
              
              $
              3,278Finished
                  goods
              
              
              27,540
              
              
              30,563$
              31,370
              
              $
              33,841
 
 Inventories
        are shown net of allowances for obsolete and slow moving inventory of $1.4
        million and $1.0 million at June 30, 2006 and March 31, 2006,
        respectively.
 
 
 **4.**  **Property
        and Equipment**
  Property
        and equipment consist of the following (in thousands):
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Machinery
              
              $
              3,978
              
              $
              3,722Computer
                  equipment
              
              
              1,028
              
              
              987Furniture
                  and fixtures
              
              
              303
              
              
              303Leasehold
                  improvements
              
              
              340
              
              
              3405,649
              
              
              5,352Accumulated
                  depreciation
              
              
              (3,919
              )
              
              (3,699
              )$
              1,730
              
              $
              1,653
 
 
 **5.**  **Goodwill**
 
 A
        reconciliation of the activity affecting goodwill by operating segment is
        as
        follows (in thousands):
 
 **Over-the-Counter**
                **Drug**
              
              **Personal**
                **Care**
              
              **Household**
                **Cleaning**
              
              **Consolidated**Balance
                  - March 31, 2006
              
              $
              222,635
              
              $
              2,751
              
              $
              72,549
              
              $
              297,935Additions
              
              
              16
              
              
              --
              
              
              --
              
              
              16Balance
                  - June 30, 2006
              
              $
              222,651
              
              $
              2,751
              
              $
              72,549
              
              $
              297,951
 
 
  -10-
 **6.**  **Intangible
        Assets**
 
 A
        reconciliation of the activity affecting intangible assets is as follows
        (in
        thousands):
 
 **Indefinite**
                **Lived**
                **Trademarks**
              
              **Finite**
                **Lived**
                **Trademarks**
              
              **Non**
                **Compete**
                **Agreement**
              
              **Total*****Carrying
                  Amounts***Balance
                  - March 31, 2006
              
              $
              544,963
              
              $
              109,870
              
              $
              196
              
              $
              655,029Additions
              
              
              --
              
              
              --
              
              
              --
              
              
              --Impairments
              
              
              --
              
              
              --
              
              
              --
              
              
              --Balance
                  - June 30, 2006
              
              $
              544,963
              
              $
              109,870
              
              $
              196
              
              $
              655,029***Accumulated
                  Amortization***Balance
                  - March 31, 2006
              
              $
              --
              
              $
              17,779
              
              $
              53
              
              $
              17,832Additions
              
              
              --
              
              
              2,182
              
              
              11
              
              
              2,193Balance
                  - June 30, 2006
              
              $
              --
              
              $
              19,961
              
              $
              64
              
              $
              20,025
 
 At
        June
        30, 2006, intangible assets are expected to be amortized over a period of
        five
        to 30 years as follows (in thousands):
 
 **Year
                  Ending June 30**2007
              
              $
              8,7742008
              
              
              8,7742009
              
              
              8,7692010
              
              
              7,3542011
              
              
              7,338Thereafter
              
              
              49,032$
              90,041
 
 
 **7.**  **Other
        Accrued Liabilities**
 
 Other
        accrued liabilities consist of the following (in thousands):
 
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Accrued
                  marketing costs
              
              $
              5,596
              
              $
              2,513Accrued
                  payroll
              
              
              1,122
              
              
              813Accrued
                  commissions
              
              
              257
              
              
              248Other
              
              
              1,683
              
              
              1,008$
              8,658
              
              $
              4,582
 
 
  -11-
 **8.**  **Long-Term
        Debt**
 
 Long-term
                  debt consists of the following (in thousands):**June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Senior
                  revolving credit facility (“Revolving Credit Facility”), which expires on
                  April 6, 2009 and is available for maximum borrowings of up to
                  $60.0
                  million. The Revolving Credit Facility bears interest at the Company’s
                  option at either the prime rate plus a variable margin or LIBOR
                  plus a
                  variable margin. The variable margins range from 0.75% to 2.50%
                  and at
                  June 30, 2006, the interest rate on the Revolving Credit Facility
                  was 9.5%
                  per annum. The Company is also required to pay a variable commitment
                  fee
                  on the unused portion of the Revolving Credit Facility. At June
                  30, 2006,
                  the commitment fee was 0.50% of the unused line. The Revolving
                  Credit
                  Facility is collateralized by substantially all of the Company’s
                  assets.
              
              $
              --
              
              $
              7,000Senior
                  secured term loan facility (“Tranche B Term Loan Facility”) that bears
                  interest at the Company’s option at either the prime rate plus a margin of
                  1.25% or LIBOR plus a margin of 2.25%. At June 30, 2006, the weighted
                  average applicable interest rate on the Tranche B Term Loan Facility
                  was
                  7.25%. Principal payments of $933 and interest are payable quarterly.
                  In
                  February 2005, the Tranche B Term Loan Facility was amended to
                  increase
                  the amount available thereunder by $50.0 million to $200.0 million,
                  all of
                  which is available at June 30, 2006. Current amounts outstanding
                  under the
                  Tranche B Term Loan Facility mature on April 6, 2011, while amounts
                  borrowed pursuant to the amendment will mature on October 6, 2011.
                  The
                  Tranche B Term Loan Facility is collateralized by substantially
                  all of the
                  Company’s assets.
              
              
              364,698
              
              
              365,630Senior
                  Subordinated Notes (“Senior Notes”) that bear interest at 9.25% which is
                  payable on April 15thand October 15thof
                  each year. The Senior Notes mature on April 15, 2012; however,
                  the Company
                  may redeem some or all of the Senior Notes on or prior to April
                  15, 2008
                  at a redemption price equal to 100%, plus a make-whole premium,
                  and after
                  April 15, 2008 at redemption prices set forth in the indenture
                  governing
                  the Senior Notes. The Senior Notes are unconditionally guaranteed
                  by
                  Prestige Brands International, LLC (“Prestige International”), a
                  wholly-owned subsidiary, and Prestige International’s wholly-owned
                  subsidiaries other than Prestige Brands, Inc., the issuer. Each
                  of these
                  guarantees is joint and several. There are no significant restrictions
                  on
                  the ability of any of the guarantors to obtain funds from their
                  subsidiaries.
              
              
              126,000
              
              
              126,000490,698
              
              
              498,630Current
                  portion of long-term debt
              
              
              (3,730
              )
              
              (3,730
              )$
              486,968
              
              $
              494,900
  -12-
 The
        Revolving Credit Facility and the Tranche B Term Loan Facility (together
        the
“Senior Credit Facility”) contain various financial covenants, including
        provisions that require the Company to maintain certain leverage ratios,
        interest coverage ratios and fixed charge coverage ratios. The Senior Credit
        Facility and the Senior Notes also contain provisions that restrict the Company
        from undertaking specified corporate actions, such as asset dispositions,
        acquisitions, dividend payments, repurchase of common shares outstanding,
        changes of control, incurrence of indebtedness, creation of liens, making
        of
        loans and transactions with affiliates. Additionally, the Senior Credit Facility
        and the Senior Notes contain cross-default provisions whereby a default pursuant
        to the terms and conditions of either indebtedness will cause a default on
        the
        remaining indebtedness. The Company was in compliance with its applicable
        financial and restrictive covenants under the Senior Credit Facility and
        the
        indenture governing the Senior Notes at June 30, 2006.
 
 Future
        principal payments required in accordance with the terms of the Senior Credit
        Facility and the Senior Notes are as follows (in thousands):
 
 **Year
                  Ending June 30,**2007
              
              $
              3,7302008
              
              
              3,7302009
              
              
              3,73020010
              
              
              3,7302011
              
              
              3,730Thereafter
              
              
              472,048$
              490,698
 
 In
        an
        effort to mitigate the impact of changing interest rates, the Company entered
        into interest rate cap agreements with various financial institutions. In
        June
        2004, the Company purchased a 5% interest rate cap with a notional amount
        of
        $20.0 million which expired in June 2006. In March 2005, the Company purchased
        interest rate cap agreements with a total notional amount of $180.0 million
        and
        cap rates ranging from 3.25% to 3.75%. On May 31, 2006, an interest rate
        cap
        agreement with a notional amount of $50.0 million and a 3.25% cap rate expired.
        The remaining agreements terminate on May 30, 2007 and 2008 as to notional
        amounts of $80.0 million and $50.0 million, respectively. The Company is
        accounting for the interest rate cap agreements as cash flow hedges. The
        fair
        value of the interest rate cap agreements, which is included in other long-term
        assets, was $3.2 million and $3.3 million at June 30, 2006
        and
        March 31, 2006, respectively .
 
 
 **9.**  **Stockholders’
        Equity**
 
 The
        Company is authorized to issue 250.0 million shares of common stock, $0.01
        par
        value per share, and 5.0 million shares of preferred stock, $0.01 par value
        per
        share. The Board of Directors may direct the issuance of the undesignated
        preferred stock in one or more series and determine preferences, privileges
        and
        restrictions thereof.
 
 Each
        share of common stock has the right to one vote on all matters submitted
        to a
        vote of stockholders. The holders of common stock are also entitled to receive
        dividends whenever funds are legally available and when declared by the Board
        of
        Directors, subject to prior rights of holders of all classes of stock
        outstanding having priority rights as to dividends. No dividends have been
        declared or paid on the Company’s common stock through June 30,
        2006.
 
 
  -13-
 **10.**  **Earnings
        Per Share**
 
 The
        following table sets forth the computation of basic and diluted earnings
        per
        share (in thousands, except per share amounts):
 
 
 **Three
                  Months Ended June 30****2006**
              
              **2005****Numerator**Net
                  income
              
              $
              8,256
              
              $
              5,929**Denominator**Denominator
                  for basic earnings per share - weighted average shares
              
              
              49,372
              
              
              48,722Dilutive
                  effect of unvested restricted common stock issued to employee and
                  directors
              
              
              633
              
              
              1,276Denominator
                  for diluted earnings per share
              
              
              50,005
              
              
              49,998**Earnings
                  per Common Share:**Basic
              
              $
              0.17
              
              $
              0.12Diluted
              
              $
              0.17
              
              $
              0.12
 
 At
        June
        30, 2006, 570,000 shares of restricted stock issued to management and employees
        were unvested, and were therefore, excluded from the calculation of basic
        earnings per share for the period ended June 30, 2006. However, such shares
        are
        included in the calculation of diluted earnings per share. An additional
        146,000
        shares of restricted stock granted to management and employees have been
        excluded from the calculation of both basic and diluted earnings per share
        since
        vesting of such shares is subject to contingencies. At June 30, 2005, 1.1
        million shares of restricted stock issued to management were unvested and
        were
        therefore excluded from the calculation of basic earnings per share for the
        period ended June 30, 2005.
 
 
 **11.**
              **Share-Based
                  Compensation**
 
 In
        connection with the Company’s February 2005 initial public offering, the Board
        of Directors adopted the Plan which provides for the grant, up to a maximum of
        5.0 million shares, of stock options, restricted stock, restricted stock
        units,
        deferred stock units and other equity-based awards. Directors, officers and
        other employees of the Company and its subsidiaries, as well as others
        performing services for the Company, are eligible for grants under the Plan.
        The
        Company believes that such awards better align the interests of its employees
        with those of its stockholders.
 
 **Restricted
        Shares**
 Restricted
        shares granted under the plan generally vest in 3 to 5 years, contingent
        on
        attainment of Company performance goals, including both revenue and earnings
        per
        share growth targets. Certain restricted share awards provide for accelerated
        vesting if there is a change of control. The fair value of nonvested restricted
        shares is determined as the closing price of the Company’s common stock on the
        day preceding the grant date.
 
 **Options**
 The
        Plan
        provides that the exercise price of the option granted shall be no less than
        the
        fair market value of the Company’s common stock on the date the option is
        granted. Options granted have a term of no greater than 10 years from the
        date
        of grant and vest in accordance with a schedule determined at the time the
        option is granted, generally 3 to 5 years. Certain option awards provide
        for
        accelerated vesting if there is a change in control.
 
 -14-
 The
        fair
        value of each option award is estimated on the date of grant using the
        Black-Scholes Option Pricing Model. As of June 30, 2006, there was approximately
        $700,000 of total unrecognized compensation cost related to nonvested
        share-based compensation arrangements under the Plan, based on management’s
        estimate of the shares that will ultimately vest. The Company expects to
        recognize such costs over the next 4.0 years. However, the restricted shares
        vest upon the attainment of Company performance goals; if such goals are
        not
        met, no compensation cost would ultimately be recognized and any previously
        recognized compensation cost would be reversed. At June 30, 2006, there were
        4.8
        million shares available for issuance under the Plan.
 
 
 **12.**  **Income
        Taxes**
 
 Income
        taxes are recorded in the Company’s quarterly financial statements based on the
        Company’s estimated annual effective income tax rate. The effective rate used in
        the calculation of income taxes was 39.1% for the three month periods ended
        June
        30, 2006 and 2005.
 
 
 **13.**  **Commitments
        and Contingencies**
 
 In
        June
        2003, Dr. Jason Theodosakis filed a lawsuit, Theodosakis v. Walgreens, et
        al.,
        in the United States District Court in Arizona, alleging that two of the
        Company’s subsidiaries, Medtech Products Inc. and Pecos Pharmaceutical, Inc., as
        well as other unrelated parties, infringed on the trade dress of two of his
        published books. Specifically, Dr. Theodosakis published “The Arthritis Cure”
and “Maximizing the Arthritis Cure” regarding the use of dietary supplements to
        treat arthritis patients. Dr. Theodosakis alleged that his books have a
        distinctive trade dress, or cover layout, design, color and typeface, and
        those
        products that the defendants sold under the ARTHx trademarks infringed the
        books’ trade dress and constituted unfair competition and false designation of
        origin. Additionally, Dr. Theodosakis alleged that the defendants made false
        endorsements of the products by referencing his books on the product packaging
        and that the use of his name, books and trade dress invaded his right to
        publicity. The Company sold the ARTHx trademarks, goodwill and inventory
        to a
        third party, Contract Pharmacal Corporation, in March 2003. On January 12,
        2005,
        the court granted the Company’s motion for summary judgment and dismissed all
        claims against Medtech Products and Pecos Pharmaceutical. The plaintiff filed
        an
        appeal in the U.S. Court of Appeals which was denied on March 28, 2006.
        Subsequently, the plaintiff filed a petition for rehearing which was denied
        on
        June 30, 2006.
 
 The
        Company and certain of its officers and directors are defendants in a
        consolidated putative securities class action lawsuit filed in the United
        States
        District Court for the Southern District of New York (the “Consolidated
        Action”). The first of the six consolidated cases was filed on August 3, 2005.
        The plaintiffs purport to represent a class of stockholders of the Company
        who
        purchased shares between February 9, 2005 through November 15, 2005. The
        plaintiffs also name as defendants the underwriters in the Company’s initial
        public offering and a private equity fund that was a selling stockholder
        in the
        offering. The lead plaintiff filed a Consolidated Class Action Complaint,
        which
        asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of
        1933,
        as amended, and Sections 10(b), 20(a) and 20A of the Securities Exchange
        Act of
        1934, as amended, and in which the lead plaintiff generally alleges that
        the
        Company issued a series of materially false and misleading statements in
        connection with its initial public offering and thereafter in regard to the
        following areas: the accounting issues described in the Company’s press release
        issued on or about November 15, 2005; and the alleged failure to disclose
        that
        demand for certain of the Company’s products was declining and that the Company
        was planning to withdraw several products from the market. The plaintiffs
        seek
        an unspecified amount of damages. The Court recently dismissed all claims
        against the Company and the individual defendants arising under the Securities
        Exchange Act of 1934. The Company’s management believes the remaining claims are
        legally deficient and subject to meritorious defenses; however, the Company
        cannot reasonably estimate the potential range of loss, if any.
 
 On
        September 6, 2005, another putative securities class action lawsuit
        substantially similar to the initially-filed complaints in the Consolidated
        Action described above was filed against the same defendants in the Circuit
        Court of Cook County, Illinois (the “Chicago Action”). In light of the
        first-filed Consolidated Action, proceedings in the Chicago Action were stayed,
        and management has been informed that Plaintiffs’ counsel is considering a
  -15-
 voluntary
        dismissal in light of the substantially similar Consolidated Action. The
        Company’s management believes the allegations to be unfounded and will
        vigorously pursue its defenses; however, the Company cannot reasonably estimate
        the potential range of loss, if any.
 
 On
        May
        23, 2006, Similasan Corporation filed a lawsuit against the Company in the
        United States District Court for the District of Colorado in which Similasan
        alleged false designation of origin, trademark and trade dress infringement,
        and
        deceptive trade practices by the Company related to *Murine* for
        Allergy Eye Relief, *Murine* for
        Tired Eye Relief and *Murine* for
        Earache Relief, as applicable. Similasan has requested injunctive relief,
        an
        accounting of profits and damages and litigation costs and attorneys’ fees. The
        Company has filed an answer to the complaint with a potentially dispositive
        motion. In addition to the lawsuit filed by Similasan in the U.S. District
        Court
        for the District of Colorado, the Company also received a cease and desist
        letter from Swiss legal counsel to Similasan and its parent company, Similasan
        AG, a Swiss company. In the cease and desist letter, Similasan and Similasan
        AG
        have alleged a breach of the Secrecy Agreement executed by the Company and
        demanded that the Company cease and desist from (i) using confidential
        information covered by the Secrecy Agreement; and (ii) manufacturing,
        distributing, marketing or selling certain of its homeopathic products. On
        July
        24, 2006, the plaintiff in the Colorado action filed a motion for leave to
        amend
        its complaint in order to add allegations of misappropriation of trade secrets
        and a breach of the Secrecy Agreement. The Company’s management believes the
        allegations to be without merit and intends to vigorously pursue its defenses;
        however, the Company cannot reasonably estimate the potential range of loss,
        if
        any.
 
 The
        Company is also involved from time to time in other routine legal matters
        and
        other claims incidental to its business. The Company reviews outstanding
        claims
        and proceedings internally and with external counsel as necessary to assess
        the
        probability of loss. These assessments are re-evaluated each quarter and
        as new
        information becomes available to determine whether a reserve should be
        established or if any existing reserve should be adjusted. The actual cost
        of
        resolving a claim or proceeding ultimately may be substantially different
        than
        the amount of the recorded reserve. In addition, because it is not permissible
        under generally accepted accounting principles to establish a litigation
        reserve
        until the loss is both probable and estimable, in some cases there may be
        insufficient information to establish a reserve prior to the actual incurrence
        of the loss (upon verdict and judgment at trial, for example, or in the case
        of
        a quickly negotiated settlement). The Company believes the resolution of
        routine
        matters and other incidental claims, taking into account reserves and insurance,
        will not have a material adverse effect on its business, financial condition
        or
        results of operations.
 
 **Lease
        Commitments**
 The
        Company has operating leases for office facilities in New York, New Jersey
        and
        Wyoming, which expire at various dates through April 9, 2009.
 
 The
        following summarizes future minimum lease payments for the Company’s operating
        leases (in thousands):
  **Year
                  Ending June 30**2007
              
              $
              6292008
              
              
              5592009
              
              
              4782010
              
              
              11$
              1,677
 
 **14.**  **Concentrations
        of Risk**
 
 The
        Company’s sales are concentrated in the areas of over-the-counter pharmaceutical
        products, personal care products and household cleaning products. The Company
        sells its products to mass merchandisers, food and drug accounts, and dollar
        and
        club stores. During the three month periods ended June 30, 2006 and 2005,
        approximately 59.2% and 60.8%, respectively, of the Company’s total sales were
        derived from four of its brands. During three month periods ended June 30,
        2006
        and 2005, approximately 25.2% and 22.8%, respectively, of the Company’s net
        sales were made to one customer. At June 30, 2006, approximately 21.9% of
        accounts receivable were owed by the same customer.
  -16-
  The
        Company manages product distribution in the continental United States through
        a
        main distribution center in St. Louis, Missouri. A serious disruption, such
        as a
        flood or fire, to the main distribution center could damage the Company’s
        inventories and materially impair the Company’s ability to distribute its
        products to customers in a timely manner or at a reasonable cost. The Company
        could incur significantly higher costs and experience longer lead times
        associated with the distribution of its products to its customers during
        the
        time that it takes the Company to reopen or replace its distribution center.
        As
        a result, any such disruption could have a material adverse effect on the
        Company’s sales and profitability.
 
 The
        Company has relationships with over 40 third-party manufacturers. Of those,
        the
        top 10 manufacturers produced items that accounted for approximately 81%
        of the
        Company’s gross sales for the three month period ended June 30, 2006. The
        Company does not have long-term contracts with 4 of these manufacturers and
        certain manufacturers of various smaller brands, which collectively, represent
        approximately 34% of the Company’s gross sales. The lack of manufacturing
        agreements for these products exposes the Company to the risk that a
        manufacturer could stop producing the Company’s products at any time, for any
        reason or fail to provide the Company with the level of products the Company
        needs to meet its customers’ demands. Without
        adequate supplies of merchandise to sell to the Company’s customers, sales would
        decrease materially and the Company’s business would suffer.
 
 **15.**  **Business
        Segments**
 
 Segment
        information has been prepared in accordance with FASB Statement No. 131,
        “Disclosures about Segments of an Enterprise and Related Information.” The
        Company’s operating and reportable segments consist of (i) Over-the-Counter
        Drugs, (ii) Personal Care and (iii) Household Cleaning.
 
 There
        were no inter-segment sales or transfers during the three month periods ended
        June 30, 2006 and 2005. The Company evaluates the performance of its operating
        segments and allocates resources to them based primarily on contribution
        margin.
        The table below summarizes information about the Company’s operating and
        reportable segments (in thousands).
 
 **Three
                  Months Ended June 30, 2006****Over-the-Counter**
                **Drug**
              
              **Personal**
                **Care**
              
              **Household**
                **Cleaning**
              
              **Consolidated**Net
                  sales
              
              $
              39,598
              
              $
              6,231
              
              $
              29,738
              
              $
              75,567Other
                  revenues
              
              
              --
              
              
              --
              
              
              356
              
              
              356Total
                  revenues
              
              
              39,598
              
              
              6,231
              
              
              30,094
              
              
              75,923Cost
                  of sales
              
              
              14,397
              
              
              3,774
              
              
              18,154
              
              
              36,325Gross
                  profit
              
              
              25,201
              
              
              2,457
              
              
              11,940
              
              
              39,598Advertising
                  and promotion
              
              
              5,426
              
              
              287
              
              
              1,689
              
              
              7,402Contribution
                  margin
              
              $
              19,775
              
              $
              2,170
              
              $
              10,251
              
              
              32,196Other
                  operating expenses
              
              
              
              
              
              
              
              
              
              
              
              8,847Operating
                  income
              
              
              
              
              
              
              
              
              
              
              
              23,349Other
                  (income) expense
              
              
              
              
              
              
              
              
              
              
              
              9,792Provision
                  for income taxes
              
              
              
              
              
              
              
              
              
              
              
              5,301Net
                  income
              
              
              
              
              
              
              
              
              
              
              $
              8,256
 
  -17-
  
 **Three
                  Months Ended June 30, 2005****Over-the-Counter**
                **Drug**
              
              **Personal**
                **Care**
              
              **Household**
                **Cleaning**
              
              **Consolidated**Net
                  sales
              
              $
              33,387
              
              $
              7,256
              
              $
              22,785
              
              $
              63,428Other
                  revenues
              
              
              --
              
              
              --
              
              
              25
              
              
              25Total
                  revenues
              
              
              33,387
              
              
              7,256
              
              
              22,810
              
              
              63,453Cost
                  of sales
              
              
              11,665
              
              
              3,898
              
              
              13,386
              
              
              28,949Gross
                  profit
              
              
              21,722
              
              
              3,358
              
              
              9,424
              
              
              34,504Advertising
                  and promotion
              
              
              6,138
              
              
              796
              
              
              1,771
              
              
              8,705Contribution
                  margin
              
              $
              15,584
              
              $
              2,562
              
              $
              7,653
              
              
              25,799Other
                  operating expenses
              
              
              
              
              
              
              
              
              
              
              
              7,542Operating
                  income
              
              
              
              
              
              
              
              
              
              
              
              18,257Other
                  (income) expense
              
              
              
              
              
              
              
              
              
              
              
              8,510Provision
                  for income taxes
              
              
              
              
              
              
              
              
              
              
              
              3,818Net
                  income
              
              
              
              
              
              
              
              
              
              
              $
              5,929
 
 
 During
        the three month periods ended June 30, 2006 and 2005, approximately 96.1%
        and
        97.9%, respectively, of the Company’s sales were made to customers in the United
        States and Canada. At June 30, 2006 and March 31, 2006, substantially all
        of the
        Company’s long-term assets were located in the United States of America and have
        been allocated to the operating segments as follows:
 
 **Over-the-Counter**
              
              **Personal**
              
              **Household****Drug**
              
              **Care**
              
              **Cleaning**
              
              **Consolidated**Goodwill
              
              $
              222,651
              
              $
              2,751
              
              $
              72,549
              
              $
              297,951Intangible
                  assetsIndefinite
                  lived
              
              
              374,070
              
              
              --
              
              
              170,893
              
              
              544,963Finite
                  lived
              
              
              70,427
              
              
              19,584
              
              
              30
              
              
              90,041444,497
              
              
              19,584
              
              
              170,923
              
              
              635,004$
              667,148
              
              $
              22,335
              
              $
              243,472
              
              $
              932,955
 
  -18-
  
 
 
 
 
 
 
 
 
 
 **Prestige
        Brands International, LLC**
 
 **Unaudited
        Financial Statements**
 
 **June
        30, 2006**
 
 
 
 
 
 -19-
 
           **Prestige
        Brands International, LLC**
 **Consolidated
        Statements of Operations**
 ***(Unaudited)***
 
 
 
 **Three
                  Months Ended June 30*****(In
                  thousands)***
              
              **2006**
              
              **2005****Revenues**Net
                  sales
              
              $
              75,567
              
              $
              63,428Other
                  revenues
              
              
              356
              
              
              25Total
                  revenues
              
              
              75,923
              
              
              63,453**Costs
                  of Sales**Costs
                  of sales
              
              
              36,325
              
              
              28,949Gross
                  profit
              
              
              39,598
              
              
              34,504**Operating
                  Expenses**Advertising
                  and promotion
              
              
              7,402
              
              
              8,705General
                  and administrative
              
              
              6,434
              
              
              4,911Depreciation
              
              
              220
              
              
              483Amortization
                  of intangible assets
              
              
              2,193
              
              
              2,148Total
                  operating expenses
              
              
              16,249
              
              
              16,247Operating
                  income
              
              
              23,349
              
              
              18,257**Other
                  income (expense)**Interest
                  income
              
              
              185
              
              
              81Interest
                  expense
              
              
              (9,977
              )
              
              (8,591
              )Total
                  other income (expense)
              
              
              (9,792
              )
              
              (8,510
              )Income
                  before income taxes
              
              
              13,557
              
              
              9,747Provision
                  for income taxes
              
              
              5,301
              
              
              3,818Net
                  income
              
              $
              8,256
              
              $
              5,929
 
 *See
        accompanying notes.*
  -20-
  **Prestige
        Brands International, LLC**
 **Consolidated
        Balance Sheets**
 ***(Unaudited*** **)**
 
 
 ***(In
        thousands)***
 **June
                  30, 2006**
              
              **March
                  31, 2006****Assets**Current
                  assetsCash
                  and cash equivalents
              
              $
              21,460
              
              $
              8,200Accounts
                  receivable
              
              
              34,201
              
              
              40,042Inventories
              
              
              31,370
              
              
              33,841Deferred
                  income tax assets
              
              
              3,262
              
              
              3,227Prepaid
                  expenses and other current assets
              
              
              2,882
              
              
              701Total
                  current assets
              
              
              93,175
              
              
              86,011Property
                  and equipment
              
              
              1,730
              
              
              1,653Goodwill
              
              
              297,951
              
              
              297,935Intangible
                  assets
              
              
              635,004
              
              
              637,197Other
                  long-term assets
              
              
              15,230
              
              
              15,849Total
                  Assets
              
              $
              1,043,090
              
              $
              1,038,645**Liabilities
                  and Members’ Equity**Current
                  liabilitiesAccounts
                  payable
              
              $
              18,052
              
              $
              18,065Accrued
                  interest payable
              
              
              4,755
              
              
              7,563Income
                  taxes payable
              
              
              1,778
              
              
              1,795Other
                  accrued liabilities
              
              
              8,658
              
              
              4,582Current
                  portion of long-term debt
              
              
              3,730
              
              
              3,730Total
                  current liabilities
              
              
              36,973
              
              
              35,735Long-term
                  debt
              
              
              486,968
              
              
              494,900Deferred
                  income tax liabilities
              
              
              101,263
              
              
              98,603Total
                  liabilities
              
              
              625,204
              
              
              629,238**Commitments
                  and Contingencies - Note 11****Members’
                  Equity**Contributed
                  capital - Prestige Holdings
              
              
              370,557
              
              
              370,572Accumulated
                  other comprehensive income
              
              
              1,347
              
              
              1,109Retained
                  earnings
              
              
              45,982
              
              
              37,726Total
                  members’ equity
              
              
              417,886
              
              
              409,407Total
                  liabilities and members’ equity
              
              $
              1,043,090
              
              $
              1,038,645
 
 *See
        accompanying notes.*
 
  -21-
  **Prestige
        Brands International, LLC**
 **Consolidated
        Statement of Changes in Members’ Equity**
 **and
        Comprehensive Income**
 **Three
        Months Ended June 30, 2006**
 ***(Unaudited)***
 
 
 
 **Contributed**
                **Capital**
                **Prestige**
                **Holdings**
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **Income**
              
              **Retained**
                **Earnings**
              
              **Totals*****(In
                  thousands)***Balances
                  - March 31, 2006
              
              $
              370,572
              
              $
              1,109
              
              $
              37,726
              
              $
              409,407Stock-based
                  compensation
              
              
              (9
              )
              
              
              
              
              
              
              
              (9
              )Distribution
                  to Prestige Holdings for the purchase of common stock for
                  treasury
              
              
              (6
              )
              
              
              
              
              
              
              
              (6
              )Components
                  of comprehensive incomeNet
                  income
              
              
              
              
              
              
              
              
              8,256
              
              
              8,256Amortization
                  of interest rate caps
              
              
              
              
              
              288
              
              
              
              
              
              288Unrealized
                  gain on interest rate caps, net of tax expense of $32
              
              
              
              
              
              (50
              )
              
              
              
              
              (50
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              8,494Balances
                  - June 30, 2006
              
              $
              370,557
              
              $
              1,347
              
              $
              45,982
              
              $
              417,886
 
 *See
        accompanying notes.*
  -22-
  **Prestige
        Brands International, LLC**
 **Consolidated
        Statements of Cash Flows**
 ***(Unaudited)***
 
 
 ***(In
                  thousands)***
              
              **Three
                  Months Ended June 30****2006**
              
              **2005****Operating
                  Activities**Net
                  income
              
              $
              8,256
              
              $
              5,929Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              2,413
              
              
              2,635Deferred
                  income taxes
              
              
              2,657
              
              
              3,184Amortization
                  of deferred financing costs
              
              
              825
              
              
              534Stock-based
                  compensation
              
              
              (9
              )
              
              --Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              5,841
              
              
              9,476Inventories
              
              
              2,471
              
              
              (5,756
              )Prepaid
                  expenses and other current assets
              
              
              (2,181
              )
              
              (887
              )Accounts
                  payable
              
              
              (13
              )
              
              (3,079
              )Income
                  taxes payable
              
              
              (17
              )
              
              198Accrued
                  liabilities
              
              
              1,252
              
              
              (2,422
              )Net
                  cash provided by operating activities
              
              
              21,495
              
              
              9,812**Investing
                  Activities**Purchases
                  of equipment
              
              
              (297
              )
              
              (206
              )Net
                  cash used for investing activities
              
              
              (297
              )
              
              (206
              )**Financing
                  Activities**Repayment
                  of notes
              
              
              (7,932
              )
              
              (932
              )Distribution
                  to Prestige Holdings for the purchase of common stock for
                  treasury
              
              
              (6
              )
              
              --Additional
                  costs associated with initial public offering
              
              
              --
              
              
              (63
              )Net
                  cash used for financing activities
              
              
              (7,938
              )
              
              (995
              )Increase
                  in cash
              
              
              13,260
              
              
              8,611Cash
                  - beginning of period
              
              
              8,200
              
              
              5,334Cash
                  - end of period
              
              $
              21,460
              
              $
              13,945**Supplemental
                  Cash Flow Information**Interest
                  paid
              
              $
              11,961
              
              $
              8,051Income
                  taxes paid
              
              $
              2,609
              
              $
              422
 
 *See
        accompanying notes.*
 
 -23-
  **Prestige
        Brands International, LLC**
 **Notes
        to Consolidated Financial Statements**
 
 
 
 **1.**
              **Business
                  and Basis of Presentation**
 
 ***Nature of Business***
 Prestige
        Brands International, LLC (“Prestige International” or the “Company”) is an
        indirect wholly-owned subsidiary of Prestige Brands Holdings, Inc. (“Prestige
        Holdings”) and the indirect parent company of Prestige Brands, Inc., the issuer
        of the 9.25% senior subordinated notes due 2012 (“Senior Notes”) and the
        borrower under the senior credit facility consisting of a Revolving Credit
        Facility and a Tranche B Term Loan Facility (together the “Senior Credit
        Facility”). Prestige International is a holding company with no assets or
        operations and is also the parent guarantor of the Senior Notes and Senior
        Credit Facility. Prestige Holdings through its subsidiaries, is engaged in
        the
        marketing, sales and distribution of over-the-counter drug, personal care
        and
        household cleaning brands to mass merchandisers, drug stores, supermarkets
        and
        club stores primarily in the United States and Canada.
 
 ***Basis of Presentation***
 The
        unaudited consolidated financial statements presented herein have been prepared
        in accordance with generally accepted accounting principles for interim
        financial reporting and with the instructions to Form 10-Q and Article 10
        of
        Regulation S-X. Accordingly, they do not include all of the information and
        footnotes required by generally accepted accounting principles for complete
        financial statements. In the opinion of management, the financial statements
        include all adjustments, consisting of normal recurring adjustments that
        are
        considered necessary for a fair presentation of the Company’s financial
        position, results of operations and cash flows for the interim periods.
        Operating results for the three month period ended June 30, 2006 are not
        necessarily indicative of results that may be expected for the year ending
        March
        31, 2007. This financial information should be read in conjunction with the
        Company’s financial statements and notes thereto included in the Company’s
        Annual Report on Form 10-K for the year ended March 31, 2006.
 
 ***Use
        of Estimates***
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements, as well as the reported amounts of revenues and
        expenses during the reporting period. Although these estimates are based
        on the
        Company’s knowledge of current events and actions that the Company may undertake
        in the future, actual results could differ from those estimates. As discussed
        below, the Company’s most significant estimates include those made in connection
        with the valuation of intangible assets, sales returns and allowances, trade
        promotional allowances and inventory obsolescence.
  ***Cash
        and Cash Equivalents***
 The
        Company considers all short-term deposits and investments with original
        maturities of three months or less to be cash equivalents. Substantially
        all of
        the Company’s cash is held by one bank located in Wyoming. The Company does not
        believe that, as a result of this concentration, it is subject to any unusual
        financial risk beyond the normal risk associated with commercial banking
        relationships.
 
 ***Accounts
        Receivable***
 The
        Company extends non-interest bearing trade credit to its customers in the
        ordinary course of business. The Company maintains an allowance for doubtful
        accounts receivable based upon historical collection experience and expected
        collectibility of the accounts receivable. In
        an
        effort to reduce credit risk, the Company (i) has established credit limits
        for
        all of its customer relationships, (ii) performs ongoing credit evaluations
        of
        customers’ financial condition, (iii) monitors the payment history and aging of
        customers’ receivables, and (iv) monitors open orders against an individual
        customer’s outstanding receivable balance.
 
 -24-
 ***Inventories***
 Inventories
        are stated at the lower of cost or fair value, where cost is determined by
        using
        the first-in, first-out method. The Company provides an allowance for slow
        moving and obsolete inventory, whereby it reduces
        inventories for the diminution of value, resulting from product obsolescence,
        damage or other issues affecting marketability, equal to the difference between
        the cost of the inventory and its estimated market value. Factors utilized
        in
        the determination of estimated market value include (i) current sales data
        and
        historical return rates, (ii) estimates of future demand, (iii) competitive
        pricing pressures, (iv) new product introductions, (v) product expiration
        dates,
        and (vi) component and packaging obsolescence.
 
 ***Property
        and Equipment***
 Property
        and equipment are stated at cost and are depreciated using the straight-line
        method based on the following estimated useful lives:
 **Years**Machinery
              
              5Computer
                  equipment
              
              3Furniture
                  and fixtures
              
              7Leasehold
                  improvements
              
              5
 
 Expenditures
        for maintenance and repairs are charged to expense as incurred. When an asset
        is
        sold or otherwise disposed of, the cost and associated accumulated depreciation
        are removed from the accounts and the resulting gain or loss is recognized
        in
        the consolidated statement of operations.
  Property
        and equipment are reviewed for impairment whenever events or changes in
        circumstances indicate that the carrying amount of such assets may not be
        recoverable. An impairment loss is recognized if the carrying amount of the
        asset exceeds its fair value.
  ***Goodwill***
 The
        excess of the purchase price over the fair market value of assets acquired
        and
        liabilities assumed in purchase business combinations is classified as goodwill.
        In accordance with Financial Accounting Standards Board (“FASB”) Statement of
        Financial Accounting Standards (“Statement”) No. 142, “Goodwill and Other
        Intangible Assets,” the Company does not amortize goodwill, but performs
        impairment tests of the carrying value at least annually. The Company tests
        goodwill for impairment at the “brand” level, which is one level below the
        operating segment level.
 
 ***Intangible
        Assets***
 Intangible
        assets are stated at cost less accumulated amortization. For intangible assets
        with finite lives, amortization is computed on the straight-line method over
        estimated useful lives ranging from five to 30 years.
 
 Indefinite
        lived intangible assets are tested for impairment at least annually, while
        intangible assets with finite lives are reviewed for impairment whenever
        events
        or changes in circumstances indicate that the carrying amount of such assets
        may
        not be recoverable. An impairment loss is recognized if the carrying amount
        of
        the asset exceeds its fair value.
 
 ***Deferred
        Financing Costs***
 The
        Company has incurred debt issuance costs in connection with its long-term
        debt.
        These costs are capitalized as deferred financing costs and amortized using
        the
        effective interest method over the term of the related debt.
 
 ***Revenue
        Recognition***
 Revenues
        are recognized in accordance with Securities and Exchange Commission Staff
        Accounting Bulletin 104, “Revenue Recognition,” when the following criteria are
        met: (1) persuasive evidence of an arrangement exists; (2) the product has
        been
        shipped and the customer takes ownership and assumes risk of loss; (3) the
        selling price is fixed or determinable; and (4) collection of the resulting
        receivable is reasonably assured. The Company has determined that the transfer
        of risk of loss generally occurs when product is received by the customer
        and,
        accordingly, recognizes revenue at that time. Provision is made for estimated
        discounts related to customer payment terms and estimated product returns
        at the
        time of sale based on the Company’s historical experience.
 
 -25-
 As
        is
        customary in the consumer products industry, t he
        Company participates in the
        promotional programs of its customers to enhance the sale of its products. The
        cost
        of these promotional programs varies based on the actual number of units
        sold
        during a finite period of time . The
        Company estimates the cost of such promotional programs at their inception
        based
        on historical experience and current market conditions and reduces sales
        by such
        estimates . These
        promotional programs consist of direct to consumer incentives such as coupons
        and temporary price reductions, as well as incentives to the Company’s
        customers, such as slotting fees and cooperative advertising. Estimates of
        the
        costs of these promotional programs are based on (i) historical sales
        experience, (ii) the current offering, (iii) forecasted data, (iv) current
        market conditions, and (v) communication with customer purchasing/marketing
        personnel. At
        the
        completion of the promotional program, the estimated amounts are adjusted
        to
        actual results.
 
 Due
        to
        the nature of the consumer products industry, the Company is required to
        estimate future product returns. Accordingly, the Company records an estimate
        of
        product returns concurrent with recording sales which is made after analyzing
        (i) historical return rates, (ii) current economic trends, (iii) changes
        in
        customer demand, (iv) product acceptance, (v) seasonality of the Company’s
        product offerings, and (vi) the impact of changes in product formulation,
        packaging and advertising.
 
 ***Costs
        of Sales***
 Costs
        of
        sales include product costs, warehousing costs, inbound and outbound shipping
        costs, and handling and storage costs. Shipping, warehousing and handling
        costs
        were $5.6 million and $5.5 million for the three month periods ended June
        30,
        2006 and 2005, respectively.
 
 ***Advertising
        and Promotion Costs***
 Advertising
        and promotion costs are expensed as incurred. Slotting fees associated with
        products are recognized as a reduction of sales. Under slotting arrangements,
        the retailers allow the Company’s products to be placed on the stores’ shelves
        in exchange for such fees. Direct reimbursements of advertising costs are
        reflected as a reduction of advertising costs in the period earned.
 
 ***Stock-based
        Compensation***
 In
        connection with the Prestige
        Holdings’ IPO, the
        Board of Directors of Prestige Holdings adopted the 2005 Long-Term Equity
        Incentive Plan (the “Plan”). The Plan provides for grants of stock options,
        restricted stock, restricted stock units, deferred stock units and other
        equity-based awards. Directors, officers and other employees of Prestige
        Holdings and its subsidiaries, as well as others performing services for
        Prestige Holdings or its subsidiaries, are eligible for grants under the
        Plan.
        At June 30, 2006, there were 4.8 million shares available for issuance under
        the
        Plan.
 
 The
        Company adopted FASB, Statement No. 123(R), “Share-Based Payment” (“Statement
        No. 123(R)”), effective April 1, 2005, with the grants of restricted stock and
        options to purchase common stock to employees and directors in accordance
        with
        the provisions of the Plan. Statement No. 123(R) requires the Company to
        measure
        the cost of services to be rendered based on the grant-date fair value of
        the
        equity award since the benefits, as well as the costs associated with these
        relationships were contributed to the Company. Compensation expense is to
        be
        recognized over the period an employee is required to provide service in
        exchange for the award, generally referred to as the requisite service period.
        The Company recorded a net non-cash compensation credit of $9,000 during
        the
        three month period ended June 30, 2006 due to the reversal of compensation
        charges in the amount of $142,000 associated with the departure of a former
        member of management. There were no stock-based compensation charges incurred
        during the three month period ended June 30, 2005.
 
 ***Income
        Taxes***
 Prestige
        International is a limited liability company and by itself is not a taxable
        entity. However, Prestige International’s operating subsidiaries are taxable
        entities which are included in the consolidated corporate Federal income
        tax
        return of Prestige Holdings. Since Prestige Holdings is not an operating
        entity,
        and by itself would not incur any income tax liability, income taxes are
“pushed
        down” and allocated to the various operating entities.
 
 Accordingly,
        income taxes are recorded by each subsidiary in accordance with the provisions
        of FASB Statement No. 109, “Accounting for Income Taxes” (“Statement No. 109”).
        Pursuant to Statement No. 109, deferred tax
  -26-
 assets
        and liabilities are determined based on the differences between the financial
        reporting and tax bases of assets and liabilities using the enacted tax rates
        and laws that will be in effect when the differences are expected to reverse.
        A
        valuation allowance is established when necessary to reduce deferred tax
        assets
        to the amounts expected to be realized.
 
 ***Derivative
        Instruments***
 FASB
        Statement No. 133, “Accounting for Derivative Instruments and Hedging
        Activities” (“Statement No. 133”), requires companies to recognize derivative
        instruments as either assets or liabilities in the balance sheet at fair
        value.
        The accounting for changes in the fair value of a derivative instrument depends
        on whether it has been designated and qualifies as part of a hedging
        relationship and further, on the type of hedging relationship. For those
        derivative instruments that are designated and qualify as hedging instruments,
        a
        company must designate the hedging instrument, based upon the exposure being
        hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment
        in a foreign operation.
 
 The
        Company has designated its derivative financial instruments as cash flow
        hedges
        because they hedge exposure to variability in expected future cash flows
        that
        are attributable to interest rate risk. For these hedges, the effective portion
        of the gain or loss on the derivative instrument is reported as a component
        of
        other comprehensive income (loss) and reclassified into earnings in the same
        line item associated with the forecasted transaction in the same period or
        periods during which the hedged transaction affects earnings. Any ineffective
        portion of the gain or loss on the derivative instruments is recorded in
        results
        of operations immediately.
 
 ***Fair
        Value of Financial Instruments***
 The
        carrying value of cash, accounts receivable and accounts payable at June
        30,
        2006 and March 31, 2006 approximates fair value due to the short-term nature
        of
        these instruments. The carrying value of long-term debt at June 30, 2006
        and
        March 31, 2006 approximates fair value based on interest rates for instruments
        with similar terms and maturities.
 
 ***Recently
        Issued Accounting Standards***
 In
        November 2004, the FASB issued Statement of Financial Accounting Standards
        (“SFAS”) No. 151, “Inventory Costs” (“Statement No. 151”). Statement No. 151
        amended the guidance in Accounting Research Bulletin No. 43, Chapter 4,
“Inventory Pricing”, and requires the exclusion of certain costs, such as
        abnormal amounts of freight, handling costs and manufacturing overhead, from
        inventories. Additionally, Statement No. 151 requires the allocation of fixed
        production overhead to inventory based on normal capacity of the production
        facilities. The provisions of Statement No. 151 are effective for costs incurred
        during fiscal years beginning after June 15, 2005. The adoption of Statement
        No.
        151 did not have a material impact on the Company’s financial condition, results
        of operations or cash flows for the three month period ended June 30,
        2006.
 
 In
        June
        2006, the FASB issued
        FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes--an
        interpretation of FASB Statement 109” (“FIN 48”) which clarifies the accounting
        for uncertainty in income taxes recognized in a company’s financial statements
        in accordance with FASB Statement 109. FIN 48 is effective for fiscal years
        beginning after December 15, 2006, and prescribes a recognition threshold
        and
        measurement attributes for the financial statement recognition and measurement
        of a tax position taken or expected to be taken in a tax return. While the
        Company has not completed a comprehensive analysis of FIN 48, the adoption
        of
        FIN 48 is not expected to have a material impact on the Company’s financial
        position, results of operations or cash flows.
 
 
  -27-
  **2.**
              **Accounts
                  Receivable**
 
 Accounts
        receivable consist of the following (in thousands):
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Accounts
                  receivable
              
              $
              33,724
              
              $
              40,140Other
                  receivables
              
              
              2,219
              
              
              1,87035,943
              
              
              42,010Less
                  allowances for discounts, returns and
                uncollectible
                  accounts
              
              
              (1,742
              )
              
              (1,968
              )$
              34,201
              
              $
              40,042
 
 
 **3.**
              **Inventories**
 
 Inventories
        consist of the following (in thousands):
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2005**Packaging
                  and raw materials
              
              $
              3,830
              
              $
              3,278Finished
                  goods
              
              
              27,540
              
              
              30,563$
              31,370
              
              $
              33,841
 
 Inventories
        are shown net of allowances for obsolete and slow moving inventory of $1.4
        million and $1.0 million at June 30, 2006 and March 31, 2006,
        respectively.
 
 
 **4.**  **Property
        and Equipment**
  Property
        and equipment consist of the following (in thousands):
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Machinery
              
              $
              3,978
              
              $
              3,722Computer
                  equipment
              
              
              1,028
              
              
              987Furniture
                  and fixtures
              
              
              303
              
              
              303Leasehold
                  improvements
              
              
              340
              
              
              3405,649
              
              
              5,352Accumulated
                  depreciation
              
              
              (3,919
              )
              
              (3,699
              )$
              1,730
              
              $
              1,653
 
 
  -28-
 **5.**  **Goodwill**
 
 A
        reconciliation of the activity affecting goodwill by operating segment is
        as
        follows (in thousands):
 
 **Over-the-Counter**
                **Drug**
              
              **Personal**
                **Care**
              
              **Household**
                **Cleaning**
              
              **Consolidated**Balance
                  - March 31, 2006
              
              $
              222,635
              
              $
              2,751
              
              $
              72,549
              
              $
              297,935Additions
              
              
              16
              
              
              --
              
              
              --
              
              
              16Balance
                  - June 30, 2006
              
              $
              222,651
              
              $
              2,751
              
              $
              72,549
              
              $
              297,951
 
 
 **6.**  **Intangible
        Assets**
 
 A
        reconciliation of the activity affecting intangible assets is as follows
        (in
        thousands):
 
 **Indefinite**
                **Lived**
                **Trademarks**
              
              **Finite**
                **Lived**
                **Trademarks**
              
              **Non**
                **Compete**
                **Agreement**
              
              **Total*****Carrying
                  Amounts***Balance
                  - March 31, 2006
              
              $
              544,963
              
              $
              109,870
              
              $
              196
              
              $
              655,029Additions
              
              
              --
              
              
              --
              
              
              --
              
              
              --Impairments
              
              
              --
              
              
              --
              
              
              --
              
              
              --Balance
                  - June 30, 2006
              
              $
              544,963
              
              $
              109,870
              
              $
              196
              
              $
              655,029***Accumulated
                  Amortization***Balance
                  - March 31, 2006
              
              $
              --
              
              $
              17,779
              
              $
              53
              
              $
              17,832Additions
              
              
              --
              
              
              2,182
              
              
              11
              
              
              2,193Balance
                  - June 30, 2006
              
              $
              --
              
              $
              19,961
              
              $
              64
              
              $
              20,025
 
 At
        June
        30, 2006, intangible assets are expected to be amortized over a period of
        five
        to 30 years as follows (in thousands):
 
 **Year
                  Ending June 30**2007
              
              $
              8,7742008
              
              
              8,7742009
              
              
              8,7692010
              
              
              7,3542011
              
              
              7,338Thereafter
              
              
              49,032$
              90,041
 
 
  -29-
 **7.**  **Other
        Accrued Liabilities**
 
 Other
        accrued liabilities consist of the following (in thousands):
 
 **June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Accrued
                  marketing costs
              
              $
              5,596
              
              $
              2,513Accrued
                  payroll
              
              
              1,122
              
              
              813Accrued
                  commissions
              
              
              257
              
              
              248Other
              
              
              1,683
              
              
              1,008$
              8,658
              
              $
              4,582
 
 
  -30-
  **8.**  **Long-Term
        Debt**
 
 Long-term
                  debt consists of the following (in thousands):**June
                  30,**
                **2006**
              
              **March
                  31,**
                **2006**Senior
                  revolving credit facility (“Revolving Credit Facility”), which expires on
                  April 6, 2009 and is available for maximum borrowings of up to
                  $60.0
                  million. The Revolving Credit Facility bears interest at the Company’s
                  option at either the prime rate plus a variable margin or LIBOR
                  plus a
                  variable margin. The variable margins range from 0.75% to 2.50%
                  and at
                  June 30, 2006, the interest rate on the Revolving Credit Facility
                  was 9.5%
                  per annum. The Company is also required to pay a variable commitment
                  fee
                  on the unused portion of the Revolving Credit Facility. At June
                  30, 2006,
                  the commitment fee was 0.50% of the unused line. The Revolving
                  Credit
                  Facility is collateralized by substantially all of the Company’s
                  assets.
              
              $
              --
              
              $
              7,000Senior
                  secured term loan facility (“Tranche B Term Loan Facility”) that bears
                  interest at the Company’s option at either the prime rate plus a margin of
                  1.25% or LIBOR plus a margin of 2.25%. At June 30, 2006, the weighted
                  average applicable interest rate on the Tranche B Term Loan Facility
                  was
                  7.25%. Principal payments of $933 and interest are payable quarterly.
                  In
                  February 2005, the Tranche B Term Loan Facility was amended to
                  increase
                  the amount available thereunder by $50.0 million to $200.0 million,
                  all of
                  which is available at June 30, 2006. Current amounts outstanding
                  under the
                  Tranche B Term Loan Facility mature on April 6, 2011, while amounts
                  borrowed pursuant to the amendment will mature on October 6, 2011.
                  The
                  Tranche B Term Loan Facility is collateralized by substantially
                  all of the
                  Company’s assets.
              
              
              364,698
              
              
              365,630Senior
                  Subordinated Notes (“Senior Notes”) that bear interest at 9.25% which is
                  payable on April 15thand October 15thof
                  each year. The Senior Notes mature on April 15, 2012; however,
                  the Company
                  may redeem some or all of the Senior Notes on or prior to April
                  15, 2008
                  at a redemption price equal to 100%, plus a make-whole premium,
                  and after
                  April 15, 2008 at redemption prices set forth in the indenture
                  governing
                  the Senior Notes. The Senior Notes are unconditionally guaranteed
                  by the
                  Company and the Company’s wholly-owned subsidiaries, other than Prestige
                  Brands, Inc, the issuer. Each of these guarantees is joint and
                  several.
                  There are no significant restrictions on the ability of any of
                  the
                  guarantors to obtain funds from their subsidiaries.
              
              
              126,000
              
              
              126,000490,698
              
              
              498,630Current
                  portion of long-term debt
              
              
              (3,730
              )
              
              (3,730
              )$
              486,968
              
              $
              494,900
   -31-
 The
        Revolving Credit Facility and the Tranche B Term Loan Facility (together
        the
“Senior Credit Facility”) contain various financial covenants, including
        provisions that require the Company to maintain certain leverage ratios,
        interest coverage ratios and fixed charge coverage ratios. The Senior Credit
        Facility and the Senior Notes also contain provisions that restrict the Company
        from undertaking specified corporate actions, such as asset dispositions,
        acquisitions, dividend payments, repurchase of common shares outstanding,
        changes of control, incurrence of indebtedness, creation of liens and
        transactions with affiliates. Additionally, the Senior Credit Facility and
        the
        Senior Notes contain cross-default provisions whereby a default pursuant
        to the
        terms and conditions of either indebtedness will cause a default on the
        remaining indebtedness. The Company was in compliance with its applicable
        financial and restrictive covenants under the Senior Credit Facility and
        the
        indenture governing the Senior Notes at June 30, 2006.
 
 Future
        principal payments required in accordance with the terms of the Senior Credit
        Facility and the Senior Notes are as follows (in thousands):
 
 **Year
                  Ending June 30,**2007
              
              $
              3,7302008
              
              
              3,7302009
              
              
              3,73020010
              
              
              3,7302011
              
              
              3,730Thereafter
              
              
              472,048$
              490,698
 
 In
        an
        effort to mitigate the impact of changing interest rates, the Company entered
        into interest rate cap agreements with various financial institutions. In
        June
        2005, the Company purchased a 5% interest rate cap with a notional amount
        of
        $20.0 million which expired in June 2006. In March 2005, the Company purchased
        interest rate cap agreements with a total notional amount of $180.0 million
        and
        cap rates ranging from 3.25% to 3.75%. On May 31, 2006, an interest rate
        cap
        agreement with a notional amount of $50.0 million and a 3.25% cap rate expired.
        The remaining agreements terminate on May 30, 2007 and 2008 as to notional
        amounts of $80.0 million and $50.0 million, respectively. The Company is
        accounting for the interest rate cap agreements as cash flow hedges. The
        fair
        value of the interest rate cap agreements, which is included in other long-term
        assets, was $3.2 million and $3.3 million at June 30, 2006
        and
        March 31, 2006, respectively .
 
 
 **9.**
              **Share-Based
                  Compensation**
 
 In
        connection with the Prestige Holdings’ February 2005 initial public offering,
        the Board of Directors of Prestige Holdings adopted the Plan which provides
        for
        the grant, up to a maximum of 5.0 million shares, of stock options, restricted
        stock, restricted stock units, deferred stock units and other equity-based
        awards. Directors, officers and other employees of Prestige Holdings and
        its
        subsidiaries, as well as others performing services for the Prestige Holdings
        or
        its subsidiaries, are eligible for grants under the Plan. Management of Prestige
        Holdings and the Company believe that such awards better align the interests
        of
        their employees with those of their stockholders.
 
 **Restricted
        Shares**
 Restricted
        shares granted under the Plan generally vest in 3 to 5 years, contingent
        on
        attainment of Company performance goals, including both revenue and earnings
        per
        share growth targets. Certain restricted share awards provide for accelerated
        vesting if there is a change of control. The fair value of nonvested restricted
        shares is determined as the closing price of Prestige Holdings’ common stock on
        the day preceding the grant date.
 
 **Options**
 The
        Plan
        provides that the exercise price of the option granted shall be no less than
        the
        fair market value of Prestige Holdings’ common stock on the date the option is
        granted. Options granted have a term of no greater than 10 years from the
        date
        of grant and vest in accordance with a schedule determined at the time the
        option is
  -32-
 granted,
        generally 3 to 5 years. Certain option awards provide for accelerated vesting
        if
        there is a change in control.
 
 The
        fair
        value of each option award is estimated on the date of grant using the
        Black-Scholes Option Pricing Model. As of June 30, 2006, there was approximately
        $700,000 of total unrecognized compensation cost related to nonvested
        share-based compensation arrangements under the Plan, based on management’s
        estimate of the shares that will ultimately vest. The Company expects to
        recognize such costs over the next 4.0 years. However, the restricted shares
        vest upon the attainment of Company performance goals; if such goals are
        not
        met, no compensation cost would ultimately be recognized and any previously
        recognized compensation cost would be reversed. At June 30, 2006, there were
        4.8
        million shares available for issuance under the Plan.
 
 **10.**  **Income
        Taxes**
 
 Income
        taxes are recorded in the Company’s quarterly financial statements based on the
        Company’s estimated annual effective income tax rate. The effective rate used in
        the calculation of income taxes was 39.1% for the three month periods ended
        June
        30, 2006 and 2005.
 
 **11.**  **Commitments
        and Contingencies**
 
 In
        June
        2003, Dr. Jason Theodosakis filed a lawsuit, Theodosakis v. Walgreens, et
        al.,
        in the United States District Court in Arizona, alleging that two of the
        Company’s subsidiaries, Medtech Products Inc. and Pecos Pharmaceutical, Inc., as
        well as other unrelated parties, infringed on the trade dress of two of his
        published books. Specifically, Dr. Theodosakis published “The Arthritis Cure”
and “Maximizing the Arthritis Cure” regarding the use of dietary supplements to
        treat arthritis patients. Dr. Theodosakis alleged that his books have a
        distinctive trade dress, or cover layout, design, color and typeface, and
        those
        products that the defendants sold under the ARTHx trademarks infringed the
        books’ trade dress and constituted unfair competition and false designation of
        origin. Additionally, Dr. Theodosakis alleged that the defendants made false
        endorsements of the products by referencing his books on the product packaging
        and that the use of his name, books and trade dress invaded his right to
        publicity. The Company sold the ARTHx trademarks, goodwill and inventory
        to a
        third party, Contract Pharmacal Corporation, in March 2003. On January 12,
        2005,
        the court granted the Company’s motion for summary judgment and dismissed all
        claims against Medtech Products and Pecos Pharmaceutical. The plaintiff filed
        an
        appeal in the U.S. Court of Appeals which was denied on March 28, 2006.
        Subsequently, the plaintiff filed a petition for rehearing which was denied
        on
        June 30, 2006.
 
 The
        Company and certain of its officers and directors are defendants in a
        consolidated putative securities class action lawsuit filed in the United
        States
        District Court for the Southern District of New York (the “Consolidated
        Action”). The first of the six consolidated cases was filed on August 3, 2005.
        The plaintiffs purport to represent a class of stockholders of the Company
        who
        purchased shares between February 9, 2005 through November 15, 2005. The
        plaintiffs also name as defendants the underwriters in the Company’s initial
        public offering and a private equity fund that was a selling stockholder
        in the
        offering. The lead plaintiff filed a Consolidated Class Action Complaint,
        which
        asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of
        1933,
        as amended, and Sections 10(b), 20(a) and 20A of the Securities Exchange
        Act of
        1934, as amended, and in which the lead plaintiff generally alleges that
        the
        Company issued a series of materially false and misleading statements in
        connection with its initial public offering and thereafter in regard to the
        following areas: the accounting issues described in the Company’s press release
        issued on or about November 15, 2005; and the alleged failure to disclose
        that
        demand for certain of the Company’s products was declining and that the Company
        was planning to withdraw several products from the market. The plaintiffs
        seek
        an unspecified amount of damages. The Court recently dismissed all claims
        against the Company and the individual defendants arising under the Securities
        Exchange Act of 1934. The Company’s management believes the remaining claims are
        legally deficient and subject to meritorious defenses; however, the Company
        cannot reasonably estimate the potential range of loss, if any.
 
 -33-
 On
        September 6, 2005, another putative securities class action lawsuit
        substantially similar to the initially-filed complaints in the Consolidated
        Action described above was filed against the same defendants in the Circuit
        Court of Cook County, Illinois (the “Chicago Action”). In light of the
        first-filed Consolidated Action, proceedings in the Chicago Action were stayed,
        and management has been informed that Plaintiffs’ counsel is considering a
        voluntary dismissal in light of the substantially similar Consolidated Action.
        The Company’s management believes the allegations to be unfounded and will
        vigorously pursue its defenses; however, the Company cannot reasonably estimate
        the potential range of loss, if any.
  On
        May
        23, 2006, Similasan Corporation filed a lawsuit against the Company in the
        United States District Court for the District of Colorado in which Similasan
        alleged false designation of origin, trademark and trade dress infringement,
        and
        deceptive trade practices by the Company related to *Murine* for
        Allergy Eye Relief, *Murine* for
        Tired Eye Relief and *Murine* for
        Earache Relief, as applicable. Similasan has requested injunctive relief,
        an
        accounting of profits and damages and litigation costs and attorneys’ fees. The
        Company has filed an answer to the complaint with a potentially dispositive
        motion. In addition to the lawsuit filed by Similasan in the U.S. District
        Court
        for the District of Colorado, the Company also received a cease and desist
        letter from Swiss legal counsel to Similasan and its parent company, Similasan
        AG, a Swiss company. In the cease and desist letter, Similasan and Similasan
        AG
        have alleged a breach of the Secrecy Agreement executed by the Company and
        demanded that the Company cease and desist from (i) using confidential
        information covered by the Secrecy Agreement; and (ii) manufacturing,
        distributing, marketing or selling certain of its homeopathic products. On
        July
        24, 2006, the plaintiff in the Colorado action filed a motion for leave to
        amend
        its complaint in order to add allegations of misappropriation of trade secrets
        and a breach of the Secrecy Agreement. The Company’s management believes the
        allegations to be without merit and intends to vigorously pursue its defenses;
        however, the Company cannot reasonably estimate the potential range of loss,
        if
        any.
 
 The
        Company is also involved from time to time in other routine legal matters
        and
        other claims incidental to its business. The Company reviews outstanding
        claims
        and proceedings internally and with external counsel as necessary to assess
        the
        probability of loss. These assessments are re-evaluated each quarter and
        as new
        information becomes available to determine whether a reserve should be
        established or if any existing reserve should be adjusted. The actual cost
        of
        resolving a claim or proceeding ultimately may be substantially different
        than
        the amount of the recorded reserve. In addition, because it is not permissible
        under generally accepted accounting principles to establish a litigation
        reserve
        until the loss is both probable and estimable, in some cases there may be
        insufficient information to establish a reserve prior to the actual incurrence
        of the loss (upon verdict and judgment at trial, for example, or in the case
        of
        a quickly negotiated settlement). The Company believes the resolution of
        routine
        matters and other incidental claims, taking into account reserves and insurance,
        will not have a material adverse effect on its business, financial condition
        or
        results of operations.
 
 **Lease
        Commitments**
 The
        Company has operating leases for office facilities in New York, New Jersey
        and
        Wyoming, which expire at various dates through April 9, 2009.
 
 The
        following summarizes future minimum lease payments for the Company’s operating
        leases (in thousands):
  **Year
                  Ending June 30**2007
              
              $
              6292008
              
              
              5592009
              
              
              4782010
              
              
              11$
              1,677
 
  -34-
 **12.**  **Concentrations
        of Risk**
 
 The
        Company’s sales are concentrated in the areas of over-the-counter pharmaceutical
        products, personal care products and household cleaning products. The Company
        sells its products to mass merchandisers, food and drug accounts, and dollar
        and
        club stores. During the three month periods ended June 30, 2006 and 2005,
        approximately 59.2% and 60.8%, respectively, of the Company’s total sales were
        derived from four of its brands. During three month periods ended June 30,
        2006
        and 2005, approximately 25.2% and 22.8%, respectively, of the Company’s net
        sales were made to one customer. At June 30, 2006, approximately 21.9% of
        accounts receivable were owed by the same customer.
 
 The
        Company manages product distribution in the continental United States through
        a
        main distribution center in St. Louis, Missouri. A serious disruption, such
        as a
        flood or fire, to the main distribution center could damage the Company’s
        inventories and materially impair the Company’s ability to distribute its
        products to customers in a timely manner or at a reasonable cost. The Company
        could incur significantly higher costs and experience longer lead times
        associated with the distribution of its products to its customers during
        the
        time that it takes the Company to reopen or replace its distribution center.
        As
        a result, any such disruption could have a material adverse effect on the
        Company’s sales and profitability.
 
 The
        Company has relationships with over 40 third-party manufacturers. Of those,
        the
        top 10 manufacturers produced items that accounted for approximately 81%
        of the
        Company’s gross sales for the three month period ended June 30, 2006. The
        Company does not have long-term contracts with 4 of these manufacturers and
        certain manufacturers of various smaller brands, which collectively, represent
        approximately 34% of the Company’s gross sales. The lack of manufacturing
        agreements for these products exposes the Company to the risk that a
        manufacturer could stop producing the Company’s products at any time, for any
        reason or fail to provide the Company with the level of products the Company
        needs to meet its customers’ demands. Without
        adequate supplies of merchandise to sell to the Company’s customers, sales would
        decrease materially and the Company’s business would suffer.
 
 
 **13.**  **Business
        Segments**
 
 Segment
        information has been prepared in accordance with FASB Statement No. 131,
        “Disclosures about Segments of an Enterprise and Related Information.” The
        Company’s operating and reportable segments consist of (i) Over-the-Counter
        Drugs, (ii) Personal Care and (iii) Household Cleaning.
 
 There
        were no inter-segment sales or transfers during the three month periods ended
        June 30, 2006 and 2005. The Company evaluates the performance of its operating
        segments and allocates resources to them based primarily on contribution
        margin.
        The table below summarizes information about the Company’s operating and
        reportable
  -35-
 segments
        (in thousands).
 
 **Three
                  Months Ended June 30, 2006****Over-the-Counter**
                **Drug**
              
              **Personal**
                **Care**
              
              **Household**
                **Cleaning**
              
              **Consolidated**Net
                  sales
              
              $
              39,598
              
              $
              6,231
              
              $
              29,738
              
              $
              75,567Other
                  revenues
              
              
              --
              
              
              --
              
              
              356
              
              
              356Total
                  revenues
              
              
              39,598
              
              
              6,231
              
              
              30,094
              
              
              75,923Cost
                  of sales
              
              
              14,397
              
              
              3,774
              
              
              18,154
              
              
              36,325Gross
                  profit
              
              
              25,201
              
              
              2,457
              
              
              11,940
              
              
              39,598Advertising
                  and promotion
              
              
              5,426
              
              
              287
              
              
              1,689
              
              
              7,402Contribution
                  margin
              
              $
              19,775
              
              $
              2,170
              
              $
              10,251
              
              
              32,196Other
                  operating expenses
              
              
              
              
              
              
              
              
              
              
              
              8,847Operating
                  income
              
              
              
              
              
              
              
              
              
              
              
              23,349Other
                  (income) expense
              
              
              
              
              
              
              
              
              
              
              
              9,792Provision
                  for income taxes
              
              
              
              
              
              
              
              
              
              
              
              5,301Net
                  income
              
              
              
              
              
              
              
              
              
              
              $
              8,256
 
 
 **Three
                  Months Ended June 30, 2005****Over-the-Counter**
                **Drug**
              
              **Personal**
                **Care**
              
              **Household**
                **Cleaning**
              
              **Consolidated**Net
                  sales
              
              $
              33,387
              
              $
              7,256
              
              $
              22,785
              
              $
              63,428Other
                  revenues
              
              
              --
              
              
              --
              
              
              25
              
              
              25Total
                  revenues
              
              
              33,387
              
              
              7,256
              
              
              22,810
              
              
              63,453Cost
                  of sales
              
              
              11,665
              
              
              3,898
              
              
              13,386
              
              
              28,949Gross
                  profit
              
              
              21,722
              
              
              3,358
              
              
              9,424
              
              
              34,504Advertising
                  and promotion
              
              
              6,138
              
              
              796
              
              
              1,771
              
              
              8,705Contribution
                  margin
              
              $
              15,584
              
              $
              2,562
              
              $
              7,653
              
              
              25,799Other
                  operating expenses
              
              
              
              
              
              
              
              
              
              
              
              7,542Operating
                  income
              
              
              
              
              
              
              
              
              
              
              
              18,257Other
                  (income) expense
              
              
              
              
              
              
              
              
              
              
              
              8,510Provision
                  for income taxes
              
              
              
              
              
              
              
              
              
              
              
              3,818Net
                  income
              
              
              
              
              
              
              
              
              
              
              $
              5,929
 
 
 -36-
 During
        the three month periods ended June 30, 2006 and 2005, approximately 96.1%
        and
        97.9%, respectively, of the Company’s sales were made to customers in the United
        States and Canada. At June 30, 2006 and March 31, 2006, substantially all
        of the
        Company’s long-term assets were located in the United States of America and have
        been allocated to the operating segments as follows:
 
 **Over-the-Counter**
              
              **Personal**
              
              **Household****Drug**
              
              **Care**
              
              **Cleaning**
              
              **Consolidated**Goodwill
              
              $
              222,651
              
              $
              2,751
              
              $
              72,549
              
              $
              297,951Intangible
                  assetsIndefinite
                  lived
              
              
              374,070
              
              
              --
              
              
              170,893
              
              
              544,963Finite
                  lived
              
              
              70,427
              
              
              19,584
              
              
              30
              
              
              90,041444,497
              
              
              19,584
              
              
              170,923
              
              
              635,004$
              667,148
              
              $
              22,335
              
              $
              243,472
              
              $
              932,955
 
 
  -37-
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
  Prestige
        Brands Holdings, Inc. (the “Company”), as the indirect holding company of
        Prestige Brands International, LLC (“Prestige International”) does not conduct
        ongoing business operations. As a result, the financial information for the
        Company and Prestige International is identical for the purposes of the
        discussion of operating results in Management’s Discussion and Analysis of
        Financial Condition and Results of Operations. Prestige International is
        an
        indirect wholly owned subsidiary of the Company and an indirect parent company
        of Prestige Brands, Inc., the issuer of our 9.25% senior subordinated notes
        due
        2012 (“Senior Notes”) and the borrower under the senior credit facility,
        consisting of a Revolving Credit Facility and a Tranche B Term Loan Facility
        (together the “Senior Credit Facility”). Prestige International is also the
        parent guarantor of the Senior Notes and the Senior Credit
        Facility.
 
 **General**
 We
        are
        engaged in the marketing, sales and distribution of brand name over-the-counter
        drug, household cleaning and personal care products to mass merchandisers,
        drug
        stores, supermarkets and club stores primarily in the United States and Canada.
        We operate in niche segments of these categories where we can use the strength
        of our brands, our established retail distribution network, a low-cost operating
        model and our experienced management team as a competitive advantage to grow
        our
        presence in these categories and, as a result, grow our sales and
        profits.
 
 We
        have
        grown our brand portfolio by acquiring strong and well-recognized brands
        from
        larger consumer products and pharmaceutical companies, as well as other brands
        from smaller private companies. While the brands we have purchased from larger
        consumer products and pharmaceutical companies have long histories of support
        and brand development, we believe that at the time we acquired them they
        were
        considered “non-core” by their previous owners and did not benefit from the
        focus of senior level management or strong marketing support. We believe
        that
        the brands we have purchased from smaller private companies have been
        constrained by the limited resources of their prior owners. After acquiring
        a
        brand, we seek to increase its sales, market share and distribution in both
        existing and new channels. We pursue this growth through increased spending
        on
        advertising and promotion, new marketing strategies, improved packaging and
        formulations and innovative new products.
 
 On
        October 28, 2005, we completed the acquisition of the “Chore Boy®” brand of
        cleaning pads and sponges. The purchase price of the Chore Boy® brand of $22.6
        million, including direct costs of $400,000, has been allocated to indefinite
        lived intangible assets and a covenant not-to-compete of $22.6 million and
        $40,000, respectively. We purchased the Chore Boy® brand with funds generated
        from operations.
 
 On
        November 8, 2005, we completed the acquisition of the ownership interests
        of
        Dental Concepts, LLC, a marketer of therapeutic oral care products sold under
        “The Doctor’s®” brand. The purchase price of the ownership interests was
        approximately $30.5 million, including fees and expenses of the acquisition
        of
        $500,000. We financed the acquisition price through the utilization of our
        Revolving Credit Facility and with cash resources of $30.0 million and $500,000,
        respectively.
 
 We
        expect
        that both the Chore Boy® and The Doctor’s® product lines will continue to
        benefit from our business model of outsourcing manufacturing and increasing
        awareness though targeted marketing and advertising.
 
  -38-
 **Three
        Month Period Ended June 30, 2006 compared to the Three
        Month**
 **Period
        Ended June 30,
        2005**
  **Total
        Revenues**
 Total
        revenues for the period ended June 30, 2006 were $75.9 million, compared
        to
        $63.5 million for the comparable period of 2005. This represented an increase
        of
        $12.4 million, or 19.7%, from the prior period. Excluding the impact of the
        Chore Boy ® and The
        Doctor’s ® brand,
        which were acquired in October and November 2005, respectively, revenues
        were up
        8.4%. The Over-the-Counter Drug segment had revenues of $39.6 million for
        the
        period ended June 30, 2006, an increase of $6.2 million, or 18.6%, above
        revenues of $33.4 million for the period ended June 30, 2005. The Household
        Cleaning segment had revenues of $30.1 million for the period ended June
        30,
        2006, an increase of $7.3 million, or 31.9%, above revenues of $22.8 million
        for
        the period ended June 30, 2005. The Personal Care segment had revenues of
        $6.2
        million for the period ended June 30, 2006, a decrease of $1.1 million, or
        14.1%, below revenues of $7.3 million for the period ended June 30,
        2005.
 
 ***Over-the-Counter
        Drug Segment***
 Total
        revenues in the Over-the-Counter Drug segment were $39.6 million for the
        period
        ended June 30, 2006 versus $33.4 million for the comparable period of 2005.
        This
        represented an increase of $6.2 million, or 18.6%, from the prior period
        ended
        June 30, 2005. The revenue increase is primarily due to strong gains in Clear
        eyes ® ,
        Murine ® and
        Compound W ® .
        In
        addition, The Doctor’s ® brand
        which was acquired with the Dental Concepts acquisition in November 2005,
        contributed to the revenue growth in the period. Excluding sales related
        to The
        Doctor’s ® brand,
        total revenues for this segment were up 9.3%. The Clear eyes ® sales
        growth for the current period is a result of strong consumer consumption
        trends
        and the launch of a new item called Clear eyes ® Triple
        Action. The increase in Murine ® revenues
        is due primarily to the launch of three homeopathic eye and ear care products
        and increased shipments to international customers. The increase in Compound
        W ® revenue
        is a result of improving consumer consumption trends in the current year.
        Little
        Remedies ® ’
        revenues declined during the period as result of a weaker cough and cold
        season
        during the three month period ended March 31, 2006, which affected shipments
        of
        related product in the current period. Revenues of New Skin ® were
        down for the period primarily as a result of continued softness in the liquid
        bandage category, while sales of Chloroseptic ® were
        flat period-to-period.
 
 ***Personal
        Care Segment***
 Total
        revenues of the Personal Care segment were $6.2 million for the period ended
        June 30, 2006 versus $7.3 million for the comparable period of 2005. This
        represented a decrease of $1.1 million, or 14.1%, from the prior period.
        The
        sales decrease is a result of continued declines in consumer consumption
        trends
        for the Cutex ® ,
        Denorex ® and
        Prell ® brands.
 
 ***Household
        Cleaning Segment***
 Total
        revenues of the Household Cleaning segment were $30.1 million for the period
        ended June 30, 2006 versus $22.8 million for the comparable period of 2005.
        This
        represented an increase of $7.3 million, or 31.9%, from the prior
        period *.* Excluding
        the acquisition of Chore Boy ® ,
        revenues for this segment were up 14.3% for the period. The Comet ® brand
        revenue increased during the quarter due to strong consumer consumption,
        expanded distribution and royalty revenues from a licensing agreement in
        Eastern
        Europe. Revenues for the Spic and Span ® brand
        increased during the quarter as a result of increased consumer consumption
        and
        expanded distribution of the citrus fragrance dilutable product and
        antibacterial spray.
  **Gross
        Profit**
 Gross
        profit for the period ended June 30, 2006 was $39.6 million, compared to
        $34.5
        million for the comparable period of 2005. This represented an increase of
        $5.1
        million, or 14.8%, from the period ended June 30, 2005. The increase in gross
        profit is a result of the increased sales activity, including both increases
        in
        volume and changes in product mix. Gross profit as a percent of sales was
        52.2%
        for the period ended June 30, 2006 versus 54.4% for the comparable period
        of
        2005. The decrease in gross profit percentage is generally the result of
        higher
        product, packaging and transportation costs experienced in the three month
        period ended June 30, 2006 when
  -39-
 compared
        to the three month period ended June 30, 2005. Additionally, during the period
        ended June 30, 2006, the Household Cleaning segment, which has a lower gross
        profit than the Over-the Counter segment, represented 39.6% of total revenues
        as
        compared to 35.9% of total revenues during the period ended June 30,
        2005.
 
 ***Over-the-Counter
        Drug Segment***
 Gross
        profit of the Over-the-Counter segment was $25.2 million for the period ended
        June 30, 2006 versus $21.7 million for the comparable period of 2005. This
        represented an increase of $3.5 million, or 16.0%, from the prior period.
        Gross
        profit as a percent of sales was 63.6% for the period ended June 30, 2006
        versus
        65.1% for the comparable period of 2005. The decrease in gross profit percentage
        is primarily the result of higher packaging costs incurred and higher allowances
        associated with international sales during the current period.
 
 ***Personal
        Care Segment***
 Gross
        profit of the personal care segment was $2.5 million for the period ended
        June
        30, 2006 versus $3.4 million for the comparable period of 2005. This represented
        a decrease of $901,000, or 26.8%, from the prior period. Gross profit as
        a
        percent of sales was 39.4% for the period ended June 30, 2006 versus 46.3%
        for
        the comparable period of 2005 *.* The
        decrease in gross profit percentage is a result of increased promotional
        pricing
        allowances and product costs.
 
 ***Household
        Cleaning Segment***
 Gross
        profit of the Household Cleaning segment was $11.9 million for the period
        ended
        June 30, 2006 versus $9.4 million for the comparable period of 2005. This
        represented an increase of $2.5 million, or 26.7%, from the prior period.
        Gross
        profit as a percent of sales was 39.7% for the period ended June 30, 2006
        versus
        41.3% for the comparable period of 2005 primarily as a result of increased
        product and transportation costs.
  **Contribution
        Margin**
 Contribution
        margin, defined as gross profit less advertising and promotional expenses,
        was
        $32.2 million for the period ended June 30, 2006 versus $25.8 million for
        the
        comparable period of 2005. This represented an increase of $6.4 million,
        or
        24.8%, from the prior period. The contribution margin increase is a result
        of
        changes in sales and gross profit as previously discussed and a $1.3 million
        decrease in advertising and promotion spending versus the comparable period
        in
        2005. The decline in advertising and promotions spending is a result of lower
        spending in the Over-the-Counter Drug and Personal Care segments.
 
 ***Over-the-Counter
        Drug Segment***
 Contribution
        margin of the Over-the-Counter drug segment was $19.8 million for the period
        ended June 30, 2006 versus $15.6 million for the comparable period of 2005.
        The
        contribution margin increase is a result of the gross profit increase as
        previously discussed, as well as a $712,000 decrease in advertising and
        promotion spending in the period ended June 30, 2006. The decrease in
        advertising and promotion spending is primarily due to the timing of Clear
        eyes ® advertising and promotional programs.
 
 ***Personal
        Care Segment***
 Contribution
        margin of the personal care segment was $2.2 million for the period ended
        June
        30, 2006 versus $2.6 million for the comparable period of 2005. This represented
        a decrease of $392,000, 15.3%, from the prior period. The contribution margin
        decrease is primarily the result of the gross profit decline as previously
        discussed, partially offset by a $509,000 reduction in advertising and promotion
        spending versus the comparable period in 2005. The reduction in advertising
        and
        promotion is related to the reduction of national media support for
        Cutex ® offset
        by increased promotional pricing allowances which are recorded as a reduction
        of
        sales.
 
 ***Household
        Cleaning Segment***
 Contribution
        margin of the Household Cleaning segment was $10.3 million for the period
        ended
        June 30, 2006 versus $7.7 million for the comparable period of 2005. This
        represented an increase of $2.6 million, or 33.9%, from the prior period.
        The
        contribution margin increase is a result of the gross profit increase as
        previously discussed and slightly lower levels of advertising and promotion
        support. Advertising and promotion spending decreased by $82,000 versus the
        comparable period of the prior year as we shifted our media spending to Chore
        Boy ® and
        lowered the media spending for Comet ® .
 
 -40-
 **General
        and Administrative**
 General
        and administrative expenses were $6.4 million for the period ended June 30,
        2006
        versus $4.9 million for the comparable period of 2005. The increase is primarily
        related to additional staff added during the second half of fiscal 2006 and
        severance compensation related to the departure of a member of management
        during
        the quarter.
 
 **Depreciation
        and Amortization**
 Depreciation
        and amortization expense was $2.4 million for the period ended June 30, 2006
        versus $2.6 million for the comparable period of 2005. An increase in
        amortization of intangible assets related to the Dental Concepts acquisition
        was
        offset by a reduction of the carrying value of trademarks related to the
        Personal Care segment as a result of an asset impairment charge recorded
        in the
        three month period and fiscal year ended March 31, 2006.
 
 **Interest
        Expense**
 Net
        interest expense was $9.8 million for the period ended June 30, 2006 versus
        $8.5
        million for the comparable period of 2005. This represented an increase of
        $1.3
        million, or 15.1%, from the prior period. The increase in interest expense
        is
        due to the increase in interest rates associated with our variable rate
        indebtedness. The average cost of funds increased from 6.9% at June 30, 2005
        to
        7.9 % at June 30, 2006.
 
 **Income
        Taxes**
 The
        income tax provision for the period ended June 30, 2006 was $5.3 million,
        with
        an effective rate of 39.1 %, compared to $3.8 million, with an effective
        rate of
        39.1% for period ended June 30, 2005 *.*
 
 
 **Liquidity
        and Capital Resources**
 We
        have
        financed and expect to continue to finance our operations with a combination
        of
        internally generated funds and borrowings. In February 2005, we completed
        an
        initial public offering that provided the Company with net proceeds of $416.8
        million which were used to repay $184.0 million of indebtedness, to repurchase
        common stock held by the GTCR funds and the TCW/Crescent funds, and to redeem
        all of the outstanding senior preferred units and class B preferred units
        held
        by previous investors in Prestige International Holdings, LLC, the
        predecessor-in-interest to Prestige Brands Holdings, Inc. Our principal uses
        of
        cash are for operating expenses, debt service, acquisitions, working capital
        and
        capital expenditures.
 
 **Three
                  Months Ended June 30****2006**
              
              **2005**Cash
                  provided by (used for):Operating
                  Activities
              
              $
              21,495
              
              $
              9,812Investing
                  Activities
              
              
              (297
              )
              
              (206
              )Financing
                  Activities
              
              
              (7,938
              )
              
              (995
              )
 
 Net
        cash
        provided by operating activities was $21.5 million for period ended June
        30,
        2006 compared to $9.8 million for the period ended June 30, 2005. The $11.7
        million increase in net cash provided by operating activities was primarily
        the
        result of the following:
 
 ·
            An
                increase of net income of $2.3 million from $5.9 million for the
                period
                ended June 30, 2005 to $8.2 million for the period ended June 30,
                2006, ·
            A
                decrease in non-cash expenses of $467,000 for the period ended June
                30,
                2006 compared to the period ended June 30, 2005,
                and ·
            An
                increase in cash provided by changes in the components of working
                capital
                for the period ended June 30, 2006 of $9.8 million over the period
                ended
                June 30, 2005. 
 Net
        cash
        used for investing activities was $297,000 for period ended June 30, 2006
        compared to $206,000 for the period ended June 30, 2005. The net cash used
        for
        investing activities for the period ended June 30, 2006 was primarily the
        result
        of purchases of machinery and computer equipment, while during the period
        ended
        June 30,
  -41-
 2005,
        cash was used primarily for the acquisition of leasehold improvements for
        our
        Irvington, New York headquarters.
 
 Net
        cash
        used for financing activities was $7.9 million for the period ended June
        30,
        2006 compared to $995,000 for the period ended June 30, 2005. The
        period-to-period increase was primarily the result of the repayment of the
        remaining $7.0 million indebtedness related to our Revolving Credit Facility
        which was drawn upon in November 2005 to fund the acquisition of Dental
        Concepts, LLC.
 
 **Capital
        Resources**
 On
        February 15, 2005, our initial public offering of common stock resulted in
        net
        proceeds of $416.8 million. The proceeds were used to repay the $100.0 million
        outstanding under the Tranche C Facility of our Senior Credit Facility and
        to
        redeem $84.0 million in aggregate principal amount of our existing 9.25%
        Senior
        Notes. Effective upon the completion of the IPO, we entered into an amendment
        to
        the credit agreement that, among other things, allows us to increase the
        indebtedness under our Tranche B Term Loan Facility to $200.0 million and
        allows
        for an increase in our Revolving Credit Facility up to $60.0
        million.
 
 As
        of
        June 30, 2006, we had an aggregate of $490.7 million of outstanding
        indebtedness, which consisted of the following:
 
 ·
            $364.7
                million of borrowings under the Tranche B Term Loan Facility,
                and 
 ·
            $126.0
                million of 9.25% Senior Notes due 2012. 
 We
        had
        $60.0 million of borrowing capacity available under the Revolving Credit
        Facility at such time, as well as $200.0 million available under the Tranche
        B
        Term Loan Facility.
 
 All
        loans
        under the Senior Credit Facility bear interest at floating rates, based on
        either the prime rate, or at our option, the LIBOR rate, plus an applicable
        margin. As of June 30, 2006, an aggregate of $364.7 million was outstanding
        under the Senior Credit Facility at a weighted average interest rate of
        7.25%.
 
 In
        June
        2004, we purchased a 5% interest rate cap agreement with a notional amount
        of
        $20.0 million which expired in June 2006. In March 2005, we purchased interest
        rate cap agreements that became effective August 30, 2005, with a total notional
        amount of $180.0 million and LIBOR cap rates ranging from 3.25% to 3.75%.
        On May
        31, 2006, an interest rate cap agreement with a notional amount of $50.0
        million
        and a 3.25% cap rate expired. The remaining interest rate cap agreements
        terminate on May 30, 2007 and 2008 as to notional amounts of $80.0 million
        and
        $50.0 million, respectively. The fair value of the interest rate cap agreements
        was $3.2 million at June 30, 2006.
 
 The
        Tranche B Term Loan Facility matures in October 2011. We must make quarterly
        amortization payments on the Tranche B Term Loan Facility equal to $933,000,
        representing 0.25% of the initial principal amount of the term loan. The
        Revolving Credit Facility matures and the commitments relating to the Revolving
        Credit Facility terminate in April 2009. The obligations under the Senior
        Credit
        Facility are guaranteed on a senior basis by Prestige Brands International,
        LLC
        and all of its domestic subsidiaries, other than the borrower (Prestige Brands,
        Inc.), and are collateralized by substantially all of our assets.
 
 The
        Revolving Credit Facility and the Tranche B Term Loan Facility contain various
        financial covenants, including provisions that require us to maintain certain
        leverage ratios, interest coverage ratios and fixed charge coverage ratios.
        The
        Revolving Credit Facility and the Tranche B Term Loan Facility, as well as
        the
        Senior Notes contain provisions that accelerate our indebtedness on certain
        changes in control and restrict us from undertaking specified corporate actions,
        including, asset dispositions, acquisitions, payment of dividends and other
        specified payments, repurchasing the Company’s equity securities in the public
        markets, incurrence of indebtedness, creation of liens, making loans and
        investments and transactions with affiliates. Specifically, we
        must:
 
 ·
            have
                a leverage ratio of less than 5.25 to 1.0 for the quarter ended June
                30,
                2006, decreasing 
 -42-
 over
                  time to 3.75 to 1.0 for the quarter ending September 30, 2010,
                  and
                  remaining level thereafter,
 ·
            have
                an interest coverage ratio of greater than 2.75 to 1.0 for the quarter
                ended June 30, 2006, increasing over time to 3.25 to 1.0 for the
                quarter
                ending March 31, 2010, and 
 ·
            have
                a fixed charge coverage ratio of greater than 1.5 to 1.0 for the
                quarter
                ended June 30, 2006, and for each quarter thereafter until the quarter
                ending March 31, 2011. 
 At
        June
        30, 2006, we were in compliance with the applicable financial and restrictive
        covenants under the Senior Credit Facility and the indenture governing the
        Senior Notes.
 
 Our
        principal sources of funds are anticipated to be cash flows from operating
        activities and available borrowings under the Revolving Credit Facility and
        Tranche B Term Loan Facility. We believe that these funds will provide us with
        sufficient liquidity and capital resources for us to meet our current and
        future
        financial obligations, as well as to provide funds for working capital, capital
        expenditures and other needs for at least the next 12 months. We regularly
        review acquisition opportunities and other potential strategic transactions,
        which may require additional debt or equity financing. If additional financing
        is required, there are no assurances that it will be available, or if available,
        that it can be obtained on terms favorable to us or on a basis that is not
        dilutive to our stockholders.
  **Commitments**
 
 As
        of
        June 30, 2006, we had ongoing commitments under various contractual and
        commercial obligations as follows:
  **Payments
                  Due by Period*****(In Millions)***
              
              
              
              **Less than**
              
              **1 to 3**
              
              **4 to 5**
              
              **After 5****Contractual
                  Obligations**
              
              **Total**
              
              **1 Year**
              
              **Years**
              
              **Years**
              
              **Years**Long-term
                  debt
              
              $
              490.7
              
              $
              3.7
              
              $
              7.5
              
              $
              7.5
              
              $
              472.0Interest
                  on long-term debt(1)
              
              
              191.1
              
              
              38.2
              
              
              75.6
              
              
              68.1
              
              
              9.2Operating
                  leases
              
              
              1.7
              
              
              0.6
              
              
              1.1
              
              
              --
              
              
              --Total
                  contractual cash obligations
              
              $
              683.5
              
              $
              42.5
              
              $
              84.2
              
              $
              75.6
              
              $
              481.2
  
 (1)
            Represents
                the estimated interest obligations on the outstanding balances of
                the
                Revolving Credit Facility, Tranche B Term Loan Facility and Senior
                Notes,
                together, assuming scheduled principal payments (based on the terms
                of the
                loan agreements) were made and assuming a weighted average interest
                rate
                of 7.76%. Estimated interest obligations would be different under
                different assumptions regarding interest rates or timing of principal
                payments. If interest rates on borrowings with variable rates increased
                by
                1%, interest expense would increase approximately $3.6 million, in
                the
                first year. However, given the protection afforded by the interest
                rate
                cap agreements, the impact of a one percentage point increase would
                be
                limited to $2.3 million. 
 
 **Critical
        Accounting Policies and Estimates**
 
 The
        Company’s significant accounting policies are described in the notes of the
        unaudited financial statements included elsewhere in this Quarterly Report
        on
        Form 10-Q, as well as in our Annual Report on Form 10-K for the year ended
        March
        31, 2006. Both the
        Company and Prestige Brands International, LLC utilize the same critical
        accounting policies. While all significant accounting policies are important
        to
        our consolidated financial statements, certain of these policies may be viewed
        as being critical. Such policies are those that are both most important to
        the
        portrayal of our financial condition and results from operations and require
        our
        most difficult, subjective and complex estimates and assumptions that affect
        the
        reported amounts of assets, liabilities, revenues,
  -43-
 expenses
        or the related disclosure of contingent assets and liabilities. These estimates
        are based upon our historical experience and on various other assumptions
        that
        we believe to be reasonable under the circumstances. Actual results may differ
        materially from these estimates under different conditions. The most critical
        accounting policies are as follows:
 
 ***Revenue
        Recognition***
 We
        comply
        with the provisions of Securities and Exchange Commission Staff Accounting
        Bulletin 104 “Revenue Recognition,” which states that revenue should be
        recognized when the following revenue recognition criteria are met: (1)
        persuasive evidence of an arrangement exists; (2) the product has been shipped
        and the customer takes ownership and assumes the risk of loss; (3) the selling
        price is fixed or determinable; and (4) collection of the resulting receivable
        is reasonably assured. We have determined that the transfer of risk of loss
        generally occurs when product is received by the customer, and, accordingly
        recognize revenue at that time. Provision
        is made for estimated discounts related to customer payment terms and estimated
        product returns at the time of sale based on our historical
        experience.
 
 As
        is
        customary in the consumer products industry, we participate in the promotional
        programs of our customers to enhance the sale of our products. The
        cost
        of these promotional programs varies based on the actual number of units
        sold
        during a finite period of time. We estimate the cost of such promotional
        programs at their inception based on historical experience and current market
        conditions and reduce sales by such estimates. These
        promotional programs consist of direct to consumer incentives such as coupons
        and temporary price reductions, as well as incentives to our customers, such
        as
        slotting fees and cooperative advertising. We do not provide incentives to
        customers for the acquisition of product in excess of normal inventory
        quantities since such incentives increase the potential for future returns,
        as
        well as reduce sales in the subsequent fiscal periods.
 
 Estimates
        of costs of promotional programs are based on (i) historical sales experience,
        (ii) the current offering, (iii) forecasted data, (iv) current market
        conditions, and (v) communication with customer purchasing/marketing personnel.
        At the completion of the promotional program, the estimated amounts are adjusted
        to actual results. While our promotional expense for the year ended March
        31,
        2006 was $13.3 million, we participated in 4,700 promotional campaigns,
        resulting in an average cost of $2,800 per campaign. Of such amount, only
        845
        payments were in excess of $5,000. We believe that the estimation methodologies
        employed, combined with the nature of the promotional campaigns, makes the
        likelihood remote that our obligation would be misstated by a material amount.
        However, for illustrative purposes, had we underestimated the promotional
        program rate by 10% for the three month period ended June 30, 2006, our sales
        and operating income would have been adversely affected by approximately
        $380,000 during the period.
 
 We
        also
        periodically run couponing programs in Sunday newspaper inserts or as on-package
        instant redeemable coupons. We utilize a national clearing house to process
        coupons redeemed by customers. At the time a coupon is distributed, a provision
        is made based upon historical redemption rates for that particular product,
        information provided as a result of the clearing house’s experience with coupons
        of similar dollar value, the length of time the coupon is valid, and the
        seasonality of the coupon drop, among other factors. During the year ended
        March
        31, 2006, we had 20 coupon events. The amount expensed and accrued for these
        events during the year was $2.7 million, of which $2.4 million was redeemed
        during the year. During the period ended June 30, 2006, we had 4 coupon events.
        The amount expensed and accrued for these events during the period ended
        June
        30, 2006 was $900,000, of which $200,000 was redeemed during the
        period.
 
 ***Allowances
        for Product Returns***
 Due
        to
        the nature of the consumer products industry, we are required to estimate
        future
        product returns. Accordingly, we record an estimate of product returns
        concurrent with the recording of sales. Such estimates are made after analyzing
        (i) historical return rates, (ii) current economic trends, (iii) changes
        in
        customer demand, (iv) product acceptance, (v) seasonality of our product
        offerings, and (vi) the impact of changes in product formulation, packaging
        and
        advertising.
 
 We
        construct our returns analysis by looking at the previous year’s return history
        for each brand. Subsequently, each month, we estimate our current return
        rate
        based upon an average of the previous six months’ return rate and review that
        calculated rate for reasonableness giving consideration to the other factors
        described above. Our
  -44-
 historical
        return rate has been relatively stable; for example, for the years ended
        March
        31, 2006, 2005 and 2004, returns represented 3.5%, 3.6% and 3.6%, respectively,
        of gross sales. At June 30, 2006 and March 31, 2006, the
        allowance for sales returns was $1.8 million and $1.9 million,
        respectively.
 
 While
        we
        utilize the methodology described above to estimate product returns, actual
        results may differ materially from our estimates, causing our future financial
        results to be adversely affected. Among the factors that could cause a material
        change in the estimated return rate would be significant unexpected returns
        with
        respect to a product or products that comprise a significant portion of our
        revenues. Based upon the methodology described above and our actual returns’
experience, management believes the likelihood of such an event is remote.
        As
        noted, over the last three years, our actual product return rate has stayed
        within a range of 3.5% to 3.6% of gross sales. An increase of 0.1% in our
        estimated return rate as a percentage of sales would have adversely affected
        our
        reported sales and operating income for the period ended June 30, 2006 by
        approximately $76,000.
 
 ***Allowances
        for Obsolete and Damaged Inventory***
 We
        value
        our inventory at the lower of cost or market value. Accordingly, we reduce
        our
        inventories for the diminution of value resulting from product obsolescence,
        damage or other issues affecting marketability equal to the difference between
        the cost of the inventory and its estimated market value. Factors utilized
        in
        the determination of estimated market value include (i) current sales data
        and
        historical return rates, (ii) estimates of future demand, (iii) competitive
        pricing pressures, (iv) new product introductions, (v) product expiration
        dates,
        and (vi) component and packaging obsolescence.
 
 Many
        of
        our products are subject to expiration dating. As a general rule our customers
        will not accept goods with expiration dating of less than 12 months from
        the
        date of delivery. To monitor this risk, management utilizes a detailed
        compilation of inventory with expiration dating between zero and 15 months
        and
        reserves for 100% of the cost of any item with expiration dating of 12 months
        or
        less. At June 30, 2006 and March 31, 2006, the allowance for obsolete and
        slow
        moving inventory represented 4.2% and 3.0%, respectively, of total inventory.
        A
        1.0% increase in our allowance for obsolescence at June 30, 2006 would have
        adversely affected our reported operating income for the three month period
        ended June 30, 2006 by approximately $329,000. Inventory obsolescence costs
        charged to operations for the three month periods ended June 30, 2006 and
        2005
        were 0.8% and 0.1% of net sales, respectively.
 
 ***Allowance
        for Doubtful Accounts***
 In
        the
        ordinary course of business, we grant non-interest bearing trade credit to
        our
        customers on normal credit terms. We maintain an allowance for doubtful accounts
        receivable which is based upon our historical collection experience and expected
        collectibility of the accounts receivable. In an effort to reduce our credit
        risk, we (i) establish credit limits for all of our customer relationships,
        (ii)
        perform ongoing credit evaluations of our customers’ financial condition, (iii)
        monitor the payment history and aging of our customers’ receivables, and (iv)
        monitor open orders against an individual customer’s outstanding receivable
        balance.
 
 We
        establish specific reserves for those accounts which file for bankruptcy,
        have
        no payment activity for 180 days or have reported major negative changes
        to
        their financial condition. The allowance for bad debts at June 30, 2006 and
        March 31, 2006 amounted to 0.3% and 0.3%, respectively, of accounts receivable.
        Bad debt expense for the three month period ended June 30, 2006 was $54,000,
        or
        0.1% of net sales. For the period ended June 30, 2005, we recorded net
        recoveries of $7,000.
 
 While
        management believes that it is diligent in its evaluation of the adequacy
        of the
        allowance for doubtful accounts, an unexpected event, such as the bankruptcy
        filing of a major customer, could have an adverse effect on our future financial
        results. A 0.1% increase in our bad debt expense as a percentage of net sales
        would have resulted in a decrease in operating income for the three month
        period
        ended June 30, 2006 of approximately $76,000.
 
 ***Valuation
        of Intangible Assets and Goodwill***
 Goodwill
        and intangible assets amounted to $933.0 million and $935.1 million at June
        30,
        2006 and March 31, 2006, respectively. As of June 30, 2006, goodwill and
        intangible assets were apportioned among our three operating segments as
        follows:
 
 -45-
 **Over-the-Counter**
              
              **Personal**
              
              **Household****Drug**
              
              **Care**
              
              **Cleaning**
              
              **Consolidated**Goodwill
              
              $
              222,651
              
              $
              2,751
              
              $
              72,549
              
              $
              297,951Intangible
                  assetsIndefinite
                  lived
              
              
              374,070
              
              
              --
              
              
              170,893
              
              
              544,963Finite
                  lived
              
              
              70,427
              
              
              19,584
              
              
              30
              
              
              90,041444,497
              
              
              19,584
              
              
              170,923
              
              
              635,004$
              667,148
              
              $
              22,335
              
              $
              243,472
              
              $
              932,955
 
 Our *Clear
        Eyes* ® *,
        New-Skin* ® *,
        Chloraseptic* ® ** and *Compound
        W* ® ** brands
        comprised the majority of the value of the intangible assets within the
        Over-The-Counter segment. *Denorex* ® *,
        Cutex* ® ** and *Prell* ® ** comprised
        substantially all of the intangible asset value within the Personal Care
        segment. The *Comet* ® *,
        Spic and Span* ® ** and *Chore
        Boy* ® ** brands
        comprised substantially all of the intangible asset value within the Household
        Cleaning segment.
 
 Goodwill
        and intangible assets comprise substantially all of our assets. Goodwill
        represents the excess of the purchase price over the fair value of assets
        acquired and liabilities assumed in a purchase business combination. Intangible
        assets generally represent our trademarks and brand names. When we acquire
        a
        brand, we are required to make judgments regarding the value assigned to
        the
        associated intangible assets, as well as their respective useful lives.
        Management considers many factors, both prior to and after, the acquisition
        of
        an intangible asset in determining the value, as well as the useful life,
        assigned to each intangible asset that the Company acquires or continues
        to own
        and promote. The most significant factors are:
 
 **·**
            **Brand
                History** A
        brand
        that has been in existence for a long period of time ( *e.g.,* 25,
        50 or
        100 years) generally warrants a higher valuation and longer life (sometimes
        indefinite) than a brand that has been in existence for a very short period
        of
        time. A brand that has been in existence for an extended period of time
        generally has been the subject of considerable investment by its previous
        owner(s) to support product innovation and advertising and
        promotion.
 
 **·**
            **Market
                Position** Consumer
        products that rank number one or two in their respective market generally
        have
        greater name recognition and are known as quality product offerings, which
        warrant a higher valuation and longer life than products that lag in the
        marketplace.
 
 **·**
            **Recent
                and Projected Sales Growth** Recent
        sales results present a snapshot as to how the brand has performed in the
        most
        recent time periods and represent another factor in the determination of
        brand
        value. In addition, projected sales growth provides information about the
        strength and potential longevity of the brand. A brand that has both strong
        current and projected sales generally warrants a higher valuation and a longer
        life than a brand that has weak or declining sales. Similarly, consideration
        is
        given to the potential investment, in the form of advertising and promotion,
        that is required to reinvigorate a brand that has fallen from
        favor.
 
 **·**
            **History
                of and Potential for Product
                Extensions** Consideration
        also is given to the product innovation that has occurred during the brand’s
        history and the potential for continued product innovation that will determine
        the brand’s future. Brands that can be continually enhanced by new product
        offerings generally warrant a higher valuation and longer life than a brand
        that
        has always “followed the leader”.
 
 -46-
 To
        assist
        in the valuation process, management engages an independent valuation firm
        to
        provide an evaluation of the acquired intangibles. After consideration of
        the
        factors described above, as well as current economic conditions and changing
        consumer behavior, management prepares a determination of the intangible’s value
        and useful life based on its analysis of the requirements of Statements No.
        141
        and No. 142. Under Statement No. 142, goodwill and indefinite-lived intangible
        assets are no longer amortized, but must be tested for impairment at least
        annually. Intangible assets with finite lives are amortized over their
        respective estimated useful lives and must also be tested for
        impairment.
 
 On
        an
        annual basis, or more frequently if conditions indicate that the carrying
        value
        of the asset may not be recovered, management performs a review of both the
        values and useful lives assigned to goodwill and intangible assets and tests
        for
        impairment.
 
 *Finite-Lived
        Intangible Assets*
 As
        mentioned above, management performs an annual review, or more frequently
        if
        necessary, to ascertain the impact of events and circumstances on the estimated
        useful lives and carrying values of our trademarks and trade names. In
        connection with this analysis, management:
 
 ·
            Reviews
                period-to-period sales and profitability by
                brand, ·
            Analyzes
                industry trends and projects brand growth
                rates, ·
            Prepares
                annual sales forecasts, ·
            Evaluates
                advertising effectiveness, ·
            Analyzes
                gross margins, ·
            Reviews
                contractual benefits or limitations, ·
            Monitors
                competitors’ advertising spend and product
                innovation, ·
            Prepares
                projections to measure brand viability over the estimated useful
                life of
                the intangible asset, and ·
            Considers
                the regulatory environment, as well as industry
                litigation. 
 Should
        analysis of any of the aforementioned factors warrant a change in the estimated
        useful life of the intangible asset, management will reduce the estimated
        useful
        life and amortize the carrying value prospectively over the shorter remaining
        useful life. Management’s projections are utilized to assimilate all of the
        facts, circumstances and expectations related to the trademark or trade name
        and
        estimate the cash flows over its useful life. In the event that the long-term
        projections indicate that the carrying value is in excess of the undiscounted
        cash flows expected to result from the use of the intangible assets, management
        is required to record an impairment charge. Once that analysis is completed,
        a
        discount rate is applied to the cash flows to estimate fair value. The
        impairment charge is measured as the excess of the carrying amount of the
        intangible asset over fair value as calculated using the discounted cash
        flow
        analysis. Future events, such as competition, technological advances and
        reductions in advertising support for our trademarks and trade names could
        cause
        subsequent evaluations to utilize different assumptions.
 
 *Indefinite-Lived
        Intangible Assets*
 In
        a
        manner similar to finite-lived intangible assets, on an annual basis, or
        more
        frequently if necessary, management analyzes current events and circumstances
        to
        determine whether the indefinite life classification for a trademark or trade
        name continues to be valid. Should circumstance warrant a finite life, the
        carrying value of the intangible asset would then be amortized prospectively
        over the estimated remaining useful life.
 
 In
        connection with this analysis, management also tests the indefinite-lived
        intangible assets for impairment by comparing the carrying value of the
        intangible asset to its estimated fair value. Since quoted market prices
        are
        seldom available for trademarks and trade names such as ours, we utilize
        present
        value techniques to estimate fair value. Accordingly, management’s projections
        are utilized to assimilate all of the facts, circumstances and expectations
        related to the trademark or trade name and estimate the cash flows over its
        useful life. In performing this analysis, management considers the same types
        of
        information as listed above in regards to finite-lived intangible assets.
        Once
        that analysis is completed, a discount rate is applied to the cash flows
        to
        estimate fair
  -47-
 value.
        Future events, such as competition, technological advances and reductions
        in
        advertising support for our trademarks and trade names could cause subsequent
        evaluations to utilize different assumptions.
 
 *Goodwill*
 As
        part
        of its annual test for impairment of goodwill, management estimates the
        discounted cash flows of each reporting unit, which is at the brand level
        and
        one level below the operating segment level, to estimate their respective
        fair
        values. In performing this analysis, management considers the same types
        of
        information as listed above in regards to finite-lived intangible assets.
        In the
        event that the carrying amount of the reporting unit exceeds the fair value,
        management would then be required to allocate the estimated fair value of
        the
        assets and liabilities of the reporting unit as if the unit was acquired
        in a
        business combination, thereby revaluing the carrying amount of goodwill.
        In a
        manner similar to indefinite-lived assets, future events, such as competition,
        technological advances and reductions in advertising support for our trademarks
        and trade names could cause subsequent evaluations to utilize different
        assumptions.
 
 In
        estimating the value of trademarks and trade names, as well as goodwill,
        at
        March 31, 2006, management applied a discount rate of 10.3%, the Company’s
        current weighted-average cost of funds, to the estimated cash flows; however
        that rate, as well as future cash flows may be influenced by such factors,
        including (i) changes in interest rates, (ii) rates of inflation, or (iii)
        sales
        or contribution margin reductions. In the event that the carrying value exceeded
        the estimated fair value of either intangible assets or goodwill, we would
        be
        required to recognize an impairment charge. Additionally, continued decline
        of
        the fair value ascribed to an intangible asset or a reporting unit caused
        by
        external factors may require future impairment charges.
 
 During
        the three month period and fiscal year ended March 31, 2006, we recorded
        non-cash charges related to the impairment of intangible assets and goodwill
        of
        the Personal Care segment of $7.4 million and $1.9 million, respectively,
        because the carrying amounts of these “branded” assets exceeded their fair
        market values primarily as a result of declining sales caused by product
        competition. Should the related fair values of goodwill and intangible assets
        continue to be adversely affected in 2007 as a result of declining sales
        or
        margins caused by competition, technological advances or reductions in
        advertising and promotional expenses, the Company may be required to record
        additional impairment charges.
 
 ***Stock-Based
        Compensation***
 During
        2006, we adopted FASB Statement No. 123(R), “Share-Based Payment” (“Statement
        No. 123(R)”) with the initial grants of restricted stock and options to purchase
        common stock to employees and directors in accordance with the provisions
        of the
        Plan. Statement
        No. 123(R) requires us to measure the cost of services to be rendered based
        on
        the grant-date fair value of the equity award. Compensation expense is to
        be
        recognized over the period which an employee is required to provide service
        in
        exchange for the award, generally referred to as the requisite service period.
        Information utilized in the determination of fair value includes the
        following:
 
 ·
            Type
                of instrument (i.e.: restricted shares vs. an option or
                warrant), ·
            Strike
                price of the instrument, ·
            Market
                price of the Company’s common stock on the date of
                grant, ·
            Discount
                rates, ·
            Duration
                of the instrument, and ·
            Volatility
                of the Company’s common stock in the public
                market. 
 Additionally,
        management must estimate the expected attrition rate of the recipients to
        enable
        it to estimate the amount of non-cash compensation expense to be recorded
        in our
        financial statements. While management uses diligent analysis to estimate
        the
        respective variables, a change in assumptions or market conditions, as well
        as
        changes in the anticipated attrition rates, could have a significant impact
        on
        the future amounts recorded as non-cash compensation expense. During the
        period
        ended June 30, 2006, we recorded a net non-cash compensation credit of $9,000
        as
        a result of the reversal of compensation charges in the amount of $142,000
        associated with the departure of a former member of management. No stock-based
        compensation charges were incurred during the period ended June 30,
        2005.
 
 
 -48-
 ***Recent
        Accounting Pronouncements***
 In
        November 2004, the FASB issued Statement of Financial Accounting Standards
        (“SFAS”) No. 151, “Inventory Costs” (“Statement No. 151”). Statement No. 151
        amended the guidance in Accounting Research Bulletin No. 43, Chapter 4,
“Inventory Pricing”, and requires the exclusion of certain costs, such as
        abnormal amounts of freight, handling costs and manufacturing overhead, from
        inventories. Additionally, Statement No. 151 requires the allocation of fixed
        production overhead to inventory based on normal capacity of the production
        facilities. The provisions of Statement No. 151 are effective for costs incurred
        during fiscal years beginning after June 15, 2005. The adoption of Statement
        No.
        151 did not have a material impact on the Company’s financial condition, results
        of operations or cash flows for the three month period ended June 30,
        2006.
 
 In
        June
        2006, the FASB issued
        FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes--an
        interpretation of FASB Statement 109” (“FIN 48”) which clarifies the accounting
        for uncertainty in income taxes recognized in a company’s financial statements
        in accordance with FASB Statement 109. FIN 48 is effective for fiscal years
        beginning after December 15, 2006, and prescribes a recognition threshold
        and
        measurement attributes for the financial statement recognition and measurement
        of a tax position taken or expected to be taken in a tax return. While the
        Company has not completed a comprehensive analysis of FIN 48, the adoption
        of
        FIN 48 is not expected to have a material impact on the Company’s financial
        position, results of operations or cash flows.
 
 Management
        has reviewed and continues to monitor the actions of the various financial
        and
        regulatory reporting agencies and is currently not aware of any pronouncement
        that could have a material impact on our consolidated financial position,
        results of operations or cash flows.
  **Off-Balance
        Sheet Arrangements**
 We
        do not
        have any off-balance sheet arrangements or financing activities with
        special-purpose entities.
 
 **Inflation**
 Inflationary
        factors such as increases in the costs of raw materials, packaging materials,
        purchased product and overhead may adversely affect our operating results.
        Although we do not believe that inflation has had a material impact on our
        financial condition or results from operations for the periods referred to
        above, a high rate of inflation in the future could have a material adverse
        effect on our business, financial condition or results from operations. The
        recent increase in crude oil prices has had an adverse impact on transportation
        costs, as well as, certain petroleum based raw materials and packaging material.
        Although the Company takes efforts to minimize the impact of inflationary
        factors, including raising prices to our customers, a high rate of pricing
        volatility associated with crude oil supplies may have an adverse effect
        on our
        future operating results.
 
 **Seasonality**
 The
        first
        quarter of our fiscal year typically has the lowest level of revenue due
        to the
        seasonal nature of certain of our brands relative to the summer and winter
        months. In addition, the first quarter is the least profitable quarter due
        the
        increased advertising and promotional spending to support those brands with
        a
        summer selling season, such as Compound W, Cutex and New Skin. The Company’s
        advertising and promotional campaign in the third quarter influence sales
        in the
        fourth quarter winter months. Additionally, the fourth quarter has the lowest
        level of advertising and promotional spending as a percent of
        revenue.
  -49-
 **CAUTIONARY
        STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**
 
 This
        Quarterly Report on Form 10-Q contains “forward-looking statements” within the
        meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”),
        including, without limitation, information within Management’s Discussion and
        Analysis of Financial Condition and Results of Operations. The following
        cautionary statements are being made pursuant to the provisions of the PSLRA
        and
        with the intention of obtaining the benefits of the “safe harbor” provisions of
        the PSLRA. Although we believe that our expectations are based on reasonable
        assumptions, actual results may differ materially from those in our
        forward-looking statements.
 
 Forward-looking
        statements speak only as of the date of this Quarterly Report on Form 10-Q.
        Except as required under federal securities laws and the rules and regulations
        of the SEC, we do not have any intention to update any forward-looking
        statements to reflect events or circumstances arising after the date of this
        Quarterly Report on Form 10-Q, whether as a result of new information, future
        events or otherwise. As a result of these risks and uncertainties, readers
        are
        cautioned not to place undue reliance on forward-looking statements included
        in
        this Quarterly Report on Form 10-Q or that may be made elsewhere from time
        to
        time by, or on behalf of, us. All forward-looking statements attributable
        to us
        are expressly qualified by these cautionary statements.
 
 Our
        forward-looking statements generally can be identified by the use of words
        or
        phrases such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “will
        be,” “will continue,” “will likely result,” or other similar words and phrases.
        Forward-looking statements and our plans and expectations are subject to
        a
        number of risks and uncertainties that could cause actual results to differ
        materially from those anticipated, and our business in general is subject
        to
        such risks. For more information, see “Risk Factors” contained in Part I, Item
        1A of our Annual Report on Form 10-K. In addition, our expectations or beliefs
        concerning future events involve risks and uncertainties, including, without
        limitation:
 
 ·
            general
                economic conditions affecting our products and their respective
                markets, 
 ·
            the
                high level of competition in our industry and
                markets, 
 ·
            our
                dependence on a limited number of customers for a large portion of
                our
                sales, 
 ·
            disruptions
                in our distribution center, 
 ·
            acquisitions
                or other strategic transactions diverting managerial resources, or
                incurrence of additional liabilities or integration problems associated
                with such transactions, 
 ·
            changing
                consumer trends or pricing pressures which may cause us to lower
                our
                prices, 
 ·
            increases
                in supplier prices, 
 ·
            increases
                in transportation fees and fuel charges, 
 ·
            changes
                in our senior management team, 
 ·
            our
                ability to protect our intellectual property
                rights, 
 ·
            our
                dependency on the reputation of our brand
                names, 
 ·
            shortages
                of supply of sourced goods or interruptions in the manufacturing
                of our
                products, 
 ·
            our
                level of debt, and ability to service our
                debt, 
 ·
            our
                ability to obtain additional financing,
                and 
 ·
            the
                restrictions imposed by our senior credit facility and the indenture
                on
                our operations. 
  -50-
  **ITEM
                  3.**
              **QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK**
 
 We
        are
        exposed to changes in interest rates because our senior credit facility is
        variable rate debt. Interest rate changes, therefore, generally do not affect
        the market value of such debt, but do impact the amount of our interest payments
        and, therefore, our future earnings and cash flows, assuming other factors
        are
        held constant. At June 30, 2006, we had variable rate debt of approximately
        $364.7 million related to our Tranche B term loan.
 
 In
        an
        effort to protect the Company from the adverse impact that rising interest
        rates
        would have on our variable rate debt, we have entered into various interest
        rate
        cap agreements to hedge this exposure. In June 2004, we purchased a 5% interest
        rate cap agreement with a notional amount of $20.0 million which terminated
        in
        June 2006. In March 2005, we purchased interest rate cap agreements that
        became
        effective August 30, 2005, with a total notional amount of $180.0 million
        and
        LIBOR cap rates ranging from 3.25% to 3.75%. On May 31, 2006, an interest
        rate
        cap agreement with a notional amount of $50.0 million and a 3.25% cap rate
        expired. The remaining interest rate cap agreements terminate on May 30,
        2007
        and 2008 as to notional amounts of $80.0 million and $50.0 million,
        respectively.
 
 Holding
        other variables constant, including levels of indebtedness, a one percentage
        point increase in interest rates on our variable rate debt would have an
        adverse
        impact on pre-tax earnings and cash flows for fiscal 2007 of approximately
        $3.7
        million. However, given the protection afforded by the interest rate cap
        agreements, the impact of a one percentage point increase would be limited
        to
        $2.3 million. The
        fair
        value of the interest rate cap agreements was $3.2 million at June 30,
        2006.
 
 
 **ITEM
        4.****CONTROLS
        AND PROCEDURES**
 
 **Disclosure
        Controls and Procedures**
 The
        Company’s management, with the participation of its Chief Executive Officer and
        the Chief Financial Officer, evaluated the effectiveness of the Company’s
        disclosure controls and procedures, as defined in Rule 13a-15(e) of the
        Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation,
        the Chief Executive Officer and Chief Financial Officer have concluded that,
        as
        of June 30, 2006, the Company’s disclosure controls and procedures were
        effective to ensure that material information required to be disclosed by
        the
        Company in the reports the Company files or submits under the Exchange Act
        is
        recorded, processed, summarized and reported, within the time periods specified
        in the Securities and Exchange Commission rules and forms and that such
        information is accumulated and communicated to the Company’s management,
        including the Company’s principal executive and principal financial officers, or
        persons performing similar functions, as appropriate to allow timely decisions
        regarding required disclosure.
 
 **Changes
        in Internal Control over Financial Reporting**
 There
        were no changes during the quarter ended June 30, 2006 in the Company’s internal
        control over financial reporting (as defined in Exchange Act Rule 13a-15(f))
        that have materially affected, or are reasonably likely to materially affect,
        the Company’s internal control over financial reporting.
 
  -51-
  **PART
                  II.**
              **OTHER
                  INFORMATION**
 
 **ITEM
                  1.**
              **LEGAL
                  PROCEEDINGS**
 
 In
        June
        2003, Dr. Jason Theodosakis filed a lawsuit, Theodosakis v. Walgreens, et
        al.,
        in the United States District Court in Arizona, alleging that two of the
        Company’s subsidiaries, Medtech Products Inc. and Pecos Pharmaceutical, Inc., as
        well as other unrelated parties, infringed on the trade dress of two of his
        published books. Specifically, Dr. Theodosakis published “The Arthritis Cure”
and “Maximizing the Arthritis Cure” regarding the use of dietary supplements to
        treat arthritis patients. Dr. Theodosakis alleged that his books have a
        distinctive trade dress, or cover layout, design, color and typeface, and
        those
        products that the defendants sold under the ARTHx trademarks infringed the
        books’ trade dress and constituted unfair competition and false designation of
        origin. Additionally, Dr. Theodosakis alleged that the defendants made false
        endorsements of the products by referencing his books on the product packaging
        and that the use of his name, books and trade dress invaded his right to
        publicity. The Company sold the ARTHx trademarks, goodwill and inventory
        to a
        third party, Contract Pharmacal Corporation, in March 2003. On January 12,
        2005,
        the court granted the Company’s motion for summary judgment and dismissed all
        claims against Medtech Products and Pecos Pharmaceutical. The plaintiff filed
        an
        appeal in the U.S. Court of Appeals which was denied on March 28, 2006.
        Subsequently, the plaintiff filed a petition for rehearing which was denied
        on
        June 30, 2006.
 
 The
        Company and certain of its officers and directors are defendants in a
        consolidated putative securities class action lawsuit filed in the United
        States
        District Court for the Southern District of New York (the “Consolidated
        Action”). The first of the six consolidated cases was filed on August 3, 2005.
        The plaintiffs purport to represent a class of stockholders of the Company
        who
        purchased shares between February 9, 2005 through November 15, 2005. The
        plaintiffs also name as defendants the underwriters in the Company’s initial
        public offering and a private equity fund that was a selling stockholder
        in the
        offering. The lead plaintiff filed a Consolidated Class Action Complaint,
        which
        asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of
        1933,
        as amended, and Sections 10(b), 20(a) and 20A of the Securities Exchange
        Act of
        1934, as amended, and in which the lead plaintiff generally alleges that
        the
        Company issued a series of materially false and misleading statements in
        connection with its initial public offering and thereafter in regard to the
        following areas: the accounting issues described in the Company’s press release
        issued on or about November 15, 2005; and the alleged failure to disclose
        that
        demand for certain of the Company’s products was declining and that the Company
        was planning to withdraw several products from the market. The plaintiffs
        seek
        an unspecified amount of damages. The Court recently dismissed all claims
        against the Company and the individual defendants arising under the Securities
        Exchange Act of 1934. The Company’s management believes the remaining claims are
        legally deficient and subject to meritorious defenses; however, the Company
        cannot reasonably estimate the potential range of loss, if any.
 
 On
        September 6, 2005, another putative securities class action lawsuit
        substantially similar to the initially-filed complaints in the Consolidated
        Action described above was filed against the same defendants in the Circuit
        Court of Cook County, Illinois (the “Chicago Action”). In light of the
        first-filed Consolidated Action, proceedings in the Chicago Action were stayed,
        and management has been informed that Plaintiffs’ counsel is considering a
        voluntary dismissal in light of the substantially similar Consolidated Action.
        The Company’s management believes the allegations to be unfounded and will
        vigorously pursue its defenses; however, the Company cannot reasonably estimate
        the potential range of loss, if any.
 
 On
        May
        23, 2006, Similasan Corporation filed a lawsuit against the Company in the
        United States District Court for the District of Colorado in which Similasan
        alleged false designation of origin, trademark and trade dress infringement,
        and
        deceptive trade practices by the Company related to *Murine* for
        Allergy Eye Relief, *Murine* for
        Tired Eye Relief and *Murine* for
        Earache Relief, as applicable. Similasan has requested injunctive relief,
        an
        accounting of profits and damages and litigation costs and attorneys’ fees. The
        Company has filed an answer to the complaint with a potentially dispositive
        motion. In addition to the lawsuit filed by Similasan in the U.S. District
        Court
        for the District of Colorado, the Company also received a cease and desist
        letter from Swiss legal counsel to Similasan and its parent company, Similasan
        AG, a Swiss company. In the cease and desist letter, Similasan and Similasan
        AG
        have alleged a breach of the Secrecy Agreement executed by the Company and
        demanded that the Company cease and desist from (i) using confidential
        information covered by the Secrecy
  -52-
 Agreement;
        and (ii) manufacturing, distributing, marketing or selling certain of its
        homeopathic products. On July 24, 2006, the plaintiff in the Colorado action
        filed a motion for leave to amend its complaint in order to add allegations
        of
        misappropriation of trade secrets and a breach of the Secrecy Agreement.
        The
        Company’s management believes the allegations to be without merit and intends to
        vigorously pursue its defenses; however, the Company cannot reasonably estimate
        the potential range of loss, if any.
 
 The
        Company is also involved from time to time in other routine legal matters
        and
        other claims incidental to its business. The Company reviews outstanding
        claims
        and proceedings internally and with external counsel as necessary to assess
        the
        probability of loss. These assessments are re-evaluated each quarter and
        as new
        information becomes available to determine whether a reserve should be
        established or if any existing reserve should be adjusted. The actual cost
        of
        resolving a claim or proceeding ultimately may be substantially different
        than
        the amount of the recorded reserve. In addition, because it is not permissible
        under generally accepted accounting principles to establish a litigation
        reserve
        until the loss is both probable and estimable, in some cases there may be
        insufficient information to establish a reserve prior to the actual incurrence
        of the loss (upon verdict and judgment at trial, for example, or in the case
        of
        a quickly negotiated settlement). The Company believes the resolution of
        routine
        matters and other incidental claims, taking into account reserves and insurance,
        will not have a material adverse effect on its business, financial condition
        or
        results of operations.
  **ITEM
        1A.**  **RISK
        FACTORS**
 
 There
        have been no material changes to our risk factors since March 31, 2006, the
        end
        our most recent fiscal year. You are advised to consider the risk factors
        disclosure contained in Part I, Item 1A, included in our Annual Report on
        Form
        10-K for the year ended March 31, 2006, which are incorporated herein by
        reference, as they could materially affect our business, financial condition
        and
        future results from operations.
 
 
 **ITEM
                  2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS**
 
 There
        were no equity securities sold by the Company during the period covered by
        this
        Quarterly Report on Form 10-Q that were not registered under the Securities
        Act
        of 1933, as amended.
 
 The
        following table sets forth information with respect to purchases of shares
        of
        the Company’s common stock made during the quarter ended June 30, 2006, by or on
        behalf of the Company or any “affiliated purchaser,” as defined by Rule
        10b-18(a)(3) of the Exchange Act:
 
 
 **Issuer
                  Purchases of Equity Securities****Period**
              
              **Total
                  Number**
                **of
                  Shares Purchased**
              
              **Average**
                **Price
                  Paid Per Share**
              
              **Total
                  Number**
                **of
                  Shares Purchased as Part of Publicly Announced Plans or Programs**
              
              **Maximum**
                **Number
                  of**
                **Shares
                  that May Yet Be Purchased**
                **Under
                  the Plans**
                **or
                  Programs**4/1/06
                  - 4/30/065/1/06
                  - 5/31/06
              
              
              3,534
              
              $
              1.70
              
              
              --
              
              
              --6/1/06
                  - 6/30/06Total
              
              
              3,534
              
              $
              1.70
              
              
              --
              
              
              --
 
 
 
 **ITEM
                  3.**
              **DEFAULTS
                  UPON SENIOR SECURITIES**
 
 None.
  -53-
  **ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
 
 None.
 
 
 **ITEM
                  5.**
              **OTHER
                  INFORMATION**
 
 None.
 
 
 **ITEM
        6.**  **EXHIBITS**
 
 3.1
              Amended
                  and Restated Bylaws, as amended, of Prestige Brands Holdings,
                  Inc.31.1
              Certification
                  of Principal Executive Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.31.2
              Certification
                  of Principal Financial Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.31.3
              Certification
                  of Principal Executive Officer ofPrestige
                  Brands International, LLCpursuant to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.31.4
              Certification
                  of Principal Financial Officer ofPrestige
                  Brands International, LLCpursuant to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.32.1
              Certification
                  of Principal Executive Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of
                  the United
                  States Code.32.2
              Certification
                  of Principal Financial Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of
                  the United
                  States Code.32.3
              Certification
                  of Principal Executive Officer of Prestige Brands International,
                  LLC
                  pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title
                  18 of
                  the United States Code.32.4
              Certification
                  of Principal Financial Officer of Prestige Brands International,
                  LLC
                  pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title
                  18 of
                  the United States Code.
 
 -54-
  **SIGNATURES**
 
 
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrants
        have
        duly caused this report to be signed on their behalf by the undersigned
        thereunto duly authorized.
 
 
 **Prestige Brands Holdings, Inc.**
 Registrant
 
 Date:  August
        9,
        2006   **/s/ PETER J. ANDERSON**
 Peter
        J.
        Anderson
 Chief
        Financial
        Officer
 
 
 **Prestige Brands International,
        LLC**
 Registrant
 
 Date:  August
        9,
        2006   **/s/PETER J. ANDERSON**
 Peter
        J.
        Anderson
 Chief
        Financial
        Officer
 
  -55-
  **Exhibit
        Index**
 
 
 
 3.1
              Amended
                  and Restated Bylaws, as amended, of Prestige Brands Holdings,
                  Inc.31.1
              Certification
                  of Principal Executive Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.31.2
              Certification
                  of Principal Financial Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.31.3
              Certification
                  of Principal Executive Officer ofPrestige
                  Brands International, LLCpursuant to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.31.4
              Certification
                  of Principal Financial Officer ofPrestige
                  Brands International, LLCpursuant to Rule 13a-14(a) of the Securities Exchange Act of
                  1934.32.1
              Certification
                  of Principal Executive Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of
                  the United
                  States Code.32.2
              Certification
                  of Principal Financial Officer of Prestige Brands Holdings, Inc.
                  pursuant
                  to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of
                  the United
                  States Code.32.3
              Certification
                  of Principal Executive Officer of Prestige Brands International,
                  LLC
                  pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title
                  18 of
                  the United States Code.32.4
              Certification
                  of Principal Financial Officer of Prestige Brands International,
                  LLC
                  pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title
                  18 of
                  the United States Code.
 
 
 
  -56-