U.
S. SECURITIES AND EXCHANGE COMMISSION


Washington,
D. C. 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,
      2008





OR





[    ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the transition period from ____ to
_____





Commission
      File Number: 001-32433








PRESTIGE
BRANDS HOLDINGS, INC.


(Exact
name of Registrant as specified in its charter)





Delaware
            
            20-1297589(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer Identification No.)





90
      North Broadway
              Irvington,
      New York 10533(Address
      of Principal Executive Offices, including zip code)(914)
      524-6810(Registrant’s
      telephone number, including area
code)











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





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):


Large accelerated
      filer o
              Accelerated filer
      x
              Non-accelerated
      filer o
              Smaller reporting
      company o


Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o
              No  x


As of
July 31, 2008, there were 49,940,765 shares of common stock
outstanding.
















Prestige
Brands Holdings, Inc.


Form
10-Q


Index





PART
      I.
              FINANCIAL
      INFORMATIONItem
      1.
              Consolidated
      Financial StatementsConsolidated
      Statements of Operations – three months endedJune
      30, 2008 and 2007 (unaudited)
              2Consolidated
      Balance Sheets – June 30, 2008 and March 31, 2008
    (unaudited)
              3Consolidated
      Statement of Changes in Stockholders’ Equity andComprehensive
      Income – three months ended June 30, 2008 (unaudited)
              4Consolidated
      Statements of Cash Flows – three months endedJune
      30, 2008 and 2007 (unaudited)
              5Notes
      to Unaudited Consolidated Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
              24Item
      3.
              Quantitative
      and Qualitative Disclosure About Market Risk
              38Item
      4.
              Controls
      and Procedures
              38PART
      II.
              OTHER
      INFORMATIONItem
      1.
              Legal
      Proceedings
              39Item
      1A.
              Risk
      Factors
              39Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              39Item
      5.
              Other
      Information
              40Item
      6.
              Exhibits
              40Signatures
              41




-1-


PART
      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)
            
            2008
            
            
            2007RevenuesNet
      sales
            
            $
            72,916
            
            
            $
            78,041Other
      revenues
            
            
            618
            
            
            
            570Total
      revenues
            
            
            73,534
            
            
            
            78,611Costs
      of SalesCosts
      of sales
            
            
            34,272
            
            
            
            37,322Gross
      profit
            
            
            39,262
            
            
            
            41,289Operating
      ExpensesAdvertising
      and promotion
            
            
            7,319
            
            
            
            7,786General
      and administrative
            
            
            7,973
            
            
            
            7,646Depreciation
      and amortization
            
            
            2,756
            
            
            
            2,751Total
      operating expenses
            
            
            18,048
            
            
            
            18,183Operating
      income
            
            
            21,214
            
            
            
            23,106Other
      (income) expenseInterest
      income
            
            
            (73
            )
            
            
            (187
            )Interest
      expense
            
            
            8,756
            
            
            
            9,874Total
      other (income) expense
            
            
            8,683
            
            
            
            9,687Income
      before income taxes
            
            
            12,531
            
            
            
            13,419Provision
      for income taxes
            
            
            4,750
            
            
            
            5,099Net
      income
            
            $
            7,781
            
            
            $
            8,320Basic
      earnings per share
            
            $
            0.16
            
            
            $
            0.17Diluted
      earnings per share
            
            $
            0.16
            
            
            $
            0.17Weighted
      average shares outstanding:Basic
            
            
            49,880
            
            
            
            49,660Diluted
            
            
            50,035
            
            
            
            50,038














See
accompanying notes.




-2-


Prestige
Brands Holdings, Inc.


Consolidated
Balance Sheets


(Unaudited)





(In
thousands)


Assets
            
            June
      30, 2008
            
            
            March
      31, 2008Current
      assetsCash
      and cash equivalents
            
            $
            6,370
            
            
            $
            6,078Accounts
      receivable
            
            
            38,325
            
            
            
            44,219Inventories
            
            
            28,811
            
            
            
            29,696Deferred
      income tax assets
            
            
            3,006
            
            
            
            3,066Prepaid
      expenses and other current assets
            
            
            4,004
            
            
            
            2,316Total
      current assets
            
            
            80,516
            
            
            
            85,375Property
      and equipment
            
            
            1,365
            
            
            
            1,433Goodwill
            
            
            308,915
            
            
            
            308,915Intangible
      assets
            
            
            644,056
            
            
            
            646,683Other
      long-term assets
            
            
            7,316
            
            
            
            6,750Total
      Assets
            
            $
            1,042,168
            
            
            $
            1,049,156Liabilities
      and Stockholders’ EquityCurrent
      liabilitiesAccounts
      payable
            
            $
            17,935
            
            
            $
            20,539Accrued
      interest payable
            
            
            2,604
            
            
            
            5,772Income
      taxes payable
            
            
            1,762
            
            
            
            --Other
      accrued liabilities
            
            
            6,328
            
            
            
            8,030Current
      portion of long-term debt
            
            
            3,550
            
            
            
            3,550Total
      current liabilities
            
            
            32,179
            
            
            
            37,891Long-term
      debt
            
            
            392,675
            
            
            
            407,675Other
      long-term liabilities
            
            
            2,377
            
            
            
            2,377Deferred
      income tax liabilities
            
            
            125,781
            
            
            
            122,140Total
      Liabilities
            
            
            553,012
            
            
            
            570,083Commitments
      and Contingencies – Note 14Stockholders’
      EquityPreferred
      stock - $0.01 par valueAuthorized – 5,000
      sharesIssued and outstanding –
      None
            
            
            --
            
            
            
            --Common
      stock - $0.01 par valueAuthorized – 250,000
      sharesIssued – 50,060 shares at June 30
      and March 31, 2008
            
            
            501
            
            
            
            501Additional
      paid-in capital
            
            
            380,993
            
            
            
            380,364Treasury
      stock, at cost – 101 shares and 59 shares at
              June
      30 and March 31, 2008, respectively
            
            
            (57
            )
            
            
            (47
            )Accumulated
      other comprehensive income
            
            
            684
            
            
            
            (999
            )Retained
      earnings
            
            
            107,035
            
            
            
            99,254Total
      stockholders’ equity
            
            
            489,156
            
            
            
            479,073Total
      Liabilities and Stockholders’ Equity
            
            $
            1,042,168
            
            
            $
            1,049,156


See
accompanying notes.




-3-


Prestige
Brands Holdings, Inc.


Consolidated
Statement of Changes in Stockholders’ Equity


and
Comprehensive Income


Three
Months Ended June 30, 2008


(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, 2008
            
            
            50,060
            
            
            $
            501
            
            
            $
            380,364
            
            
            
            59
            
            
            $
            (47
            )
            
            $
            (999
            )
            
            $
            99,254
            
            
            $
            479,073Stock-based
      compensation
            
            
            --
            
            
            
            --
            
            
            
            629
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            629Purchase
      of common stock for treasury
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            42
            
            
            
            (10
            )
            
            
            --
            
            
            
            --
            
            
            
            (10
            )Components
      of comprehensive income:Net
      income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            7,781
            
            
            
            7,781Amortization
      of interest rate caps reclassified into earnings, net of income tax
      expense of $32
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            53
            
            
            
            --
            
            
            
            53Unrealized
      gain on interest rate caps, net of income tax expense of
      $1,000
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,630
            
            
            
            --
            
            
            
            1,630Total
      comprehensive income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            9,464Balances
      – June 30, 2008
            
            
            50,060
            
            
            $
            501
            
            
            $
            380,993
            
            
            
            101
            
            
            $
            (57
            )
            
            $
            684
            
            
            $
            107,035
            
            
            $
            489,156





See
accompanying notes.




-4-


Prestige
Brands Holdings, Inc.


Consolidated
Statements of Cash Flows


(Unaudited)








Three
      Months Ended June 30(In
      thousands)
            
            2008
            
            
            2007Operating
      ActivitiesNet
      income
            
            $
            7,781
            
            
            $
            8,320Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            2,756
            
            
            
            2,751Deferred
      income taxes
            
            
            2,669
            
            
            
            2,934Amortization
      of deferred financing costs
            
            
            622
            
            
            
            780Stock-based
      compensation
            
            
            629
            
            
            
            460Changes
      in operating assets and liabilitiesAccounts
      receivable
            
            
            5,894
            
            
            
            (1,948
            )Inventories
            
            
            885
            
            
            
            1,663Prepaid
      expenses and other current assets
            
            
            (1,688
            )
            
            
            (483
            )Accounts
      payable
            
            
            (1,077
            )
            
            
            (2,911
            )Income
      taxes payable
            
            
            1,762
            
            
            
            1,144Accrued
      liabilities
            
            
            (4,870
            )
            
            
            (4,302
            )Net
      cash provided by operating activities
            
            
            15,363
            
            
            
            8,408Investing
      ActivitiesPurchases
      of equipment
            
            
            (61
            )
            
            
            (111
            )Net
      cash used for investing activities
            
            
            (61
            )
            
            
            (111
            )Financing
      ActivitiesRepayment
      of long-term debt
            
            
            (15,000
            )
            
            
            (15,887
            )Purchase
      of common stock for treasury
            
            
            (10
            )
            
            
            (4
            )Net
      cash used for financing activities
            
            
            (15,010
            )
            
            
            (15,891
            )Increase
      (Decrease) in cash
            
            
            292
            
            
            
            (7,594
            )Cash
      - beginning of period
            
            
            6,078
            
            
            
            13,758Cash
      - end of period
            
            $
            6,370
            
            
            $
            6,164Interest
      paid
            
            $
            11,302
            
            
            $
            12,036Income
      taxes paid
            
            $
            440
            
            
            $
            551





See
      accompanying notes.




-5-


Prestige
Brands Holdings, Inc.


Notes
to Consolidated Financial Statements


(Unaudited)











1.
            Business
      and Basis of Presentation





Nature
      of Business


Prestige
Brands Holdings, Inc. (referred to herein as the “Company” which reference
shall, unless the context requires otherwise, be deemed to refer to Prestige
Brands Holdings, Inc. and all of its direct or indirect wholly-owned
subsidiaries on a consolidated basis) is engaged in the marketing, sales and
distribution of over-the-counter healthcare, personal care and household
cleaning brands to mass merchandisers, drug stores, supermarkets and club stores
primarily in the United States, Canada and certain international
markets.  Prestige Brands Holdings, Inc. is a holding company with no
assets or operations and is also the parent guarantor of the senior secured
credit facility and the senior subordinated notes more fully described in Note 8
to the consolidated financial statements.





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 United States generally accepted
accounting principles (“GAAP”) for complete financial statements.  All
significant intercompany transactions and balances have been
eliminated.  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 consolidated
financial position, results of operations and cash flows for the interim
periods.  Operating results for the three month period ended June 30,
2008 are not necessarily indicative of results that may be expected for the year
ending March 31, 2009.  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,
2008.





Use
of Estimates


The
preparation of financial statements in conformity with GAAP 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 a
large regional bank with headquarters in California.  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.





-6-


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:


YearsMachinery
            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, which are composed primarily of trademarks, 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 origination costs in connection with the issuance of
long-term debt.  These costs are capitalized as deferred financing
costs and amortized using the straight-line method, which approximates the
effective interest method, over the term of the related debt.





Revenue
      Recognition


Revenues
are recognized in accordance with Securities and Exchange Commission (“SEC”)
Staff Accounting Bulletin 104, “Revenue Recognition,” when the following
criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the
product has been shipped and the customer takes ownership and assumes risk of
loss; (iii) the selling price is fixed or determinable; and (iv) 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




-7-


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,the Company
participatesin 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 ascoupons 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 $5.5 million and $5.6 million for the three months ended
June 30, 2008 and 2007, 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 recognizes
stock-based compensation in accordance with FASB, Statement No. 123(R),
“Share-Based Payment” (“Statement No. 123(R)”).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 stock-based compensation charges
of $629,000 and $460,000 during the three month periods ended June 30, 2008 and
2007, respectively.





Income
      Taxes


Income
taxes are recorded in accordance with the provisions of FASB Statement No. 109,
“Accounting for Income Taxes” (“Statement No. 109”) and FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes--an interpretation of FASB
Statement 109” (“FIN 48”).  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.





FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with Statement No. 109 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.  As a result, the Company has applied a
more-likely-than-not recognition threshold for all tax
uncertainties.  FIN 48 only allows the recognition of those tax
benefits that have a greater than 50% likelihood of being sustained upon
examination by the various taxing authorities.  The adoption of FIN
48, effective April 1, 2007, did not




-8-


result in
a cumulative effect adjustment to the opening balance of retained earnings or
adjustment to any of the components of assets, liabilities or equity in the
consolidated balance sheet.





The
Company is subject to taxation in the US, various state and foreign
jurisdictions.  The Company remains subject to examination by tax
authorities for years after 2003.





The
Company classifies penalties and interest related to unrecognized tax benefits
as income tax expense in the Statement of Operations.





Derivative
      Instruments


FASB
Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, as amended (“Statement No. 133”), requires companies to recognize
derivative instruments as either assets or liabilities in the consolidated
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.  Cash flows from these instruments are classified as
operating activities.





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, stock appreciation rights
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 both June
30, 2008 and March 31, 2008 approximates fair value due to the short-term nature
of these instruments.  The carrying value of long-term debt at both
June 30, 2008 and March 31, 2008 approximates fair value based on interest rates
for instruments with similar terms and maturities.





Recently
      Issued Accounting Standards


In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(“Statement No. 161”) that requires a company with derivative instruments to
disclose information to enable users of the financial statements to understand
(i) how and why the company uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  Accordingly, Statement No. 161
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. Statement No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008.  The implementation of Statement No. 161 is
not expected to have a material effect on the Company’s consolidated financial
statements.





In
December 2007, the FASB ratified Emerging Issues Task Force 07-01, “Accounting
for Collaborative Arrangements” (“EITF 07-01”).  EITF 07-01 provides
guidance for determining if a collaborative arrangement




-9-


exists
and establishes procedures for reporting revenues and costs generated from
transactions with third parties, as well as between the parties within the
collaborative arrangement, and provides guidance for financial statement
disclosures of collaborative arrangements.  EITF 07-01 is effective for
fiscal years beginning after December 15, 2008 and is required to be applied
retrospectively to all prior periods where collaborative arrangements existed as
of the effective date.  The Company currently is assessing the impact of
EITF 07-01 on its consolidated financial position and results of
operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“Statement No. 141(R)”) to improve consistency and comparability
in the accounting and financial reporting of business
combinations.  Accordingly, Statement 141(R) requires the acquiring
entity in a business combination to (i) recognize all assets acquired and
liabilities assumed in the transaction, (ii) establishes acquisition-date fair
value as the amount to be ascribed to the acquired assets and liabilities and
(iii) requires certain disclosures to enable users of the financial statements
to evaluate the nature, as well as the financial aspects of the business
combination.  Statement 141(R) is effective for business combinations
consummated by the Company on or after April 1, 2009.  The impact to the
Company of adopting this standard will depend on the nature, terms and size of
any business combinations completed after the effective date.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities -Including an amendment
of FASB Statement No. 115” (“Statement No.
159”).  StatementNo. 159 permits
companies to choose to measure certain financial instruments and certain other
items at fair value.  Unrealized gains and losses on items for which
the fair value option has been elected will be recognized in earnings at each
subsequent reporting date.  The implementation of Statement No. 159,
effective April 1, 2008, did not have a material effect on the Company’s
consolidated financial statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“Statement No. 157”) to address inconsistencies in the definition and
determination of fair value pursuant to generally accepted accounting principles
(“GAAP”).  Statement No. 157 provides a single definition of fair
value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements in an effort to increase comparability
related to the recognition of market-based assets and liabilities and their
impact on earnings.  Statement No. 157 is effective for the Company’s
interim financial statements issued after April 1, 2008.  However, on
November 14, 2007, the FASB deferred the effective date of Statement No. 157 for
one year for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.  The implementation of Statement No. 157,
effective April 1, 2008, did not have a material effect on financial assets and
liabilities included in the Company’s consolidated financial statements as fair
value is based on readily available market prices.  The Company is
currently evaluating the impact that the application of Statement No. 157 will
have on its consolidated financial statements as it relates to the non-financial
assets and liabilities.





Management
has reviewed and continues to monitor the actions of the various financial and
regulatory reporting agencies and is currently not aware of any other
pronouncement that could have a material impact on the
Company’s consolidated financial position, results of operations or cash
flows.




2.
            Accounts
      Receivable





Accounts
receivable consist of the following (in thousands):


June
      30,
              2008
            
            
            March
      31,
              2008Accounts
      receivable
            
            $
            37,430
            
            
            $
            44,918Other
      receivables
            
            
            2,508
            
            
            
            1,37839,938
            
            
            
            46,296Less
      allowances for discounts, returns and
              uncollectible
      accounts
            
            
            (1,613
            )
            
            
            (2,077
            )$
            38,325
            
            
            $
            44,219




-10-


3.
            Inventories





Inventories
consist of the following (in thousands):


June
      30,
              2008
            
            
            March
      31,
              2008Packaging
      and raw materials
            
            $
            2,134
            
            
            $
            2,463Finished
      goods
            
            
            26,677
            
            
            
            27,233$
            28,811
            
            
            $
            29,696





Inventories
are shown net of allowances for obsolete and slow moving inventory of $1.2
million and $1.4 million at June 30, 2008 and
March 31, 2008, respectively.







4.
            Property
      and Equipment





Property
and equipment consist of the following (in thousands):


June
      30,
              2008
            
            
            March
      31,
              2008Machinery
            
            $
            1,538
            
            
            $
            1,516Computer
      equipment
            
            
            666
            
            
            
            627Furniture
      and fixtures
            
            
            205
            
            
            
            205Leasehold
      improvements
            
            
            344
            
            
            
            3442,753
            
            
            
            2,692Accumulated
      depreciation
            
            
            (1,388
            )
            
            
            (1,259
            )$
            1,365
            
            
            $
            1,433








5.
            Goodwill





A
reconciliation of the activity affecting goodwill by operating segment is as
follows (in thousands):





Over-the-
              Counter
              Healthcare
            
            
            Household
              Cleaning
            
            
            Personal
              Care
            
            
            ConsolidatedBalance
      – March 31, 2008
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915Period
      Activity
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Balance
      – June 30, 2008
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915








-11-


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
            
            
            TotalsCarrying
      AmountsBalance
      – March 31, 2008
            
            $
            544,963
            
            
            $
            139,503
            
            
            $
            196
            
            
            $
            684,662Period
      Activity
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Balance
      – June 30, 2008
            
            $
            544,963
            
            
            $
            139,503
            
            
            $
            196
            
            
            $
            684,662Accumulated
      AmortizationBalance
      – March 31, 2008
            
            $
            --
            
            
            $
            37,838
            
            
            $
            141
            
            
            $
            37,979Period
      Activity
            
            
            --
            
            
            
            2,616
            
            
            
            11
            
            
            
            2,627Balance
      – June 30, 2008
            
            $
            --
            
            
            $
            40,454
            
            
            $
            152
            
            
            $
            40,606








At June
30, 2008, intangible assets are expected to be amortized over a period of five
to 30 years as follows (in thousands):





Year Ending June
      302009
            
            $
            10,1452010
            
            
            9,0892011
            
            
            9,0732012
            
            
            9,0732013
            
            
            9,073Thereafter
            
            
            52,640$
            99,093








7.
            Other
      Accrued Liabilities





Other
accrued liabilities consist of the following (in thousands):





June
      30,
              2008
            
            
            March
      31,
              2008Accrued
      marketing costs
            
            $
            3,999
            
            
            $
            4,136Accrued
      payroll
            
            
            1,423
            
            
            
            2,845Accrued
      commissions
            
            
            307
            
            
            
            464Other
            
            
            599
            
            
            
            585$
            6,328
            
            
            $
            8,030








-12-


8.
            Long-Term
      Debt





Long-term
debt consists of the following (in thousands):


June
      30,
              2008
            
            
            March
      31,
              2008Senior
      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, 2008, the interest rate on the Revolving Credit
      Facility was 6.0% 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, 2008, the commitment fee was 0.50%
      of the unused line.  The Revolving Credit Facility is
      collateralized by substantially all of the Company’s
    assets.
            
            $
            --
            
            
            $
            --Senior
      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, 2008, the
      average interest rate on the Tranche B Term Loan Facility was
      6.89%.  Principal payments of $887,500 plus accrued interest are
      payable quarterly.  Current amounts outstanding under the
      Tranche B Term Loan Facility mature on April 6, 2011 and are
      collateralized by substantially all of the Company’s
    assets.
            
            
            270,225
            
            
            
            285,225Senior
      Subordinated Notes that bear interest at 9.25% which is payable on April
      15th
      and October 15th
      of each year.  The Senior Subordinated Notes mature on April 15,
      2012; however, the Company may redeem some or all of the Senior
      Subordinated Notes at redemption prices set forth in the indenture
      governing the Senior Subordinated Notes prior thereto.  The
      Senior Subordinated Notes are unconditionally guaranteed by Prestige
      Brands Holdings, Inc., and its domestic 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
            
            
            
            126,000396,225
            
            
            
            411,225Current
      portion of long-term debt
            
            
            (3,550
            )
            
            
            (3,550
            )$
            392,675
            
            
            $
            407,675





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 Subordinated Notes also contain provisions that
restrict the Company from undertaking specified corporate actions, such as asset
dispositions, acquisitions, dividend payments, repurchases 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 Subordinated Notes contain cross-default
provisions whereby a default pursuant to the terms and conditions of either
indebtedness will cause a default on the




-13-


remaining
indebtedness.  At June 30, 2008, the Company was in compliance with
its applicable financial and other covenants under the Senior Credit Facility
and the Indenture.





Future
principal payments required in accordance with the terms of the Senior Credit
Facility and the Senior Subordinated Notes are as follows (in
thousands):





Year Ending June
      302009
            
            $
            3,5502010
            
            
            3,5502011
            
            
            263,1252012
            
            
            126,000$
            396,225








9.
            Fair
      Value Measurements





As deemed
appropriate, the Company uses derivative financial instruments to mitigate the
impact of changing interest rates associated with its long-term debt
obligations.  While the Company does not enter into derivative
financial instruments for trading purposes, all of these derivatives are
over-the-counter instruments with liquid markets.  The notional, or
contractual, amount of the Company’s derivative financial instruments is used to
measure the amount of interest to be paid or received and does not represent an
exposure to credit risk.  The Company is accounting for the interest
rate cap and swap agreements as cash flow hedges.





In March
2005, the Company purchased interest rate cap agreements with a total notional
amount of $180.0 million the terms of which are as follows:





Notional
              Amount
            
            
            Interest
      Rate
              Cap
      Percentage
            
            Expiration
              Date(In
      millions)$
            50.0
            
            
            
            3.25
            %
            May
      31, 200680.0
            
            
            
            3.50
            
            May
      30, 200750.0
            
            
            
            3.75
            
            May
      30, 2008





The
Company entered into an interest rate swap agreement, effective March 26, 2008,
in the notional amount of $175.0 million, decreasing to $125.0 million at March
26, 2009 to replace and supplement an interest rate cap agreement that expired
on May 30, 2008.  The Company has agreed to pay a fixed rate of 2.83%
while receiving a variable rate based on LIBOR.  The agreement
terminates on March 26, 2010.





Effective April 1, 2008,
the Company adoptedStatement No. 157, “Fair Value Measurements”, for all
financial instruments accounted for at fair value.  Statement No. 157
established a new framework for measuring fair value and provides for expanded
disclosures.  Accordingly, Statement No. 157 requires fair value to be
determined based on the exchange price that would be received for an asset or
paid to transfer a liability in the principal or most advantageous market
assuming an orderly transaction between market
participants.  Statement No. 157 established market (observable
inputs) as the preferred source of fair value to be followed by the Company’s
assumptions of fair value based on hypothetical transactions (unobservable
inputs) in the absence of observable market inputs.




Based
upon the above, the following fair value hierarchy was created:
 
 Level
      1
              --
              Quoted
      market prices for identical instruments in active markets,Level
      2
              --
              Quoted
      prices for similar instruments in active markets, as well as quoted prices
      for identical or similar instruments in markets that are not considered
      active, and





-14-


Level
      3
            --
            Unobservable
      inputs developed by the Company using estimates and assumptions reflective
      of those that would be utilized by a market
  participant.





Quantitative
disclosures about the fair value of the Company’s derivative hedging instruments
are as follows:





Fair
      Value Measurements at June 30, 2008(In
      Thousands)
              Description
            
            June
      30,
              2008
            
            
            Quoted
      Prices
              in
      Active
              Markets
      for
              Identical
              Assets
              (Level
      1)
            
            
            Significant
              Other
              Observable
              Inputs
              (Level
      2)
            
            
            Significant
              Unobservable
              Inputs
              (Level
      3)Interest
      Rate Swap
            
            $
            1,100.0
            
            
            $
            --
            
            
            $
            1,100.0
            
            
            $
            --





At June
30, 2008, the fair value of the interest rate swap of $1.1 million was included
in other assets, while at March 31, 2008, the fair value of $1.5 million was
included in other current liabilities.  The determination of fair
value is based on closing prices from liquid over-the-counters
markets.








10.
            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, 2008.






11.
              Earnings
      Per Share
 
 The
following table sets forth the computation of basic and diluted earnings per
share (in thousands):
 
 Three
      Months Ended June 302008
              
              
              2007NumeratorNet
      income
              
              $
              7,781
              
              
              $
              8,320DenominatorDenominator
      for basic earnings per share – weighted average shares
              
              
              49,880
              
              
              
              49,660Dilutive
      effect of unvested restricted common stock, options and stock appreciation
      rights issued to employees and directors
              
              
              155
              
              
              
              378Denominator
      for diluted earnings per share
              
              
              50,035
              
              
              
              50,038Earnings
      per Common Share:Basic
              
              $
              0.16
              
              
              $
              0.17Diluted
              
              $
              0.16
              
              
              $
              0.17


-15-


At June
30, 2008, 309,000 shares of restricted stock issued to management and employees,
subject only to time-vesting, were unvested and excluded from the calculation of
basic earnings per share; however, such shares were included in the calculation
of diluted earnings per share.  Additionally, 567,000 shares of
restricted stock granted to management and employees, as well as 15,000 stock
appreciation rights have been excluded from the calculation of both basic and
diluted earnings per share since vesting of such shares is subject to
contingencies.  Lastly, at June 30, 2008, there were options to
purchase 667,000 shares of common stock outstanding that were not included in
the computation of diluted earnings per share because their inclusion would be
antidilutive.





At June
30, 2007, 446,000 shares of restricted stock issued to management and employees,
subject only to time-vesting, were unvested and excluded from the calculation of
basic earnings per share; however, such shares were included in the calculation
of diluted earnings per share.  Additionally, 382,000 shares of
restricted stock granted to management and employees, as well as 16,000 stock
appreciation rights have been excluded from the calculation of both basic and
diluted earnings per share since vesting of such shares is subject to
contingencies.  Lastly, at June 30, 2007, there were options to
purchase 255,000 shares of common stock outstanding that were not included in
the computation of diluted earnings per share because their inclusion would be
antidilutive.








12.
            Share-Based
      Compensation





In
connection with the Company’s initial public offering, the Board of Directors
adopted the 2005 Long-Term Equity Incentive Plan (“Plan”) which provides for the
grant, to a maximum of 5.0 million shares, of stock options, 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.





During
the three month period ended June 30, 2008, the Company recorded stock-based
compensation costs and related tax benefits of $629,000 and $238,000,
respectively, while during the three month period ended June 30, 2007, the
Company recorded stock-based compensation costs and related tax benefits of
$460,000 and $175,000, respectively.




Restricted
Shares
 A summary
of the Company’s restricted shares granted under the Plan is presented
below:
 
 Restricted
shares granted under the Plan generally vest in 3 years, contingent on
attainment of Company performance goals, including both revenue and earnings, or
time vesting, as determined by the Compensation Committee of the Board of
Directors.  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.  The weighted-average
grant-date fair value of restricted shares granted during the three month
periods ended June 30, 2008 and 2007 were $10.91 and $12.52,
respectively.


-16-


A summary
of the Company’s restricted shares granted under the Plan is presented
below:





Restricted
      Shares
            
            Shares
              (000)
            
            
            Weighted-Average
              Grant-Date
              Fair
      ValueNonvested
      at March 31, 2007
            
            
            294.4
            
            
            $
            11.05Granted
            
            
            264.0
            
            
            
            12.52Vested
            
            
            --
            
            
            
            --Forfeited
            
            
            (17.2
            )
            
            
            11.19Nonvested
      at June 30, 2007
            
            
            541.2
            
            
            $
            11.76Nonvested
      at March 31, 2008
            
            
            484.7
            
            
            $
            11.78Granted
            
            
            269.7
            
            
            
            10.91Vested
            
            
            --
            
            
            
            --Forfeited
            
            
            (1.4
            )
            
            
            10.91Nonvested
      at June 30, 2008
            
            
            753.0
            
            
            $
            11.47








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 over a 3 year period.  Certain option
awards provide for accelerated vesting in the event of 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 (“Black-Scholes Model”) that uses the
assumptions noted in the following table.  Expected volatilities are
based on the historical volatility of the Company’s common stock and other
factors, including the historical volatilities of comparable
companies.  The Company uses appropriate historical data, as well as
current data, to estimate option exercise and employee termination
behaviors.  Employees that are expected to exhibit similar exercise or
termination behaviors are grouped together for the purposes of
valuation.  The expected terms of the options granted are derived from
management’s estimates and information derived from the public filings of
companies similar to the Company and represent the period of time that options
granted are expected to be outstanding.  The risk-free rate represents
the yield on U.S. Treasury bonds with a maturity equal to the expected term of
the granted option.  The weighted-average exercise price of the
options granted during the three month periods ended June 30, 2008 and 2007 were
$10.91 and $12.86, respectively.





Three
      Month Period Ended June 302008
            
            
            2007Expected
      volatility
            
            
            43.3
            %
            
            
            33.2
            %Expected
      dividends
            
            
            --
            
            
            
            --Expected
      term in years
            
            
            6.0
            
            
            
            6.0Risk-free
      rate
            
            
            3.2
            %
            
            
            4.5
            %





-17-


A summary
of option activity under the Plan is as follows:





Options
            
            Shares
              (000)
            
            
            Weighted-Average
              Exercise
              Price
            
            
            Weighted-
              Average
              Remaining
              Contractual 
      Term
            
            
            Aggregate
              Intrinsic
              Value
              (000)Outstanding
      at March 31, 2007
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            $
            --Granted
            
            
            255.1
            
            
            
            12.86
            
            
            
            10.0
            
            
            
            30.6Exercised
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at June 30, 2007
            
            
            255.1
            
            
            $
            12.86
            
            
            
            10.0
            
            
            $
            30.6Outstanding
      at March 31, 2008
            
            
            253.5
            
            
            
            12.86
            
            
            
            9.2
            
            
            $
            --Granted
            
            
            413.3
            
            
            
            10.91
            
            
            
            10.0
            
            
            
            --Exercised
            
            
            --
            
            
            
            
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            
            
            
            
            --
            
            
            
            --Outstanding
      at June 30, 2008
            
            
            666.8
            
            
            $
            11.65
            
            
            
            9.4
            
            
            $
            --Exercisable
      at June 30, 2008
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            $
            --





Stock
Appreciation Rights (“SARS”)


During
July 2006, the Board of Directors granted SARS to a group of selected
executives; however, there were no SARS granted subsequent
thereto.  The terms of the SARS provide that on the vesting date, the
executive will receive the excess of the market price of the stock award over
the market price of the stock award on the date of issuance.  The
Board of Directors, in its sole discretion, may settle the Company’s obligation
to the executive in shares of the Company’s common stock, cash, other securities
of the Company or any combination thereof.





The Plan
provides that the issuance price of a SAR shall be no less than the market price
of the Company’s common stock on the date the SAR is granted.  SARS
may be granted with a term of no greater than 10 years from the date of grant
and will vest in accordance with a schedule determined at the time the SAR is
granted, generally 3 to 5 years.  The fair value of each SAR award was
estimated on the date of grant using the Black-Scholes Model.





A summary
of SARS activity under the Plan is as follows:


SARS
            
            Shares
              (000)
            
            
            Grant
              Date
              Stock
              Price
            
            
            Weighted-
              Average
              Remaining
              Contractual 
      Term
            
            
            Aggregate
              Intrinsic
              Value
              (000)Outstanding
      at March 31, 2007
            
            
            16.1
            
            
            $
            9.97
            
            
            
            2.0
            
            
            $
            30.3Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at June 30, 2007
            
            
            16.1
            
            
            $
            9.97
            
            
            
            1.75
            
            
            $
            48.5Outstanding
      at March 31, 2008
            
            
            16.1
            
            
            $
            9.97
            
            
            
            1.0
            
            
            $
            --Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            (1.2
            )
            
            
            9.97
            
            
            
            1.0
            
            
            
            --Outstanding
      at June 30, 2008
            
            
            14.9
            
            
            $
            9.97
            
            
            
            0.75
            
            
            $
            10.3Exercisable
      at March 31, 2008
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            $
            --





At June
30, 2008, there was $6.7 million of unrecognized compensation costs related to
nonvested share-based compensation arrangements under the Plan based on
management’s estimate of the shares that will ultimately




-18-


vest.  The
Company expects to recognize such costs over the next 3.0
years.  However, certain of the restricted shares vest upon the
attainment of Company performance goals and if such goals are not met, no
compensation costs would ultimately be recognized and any previously recognized
compensation cost would be reversed.  The total fair value of shares
vested during the three months ended June 30, 2008 and 2007 was
$0.  There were no options exercised during the three month periods
ended June 30, 2008 and 2007; hence, there were no tax benefits realized during
these periods.  At June 30, 2008, there were 3.5 million shares
available for issuance under the Plan.








13.
            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
tax rates used in the calculation of income taxes were 37.9% and 38.0%,
respectively.





At June
30, 2008, Medtech Products Inc., a wholly-owned subsidiary of the Company, had a
net operating loss carryforward of approximately $2.4 million which may be used
to offset future taxable income of the consolidated group and which begins to
expire in 2020.  The net operating loss carryforward is subject to an
annual limitation as to usage under Internal Revenue Code Section 382 of
approximately $240,000.








14.
            Commitments
      and Contingencies





The legal
proceedings in which we are involved have been disclosed previously in our
Annual Report on Form 10-K for the fiscal year ended March 31,
2008.  There have been no material developments in our pending
legal proceedings since March 31, 2008.




Securities Class Action
Litigation
 The
Company and certain of its officers and directors are defendants in a
consolidated 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.  Plaintiffs purport to represent a class of stockholders of
the Company who purchased shares between February 9, 2005 through November 15,
2005.  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 District Court has appointed a Lead
Plaintiff.  On December 23, 2005, the Lead Plaintiff filed a
Consolidated Class Action Complaint, which asserted claims under Sections 11,
12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b), 20(a) and 20A
of the Securities Exchange Act of 1934.  The Lead Plaintiff generally
alleged 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.  Plaintiffs seek an unspecified amount of
damages.  The Company filed a motion to dismiss the Consolidated Class
Action Complaint in February 2006.  On July 10, 2006, the Court
dismissed all claims against the Company and the individual defendants arising
under the Securities Exchange Act of 1934.
 
 On June
1, 2007, a hearing before the Court was held regarding Plaintiffs’ pending
motion for class certification in the Consolidated Action.  On
September 4, 2007, the United States District Court for the Southern District of
New York issued an Order certifying a class consisting of all persons who
purchased the common stock of the Company pursuant to, or traceable to, the
Company’s initial public offering on or about February 9, 2005 through November
15, 2005 and were damaged thereby.
 
 On
January 8, 2008, the parties to the action engaged in mediation to explore the
terms of a potential settlement of the pending litigation; however, no
settlement agreement was reached during mediation.  While discovery in
the action has commenced and is continuing, the Company’s management continues
to believe that the remaining claims in the case are legally deficient and that
it has meritorious defenses to the claims that remain.  The


-19-


Company
intends to vigorously defend against the claims remaining in the case; however,
the Company cannot, at this time, reasonably estimate the potential range of
loss, if any.





DenTek
      Litigation


The Doctor’s® NightGuardTM d e





In
November 2007, the defendants in the action each filed a motion to dismiss which
is pending before the Court.  The Company has filed responses to the
motions to dismiss and is awaiting a decision by the Court regarding such
motions.  The Court has ordered the Company’s motion for a preliminary
injunction to be held in abeyance pending a determination of the motions to
dismiss.





In
addition to the matters described above, the Company is 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 probability and
amount of potential loss.  These assessments are re-evaluated at each
reporting period 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 GAAP to
establish a litigation reserve until the loss is both probable and estimable, in
some cases there may be insufficient time 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, results from operations or cash
flows.





Lease
Commitments


The
Company has operating leases for office facilities and equipment in New York,
New Jersey and Wyoming, which expire at various dates through 2014.




-20-







Facilities
            
            
            Equipment
            
            
            TotalYear Ending June 30,2009
            
            $
            598
            
            
            $
            95
            
            
            $
            6932010
            
            
            572
            
            
            
            82
            
            
            
            6542011
            
            
            542
            
            
            
            43
            
            
            
            5852012
            
            
            559
            
            
            
            24
            
            
            
            5832013
            
            
            577
            
            
            
            --
            
            
            
            577Thereafter
            
            
            646
            
            
            
            --
            
            
            
            646$
            3,494
            
            
            $
            244
            
            
            $
            3,738





Rent
expense for the three month periods ended June 30, 2008 and 2007 were $158,000
and $152,000, respectively.








15.
            Concentrations
      of Risk





The
Company’s sales are concentrated in the areas of over-the-counter healthcare,
household cleaning and personal care 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, 2008 and 2007,
approximately 59.4% and 56.5%, respectively, of the Company’s total sales were
derived from its four major brands.  During the three month periods
ended June 30, 2008 and 2007, approximately 27.1% and 24.9%, respectively, of
the Company’s sales were made to one customer.  At June 30, 2008,
approximately 22.1% 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 could 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 affect 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
80% of the Company’s gross sales during the three month period ended June 30,
2008.  The Company does not have long-term contracts with 4 of these
manufacturers and certain manufacturers of various smaller brands, which
collectively, represented approximately 23.0% of the Company’s gross sales for
the three months ended June 30, 2008.  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.  In addition, the Company’s
manufacturers could impose price increases that the Company is unable
to pass through to its customers.  Such a price increase could
adversely affect a product’s gross profit and ultimately the Company’s
profitability.








16.
            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 Healthcare, (ii) Household Cleaning and (iii) Personal
Care.





-21-


There
were no inter-segment sales or transfers during any of the periods
presented.  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, 2008Over-the-
              Counter
              Healthcare
            
            
            Household
              Cleaning
            
            
            Personal
              Care
            
            
            ConsolidatedNet
      sales
            
            $
            39,246
            
            
            $
            28,404
            
            
            $
            5,266
            
            
            $
            72,916Other
      revenues
            
            
            --
            
            
            
            618
            
            
            
            --
            
            
            
            618Total
      revenues
            
            
            39,246
            
            
            
            29,022
            
            
            
            5,266
            
            
            
            73,534Cost
      of sales
            
            
            13,208
            
            
            
            17,923
            
            
            
            3,141
            
            
            
            34,272Gross
      profit
            
            
            26,038
            
            
            
            11,099
            
            
            
            2,125
            
            
            
            39,262Advertising
      and promotion
            
            
            5,037
            
            
            
            2,070
            
            
            
            212
            
            
            
            7,319Contribution
      margin
            
            $
            21,001
            
            
            $
            9,029
            
            
            $
            1,913
            
            
            
            31,943Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,729Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            21,214Other
      (income) expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,683Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,750Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            7,781





Three
      Months Ended June 30, 2007Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedNet
      sales
            
            $
            42,426
            
            
            $
            29,345
            
            
            $
            6,270
            
            
            $
            78,041Other
      revenues
            
            
            --
            
            
            
            542
            
            
            
            28
            
            
            
            570Total
      revenues
            
            
            42,426
            
            
            
            29,887
            
            
            
            6,298
            
            
            
            78,611Cost
      of sales
            
            
            15,386
            
            
            
            18,393
            
            
            
            3,543
            
            
            
            37,322Gross
      profit
            
            
            27,040
            
            
            
            11,494
            
            
            
            2,755
            
            
            
            41,289Advertising
      and promotion
            
            
            5,881
            
            
            
            1,628
            
            
            
            277
            
            
            
            7,786Contribution
      margin
            
            $
            21,159
            
            
            $
            9,866
            
            
            $
            2,478
            
            
            
            33,503Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,397Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            23,106Other
      (income) expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,687Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,099Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            8,320





-22-


During
the three month periods ended June 30, 2008 and 2007, approximately 95.8% and
95.3%, respectively, of the Company’s sales were made to customers in the United
States and Canada.  At June 30, 2008, 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 (in thousands):





Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedGoodwill
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915Intangible
      assetsIndefinite
      lived
            
            
            374,070
            
            
            
            170,893
            
            
            
            --
            
            
            
            544,963Finite
      lived
            
            
            85,337
            
            
            
            4
            
            
            
            13,752
            
            
            
            99,093459,407
            
            
            
            170,897
            
            
            
            13,752
            
            
            
            644,056$
            693,022
            
            
            $
            243,446
            
            
            $
            16,503
            
            
            $
            952,971





-23-


ITEM 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS








The
following discussion of our financial condition and results of operations should
be read together with the consolidated financial statements and the related
notes included in our Annual Report on Form 10-K for the fiscal year ended March
31, 2008.  This discussion and analysis may contain forward-looking
statements that involve certain risks, assumptions and
uncertainties.  Future results could differ materially from the
discussion that follows for many reasons, including the factors described in
Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2008, as well as those described in future reports
filed with the SEC.  See also “Cautionary Statement Regarding
Forward-Looking Statements” on page 37 of this Quarterly Report on Form
10-Q.





General


We are
engaged in the marketing, sales and distribution of brand name over-the-counter
healthcare, 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.






Three
      Month Period Ended June 30, 2008 compared to
the
 Three
      Month Period Ended June 30, 2007
 
 
 Revenues
 2008
                Revenues
              
              
              %
              
              
              2007
                Revenues
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              39,246
              
              
              
              53.3
              
              
              $
              42,426
              
              
              
              54.0
              
              
              $
              (3,180
              )
              
              
              (7.5
              )Household
      Cleaning
              
              
              29,022
              
              
              
              39.5
              
              
              
              29,887
              
              
              
              38.0
              
              
              
              (865
              )
              
              
              (2.9
              )Personal
      Care
              
              
              5,266
              
              
              
              7.2
              
              
              
              6,298
              
              
              
              8.0
              
              
              
              (1,032
              )
              
              
              (16.4
              )$
              73,534
              
              
              
              100.0
              
              
              $
              78,611
              
              
              
              100.0
              
              
              $
              (5,077
              )
              
              
              (6.5
              )
 
 Revenues
for the three month period ended June 30, 2008 were $73.5 million, a decrease of
$5.1 million, or 6.5%, versus the three month period ended June 30,
2007.  Revenues decreased across all reporting segments during the
period.  Revenues from customers outside of the United States, which
represent 11.5% of total revenues, also decreased 6.5% in 2008 versus the
comparable period in 2007.  The decrease in international revenues is
primarily attributed to our actions, initiated in June 2007, to eliminate
shipments to specific customers outside North America that were diverting
product back to the US market.


-24-


Over-the-Counter
Healthcare Segment


Revenues
of the Over-the-Counter Healthcare segment decreased $3.2 million, or 7.5%,
during 2008 versus 2007.  Revenue increases for Murine, Clear eyes,
New Skin, Chloraseptic, as well as the initial shipments of the new Allergen
Block products, marketed under the Chloraseptic and Little Allergies trademarks
were more than offset by revenue decreases on the wart care brands, Little
Remedies and The Doctor’s®
brands.  Murine’s revenue increase was primarily due to increased
sales of MurineTM
Earigate®
which was launched in the latter part of the same period last
year.  Clear eyes revenue increased as a result of unit volume
increases in consumption and a price increase taken in March
2008.  New Skin revenue increased primarily as a result of new
distribution while Chloraseptic’s revenue increase was driven primarily by
customer replenishment orders as a result of the last year’s late developing
cough/cold season.  Allergen Block is a new innovative, non-medicated
allergy product targeted toward allergy sufferers looking for an alternative to
medicated products.  Revenues of the wart care brands, Compound W and
Wartner, decreased primarily due to a price reduction taken on the cryogenic
products.  This pricing reduction, along with a down-sizing of
Compound W Freeze-off, was in response to improving the value proposition to
consumers and consistent with price reductions taken by a major competitor in
the category.  Little Remedies’ revenues were adversely impacted by
the voluntary withdrawal of two medicated pediatric cough and cold products in
October 2007.  Increased competition in the bruxism category resulted
in lower sales of The Doctor’s® NightGuardTM dental
protector.




Household
Cleaning Segment


Revenues
of the Household Cleaning segment decreased $865,000, or 2.9%, during 2008
versus 2007.  Revenues of the Comet® brand increased during the period
primarily as a result of Comet Mildew Spray Gel.  Comet’s revenue
increase was partially offset by lower revenues for the other two brands in this
segment – Spic and Span and Chore Boy.  The decline in Spic and Span’s
revenue reflected a decline in consumer consumption while Chore Boy sales
declined as a result of weaker consumption and lower shipments to small grocery
wholesale accounts.





Personal
Care Segment


Revenues
of the Personal Care segment declined $1.0 million, or 16.4%, during 2008 versus
2007.  All major brands in this segment experienced revenue declines
during the period.  The decrease in revenue of Cutex®, Prell and
Denorex® was in line with consumption.





Gross
Profit
 2008
                Gross
      Profit
              
              
              %
              
              
              2007
                Gross
      Profit
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              26,038
              
              
              
              66.3
              
              
              $
              27,040
              
              
              
              63.7
              
              
              $
              (1,002
              )
              
              
              (3.7
              )Household
      Cleaning
              
              
              11,099
              
              
              
              38.2
              
              
              
              11,494
              
              
              
              38.5
              
              
              
              (395
              )
              
              
              (3.4
              )Personal
      Care
              
              
              2,125
              
              
              
              40.4
              
              
              
              2,755
              
              
              
              43.7
              
              
              
              (630
              )
              
              
              (22.9
              )$
              39,262
              
              
              
              53.4
              
              
              $
              41,289
              
              
              
              52.5
              
              
              $
              (2,027
              )
              
              
              (4.9
              )
 
 Gross
profit for the three month period ended June 30, 2008 decreased $2.0 million, or
4.9%, versus the three month period ended June 30, 2007.  As a percent
of total revenue, gross profit increased from 52.5% in 2007 to 53.4% in
2008.  The increase in gross profit as a percent of revenues was
primarily the result of favorable product mix, price increases taken on select
items and the benefits of our cost reduction program started last year,
partially offset by an increase in promotional allowances.
 
 Over-the-Counter
Healthcare Segment
 Gross
profit for the Over-the-Counter Healthcare segment decreased $1.0 million, or
3.7%, during 2008 versus 2007.  As a percent of Over-the-Counter
revenue, gross profit increased from 63.7% during 2007 to 66.3% during
2008.  The increase in gross profit as a percent of revenues was the
result of favorable product mix toward higher gross margin brands, selling price
increases implemented at the end of March 2008 and cost
reductions.  Compound W Freeze-off experienced the most significant
cost savings as a result of the migration of production to a new supplier in
early 2008.


-25-


Household
Cleaning Segment


Gross
profit for the Household Cleaning segment decreased by $395,000, or 3.4%, during
2008 versus 2007.As a percent of
household cleaning revenue, gross profit decreased from 38.5% during 2007 to
38.2% during 2008. The slight decrease in gross profit percentage was a result
of higher product costs related to Spic and Span.





Personal
Care Segment


Gross
profit for the Personal Care segment decreased $630,000, or 22.9%, during 2008
versus 2007.  As a percent of personal care revenue, gross profit
decreased from 43.7% during 2007 to 40.4% during 2008.  The decrease
in gross profit percentage was the result of modest increase in promotional
allowances and increased inventory obsolescence costs related to
Cutex.





Contribution
Margin


2008
              Contribution
      Margin
            
            
            %
            
            
            2007
              Contribution
      Margin
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            21,001
            
            
            
            53.5
            
            
            $
            21,159
            
            
            
            49.9
            
            
            $
            (158
            )
            
            
            (0.7
            )Household
      Cleaning
            
            
            9,029
            
            
            
            31.1
            
            
            
            9,866
            
            
            
            33.0
            
            
            
            (837
            )
            
            
            (8.5
            )Personal
      Care
            
            
            1,913
            
            
            
            36.3
            
            
            
            2,478
            
            
            
            39.3
            
            
            
            (565
            )
            
            
            (22.8
            )$
            31,943
            
            
            
            43.4
            
            
            $
            33,503
            
            
            
            42.6
            
            
            $
            (1,560
            )
            
            
            (4.7
            )





Contribution
margin, defined as gross profit less advertising and promotional expenses, for
the three month period ended June 30, 2008 decreased $1.6 million, or 4.7%,
versus the three month period ended June 30, 2007.  The contribution
margin decrease was the result of the changes in sales and gross profit as
previously discussed, partially offset by a $467,000, or a 6.0%, decrease in
advertising and promotional spending.  The decreased advertising and
promotional spending was primarily attributable to decreases in spending for the
Over-the-Counter Healthcare and Personal Care segments, partially offset by an
increase in support in the Household Cleaning segment.




Over-the-Counter
Healthcare Segment
 Contribution
margin for the Over-the-Counter Healthcare segment decreased $158,000, or 0.7%,
during 2008 versus 2007.  The contribution margin decrease was the
result of the decrease in sales and gross profit as previously discussed,
partially offset with a decrease in advertising and promotional of $800,000, or
16.8%.  An increase in television media support behind Murine
Earigate® ear
wax remover was offset with decreases in support behind Clear eyes eye care
products, The Doctor’s® NightGuardTM dental protector and
Compound W wart remover.
 
 Household
Cleaning Segment
 Contribution
margin for the Household Cleaning segment decreased $837,000, or 8.5%, during
2008 versus 2007.  The contribution margin decrease was the result of
the decrease in sales and gross profit as previously discussed, and an increase
in advertising and promotional spending of $400,000 or 27.2%.  The
A&P increase was the result of increased television media support behind
Comet Mildew SprayGel.
 
 Personal
Care Segment
 Contribution
margin for the Personal Care segment decreased $565,000, or 22.8%, during 2008
versus 2007.  The contribution margin decrease was primarily the
result of the sales and gross profit decrease previously discussed slightly
offset by a modest decrease in advertising and promotional
expenses.
 
 General
and Administrative
 General
and administrative expenses were $8.0 million for the three month period ended
June 30, 2008 versus $7.6 million for the three month period ended June 30,
2007.  The increase in G&A is primarily related to an increase in
long-term stock-based compensation.


-26-


Depreciation
and Amortization


Depreciation
and amortization expense was essentially flat at $2.8 million for both the three
month periods ended June 30, 2008 and 2007.





Interest
Expense


Net
interest expense was $8.7 million during the three month period ended June 30,
2008 versus $9.7 million during the three month period ended June 30,
2007.  The reduction in interest expense was primarily the result of a
lower level of indebtedness outstanding under our Senior Credit
Facility.  The average cost of funds increased from 8.5% for 2007 to
8.6% for 2008 while the average indebtedness decreased from $455.4 million
during 2007 to $403.7 million during 2008.





Income
Taxes


The
provision for income taxes during the three month period ended June 30, 2008 was
$4.7 million versus $5.1 million during the three month period ended June 30,
2007.  The effective income tax rates were 37.9% and 38.0% for 2008
and 2007, respectively.






Liquidity
and Capital Resources
 
 Liquidity
 We have
financed and expect to continue to finance our operations with a combination of
borrowings and funds generated from operations.  Our principal uses of
cash are for operating expenses, debt service, brand acquisitions, working
capital and capital expenditures.
 
 Three
      Months Ended June 30(In
      thousands)
              
              2008
              
              
              2007Cash
      provided by (used for):Operating
      Activities
              
              $
              15,363
              
              
              $
              8,408Investing
      Activities
              
              
              (61
              )
              
              
              (111
              )Financing
      Activities
              
              
              (15,010
              )
              
              
              (15,891
              )
 
 
 Operating
Activities
 Net cash
provided by operating activities was $15.4 million for the three month period
ended June 30, 2008 compared to $8.4 million for the three month period ended
June 30, 2007.  The $7.0 million increase in cash provided by
operating activities was primarily the result of a decrease in the components of
working capital caused primarily by a $5.9 million decrease in accounts
receivable at June 30, 2008 versus March 31, 2008, compared to a $1.9 million
increase in accounts receivable at June 30, 2007 versus March 31,
2007.
 
 Investing
Activities
 Net cash
used for investing activities was $61,000 for the three month period ended June
30, 2008 compared to $111,000 for the three month period ended June 30,
2007.  The net cash used for investing activities during both periods
was used for the acquisition of machinery, computers and office
equipment.
 
 Financing
Activities
 Net cash
used for financing activities was $15.0 million for the three month period ended
June 30, 2008 compared to $15.9 million for the three month period ended June
30, 2007.  During the three month period ended June 30, 2008, the
Company repaid $14.1 million of the Tranche B Term Loan Facility in excess of
required amortization payments with cash generated from
operations.  This reduced our outstanding indebtedness to $396.2
million from $411.2 million at March 31, 2008.
 
 The
Company’s cash flow from operations is normally expected to exceed net income
due to the substantial non-cash charges related to depreciation and amortization
of intangibles, increases in deferred income tax liabilities resulting from
differences in the amortization of intangible assets and goodwill for income tax
and financial reporting purposes, the amortization of certain deferred financing
costs and stock-based compensation.





-27-


Capital
Resources





At June
30, 2008, we had an aggregate of $396.2 million of outstanding indebtedness,
which consisted of the following:





·
            $270.2
      million of borrowings under the Tranche B Term Loan Facility,
      and





·
            $126.0
      million of 9.25% Senior Subordinated Notes due
  2012.





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.  At June 30, 2008, an aggregate of $270.2 million was
outstanding under the Senior Credit Facility at a weighted average interest rate
of 6.89%.





As deemed
appropriate, the Company uses derivative financial instruments to mitigate the
impact of changing interest rates associated with its long-term debt
obligations.  While the Company does not enter into derivative financial
instruments for trading purposes, all of these derivatives are straightforward
over-the-counter instruments with liquid markets.  The notional, or
contractual, amount of the Company’s derivative financial instruments is used to
measure the amount of interest to be paid or received and does not represent an
exposure to credit risk.  The Company accounts for these financial
instruments as cash flow hedges.





In March
2005, the Company purchased interest rate cap agreements with a total notional
amount of $180.0 million the terms of which are as follows:





Notional
              Amount
            
            
            Interest
      Rate
              Cap
      Percentage
            
            Expiration
              Date(In
      millions)$
            50.0
            
            
            
            3.25
            %
            May
      31, 200680.0
            
            
            
            3.50
            
            May
      30, 200750.0
            
            
            
            3.75
            
            May
      30, 2008





In
February 2008, the Company entered into an interest rate swap agreement in the
notional amount of $175.0 million, decreasing to $125.0 million at March 26,
2009 to replace and supplement an interest rate cap agreement that expired on
May 30, 2008.  The Company has agreed to pay a fixed rate of 2.83%
while receiving a variable rate based on LIBOR.  The agreement
terminates on March 26, 2010.  The fair value of the interest rate
swap agreement is included in either other assets or current liabilities at the
balance sheet date.  At June 30, 2008, the fair value of the interest
rate swap of $1.1 million was included in other assets, while at March 31, 2008
the fair value of $1.5 million was included in other current
liabilities.





At June
30, 2008, we had $60.0 million of borrowing capacity available under the
Revolving Credit Facility to support our operating activities.  The
Revolving Credit Facility matures in April 2009.  We also have $270.2
million outstanding under the Tranche B Term Loan Facility which matures in
April 2011.  We must make quarterly principal payments on the Tranche
B Term Loan Facility equal to $887,500, representing 0.25% of the initial
principal amount of the term loan.  Our ability to borrow an
additional $200.0 million under our Senior Credit Facility under the Tranche B
Term Loan Facility expired during the three month period ended June 30,
2008.  Management intends to replace these credit facilities during
the period ending March 31, 2009.





The
Senior Credit Facility contains various financial covenants, including
provisions that require us to maintain certain leverage ratios, interest
coverage ratios and fixed charge coverage ratios.  The Senior Credit
Facility, as well as the Indenture governing the Senior Subordinated 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 4.5 to 1.0 for the quarter ended June 30,
      2008, decreasing




-28-


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, 2008, increasing over time to 3.25 to 1.0 for the quarter
      ending March 31, 2010, and remaining level thereafter,
  and
 
 ·
              Have
      a fixed charge coverage ratio of greater than 1.5 to 1.0 for the quarter
      ended June 30, 2008, and for each quarter thereafter until the quarter
      ending March 31, 2011.
 
 At June
30, 2008, we were in compliance with the applicable financial and restrictive
covenants under the Senior Credit Facility and the Indenture governing the
Senior Subordinated Notes.


Our
principal sources of funds are anticipated to be cash flows from operating
activities and available borrowings under the Revolving Credit
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 through June 30, 2009.  While management
intends to replace these credit facilities during the ensuing year, we can give
no assurances that financing 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





Due to
the execution of the Old Fitzpatrick agreement for the future production of
certain Comet® products, we are
updating our commitment disclosures.  As of June 30, 2008, 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 5Contractual
      Obligations
            
            Total
            
            
            
            1 Year
            
            
            
            Years
            
            
            
            Years
            
            
            
            YearsLong-term
      debt
            
            $
            396.2
            
            
            
            $
            3.6
            
            
            
            $
            266.6
            
            
            
            $
            126.0
            
            
            
            $
            --Interest
      on long-term debt (1)
            
            
            95.0
            
            
            
            
            30.4
            
            
            
            
            55.3
            
            
            
            
            9.3
            
            
            
            
            --Purchase
      obligations(2)
            
            
            70.6
            
            
            
            
            39.5
            
            
            
            
            19.7
            
            
            
            
            4.3
            
            
            
            
            7.1Operating
      leases
            
            
            3.7
            
            
            
            
            0.7
            
            
            
            
            1.2
            
            
            
            
            1.2
            
            
            
            
            0.6Total
      contractual cash obligations
            
            $
            565.5
            
            
            
            $
            74.2
            
            
            
            $
            342.8
            
            
            
            $
            140.8
            
            
            
            $
            7.7





(1)
            Represents
      the estimated interest obligations on the outstanding balances of the
      Revolving Credit Facility, Tranche B Term Loan Facility and Senior
      Subordinated Notes, together, assuming scheduled principal payments (based
      on the terms of the loan agreements) were made and assuming a weighted
      average interest rate of 7.64%.  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 $2.7 million in the first year.  However, given
      the protection afforded by the interest rate swap agreement, the impact of
      a one percentage point increase would be limited to $1.2
      million.





(2)
            Purchase
      obligations consist of legally binding commitments for inventory
      requirements and marketing and advertising expenditures to be utilized
      during the normal course of our operations.  Activity costs for molds
      and equipment to be paid, based solely on a per unit basis without any
      deadlines for final payment, have been excluded from the table because we
      are unable to determine the time period over which such activity costs
      will be paid.









Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements or financing activities with
special-purpose entities.




-29-


Inflation
 
 Inflationary
factors such as increases in the costs of raw materials, packaging materials,
fuel, 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








Critical
      Accounting Policies and Estimates





The
Company’s significant accounting policies are described in the notes to 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, 2008. 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, 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 SEC Staff Accounting Bulletin No. 104 “Revenue
Recognition,” which states that revenue should be recognized when the following
revenue recognition criteria are met: (i) persuasive evidence of an arrangement
exists; (ii) the product has been shipped and the customer takes ownership and
assumes the risk of loss; (iii) the selling price is fixed or determinable; and
(iv) 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 is recorded in accordance with Emerging
Issues Task Force 01-09, “Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products)” as either advertising and promotional expenses or as a
reduction of sales.  Such costs vary from period-to-period 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, 2008 was $18.8 million, we
participated in 4,800 promotional campaigns, resulting in an average cost of
$3,000 per campaign.  Of such amount, only 663 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




-30-


10% for
the year ended March 31, 2008, our sales and operating income would have been
adversely affected by approximately $1.9 million.  Similarly, had we
underestimated the promotional program rate by 10% for the three month period
ended June 30, 2008, our sales and operating would have been adversely affected
by approximately $545,000.  Net income would have been adversely
affected by approximately $1.2 million during the year ended March 31, 2008 and
approximately $338,000 for the three month period ended June 30, 2008. 
 We also
periodically run coupon 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





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 historical return rate has been
relatively stable; for example, for the years ended March 31, 2008, 2007 and
2006, returns represented 4.6%, 3.7% and 3.5%, respectively, of gross
sales.  While the returns rate increased 0.9% from 2007 to 2008, such
amount exclusive of the voluntary withdrawal from the marketplace of Little Remedies medicated
pediatric cough and cold products in October 2007, would have been
4.1%.  At June 30, 2008 and March 31, 2008, the allowance for sales
returns was $1.7 million and $1.8 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 in a manner similar to the Little Remedies voluntary
withdrawal discussed above.  Based upon the methodology described
above and our actual returns’ experience, management believes the likelihood of
such an event remains remote.  As noted, over the last three years,
our actual product return rate has stayed within a range of 4.6% to 3.5% of
gross sales.  An increase of 0.1% in our estimated return rate as a
percentage of gross sales would have adversely affected our reported sales and
operating income for the year ended March 31, 2008 and the three month period
ended June 30, 2008 by approximately $380,000 and $88,000,
respectively.  Net income would have been adversely affected by
approximately $236,000 and $55,000 for the year ended March 31, 2008 and the
three month period ended June 30, 2008, respectively.





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




-31-


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, 2008 and March 31, 2008, the allowance for obsolete
and slow moving inventory represented 4.1% and 4.6%, respectively, of total
inventory.  Inventory obsolescence costs charged to
operations were $1.4 million for the year ended March 31, 2008, while for
the three month period ended June 30, 2008 the Company recorded a credit of
$39,000 due to the discounted sale of certain short-dated
inventory.  A 1.0% increase in our allowance for obsolescence at March
31, 2008 would have adversely affected our reported operating income and net
income for the year ended March 31, 2008 by approximately $311,000 and $193,000,
respectively.  Similarly, a 1.0% increase in our allowance for
obsolescence at June 30, 2008 would have adversely affected our reported
operating income and net income for the three month period ended June 30, 2008
by approximately $300,000 and $186,000, 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 amounted to
0.1% of accounts receivable at June 30, 2008 and March 31, 2008.  Bad
debt expense for the year ended March 31, 2008 was $124,000 while during the
three month period ended June 30, 2008 the Company recorded bad debt expense of
$4,000.





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
sales for the year ended March 31, 2008 would have resulted in a decrease in
reported operating income of approximately $325,000, and a decrease in our
reported net income of approximately $202,000.  Similarly, a 0.1%
increase in our bad debt expense as a percentage of sales for the three month
period ended June 30, 2008 would have resulted in a decrease in reported
operating income of approximately $74,000, and a decrease in our reported net
income of approximately $46,000.





Valuation
of Intangible Assets and Goodwill


Goodwill
and intangible assets amounted to $953.0 million and $955.6 million at June 30,
2008 and March 31, 2008, respectively.  At June 30, 2008, goodwill and
intangible assets were apportioned among our three operating segments as follows
(in thousands):





Over-the-
              Counter
              Healthcare
            
            
            Household
              Cleaning
            
            
            Personal
              Care
            
            
            ConsolidatedGoodwill
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915Intangible
      assetsIndefinite
      lived
            
            
            374,070
            
            
            
            170,893
            
            
            
            --
            
            
            
            544,963Finite
      lived
            
            
            85,337
            
            
            
            4
            
            
            
            13,752
            
            
            
            99,093459,407
            
            
            
            170,897
            
            
            
            13,752
            
            
            
            644,056$
            693,022
            
            
            $
            243,446
            
            
            $
            16,503
            
            
            $
            952,971




Clear Eyes,
New-Skin, Chloraseptic Compound W Wartner Comet, Spic and Span Chore Boy




-32-


Denorex, Cutexand Prellcomprised substantially
all of the intangible asset value within the Personal Care 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,
brand names and patents.  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, which 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”.





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 Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“Statement”) No. 141, “Business
Combinations” and Statement No. 142, “Goodwill and Other Intangible Assets”
(“Statement 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:


-33-


·
            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
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.








-34-


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 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 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.  However, we have not been required to record any additional
asset impairment charges since March 2006.





Stock-Based
Compensation


We recognize stock-based
compensation in accordance with FASB Statement No. 123(R), “Share-Based Payment”
(“Statement No. 123(R)”) which 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, warrant or
      performance shares),


·
            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.  The Company recorded net non-cash compensation expense of
$1.1 million and $655,000 during the years ended March 31, 2008 and 2007,
respectively.  However, during the year ended March 31, 2008,
management was required to reverse previously recorded stock-based compensation
costs of $538,000, $394,000 and $166,000 related to the October 2005, July 2006
and May 2007 grants, respectively, as it determined that the Company would not
meet the performance goals associated with such grants of restricted
stock.  The Company recorded non-cash compensation expense of $629,000
and $460,000 during the three month periods ended June 30, 2008 and 2007,
respectively.





Loss
Contingencies


Loss
contingencies are recorded as liabilities when it is probable that a liability
has been incurred and the amount of such loss is reasonably
estimable.  Contingent losses are often resolved over longer periods
of time and involve many factors including:





·
            Rules
      and regulations promulgated by regulatory
  agencies,


·
            Sufficiency
      of the evidence in support of our
position,


·
            Anticipated
      costs to support our position, and


·
            Likelihood
      of a positive outcome.




Recent
Accounting Pronouncements


In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(“Statement No. 161”) that requires a company with derivative instruments to
disclose information to enable users of the financial statements to understand
(i) how and why the company uses derivative instruments, (ii) how derivative
instruments and related hedged items are




-35-


accounted
for, and (iii) how derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and cash flows.
 Accordingly, Statement No. 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. Statement No. 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15,
2008.  The implementation of Statement No. 161 is not expected to have
a material effect on the Company’s consolidated financial
statements.





In
December 2007, the FASB ratified Emerging Issues Task Force 07-01, “Accounting
for Collaborative Arrangements” (“EITF 07-01”).  EITF 07-01 provides
guidance for determining if a collaborative arrangement exists and establishes
procedures for reporting revenues and costs generated from transactions with
third parties, as well as between the parties within the collaborative
arrangement, and provides guidance for financial statement disclosures of
collaborative arrangements.  EITF 07-01 is effective for fiscal years
beginning after December 15, 2008 and is required to be applied retrospectively
to all prior periods where collaborative arrangements existed as of the
effective date.  The Company currently is assessing the impact of EITF
07-01 on its consolidated financial position and results of
operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“Statement No. 141(R)”) to improve consistency and comparability
in the accounting and financial reporting of business
combinations.  Accordingly, Statement 141(R) requires the acquiring
entity in a business combination to (i) recognize all assets acquired and
liabilities assumed in the transaction, (ii) establishes acquisition-date fair
value as the amount to be ascribed to the acquired assets and liabilities and
(iii) requires certain disclosures to enable users of the financial statements
to evaluate the nature, as well as the financial aspects of the business
combination.  Statement 141(R) is effective for business combinations
consummated by the Company on or after April 1, 2009.  The impact to the
Company of adopting this standard will depend on the nature, terms and size of
any business combinations completed after the effective date.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities -Including an amendment
of FASB Statement No. 115” (“Statement No.
159”).  StatementNo. 159 permits
companies to choose to measure certain financial instruments and certain other
items at fair value.  Unrealized gains and losses on items for which
the fair value option has been elected will be recognized in earnings at each
subsequent reporting date.  The implementation of Statement No. 159,
effective April 1, 2008, did not have a material effect on the Company’s
consolidated financial statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“Statement No. 157”) to address inconsistencies in the definition and
determination of fair value pursuant to generally accepted accounting principles
(“GAAP”).  Statement No. 157 provides a single definition of fair
value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements in an effort to increase comparability
related to the recognition of market-based assets and liabilities and their
impact on earnings.  Statement No. 157 is effective for the Company’s
interim financial statements issued after April 1, 2008.  However, on
February 12, 2008, the FASB deferred the effective date of Statement No. 157 for
one year for non-financial assets and non-financial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.  The implementation of Statement No. 157,
effective April 1, 2008, did not have a material effect on financial assets and
liabilities included in the Company’s consolidated financial statements as fair
value is based on readily available market prices.  The Company is
currently evaluating the impact that the application of Statement No. 157 will
have on its consolidated financial statements as it relates to the non-financial
assets and liabilities.





Management
has reviewed and continues to monitor the actions of the various financial and
regulatory reporting agencies and is currently not aware of any other
pronouncement that could have a material impact on the
Company’s consolidated financial position, results of operations or cash
flows.




-36-


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.





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.  As a result of these risks
and uncertainties, readers are cautioned not to place undue reliance on
forward-looking statements included in thisQuarterly Report on Form10-Qor that may be made
elsewhere from time to time by, or on behalf of, us.All forward-looking
statements attributable to us are expressly qualifiedby these cautionary
statements.For more information, see “Risk Factors” contained
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended March
31, 2008.  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,





·
            Our
      ability to increase organic growth via new product introductions or line
      extensions,





·
            The
      high level of competition in our industry and
  markets,





·
            Our
      ability to invest in research and
development,





·
            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,





·
            Any
      adverse judgment rendered in any pending litigation or
      arbitration,





-37-


·
            Our
      ability to obtain additional financing,
and





·
            The
      restrictions imposed by our Senior Credit Facility and Indenture on our
      operations.






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 our senior secured financing, 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, 2008, we
had variable rate debt of approximately $270.2 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 March 2005, the Company
purchased interest rate cap agreements with a total notional amount of $180.0
million the terms of which are as follows:





Notional
              Amount
            
            
            Interest
      Rate
              Cap
      Percentage
            
            Expiration
              Date(In
      millions)$
            50.0
            
            
            
            3.25
            %
            May
      31, 200680.0
            
            
            
            3.50
            
            May
      30, 200750.0
            
            
            
            3.75
            
            May
      30, 2008





In
February 2008, the Company entered into an interest rate swap agreement,
effective March 26, 2008, in the notional amount of $175.0 million, decreasing
to $125.0 million at March 26, 2009 to replace and supplement an interest rate
cap agreement that expired on May 30, 2008.  The Company has agreed to
pay a fixed rate of 2.83% while receiving a variable rate based on
LIBOR.  The agreement terminates on March 26, 2010.





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 the twelve month period ending
June 30, 2009 of approximately $2.7 million.  However, given the
protection afforded by the interest rate cap agreements, the impact of a one
percentage point increase would be limited to $1.2 million for the twelve month
period ending June 30, 2009.  The fair value of the interest rate swap
agreement was $1.1 million at June 30, 2008.





ITEM4.
            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”), as of June
30, 2008.  Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of June 30, 2008, the Company’s
disclosure controls and procedures were effective to ensure that 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 SEC’s rules and forms, and that such
information is accumulated and communicated to the Company’s management,
including the Company’s Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.




-38-


Changes
in Internal Control over Financial Reporting
 There
have been no changes during the quarter ended June 30, 2008 in the Company’s
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


PART II.
            OTHER
      INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS





The legal
proceedings in which we are involved have been disclosed previously in our
Annual Report on Form 10-K for the fiscal year ended March 31,
2008.  There have been no material developments in our pending
legal proceedings since March 31, 2008.  For more information
regarding our pending legal proceedings which we deem to be material to the
Company, please see the legal proceedings disclosure contained in Part I, Item 3
of our Annual Report on Form 10-K for the fiscal year ended March 31,
2008.





In
addition, the Company is 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 probability and amount of potential
loss.  These assessments are re-evaluated at each reporting period 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 GAAP to establish a litigation reserve until
the loss is both probable and estimable, in some cases there may be insufficient
time 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, results from operations or cash flows.




ITEM 1A.
              RISK
  FACTORS


There
have been no material changes to the risk factors previously disclosed in Part
I, Item 1A, of our Annual Report on Form 10-K for the year ended March 31,
2008.





ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





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, 2008, by or on
behalf of the Company or any “affiliated purchaser,” as defined by Rule
10b-18(a)(3) of the Exchange Act:





Company
      Purchases of Equity SecuritiesPeriod
            
            (a)
              Total
      Number
              of
      Shares Purchased
            
            
            (b)
              Average
              Price
      Paid Per Share
            
            
            (c)
              Total
      Number
              of
      Shares Purchased as Part of Publicly Announced Plans or
      Programs
            
            
            (d)
              Maximum
              Number
      (or approximate dollar value) of Shares that May Yet Be
      Purchased
              Under
      the Plans
              or
      Programs4/1/08
      - 4/30/08
            
            
            41,964
            
            
            $
            0.24
            
            
            
            --
            
            
            
            --5/1/08
      - 5/31/08
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --6/1/08
      - 6/30/08
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Total
            
            
            41,964
            
            
            $
            0.24
            
            
            
            --
            
            
            
            --




-39-


Note:
 Activity
consists of one (1) transaction whereby the Company exercised its separation
repurchase option set forth in a securities purchase agreement between the
Company and a former employee.


ITEM
      5.
            OTHER
      INFORMATION





None




ITEM
      6.
              EXHIBITS


See
Exhibit Index immediately following signature page.





-40-


SIGNATURES











Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Prestige Brands Holdings,
      Inc.Registrant
  Date: 
      August 11, 2008
              By:
              /s/ PETER J.
    ANDERSONPeter
      J. AndersonChief
      Financial Officer(Principal
      Financial Officer andDuly
      Authorized Officer)









-41-


Exhibit
Index











10.1
            Supply
      Agreement, dated May 15, 2008, by and between Fitzpatrick Bros., Inc. and
      The Spic and Span Company.*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 1934.32.1
            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.





*
            Certain
      confidential portions have been omitted pursuant to a confidential
      treatment request separately filed with the Securities and Exchange
      Commission.