**U.
      S. SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





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





For
      the
      quarterly period endedDecember
      31, 2006





**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 Registrants’ Principal Executive Offices)**(914)
                524-6810**(Registrants’
                telephone number, including area
                code)







Indicate
        by check mark if the Registrant is not required to file reports pursuant
        to
        Section 13 or 15(d) of the Act. Yes o No x





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





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





Larger accelerated filer o
            Accelerated
                filer x
            Non-accelerated
                filer o




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


o  No x





As
      of
      February 5, 2007, there were 50,005,289 shares of common stock
      outstanding.








**Prestige
      Brands Holdings, Inc.**


**Form
      10-Q**


**Index**





**PART I.**
            **FINANCIAL INFORMATION**Item 1.
            Consolidated
              Financial StatementsConsolidated Statements of Operations - three months ended December
                31, 2006
              and 2005 and nine months ended December 31, 2006 and
                2005 (unaudited)
            2Consolidated Balance Sheets - December 31, 2006 and
              March
              31, 2006 (unaudited)
            3Consolidated Statement of Changes in Stockholders' Equity
              andComprehensive Income - nine months ended
              December 31, 2006 (unaudited)
            4Consolidated Statements of Cash Flows - nine months ended
              December 31, 2006 and 2005 (unaudited)
            5Notes to Unaudited Consolidated Financial Statements
            6Item 2.
            Management’s
                Discussion and Analysis of Financial Condition
              and Results of Operations
            23Item 3.
            Quantitative and Qualitative Disclosure About Market
              Risk
            41Item 4.
            Controls and Procedures
            41**PART
                II.**
            **OTHER
                INFORMATION**Item 1.
            Legal Proceedings
            42Item 1A.
            Risk Factors
            43Item 2.
            Unregistered Sales of Equity Securities and Use of
              Proceeds
            43Item 3.
            Defaults Upon Senior Securities
            43Item 4.
            Submission of Matters to a Vote of Security Holders
            43Item 5.
            Other Information
            43Item 6.
            Exhibits
            44Signatures
            45







-1-


PART
      IFINANCIAL
      INFORMATION





Item
      1.FINANCIAL
      STATEMENTS





**Prestige
      Brands Holdings, Inc.**


**Consolidated
      Statements of Operations**


***(Unaudited)***








****
            
            **Three
                Months**
              **Ended
                December 31**
            
            **Nine
                Months**
              **Ended
                December 31*****(In
                thousands, except per share data)***
            ****
            **2006**
            ****
            **2005**
            ****
            **2006**
            ****
            **2005**
            ******Revenues**Net
                sales
            
            $
            79,564
            
            $
            79,829
            
            $
            239,164
            
            $
            216,577Other
                revenues
            
            
            560
            
            
            27
            
            
            1,434
            
            
            77Total
                revenues
            
            
            80,124
            
            
            79,856
            
            
            240,598
            
            
            216,654**Cost
                of Sales**Costs
                of sales
            
            
            36,766
            
            
            38,726
            
            
            114,350
            
            
            103,224Gross
                profit
            
            
            43,358
            
            
            41,130
            
            
            126,248
            
            
            113,430**Operating
                Expenses**Advertising
                and promotion
            
            
            8,952
            
            
            7,385
            
            
            25,809
            
            
            26,307General
                and administrative
            
            
            7,068
            
            
            6,159
            
            
            20,761
            
            
            15,182Depreciation
            
            
            177
            
            
            520
            
            
            616
            
            
            1,495Amortization
                of intangible assets
            
            
            2,627
            
            
            2,314
            
            
            7,013
            
            
            6,610Total
                operating expenses
            
            
            18,824
            
            
            16,378
            
            
            54,199
            
            
            49,594Operating
                income
            
            
            24,534
            
            
            24,752
            
            
            72,049
            
            
            63,836**Other
                income (expense)**Interest
                income
            
            
            199
            
            
            144
            
            
            787
            
            
            451Interest
                expense
            
            
            (10,355
            )
            
            (9,670
            )
            
            (30,478
            )
            
            (27,158
            )Total
                other income (expense)
            
            
            (10,156
            )
            
            (9,526
            )
            
            (29,691
            )
            
            (26,707
            )Income
                before provision for
              income
                taxes
            
            
            14,378
            
            
            15,226
            
            
            42,358
            
            
            37,129Provision
                for income taxes
            
            
            3,735
            
            
            5,881
            
            
            14,675
            
            
            14,481Net
                income
            
            $
            10,643
            
            $
            9,345
            
            $
            27,683
            
            $
            22,648Basic
                earnings per share
            
            $
            0.21
            
            $
            0.19
            
            $
            0.56
            
            $
            0.46Diluted
                earnings per share
            
            $
            0.21
            
            $
            0.19
            
            $
            0.55
            
            $
            0.45Weighted
                average shares outstanding:
              Basic
            
            
            49,535
            
            
            48,929
            
            
            49,425
            
            
            48,874Diluted
            
            
            50,024
            
            
            50,010
            
            
            50,016
            
            
            50,007





*See
      accompanying notes.*


-2-


**Prestige
      Brands Holdings, Inc.**


**Consolidated
      Balance Sheets**


*(Unaudited*)





***(In
                thousands)***
            
            **December
                31, 2006**
            
            **March
                31, 2006****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            4,802
            
            $
            8,200Accounts
                receivable
            
            
            35,230
            
            
            40,042Inventories
            
            
            31,780
            
            
            33,841Deferred
                income tax assets
            
            
            2,522
            
            
            3,227Prepaid
                expenses and other current assets
            
            
            1,466
            
            
            701Total
                current assets
            
            
            75,800
            
            
            86,011Property
                and equipment
            
            
            1,453
            
            
            1,653Goodwill
            
            
            303,928
            
            
            297,935Intangible
                assets
            
            
            659,784
            
            
            637,197Other
                long-term assets
            
            
            11,200
            
            
            15,849Total
                Assets
            
            $
            1,052,165
            
            $
            1,038,645**Liabilities
                and Stockholders’ Equity**Current
                liabilitiesAccounts
                payable
            
            $
            20,500
            
            $
            18,065Accrued
                interest payable
            
            
            4,872
            
            
            7,563Income
                taxes payable
            
            
            211
            
            
            1,795Other
                accrued liabilities
            
            
            10,167
            
            
            4,582Current
                portion of long-term debt
            
            
            3,550
            
            
            3,730Total
                current liabilities
            
            
            39,300
            
            
            35,735Long-term
                debt
            
            
            467,688
            
            
            494,900Other
                long-term liabilities
            
            
            2,801
            
            
            --Deferred
                income tax liabilities
            
            
            105,490
            
            
            98,603Total
                Liabilities
            
            
            615,279
            
            
            629,238**Commitments
                and Contingencies - Note 14****Stockholders’
                Equity**Preferred
                stock - $0.01 par valueAuthorized
                - 5,000 sharesIssued
                and outstanding - None
            
            
            --
            
            
            --Common
                stock - $0.01 par valueAuthorized
                - 250,000 sharesIssued
                - 50,060 shares at December 31, 2006 and
              50,056 shares at March 31, 2006
            
            
            501
            
            
            501Additional
                paid-in capital
            
            
            379,009
            
            
            378,570Treasury
                stock, at cost - 55 shares at December 31, 2006
              and
                18 shares at March 31, 2006
            
            
            (40
            )
            
            (30
            )Accumulated
                other comprehensive income
            
            
            476
            
            
            1,109Retained
                earnings
            
            
            56,940
            
            
            29,257Total
                stockholders’ equity
            
            
            436,886
            
            
            409,407Total
                Liabilities and Stockholders’ Equity
            
            $
            1,052,165
            
            $
            1,038,645


*See
      accompanying notes.*





-3-


**Prestige
      Brands Holdings, Inc.**


**Consolidated
      Statement of Changes in Stockholders’ Equity**


**and
      Comprehensive Income**


**Nine
      Months Ended December 31, 2006**


***(Unaudited)***








**Common
                  Stock**
                **Par**
                **Shares Value**
            
            **Additional**Paid-in
                **Capital**
            
            **Treasury
                Stock**
              **Shares****Amount**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Income**
            
            **Retained**
              **Earnings**
            
            **Totals*****(In
                thousands)***
            
            ****Balances
                - March 31, 2006
            
            
            50,056
            
            $
            501
            
            $
            378,570
            
            
            18
            
            $
            (30
            )
            $
            1,109
            
            $
            29,257
            
            $
            409,407Stock-based
                compensation
            
            
            4
            
            
            
            
            
            439
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            439Purchase
                of common stock for treasury
            
            
            
            
            
            
            
            
            
            
            
            37
            
            
            (10
            )
            
            
            
            
            
            
            
            (10
            )Components
                of
              comprehensive incomeNet
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,683
            
            
            27,683Amortization
                of interest
              rate caps reclassified into
              earnings, net of tax
              benefit of $316
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            493
            
            
            
            
            
            493Unrealized loss
                on interest
              rate
                caps, net of income
              tax benefit of $622
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,126
            )
            
            
            
            
            (1,126
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,050Balances
                - December 31, 2006
            
            
            50,060
            
            $
            501
            
            $
            379,009
            
            
            55
            
            $
            (40
            )
            $
            476
            
            $
            56,940
            
            $
            436,886





*See
      accompanying notes.*





-4-


**Prestige
      Brands Holdings, Inc.**


**Consolidated
      Statements of Cash Flows**


***(Unaudited)***





****
            ****
            **Nine
                Months Ended December 31*****(In
                thousands)***
            ****
            **2006**
            ****
            **2005**
            ******Operating
                Activities**Net
                income
            
            $
            27,683
            
            $
            22,648Adjustments
                to reconcile net income to net cash provided
              by operating activities:Depreciation
                and amortization
            
            
            7,629
            
            
            8,105Deferred
                income taxes
            
            
            7,686
            
            
            11,543Amortization
                of deferred financing costs
            
            
            2,422
            
            
            1,727Stock-based
                compensation
            
            
            439
            
            
            230Changes
                in operating assets and liabilities, net of the effects of purchases
                of
                businessesAccounts
                receivable
            
            
            4,812
            
            
            2,681Inventories
            
            
            2,707
            
            
            (6,997
            )Prepaid
                expenses and other current assets
            
            
            (765
            )
            
            271Accounts
                payable
            
            
            1,366
            
            
            (3,549
            )Income
                taxes payable
            
            
            (1,584
            )
            
            (2,135
            )Accrued
                liabilities
            
            
            2,894
            
            
            1,312Net
                cash provided by operating activities
            
            
            55,289
            
            
            35,836**Investing
                Activities**Purchases
                of equipment
            
            
            (429
            )
            
            (452
            )Purchase
                of intangibles
            
            
            --
            
            
            (22,623
            )Change
                in other assets due to purchase price adjustments
            
            
            386
            
            
            --Purchases
                of businesses
            
            
            (31,242
            )
            
            (30,555
            )Net
                cash used for investing activities
            
            
            (31,285
            )
            
            (53,630
            )**Financing
                Activities**Proceeds
                from the issuance of long-term debt
            
            
            --
            
            
            30,000Repayment
                of long-term debt
            
            
            (27,392
            )
            
            (7,797
            )Payment
                of deferred financing costs
            
            
            --
            
            
            (13
            )Purchase
                of common stock for treasury
            
            
            (10
            )
            
            (21
            )Additional
                costs associated with initial public offering
            
            
            --
            
            
            (63
            )Net
                cash provided by (used for) financing activities
            
            
            (27,402
            )
            
            22,106Increase
                (decrease) in cash
            
            
            (3,398
            )
            
            4,312Cash
                - beginning of period
            
            
            8,200
            
            
            5,334Cash
                - end of period
            
            $
            4,802
            
            $
            9,646**Supplemental
                Cash Flow Information**Fair
                value of assets acquired
            
            $
            35,096
            
            $
            33,909Fair
                value of liabilities assumed
            
            
            (3,854
            )
            
            (3,354
            )Cash
                paid to purchase business
            
            $
            31,242
            
            $
            30,555Interest
                paid
            
            $
            30,749
            
            $
            28,206Income
                taxes paid
            
            $
            8,790
            
            $
            1,335





*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) isengaged in the marketing, sales and distribution of over-the-counter
      drug, personal care and household cleaning brands to mass merchandisers, drug
      stores, supermarkets and club stores primarily in the United States and Canada.
      Prestige
      Brands Holdings, Inc. is a holding company with no assets or operations and
      is
      also the parent guarantor of the senior revolving credit facility, senior
      secured term loan facility and the senior subordinated notes more fully
      described in note 9 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 generally accepted accounting principles for complete
      financial statements. In the opinion of management, the financial statements
      include all adjustments, consisting of normal recurring adjustments that are
      considered necessary for a fair presentation of the Company’s consolidated
      financial position, results of operations and cash flows for the interim
      periods. Operating results for the three and nine month periods ended December
      31, 2006 are not necessarily indicative of results that may be expected for
      the
      year ending March 31, 2007. This financial information should be read in
      conjunction with the Company’s financial statements and notes thereto included
      in the Company’s Annual Report on Form 10-K for the year ended March 31,
      2006.





***Use
      of Estimates***


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements, as well as the reported amounts of revenues and
      expenses during the reporting period. Although these estimates are based on
      the
      Company’s knowledge of current events and actions that the Company may undertake
      in the future, actual results could differ from those estimates. As discussed
      below, the Company’s most significant estimates include those made in connection
      with the valuation of intangible assets, sales returns and allowances, trade
      promotional allowances and inventory obsolescence.




***Cash
      and Cash Equivalents***


The
      Company considers all short-term deposits and investments with original
      maturities of three months or less to be cash equivalents. Substantially all
      of
      the Company’s cash is held by one bank located in Wyoming. The Company does not
      believe that, as a result of this concentration, it is subject to any unusual
      financial risk beyond the normal risk associated with commercial banking
      relationships.





***Accounts
      Receivable***


The
      Company extends non-interest bearing trade credit to its customers in the
      ordinary course of business. The Company maintains an allowance for doubtful
      accounts receivable based upon historical collection experience and expected
      collectibility of the accounts receivable. In
      an
      effort to reduce credit risk, the Company (i) has established credit limits
      for
      all of its customer relationships, (ii) performs ongoing credit evaluations
      of
      customers’ financial condition, (iii) monitors the payment history and aging of
      customers’ receivables, and (iv) monitors open orders against an individual
      customer’s outstanding receivable balance.





***Inventories***


Inventories
      are stated at the lower of cost or fair value, where cost is determined by
      using
      the first-in, first-out method. The Company provides an allowance for slow
      moving and obsolete inventory, whereby it reduces
      inventories for the diminution of value, resulting from product obsolescence,
      damage or other issues affecting marketability, equal to the difference between
      the cost of the inventory and its estimated market value. Factors




-6-


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 issuance costs in connection with its long-term debt.
      These costs are capitalized as deferred financing costs and amortized using
      the
      effective interest method over the term of the related debt.





***Revenue
      Recognition***


Revenues
      are recognized in accordance with Securities and Exchange Commission Staff
      Accounting Bulletin 104, “Revenue Recognition,” when the following criteria are
      met: (1) persuasive evidence of an arrangement exists; (2) the product has
      been
      shipped and the customer takes ownership and assumes risk of loss; (3) the
      selling price is fixed or determinable; and (4) collection of the resulting
      receivable is reasonably assured. The Company has determined that the transfer
      of risk of loss generally occurs when product is received by the customer and,
      accordingly, recognizes revenue at that time. Provision is made for estimated
      discounts related to customer payment terms and estimated product returns at
      the
      time of sale based on the Company’s historical experience.





As
      is
      customary in the consumer products industry, t he
      Company participates in the
      promotional programs of its customers to enhance the sale of its products. The
      cost
      of these promotional programs varies based on the actual number of units sold
      during a finite period of time . The
      Company estimates the cost of such promotional programs at their inception
      based
      on historical experience and current market conditions and reduces sales
      by




-7-


such
      estimates . These
      promotional programs consist of direct to consumer incentives such as coupons
      and temporary price reductions, as well as incentives to the Company’s
      customers, such as slotting fees and cooperative advertising. Estimates of
      the
      costs of these promotional programs are based on (i) historical sales
      experience, (ii) the current offering, (iii) forecasted data, (iv) current
      market conditions, and (v) communication with customer purchasing/marketing
      personnel. At
      the
      completion of the promotional program, the estimated amounts are adjusted to
      actual results.





Due
      to
      the nature of the consumer products industry, the Company is required to
      estimate future product returns. Accordingly, the Company records an estimate
      of
      product returns concurrent with recording sales which is made after analyzing
      (i) historical return rates, (ii) current economic trends, (iii) changes in
      customer demand, (iv) product acceptance, (v) seasonality of the Company’s
      product offerings, and (vi) the impact of changes in product formulation,
      packaging and advertising.





***Costs
      of Sales***


Costs
      of
      sales include product costs, warehousing costs, inbound and outbound shipping
      costs, and handling and storage costs. Shipping, warehousing and handling costs
      were $6.2 million and $7.3 million for the three month periods ended December
      31, 2006 and 2005, respectively, and $18.3 million and $19.3 million for the
      nine month periods ended December 31, 2006 and 2005, respectively.





***Advertising
      and Promotion Costs***


Advertising
      and promotion costs are expensed as incurred. Slotting fees associated with
      products are recognized as a reduction of sales. Under slotting arrangements,
      the retailers allow the Company’s products to be placed on the stores’ shelves
      in exchange for such fees. Direct reimbursements of advertising costs are
      reflected as a reduction of advertising costs in the period earned.





***Stock-based
      Compensation***


The
      Company adopted FASB, Statement No. 123(R), “Share-Based Payment” (“Statement
      No. 123(R)”), effective April 1, 2005, with the grants of restricted stock and
      options to purchase common stock to employees and directors in accordance with
      the provisions of the Company’s 2005 Long-Term
      Equity Incentive Plan (the “Plan”). Statement No. 123(R) requires the Company to
      measure the cost of services to be rendered based on the grant-date fair value
      of the equity award. Compensation expense is to be recognized over the period
      an
      employee is required to provide service in exchange for the award, generally
      referred to as the requisite service period. The Company recorded non-cash
      compensation expense of $215,000 during the three month period ended December
      31 ,
      2006,
      and net non-cash compensation expense of $439,000 for the nine months ended December
      31 ,
      2006.
      During the three month period ended June 30, 2006, the Company recorded a net
      non-cash compensation credit of $9,000 as a result of the reversal of
      compensation charges in the amount of $142,000 associated with the departure
      of
      a former member of management. The Company recorded non-cash compensation
      expense of $120,000 and $230,000 during the three and nine month periods ended December
      31 ,
      2005.





***Income
      Taxes***


Income
      taxes are recorded in accordance with the provisions of FASB Statement No.
      109,
“Accounting for Income Taxes” (“Statement No. 109”). Pursuant to Statement No.
      109, deferred tax assets and liabilities are determined based on the differences
      between the financial reporting and tax bases of assets and liabilities using
      the enacted tax rates and laws that will be in effect when the differences
      are
      expected to reverse. A valuation allowance is established when necessary to
      reduce deferred tax assets to the amounts expected to be realized.





***Derivative
      Instruments***


FASB
      Statement No. 133, “Accounting for Derivative Instruments and Hedging
      Activities” (“Statement No. 133”), requires companies to recognize derivative
      instruments as either assets or liabilities in the balance sheet at fair value.
      The accounting for changes in the fair value of a derivative instrument depends
      on whether it has been designated and qualifies as part of a hedging
      relationship and further, on the type of hedging relationship. For those
      derivative instruments that are designated and qualify as hedging instruments,
      a
      company must designate the hedging instrument, based upon the exposure being
      hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment
      in a foreign operation.





-8-


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.





***Earnings
      Per Share***


Basic
      earnings per share is calculated based on income available to common
      stockholders and the weighted-average number of shares outstanding during the
      reporting period. Diluted earnings per share is calculated based on income
      available to common stockholders and the weighted-average number of common
      and
      potential common shares outstanding during the reporting period. Potential
      common shares, composed of the incremental common shares issuable upon the
      exercise of stock options and unvested restricted shares, are included in the
      earnings per share calculation to the extent that they are
      dilutive.





***Fair
      Value of Financial Instruments***


The
      carrying value of cash, accounts receivable and accounts payable at December
      31 ,
      2006
      and March 31, 2006 approximates fair value due to the short-term nature of
      these
      instruments. The carrying value of long-term debt at December
      31 ,
      2006
      and March 31, 2006 approximates fair value based on interest rates for
      instruments with similar terms and maturities.





***Recently
      Issued Accounting Standards***


In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 151, “Inventory Costs” (“Statement No. 151”). Statement No. 151
      amended the guidance in Accounting Research Bulletin No. 43, Chapter 4,
“Inventory Pricing”, and requires the exclusion of certain costs, such as
      abnormal amounts of freight, handling costs and manufacturing overhead, from
      inventories. Additionally, Statement No. 151 requires the allocation of fixed
      production overhead to inventory based on normal capacity of the production
      facilities. The provisions of Statement No. 151 are effective for costs incurred
      during fiscal years beginning after September 15, 2005. The adoption of
      Statement No. 151 did not have a material impact on the Company’s financial
      condition, results of operations or cash flows for the three and nine month
      periods ended December 31, 2006.





In
      June
      2006, the FASB issued
      FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes--an
      interpretation of FASB Statement 109” (“FIN 48”), which clarifies the accounting
      for uncertainty in income taxes recognized in a company’s financial statements
      in accordance with FASB Statement 109. FIN 48 is effective for fiscal years
      beginning after December 15, 2006, and prescribes a recognition threshold and
      measurement attributes for the financial statement recognition and measurement
      of a tax position taken or expected to be taken in a tax return. The adoption
      of
      FIN 48 is not expected to have a material impact on the Company’s consolidated
      financial position, results of operations or cash flows.





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 interim
      financial statements issued during the fiscal year beginning after November
      15,
      2007.





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.








-9-


2.Acquisition
      of Wartner USA B.V.





On
      September 21, 2006, the Company completed the acquisition of the ownership
      interests of Wartner USA B.V. (“Wartner”), the owner of the Wartner® brand of
      over-the-counter wart treatment products. The Company expects that the Wartner
      brand, which is the #3 brand in the United States over-the-counter wart
      treatment category, will enhance the Company’s leadership in the category.
      Additionally, the Company believes that the brand will benefit from a targeted
      advertising and marketing program, as well as the Company’s business model of
      outsourcing manufacturing and the elimination of redundant operations. The
      results from operations of the Wartner® brand have been included within the
      Company’s consolidated financial statements as a component of the
      over-the-counter segment commencing September 21, 2006.





The
      purchase price of the ownership interests was approximately $35.1 million,
      including fees and expenses of the acquisition of $216,000 and the assumption
      of
      approximately $5.0 million of contingent payments, with an estimated fair value
      of $3.8 million, owed to the former owner of Wartner through 2011. The Company
      funded the cash acquisition price from operating cash flows.





The
      following table summarizes the estimated fair values of the assets acquired
      at
      the date of acquisition. The Company has obtained independent valuations of
      certain tangible and intangible assets; however, the final purchase price will
      not be determined until all preliminary valuations have been finalized.
      Consequently, the allocation of the purchase price is subject to
      refinement.





The
      preliminary fair values assigned to the net assets and liabilities acquired
      consist of the following:





***(In
                thousands)***Inventory
            
            $
            769Intangible
                assets
            
            
            29,600Goodwill
            
            
            4,727Accrued
                liabilities
            
            
            (3,854
            )$
            31,242





The
      amount allocated to intangible assets of $29.6 million includes $17.8 million
      related to the Wartner® brand trademark which the Company estimates to have a
      useful life of 20 years, as well as $11.8 million related to a patent estimated
      to have a useful life of 14 years. Goodwill resulting from this transaction
      was
      $4.7 million. As discussed above, this recorded amount is subject to change
      as
      additional information becomes available; however, it is estimated that such
      amount will be fully deductible for income tax purposes.





The
      following table sets forth the unaudited results of the Company’s operations on
      a pro forma basis as if the acquisition of Wartner had been completed on April
      1, 2005. The pro forma amounts for the three and nine month periods ended
      December 31, 2005 include the pro forma results from operations of Dental
      Concepts, LLC, which was acquired in November 2005, as if the acquisition of
      Dental Concepts had been completed on April 1, 2005. The pro forma financial
      information is not necessarily indicative of the operating results that the
      combined entities would have achieved had the acquisitions been consummated
      on
      April 1, 2005, nor is it necessarily


-10-


indicative
      of the operating results that may be expected for the year ending March 31,
      2007.





**Three
                Months**
              **Ended
                December 31**
            ****
            **Nine
                Months**
              **Ended
                December 31**
            *******(In
                thousands, except per share data)***
            ****
            **2006**
            ****
            **2005**
            ****
            **2006**
            ****
            **2005****(Actual
                as Reported)**Revenues
            
            $
            80,124
            
            $
            83,044
            
            $
            248,067
            
            $
            233,629Income
                before provision for income taxes
            
            $
            14,378
            
            $
            15,826
            
            $
            42,521
            
            $
            36,902Net
                income
            
            $
            10,643
            
            $
            9,148
            
            $
            27,783
            
            $
            22,509Basic
                earnings per share
            
            $
            0.21
            
            $
            0.19
            
            $
            0.56
            
            $
            0.46Diluted
                earnings per share
            
            $
            0.21
            
            $
            0.18
            
            $
            0.56
            
            $
            0.45Weighted
                average shares outstanding:
              Basic
            
            
            49,535
            
            
            48,929
            
            
            49,425
            
            
            48,874Diluted
            
            
            50,024
            
            
            50,010
            
            
            50,016
            
            
            50,007








**3.**
            **Accounts
                Receivable**





Accounts
      receivable consist of the following (in thousands):


**December
                31,**
              **2006**
            
            **March
                31,**
              **2006**Accounts
                receivable
            
            $
            35,199
            
            $
            40,140Other
                receivables
            
            
            1,514
            
            
            1,87036,713
            
            
            42,010Less
                allowances for discounts, returns and
              uncollectible
                accounts
            
            
            (1,483
            )
            
            (1,968
            )$
            35,230
            
            $
            40,042








**4.**
            **Inventories**





Inventories
      consist of the following (in thousands):


**December
                31,**
              **2006**
            
            **March
                31,**
              **2006**Packaging
                and raw materials
            
            $
            3,047
            
            $
            3,278Finished
                goods
            
            
            28,733
            
            
            30,563$
            31,780
            
            $
            33,841





Inventories
      are shown net of allowances for obsolete and slow moving inventory of $1.3
      million and $1.0 million at December
      31 ,
      2006
      and March 31, 2006, respectively.





-11-





5.Property
      and Equipment




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


**December
                31,**
              **2006**
            
            **March
                31,**
              **2006**Machinery
            
            $
            1,447
            
            $
            3,722Computer
                equipment
            
            
            610
            
            
            987Furniture
                and fixtures
            
            
            263
            
            
            303Leasehold
                improvements
            
            
            371
            
            
            3402,691
            
            
            5,352Accumulated
                depreciation
            
            
            (1,238
            )
            
            (3,699
            )$
            1,453
            
            $
            1,653








6.Goodwill





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





**Over-the-Counter**
              **Drug**
            ****
            **Household**
              **Cleaning**
            ****
            **Personal**
              **Care**
            ****
            **Consolidated**
            ********
            ****
            ****
            ****
            ****
            ****Balance
                - March 31, 2006
            
            $
            222,635
            
            $
            72,549
            
            $
            2,751
            
            $
            297,935Additions
            
            
            5,993
            
            
            --
            
            
            --
            
            
            5,993Balance
                - December 31, 2006
            
            $
            228,628
            
            $
            72,549
            
            $
            2,751
            
            $
            303,928





During
      the three month period ended December 31, 2006, the Company finalized the
      purchase price allocation of Dental Concepts, LLC and increased goodwill by
      $1.3
      million. At December 31, 2006, approximately $33.1 million of the Company’s
      goodwill is deductible for income tax purposes.





7.Intangible
      Assets





A
      reconciliation of the activity affecting intangible assets is as follows (in
      thousands):





**Indefinite**
              **Lived**
              **Intangibles**
            
            **Finite**
              **Lived**
              **Intangibles**
            
            **Total*****Carrying
                Amounts***Balance
                - March 31, 2006
            
            $
            544,963
            
            $
            110,066
            
            $
            655,029Additions
            
            
            --
            
            
            29,600
            
            
            29,600Balance
                - December 31, 2006
            
            $
            544,963
            
            $
            139,666
            
            $
            684,629***Accumulated
                Amortization***Balance
                - March 31, 2006
            
            $
            --
            
            $
            17,832
            
            $
            17,832Amortization
            
            
            --
            
            
            7,013
            
            
            7,013Balance
                - December 31, 2006
            
            $
            --
            
            $
            24,845
            
            $
            24,845


-12-


At
      December 31, 2006, intangible assets are expected to be amortized over a period
      of five to 30 years as follows (in thousands):





**Year
                Ending December 31**2007
            
            $
            10,5072008
            
            
            10,5072009
            
            
            10,5022010
            
            
            9,0862011
            
            
            9,071Thereafter
            
            
            65,148$
            114,821








8.Other
      Accrued Liabilities





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





**December
                31,**
              **2006**
            
            **March
                31,**
              **2006**Accrued
                marketing costs
            
            $
            6,058
            
            $
            2,513Accrued
                payroll
            
            
            2,737
            
            
            813Accrued
                commissions
            
            
            322
            
            
            248Other
            
            
            1,050
            
            
            1,008$
            10,167
            
            $
            4,582








-13-


9.Long-Term
      Debt





Long-term
                debt consists of the following (in thousands):**December
                31,**
              **2006**
            
            **March
                31,**
              **2006**Senior
                revolving credit facility (“Revolving Credit Facility”), which expires on
                April 6, 2009, 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 December
                31,
                2006, the interest rate on the Revolving Credit Facility was 9.5%
                per
                annum. The Company is also required to pay a variable commitment
                fee on
                the unused portion of the Revolving Credit Facility. At December
                31, 2006,
                the commitment fee was 0.50% of the unused line. The Revolving Credit
                Facility is collateralized by substantially all of the Company’s
                assets.
            
            $
            --
            
            $
            7,000Senior
                secured term loan facility (“Tranche B Term Loan Facility”) that bears
                interest at the Company’s option at either the prime rate plus a margin of
                1.25% or LIBOR plus a margin of 2.25%. At December 31, 2006, the
                applicable interest rate on the Tranche B Term Loan Facility was
                7.71%.
                Principal payments of $887,500 and interest are payable quarterly.
                In
                February 2005, the Tranche B Term Loan Facility was amended to increase
                the additional amount available thereunder by $50.0 million to $200.0
                million, all of which is available at December 31, 2006. Current
                amounts
                outstanding under the Tranche B Term Loan Facility mature on April
                6,
                2011, while amounts borrowed pursuant to the amendment will mature
                on
                October 6, 2011. The Tranche B Term Loan Facility is collateralized
                by
                substantially all of the Company’s assets.
            
            
            345,238
            
            
            365,630Senior
                Subordinated Notes (“Senior Notes”) that bear interest at 9.25% which is
                payable on April 15thand October 15thof
                each year. The Senior Notes mature on April 15, 2012; however, the
                Company
                may redeem some or all of the Senior Notes on or prior to April 15,
                2008
                at a redemption price equal to 100%, plus a make-whole premium, and
                after
                April 15, 2008 at redemption prices set forth in the indenture governing
                the Senior Notes. The Senior Notes are unconditionally guaranteed
                by
                Prestige Brands 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
            
            
            126,000471,238
            
            
            498,630Current
                portion of long-term debt
            
            
            (3,550
            )
            
            (3,730
            )$
            467,688
            
            $
            494,900








-14-


Effective
      as of December 19, 2006: (i) a Second Supplemental Indenture (“Second
      Supplemental Indenture”), and (ii) a Guaranty Supplement (“Indenture Guaranty
      Supplement”) were entered into with the trustee for the holders of the Senior
      Notes. The Second Supplemental Indenture supplements and amends the indenture,
      dated as of April 6, 2004, as amended on October 6, 2004 (“Indenture”). Pursuant
      to the terms of the Second Supplemental Indenture and the Indenture Guaranty
      Supplement, the Company agreed to guaranty all of the
      obligations ofPrestige Brands, Inc., an indirect wholly-owned subsidiary
      of the Company (“PBI”), set forth in the Indenture. The Second Supplemental
      Indenture also amended the covenant requiring Prestige Brands International,
      LLC
      (“Prestige Brands International”), an indirect wholly-owned subsidiary of the
      Company, to file periodic reports with the Securities and Exchange Commission
      (“SEC”) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
      as amended (“Exchange Act”). So long as the Company or any other guarantor is
      required to file periodic reports under Section 13 or 15(d) of the Exchange
      Act
      that are substantially the same as the periodic reports that Prestige Brands
      International would otherwise be required to file with the SEC pursuant to
      the
      Indenture, Prestige Brands International is not required to file such
      reports.





Also
      effective as of December 19, 2006, a Joinder Agreement (“Joinder Agreement”),
      and a Guaranty Supplement (“Credit Agreement Guaranty Supplement”) were
        entered into w under
        the
        Senior Credit Facility





The
      Revolving Credit Facility and the Tranche B Term Loan Facility (together the
      “Senior Credit Facility”) contain various financial covenants, including
      provisions that require the Company to maintain certain leverage ratios,
      interest coverage ratios and fixed charge coverage ratios. The Senior Credit
      Facility and the Senior Notes also contain provisions that restrict the Company
      from undertaking specified corporate actions, such as asset dispositions,
      acquisitions, dividend payments, repurchase of common shares outstanding,
      changes of control, incurrence of indebtedness, creation of liens, making of
      loans and transactions with affiliates. Additionally, the Senior Credit Facility
      and the Senior Notes contain cross-default provisions whereby a default pursuant
      to the terms and conditions of either indebtedness will cause a default on
      the
      remaining indebtedness. At
      December 31, 2006, 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 Notes are as follows (in thousands):





**Year
                Ending December 31,**2007
            
            $
            3,5502008
            
            
            3,5502009
            
            
            3,5502010
            
            
            3,5502011
            
            
            331,038Thereafter
            
            
            126,000$
            471,238





In
      an
      effort to mitigate the impact of changing interest rates, the Company entered
      into interest rate cap agreements with various financial institutions. In June
      2004, the Company purchased a 5% interest rate cap with a notional amount of
      $20.0 million which expired in June 2006. In March 2005, the Company purchased
      interest rate cap agreements with a total notional amount of $180.0 million
      and
      cap rates ranging from 3.25% to 3.75%. On May 31, 2006, an interest rate cap
      agreement with a notional amount of $50.0 million and a 3.25% cap rate expired.
      The remaining agreements terminate on May 30, 2007 and 2008 as to notional
      amounts of $80.0 million and $50.0 million, respectively. The Company is
      accounting for the interest rate cap agreements as cash flow




-15-


hedges.
      The fair value of the interest rate cap agreements, which is included in other
      long-term assets, was $1.8 million and $3.3 million at December
      31 , 2006
      and
      March 31, 2006, respectively .




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 December
      31 ,
      2006.








11.Earnings
      Per Share





The
      following table sets forth the computation of basic and diluted earnings per
      share (in thousands, except per share amounts):








**Three
                Months Ended**
              **December
                31**
            
            **Nine
                Months Ended**
              **December
                31******
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005****Numerator**Net
                income
            
            $
            10,643
            
            $
            9,345
            
            $
            27,683
            
            $
            22,648**Denominator**Denominator
                for basic earnings per share - weighted average shares
            
            
            49,535
            
            
            48,929
            
            
            49,425
            
            
            48,874Dilutive
                effect of unvested
              restricted common stock,
              performance shares and
              options
            
            
            489
            
            
            1,081
            
            
            591
            
            
            1,133Denominator
                for diluted earnings
              per share
            
            
            50,024
            
            
            50,010
            
            
            50,016
            
            
            50,007**Earnings
                per Common Share:**Basic
            
            $
            0.21
            
            $
            0.19
            
            $
            0.56
            
            $
            0.46Diluted
            
            $
            0.21
            
            $
            0.19
            
            $
            0.55
            
            $
            0.45





At December
      31 ,
      2006,
      444,000 shares of restricted stock issued to officers, directors and employees
      were unvested, and were therefore, excluded from the calculation of basic
      earnings per share for the period ended December
      31 ,
      2006.
      However, such shares are included in the calculation of diluted earnings per
      share. An additional 270,000 shares of restricted stock granted to officers
      and
      employees have been excluded from the calculation of both basic and diluted
      earnings per share since vesting of such shares is subject to contingencies
      which have not been met as of December
      31 ,
      2006.
      At December
      31 ,
      2005,
      1.1 million shares of restricted stock issued to officers and employees, were
      unvested and were therefore, excluded from the calculation of basic earnings
      per
      share for the periods ended December
      31 ,
      2005.


-16-


**12.**
            **Stock-Based
                Compensation**





In
      connection with the Company’s February 2005 initial public offering, the Board
      of Directors adopted the Plan which provides for the grant, up to a maximum
      of
      5.0 million shares, of stock options, restricted stock, restricted stock units,
      deferred stock units and other equity-based awards. Directors, officers and
      other employees of the Company and its subsidiaries, as well as others
      performing services for the Company, are eligible for grants under the Plan.
      The
      Company believes that such awards better align the interests of its employees
      with those of its stockholders.





**Restricted
      Shares**


Restricted
      shares granted under the Plan generally vest in 3 to 5 years, contingent on
      attainment of Company performance goals, including both revenue and earnings
      per
      share growth targets. Certain restricted share awards provide for accelerated
      vesting if there is a change of control. The fair value of nonvested restricted
      shares is determined as the closing price of the Company’s common stock on the
      day preceding the grant date. There were no restricted shares granted during
      the
      three month period ended December 31, 2006; however, the Company granted awards
      aggregating 156,500 shares of restricted stock with an estimated fair value
      of
      $1.3 million during the nine month period ended December 31, 2006. During
      the three month period ended December 31, 2005, the Company authorized the
      grant
      of 155,800 shares of restricted stock with an estimated fair value of $1.9
      million to employees. During the nine month period ended December 31, 2005,
      the
      Company granted awards aggregating 180,700 shares of restricted stock with
      an
      estimated fair value of $2.2 million.





**Performance
      Shares**


On
      the
      vesting date, the recipient of performance shares will receive the difference
      between the closing price of the Company’s common stock on such date and the
      grant date price, times the number of performance shares underlying the grant.
      These awards may be settled in cash, common stock or some combination thereof
      at
      the option of the Company. There were no performance share awards granted during
      the three month period ended December 31, 2006; however, during the nine month
      period ended December 31, 2006, the Company granted awards aggregating 16,100
      performance shares with an estimated fair value of $60,000. No such awards
      were
      granted during the three month and nine month periods ended December 31,
      2005.





**Options**


The
      Plan
      provides that the exercise price of the option granted shall be no less than
      the
      fair market value of the Company’s common stock on the date the option is
      granted. Options granted have a term of no greater than 10 years from the date
      of grant and vest in accordance with a schedule determined at the time the
      option is granted, generally 3 to 5 years. Certain option awards provide for
      accelerated vesting if there is a change in control. There were no options
      outstanding as of December 31, 2006.





The
      fair
      value of option and performance share awards is estimated on the date of grant
      using the Black-Scholes Option Pricing Model. As of December 31, 2006, there
      was
      approximately $1.6 million of total unrecognized compensation cost related
      to
      nonvested share-based compensation arrangements under the Plan, based on
      management’s estimate of the shares that will ultimately vest. The Company
      expects to recognize such costs over the next 4 years. However, the restricted
      shares vest upon the attainment of Company performance goals; if such goals
      are
      not met, no compensation cost would ultimately be recognized and any previously
      recognized compensation cost would be reversed. At December 31, 2006, there
      were
      4.7 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 25.9% and 34.6% for three and
      nine
      month periods ended December
      31 ,
      2006,
      respectively, and 38.6% and 39.0% for the three and nine month periods ended December
      31 ,
      2005,
      respectively. The reduction in the income tax rates for the three and nine
      month
      periods ended December 31, 2006 result from the implementation of initiatives
      to
      obtain operational, as well as tax, efficiencies.





-17-





A
      reconciliation of the effective tax rate compared to the statutory U.S. Federal
      tax rate for
      the
      nine month period ended December 31, 2006is as follows (in
      thousands) :





%Income
                tax provision at statutory rate
            
            $
            14,825.0
            
            
            
            
            
            35.0Foreign
                tax provision
            
            
            (58.2
            )
            
            
            
            
            (0.1
            )State
                income taxes, net of federal income tax benefit
            
            
            1,595.3
            
            
            
            
            
            3.7Decrease
                in net deferred tax liability resulting from
              an decrease in the effective state tax rate
            
            
            (1,708.0
            )
            
            
            
            
            (4.0
            )Other
            
            
            20.9
            
            
            
            
            
            0.0Provision
                for income taxes from continuing
              operations
            
            $
            14,675.0
            
            
            
            
            
            34.6








14.Commitments
      and Contingencies





The
      Company and certain of its officers and directors are defendants in a
      consolidated putative securities class action lawsuit filed in the United States
      District Court for the Southern District of New York (the “Consolidated
      Action”). The first of the six consolidated cases was filed on August 3, 2005.
      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.
      Requests for discovery have been submitted and a motion by Plaintiffs for class
      certification is pending. The Company’s management believes the remaining claims
      are legally deficient and subject to meritorious defenses. The Company intends
      to vigorously pursue its defenses; however, the Company cannot reasonably
      estimate the potential range of loss, if any.





On
      May
      23, 2006, Similasan Corporation filed a lawsuit against the Company in the
      United States District Court for the District of Colorado in which Similasan
      alleged false designation of origin, trademark and trade dress infringement,
      and
      deceptive trade practices by the Company related to *Murine* for
      Allergy Eye Relief, *Murine* for
      Tired Eye Relief and *Murine* for
      Earache Relief, as applicable. Similasan has requested injunctive relief, an
      accounting of profits and damages and litigation costs and attorneys’ fees. The
      Company has filed an answer to the complaint with a potentially dispositive
      motion. In addition to the lawsuit filed by Similasan in the U.S. District
      Court
      for the District of Colorado, the Company also received a cease and desist
      letter from Swiss legal counsel to Similasan and its parent company, Similasan
      AG, a Swiss company. In the cease and desist letter, Similasan and Similasan
      AG
      have alleged a breach of the Secrecy Agreement executed by the Company and
      demanded that the Company cease and desist from (i) using confidential
      information covered by the Secrecy Agreement; and (ii) manufacturing,
      distributing, marketing or selling certain of its homeopathic products. The
      complaint in the Colorado action has now been amended to include allegations
      relating to the breach of confidentiality’ and the Company has filed an answer
      and responsive motions. The Company’s management believes the allegations to be
      without merit and intends to vigorously pursue its defenses; however, the
      Company cannot reasonably estimate the potential range of loss, if
      any.





On
      September 28, 2006, OraSure Technologies, Inc. moved in the Supreme Court of
      the
      State of New York for a preliminary injunction prohibiting the Company from
      selling cryogenic wart removal products under the




-18-


Wartner®
      brand, which the Company acquired on September 21, 2006. OraSure Technologies
      is
      a supplier to the Company for the Company’s Compound W Freeze Off® business. The
      distribution agreement in place calls for mediation of contract disputes,
      followed by arbitration, if necessary. The contract in question is of five
      years
      duration ending in December 2007. On October 30, 2006, the Court denied OraSure
      Technologies’ motion for a preliminary injunction. Subsequently, in a decision
      and order dated December 20, 2006, the Court denied a motion by OraSure
      Technologies for a rehearing regarding a preliminary injunction. An appeal
      was
      filed by OraSure in the Appellate Division of the Supreme Court of the State
      of
      New York on January 29, 2007, which the Company expects to answer in due course.
      The Company is now seeking resolution of the matter through
      arbitration.





The
      Company is also involved from time to time in other routine legal matters and
      other claims incidental to its business. The Company reviews outstanding claims
      and proceedings internally and with external counsel as necessary to assess
      probability of loss and for the ability to estimate loss. These assessments
      are
      re-evaluated each quarter and as new information becomes available to determine
      whether a reserve should be established or if any existing reserve should be
      adjusted. The actual cost of resolving a claim or proceeding ultimately may
      be
      substantially different than the amount of the recorded reserve. In addition,
      because it is not permissible under generally accepted accounting principles
      to
      establish a litigation reserve until the loss is both probable and estimable,
      in
      some cases there may be insufficient 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 or results from operations.





**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 July
      2009.





The
      following summarizes future minimum lease payments for the Company’s operating
      leases (in thousands):




**Year
                Ending December 31,**
            ****
            **Facilities**
            ****
            **Equipment**
            ****
            **Total**2007
            
            $
            646
            
            $
            120
            
            $
            7662008
            
            
            499
            
            
            120
            
            
            6192009
            
            
            198
            
            
            87
            
            
            2852010
            
            
            --
            
            
            49
            
            
            49$
            1,343
            
            $
            376
            
            $
            1,719








15.Concentrations
      of Risk





The
      Company’s sales are concentrated in the areas of over-the-counter drug, personal
      care and household cleaning products. The Company sells its products to mass
      merchandisers, food and drug accounts, and dollar and club stores. During the
      three and nine month periods ended December
      31 ,
      2006
      approximately 55.5% and 58.6%, respectively, of the Company’s total sales were
      derived from its four major brands, while during the three and nine month
      periods ended December 31, 2005, approximately 59.8% and 62.1%, respectively,
      of
      the Company’s total sales were derived from these four major brands. During the
      three month periods ended December
      31 ,
      2006
      and 2005, approximately 21.4% and 20.0%, respectively, of the Company’s sales
      were made to one customer, while during the nine month periods ended December
      31 ,
      2006
      and 2005, approximately 23.6% and 22.4% of sales were to this customer. At December
      31 ,
      2006,
      approximately 20.6% of accounts receivable were owed by the same
      customer.





The
      Company manages product distribution in the continental United States through
      a
      main distribution center in St. Louis, Missouri. A serious disruption, such
      as a
      flood or fire, to the main distribution center could damage the Company’s
      inventories and materially impair the Company’s ability to distribute its
      products to customers in a timely manner or at a reasonable cost. The Company
      could incur significantly higher costs and experience longer




-19-


lead
      times associated with the distribution of its products to its customers during
      the time that it takes the Company to reopen or replace its distribution center.
      As a result, any such disruption could have a material adverse effect on the
      Company’s sales and profitability.





The
      Company has relationships with over 40 third-party manufacturers. Of those,
      the
      top 10 manufacturers produced items that accounted for approximately 78% of
      the
      Company’s gross sales for the nine month period ended December 31, 2006. The
      Company does not have long-term contracts with 3 of these manufacturers and
      certain manufacturers of various smaller brands, which collectively, represented
      approximately 34% of the Company’s gross sales for the nine month period ended
      December 31, 2006. 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.








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
      Drugs, (ii) Household Cleaning, and (iii) Personal Care.





There
      were no inter-segment sales or transfers during the three and nine month periods
      ended December
      31 ,
      2006
      and 2005. The Company evaluates the performance of its operating segments and
      allocates resources to them based primarily on contribution margin. The table
      below summarizes information about the Company’s operating and reportable
      segments (in thousands).





**Three
                Months Ended December 31, 2006******
            
            **Over-the-Counter**
              **Drug**
            
            **Household**
              **Cleaning**
            
            **Personal**
              **Care**
            
            **Consolidated**Net
                sales
            
            $
            45,574
            
            $
            28,155
            
            $
            5,835
            
            $
            79,564Other
                revenues
            
            
            --
            
            
            560
            
            
            --
            
            
            560Total
                revenues
            
            
            45,574
            
            
            28,715
            
            
            5,835
            
            
            80,124Cost
                of sales
            
            
            15,800
            
            
            17,787
            
            
            3,179
            
            
            36,766Gross
                profit
            
            
            29,774
            
            
            10,928
            
            
            2,656
            
            
            43,358Advertising
                and promotion
            
            
            7,089
            
            
            1,595
            
            
            268
            
            
            8,952Contribution
                margin
            
            $
            22,685
            
            $
            9,333
            
            $
            2,388
            
            
            34,406Other
                operating expenses
            
            
            
            
            
            
            
            
            
            
            
            9,872Operating
                income
            
            
            
            
            
            
            
            
            
            
            
            24,534Other
                (income) expense
            
            
            
            
            
            
            
            
            
            
            
            10,156Provision
                for income taxes
            
            
            
            
            
            
            
            
            
            
            
            3,735Net
                income
            
            
            
            
            
            
            
            
            
            
            $
            10,643





-20-





**Nine
                Months Ended December 31, 2006******
            
            **Over-the-Counter**
              **Drug**
            
            **Household**
              **Cleaning**
            
            **Personal**
              **Care**
            
            **Consolidated**Net
                sales
            
            $
            131,427
            
            $
            88,625
            
            $
            19,112
            
            $
            239,164Other
                revenues
            
            
            --
            
            
            1,434
            
            
            --
            
            
            1,434Total
                revenues
            
            
            131,427
            
            
            90,059
            
            
            19,112
            
            
            240,598Cost
                of sales
            
            
            48,198
            
            
            54,882
            
            
            11,270
            
            
            114,350Gross
                profit
            
            
            83,229
            
            
            35,177
            
            
            7,842
            
            
            126,248Advertising
                and promotion
            
            
            19,573
            
            
            5,304
            
            
            932
            
            
            25,809Contribution
                margin
            
            $
            63,656
            
            $
            29,873
            
            $
            6,910
            
            
            100,439Other
                operating expenses
            
            
            
            
            
            
            
            
            
            
            
            28,390Operating
                income
            
            
            
            
            
            
            
            
            
            
            
            72,049Other
                (income) expense
            
            
            
            
            
            
            
            
            
            
            
            29,691Provision
                for income taxes
            
            
            
            
            
            
            
            
            
            
            
            14,675Net
                income
            
            
            
            
            
            
            
            
            
            
            $
            27,683








**Three
                Months Ended December 31, 2005**
            ********
            ****
            **Over-the-Counter**
              **Drug**
            ****
            **Household**
              **Cleaning**
            ****
            **Personal**
              **Care**
            ****
            **Consolidated**Net
                sales
            
            $
            42,051
            
            $
            30,771
            
            $
            7,007
            
            $
            79,829Other
                revenues
            
            
            --
            
            
            27
            
            
            --
            
            
            27Total
                revenues
            
            
            42,051
            
            
            30,798
            
            
            7,007
            
            
            79,856Cost
                of sales
            
            
            15,821
            
            
            18,951
            
            
            3,954
            
            
            38,726Gross
                profit
            
            
            26,230
            
            
            11,847
            
            
            3,053
            
            
            41,130Advertising
                and promotion
            
            
            4,926
            
            
            1,735
            
            
            724
            
            
            7,385Contribution
                margin
            
            $
            21,304
            
            $
            10,112
            
            $
            2,329
            
            
            33,745Other
                operating expenses
            
            
            
            
            
            
            
            
            
            
            
            8,993Operating
                income
            
            
            
            
            
            
            
            
            
            
            
            24,752Other
                (income) expense
            
            
            
            
            
            
            
            
            
            
            
            9,526Provision
                for income taxes
            
            
            
            
            
            
            
            
            
            
            
            5,881Net
                income
            
            
            
            
            
            
            
            
            
            
            $
            9,345





-21-





**Nine
                Months Ended December 31, 2005******
            
            **Over-the-Counter**
              **Drug**
            
            **Household**
              **Cleaning**
            
            **Personal**
              **Care**
            
            **Consolidated**Net
                sales
            
            $
            116,199
            
            $
            78,783
            
            $
            21,595
            
            $
            216,577Other
                revenues
            
            
            --
            
            
            77
            
            
            --
            
            
            77Total
                revenues
            
            
            116,199
            
            
            78,860
            
            
            21,595
            
            
            216,654Cost
                of sales
            
            
            43,044
            
            
            47,873
            
            
            12,307
            
            
            103,224Gross
                profit
            
            
            73,155
            
            
            30,987
            
            
            9,288
            
            
            113,430Advertising
                and promotion
            
            
            18,192
            
            
            5,245
            
            
            2,870
            
            
            26,307Contribution
                margin
            
            $
            54,963
            
            $
            25,742
            
            $
            6,418
            
            
            87,123Other
                operating expenses
            
            
            
            
            
            
            
            
            
            
            
            23,287Operating
                income
            
            
            
            
            
            
            
            
            
            
            
            63,836Other
                (income) expense
            
            
            
            
            
            
            
            
            
            
            
            26,707Provision
                for income taxes
            
            
            
            
            
            
            
            
            
            
            
            14,481Net
                income
            
            
            
            
            
            
            
            
            
            
            $
            22,648








During
      the three month periods ended December 31, 2006 and 2005, approximately 95.9%
      and 96.8%, respectively, of the Company’s sales were made to customers in the
      United States and Canada, while during the nine month periods ended December
      31,
      2006 and 2005, approximately 95.6% and 96.9%, respectively, of sales were made
      to customers in the United States and Canada. At December 31, 2006 and March
      31,
      2006, substantially all of the Company’s long-term assets were located in the
      United States of America and have been allocated to the operating segments
      as
      follows:





**Over-the-Counter**
              **Drug**
            ****
            **Household**
              **Cleaning**
            ****
            **Personal**
              **Care**
            ****
            **Consolidated**Goodwill
            
            $
            228,628
            
            $
            72,549
            
            $
            2,751
            
            $
            303,928Intangible
                assetsIndefinite
                lived
            
            
            374,070
            
            
            170,893
            
            
            --
            
            
            544,963Finite
                lived
            
            
            96,676
            
            
            24
            
            
            18,121
            
            
            114,821470,746
            
            
            170,917
            
            
            18,121
            
            
            659,784$
            699,374
            
            $
            243,466
            
            $
            20,872
            
            $
            963,712








-22-


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







**General**


We
      are
      engaged in the marketing, sales and distribution of brand name over-the-counter
      drug, household cleaning and personal care products to mass merchandisers,
      drug
      stores, supermarkets and club stores primarily in the United States and Canada.
      We operate in niche segments of these categories where we can use the strength
      of our brands, our established retail distribution network, a low-cost operating
      model and our experienced management team as a competitive advantage to grow
      our
      presence in these categories and, as a result, grow our sales and
      profits.





We
      have
      grown our brand portfolio by acquiring strong and well-recognized brands from
      larger consumer products and pharmaceutical companies, as well as other brands
      from smaller private companies. While the brands we have purchased from larger
      consumer products and pharmaceutical companies have long histories of support
      and brand development, we believe that at the time we acquired them they were
      considered “non-core” by their previous owners and did not benefit from the
      focus of senior level management or strong marketing support. We believe that
      the brands we have purchased from smaller private companies have been
      constrained by the limited resources of their prior owners. After acquiring
      a
      brand, we seek to increase its sales, market share and distribution in both
      existing and new channels. We pursue this growth through increased spending
      on
      advertising and promotion, new marketing strategies, improved packaging and
      formulations and innovative new products.





On
      September 21, 2006, we completed the acquisition of the ownership interests
      of
      Wartner USA B.V., a privately held limited liability company, and the
      intellectual property associated with the “Wartner ®” brand of
      over-the-counter wart treatment products. The purchase price of this acquisition
      was $35.1 million, inclusive of direct costs of the acquisition of $216,000.
      We
      purchased the Wartner brand with funds generated from operations and the
      assumption of approximately $5.0 million of contingent payments to the former
      owner of
      the
      Wartner brand.





On
      October 28, 2005, we completed the acquisition of the “Chore Boy®” brand of
      cleaning pads and sponges. The purchase price of this acquisition was $22.6
      million, including direct costs of $400,000. We purchased the Chore Boy® brand
      with funds generated from operations.





On
      November 8, 2005, we completed the acquisition of the ownership interests of
      Dental Concepts LLC, a marketer of therapeutic oral care products sold under
      “The Doctor’s®” brand. The purchase price of the ownership interests was
      approximately $30.5 million, including fees and expenses of the acquisition
      of
      $500,000. We financed the acquisition price through the utilization of our
      Revolving Credit Facility and with cash resources of $30.0 million and $500,000,
      respectively.





We
      expect
      that the Wartner® brand will benefit from our business model of outsourcing
      manufacturing and increasing awareness through targeted marketing and that
      both
      the Chore Boy® and The Doctor’s® product lines will continue to benefit from our
      model.


-23-


Three
      Month Period EndedDecember
      31,
      2006
      compared to the


**Three
      Month Period Ended
      December 31, 2005**








**Total
      Revenues**


**FYE**
              **2007**
              **Revenues**
            ****
            **%**
            ****
            **FYE**
              **2006**
              **Revenues**
            ****
            **%**
            ****
            **Increase**
              **(Decrease)**
            ****
            **%**OTC
                Drug
            
            $
            45,574
            
            
            56.9
            
            $
            42,051
            
            
            52.6
            
            $
            3,523
            
            
            8.4Household
                Cleaning
            
            
            28,715
            
            
            35.8
            
            
            30,798
            
            
            38.6
            
            
            (2,083
            )
            
            (6.8
            )Personal
                Care
            
            
            5,835
            
            
            7.3
            
            
            7,007
            
            
            8.8
            
            
            (1,172
            )
            
            (16.7
            )Total
                Revenues
            
            $
            80,124
            
            
            100.0
            
            $
            79,856
            
            
            100.0
            
            $
            268
            
            
            0.3





The
      slight increase in total revenues for the three month period ended December
      31,
      2006 versus the comparable period in 2005 was primarily a result of the
      acquisitions of the Wartner brand, acquired in September of 2006, and the Chore
      Boy ® and The
      Doctor’s ® brands
      acquired in October and November 2005, respectively. The revenue increase in
      the
      Over-the-Counter Drug segment was mostly offset by a decrease in the Household
      Cleaning and Personal Care segments. Excluding the impact of the acquisitions,
      revenues were down 5.7%.





***Over-the-Counter
      Drug Segment***


Revenues
      in the Over-the-Counter Drug segment increased by $3.5 million, or 8.4% for
      the
      three month period ended December 31, 2006 versus the comparable period in
      2005.
      The increase was primarily the result of the Wartner and Doctor’s brands which
      were acquired in September 2006 and November 2005, respectively. Excluding
      the
      impact of these acquisitions, revenues were essentially flat for the period.
      Revenue increases from Little Remedies ® ,
      Clear
      eyes ® New Skin
      and Dermoplast were offset by revenue decreases from Chloraseptic ® ,
      Compound W ® and
      Murine ® .
      Little
      Remedies’ revenue increased during the period primarily as a result of strong
      consumer consumption. The Clear eyes ® sales
      growth is a result of continued strong consumer consumption trends and the
      launch of Clear eyes ® Triple
      Action. New Skin’s revenue increased as a result of improving consumer
      consumption trends while Dermoplast’s revenue increased due to continued strong
      consumer consumption trends. The Doctor’s ® brand
      had strong revenue growth as a result of television media support behind The
      Doctor’s Nightguard. Chloraseptic revenue decreased during the period in line
      with weak consumer consumption primarily attributable to a less severe cough
      and
      cold season as it relates to sore throat symptoms. Compound W ® revenue
      decreased during the period primarily as a result of weaker consumer consumption
      of Freeze-Off, its cryogenic wart remover product.





***Household
      Cleaning Segment***


Revenues
      of the Household Cleaning segment declined by $2.1 million, or 6.8%, for the
      three month period ended December 31, 2006 versus the comparable period of
      2005.
      Excluding the acquisition of Chore Boy ® ,
      revenues for this segment were down 11.3% for the period. The Comet ® and Spic
      and Span ® brands
      revenue declines were primarily the result of comparisons against unusually
      strong year ago shipments, which included pipeline shipments supporting new
      distribution and significant promotional sales to a dollar store customer.
      Both
      brands experienced continued consumer consumption gains during the
      quarter.





***Personal
      Care Segment***


Revenues
      of the Personal Care segment declined by $1.2 million, or 16.7% for the three
      month period ended December 31, 2006 versus the comparable period of 2005.
      The
      sales decrease was a result of continued declines in consumer consumption trends
      for the Cutex ® ,
      Denorex ® and
      Prell ® brands
and
      was in accordance with management’s expectations.








-24-


**Gross
      Profit**


****
            ****
            **FYE**
              **2007**
              **Gross
                Profit**
            ****
            **%**
            ****
            **FYE**
              **2006**
              **Gross
                Profit**
            ****
            **%**
            ****
            **Increase**
              **(Decrease)**
            ****
            %OTC
                Drug
            
            $
            29,774
            
            
            65.3
            
            $
            26,230
            
            
            62.4
            
            $
            3,544
            
            
            13.5Household
                Cleaning
            
            
            10,928
            
            
            38.1
            
            
            11,847
            
            
            38.5
            
            
            (919
            )
            
            (7.8
            )Personal
                Care
            
            
            2,656
            
            
            45.5
            
            
            3,053
            
            
            43.6
            
            
            (397
            )
            
            (13.0
            )$
            43,358
            
            
            54.1
            
            $
            41,130
            
            
            51.5
            
            $
            2,228
            
            
            5.4





Gross
      profit for the three month period ended December 31, 2006 increased $2.2
      million, or 5.4% versus the comparable period in 2005. As a percent of total
      revenue, gross profit increased from 51.5% for the same period last year to
      54.1% during the current period. The increase in gross profit percentage was
      primarily the result of a shift in sales to the higher margin OTC segment and
      a
      reduction in distribution costs resulting from lower oil prices versus the
      comparable period last year.





***Over-the-Counter
      Drug Segment***


Gross
      profit for the three month period ended December 31, 2006 increased $3.5
      million, or 13.5%, versus the comparable period in 2005. As a percent of OTC
      revenue, gross profit increased from 62.4% for the same period last year to
      65.3% during the current period. The increase in gross profit percentage was
      primarily a result of favorable sales mix and a reduction in distribution costs
      resulting from lower oil prices versus the comparable period last year. The
      favorable sales mix was primarily attributable to sales of higher margin
      products, such as, The Doctor’s Nightguard, Wartner and Compound W’s salicylic
      acid products constituting a larger percentage of total OTC sales than in the
      prior year’s quarter.





***Household
      Cleaning Segment***


Gross
      profit for the three month period ended December 31, 2006 decreased $919,000,
      or
      7.8%, versus the comparable period in 2005. As a percent of household cleaning
      revenue, gross profit decreased from 38.5% for the same period last year to
      38.1% during the current period. The decrease in gross profit percentage is
      primarily a result of favorable distribution costs resulting from lower oil
      prices offset by the increase in Chore Boy sales which have a lower margin
      than
      the other brands in the segment.





***Personal
      Care Segment***


Gross
      profit for the three month period ended December 31, 2006 decreased $397,000,
      or
      13.0%, versus the comparable period in 2005. As a percent of personal care
      revenue, gross profit increased from 43.6% for the same period last year to
      45.5% during the current period. The increase in gross profit percentage was
      primarily a result of favorable distribution costs resulting from lower oil
      prices and a reduction in promotional pricing allowances.








**Contribution
      Margin**


**FYE**
              **2007**
              **Contribution
                Margin**
            ****
            **%**
            ****
            **FYE**
              **2006**
              **Contribution
                Margin**
            ****
            **%**
            ****
            **Increase**
              **(Decrease)**
            ****
            **%**OTC
                Drug
            
            $
            22,685
            
            
            49.8
            
            $
            21,304
            
            
            50.7
            
            $
            1,381
            
            
            6.5Household
                Cleaning
            
            
            9,333
            
            
            32.5
            
            
            10,112
            
            
            32.8
            
            
            (779
            )
            
            (7.7
            )Personal
                Care
            
            
            2,388
            
            
            40.9
            
            
            2,329
            
            
            33.2
            
            
            59
            
            
            2.5$
            34,406
            
            
            42.9
            
            $
            33,745
            
            
            42.3
            
            $
            661
            
            
            2.0





Contribution
      margin, defined as gross profit less advertising and promotional expenses,
      increased $661,000, or 2.0%, for the three month period ended December 31,
      2006
      versus the comparable period of 2005. The contribution margin increase was
      a
      result of the increase in sales and gross profit as previously discussed,
      partially




-25-


offset
      by
      a $1.6 million, or 21.2% increase in advertising and promotional spending.
      The
      increase was primarily attributable to the Over-the-Counter Drug
      segment.





***Over-the-Counter
      Drug Segment***


Contribution
      margin in the Over-the-Counter Drug segment increased by $1.4 million, or 6.5%
      for the three month period ended December 31, 2006 versus the comparable period
      of 2005. The contribution margin increase was a result of the increase in sales
      and gross profit as previously discussed, partially offset by a $2.2 million,
      or
      a 43.9% increase in advertising and promotional spending. The increase in
      advertising and promotional spending was primarily a result of television media
      behind The Doctor’s Nightguard, Chloraseptic Daily Defense Strips, and Clear
      eyes.





***Household
      Cleaning Segment***


Contribution
      margin in the household cleaning segment decreased by $779,000, or 7.7%, for
      the
      three month period ended December 31, 2006 versus the comparable period of
      2005.
      The contribution margin decrease was a result of the decrease in sales and
      gross
      profit as previously discussed, partially offset with a $140,000, or an 8.1%
      reduction in advertising and promotional spending. The decrease was a result
      of
      a modest reduction of Comet media and promotional spending partially offset
      by
      increased spending related to Chore Boy.





***Personal
      Care Segment***


Contribution
      margin of the personal care segment was up $59,000, or 2.5% for the three month
      period ended December 31, 2006 versus the comparable period of 2005. The slight
      contribution margin increase was primarily the result of a $456,000, or 63.0%,
      reduction in advertising and promotion spending versus the comparable period
      in
      2005, offset by the gross profit decline as previously discussed. The reduction
      in advertising and promotion was
      due
      to the Company’s strategic decision to redeploy advertising and promotional
      funds in support of its growth brands in the OTC drug
      segment.




**General
      and Administrative**


General
      and administrative expenses were $7.1 million for the three month period ended
      December 31, 2006 versus $6.2 million for the comparable period of 2005. The
      increase is primarily related to higher compensation costs as a result of
      additional staff added during the second half of our fiscal year ended March
      31,
      2006, increased stock-based compensation costs, as well as increased legal
      fees.





**Depreciation
      and Amortization**


Depreciation
      and amortization expense was $2.8 million for the three month period ended
      December 31, 2006 versus $2.8 million for the comparable period of 2005. An
      increase in amortization of intangible assets related to the Wartner and Dental
      Concepts acquisition was partially offset by a reduction in carrying value
      of
      trademarks related to the Personal Care segment resulting from an asset
      impairment charge of $7.4 million recorded during the three month period ended
      March 31, 2006. Depreciation expense decreased by $343,000 for the three month
      period ended December 31, 2006 versus the comparable period of 2005 which mostly
      offset the increase in amortization expense.





**Interest
      Expense**


Net
      interest expense was $10.2 million for the three month period ended December
      31,
      2006 versus $9.5 million for the comparable period of 2005. This represented
      an
      increase of $630,000,
      or 6.6%, from the prior period. The increase in interest expense is due
      to the increase in interest rates associated with our variable rate
      indebtedness. The average cost of funds increased from 7.7% for the three month
      period ended December 31, 2005 to 8.4% for the three month period ended December
      31, 2006.





**Income
      Taxes**


The
      income tax provision for the three month period ended December 31, 2006 was
      $3.7
      million, with an effective rate of 25.9%, compared to $5.9 million, with an
      effective rate of 38.6% for period ended December 31, 2005. During the three
      month period ended March 31, 2006, the Company increased the effective tax
      rate
      to 39.1% and adjusted the deferred tax liabilities as a result of the completion
      of a state nexus study. The current period includes a $1.7 million tax benefit
      resulting from a reduction in the deferred income tax rate to 38.6% from 39.1%
      as a result of the implementation of initiatives to obtain operational, as
      well
      as tax, efficiencies.





-26-


**Nine
      Month Period Ended December 31, 2006 compared to the**


**Nine
      Month Period Ended
      December 31, 2005**








**Total
      Revenues**


****
            
            **FYE**
              **2007**
              **Revenues**
            
            **%**
            
            **FYE**
              **2006**
              **Revenues**
            
            **%**
            
            **Increase**
              **(Decrease)**
            
            **%**OTC
                Drug
            
            $
            131,427
            
            
            54.7
            
            $
            116,199
            
            
            53.6
            
            $
            15,228
            
            
            13.1Household
                Cleaning
            
            
            90,059
            
            
            37.4
            
            
            78,860
            
            
            36.4
            
            
            11,199
            
            
            14.2Personal
                Care
            
            
            19,112
            
            
            7.9
            
            
            21,595
            
            
            10.0
            
            
            (2,483
            )
            
            (11.5
            )$
            240,598
            
            
            100.0
            
            $
            216,654
            
            
            100.0
            
            $
            23,944
            
            
            11.1





The
      11.1%
      increase in revenues for the nine month period ended December 31, 2006 versus
      the comparable period in 2005 was primarily a result of the acquisitions of
      the
      Wartner brand, acquired in September of 2006, and the Chore Boy ® and The
      Doctor’s ® brands
      acquired in October and November 2005, respectively. Excluding the impact of
      the
      acquisitions, revenues were up 2.6%. Revenue increases in Over-the-Counter
      Drug
      and Household Cleaning segments were partially offset by a decrease in
      the Personal Care segment.





***Over-the-Counter
      Drug Segment***


Revenues
      in the Over-the-Counter Drug segment increased $15.2 million, or 13.1% for
      the
      nine month period ended December 31, 2006 versus the comparable period in 2005.
      The increase was primarily a result of the Wartner and Doctor’s brands which
      were acquired in September 2006 and November 2005, respectively. Excluding
      the
      impact of these acquisitions, revenues increased 4.5%. All the major brands
      in
      this segment, with the exception of New Skin, had revenue increases during
      the
      period versus the comparable period last year. Little Remedies and Dermoplast
      sales increases were primarily a result of improved consumer consumption. The
      increase in Compound W was primarily a result of weak customer shipments in
      2005. Chloraseptic’s revenue increase was due to the launch of the new Daily
      Defense Strips and multi-symptom products, as well as, increased shipments
      to
      international customers. The Clear eyes ® sales
      growth was a result of continued strong consumer consumption trends, the launch
      of Clear eyes ® Triple
      Action and increased shipments to international customers. The
      Murine ® revenue
      increase was a result of improved consumer consumption of the ear product and
      the launch of the homeopathic product line. New Skin’s revenue decrease was the
      result of softness in the liquid bandage category.





***Household
      Cleaning Segment***


Revenues
      of the Household Cleaning segment increased $11.2 million, or 14.2%, for the
      nine month period ended December 31, 2006 versus the comparable period of 2005.
      Excluding the acquisition of Chore Boy ® ,
      revenues for this segment increased 3.7% for the period. Comet ® revenue
      increased during the period due to strong consumer consumption, expanded
      distribution and royalty revenues earned from licensing agreements in Eastern
      Europe and for institutional sales in North America. Revenues for the Spic
      and
      Span ® brand
      increased during the period as a result of increased consumer consumption and
      expanded distribution of dilutable product and antibacterial spray.





***Personal
      Care Segment***


Revenues
      of the Personal Care segment declined $2.5 million, or 11.5%, for the nine
      month
      period ended December 31, 2006 versus the comparable period of 2005. The sales
      decrease was a result of continued declines in consumer consumption trends
      for
      the Cutex ® ,
      Denorex ® and
      Prell ® brands
      and was in accordance with management's expectations.





-27-


**Gross
      Profit**


**FYE**
              **2007**
              **Gross
                Profit**
            
            **%**
            
            **FYE**
              **2006**
              **Gross
                Profit**
            
            **%**
            
            **Increase**
              **(Decrease)**
            
            **%**OTC
                Drug
            
            $
            83,229
            
            
            63.3
            
            $
            73,155
            
            
            63.0
            
            $
            10,074
            
            
            13.8Household
                Cleaning
            
            
            35,177
            
            
            39.1
            
            
            30,987
            
            
            39.3
            
            
            4,190
            
            
            13.5Personal
                Care
            
            
            7,842
            
            
            41.0
            
            
            9,288
            
            
            43.0
            
            
            (1,446
            )
            
            (15.6
            )$
            126,248
            
            
            52.5
            
            $
            113,430
            
            
            52.4
            
            $
            12,818
            
            
            11.3





Gross
      profit for the nine month period ended December 31, 2006 increased $12.8
      million, or 11.3%, versus the comparable period in 2005. As a percent of total
      revenue, gross profit increased slightly from 52.4% for the same period last
      year to 52.5% during the current period. The increase in gross profit percentage
      was generally the result of lower distribution costs and a shift to higher
      margin products within Over-The-Counter Drug segment, partially offset by higher
      product costs and increased shipments to non-North American distributors which
      have a lower margin than our domestic markets. Shipments to markets outside
      of
      North America represented 4.4% of total revenues versus 3.1% for the same period
      last year.





***Over-the-Counter
      Drug Segment***


Gross
      profit for the nine month period ended December 31, 2006 increased $10.1
      million, or 13.8%, versus the comparable period in 2005. As a percent of OTC
      revenue, gross profit increased from 63.0% for the same period last year to
      63.3% during the current period. The increase in gross profit percentage was
      primarily a result of favorable sales mix and a reduction in distribution costs
      resulting from lower oil prices, partially offset by higher packaging costs
      and
      increased shipments to non-North American distributors which have a lower gross
      margin than our domestic markets.





***Household
      Cleaning Segment***


Gross
      profit for the nine month period ended December 31, 2006 increased $4.2 million,
      or 13.5%, versus the comparable period in 2005. As a percent of household
      cleaning revenue, gross profit decreased from 39.3% for the same period last
      year to 39.1% during the current period. The decrease in gross profit percentage
      is primarily a result of increased product costs and an increase in Chore Boy
      sales which have a lower margin than the segment average, partially offset
      by
      royalties earned, with no associated costs, from our international and
      institutional licensing arrangements with Procter & Gamble





***Personal
      Care Segment***


Gross
      profit for the nine month period ended December 31, 2006 decreased $1.4 million,
      or 15.6%, versus the comparable period in 2005. As a percent of personal care
      revenue, gross profit decreased from 43.0% for the same period last year to
      41.0% during the current period. The decrease in gross profit percentage is
      a
      result of increased promotional pricing allowances and product
      costs.





**Contribution
      Margin**


**FYE**
              **2007**
              **Contribution
                Margin**
            ****
            **%**
            ****
            **FYE**
              **2006**
              **Contribution
                Margin**
            ****
            **%**
            ****
            **Increase**
              **(Decrease)**
            ****
            **%**OTC
                Drug
            
            $
            63,656
            
            
            48.4
            
            $
            54,963
            
            
            47.3
            
            $
            8,693
            
            
            15.8Household
                Cleaning
            
            
            29,873
            
            
            33.2
            
            
            25,742
            
            
            32.6
            
            
            4,131
            
            
            16.0Personal
                Care
            
            
            6,910
            
            
            36.2
            
            
            6,418
            
            
            29.7
            
            
            492
            
            
            7.7$
            100,439
            
            
            41.7
            
            $
            87,123
            
            
            40.2
            
            $
            13,316
            
            
            15.3





Contribution
      margin, defined as gross profit less advertising and promotional expenses,
      increased $13.3 million, or 15.3% for the nine month period ended December
      31,
      2006 versus the comparable period of 2005. The contribution margin increase
      was
      a result of the increase in sales and gross profit as previously discussed,
      and
      a




-28-


$498,000,
      or 1.9% reduction in advertising and promotional spending. The reduction in
      advertising and promotional spending is primarily a result of $1.9 million
      reduction in the Personal Care segment partially offset by an increase of $1.4
      million in the Over-the-Counter Drug segment.





***Over-the-Counter
      Drug Segment***


Contribution
      margin in the Over-the-Counter Drug segment increased by $8.7 million, or 15.8%,
      for the nine month period ended December 31, 2006 versus the comparable period
      of 2005. The contribution margin increase was a result of the increase in sales
      and gross profit as previously discussed, partially offset with a $1.4 million,
      or a 7.6%, increase in advertising and promotional spending. The increase in
      advertising and promotional spending was primarily a result of increased media
      behind The Doctor’s Nightguard and Murine, Little Remedies print media and
      Chloraseptic promotional spending, partially offset by a reduction in Clear
      eyes
      and New Skin media.





***Household
      Cleaning Segment***


Contribution
      margin in the household cleaning segment increased by $4.1 million, or 16.0%,
      for the nine month period ended December 31, 2006 versus the comparable period
      of 2005. The contribution margin increase was a result of the sales and gross
      profit increase previously discussed, slightly offset with a $59,000, or a
      1.1%
      increase in advertising and promotional spending. The increase is a result
      of a modest reduction of Comet media and promotional spending partially offset
      by increased spending resulting from the Chore Boy acquisition.





***Personal
      Care Segment***


Contribution
      margin of the personal care segment was up $492,000, or 7.7% for the nine month
      period ended December 31, 2006 versus the comparable period of 2005. The
      contribution margin increase was primarily the result of a $1.9 million, or
      67.5%, reduction in advertising and promotion spending versus the comparable
      period in 2005, partially offset by the gross profit decline as previously
      discussed. The reduction in advertising and promotion was due to the Company's
      strategic decision to redeploy advertising and promotional funds in support
      of
      its growth brands in the OTC drug segment.





**General
      and Administrative**


General
      and administrative expenses were $20.8 million for the nine month period ended
      December 31, 2006 versus $15.2 million for the comparable period of 2005. The
      increase was primarily related to additional staff added during the second
      half
      of our fiscal year ended March 31, 2006, severance compensation related to
      the
      departure of a member of management during the three month period ended June
      30,
      2006, increased stock-based compensation costs, as well as increased legal
      and
      professional fees.





**Depreciation
      and Amortization**


Depreciation
      and amortization expense was $7.6 million for the nine month period ended
      December 31, 2006 versus $8.1 million for the comparable period of 2005. An
      increase in amortization related to intangible assets purchased in the Wartner
      and Dental Concepts acquisitions was partially offset by a reduction of the
      carrying value of certain trademarks. During the three month period ended March
      31, 2006, the Company recognized an asset impairment charge of approximately
      $7.4 million related to intangible assets in the Personal Care segment.
      Depreciation expense decreased by $879,000 for the nine month period ended
      December 31, 2006 versus the comparable period of 2005 due to the absence of
      depreciation charges for manufacturing equipment that was fully depreciated
      as
      of January 31, 2006.





**Interest
      Expense**


Net
      interest expense was $29.7 million for the nine month period ended December
      31,
      2006 versus $26.7 million for the comparable period of 2005. This represented
      an
      increase of $3.0 million, or 11.2%, from the prior period. The increase in
      interest expense was due to the increase in interest rates associated with
      our
      variable rate indebtedness. The average cost of funds increased from 7.1% for
      the three month period ended December 30, 2005 to 8.1% for the three month
      period ended December 31, 2006.





**Income
      Taxes**


The
      income tax provision for the nine month period ended December 31, 2006 was
      $14.7
      million, with an effective rate of 34.6%, compared to $14.5 million, with an
      effective rate of 39.0% for period ended December 31, 2005. During the three
      month period ended March 31, 2006, the Company increased the effective tax
      rate
      to 39.1% and adjusted the deferred tax liabilities as a result of the completion
      of a state nexus study. The current




-29-


period
      includes a $1.7 million tax benefit resulting from a reduction in the deferred
      income tax rate to 38.6% from 39.1% as a result of the implementation of
      initiatives to obtain operational, as well as tax, efficiencies.








**Liquidity
      and Capital Resources**


We
      have
      financed and expect to continue to finance our operations with a combination
      of
      internally generated funds and borrowings. In February 2005, we completed an
      initial public offering that provided the Company with net proceeds of $416.8
      million which were used to repay
      the
      $100.0 million outstanding under the Tranche C Facility of our Senior Credit
      Facility, to redeem $84.0 million in aggregate principal amount of our existing
      9.25% Senior Notes, to
      repurchase common stock held by the GTCR funds and the TCW/Crescent funds,
      and
      to redeem all of the outstanding senior preferred units and class B preferred
      units held by previous investors in Prestige International Holdings, LLC, the
      predecessor-in-interest to Prestige Brands Holdings, Inc. Effective
      upon the completion of the IPO, we entered into an amendment to the credit
      agreement that, among other things, allows us to increase the indebtedness
      under
      our Tranche B Term Loan Facility to $200.0 million and allows for an increase
      in
      our Revolving Credit Facility up to $60.0 million. Our
      principal uses of cash are for operating expenses, debt service, acquisitions,
      working capital and capital expenditures.





**Nine
                Months Ended December 31**
            *******(In
                thousands)***
            ****
            **2006**
            ****
            **2005**Cash
                provided by (used for):Operating
                Activities
            
            $
            55,289
            
            $
            35,836Investing
                Activities
            
            
            (31,285
            )
            
            (53,630
            )Financing
                Activities
            
            
            (27,402
            )
            
            22,106





Net
      cash
      provided by operating activities was $55.3 million for the nine month period
      ended December 31, 2006 compared to $35.8 million for the nine month period
      ended December 31, 2005. The $19.5 million increase in net cash provided by
      operating activities was primarily the result of the following:





·
            An
                increase of net income of $5.1 million from $22.6 million for the
                nine
                month period ended December 31, 2005 to $27.7 million for the nine
                month
                period ended December 31, 2006,


·
            A
                decrease in non-cash expenses of $3.4 million for the nine month
                period
                ended December 31, 2006 compared to the nine month period ended December
                31, 2005, and


·
            An
                increase in cash provided by changes in the components of working
                capital
                for the nine month period ended December 31, 2006 of $17.8 million
                over
                the nine month period ended December 31,
                2005.





Net
      cash
      used for investing activities was $31.3 million for the nine month period ended
      December 31, 2006 compared to $53.6 million for the nine month period ended
      December 31, 2005. The net cash used for investing activities for the nine
      month
      period ended December 31, 2006, was primarily the result of the acquisition
      of
      Wartner USA B.V., while during the nine month period ended December 31, 2005,
      cash was used primarily for the acquisition of the Chore Boy® brand of cleaning
      pads and sponges and The Doctor’s® brand of therapeutic oral care
      products.





Net
      cash
      used for financing activities was $27.4 million for the nine month period ended
      December 31, 2006, compared to net cash provided by financing activities of
      $22.1 million for the nine month period ended December 31, 2005. During
      the three month period ended December 31, 2006, the Company repaid $18.5 million
      of indebtedness with cash generated from operations. This brought the aggregate
      debt reduction during the nine month period ended December 31, 2006 to $27.4
      million, thereby reducing our outstanding indebtedness to $471.2 million from
      $498.6 million at March 31, 2006. During the nine month period ended December
      31, 2005, the Company incurred $30.0 million of indebtedness related to our
      Revolving Credit Facility which was drawn upon in November 2005 to fund the
      acquisition of Dental Concepts LLC. This was partially offset by repayment
      of
      $7.8 million of indebtedness during the period.





-30-


**Capital
      Resources**





As
      of December
      31 ,
      2006,
      we had an aggregate of $471.2 million of outstanding indebtedness, which
      consisted of the following:





·
            $345.2
                million of borrowings under the Tranche B Term Loan Facility,
                and





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





We
      had
      $60.0 million of borrowing capacity available under the Revolving Credit
      Facility at such time, as well as $200.0 million available under the Tranche
      B
      Term Loan Facility.





All
      loans
      under the Senior Credit Facility bear interest at floating rates, based on
      either the prime rate, or at our option, the LIBOR rate, plus an applicable
      margin. As of December 31, 2006, an aggregate of $345.2 million was outstanding
      under the Senior Credit Facility at a weighted average interest rate of
      7.71%.





In
      June
      2004, we purchased a 5% interest rate cap agreement with a notional amount
      of
      $20.0 million which expired in June 2006. In March 2005, we purchased interest
      rate cap agreements that became effective August 30, 2005, with a total notional
      amount of $180.0 million and LIBOR cap rates ranging from 3.25% to 3.75%. On
      May
      31, 2006, an interest rate cap agreement with a notional amount of $50.0 million
      and a 3.25% cap rate expired. The remaining interest rate cap agreements
      terminate on May 30, 2007 and 2008 as to notional amounts of $80.0 million
      and
      $50.0 million, respectively. The fair value of the interest rate cap agreements
      was $1.8 million at December 31, 2006.





The
      Tranche B Term Loan Facility matures in October 2011. We must make quarterly
      amortization payments on the Tranche B Term Loan Facility equal to $887,500,
      representing 0.25% of the initial principal amount of the term loan. The
      Revolving Credit Facility matures and the commitments relating to the Revolving
      Credit Facility terminate in April 2009.





Effective
      as of December 19, 2006: (i) a Second Supplemental Indenture (“Second
      Supplemental Indenture”), and (ii) a Guaranty Supplement (“Indenture Guaranty
      Supplement”) were entered into with the trustee for the holders of the Senior
      Notes. The Second Supplemental Indenture supplements and amends the indenture,
      dated as of April 6, 2004, as amended on October 6, 2004 (“Indenture”). Pursuant
      to the terms of the Second Supplemental Indenture and the Indenture Guaranty
      Supplement, the Company agreed to guaranty all the
      obligations ofPrestige Brands, Inc., an indirect wholly-owned
      subsidiary of the Company (“PBI”), set forth in the Indenture. The Second
      Supplemental Indenture also amended the covenant requiring Prestige Brands
      International, LLC (“Prestige Brands International”), an indirect wholly-owned
      subsidiary of the Company, to file periodic reports with the Securities and
      Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934, as amended (“Exchange Act”). So long as the Company or any
      other guarantor is required to file periodic reports under Section 13 or 15(d)
      of the Exchange Act that are substantially the same as the periodic reports
      that
      Prestige Brands International would otherwise be required to file with the
      SEC
      pursuant to the Indenture, Prestige Brands International is not required to
      file such reports.





Also
      effective as of December 19, 2006, a Joinder Agreement (“Joinder Agreement”) and
      a Guaranty Supplement (“Credit Agreement Guaranty Supplement”) were entered into
      with the administrative agent for the lenders under
      the
      Senior Credit Facility. Pursuant to the terms of the Joinder Agreement
      and the Credit Agreement Guaranty Supplement, the Company agreed to become
      a
      party to the Pledge and Security Agreement (“Security Agreement”) and the
      Guaranty (“Credit Agreement Guaranty”), each dated as of April 6, 2004, by PBI
      and certain of its affiliates in favor of the lenders. The Security Agreement
      and the Credit Agreement Guaranty secure the performance by PBI of its
      obligations under the Credit Agreement, dated as of April 6, 2004, as amended
      (“Credit Agreement”), by granting security interests to the Company’s lenders in
      collateral owned by the Company and providing guaranties of such
      obligations by certain of PBI’s affiliates.





The
      Revolving Credit Facility and the Tranche B Term Loan Facility contain various
      financial covenants, including provisions that require us to maintain certain
      leverage ratios, interest coverage ratios and fixed charge




-31-


coverage
      ratios. The Revolving Credit Facility and the Tranche B Term Loan Facility,
      as
      well as the Senior Notes, contain provisions that accelerate our indebtedness
      on
      certain changes in control and restrict us from undertaking specified corporate
      actions, including, asset dispositions, acquisitions, payment of dividends
      and
      other specified payments, repurchasing the Company’s equity securities in the
      public markets, incurrence of indebtedness, creation of liens, making loans
      and
      investments and transactions with affiliates. Specifically, we
      must:





·
            have
                a leverage ratio of less than 5.0 to 1.0 for the quarter ended December
                31, 2006, decreasing 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 December 31, 2006, increasing over time to 3.25 to 1.0 for
                the
                quarter ending March 31, 2010, and





·
            have
                a fixed charge coverage ratio of greater than 1.5 to 1.0 for the
                quarter
                ended December 31, 2006, and for each quarter thereafter until the
                quarter
                ending March 31, 2011.





At December
      31 ,
      2006,
      we were in compliance with the applicable financial and restrictive covenants
      under the Senior Credit Facility and the Indenture, as amended, governing
      the Senior Notes.





Our
      principal sources of funds are anticipated to be cash flows from operating
      activities and available borrowings under the Revolving Credit Facility and
      Tranche B Term Loan Facility. We believe that these funds will provide us with
      sufficient liquidity and capital resources for us to meet our current and future
      financial obligations, as well as to provide funds for working capital, capital
      expenditures and other needs for at least the next 12 months. We regularly
      review acquisition opportunities and other potential strategic transactions,
      which may require additional debt or equity financing. If additional financing
      is required, there are no assurances that it will be available, or if available,
      that it can be obtained on terms favorable to us or on a basis that is not
      dilutive to our stockholders.








**Commitments**





As
      of December
      31 ,
      2006,
      we had ongoing commitments under various contractual and commercial obligations
      as follows:




**Payments
                Due by Period*****(In Millions)***
            
            ****
            
            **Less than**
            
            **1 to 3**
            
            **4 to 5**
            
            **After 5****Contractual
                Obligations**
            
            **Total**
            
            **1 Year**
            
            **Years**
            
            **Years**
            
            **Years**Long-term
                debt
            
            $
            471.2
            
            $
            3.5
            
            $
            7.1
            
            $
            334.6
            
            $
            126.0Interest
                on long-term debt(1)
            
            
            173.5
            
            
            38.4
            
            
            75.9
            
            
            55.8
            
            
            3.4Operating
                leases
            
            
            1.7
            
            
            0.7
            
            
            .9
            
            
            0.1
            
            
            --Total
                contractual cash obligations
            
            $
            646.4
            
            $
            42.6
            
            $
            83.9
            
            $
            390.5
            
            $
            129.4





(1)
            Represents
                the estimated interest obligations on the outstanding balances of
                the
                Revolving Credit Facility, Tranche B Term Loan Facility and Senior
                Notes,
                together, assuming scheduled principal payments (based on the terms
                of the
                loan agreements) were made and assuming a weighted average interest
                rate
                of 8.12%. Estimated interest obligations would be different under
                different assumptions regarding interest rates or timing of principal
                payments. If interest rates on borrowings with variable rates increased
                by
                1%, interest expense would increase approximately $3.4 million, in
                the
                first year. However, given the protection afforded by the interest
                rate
                cap agreements, the impact of a one percentage point increase would
                be
                limited to $2.2 million.








-32-


**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, 2006. 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 Securities and Exchange Commission Staff Accounting
      Bulletin 104 “Revenue Recognition,” which states that revenue should be
      recognized when the following revenue recognition criteria are met: (1)
      persuasive evidence of an arrangement exists; (2) the product has been shipped
      and the customer takes ownership and assumes the risk of loss; (3) the selling
      price is fixed or determinable; and (4) collection of the resulting receivable
      is reasonably assured. We have determined that the transfer of risk of loss
      generally occurs when product is received by the customer, and, accordingly
      recognize revenue at that time. Provision
      is made for estimated discounts related to customer payment terms and estimated
      product returns at the time of sale based on our historical
      experience.





As
      is
      customary in the consumer products industry, we participate in the promotional
      programs of our customers to enhance the sale of our products. The
      cost
      of these promotional programs varies based on the actual number of units sold
      during a finite period of time. We estimate the cost of such promotional
      programs at their inception based on historical experience and current market
      conditions and reduce sales by such estimates. These
      promotional programs consist of direct to consumer incentives such as coupons
      and temporary price reductions, as well as incentives to our customers, such
      as
      slotting fees and cooperative advertising. We do not provide incentives to
      customers for the acquisition of product in excess of normal inventory
      quantities since such incentives increase the potential for future returns,
      as
      well as reduce sales in the subsequent fiscal periods.





Estimates
      of costs of promotional programs are based on (i) historical sales experience,
      (ii) the current offering, (iii) forecasted data, (iv) current market
      conditions, and (v) communication with customer purchasing/marketing personnel.
      At the completion of the promotional program, the estimated amounts are adjusted
      to actual results. While our promotional expense for the year ended March 31,
      2006 was $13.3 million, we participated in 4,700 promotional campaigns,
      resulting in an average cost of $2,800 per campaign. Of such amount, only 845
      payments were in excess of $5,000. We believe that the estimation methodologies
      employed, combined with the nature of the promotional campaigns, makes the
      likelihood remote that our obligation would be misstated by a material amount.
      However, for illustrative purposes, had we underestimated the promotional
      program rate by 10% for the three and nine month periods ended December 31,
      2006, our sales and operating income would have been adversely affected by
      approximately $352,000 and $1.0 million, respectively.





We
      also
      periodically run couponing programs in Sunday newspaper inserts or as on-package
      instant redeemable coupons. We utilize a national clearing house to process
      coupons redeemed by customers. At the time a coupon is distributed, a provision
      is made based upon historical redemption rates for that particular product,
      information provided as a result of the clearing house’s experience with coupons
      of similar dollar value, the length of time the coupon is valid, and the
      seasonality of the coupon drop, among other factors. During the year ended
      March
      31, 2006, we had 20 coupon events. The amount recorded
      against revenues and accrued for these events during the year was
      $2.7 million, of which $2.4 million was redeemed during the year. During the
      nine month period ended December 31, 2006, we had 14 coupon events. The amount
      recorded
      against revenues and accrued for these events during the three and
      nine month periods ended December 31, 2006 was $700,000 and $2.2 million,
      respectively, of which $600,000 and $2.0 million, respectively, was redeemed
      during each period.





-33-


***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, 2006, 2005 and 2004, returns represented
      3.5%, 3.6% and 3.6%, respectively, of gross sales. At December 31, 2006 and
      March 31, 2006, the
      allowance for sales returns was $1.8 million and $1.7 million,
      respectively.





While
      we
      utilize the methodology described above to estimate product returns, actual
      results may differ materially from our estimates, causing our future financial
      results to be adversely affected. Among the factors that could cause a material
      change in the estimated return rate would be significant unexpected returns
      with
      respect to a product or products that comprise a significant portion of our
      revenues. Based upon the methodology described above and our actual returns’
experience, management believes the likelihood of such an event is remote.
      As
      noted, over the last three years, our actual product return rate has stayed
      within a range of 3.5% to 3.6% of gross sales. An increase of 0.1% in our
      estimated return rate as a percentage of gross sales would have adversely
      affected our reported sales and operating income for the three and nine month
      periods ended December 31, 2006 by approximately $92,000 and $279,000,
      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 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 December 31, 2006 and March 31, 2006, the allowance for obsolete and
      slow moving inventory represented 4.0% and 2.9%, respectively, of total
      inventory. A 1.0% increase in our allowance for obsolescence at December 31,
      2006 would have adversely affected our reported operating income for the three
      and nine month periods ended December 31, 2006 by approximately $331,000. During
      the three months ended December 31, 2006, the Company recorded a $39,000 credit,
      or 0.05% of net sales, to operations for changes in inventory obsolescence
      costs
      while during the nine month period ended December 31, 2006, inventory
      obsolescence costs charged to operations were $801,000, or 0.33% of net
      sales.





***Allowance
      for Doubtful Accounts***


In
      the
      ordinary course of business, we grant non-interest bearing trade credit to
      our
      customers on normal credit terms. We maintain an allowance for doubtful accounts
      receivable which is based upon our historical collection experience and expected
      collectibility of the accounts receivable. In an effort to reduce our credit
      risk, we (i) establish credit limits for all of our customer relationships,
      (ii)
      perform ongoing credit evaluations of our customers’ financial condition, (iii)
      monitor the payment history and aging of our customers’ receivables, and (iv)
      monitor open orders against an individual customer’s outstanding receivable
      balance.





We
      establish specific reserves for those accounts which file for bankruptcy, have
      no payment activity for 180 days or have reported major negative changes to
      their financial condition. The allowance for bad debts at December 31, 2006
      and
      March 31, 2006 amounted to 0.2% and 0.3%, respectively, of accounts receivable.
      For the three month period ended December 31, 2006 we recorded bad debt expense
      of $37,500. Bad debt expense for the nine




-34-


month
      period ended December 31, 2006 was favorably influenced by a $67,000 recovery
      during the three month period ended June 30, 2006, and amounted to
      $25,100.





While
      management believes that it is diligent in its evaluation of the adequacy of
      the
      allowance for doubtful accounts, an unexpected event, such as the bankruptcy
      filing of a major customer, could have an adverse effect on our future financial
      results. A 0.1% increase in our bad debt expense as a percentage of net sales
      would have resulted in a decrease in operating income for the three and nine
      month periods ended December 31, 2006 of approximately $80,000 and $239,000,
      respectively.





***Valuation
      of Intangible Assets and Goodwill***


Goodwill
      and intangible assets amounted to $963.7 million and $935.1 million at December
      31 ,
      2006
      and March 31, 2006, respectively. As of December
      31 ,
      2006,
      goodwill and intangible assets were apportioned among our three operating
      segments as follows:





**Over-the-Counter**
              **Drug**
            
            **Household**
              **Cleaning**
            
            **Personal**
              **Care**
            
            **Consolidated**Goodwill
            
            $
            228,628
            
            $
            72,549
            
            $
            2,751
            
            $
            303,928Intangible
                assetsIndefinite
                lived
            
            
            374,070
            
            
            170,893
            
            
            --
            
            
            544,963Finite
                lived
            
            
            96,676
            
            
            24
            
            
            18,121
            
            
            114,821470,746
            
            
            170,917
            
            
            18,121
            
            
            659,784$
            699,374
            
            $
            243,466
            
            $
            20,872
            
            $
            963,712








Our *Clear
      Eyes* ® *,
      New-Skin* ® *,
      Chloraseptic* ® ** and *Compound
      W* ® ** brands
      comprise the majority of the value of the intangible assets within the
      Over-The-Counter segment. *Denorex* ® *,
      Cutex* ® ** and *Prell* ® ** comprised
      substantially all of the intangible asset value within the Personal Care
      segment. The *Comet* ® *,
      Spic and Span* ® ** and *Chore
      Boy* ® ** brands
      comprise substantially all of the intangible asset value within the Household
      Cleaning segment.





Goodwill
      and intangible assets comprise substantially all of our assets. Goodwill
      represents the excess of the purchase price over the fair value of assets
      acquired and liabilities assumed in a purchase business combination. Intangible
      assets generally represent our trademarks, 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.





-35-


**·**
            **Recent
                and Projected Sales Growth**


Recent
      sales results present a snapshot as to how the brand has performed in the most
      recent time periods and represent another factor in the determination of brand
      value. In addition, projected sales growth provides information about the
      strength and potential longevity of the brand. A brand that has both strong
      current and projected sales generally warrants a higher valuation and a longer
      life than a brand that has weak or declining sales. Similarly, consideration
      is
      given to the potential investment, in the form of advertising and promotion,
      that is required to reinvigorate a brand that has fallen from
      favor.





**·**
            **History
                of and Potential for Product
                Extensions**


Consideration
      also is given to the product innovation that has occurred during the brand’s
      history and the potential for continued product innovation that will determine
      the brand’s future. Brands that can be continually enhanced by new product
      offerings generally warrant a higher valuation and longer life than a brand
      that
      has always “followed the leader”.





To
      assist
      in the valuation process, management engages an independent valuation firm
      to
      provide an evaluation of the acquired intangibles. After consideration of the
      factors described above, as well as current economic conditions and changing
      consumer behavior, management prepares a determination of the intangible’s value
      and useful life based on its analysis of the requirements of Statements No.
      141
      and No. 142. Under Statement No. 142, goodwill and indefinite-lived intangible
      assets are no longer amortized, but must be tested for impairment at least
      annually. Intangible assets with finite lives are amortized over their
      respective estimated useful lives and must also be tested for
      impairment.





On
      an
      annual basis, or more frequently if conditions indicate that the carrying value
      of the asset may not be recovered, management performs a review of both the
      values and useful lives assigned to goodwill and intangible assets and tests
      for
      impairment.





*Finite-Lived
      Intangible Assets*


As
      mentioned above, management performs an annual review, or more frequently if
      necessary, to ascertain the impact of events and circumstances on the estimated
      useful lives and carrying values of our trademarks and trade names. In
      connection with this analysis, management:





·
            Reviews
                period-to-period sales and profitability by
                brand,


·
            Analyzes
                industry trends and projects brand growth
                rates,


·
            Prepares
                annual sales forecasts,


·
            Evaluates
                advertising effectiveness,


·
            Analyzes
                gross margins,


·
            Reviews
                contractual benefits or
                limitations,


·
            Monitors
                competitors’ advertising spend and product
                innovation,


·
            Prepares
                projections to measure brand viability over the estimated useful
                life of
                the intangible asset, and


·
            Considers
                the regulatory environment, as well as industry
                litigation.





Should
      analysis of any of the aforementioned factors warrant a change in the estimated
      useful life of the intangible asset, management will reduce the estimated useful
      life and amortize the carrying value prospectively over the shorter remaining
      useful life. Management’s projections are utilized to assimilate all of the
      facts, circumstances and expectations related to the trademark or trade name
      and
      estimate the cash flows over its useful life. In the event that the long-term
      projections indicate that the carrying value is in excess of the undiscounted
      cash flows expected to result from the use of the intangible assets, management
      is required to record an impairment charge. Once that analysis is completed,
      a
      discount rate is applied to the cash flows to estimate fair value. The
      impairment charge is measured as the excess of the carrying amount of the
      intangible asset over fair value as calculated using the discounted cash flow
      analysis. Future events, such as competition, technological advances and
      reductions in advertising support for our trademarks and trade names could
      cause
      subsequent evaluations to utilize different assumptions.





-36-


*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.





In
      estimating the value of trademarks and trade names, as well as goodwill, at
      March 31, 2006, management applied a discount rate of 10.3%, the Company’s then
      current weighted-average cost of funds, to the estimated cash flows; however
      that rate, as well as future cash flows may be influenced by such factors,
      including (i) changes in interest rates, (ii) rates of inflation, or (iii)
      sales
      or contribution margin reductions. In the event that the carrying value exceeded
      the estimated fair value of either intangible assets or goodwill, we would
      be
      required to recognize an impairment charge. Additionally, continued decline
      of
      the fair value ascribed to an intangible asset or a reporting unit caused by
      external factors may require future impairment charges.





During
      the three month period 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.





***Stock-Based
      Compensation***


During
      2006, we adopted FASB Statement No. 123(R), “Share-Based Payment” (“Statement
      No. 123(R)”) with the initial grants of restricted stock and options to purchase
      common stock to employees and directors in accordance with the provisions of
      the
      Plan. Statement
      No. 123(R) requires us to measure the cost of services to be rendered based
      on
      the grant-date fair value of the equity award. Compensation expense is to be
      recognized over the period which an employee is required to provide service
      in
      exchange for the award, generally referred to as the requisite service period.
      Information utilized in the determination of fair value includes the
      following:




·
            Type
                of instrument (i.e.: restricted shares vs. an option, warrant or
                performance shares),


·
            Strike
                price of the instrument,


·
            Market
                price of the Company’s common stock on the date of
                grant,







-37-





·
            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 non-cash compensation expense of $215,000 during the three month period
      ended December
      31 ,
      2006,
      and net non-cash compensation of $439,000 for the nine month period ended December
      31 ,
      2006.
      During the three month period ended June 30, 2006, the Company recorded a net
      non-cash compensation credit of $9,000 as a result of the reversal of
      compensation charges in the amount of $142,000 associated with the departure
      of
      a former member of management. The Company recorded non-cash compensation
      expense of $119,000 during the three month period ended December
      31 ,
      2005
      and $230,000 during the nine month period ended December 31, 2005.





***Recent
      Accounting Pronouncements***


In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 151, “Inventory Costs” (“Statement No. 151”). Statement No. 151
      amended the guidance in Accounting Research Bulletin No. 43, Chapter 4,
“Inventory Pricing”, and requires the exclusion of certain costs, such as
      abnormal amounts of freight, handling costs and manufacturing overhead, from
      inventories. Additionally, Statement No. 151 requires the allocation of fixed
      production overhead to inventory based on normal capacity of the production
      facilities. The provisions of Statement No. 151 are effective for costs incurred
      during fiscal years beginning after June 15, 2005. The adoption of Statement
      No.
      151 did not have a material impact on the Company’s financial condition, results
      of operations or cash flows for the three and nine month periods ended December
      31, 2006.





In
      June
      2006, the FASB issued
      FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes--an
      interpretation of FASB Statement 109” (“FIN 48”) which clarifies the accounting
      for uncertainty in income taxes recognized in a company’s financial statements
      in accordance with FASB Statement No. 109. FIN 48 is effective for fiscal years
      beginning after December 15, 2006, and prescribes a recognition threshold and
      measurement attributes for the financial statement recognition and measurement
      of a tax position taken or expected to be taken in a tax return. While the
      Company has not completed a comprehensive analysis of FIN 48, the adoption
      of
      FIN 48 is not expected to have a material impact on the Company’s consolidated
      financial position, results of operations or cash flows.





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 interim
      financial statements issued during the fiscal year beginning after November
      15,
      2007.





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 our consolidated financial
      position, results of operations or cash flows.








**Off-Balance
      Sheet Arrangements**


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





**Inflation**


Inflationary
      factors such as increases in the costs of raw materials, packaging materials,
      purchased product and overhead may adversely affect our operating results.
      Although we do not believe that inflation has had a material impact on our
      financial condition or results from operations for the periods referred to
      above, a high rate of




-38-


inflation
      in the future could have a material adverse effect on our business, financial
      condition or results from operations. The recent volatility of crude oil prices
      has had a slightly favorable impact on transportation costs, as well as, certain
      petroleum based raw materials and packaging material as compared to recent
      prior
      periods. Although the Company takes efforts to minimize the impact of
      inflationary factors, including raising prices to our customers, a high rate
      of
      pricing volatility associated with crude oil supplies may have an adverse effect
      on our business,
      financial condition or future operating results.





**Seasonality**


The
      first
      quarter of our fiscal year typically has the lowest level of revenue due to
      the
      seasonal nature of certain of our brands relative to the summer and winter
      months. In addition, the first quarter is the least profitable quarter due
      the
      increased advertising and promotional spending to support those brands with
      a
      summer selling season, such as Compound W, Wartner, Cutex and New Skin. The
      Company’s advertising and promotional campaign in the third quarter influence
      sales in the fourth quarter winter months. Additionally, the fourth quarter
      typically has the lowest level of advertising and promotional spending as a
      percent of revenue.








-39-


**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**





This
      Quarterly Report on Form 10-Q contains “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”),
      including, without limitation, information within Management’s Discussion and
      Analysis of Financial Condition and Results of Operations. The following
      cautionary statements are being made pursuant to the provisions of the PSLRA
      and
      with the intention of obtaining the benefits of the “safe harbor” provisions of
      the PSLRA. Although we believe that our expectations are based on reasonable
      assumptions, actual results may differ materially from those in our
      forward-looking statements.





Forward-looking
      statements speak only as of the date of this Quarterly Report on Form 10-Q.
      Except as required under federal securities laws and the rules and regulations
      of the SEC, we do not have any intention to update any forward-looking
      statements to reflect events or circumstances arising after the date of this
      Quarterly Report on Form 10-Q, whether as a result of new information, future
      events or otherwise. As a result of these risks and uncertainties, readers
      are
      cautioned not to place undue reliance on forward-looking statements included
      in
      this Quarterly Report on Form 10-Q or that may be made elsewhere from time
      to
      time by, or on behalf of, us. All forward-looking statements attributable to
      us
      are expressly qualified by these cautionary statements.





Our
      forward-looking statements generally can be identified by the use of words
      or
      phrases such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “will
      be,” “will continue,” “will likely result,” or other similar words and phrases.
      Forward-looking statements and our plans and expectations are subject to a
      number of risks and uncertainties that could cause actual results to differ
      materially from those anticipated, and our business in general is subject to
      such risks. For more information, see “Risk Factors” contained in Part I, Item
      1A of our Annual Report on Form 10-K,
      as well
      as the additional risk factors disclosures contained in Part II, Item 1A, of
      our
      Quarterly Report on Form 10-Q for the period ended September 30, 2006. In
      addition, our expectations or beliefs concerning future events involve risks
      and
      uncertainties, including, without limitation:





·
            general
                economic conditions affecting our products and their respective
                markets,





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





·
            our
                dependence on a limited number of customers for a large portion of
                our
                sales,





·
            disruptions
                in our distribution center,





·
            acquisitions
                or other strategic transactions diverting managerial resources, or
                incurrence of additional liabilities or integration problems associated
                with such transactions,





·
            changing
                consumer trends or pricing pressures which may cause us to lower
                our
                prices,





·
            increases
                in supplier prices,





·
            increases
                in transportation fees and fuel
                charges,





·
            changes
                in our senior management team,





·
            our
                ability to protect our intellectual property
                rights,





·
            our
                dependency on the reputation of our brand
                names,





·
            shortages
                of supply of sourced goods or interruptions in the manufacturing
                of our
                products,





·
            our
                level of debt, and ability to service our
                debt,  ·
            any
              adverse judgment rendered in any pending litigation or
              arbitration,





·
            our
                ability to obtain additional financing,
                and





·
            the
                restrictions imposed by our senior credit facility and the indenture
                on
                our operations.








-40-


**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





We
      are
      exposed to changes in interest rates because our senior credit facility is
      variable rate debt. Interest rate changes, therefore, generally do not affect
      the market value of such debt, but do impact the amount of our interest payments
      and, therefore, our future earnings and cash flows, assuming other factors
      are
      held constant. At December 31, 2006, we had variable rate debt of approximately
      $345.2 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 June 2004, we purchased a 5% interest
      rate cap agreement with a notional amount of $20.0 million which terminated
      in
      June 2006. In March 2005, we purchased interest rate cap agreements that became
      effective August 30, 2005, with a total notional amount of $180.0 million and
      LIBOR cap rates ranging from 3.25% to 3.75%. On May 31, 2006, an interest rate
      cap agreement with a notional amount of $50.0 million and a 3.25% cap rate
      expired. The remaining interest rate cap agreements terminate on May 30, 2007
      and 2008 as to notional amounts of $80.0 million and $50.0 million,
      respectively.





Holding
      other variables constant, including levels of indebtedness, a one percentage
      point increase in interest rates on our variable rate debt would have an adverse
      impact on pre-tax earnings and cash flows for fiscal 2007 of approximately
      $3.4
      million. However, given the protection afforded by the interest rate cap
      agreements, the impact of a one percentage point increase would be limited
      to
      $2.2 million. The
      fair
      value of the interest rate cap agreements was $1.8 million at December
      31 ,
      2006.








**ITEM
      4.CONTROLS
      AND PROCEDURES**





**Disclosure
      Controls and Procedures**


The
      Company’s management, with the participation of its Chief Executive Officer and
      the Chief Financial Officer, evaluated the effectiveness of the Company’s
      disclosure controls and procedures, as defined in Rule 13a-15(e) of the
      Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation,
      the Chief Executive Officer and Chief Financial Officer have concluded that,
      as
      of December 31, 2006, the Company’s disclosure controls and procedures were
      effective to ensure that material information required to be disclosed by the
      Company in the reports the Company files or submits under the Exchange Act
      is
      recorded, processed, summarized and reported, within the time periods specified
      in the Securities and Exchange Commission rules and forms and that such
      information is accumulated and communicated to the Company’s management,
      including the Company’s principal executive and principal financial officers, or
      persons performing similar functions, as appropriate to allow timely decisions
      regarding required disclosure.





**Changes
      in Internal Control over Financial Reporting**


There
      were no changes during the quarter ended December 31, 2006 in the Company’s
      internal control over financial reporting (as defined in Exchange Act Rule
      13a-15(f)) that have materially affected, or are reasonably likely to materially
      affect, the Company’s internal control over financial reporting.





-41-


**PART
                II.**
            **OTHER
                INFORMATION**





**ITEM
                1.**
            **LEGAL
                PROCEEDINGS**





The
      Company and certain of its officers and directors are defendants in a
      consolidated putative securities class action lawsuit filed in the United States
      District Court for the Southern District of New York (the “Consolidated
      Action”). The first of the six consolidated cases was filed on August 3, 2005.
      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.
      Requests for discovery have been submitted and a motion by Plaintiffs for class
      certification is pending. The Company’s management believes the remaining claims
      are legally deficient and subject to meritorious defenses. The Company intends
      to vigorously pursue its defenses; however, the Company cannot reasonably
      estimate the potential range of loss, if any.





On
      May
      23, 2006, Similasan Corporation filed a lawsuit against the Company in the
      United States District Court for the District of Colorado in which Similasan
      alleged false designation of origin, trademark and trade dress infringement,
      and
      deceptive trade practices by the Company related to *Murine* for
      Allergy Eye Relief, *Murine* for
      Tired Eye Relief and *Murine* for
      Earache Relief, as applicable. Similasan has requested injunctive relief, an
      accounting of profits and damages and litigation costs and attorneys’ fees. The
      Company has filed an answer to the complaint with a potentially dispositive
      motion. In addition to the lawsuit filed by Similasan in the U.S. District
      Court
      for the District of Colorado, the Company also received a cease and desist
      letter from Swiss legal counsel to Similasan and its parent company, Similasan
      AG, a Swiss company. In the cease and desist letter, Similasan and Similasan
      AG
      have alleged a breach of the Secrecy Agreement executed by the Company and
      demanded that the Company cease and desist from (i) using confidential
      information covered by the Secrecy Agreement; and (ii) manufacturing,
      distributing, marketing or selling certain of its homeopathic products. The
      complaint in the Colorado action has now been amended to include allegations
      relating to the breach of confidentiality’ and the Company has filed an answer
      and responsive motions. The Company’s management believes the allegations to be
      without merit and intends to vigorously pursue its defenses; however, the
      Company cannot reasonably estimate the potential range of loss, if
      any.





On
      September 28, 2006, OraSure Technologies, Inc. moved in the Supreme Court of
      the
      State of New York for a preliminary injunction prohibiting the Company from
      selling cryogenic wart removal products under the Wartner® brand, which the
      Company acquired on September 21, 2006. OraSure Technologies is a supplier
      to
      the Company for the Company’s Compound W Freeze Off® business. The distribution
      agreement in place calls for mediation of contract disputes, followed by
      arbitration, if necessary. The contract in question is of five years duration
      ending in December 2007. On October 30, 2006, the Court denied OraSure
      Technologies’ motion for a preliminary injunction. Subsequently, in a decision
      and order dated December 20, 2006, the Court denied a motion by OraSure
      Technologies for a rehearing regarding a preliminary injunction. An appeal
      was
      filed by OraSure in the Appellate Division of the Supreme Court of the State
      of
      New York on January 29, 2007, which the Company expects to answer in due course.
      The Company is now seeking resolution of the matter through
      arbitration.





The
      Company is also involved from time to time in other routine legal matters and
      other claims incidental to its business. The Company reviews outstanding claims
      and proceedings internally and with external counsel as necessary to assess
      probability of loss and for the ability to estimate loss. These assessments
      are
      re-evaluated




-42-


each
      quarter and as new information becomes available to determine whether a reserve
      should be established or if any existing reserve should be adjusted. The actual
      cost of resolving a claim or proceeding ultimately may be substantially
      different than the amount of the recorded reserve. In addition, because it
      is
      not permissible under generally accepted accounting principles to establish
      a
      litigation reserve until the loss is both probable and estimable, in some cases
      there may be insufficient 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 or results from operations.








ITEM
      1A.RISK
      FACTORS





There
        have been no material changes to previously
        disclosed supplemented
        by those additional .








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





There
      were no equity securities sold by the Company during the period covered by
      this
      Quarterly Report on Form 10-Q that were not registered under the Securities
      Act
      of 1933, as amended.





The
      following table sets forth information with respect to purchases of shares
      of
      the Company’s common stock made during the quarter ended December 31, 2006, by
      or on behalf of the Company or any “affiliated purchaser,” as defined by Rule
      10b-18(a)(3) of the Exchange Act:





**Issuer
                Purchases of Equity Securities****Period**
            
            **Total
                Number**
              **of
                Shares Purchased**
            
            **Average**
              **Price
                Paid Per**
              **Share**
            
            **Total
                Number**
              **of
                Shares**
              **Purchased
                as**
              **Part
                of Publicly Announced**
              **Plans
                or**
              **Programs**
            
            **Maximum**
              **Number
                of**
              **Shares
                that May**
              **Yet
                Be Purchased**
              **Under
                the Plans**
              **or
                Programs**10/1/06
                - 10/31/0611/1/06
                - 11/30/06
            
            
            2,300
            
            $
            1.70
            
            
            --
            
            
            --12/1/06
                - 12/31/06Total
            
            
            2,300
            
            $
            1.70
            
            
            --
            
            
            --








**ITEM
                3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**





None








**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





None








**ITEM
                5.**
            **OTHER
                INFORMATION**





None


-43-


ITEM
      6.EXHIBITS








4.1
            Supplemental
                Indenture, dated as of October 6, 2004, among Vetco, Inc., Prestige
                Brands, Inc. and U.S. Bank, National Association.4.2
            Second
                Supplemental Indenture, dated as of December 19, 2006, by and among
                Prestige Brands, Inc., U.S. Bank, National Association, Prestige
                Brands
                Holdings, Inc., Dental Concepts LLC and Prestige International Holdings,
                LLC.10.1
            Joinder
                Agreement, dated as of December 19, 2006, by Prestige Brands Holdings,
                Inc., Prestige International Holdings, LLC and Dental Concepts LLC
                in
                favor of Citicorp North America, Inc., as Administrative Agent, to
                the
                Pledge and Security Agreement, dated as of April 6, 2004, by Prestige
                Brands, Inc. and its subsidiaries and affiliates listed on the signature
                pages thereof in favor of Citicorp North America, Inc., as Administrative
                Agent.10.2
            Guaranty,
                dated as of April 6, 2004, by Prestige Brands International, LLC
                and each
                of the other entities listed on the signature pages thereof in favor
                of
                Citicorp North America, Inc., as Administrative Agent.10.3
            Guaranty
                Supplement, dated as of December 19, 2006, by Prestige Brands Holdings,
                Inc., Prestige International Holdings, LLC and Dental Concepts LLC
                in
                favor of Citicorp North America, Inc., as Administrative Agent, to
                the
                Guaranty, dated as of April 6, 2004, among Prestige Brands International,
                LLC and certain subsidiaries and affiliates of Prestige Brands, Inc.
                listed on the signature pages thereof in favor of Citicorp North
                America,
                Inc., as Administrative Agent.10.4
            Letter
                Agreement, dated December 22, 2006, among Prestige Brands Holdings,
                Inc.,
                Prestige Brands, Inc. and Gerard F. Butler.10.5
            Employment
                Agreement, dated as of January 19, 2007, by and between Prestige
                Brands
                Holdings, Inc. and Mark Pettie.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.





-44-


**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: February
      9, 2007  By:**/s/
      PETER J. ANDERSON**


Peter J. Anderson Chief Financial Officer (Principal
                Financial Officer and Duly Authorized Officer)








-45-


Exhibit
      Index











4.1
            Supplemental
                Indenture, dated as of October 6, 2004, among Vetco, Inc., Prestige
                Brands, Inc. and U.S. Bank, National Association.4.2
            Second
                Supplemental Indenture, dated as of December 19, 2006, by and among
                Prestige Brands, Inc., U.S. Bank, National Association, Prestige
                Brands
                Holdings, Inc., Dental Concepts LLC and Prestige International Holdings,
                LLC.10.1
            Joinder
                Agreement, dated as of December 19, 2006, by Prestige Brands Holdings,
                Inc., Prestige International Holdings, LLC and Dental Concepts LLC
                in
                favor of Citicorp North America, Inc., as Administrative Agent, to
                the
                Pledge and Security Agreement, dated as of April 6, 2004, by Prestige
                Brands, Inc. and its subsidiaries and affiliates listed on the signature
                pages thereof in favor of Citicorp North America, Inc., as Administrative
                Agent.10.2
            Guaranty,
                dated as of April 6, 2004, by Prestige Brands International, LLC
                and each
                of the other entities listed on the signature pages thereof in favor
                of
                Citicorp North America, Inc., as Administrative Agent.10.3
            Guaranty
                Supplement, dated as of December 19, 2006, by Prestige Brands Holdings,
                Inc., Prestige International Holdings, LLC and Dental Concepts LLC
                in
                favor of Citicorp North America, Inc., as Administrative Agent, to
                the
                Guaranty, dated as of April 6, 2004, among Prestige Brands International,
                LLC and certain subsidiaries and affiliates of Prestige Brands, Inc.
                listed on the signature pages thereof in favor of Citicorp North
                America,
                Inc., as Administrative Agent.10.4
            Letter
                Agreement, dated December 22, 2006, among Prestige Brands Holdings,
                Inc.,
                Prestige Brands, Inc. and Gerard F. Butler.10.5
            Employment
                Agreement, dated as of January 19, 2007, by and between Prestige
                Brands
                Holdings, Inc. and Mark Pettie.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.







-46-