U.
S. SECURITIES AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-Q





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





For
      the quarterly period ended September 30,
      2008





OR





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





For
      the transition period from ____ to
_____





Commission
      File Number: 001-32433















PRESTIGE
BRANDS HOLDINGS, INC.


(Exact
name of Registrant as specified in its charter)





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





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







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





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




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




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


Yes o         
No x





As of
October 30, 2008, there were 49,936,435 shares of common stock
outstanding.














Prestige
Brands Holdings, Inc.


Form
10-Q


Index











PART
      I.
              FINANCIAL
      INFORMATIONItem
      1.
              Consolidated
      Financial StatementsConsolidated
      Statements of Operations – three and six month periods ended September 30,
      2008 and 2007 (unaudited)
              2Consolidated
      Balance Sheets – September 30, 2008 and March 31, 2008
      (unaudited)
              3Consolidated
      Statement of Changes in Stockholders’ Equity and Comprehensive Income –
      six month period ended September 30, 2008 (unaudited)
              4Consolidated
      Statements of Cash Flows – six month periods ended September 30, 2008 and
      2007 (unaudited)
              5Notes
      to Unaudited Consolidated Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              26Item
      3.
              Quantitative
      and Qualitative Disclosure About Market Risk
              43Item
      4.
              Controls
      and Procedures
              43PART
      II.
              OTHER
      INFORMATIONItem
      1.
              Legal
      Proceedings
              44Item
      1A.
              Risk
      Factors
              45Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              45Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              45Item
      5.
              Other
      Information
              46Item
      6.
              Exhibits
              46Signatures
              47


Trademarks
and Trade Names


Trademarks
and trade names used in this Quarterly Report on Form 10-Q are the property of
Prestige Brands Holdings, Inc. or its subsidiaries, as the case may
be.  We have utilized the ® andTM symbols the first time each
trademark or trade name appears in this Quarterly Report on Form
10-Q.




-1-


PART
      I
            FINANCIAL
      INFORMATION





Item
      1.
            FINANCIAL
      STATEMENTS





Prestige
Brands Holdings, Inc.


Consolidated
Statements of Operations


(Unaudited)








Three
      Months
              Ended
      September 30
            
            
            Six
      Months
              Ended
      September 30(In
      thousands, except per share data)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007RevenuesNet
      sales
            
            $
            87,369
            
            
            $
            86,840
            
            
            $
            160,285
            
            
            $
            164,881Other
      revenues
            
            
            682
            
            
            
            497
            
            
            
            1,300
            
            
            
            1,067Total
      revenues
            
            
            88,051
            
            
            
            87,337
            
            
            
            161,585
            
            
            
            165,948Cost
      of SalesCosts
      of sales
            
            
            41,792
            
            
            
            42,770
            
            
            
            76,064
            
            
            
            80,092Gross
      profit
            
            
            46,259
            
            
            
            44,567
            
            
            
            85,521
            
            
            
            85,856Operating
      ExpensesAdvertising
      and promotion
            
            
            13,638
            
            
            
            11,017
            
            
            
            20,957
            
            
            
            18,803General
      and administrative
            
            
            9,363
            
            
            
            10,184
            
            
            
            17,336
            
            
            
            17,830Depreciation
      and amortization
            
            
            2,757
            
            
            
            2,756
            
            
            
            5,513
            
            
            
            5,507Total
      operating expenses
            
            
            25,758
            
            
            
            23,957
            
            
            
            43,806
            
            
            
            42,140Operating
      income
            
            
            20,501
            
            
            
            20,610
            
            
            
            41,715
            
            
            
            43,716Other
      (income) expenseInterest
      income
            
            
            (56
            )
            
            
            (173
            )
            
            
            (129
            )
            
            
            (360
            )Interest
      expense
            
            
            6,835
            
            
            
            9,768
            
            
            
            15,591
            
            
            
            19,642Total
      other (income) expense
            
            
            6,779
            
            
            
            9,595
            
            
            
            15,462
            
            
            
            19,282Income
      before income taxes
            
            
            13,722
            
            
            
            11,015
            
            
            
            26,253
            
            
            
            24,434Provision
      for income taxes
            
            
            5,200
            
            
            
            4,186
            
            
            
            9,950
            
            
            
            9,285Net
      income
            
            $
            8,522
            
            
            $
            6,829
            
            
            $
            16,303
            
            
            $
            15,149Basic
      earnings per share
            
            $
            0.17
            
            
            $
            0.14
            
            
            $
            0.33
            
            
            $
            0.30Diluted
      earnings per share
            
            $
            0.17
            
            
            $
            0.14
            
            
            $
            0.33
            
            
            $
            0.30Weighted
      average shares outstanding:
              Basic
            
            
            49,924
            
            
            
            49,710
            
            
            
            49,902
            
            
            
            49,686Diluted
            
            
            50,037
            
            
            
            50,046
            
            
            
            50,036
            
            
            
            50,042








See
accompanying notes.




-2-


Prestige
Brands Holdings, Inc.


Consolidated
Balance Sheets


(Unaudited)





(In
thousands)


Assets
            
            September
      30, 2008
            
            
            March
      31, 2008Current
      assetsCash
      and cash equivalents
            
            $
            12,630
            
            
            $
            6,078Accounts
      receivable
            
            
            42,494
            
            
            
            44,219Inventories
            
            
            25,372
            
            
            
            29,696Deferred
      income tax assets
            
            
            3,249
            
            
            
            3,066Prepaid
      expenses and other current assets
            
            
            3,144
            
            
            
            2,316Total
      current assets
            
            
            86,889
            
            
            
            85,375Property
      and equipment
            
            
            1,284
            
            
            
            1,433Goodwill
            
            
            309,879
            
            
            
            308,915Intangible
      assets
            
            
            641,428
            
            
            
            646,683Other
      long-term assets
            
            
            6,450
            
            
            
            6,750Total
      Assets
            
            $
            1,045,930
            
            
            $
            1,049,156Liabilities
      and Stockholders’ EquityCurrent
      liabilitiesAccounts
      payable
            
            $
            17,430
            
            
            $
            20,539Accrued
      interest payable
            
            
            5,428
            
            
            
            5,772Other
      accrued liabilities
            
            
            11,158
            
            
            
            8,030Current
      portion of long-term debt
            
            
            3,550
            
            
            
            3,550Total
      current liabilities
            
            
            37,566
            
            
            
            37,891Long-term
      debt
            
            
            381,675
            
            
            
            407,675Other
      long-term liabilities
            
            
            --
            
            
            
            2,377Deferred
      income tax liabilities
            
            
            128,272
            
            
            
            122,140Total
      Liabilities
            
            
            547,513
            
            
            
            570,083Commitments
      and Contingencies – Note 14Stockholders’
      EquityPreferred
      stock - $0.01 par valueAuthorized – 5,000
      sharesIssued and outstanding –
      None
            
            
            --
            
            
            
            --Common
      stock - $0.01 par valueAuthorized – 250,000
      sharesIssued – 50,060
    shares
            
            
            501
            
            
            
            501Additional
      paid-in capital
            
            
            381,941
            
            
            
            380,364Treasury
      stock, at cost – 119 shares and 59 shares at
              September
      30 and March 31, 2008, respectively
            
            
            (62
            )
            
            
            (47
            )Accumulated
      other comprehensive income
            
            
            480
            
            
            
            (999
            )Retained
      earnings
            
            
            115,557
            
            
            
            99,254Total
      stockholders’ equity
            
            
            498,417
            
            
            
            479,073Total
      Liabilities and Stockholders’ Equity
            
            $
            1,045,930
            
            
            $
            1,049,156


See
accompanying notes.




-3-


Prestige
Brands Holdings, Inc.


Consolidated
Statement of Changes in Stockholders’ Equity


and
Comprehensive Income


Six
Months Ended September 30, 2008


(Unaudited)








Common
      Stock
              Par
              Shares   
      Value
            
            
            Additional
              Paid-in
              Capital
            
            
            Treasury
      Stock
              Shares                 
      Amount
            
            Accumulated
      Other
              Comprehensive
              Income
            
            Retained
              Earnings
            
            
            Totals(In
      thousands)Balances
      - March 31, 2008
            
            
            50,060
            
            
            $
            501
            
            
            $
            380,364
            
            
            
            59
            
            
            $
            (47
            )
            
            $
            (999
            )
            
            $
            99,254
            
            
            $
            479,073Stock-based
      compensation
            
            
            --
            
            
            
            --
            
            
            
            1,577
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,577Purchase
      of common stock for treasury
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            60
            
            
            
            (15
            )
            
            
            --
            
            
            
            --
            
            
            
            (15
            )Components
      of comprehensive income:Net
      income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            16,303
            
            
            
            16,303Amortization
      of interest rate caps reclassified into earnings, net of income tax
      expense of $32
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            53
            
            
            
            --
            
            
            
            53Unrealized
      gain on interest rate caps, net of income tax expense of
    $876
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,426
            
            
            
            --
            
            
            
            1,426Total
      comprehensive income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            17,782Balances
      – September 30, 2008
            
            
            50,060
            
            
            $
            501
            
            
            $
            381,941
            
            
            
            119
            
            
            $
            (62
            )
            
            $
            480
            
            
            $
            115,557
            
            
            $
            498,417





See
accompanying notes.




-4-


Prestige
Brands Holdings, Inc.


Consolidated
Statements of Cash Flows


(Unaudited)








Six
      Months Ended September 30(In
      thousands)
            
            2008
            
            
            2007Operating
      ActivitiesNet
      income
            
            $
            16,303
            
            
            $
            15,149Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            5,513
            
            
            
            5,507Deferred
      income taxes
            
            
            5,042
            
            
            
            4,622Amortization
      of deferred financing costs
            
            
            1,159
            
            
            
            1,561Stock-based
      compensation
            
            
            1,577
            
            
            
            1,146Changes
      in operating assets and liabilitiesAccounts
      receivable
            
            
            1,725
            
            
            
            (11,345
            )Inventories
            
            
            4,324
            
            
            
            2,390Prepaid
      expenses and other current assets
            
            
            (828
            )
            
            
            (1,692
            )Accounts
      payable
            
            
            (1,582
            )
            
            
            1,884Accrued
      liabilities
            
            
            3,443
            
            
            
            2,270Net
      cash provided by operating activities
            
            
            36,676
            
            
            
            21,492Investing
      ActivitiesPurchases
      of equipment
            
            
            (109
            )
            
            
            (194
            )Business
      acquisition purchase price adjustments
            
            
            (4,000
            )
            
            
            (16
            )Net
      cash used for investing activities
            
            
            (4,109
            )
            
            
            (210
            )Financing
      ActivitiesRepayment
      of long-term debt
            
            
            (26,000
            )
            
            
            (26,237
            )Purchase
      of common stock for treasury
            
            
            (15
            )
            
            
            (4
            )Net
      cash used for financing activities
            
            
            (26,015
            )
            
            
            (26,241
            )Increase
      (Decrease) in cash
            
            
            6,552
            
            
            
            (4,959
            )Cash
      - beginning of period
            
            
            6,078
            
            
            
            13,758Cash
      - end of period
            
            $
            12,630
            
            
            $
            8,799Interest
      paid
            
            $
            14,775
            
            
            $
            18,078Income
      taxes paid
            
            $
            4,761
            
            
            $
            5,664





See
      accompanying notes.




-5-


Prestige
Brands Holdings, Inc.


Notes
to Consolidated Financial Statements


(Unaudited)











1.
            Business
      and Basis of Presentation





Nature
      of Business


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





Basis
      of Presentation


The
unaudited consolidated financial statements presented herein have been prepared
in accordance with United States generally accepted accounting principles
(“GAAP”) 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 GAAP for complete financial
statements.  All significant intercompany transactions and balances
have been eliminated.  In the opinion of management, the financial
statements include all adjustments, consisting of normal recurring adjustments
that are considered necessary for a fair presentation of the Company’s
consolidated financial position, results of operations and cash flows for the
interim periods.  Operating results for the six month period ended
September 30, 2008 are not necessarily indicative of results that may be
expected for the year ending March 31, 2009.  This financial
information should be read in conjunction with the Company’s financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended March 31, 2008.





Use
of Estimates


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




Cash
      and Cash Equivalents


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





Accounts
      Receivable


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





-6-


Inventories


Inventories
are stated at the lower of cost or fair value, where cost is determined by using
the first-in, first-out method.  The Company provides an allowance for
slow moving and obsolete inventory, whereby it reduces inventories for the
diminution of value, resulting from product obsolescence, damage or other issues
affecting marketability, equal to the difference between the cost of the
inventory and its estimated market value.  Factors utilized in the
determination of estimated market value include (i) current sales data and
historical return rates, (ii) estimates of future demand, (iii) competitive
pricing pressures, (iv) new product introductions, (v) product expiration dates,
and (vi) component and packaging obsolescence.





Property
      and Equipment


Property
and equipment are stated at cost and are depreciated using the straight-line
method based on the following estimated useful lives:


YearsMachinery
            
            5Computer
      equipment
            
            3Furniture
      and fixtures
            
            7Leasehold
      improvements
            
            5





Expenditures
for maintenance and repairs are charged to expense as incurred.  When
an asset is sold or otherwise disposed of, the cost and associated accumulated
depreciation are removed from the accounts and the resulting gain or loss is
recognized in the consolidated statement of operations.




Property
and equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable.  An impairment loss is recognized if the carrying amount
of the asset exceeds its fair value.





Goodwill


The
excess of the purchase price over the fair market value of assets acquired and
liabilities assumed in purchase business combinations is classified as
goodwill.  In accordance with Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standards (“Statement”) No. 142,
“Goodwill and Other Intangible Assets,” the Company does not amortize goodwill,
but performs impairment tests of the carrying value at least
annually.  The Company tests goodwill for impairment at the “brand”
level which is one level below the operating segment level.





Intangible
      Assets


Intangible
assets, which are composed primarily of trademarks, are stated at cost less
accumulated amortization.  For intangible assets with finite lives,
amortization is computed on the straight-line method over estimated useful lives
ranging from five to 30 years.





Indefinite
lived intangible assets are tested for impairment at least annually, while
intangible assets with finite lives are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable.  An impairment loss is recognized if the carrying
amount of the asset exceeds its fair value.





Deferred
Financing Costs


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





Revenue
      Recognition


Revenues
are recognized in accordance with Securities and Exchange Commission (“SEC”)
Staff Accounting Bulletin 104, “Revenue Recognition,” when the following
criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the
selling price is fixed or determinable; (iii) the product has been shipped and
the customer takes ownership and assumes the risk of loss; and (iv) collection
of the resulting receivable is reasonably assured.  The Company has
determined that the transfer of the risk of loss generally occurs when product
is received by the customer and, accordingly, recognizes revenue at that
time.  Provision is made for estimated




-7-


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,the Company
participatesin the
promotional programs of its customers to enhance the sale of its
products.The cost of these promotional programs varies based
on the actual number of units sold during a finite period of time.The
Company estimates the cost of such promotional programs at their inception based
on historical experience and current market conditions and reduces sales by such
estimates.These promotional programs
consist of direct to consumer incentives such ascoupons and temporary
price reductions, as well as incentives to the Company’s customers, such as
slotting fees and cooperative advertising.  Estimates of the costs of
these promotional programs are based on (i) historical sales experience, (ii)
the current offering, (iii) forecasted data, (iv) current market conditions, and
(v) communication with customer purchasing/marketing personnel.  At
the completion of the promotional program, the estimated amounts are adjusted to
actual results.





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





Costs
      of Sales


Costs of
sales include product costs, warehousing costs, inbound and outbound shipping
costs, and handling and storage costs.  Shipping, warehousing and
handling costs were $6.8 million and $12.4 million for the three and six month
periods ended September 30, 2008, respectively.  During the three and
six month periods ended September 30, 2007, such costs were $6.6 million and
$12.2 million, respectively.





Advertising
      and Promotion Costs


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





Stock-based
      Compensation


The Company recognizes
stock-based compensation in accordance with FASB, Statement No. 123(R),
“Share-Based Payment” (“Statement No. 123(R)”).Statement No.
123(R) requires the Company to measure the cost of services to be rendered based
on the grant-date fair value of the equity award.  Compensation
expense is to be recognized over the period an employee is required to provide
service in exchange for the award, generally referred to as the requisite
service period.  The Company recorded stock-based compensation charges
of $948,000 and $1.6 million during the three and six month periods ended
September 30, 2008, respectively.  During the three and six month
periods ended September 30, 2007, the Company recorded stock-based compensation
charges of $685,000 and $1.1 million, respectively.





Income
      Taxes


Income
taxes are recorded in accordance with the provisions of FASB Statement No. 109,
“Accounting for Income Taxes” (“Statement No. 109”) and FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes--an interpretation of FASB
Statement 109” (“FIN 48”).  Pursuant to Statement No. 109,
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that will be in effect when the differences are
expected to reverse.  A valuation allowance is established when
necessary to reduce deferred tax assets to the amounts expected to be
realized.





FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with Statement No. 109 and
prescribes a recognition threshold and measurement attributes for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.  As a result, the Company has applied a
more-likely-than-not recognition threshold for all tax
uncertainties.  FIN




-8-


48 only
allows the recognition of those tax benefits that have a greater than 50%
likelihood of being sustained upon examination by the various taxing
authorities.  The adoption of FIN 48, effective April 1, 2007, did not
result in a cumulative effect adjustment to the opening balance of retained
earnings or adjustment to any of the components of assets, liabilities or equity
in the consolidated balance sheet.





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





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





Derivative
      Instruments


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





The
Company has designated its derivative financial instruments as cash flow hedges
because they hedge exposure to variability in expected future cash flows that
are attributable to interest rate risk.  For these hedges, the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income (loss) and reclassified into
earnings in the same line item associated with the forecasted transaction in the
same period or periods during which the hedged transaction affects
earnings.  Any ineffective portion of the gain or loss on the
derivative instruments is recorded in results of operations
immediately.  Cash flows from these instruments are classified as
operating activities.





Earnings
Per Share


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





Fair
Value of Financial Instruments


The
carrying value of cash, accounts receivable and accounts payable at both
September 30, 2008 and March 31, 2008 approximates fair value due to the
short-term nature of these instruments.  The carrying value of
long-term debt at both September 30, 2008 and March 31, 2008 approximates fair
value based on interest rates for instruments with similar terms and
maturities.





Recently
      Issued Accounting Standards


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





-9-


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





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





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





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





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





-10-


2.
            Accounts
      Receivable





Accounts
receivable consist of the following (in thousands):


September
      30,
              2008
            
            
            March
      31,
              2008Accounts
      receivable
            
            $
            42,819
            
            
            $
            44,918Other
      receivables
            
            
            1,668
            
            
            
            1,37844,487
            
            
            
            46,296Less
      allowances for discounts, returns and
              uncollectible
      accounts
            
            
            (1,993
            )
            
            
            (2,077
            )$
            42,494
            
            
            $
            44,219








3.
            Inventories





Inventories
consist of the following (in thousands):


September
      30,
              2008
            
            
            March
      31,
              2008Packaging
      materials
            
            $
            1,588
            
            
            $
            2,463Finished
      goods
            
            
            23,784
            
            
            
            27,233$
            25,372
            
            
            $
            29,696





Inventories
are shown net of allowances for obsolete and slow moving inventory of $777,000
and $1.4 million at September 30, 2008 and March
31, 2008, respectively.








4.
            Property
      and Equipment





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


September
      30,
              2008
            
            
            March
      31,
              2008Machinery
            
            $
            1,544
            
            
            $
            1,516Computer
      equipment
            
            
            691
            
            
            
            627Furniture
      and fixtures
            
            
            222
            
            
            
            205Leasehold
      improvements
            
            
            344
            
            
            
            3442,801
            
            
            
            2,692Accumulated
      depreciation
            
            
            (1,517
            )
            
            
            (1,259
            )$
            1,284
            
            
            $
            1,433





-11-


5.
            Goodwill





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





Over-the-
              Counter
              Healthcare
            
            
            Household
              Cleaning
            
            
            Personal
              Care
            
            
            ConsolidatedBalance
      – March 31, 2008
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915Period
      Activity
            
            
            964
            
            
            
            --
            
            
            
            --
            
            
            
            964Balance
      – September 30, 2008
            
            $
            234,579
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            309,879





During
the period ended September 30, 2008, the Company settled a purchase price
adjustment in connection with the September 2006 acquisition of Wartner USA
BV.








6.
            Intangible
      Assets





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





Indefinite
              Lived
              Trademarks
            
            
            Finite
              Lived
              Trademarks
            
            
            Non
              Compete
              Agreement
            
            
            TotalsCarrying
      AmountsBalance
      – March 31, 2008
            
            $
            544,963
            
            
            $
            139,503
            
            
            $
            196
            
            
            $
            684,662Period
      Activity
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Balance
      – September 30, 2008
            
            $
            544,963
            
            
            $
            139,503
            
            
            $
            196
            
            
            $
            684,662Accumulated
      AmortizationBalance
      – March 31, 2008
            
            $
            --
            
            
            $
            37,838
            
            
            $
            141
            
            
            $
            37,979Period
      Activity
            
            
            --
            
            
            
            5,233
            
            
            
            22
            
            
            
            5,255Balance
      – September 30, 2008
            
            $
            --
            
            
            $
            43,071
            
            
            $
            163
            
            
            $
            43,234





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





YearEnding September
      302009
            
            $
            9,8022010
            
            
            9,0732011
            
            
            9,0732012
            
            
            9,0732013
            
            
            9,073Thereafter
            
            
            50,371$
            96,465





-12-


7.
            Other
      Accrued Liabilities





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





September
      30,
              2008
            
            
            March
      31,
              2008Accrued
      marketing costs
            
            $
            7,565
            
            
            $
            4,136Accrued
      payroll
            
            
            2,190
            
            
            
            2,845Accrued
      commissions
            
            
            429
            
            
            
            464Other
            
            
            974
            
            
            
            585$
            11,158
            
            
            $
            8,030




-13-


8.
            Long-Term
      Debt





Long-term
      debt consists of the following (in thousands):
            
            September
      30,
              2008
            
            
            March
      31,
              2008Senior
      revolving credit facility (“Revolving Credit Facility”), which expires on
      April 6, 2009 and is available for maximum borrowings of up to $60.0
      million.  The Revolving Credit Facility bears interest at the
      Company’s option at either the prime rate plus a variable margin or LIBOR
      plus a variable margin.  The variable margins range from 0.75%
      to 2.50% and at September 30, 2008, the interest rate on the Revolving
      Credit Facility was 5.5% per annum.  The Company is also
      required to pay a variable commitment fee on the unused portion of the
      Revolving Credit Facility.  At September 30, 2008, the
      commitment fee was 0.50% of the unused line.  The Revolving
      Credit Facility is collateralized by substantially all of the Company’s
      assets.
            
            $
            --
            
            
            $
            --Senior
      secured term loan facility (“Tranche B Term Loan Facility”) that bears
      interest at the Company’s option at either the prime rate plus a margin of
      1.25% or LIBOR plus a margin of 2.25%.  At September 30, 2008, the
      average interest rate on the Tranche B Term Loan Facility was
      4.75%.  Principal payments of $887,500 plus accrued interest are
      payable quarterly.  Current amounts outstanding under the
      Tranche B Term Loan Facility mature on April 6, 2011 and are
      collateralized by substantially all of the Company’s
    assets.
            
            
            259,225
            
            
            
            285,225Senior
      Subordinated Notes that bear interest at 9.25% which is payable on April
      15th
      and October 15th
      of each year.  The Senior Subordinated Notes mature on April 15,
      2012; however, the Company may redeem some or all of the Senior
      Subordinated Notes at redemption prices set forth in the indenture
      governing the Senior Subordinated Notes (the “Indenture”) prior
      thereto.  The Senior Subordinated Notes are unconditionally
      guaranteed by Prestige Brands Holdings, Inc. and its domestic wholly-owned
      subsidiaries other than Prestige Brands, Inc., the issuer.  Each
      of these guarantees is joint and several.  There are no
      significant restrictions on the ability of any of the guarantors to obtain
      funds from their subsidiaries.
            
            
            126,000
            
            
            
            126,000385,225
            
            
            
            411,225Current
      portion of long-term debt
            
            
            (3,550
            )
            
            
            (3,550
            )$
            381,675
            
            
            $
            407,675





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




-14-


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





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






Year Ending September 302009
            
            $
            3,5502010
            
            
            3,5502011
            
            
            252,1252012
            
            
            126,000$
            385,225








9.
            Fair
      Value Measurements





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





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





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





The
Company entered into an interest rate swap agreement, effective March 26, 2008,
in the notional amount of $175.0 million, decreasing to $125.0 million at March
26, 2009 to replace and supplement the interest rate cap agreement that expired
on May 30, 2008.  The Company has agreed to pay a fixed rate of 2.88%
while receiving a variable rate based on LIBOR.  The agreement
terminates on March 26, 2010.





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





Based
upon the above, the following fair value hierarchy was created:





Level
      1 --
            Quoted
      market prices for identical instruments in active markets,Level
      2 --
            Quoted
      prices for similar instruments in active markets, as well as quoted prices
      for identical or similar instruments in markets that are not considered
      active, and





-15-


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





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





Fair
      Value Measurements at September 30, 2008(In
      Thousands)
              Description
            
            
            September
      30,
              2008
            
            
            Quoted
      Prices
              in
      Active
              Markets
      for
              Identical
              Assets
              (Level
      1)
            
            
            Significant
              Other
              Observable
              Inputs
              (Level
      2)
            
            
            Significant
              Unobservable
              Inputs
              (Level
      3)Interest
      Rate Swap
            
            $
            775.0
            
            
            $
            --
            
            
            $
            775.0
            
            
            $
            --







At September 30, 2008,
the fair value of the interest rate swap of $775,000 was included in other
assets, while at March 31, 2008, the fair value of $1.5 million was included in
other current liabilities.  The determination of fair value is based
on closing prices for similar instruments traded in liquid
over-the-counter markets.








10.
            Stockholders’
      Equity





The
Company is authorized to issue 250.0 million shares of common stock, $0.01 par
value per share, and 5.0 million shares of preferred stock, $0.01 par value per
share. The Board of Directors may direct the issuance of the undesignated
preferred stock in one or more series and determine preferences, privileges and
restrictions thereof.





Each
share of common stock has the right to one vote on all matters submitted to a
vote of stockholders.  The holders of common stock are also entitled
to receive dividends whenever funds are legally available and when declared by
the Board of Directors, subject to prior rights of holders of all classes of
stock outstanding having priority rights as to dividends.  No
dividends have been declared or paid on the Company’s common stock through
September 30, 2008.





11.
            Earnings
      Per Share





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





Three
      Months Ended
              September
      30
            
            
            Six
      Months Ended
              September
      302008
            
            
            2007
            
            
            2008
            
            
            2007NumeratorNet
      income
            
            $
            8,522
            
            
            $
            6,829
            
            
            $
            16,303
            
            
            $
            15,149DenominatorDenominator
      for basic earnings per share – weighted average shares
            
            
            49,924
            
            
            
            49,710
            
            
            
            49,902
            
            
            
            49,686Dilutive
      effect of unvested restricted common stock
            
            
            113
            
            
            
            336
            
            
            
            134
            
            
            
            356Denominator
      for diluted earnings
              per
      share
            
            
            50,037
            
            
            
            50,046
            
            
            
            50,036
            
            
            
            50,042Earnings
      per Common Share:Basic
            
            $
            0.17
            
            
            $
            0.14
            
            
            $
            0.33
            
            
            $
            0.30Diluted
            
            $
            0.17
            
            
            $
            0.14
            
            
            $
            0.33
            
            
            $
            0.30




-16-


At
September 30, 2008, 226,000 shares of restricted stock issued to management and
employees, subject only to time-vesting, were unvested and excluded from the
calculation of basic earnings per share; however, such shares were included in
the calculation of diluted earnings per share.  Additionally, 442,000
shares of restricted stock granted to management and employees, as well as
15,000 stock appreciation rights have been excluded from the calculation of both
basic and diluted earnings per share since vesting of such shares is subject to
contingencies.  Lastly, at September 30, 2008, there were options to
purchase 667,000 shares of common stock outstanding that were not included in
the computation of diluted earnings per share because their inclusion would be
antidilutive.





At
September 30, 2007, 403,000 shares of restricted stock issued to management and
employees, subject only to time-vesting, were unvested and excluded from the
calculation of basic earnings per share; however, such shares were included in
the calculation of diluted earnings per share.  Additionally, 378,000
shares of restricted stock granted to management and employees, as well as
16,000 stock appreciation rights have been excluded from the calculation of both
basic and diluted earnings per share since vesting of such shares is subject to
contingencies.  Lastly, at September 30, 2007, there were options to
purchase 255,000 shares of common stock outstanding that were not included in
the computation of diluted earnings per share because their inclusion would be
antidilutive.








12.
            Share-Based
      Compensation





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





During
the six month period ended September 30, 2008, the Company recorded stock-based
compensation costs and related tax benefits of $1.6 million and $591,000,
respectively, while during the six month period ended September 30, 2007, the
Company recorded stock-based compensation costs and related tax benefits of $1.1
million and $418,000, respectively.





Restricted
Shares


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





Restricted
shares granted under the Plan generally vest in 3 years, contingent on
attainment of Company performance goals, including both revenue and earnings, or
time vesting, as determined by the Compensation Committee of the Board of
Directors.  Certain restricted share awards provide for accelerated
vesting if there is a change of control.  The fair value of nonvested
restricted shares is determined as the closing price of the Company’s common
stock on the day preceding the grant date.  The weighted-average
grant-date fair value of restricted shares granted during the six month periods
ended September 30, 2008 and 2007 were $10.85 and $12.52,
respectively.





-17-


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





Restricted
      Shares
            
            
            Shares
              (000)
            
            
            Weighted-Average
              Grant-Date
              Fair
      ValueNonvested
      at March 31, 2007
            
            
            294.4
            
            
            $
            11.05Granted
            
            
            292.0
            
            
            
            12.52Vested
            
            
            (24.8
            )
            
            
            10.09Forfeited
            
            
            (23.2
            )
            
            
            11.39Nonvested
      at September 30, 2007
            
            
            538.4
            
            
            $
            11.88Nonvested
      at March 31, 2008
            
            
            484.7
            
            
            $
            11.78Granted
            
            
            303.5
            
            
            
            10.85Vested
            
            
            (29.9
            )
            
            
            10.88Forfeited
            
            
            (128.0
            )
            
            
            12.30Nonvested
      at September 30, 2008
            
            
            630.3
            
            
            $
            11.27





Options


The Plan
provides that the exercise price of the option granted shall be no less than the
fair market value of the Company’s common stock on the date the option is
granted.  Options granted have a term of no greater than 10 years from
the date of grant and vest in accordance with a schedule determined at the time
the option is granted, generally over a 3 year period.  Certain option
awards provide for accelerated vesting in the event of a change in
control.





The fair
value of each option award is estimated on the date of grant using the
Black-Scholes Option Pricing Model (“Black-Scholes Model”) that uses the
assumptions noted in the following table.  Expected volatilities are
based on the historical volatility of the Company’s common stock and other
factors, including the historical volatilities of comparable
companies.  The Company uses appropriate historical data, as well as
current data, to estimate option exercise and employee termination
behaviors.  Employees that are expected to exhibit similar exercise or
termination behaviors are grouped together for the purposes of
valuation.  The expected terms of the options granted are derived from
management’s estimates and information derived from the public filings of
companies similar to the Company and represent the period of time that options
granted are expected to be outstanding.  The risk-free rate represents
the yield on U.S. Treasury bonds with a maturity equal to the expected term of
the granted option.  The weighted-average grant-date fair value of the
options granted during the six month periods ended September 30, 2008 and 2007
was $5.04 and $5.30, respectively.





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




-18-


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





Options
            
            
            Shares
              (000)
            
            
            Weighted-Average
              Exercise
              Price
            
            
            Weighted-
              Average
              Remaining
              Contractual
              Term
            
            
            Aggregate
              Intrinsic
              Value
              (000)Outstanding
      at March 31, 2007
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            $
            --Granted
            
            
            255.1
            
            
            
            12.86
            
            
            
            10.0
            
            
            
            --Exercised
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at September 30, 2007
            
            
            255.1
            
            
            $
            12.86
            
            
            
            10.0
            
            
            $
            --Outstanding
      at March 31, 2008
            
            
            253.5
            
            
            
            12.86
            
            
            
            9.2
            
            
            $
            --Granted
            
            
            413.3
            
            
            
            10.91
            
            
            
            10.0
            
            
            
            --Exercised
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at September 30, 2008
            
            
            666.8
            
            
            $
            11.65
            
            
            
            9.3
            
            
            $
            --Exercisable
      at September 30, 2008
            
            
            84.5
            
            
            $
            12.86
            
            
            
            8.7
            
            
            $
            --





Stock
Appreciation Rights (“SARS”)


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





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





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


SARS
            
            
            Shares
              (000)
            
            
            Grant
              Date
              Stock
              Price
            
            
            Weighted-
              Average
              Remaining
              Contractual
              Term
            
            
            Aggregate
              Intrinsic
              Value
              (000)Outstanding
      at March 31, 2007
            
            
            16.1
            
            
            $
            9.97
            
            
            
            2.0
            
            
            $
            30.3Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at September 30, 2007
            
            
            16.1
            
            
            $
            9.97
            
            
            
            1.50
            
            
            $
            16.3Outstanding
      at March 31, 2008
            
            
            16.1
            
            
            $
            9.97
            
            
            
            1.0
            
            
            $
            --Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            (1.2
            )
            
            
            9.97
            
            
            
            0.25
            
            
            
            --Outstanding
      at September 30, 2008
            
            
            14.9
            
            
            $
            9.97
            
            
            
            0.25
            
            
            $
            --Exercisable
      at September 30, 2008
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            $
            --





-19-


At
September 30, 2008, there was $6.1 million of unrecognized compensation costs
related to nonvested share-based compensation arrangements under the Plan based
on management’s estimate of the shares that will ultimately vest.  The
Company expects to recognize such costs over the next 2.75
years.  However, certain of the restricted shares vest upon the
attainment of Company performance goals and if such goals are not met, no
compensation costs would ultimately be recognized and any previously recognized
compensation cost would be reversed.  The total fair value of shares
vested during the six months ended September 30, 2008 and 2007 was $300,000 and
$290,000, respectively.  There were no options exercised during the
six month periods ended September 30, 2008 and 2007; hence, there were no tax
benefits realized during these periods.  At September 30, 2008, there
were 3.6 million shares available for issuance under the Plan.








13.
            Income
      Taxes





Income
taxes are recorded in the Company’s quarterly financial statements based on the
Company’s estimated annual effective income tax rate.  The effective
tax rates used in the calculation of income taxes were 37.9% for the three and
six month periods ended September 30, 2008 and 38.0% for the three and six month
periods ended September 30, 2007.





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








14.
            Commitments
      and Contingencies





The legal
proceedings in which we are involved have been disclosed previously in our
Annual Report on Form 10-K for the fiscal year ended March 31,
2008.  The following disclosure contains a description of pending
legal proceedings that we deem to be material to the Company and should be read
in conjunction with the legal proceedings disclosure contained in Part I, Item 3
of our Annual Report on Form 10-K for the fiscal year ended March 31,
2008.





Securities Class Action
Litigation





The
Company and certain of its officers and directors are defendants in a
consolidated securities class action lawsuit filed in the United States District
Court for the Southern District of New York (the “Consolidated
Action”).  The first of the six consolidated cases was filed on August
3, 2005.  Plaintiffs purport to represent a class of stockholders of
the Company who purchased shares between February 9, 2005 through November 15,
2005.  Plaintiffs also name as defendants the underwriters in the
Company’s initial public offering and a private equity fund that was a selling
stockholder in the offering.  The District Court has appointed a Lead
Plaintiff.  On December 23, 2005, the Lead Plaintiff filed a
Consolidated Class Action Complaint, which asserted claims under Sections 11,
12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b), 20(a) and 20A
of the Securities Exchange Act of 1934 (the “Exchange Act”).  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 Exchange Act.





On June
1, 2007, a hearing before the Court was held regarding Plaintiffs’ pending
motion for class certification in the Consolidated Action.  On
September 4, 2007, the United States District Court for the Southern District of
New York issued an Order certifying a class consisting of all persons who
purchased the common stock of the




-20-


Company
pursuant to, or traceable to, the Company’s initial public offering on or about
February 9, 2005 through November 15, 2005 and were damaged
thereby.





On
January 8, 2008, the parties to the action engaged in mediation to explore the
terms of a potential settlement of the pending litigation; however, no
settlement agreement was reached during mediation.  While discovery in
the action has commenced and is continuing, the Company’s management continues
to believe that the remaining claims in the case are legally deficient and that
it has meritorious defenses to the claims that remain.  The Company
intends to vigorously defend against the claims remaining in the case; however,
the Company cannot, at this time, reasonably estimate the potential range of
loss, if any.





DenTek Oral Care, Inc.
Litigation





In April
2007, the Company filed a lawsuit in the U.S. District Court in the Southern
District of New York against DenTek Oral Care, Inc. (“DenTek”) alleging (i)
infringement of intellectual property associated with The Doctor’s® NightGuardTMdental  protector
which is used for the protection of teeth from nighttime teeth grinding; and
(ii) the violation of unfair competition and consumer protection
laws.  On October 4, 2007, the Company filed a Second Amended
Complaint in which it named Kelly M. Kaplan, Raymond Duane and C.D.S.
Associates, Inc. (“C.D.S.”) as additional defendants in the action against
DenTek and added other claims to the previously filed complaint.  Ms.
Kaplan and Mr. Duane were formerly employed by the Company and C.D.S.
Associates, Inc. is a corporation controlled by Mr. Duane.  In the
Second Amended Complaint, the Company has alleged patent, trademark and
copyright infringement, unfair competition, unjust enrichment, violation of New
York’s Consumer Protection Act, breach of contract, tortious interference with
contractual and business relations, civil conspiracy and trade secret
misappropriation.  On October 19, 2007, the Company filed a Motion for
Preliminary Injunction with the Court in which the Company has asked the Court
to enjoin the defendants from (i) continuing to improperly use the Company’s
trade secrets; (ii) continuing to breach any contractual agreements with the
Company; and (iii) marketing and selling any dental protector products or other
products in which Mr. Duane or Ms. Kaplan has had any involvement or provided
any assistance to DenTek.  Discovery requests have been served by the
parties and discovery is ongoing.





In
November 2007, the defendants in the action each filed a Motion to
Dismiss.  The Company filed responses to the Motions to Dismiss as
well as Motions to Strike the Motions to Dismiss by DenTek and
C.D.S.  The Court ordered the Company’s Motion for a Preliminary
Injunction to be held in abeyance pending a determination of the Motions to
Dismiss.





On
September 30, 2008, the District Court Judge issued a ruling on the defendants’
Motions to Dismiss and the Company’s Motions to Strike the Motions to Dismiss
filed by DenTek and C.D.S.  In the ruling, the Court granted in part
and denied in part the defendants’ Motions to Dismiss, with the following claims
being dismissed without prejudice: (1) breach of the Proprietary Information and
Inventions Agreement (“PIIA”) against Mr. Duane; (2) breach of the PIIA against
Ms. Kaplan; (3) tortious interference with contractual relations against DenTek;
(4) tortious interference with contractual relations against Mr. Duane; and (5)
tortious interference with advantageous business relationship/economic advantage
against all defendants.  The Court denied the Company’s Motions to
Strike the Motions to Dismiss filed by DenTek and C.D.S.  The
following claims included in the Company’s Second Amended Complaint remain in
the action: (1) patent, trademark and copyright infringement against DenTek; (2)
unjust enrichment against DenTek; (3) violation of a New York consumer
protection statute against DenTek; (4) breach of the consulting agreement
against Mr. Duane; (5) breach of the PIIA against C.D.S.; (6) breach of the
release against Ms. Kaplan and Mr. Duane; and (7) trade secret misappropriation
against DenTek, Ms. Kaplan, Mr. Duane and C.D.S.





During
October 2008, DenTek, Ms. Kaplan, Mr. Duane and C.D.S. filed Answers to the
Second Amended Complaint.  In their Answers, each of DenTek, Mr. Duane
and C.D.S. has alleged counterclaims against the Company.  DenTek’s
counterclaims allege false advertising, violation of New York consumer
protection statutes and unfair competition relating to The Doctor’s® NightGuardTM
ClassicTM dental protector.  Mr. Duane’s counterclaim is a
contractual indemnity claim seeking to recover attorneys’ fees pursuant to the
release between Mr. Duane and Dental Concepts, LLC (“Dental Concepts”), a
predecessor-in-interest to Medtech Products Inc., plaintiff in the DenTek
litigation and a wholly-owned subsidiary of Prestige Brands Holdings,
Inc.  C.D.S.’s




-21-


counterclaim
alleges a breach of the consulting agreement between C.D.S. and Dental
Concepts.  The Company’s management believes that the counterclaims
are legally deficient and that it has meritorious defenses to the
counterclaims.  The Company intends to vigorously defend against the
counterclaims; however, the Company cannot, at this time, reasonably estimate
the potential range of loss, if any.





In
addition to the specific matters described above, the Company also is involved
from time to time in other routine legal matters and other claims incidental to
its business.  The Company reviews outstanding claims and proceedings
internally and with external counsel as necessary to assess probability and
amount of potential loss.  These assessments are re-evaluated at each
reporting period and as new information becomes available to determine whether a
reserve should be established or if any existing reserve should be
adjusted.  The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount of the recorded
reserve.  In addition, because it is not permissible under GAAP to
establish a litigation reserve until the loss is both probable and estimable, in
some cases there may be insufficient time to establish a reserve prior to the
actual incurrence of the loss (upon verdict and judgment at trial, for example,
or in the case of a quickly negotiated settlement).  The Company
believes the resolution of routine matters and other incidental claims, taking
into account reserves and insurance, will not have a material adverse effect on
its business, financial condition 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 2014.





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





Facilities
            
            
            Equipment
            
            
            TotalYear Ending September 30,2009
            
            $
            483
            
            
            $
            89
            
            
            $
            5722010
            
            
            522
            
            
            
            73
            
            
            
            5952011
            
            
            542
            
            
            
            41
            
            
            
            5832012
            
            
            559
            
            
            
            15
            
            
            
            5742013
            
            
            577
            
            
            
            --
            
            
            
            577Thereafter
            
            
            646
            
            
            
            --
            
            
            
            646$
            3,329
            
            
            $
            218
            
            
            $
            3,547





Rent
expense for the three and six month periods ended September 30, 2008 was
$148,000 and $306,000, respectively, while rent expense for the three and six
month periods ended September 30, 2007 was $145,000 and $298,000,
respectively.








15.
            Concentrations
      of Risk





The
Company’s sales are concentrated in the areas of over-the-counter healthcare,
household cleaning and personal care products.  The Company sells its
products to mass merchandisers, food and drug accounts, and dollar and club
stores.  During the three and six month periods ended September 30,
2008, approximately 57.8% and 58.5%, respectively, of the Company’s total sales
were derived from its four major brands, while during the three and six month
periods ended September 30, 2007 approximately 56.4% and 56.5%, respectively, of
the Company’s total sales were derived from its four major
brands.  During the three and six month periods ended September 30,
2008, approximately 24.5% and 25.7%, respectively, of the Company’s sales were
made to one customer, while during the three and six month periods ended
September 30, 2007, 22.8% and 23.8% of sales were to this customer. At
September 30, 2008, approximately 21.1% of accounts receivable were owed by the
same customer.





The
Company manages product distribution in the continental United States through a
main distribution center in St. Louis, Missouri.  A serious
disruption, such as a flood or fire, to the main distribution center could
damage the




-22-


Company’s
inventories and could materially impair the Company’s ability to distribute its
products to customers in a timely manner or at a reasonable cost.  The
Company could incur significantly higher costs and experience longer lead times
associated with the distribution of its products to its customers during the
time that it takes the Company to reopen or replace its distribution
center.  As a result, any such disruption could have a material
adverse effect on the Company’s sales and profitability.





The
Company has relationships with approximately 40 third-party
manufacturers.  Of those, the top 10 manufacturers produced items that
accounted for approximately 75% of the Company’s gross sales during the six
month period ended September 30, 2008.  The Company does not have
long-term contracts with three of these manufacturers and certain manufacturers
of various smaller brands, which collectively, represented approximately 20.0%
of the Company’s gross sales for the six months ended September 30,
2008.  The lack of manufacturing agreements for these products exposes
the Company to the risk that a manufacturer could stop producing the Company’s
products at any time, for any reason or fail to provide the Company with the
level of products the Company needs to meet its customers’
demands.  Without adequate supplies of merchandise to sell to the
Company’s customers, sales would decrease materially and the Company’s business
would suffer.  In addition, the Company’s manufacturers could impose
price increases that the Company is unable to pass through to its
customers.  Such a price increase could adversely affect a product’s
gross profit and ultimately the Company’s profitability.








16.
            Business
      Segments





Segment
information has been prepared in accordance with FASB Statement No. 131,
“Disclosures about Segments of an Enterprise and Related
Information.”  The Company’s operating and reportable segments consist
of (i) Over-the-Counter Healthcare, (ii) Household Cleaning and (iii) Personal
Care.





There
were no inter-segment sales or transfers during any of the periods
presented.  The Company evaluates the performance of its operating
segments and allocates resources to them based primarily on contribution
margin.





The
tables below summarize information about the Company’s operating and reportable
segments (in thousands).





Three
      Months Ended September 30, 2008Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedNet
      sales
            
            $
            50,318
            
            
            $
            31,482
            
            
            $
            5,569
            
            
            $
            87,369Other
      revenues
            
            
            24
            
            
            
            658
            
            
            
            --
            
            
            
            682Total
      revenues
            
            
            50,342
            
            
            
            32,140
            
            
            
            5,569
            
            
            
            88,051Cost
      of sales
            
            
            17,567
            
            
            
            20,937
            
            
            
            3,288
            
            
            
            41,792Gross
      profit
            
            
            32,775
            
            
            
            11,203
            
            
            
            2,281
            
            
            
            46,259Advertising
      and promotion
            
            
            10,654
            
            
            
            2,731
            
            
            
            253
            
            
            
            13,638Contribution
      margin
            
            $
            22,121
            
            
            $
            8,472
            
            
            $
            2,028
            
            
            
            32,621Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,120Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,501Other
      (income) expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,779Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,200Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            8,522





-23-


Six
      Months Ended September 30, 2008Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedNet
      sales
            
            $
            89,564
            
            
            $
            59,886
            
            
            $
            10,835
            
            
            $
            160,285Other
      revenues
            
            
            24
            
            
            
            1,276
            
            
            
            --
            
            
            
            1,300Total
      revenues
            
            
            89,588
            
            
            
            61,162
            
            
            
            10,835
            
            
            
            161,585Cost
      of sales
            
            
            30,775
            
            
            
            38,860
            
            
            
            6,429
            
            
            
            76,064Gross
      profit
            
            
            58,813
            
            
            
            22,302
            
            
            
            4,406
            
            
            
            85,521Advertising
      and promotion
            
            
            15,691
            
            
            
            4,801
            
            
            
            465
            
            
            
            20,957Contribution
      margin
            
            $
            43,122
            
            
            $
            17,501
            
            
            $
            3,941
            
            
            
            64,564Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            22,849Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            41,715Other
      (income) expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,462Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,950Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            16,303








Three
      Months Ended September 30, 2007Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedNet
      sales
            
            $
            50,003
            
            
            $
            30,925
            
            
            $
            5,912
            
            
            $
            86,840Other
      revenues
            
            
            --
            
            
            
            497
            
            
            
            --
            
            
            
            497Total
      revenues
            
            
            50,003
            
            
            
            31,422
            
            
            
            5,912
            
            
            
            87,337Cost
      of sales
            
            
            19,688
            
            
            
            19,587
            
            
            
            3,495
            
            
            
            42,770Gross
      profit
            
            
            30,315
            
            
            
            11,835
            
            
            
            2,417
            
            
            
            44,567Advertising
      and promotion
            
            
            8,154
            
            
            
            2,575
            
            
            
            288
            
            
            
            11,017Contribution
      margin
            
            $
            22,161
            
            
            $
            9,260
            
            
            $
            2,129
            
            
            
            33,550Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,940Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,610Other
      (income) expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,595Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,186Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            6,829




-24-


Six
      Months Ended September 30, 2007Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedNet
      sales
            
            $
            92,429
            
            
            $
            60,270
            
            
            $
            12,182
            
            
            $
            164,881Other
      revenues
            
            
            --
            
            
            
            1,039
            
            
            
            28
            
            
            
            1,067Total
      revenues
            
            
            92,429
            
            
            
            61,309
            
            
            
            12,210
            
            
            
            165,948Cost
      of sales
            
            
            35,074
            
            
            
            37,980
            
            
            
            7,038
            
            
            
            80,092Gross
      profit
            
            
            57,355
            
            
            
            23,329
            
            
            
            5,172
            
            
            
            85,856Advertising
      and promotion
            
            
            14,035
            
            
            
            4,203
            
            
            
            565
            
            
            
            18,803Contribution
      margin
            
            $
            43,320
            
            
            $
            19,126
            
            
            $
            4,607
            
            
            
            67,053Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            23,337Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            43,716Other
      (income) expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,282Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,285Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            15,149





During
the three and six month periods ended September 30, 2008, approximately 97.0%
and 96.4%, respectively, of the Company’s sales were made to customers in the
United States and Canada while during the three and six month periods ended
September 30, 2007, approximately 96.6% and 95.7%, respectively, of sales were
made to customers in the U.S. and Canada.





At
September 30, 2008, substantially all of the Company’s long-term assets were
located in the United States of America and have been allocated to the operating
segments as follows (in thousands):





Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedGoodwill
            
            $
            234,579
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            309,879Intangible
      assetsIndefinite
      lived
            
            
            374,070
            
            
            
            170,893
            
            
            
            --
            
            
            
            544,963Finite
      lived
            
            
            83,440
            
            
            
            2
            
            
            
            13,023
            
            
            
            96,465457,510
            
            
            
            170,895
            
            
            
            13,023
            
            
            
            641,428$
            692,089
            
            
            $
            243,444
            
            
            $
            15,774
            
            
            $
            951,307




-25-


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








The
following discussion of our financial condition and results of operations should
be read together with the consolidated financial statements and the related
notes included in this Quarterly Report on Form 10-Q, as well as our Annual
Report on Form 10-K for the fiscal year ended March 31, 2008.  This
discussion and analysis may contain forward-looking statements that involve
certain risks, assumptions and uncertainties.  Future results could
differ materially from the discussion that follows for many reasons, including
the factors described in Part I, Item 1A., “Risk Factors” in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2008, as well as those
described in future reports filed with the SEC.  See also “Cautionary
Statement Regarding Forward-Looking Statements” on page 42 of this Quarterly
Report on Form 10-Q.





General


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





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








Three
      Month Period Ended September 30, 2008 compared to
  the


Three
      Month Period Ended September 30,
2007





Revenues


2008
              Revenues
            
            
            %
            
            
            2007
              Revenues
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            50,342
            
            
            
            57.2
            
            
            $
            50,003
            
            
            
            57.2
            
            
            $
            339
            
            
            
            0.7Household
      Cleaning
            
            
            32,140
            
            
            
            36.5
            
            
            
            31,422
            
            
            
            36.0
            
            
            
            718
            
            
            
            2.3Personal
      Care
            
            
            5,569
            
            
            
            6.3
            
            
            
            5,912
            
            
            
            6.8
            
            
            
            (343
            )
            
            
            (5.8
            )$
            88,051
            
            
            
            100.0
            
            
            $
            87,337
            
            
            
            100.0
            
            
            $
            714
            
            
            
            0.8





Revenues
for the three month period ended September 30, 2008 were $88.1 million, an
increase of $714,000, or 0.8%, versus the three month period ended September 30,
2007.  Revenues in both the Over-the-Counter Healthcare and Household
Cleaning segments increased versus the comparable period.  Revenue in
the Personal Care segment declined during the period.  Revenues from
customers outside of the United States, which represent 9.1% of total revenues,
were flat versus the comparable period of 2007.





-26-


Over-the-Counter
Healthcare Segment


Revenues
of the Over-the-Counter Healthcare segment increased $339,000, or 0.7%, during
2008 versus 2007.  The launch of Allergen Block products,
marketed under the ChlorasepticTM and
Little AllergiesTM
trademarks were the primary drivers of revenue growth during the
period.  Allergen
Block is a safe non-medicated product marketed to allergy suffers looking
for an alternative to traditional allergy medicines.  In addition to
Allergen Block, revenue
increased on other products marketed under the Little Remedies® brand as a
result of distribution gains and increased consumer consumption.  This
increase more than offset the lost revenue from the voluntary recall of Little Remedies’ medicated
pediatric products during the comparable period of 2007.  The revenue
increases from Allergen
Block and Little
Remedies were partially offset by decreases from Murine® Earigate®and
Dermoplast®.  The
decrease in Murine
Earigate revenue was a
result of pipeline shipments when it was launched during the comparable period
of 2007.  Murine Earigate consumer
consumption, however, increased during the period versus the comparable period
of 2007.  The decrease in revenue for Dermoplast was due to
promotional activity on the institutional size item during the comparable period
of 2007 that was not repeated in 2008.  In addition, the unit volume
increase in consumption and a price increase for the Clear eyes brand were offset by price
reductions taken on the cryogenic products included in the Compound W and Wartner brands.





Household
Cleaning Segment


Revenues
of the Household Cleaning segment increased $718,000, or 2.3%, during 2008
versus 2007.  Revenues for the Comet® brand increased during
the period primarily as a result of Comet Mildew Spray
Gel.  Comet’s revenue increase was
partially offset by lower revenues for the other two brands in this segment –
Spic and Span® and
Chore
Boy®.  The decline in Spic and Span’s revenue
reflected a decline in consumer consumption in supermarket accounts while
Chore Boy sales
declined as a result of weaker consumer consumption and lower shipments to small
grocery wholesale accounts.





Personal
Care Segment


Revenues
of the Personal Care segment declined $343,000, or 5.8%, during 2008 versus
2007.  A revenue increase on Cutex® was more than offset
by decreases in the other brands in the segment.  The increase in
Cutex revenue was due
to improving consumer consumption across most classes of trade, but particularly
strong at our largest mass market customer.  The revenue declines in
the other brands in the segment were in line with consumer
consumption.








Gross
Profit


2008
              Gross
      Profit
            
            
            %
            
            
            2007
              Gross
      Profit
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            32,775
            
            
            
            65.1
            
            
            $
            30,315
            
            
            
            60.6
            
            
            $
            2,460
            
            
            
            8.1Household
      Cleaning
            
            
            11,203
            
            
            
            34.9
            
            
            
            11,835
            
            
            
            37.7
            
            
            
            (632
            )
            
            
            (5.3
            )Personal
      Care
            
            
            2,281
            
            
            
            41.0
            
            
            
            2,417
            
            
            
            40.9
            
            
            
            (136
            )
            
            
            (5.6
            )$
            46,259
            
            
            
            52.5
            
            
            $
            44,567
            
            
            
            51.0
            
            
            $
            1,692
            
            
            
            3.8





Gross
profit for the three month period ended September 30, 2008 increased $1.7
million, or 3.8%, versus the three month period ended September 30,
2007.  As a percent of total revenue, gross profit increased from
51.0% in 2007 to 52.5% in 2008.  The increase in gross profit as a
percent of revenues was primarily due to the absence of costs related to the
voluntary recall of Little
Remedies medicated pediatric products during the comparable period of
2007 and favorable sales mix.  In addition, selling price increases
implemented at the end of last fiscal year and our cost reduction program helped
offset commodity cost increases.





Over-the-Counter
Healthcare Segment


Gross
profit for the Over-the-Counter Healthcare segment increased $2.5 million, or
8.1%, during 2008 versus 2007.  As a percent of Over-the-Counter
Healthcare revenue, gross profit increased from 60.6% during 2007 to 65.1%
during 2008.  The increase in gross profit as a percent of revenues
was primarily due to the absence of costs related to the voluntary recall of
Little Remedies
medicated pediatric products during the comparable period of
2007, favorable sales mix and selling price increases on select
items.  The favorable sales mix is due to the sales of Allergen
Block which has a higher gross profit percentage than the segment’s
average.




-27-


Household
Cleaning Segment


Gross
profit for the Household Cleaning segment decreased by $632,000, or 5.3%, during
2008 versus 2007.As a percent of
Household Cleaning revenue, gross profit decreased from 37.7% during 2007 to
34.9% during 2008. The decrease in gross profit percentage was a result of
higher product and distribution costs related to Comet and Spic and Span.





Personal
Care Segment


Gross
profit for the Personal Care segment decreased $136,000, or 5.6%, during 2008
versus 2007.  As a percent of Personal Care revenue, gross profit
increased from 40.9% during 2007 to 41.0% during 2008.  The increase
in gross profit percentage was primarily a result of Cutex product cost savings
and a decrease in product returns.





Contribution
Margin


2008
              Contribution
      Margin
            
            
            %
            
            
            2007
              Contribution
      Margin
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            22,121
            
            
            
            43.9
            
            
            $
            22,161
            
            
            
            44.3
            
            
            $
            (40
            )
            
            
            (0.2
            )Household
      Cleaning
            
            
            8,472
            
            
            
            26.4
            
            
            
            9,260
            
            
            
            29.5
            
            
            
            (788
            )
            
            
            (8.5
            )Personal
      Care
            
            
            2,028
            
            
            
            36.4
            
            
            
            2,129
            
            
            
            36.0
            
            
            
            (101
            )
            
            
            (4.7
            )$
            32,621
            
            
            
            37.0
            
            
            $
            33,550
            
            
            
            38.4
            
            
            $
            (929
            )
            
            
            (2.8
            )





Contribution
margin, defined as gross profit less advertising and promotional expenses, for
the three month period ended September 30, 2008 decreased $929,000, or 2.8%,
versus the three month period ended September 30, 2007.  The
contribution margin decrease was the result of the changes in sales and gross
profit as previously discussed, partially offset by a $2.6 million, or a 23.8%,
increase in advertising and promotional spending.  The advertising and
promotional spending increase was attributable to introductory media support
behind the launch of Allergen
Block in the Over-the-Counter Healthcare segment.





Over-the-Counter
Healthcare Segment


Contribution
margin for the Over-the-Counter Healthcare segment decreased $40,000, or 0.2%,
during 2008 versus 2007.  The contribution margin decrease was the
result of an increase in sales and gross profit as previously discussed, offset
with an increase in advertising and promotional spending of $2.5 million, or
30.7%.  The advertising and promotional spending increase was
primarily attributable to introductory television media support behind the
launch of Allergen
Block.  In addition to Allergen Block, advertising
and promotional spending increased behind Clear eyes®and Compound W® during the
period.  These increases in spending were partially offset by a
decrease in television media support behind The Doctor’s NightGuard
dental protector.





Household
Cleaning Segment


Contribution
margin for the Household Cleaning segment decreased $788,000, or 8.5%, during
2008 versus 2007.  The contribution margin decrease was the result of
the decrease in sales and gross profit as previously discussed, and an increase
in advertising and promotional spending of $156,000 or 6.1% over the comparable
period of 2007.  The increase was the result of increased television
media support behind Comet Mildew SprayGel.





Personal
Care Segment


Contribution
margin for the Personal Care segment decreased $101,000, or 4.7%, during 2008
versus 2007.  The contribution margin decrease was primarily the
result of the sales and gross profit decrease previously discussed slightly
offset by a modest decrease in advertising and promotional
expenses.





General
and Administrative


General
and administrative expenses were $9.4 million for the three month period ended
September 30, 2008 versus $10.2 million for the three month period ended
September 30, 2007.  The decrease in G&A is primarily related
to a reduction in legal expenses.  The decrease in legal expenses is
due to the absence of the Orasure arbitration settlement costs in 2008 versus
2007 and a decrease in legal costs related to the defense of certain
intellectual property.


-28-


Depreciation
and Amortization


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





Interest
Expense


Net
interest expense was $6.8 million during the three month period ended September
30, 2008 versus $9.6 million during the three month period ended September 30,
2007.  The reduction in interest expense was primarily the result of a
lower level of indebtedness combined with a reduction of interest rates on our
senior debt.  The average cost of funds decreased from 8.7% for 2007
to 6.9% for 2008 while the average indebtedness decreased from $437.8 million
during 2007 to $392.6 million during 2008.





Income
Taxes


The
provision for income taxes during the three month period ended September 30,
2008 was $5.2 million versus $4.2 million during the three month period ended
September 30, 2007.  The effective income tax rates were 37.9% and
38.0% for 2008 and 2007, respectively.








Six
      Month Period Ended September 30, 2008 compared to
  the


Six
      Month Period Ended September 30,
2007





Revenues


2008
              Revenues
            
            
            %
            
            
            2007
              Revenues
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            89,588
            
            
            
            55.4
            
            
            $
            92,429
            
            
            
            55.7
            
            
            $
            (2,841
            )
            
            
            (3.1
            )Household
      Cleaning
            
            
            61,162
            
            
            
            37.9
            
            
            
            61,309
            
            
            
            36.9
            
            
            
            (147
            )
            
            
            (0.2
            )Personal
      Care
            
            
            10,835
            
            
            
            6.7
            
            
            
            12,210
            
            
            
            7.4
            
            
            
            (1,375
            )
            
            
            (11.3
            )$
            161,585
            
            
            
            100.0
            
            
            $
            165,948
            
            
            
            100.0
            
            
            $
            (4,363
            )
            
            
            (2.6
            )





Revenues
for the six month period ended September 30, 2008 were $161.6 million, a
decrease of $4.4 million, or 2.6%, versus the six month period ended September
30, 2007.  Revenues decreased across all reporting segments during the
period.  Revenues from customers outside of the United States, which
represent 10.2% of total revenues, also decreased 3.4% in 2008 versus the
comparable period of 2007.  The decrease in international
revenues was attributed to our actions, initiated in June 2007, to eliminate
shipments to specific customers outside North America that were diverting
product back to the U.S. market.





Over-the-Counter
Healthcare Segment


Revenues
of the Over-the-Counter Healthcare segment decreased $2.8 million, or 3.1%,
during 2008 versus 2007.  Revenue from the launch of the new Allergen Block products,
marketed under the Chloraseptic and Little Allergies trademarks,
and revenue increases for Clear eyesand Little Remedies were more
than offset by revenue decreases on our wart care brands, as well as the Dermoplast and The Doctor’s
brands.  Allergen
Block is a new innovative non-medicated allergy product targeted toward
allergy sufferers looking for an alternative to medicated
products.  Clear
eyes revenue increased as a result of unit volume increases in
consumption and a price increase taken in March 2008.  The Little Remedies revenue
increase was a result of distribution gains and increased consumer consumption
of non-medicated pediatric products.  Revenues for the wart care
brands, Compound W and
Wartner, decreased
primarily due to a price reduction taken on the cryogenic
products.  This pricing reduction, along with a down-sizing of Compound W Freeze-off, was in
response to improving the value proposition to consumers and consistent with
price reductions taken by a major competitor in the category.  Dermoplast revenue decreased
due to a promotion of the institutional size item in 2007 that was not repeated
in 2008.  Increased competition in the bruxism category resulted in
lower sales of The Doctor’s
NightGuard dental protector.





-29-


Household
Cleaning Segment


Revenues
of the Household Cleaning segment decreased $147,000, or 0.2%, during 2008
versus 2007.  Revenues of the Comet brand increased during
the period primarily as a result of Comet Mildew Spray
Gel.  Comet’s revenue increase was
partially offset by lower revenues for the other two brands in this segment –
Spic and Span and Chore Boy.  The
decline in Spic and
Span’s revenue reflected a decline in consumer consumption while Chore Boy sales declined as a
result of weaker consumption and lower shipments to small grocery wholesale
accounts.





Personal
Care Segment


Revenues
of the Personal Care segment declined $1.4 million, or 11.3%, during 2008 versus
2007.  All major brands in this segment experienced revenue declines
during the period.  The decrease in revenues for Cutex, Prell and Denorex was in line with
consumption.








Gross
Profit


2008
              Gross
      Profit
            
            
            %
            
            
            2007
              Gross
      Profit
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            58,813
            
            
            
            65.6
            
            
            $
            57,355
            
            
            
            62.1
            
            
            $
            1,458
            
            
            
            2.5Household
      Cleaning
            
            
            22,302
            
            
            
            36.5
            
            
            
            23,329
            
            
            
            38.1
            
            
            
            (1,027
            )
            
            
            (4.4
            )Personal
      Care
            
            
            4,406
            
            
            
            40.7
            
            
            
            5,172
            
            
            
            42.4
            
            
            
            (766
            )
            
            
            (14.8
            )$
            85,521
            
            
            
            52.9
            
            
            $
            85,856
            
            
            
            51.7
            
            
            $
            (335
            )
            
            
            (0.4
            )





Gross
profit for the six month period ended September 30, 2008 decreased $335,000, or
0.4%, versus the six month period ended September 30, 2007.  As a
percent of total revenue, gross profit increased from 51.7% in 2007 to 52.9% in
2008.  The increase in gross profit as a percent of revenues was the
result of favorable product mix, absence of costs related to the voluntary
recall of pediatric cough/cold products, price increases taken on select items
and the benefits of our cost reduction program started last year, partially
offset by an increase in promotional allowances.





Over-the-Counter
Healthcare Segment


Gross
profit for the Over-the-Counter Healthcare segment increased $1.5 million, or
2.5%, during 2008 versus 2007.  As a percent of Over-the-Counter
Healthcare revenue, gross profit increased from 62.1% during 2007 to 65.6%
during 2008.  The increase in gross profit as a percent of revenues
was the result of favorable product mix toward higher gross margin brands,
selling price increases implemented at the end of March 2008, absence of costs
related to the Little
Remedies voluntary recall of medicated pediatric cough/cold products and
cost reductions.  The favorable mix is primarily related to the launch
of Allergen Block which
has a higher gross profit percentage than the segment average.  Compound W Freeze-off
experienced the most significant cost savings as a result of the migration of
production to a new supplier.





Household
Cleaning Segment


Gross
profit for the Household Cleaning segment decreased by $1.0 million, or 4.4%,
during 2008 versus 2007.As a percent of
Household Cleaning revenue, gross profit decreased from 38.1% during 2007 to
36.5% during 2008.  The slight decrease in gross profit percentage was
a result of higher product and transportation costs related to Comet and Spic and Span.





Personal
Care Segment


Gross
profit for the Personal Care segment decreased $766,000, or 14.8%, during 2008
versus 2007.  As a percent of Personal Care revenue, gross profit
decreased from 42.4% during 2007 to 40.7% during 2008.  The decrease
in gross profit percentage was due to increased inventory obsolescence costs
related to Cutex
incurred during the quarter ended June 30, 2008.





-30-


Contribution
Margin


2008
              Contribution
      Margin
            
            
            %
            
            
            2007
              Contribution
      Margin
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            43,122
            
            
            
            48.1
            
            
            $
            43,320
            
            
            
            46.9
            
            
            $
            (198
            )
            
            
            (0.5
            )Household
      Cleaning
            
            
            17,501
            
            
            
            28.6
            
            
            
            19,126
            
            
            
            31.2
            
            
            
            (1,625
            )
            
            
            (8.5
            )Personal
      Care
            
            
            3,941
            
            
            
            36.4
            
            
            
            4,607
            
            
            
            37.7
            
            
            
            (666
            )
            
            
            (14.5
            )$
            64,564
            
            
            
            40.0
            
            
            $
            67,053
            
            
            
            40.4
            
            
            $
            (2,489
            )
            
            
            (3.7
            )





Contribution
margin, defined as gross profit less advertising and promotional expenses, for
the six month period ended September 30, 2008 decreased $2.5 million, or 3.7%,
versus the six month period ended September 30, 2007.  The
contribution margin decrease was the result of the changes in sales and gross
profit as previously discussed, and a $2.2 million, or 11.5%, increase in
advertising and promotional spending.  The increase in advertising and
promotional spending was primarily attributable to introductory media support
behind the launch of Allergen
Block in the Over-the-Counter Healthcare segment, as well as an increase
in media support in the Household Cleaning segment.





Over-the-Counter
Healthcare Segment


Contribution
margin for the Over-the-Counter Healthcare segment decreased $198,000, or 0.5%,
during 2008 versus 2007.  The contribution margin decrease was the
result of the decrease in sales and an increase in gross profit as previously
discussed, as well as an increase in advertising and promotional spending of
$1.7 million, or 11.8%.  An increase in television media support
behind launch of Allergen
Block and Murine
Earigate was offset by
a decrease in media support of The Doctor’s NightGuard
dental protector.





Household
Cleaning Segment


Contribution
margin for the Household Cleaning segment decreased $1.6 million, or 8.5%,
during 2008 versus 2007.  The contribution margin decrease was the
result of the decrease in sales and gross profit as previously discussed, and an
increase in advertising and promotional spending of $598,000 or
14.2%.  The increase was the result of increased television media
support behind Comet Mildew
SprayGel.





Personal
Care Segment


Contribution
margin for the Personal Care segment decreased $666,000, or 14.2%, during 2008
versus 2007.  The contribution margin decrease was primarily the
result of the sales and gross profit decrease previously discussed, slightly
offset by a modest decrease in advertising and promotional
expenses.





General
and Administrative


General
and administrative expenses were $17.3 million for the six month period ended
September 30, 2008 versus $17.8 million for the six month period ended September
30, 2007.  The decease in G&A is primarily related to a decrease
in legal expenses.  The decrease in legal expenses is due to the
absence of the Orasure arbitration settlement costs in 2008 versus 2007 and a
decrease in legal costs related to the defense of certain intellectual
property.





Depreciation
and Amortization


Depreciation
and amortization expense was essentially flat at $5.5 million for both six
month periods ended September 30, 2008 and 2007.





Interest
Expense


Net
interest expense was $15.5 million during the six month period ended September
30, 2008 versus $19.3 million during the six month period ended September 30,
2007.  The reduction in interest expense was primarily the result of a
lower level of indebtedness combined with a reduction of interest rates on our
senior debt.  The average cost of funds decreased from 8.8% for 2007
to 7.7% for 2008 while the average indebtedness decreased from $437.7 million
during 2007 to $399.4 million during 2008.





-31-


Income
Taxes


The
provision for income taxes during the six month period ended September 30, 2008
was $9.9 million versus $9.3 million during the six month period ended September
30, 2007.  The effective income tax rates were 37.9% and 38.0% for
2008 and 2007, respectively.








Liquidity
and Capital Resources





Liquidity


We have
financed our operations with a combination of borrowings and funds generated
from operations.  Our principal uses of cash are for operating
expenses, debt service, brand acquisitions, working capital and capital
expenditures.





Six
      Months Ended September 30(In
      thousands)
            
            2008
            
            
            2007Cash
      provided by (used for):Operating
      Activities
            
            $
            36,676
            
            
            $
            21,492Investing
      Activities
            
            
            (4,109
            )
            
            
            (210
            )Financing
      Activities
            
            
            (26,015
            )
            
            
            (26,241
            )








Operating
Activities


Net cash
provided by operating activities was $36.7 million for the six month period
ended September 30, 2008 compared to $21.5 million for the six month period
ended September 30, 2007.  The $15.2 million increase in cash provided
by operating activities was primarily the result of a decrease in the components
of working capital, primarily accounts receivable.  Accounts
receivable decreased $1.7 million from March 2008 to September 2008 versus a
$11.3 million increase from March 2007 to September 2007.  The increase in
accounts receivable at September 30, 2007 resulted from promotional incentives
granted to customers in advance of the cough/cold season that were not repeated
in 2008.





Investing
Activities


Net cash
used for investing activities was $4.1 million for the six month period ended
September 30, 2008 compared to $210,000 for the six month period ended September
30, 2007.  During the six month period ended September 30, 3008, cash
used for investing activities was primarily for the settlement of a purchase
price adjustment associated with the Wartner USA BV acquisition in
2006.  During the six month period ended September 30, 2007, net cash
used for investing activities was for the acquisition of machinery, computers
and office equipment.





Financing
Activities


Net cash
used for financing activities was $26.0 million for the six month period ended
September 30, 2008 compared to $26.2 million for the six month period ended
September 30, 2007.  During the six month period ended September 30,
2008, the Company repaid $24.2 million of the Tranche B Term Loan Facility in
excess of required amortization payments with cash generated from
operations.  This reduced our outstanding indebtedness to $385.2
million from $411.2 million at March 31, 2008.





The
Company’s cash flow from operations is normally expected to exceed net income
due to the substantial non-cash charges related to depreciation and amortization
of intangibles, increases in deferred income tax liabilities resulting from
differences in the amortization of intangible assets and goodwill for income tax
and financial reporting purposes, the amortization of certain deferred financing
costs and stock-based compensation.




-32-


Capital
Resources





At
September 30, 2008, we had an aggregate of $385.2 million of outstanding
indebtedness, which consisted of the following:





·
            $259.2
      million of borrowings under the Tranche B Term Loan Facility,
      and





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





All loans
under the Senior Credit Facility bear interest at floating rates, based on
either the prime rate, or at our option, the LIBOR rate, plus an applicable
margin.  At September 30, 2008, an aggregate of $259.2 million was
outstanding under the Senior Credit Facility at a weighted average interest rate
of 4.75%.





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





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





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





In
February 2008, the Company entered into an interest rate swap agreement in the
notional amount of $175.0 million, decreasing to $125.0 million at March 26,
2009 to replace and supplement the interest rate cap agreement that expired on
May 30, 2008.  The Company has agreed to pay a fixed rate of 2.88%
while receiving a variable rate based on LIBOR.  The agreement
terminates on March 26, 2010.  The fair value of the interest rate
swap agreement is included in either other assets or current liabilities at the
balance sheet date.  At September 30, 2008, the fair value of the
interest rate swap of $775,000 was included in other assets, while at March 31,
2008 the fair value of $1.5 million was included in other current
liabilities.





The
Senior Credit Facility contains various financial covenants, including
provisions that require us to maintain certain leverage ratios, interest
coverage ratios and fixed charge coverage ratios.  The Senior Credit
Facility, as well as the Indenture governing the Senior Subordinated Notes,
contain provisions that accelerate our indebtedness on certain changes in
control and restrict us from undertaking specified corporate actions, including
asset dispositions, acquisitions, payment of dividends and other specified
payments, repurchasing the Company’s equity securities in the public markets,
incurrence of indebtedness, creation of liens, making loans and investments and
transactions with affiliates.  Specifically, we must:





·
            Have
      a leverage ratio of less than 4.25 to 1.0 for the quarter ended September
      30, 2008, 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 September 30, 2008, increasing over time to 3.25 to 1.0 for the
      quarter ending March 31, 2010, and remaining level thereafter,
      and





·
            Have
      a fixed charge coverage ratio of greater than 1.5 to 1.0 for the quarter
      ended September




-33-


30,
      2008, and for each quarter thereafter until the quarter ending March 31,
      2011.





At
September 30, 2008, we were in compliance with the applicable financial and
restrictive covenants under the Senior Credit Facility and the Indenture
governing the Senior Subordinated Notes.





At
September 30, 2008, we had $60.0 million of borrowing capacity available under
the Revolving Credit Facility to support our operating activities; however, this
facility expires in April 2009.  Additionally, we have $259.2 million
outstanding under the Tranche B Term Loan Facility which matures in April
2011.  We are obligated to make quarterly principal payments on the
Tranche B Term Loan Facility equal to $887,500, representing 0.25% of the
initial principal amount of the term loan.  Our ability to borrow an
additional $200.0 million pursuant to our Senior Credit Facility under the
Tranche B Term Loan Facility expired during the three month period ended June
30, 2008.





As a
result of the current economic environment and the state of the credit markets,
the Company will enhance its liquidity position and use the cash flow generated
from operations to build its cash reserves.  Management estimates that
cash reserves of approximately $30.0 million will be sufficient to provide
adequate liquidity, allowing the Company to meet its current and future
obligations as they come due.  As a consequence of this action,
management expects to make only modest repayments against outstanding
indebtedness through March 31, 2009.  However, once the cash reserve
objective is realized, management intends to resume debt repayments at levels in
excess of those required by the Tranche B Term Loan Facility.  While
management intends to replace these credit facilities during the ensuing year,
the uncertainties of the credit markets could impede our ability to do
so.  Consequently, we can give no assurances that financing will be
available, or if available, that it can be obtained on terms favorable to us or
on a basis that is not dilutive to our stockholders.








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,
fuel, purchased product and overhead may adversely affect our operating
results.  Although we do not believe that inflation has had a material
impact on our financial condition or results from operations for the periods
referred to above, a high rate of inflation in the future could have a material
adverse effect on our business, financial condition or results from
operations.  The recent increase in crude oil prices has had an
adverse impact on transportation costs, as well as, certain petroleum based raw
materials and packaging material.  Although the Company takes efforts
to minimize the impact of inflationary factors, including raising prices to our
customers, a high rate of pricing volatility associated with crude oil supplies
may continue to have an adverse effect on our operating results.








Critical
      Accounting Policies and Estimates





The
Company’s significant accounting policies are described in the notes to the
unaudited financial statements included elsewhere in this Quarterly Report on
Form 10-Q, as well as in our Annual Report on Form 10-K for the year ended March
31, 2008. While all significant accounting policies are important to our
consolidated financial statements, certain of these policies may be viewed as
being critical.  Such policies are those that are both most important to
the portrayal of our financial condition and results from operations and require
our most difficult, subjective and complex estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, expenses or the related
disclosure of contingent assets and liabilities.  These estimates are based
upon our historical experience and on various other assumptions that we believe
to be reasonable under the circumstances.  Actual results may differ
materially from these estimates under different conditions.  The most
critical accounting policies are as follows:





-34-


Revenue
Recognition


We comply
with the provisions of SEC Staff Accounting Bulletin No. 104 “Revenue
Recognition,” which states that revenue should be recognized when the following
revenue recognition criteria are met: (i) persuasive evidence of an arrangement
exists; (ii) the selling price is fixed or determinable; (iii) the product has
been shipped and the customer takes ownership and assumes the risk of loss; and
(iv) collection of the resulting receivable is reasonably assured.  We
have determined that the transfer of the risk of loss generally occurs when
product is received by the customer, and, accordingly recognize revenue at that
time.  Provision is made for estimated discounts related to customer
payment terms and estimated product returns at the time of sale based on our
historical experience.





As is
customary in the consumer products industry, we participate in the promotional
programs of our customers to enhance the sale of our products.  The
cost of these promotional programs is recorded in accordance with Emerging
Issues Task Force 01-09, “Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products)” as either advertising and promotional expenses or as a
reduction of sales.  Such costs vary from period-to-period based on
the actual number of units sold during a finite period of time.  We
estimate the cost of such promotional programs at their inception based on
historical experience and current market conditions and reduce sales by such
estimates.  These promotional programs consist of direct to consumer
incentives such as coupons and temporary price reductions, as well as incentives
to our customers, such as slotting fees and cooperative
advertising.  We do not provide incentives to customers for the
acquisition of product in excess of normal inventory quantities since such
incentives increase the potential for future returns, as well as reduce sales in
the subsequent fiscal periods.





Estimates
of costs of promotional programs are based on (i) historical sales experience,
(ii) the current offering, (iii) forecasted data, (iv) current market
conditions, and (v) communication with customer purchasing/marketing
personnel.  At the completion of the promotional program, the
estimated amounts are adjusted to actual results.  While our
promotional expense for the year ended March 31, 2008 was $18.8 million, we
participated in 4,800 promotional campaigns, resulting in an average cost of
$3,000 per campaign.  Of such amount, only 663 payments were in excess
of $5,000.  We believe that the estimation methodologies employed,
combined with the nature of the promotional campaigns, makes the likelihood
remote that our obligation would be misstated by a material
amount.  However, for illustrative purposes, had we underestimated the
promotional program rate by 10% for the year ended March 31, 2008, our sales and
operating income would have been adversely affected by approximately $1.9
million.  Similarly, had we underestimated the promotional program
rate by 10% for the three and six month periods ended September 30, 2008, our
sales and operating would have been adversely affected by approximately $581,000
and $1.1 million, respectively.  Net income would have been adversely
affected by approximately $1.2 million during the year ended March 31, 2008 and
approximately $361,000 and $683,000 for the three and six month periods ended
September 30, 2008, respectively.





We also
periodically run coupon programs in Sunday newspaper inserts or as on-package
instant redeemable coupons.  We utilize a national clearing house to
process coupons redeemed by customers.  At the time a coupon 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, 2008, we had 29 coupon
events.  The amount recorded against revenue for these events during
the year was $2.1 million, of which $1.9 million was redeemed during the
year.  During the six month period ended September 30, 2008, we had 17
coupon events.  The amount recorded against revenue for the events
during the three month period ended September 30, 2008 was $541,000, of which
$353,000 was redeemed during the period, while during the six month period ended
September 30, 2008, the amount recorded against revenue was $827,000 of which
$682,000 was redeemed during the period.





Allowances
for Product Returns


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





-35-


We
construct our returns analysis by looking at the previous year’s return history
for each brand.  Subsequently, each month, we estimate our current
return rate based upon an average of the previous six months’ return rate and
review that calculated rate for reasonableness giving consideration to the other
factors described above.  Our historical return rate has been
relatively stable; for example, for the years ended March 31, 2008, 2007 and
2006, returns represented 4.6%, 3.7% and 3.5%, respectively, of gross
sales.  While the returns rate increased 0.9% from 2007 to 2008, such
amount, exclusive of the voluntary withdrawal from the marketplace of Little Remedies medicated
pediatric cough and cold products in October 2007, would have been
4.1%.  At September 30, 2008 and March 31, 2008, the allowance for
sales returns was $1.6 million and $1.8 million, respectively.





While we
utilize the methodology described above to estimate product returns, actual
results may differ materially from our estimates, causing our future financial
results to be adversely affected.  Among the factors that could cause
a material change in the estimated return rate would be significant unexpected
returns with respect to a product or products that comprise a significant
portion of our revenues in a manner similar to the Little Remedies voluntary
withdrawal discussed above.  Based upon the methodology described
above and our actual returns’ experience, management believes the likelihood of
such an event remains remote.  As noted, over the last three years,
our actual product return rate has stayed within a range of 4.6% to 3.5% of
gross sales.  An increase of 0.1% in our estimated return rate as a
percentage of gross sales would have adversely affected our reported sales and
operating income for the year ended March 31, 2008 by approximately $380,000 and
net income by approximately $236,000.  An increase of 0.1% of our
estimated returns rate as a percentage of gross sales during the three and six
month periods ended September 30, 2008 would have adversely affected our
reported sales and operating income by approximately $102,000 and $190,000,
respectively, while net income would have been adversely affected by
approximately $63,000 and $118,000, 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 September 30, 2008 and March 31, 2008, the
allowance for obsolete and slow moving inventory represented 2.9% and 4.6%,
respectively, of total inventory.  Inventory obsolescence costs
charged to operations were $1.4 million for the year ended March 31, 2008, while
for the three and six month periods ended September 30, 2008 the Company
recorded obsolescence costs of $481,000 and $442,000,
respectively.  During the three month period ended June 30, 2008, the
Company recorded a credit of $39,000 due to the discounted sale of certain
short-dated inventory.  A 1.0% increase in our allowance for
obsolescence at March 31, 2008 would have adversely affected our reported
operating income and net income for the year ended March 31, 2008 by
approximately $311,000 and $193,000, respectively.  Similarly, a 1.0%
increase in our allowance for obsolescence at September 30, 2008 would have
adversely affected our reported operating income and net income for the three
and six month periods ended September 30, 2008 by approximately $261,000 and
$162,000, respectively.





Allowance
for Doubtful Accounts


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





-36-


We
establish specific reserves for those accounts which file for bankruptcy, have
no payment activity for 180 days or have reported major negative changes to
their financial condition.  The allowance for bad debts amounted to
0.1% of accounts receivable at September 30, 2008 and March 31,
2008.  Bad debt expense for the year ended March 31, 2008 was
$124,000, while during the three and six month periods ended September 30, 2008
the Company recorded bad debt expense of $42,000 and $47,000,
respectively.





While
management believes that it is diligent in its evaluation of the adequacy of the
allowance for doubtful accounts, an unexpected event, such as the bankruptcy
filing of a major customer, could have an adverse effect on our future financial
results.  A 0.1% increase in our bad debt expense as a percentage of
sales for the year ended March 31, 2008 would have resulted in a decrease in
reported operating income of approximately $325,000, and a decrease in our
reported net income of approximately $202,000.  Similarly, a 0.1%
increase in our bad debt expense as a percentage of sales for the three and six
month periods ended September 30, 2008 would have resulted in a decrease in
reported operating income of approximately $88,000 and $162,000, respectively,
and a decrease in our reported net income of approximately $55,000 and $101,000,
respectively.





Valuation
of Intangible Assets and Goodwill


Goodwill
and intangible assets amounted to $951.3 million and $955.6 million at September
30, 2008 and March 31, 2008, respectively.  At September 30, 2008,
goodwill and intangible assets were apportioned among our three operating
segments as follows (in thousands):





Over-the-
              Counter
              Healthcare
            
            
            Household
              Cleaning
            
            
            Personal
              Care
            
            
            ConsolidatedGoodwill
            
            $
            234,579
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            309,879Intangible
      assetsIndefinite
      lived
            
            
            374,070
            
            
            
            170,893
            
            
            
            --
            
            
            
            544,963Finite
      lived
            
            
            83,440
            
            
            
            2
            
            
            
            13,023
            
            
            
            96,465457,510
            
            
            
            170,895
            
            
            
            13,023
            
            
            
            641,428$
            692,089
            
            
            $
            243,444
            
            
            $
            15,774
            
            
            $
            951,307





Our Clear Eyes, New-Skin,
Chloraseptic,Compound
W and Wartnerbrands comprise the majority of the value of the intangible assets within
the Over-The-Counter Healthcare segment.  The Comet, Spic and Spanand
Chore Boybrands
comprise substantially all of the intangible asset value within the Household
Cleaning segment.  Denorex, Cutexand Prellcomprised substantially
all of the intangible asset value within the Personal Care segment.





Goodwill
and intangible assets comprise substantially all of our
assets.  Goodwill represents the excess of the purchase price over the
fair value of assets acquired and liabilities assumed in a purchase business
combination.  Intangible assets generally represent our trademarks,
brand names and patents.  When we acquire a brand, we are required to
make judgments regarding the value assigned to the associated intangible assets,
as well as their respective useful lives.  Management considers many
factors, both prior to and after, the acquisition of an intangible asset in
determining the value, as well as the useful life assigned to each intangible
asset that the Company acquires or continues to own and promote.  The
most significant factors are:





●
            Brand
      History


A brand
that has been in existence for a long period of time (e.g.,25, 50 or 100 years)
generally warrants a higher valuation and longer life (sometimes indefinite)
than a brand that has been in existence for a very short period of
time.  A brand that has been in existence for an extended period of
time generally has been the subject of considerable investment by its previous
owner(s) to support product innovation and advertising and
promotion.





-37-


●
            Market
      Position


Consumer
products that rank number one or two in their respective market generally have
greater name recognition and are known as quality product offerings, which
warrant a higher valuation and longer life than products that lag in the
marketplace.





●
            Recent
      and Projected Sales Growth


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





●
            History
      of and Potential for Product
Extensions


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





After
consideration of the factors described above, as well as current economic
conditions and changing consumer behavior, management prepares a determination
of the intangible’s value and useful life based on its analysis of the
requirements of Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“Statement”) No. 141, “Business
Combinations” and Statement No. 142, “Goodwill and Other Intangible Assets”
(“Statement No. 142”).  Under Statement No. 142, goodwill and
indefinite-lived intangible assets are no longer amortized, but must be tested
for impairment at least annually; more frequently if conditions indicate that
the carrying value of the assets may be impaired or not
recoverable.  Intangible assets with finite lives are amortized over
their respective estimated useful lives and must also be tested annually for
impairment.




Finite-Lived
Intangible Assets


In
addition to the annual test for impairment, management performs a quarterly
review 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




-38-


impairment
charge.  Once that analysis is completed, a discount rate is applied
to the cash flows to estimate fair value.  The impairment charge is
measured as the excess of the carrying amount of the intangible asset over fair
value as calculated using the discounted cash flow analysis.  Future
events, such as competition, technological advances and reductions in
advertising support for our trademarks and trade names could cause subsequent
evaluations to utilize different assumptions.





Indefinite-Lived
Intangible Assets


In a
manner similar to finite-lived intangible assets, on a quarterly basis
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, 2008, management applied a discount rate of 9.1%, 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.  We have not been required to record any additional asset
impairment charges since March 2006.





Stock-Based
Compensation


We recognize stock-based
compensation in accordance with FASB Statement No. 123(R), “Share-Based Payment”
(“Statement No. 123(R)”) which requires us to measure the cost of
services to be rendered based on the grant-date fair value of the equity
award.  Compensation expense is to be recognized over the period which
an employee is required to provide service in exchange for the award, generally
referred to as the requisite service period.  Information utilized in
the determination of fair value includes the following:





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


·
            Strike
      price of the instrument,


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


·
            Discount
      rates,


·
            Duration
      of the instrument, and


·
            Volatility
      of the Company’s common stock in the public
  market.





-39-


Additionally,
management must estimate the expected attrition rate of the recipients to enable
it to estimate the amount of non-cash compensation expense to be recorded in our
financial statements.  While management uses diligent analysis to
estimate the respective variables, a change in assumptions or market conditions,
as well as changes in the anticipated attrition rates, could have a significant
impact on the future amounts recorded as non-cash compensation
expense.  The Company recorded net non-cash compensation expense of
$1.1 million and $655,000 during the years ended March 31, 2008 and 2007,
respectively.  However, during the year ended March 31, 2008,
management was required to reverse previously recorded stock-based compensation
costs of $538,000, $394,000 and $166,000 related to the October 2005, July 2006
and May 2007 grants, respectively, because the Company determined that it would
not meet the performance goals associated with such grants of restricted
stock.  The Company recorded non-cash compensation expense of $948,000
and $1.6 million during the three and six month periods ended September 30,
2008, respectively, and non-cash compensation of $685,000 and $1.1 million
during the three and six month periods ended September 30, 2007,
respectively.





Loss
Contingencies


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





·
            Rules
      and regulations promulgated by regulatory
  agencies,


·
            Sufficiency
      of the evidence in support of our
position,


·
            Anticipated
      costs to support our position, and


·
            Likelihood
      of a positive outcome.





Recent
Accounting Pronouncements


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





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





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





-40-


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





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





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





-41-


CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





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





Forward-looking
statements speak only as of the date of this Quarterly Report on Form 10-Q.
 Except as required under federal securities laws and the rules and
regulations of the SEC, we do not have any intention to update any
forward-looking statements to reflect events or circumstances arising after the
date of this Quarterly Report on Form 10-Q, whether as a result of new
information, future events or otherwise.





Our
forward-looking statements generally can be identified by the use of words or
phrases such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “will
be,” “will continue,” “will likely result,” or other similar words and
phrases.  Forward-looking statements and our plans and expectations
are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated, and our business in general
is subject to such risks.  As a result of these risks
and uncertainties, readers are cautioned not to place undue reliance on
forward-looking statements included in thisQuarterly Report on Form10-Qor that may be made
elsewhere from time to time by, or on behalf of, us.All forward-looking
statements attributable to us are expressly qualifiedby these cautionary
statements.For more information, see “Risk Factors” contained
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended March
31, 2008.  In addition, our expectations or beliefs concerning future
events involve risks and uncertainties, including, without
limitation:





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





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





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





·
            Our
      ability to invest in research and
development,





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





·
            Disruptions
      in our distribution center,





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





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





·
            Increases
      in supplier prices,





·
            Increases
      in transportation fees and fuel
charges,





·
            Changes
      in our senior management team,





·
            Our
      ability to protect our intellectual property
  rights,





·
            Our
      dependency on the reputation of our brand
names,





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





·
            Our
      level of debt, and ability to service our
debt,





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





-42-


·
            Our
      ability to obtain additional financing,
and





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




ITEM
      3.
              QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK


We are
exposed to changes in interest rates because our Senior Credit Facility is
variable rate debt.  Interest rate changes, therefore, generally do not
affect the market value of our senior secured financing, but do impact the
amount of our interest payments and, therefore, our future earnings and cash
flows, assuming other factors are held constant.  At September 30,
2008, we had variable rate debt of approximately $259.2 million related to our
Tranche B Term Loan.





In an
effort to protect the Company from the adverse impact that rising interest rates
would have on our variable rate debt, we have entered into various interest rate
cap agreements to hedge this exposure.  In March 2005, the Company
purchased interest rate cap agreements with a total notional amount of $180.0
million the terms of which were as follows:





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





In
February 2008, the Company entered into an interest rate swap agreement,
effective March 26, 2008, in the notional amount of $175.0 million, decreasing
to $125.0 million at March 26, 2009 to replace and supplement the interest rate
cap agreement that expired on May 30, 2008.  The Company has agreed to
pay a fixed rate of 2.88% while receiving a variable rate based on
LIBOR.  The agreement terminates on March 26, 2010.





Holding
other variables constant, including levels of indebtedness, a one percentage
point increase in interest rates on our variable rate debt would have an adverse
impact on pre-tax earnings and cash flows for the twelve month period ending
September 30, 2009 of approximately $2.6 million.  However, given the
protection afforded by the interest rate cap agreements, the impact of a one
percentage point increase would be limited to $200,000 for the twelve month
period ending September 30, 2009.  The fair value of the interest rate
swap agreement was $775,000 at September 30, 2008.






ITEM4.
            CONTROLS AND
      PROCEDURES




Disclosure
Controls and Procedures


The Company’s management, with the participation of its Chief
Executive Officer and the Chief Financial Officer, evaluated the effectiveness
of the Company’s disclosure controls and procedures, as defined in Rule
13a–15(e) of the Securities Exchange Act of 1934 (“Exchange Act”), as of
September 30, 2008.  Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that, as of September 30,
2008, the Company’s disclosure controls and procedures were effective to ensure
that information required to be disclosed by the Company in the reports the
Company files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to the
Company’s management, including the Company’s Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.





-43-


Changes
in Internal Control over Financial Reporting


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








PART
      II.
            OTHER
      INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS





The legal
proceedings in which we are involved have been disclosed previously in our
Annual Report on Form 10-K for the fiscal year ended March 31,
2008.  The following disclosure contains recent developments in our
pending legal proceedings which we deem to be material to the Company and should
be read in conjunction with the legal proceedings disclosure contained in Part
I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended March 31,
2008.





DenTek Oral Care, Inc.
Litigation





On
September 30, 2008, the District Court Judge issued a ruling on the defendants’
Motions to Dismiss and the Company’s Motions to Strike the Motions to Dismiss
filed by DenTek and C.D.S.  In the ruling, the Court granted in part
and denied in part the defendants’ Motions to Dismiss, with the following claims
being dismissed without prejudice: (1) breach of the Proprietary Information and
Inventions Agreement (“PIIA”) against Mr. Duane; (2) breach of the PIIA against
Ms. Kaplan; (3) tortious interference with contractual relations against DenTek;
(4) tortious interference with contractual relations against Mr. Duane; and (5)
tortious interference with advantageous business relationship/economic advantage
against all defendants.  The Court denied the Company’s Motions to
Strike the Motions to Dismiss filed by DenTek and C.D.S.  The
following claims included in the Company’s Second Amended Complaint remain in
the action: (1) patent, trademark and copyright infringement against DenTek; (2)
unjust enrichment against DenTek; (3) violation of a New York consumer
protection statute against DenTek; (4) breach of the consulting agreement
against Mr. Duane; (5) breach of the PIIA against C.D.S.; (6) breach of the
release against Ms. Kaplan and Mr. Duane; and (7) trade secret misappropriation
against DenTek, Ms. Kaplan, Mr. Duane and C.D.S.





During
October 2008, DenTek, Ms. Kaplan, Mr. Duane and C.D.S. filed Answers to the
Second Amended Complaint.  In their Answers, each of DenTek, Mr. Duane
and C.D.S. has alleged counterclaims against the Company.  DenTek’s
counterclaims allege false advertising, violation of New York consumer
protection statutes and unfair competition relating to The Doctor’s® NightGuardTM
ClassicTM dental protector.  Mr. Duane’s counterclaim is a
contractual indemnity claim seeking to recover attorneys’ fees pursuant to the
release between Mr. Duane and Dental Concepts, LLC (“Dental Concepts”), a
predecessor-in-interest to Medtech Products Inc., plaintiff in the DenTek
litigation and a wholly-owned subsidiary of Prestige Brands Holdings,
Inc.  C.D.S.’s counterclaim alleges a breach of the consulting
agreement between C.D.S. and Dental Concepts.  The Company’s
management believes that the counterclaims are legally deficient and that it has
meritorious defenses to the counterclaims.  The Company intends to
vigorously defend against the counterclaims; however, the Company cannot, at
this time, reasonably estimate the potential range of loss, if any.





In
addition to the specific matters described above, the Company also is involved
from time to time in other routine legal matters and other claims incidental to
its business.  The Company reviews outstanding claims and proceedings
internally and with external counsel as necessary to assess probability and
amount of potential loss.  These assessments are re-evaluated at each
reporting period and as new information becomes available to determine whether a
reserve should be established or if any existing reserve should be
adjusted.  The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount of the recorded
reserve.  In addition, because it is not permissible under GAAP to
establish a litigation reserve until the loss is both probable and estimable, in
some cases there may be insufficient time to establish a reserve prior to the
actual incurrence of the loss (upon verdict and judgment at trial, for example,
or in the case of a quickly negotiated settlement).  The Company
believes the resolution of routine matters and other incidental claims, taking
into




-44-


account
reserves and insurance, will not have a material adverse effect on its business,
financial condition, results from operations or cash flows.




ITEM
      1A.
              RISK
  FACTORS


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








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





The
following table sets forth information with respect to purchases of shares of
the Company’s common stock made during the quarter ended September 30, 2008, by
or on behalf of the Company or any “affiliated purchaser,” as defined by Rule
10b-18(a)(3) of the Exchange Act:





Company
      Purchases of Equity SecuritiesPeriod
            
            (a)
              Total
      Number
              of
      Shares Purchased
            
            
            (b)
              Average
              Price
      Paid Per Share
            
            
            (c)
              Total
      Number
              of
      Shares Purchased as Part of Publicly Announced Plans or
      Programs
            
            (d)
              Maximum
              Number
      (or approximate dollar value) of Shares that May Yet Be
      Purchased
              Under
      the Plans
              or
      Programs7/1/08
      – 7/31/08
            
            
            18,689
            
            
            $
            0.24
            
            
            
            --
            
            
            
            --8/1/08
      – 8/31/08
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --9/1/08
      – 9/30/08
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Total
            
            
            18,689
            
            
            $
            0.24
            
            
            
            --
            
            
            
            --





Note:


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








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





The
Company’s 2008 Annual Meeting of Stockholders was held on August 5, 2008 (the
“Annual Meeting”).  Proxies for the Annual Meeting were solicited in
accordance with the Exchange Act to elect directors to serve until the 2009
Annual Meeting of Stockholders or until their earlier removal or resignation and
to ratify the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm for the fiscal year ending March 31,
2009.  The following nominees were elected to the Company’s Board of
Directors to serve until the 2009 Annual Meeting of Stockholders or until their
respective successors have been elected and qualified, or until their earlier
death, resignation or retirement.  The voting information for
each




-45-


elected
nominee is set forth below:





For
            
            WithheldMark
      Pettie
            46,752,360
            
            1,060,326L.
      Dick Buell
            47,234,226
            
            578,460John
      E. Byom
            47,591,214
            
            221,472Gary
      E. Costley
            47,137,106
            
            675,580David
      A. Donnini
            47,105,978
            
            706,708Ronald
      Gordon
            47,234,405
            
            578,281Vincent
      J. Hemmer
            47,274,868
            
            537,818Patrick
      Lonergan
            47,591,215
            
            221,471Peter
      C. Mann
            47,274,712
            
            537,974Raymond
      P. Silcock
            47,229,905
            
            582,781








The votes
for the ratification of the appointment of PricewaterhouseCoopers LLP as the
Company’s independent registered public accounting firm for the audit of the
Company’s financial statements for the fiscal year ending March 31, 2009 were as
follows:





For
            
            Against
            
            Withheld47,798,431
            
            13,878
            
            337








ITEM
      5.
            OTHER
      INFORMATION





None





ITEM 6.
              EXHIBITS


See
Exhibit Index immediately following signature page.





-46-


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.RegistrantDate:
            November 10,
      2008
            By:
            /s/ PETER J.
      ANDERSONPeter J.
      AndersonChief Financial
      Officer(Principal
      Financial Officer andDuly
      Authorized Officer)











-47-


Exhibit
Index











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.