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

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

See accompanying notes.

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Prestige Brands Holdings, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands)

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

See accompanying notes.

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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	$	479,073
Stock-based compensation		--		--		1,577		--		--				--			--		1,577
Purchase of common stock for treasury		--		--		--		60		(15	)			--			--		(15	)
Components of comprehensive income:
Net income		--		--		--		--		--				--			16,303		16,303
Amortization of interest rate caps reclassified into earnings, net of income tax expense of $32		--		--		--		--		--				53			--		53
Unrealized gain on interest rate caps, net of income tax expense of $876		--		--		--		--		--				1,426			--		1,426
Total comprehensive income		--		--		--		--		--				--			--		17,782
Balances – September 30, 2008		50,060	$	501	$	381,941		119	$	(62	)		$	480		$	115,557	$	498,417

See accompanying notes.

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Prestige Brands Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

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

See accompanying notes.

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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.

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Inventories

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

Property and Equipment

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

	Years
Machinery	5
Computer equipment	3
Furniture and fixtures	7
Leasehold 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

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

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

Costs of Sales

Costs of sales include product costs, warehousing costs, inbound and outbound shipping costs, and handling and storage costs.  Shipping, warehousing and handling costs were $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

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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.

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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.

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2. Accounts Receivable

Accounts receivable consist of the following (in thousands):

	September 30, 2008			March 31, 2008
Accounts receivable	$	42,819		$	44,918
Other receivables		1,668			1,378
		44,487			46,296
Less 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, 2008
Packaging materials	$	1,588	$	2,463
Finished 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, 2008
Machinery	$	1,544		$	1,516
Computer equipment		691			627
Furniture and fixtures		222			205
Leasehold improvements		344			344
		2,801			2,692
Accumulated depreciation		(1,517	)		(1,259	)
	$	1,284		$	1,433

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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		Consolidated
Balance – March 31, 2008	$	233,615	$	72,549	$	2,751	$	308,915
Period Activity		964		--		--		964
Balance – 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		Totals
Carrying Amounts
Balance – March 31, 2008	$	544,963	$	139,503	$	196	$	684,662
Period Activity		--		--		--		--
Balance – September 30, 2008	$	544,963	$	139,503	$	196	$	684,662
Accumulated Amortization
Balance – March 31, 2008	$	--	$	37,838	$	141	$	37,979
Period Activity		--		5,233		22		5,255
Balance – 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):

Year Ending September 30
2009	$	9,802
2010		9,073
2011		9,073
2012		9,073
2013		9,073
Thereafter		50,371
	$	96,465

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7. Other Accrued Liabilities

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

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

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8. Long-Term Debt

Long-term debt consists of the following (in thousands):	September 30, 2008			March 31, 2008
Senior revolving credit facility (“Revolving Credit Facility”), which expires on April 6, 2009 and is available for maximum borrowings of up to $60.0 million.  The Revolving Credit Facility bears interest at the Company’s option at either the prime rate plus a variable margin or LIBOR plus a variable margin.  The variable margins range from 0.75% to 2.50% and at 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			285,225
Senior 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			126,000
		385,225			411,225
Current 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

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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 30
2009	$	3,550
2010		3,550
2011		252,125
2012		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, 2006
	80.0		3.50		May 30, 2007
	50.0		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 adopted Statement 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

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

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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.

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

Restricted Shares	Shares (000)			Weighted-Average Grant-Date Fair Value
Nonvested at March 31, 2007		294.4		$	11.05
Granted		292.0			12.52
Vested		(24.8	)		10.09
Forfeited		(23.2	)		11.39
Nonvested at September 30, 2007		538.4		$	11.88
Nonvested at March 31, 2008		484.7		$	11.78
Granted		303.5			10.85
Vested		(29.9	)		10.88
Forfeited		(128.0	)		12.30
Nonvested 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 30
	2008			2007
Expected volatility		43.3	%		33.2	%
Expected dividends		--			--
Expected term in years		6.0			6.0
Risk-free rate		3.2	%		4.5	%

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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	$	30.3
Granted		--			--		--		--
Forfeited or expired		--			--		--		--
Outstanding at September 30, 2007		16.1		$	9.97		1.50	$	16.3
Outstanding 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		--		$	--		--	$	--

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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

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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® NightGuard™ Classic™ 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

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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		Total
Year Ending September 30,
2009	$	483	$	89	$	572
2010		522		73		595
2011		542		41		583
2012		559		15		574
2013		577		--		577
Thereafter		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

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

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

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