SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended March 29, 2008

Commission file number 001-13843

DUANE READE HOLDINGS, INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of
incorporation or organization)      |  | 05-0599589(IRS Employer
ID Number)
|--------------------------------------------------------------------------- |  | ----------------------------------
|440 Ninth Avenue
New York, New York(Address of principal executive offices) |  | 10001(Zip Code)                   

(212) 273-5700(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    ý                        No    o*

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in
Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

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 (check one):

Yes    o                        No    ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As
of May 5, 2008, there were 2,595,077 shares of common stock issued and outstanding. All but 100 shares of the common stock of the registrant are held by its parent.



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INDEX

PART IFINANCIAL INFORMATION

6ITEM 1.FINANCIAL STATEMENTS

6Consolidated Statements of Operations (Unaudited)For the 13 Weeks Ended March 29, 2008 and March 31, 2007

6Consolidated Balance Sheets (Unaudited)As of March 29, 2008 and December 29, 2007

7Consolidated Statements of Cash Flows (Unaudited)For the 13 Weeks Ended March 29, 2008 and March 31, 2007

8Consolidated Statements of Comprehensive Loss (Unaudited)For the 13 Weeks Ended March 29, 2008 and March 31, 2007

9Notes to Consolidated Financial Statements (Unaudited)

10ITEM 2.MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

34ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

46ITEM 4.CONTROLS AND PROCEDURES

46PART IIOTHER INFORMATION

48SIGNATURES

49


2

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This and other of our public filings or public statements contain forward-looking statements within the meaning of Section 27A of the Securities Act,
Section 21E of the Securities Exchange Act and the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. These statements relate to future events
or our future financial performance with respect to our financial condition, results of operations, business plans and strategies, operating efficiencies or synergies, competitive positions, growth
opportunities for existing products such as private label merchandise, plans and objectives of management, capital expenditures, growth and maturation of our stores and other matters. These statements
involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from
those expressed or implied by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "could," "would," "should," "expect,"
"plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," or "continue" or the negative of those terms or other comparable terminology. These statements are
only predictions and such expectations may prove to be incorrect. Some of the things that could cause our actual results to differ substantially from our expectations are:



3

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4

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We
undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this report. We do
not, nor does any other person, assume responsibility for the accuracy and completeness of those statements.

We
caution you that the areas of risk described above may not be exhaustive. We operate in a continually changing business environment, and new risks emerge from time to time. Management
cannot predict such new risks, nor can it assess the impact, if any, of such risks on our businesses or the extent to which any risk or combination of risks may cause actual results to differ
materially from those projected in any forward-looking statements. In light of these risks, uncertainties and assumptions, you should keep in mind that any forward-looking statement made in this
filing might not occur.

5

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PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Duane Reade Holdings, Inc.    Consolidated Statements of Operations (Unaudited)    (In thousands)

|                                                                                  |  | 13 Weeks
Ended
March 29,
2008 |         | 13 Weeks
Ended
March 31,
2007 |  
|--------------------------------------------------------------------------------- |  | ----------------------------- | ------- | ----------------------------- | -
|Net sales                                                                         |  | $                             | 427,137 |                               | $
|Cost of sales (exclusive of depreciation and amortization shown separately below) |  |                               | 294,445 |                               |  
|                                                                                  |  |                               |         |                               |  
|Gross profit                                                                      |  |                               | 132,692 |                               |  
|Selling, general and administrative expenses                                      |  |                               | 117,954 |                               |  
|Depreciation and amortization                                                     |  |                               | 17,919  |                               |  
|Store pre-opening expenses                                                        |  |                               | 47      |                               |  
|Other expenses                                                                    |  |                               | 899     |                               |  
|                                                                                  |  |                               |         |                               |  
|Operating loss                                                                    |  |                               | (4,127  | )                             |  
|Interest expense, net                                                             |  |                               | 15,906  |                               |  
|                                                                                  |  |                               |         |                               |  
|Loss before income taxes                                                          |  |                               | (20,033 | )                             |  
|Income tax expense                                                                |  |                               | 960     |                               |  
|                                                                                  |  |                               |         |                               |  
|Net loss                                                                          |  | $                             | (20,993 | )                             | $
|                                                                                  |  |                               |         |                               |  

The
accompanying notes are an integral part of these financial statements.

6

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Duane Reade Holdings, Inc.    Consolidated Balance Sheets (Unaudited)    (In thousands, except share and per share data)

|                                                                                                                                                                               |                                             | March 29,
2008 |          | December 29,
2007 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------- | -------------- | -------- | ----------------- | -
|ASSETS                                                                                                                                                                         |                                             |                |          |                   |  
|Current Assets                                                                                                                                                                 |                                             |                |          |                   |  
|Cash                                                                                                                                                                           |                                             | $              | 1,400    |                   | $
|Receivables, net                                                                                                                                                               |                                             |                | 53,064   |                   |  
|Inventories                                                                                                                                                                    |                                             |                | 213,977  |                   |  
|Prepaid expenses and other current assets                                                                                                                                      |                                             |                | 13,488   |                   |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|                                                                                                                                                                               | Total Current Assets                        |                |          | 281,929           |  
|Property and equipment, net                                                                                                                                                    |                                             |                | 192,930  |                   |  
|Goodwill                                                                                                                                                                       |                                             |                | 70,099   |                   |  
|Other assets, net                                                                                                                                                              |                                             |                | 187,260  |                   |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|                                                                                                                                                                               | Total Assets                                |                | $        | 732,218           |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                          |                                             |                |          |                   |  
|Current Liabilities                                                                                                                                                            |                                             |                |          |                   |  
|Accounts payable                                                                                                                                                               |                                             | $              | 73,539   |                   | $
|Accrued interest                                                                                                                                                               |                                             |                | 4,101    |                   |  
|Accrued expenses                                                                                                                                                               |                                             |                | 47,056   |                   |  
|Current portion of debt                                                                                                                                                        |                                             |                | 150,686  |                   |  
|Current portion of capital lease obligations                                                                                                                                   |                                             |                | 4,114    |                   |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|                                                                                                                                                                               | Total Current Liabilities                   |                |          | 279,496           |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|Long-term debt                                                                                                                                                                 |                                             |                | 405,032  |                   |  
|Capital lease obligations, less current portion                                                                                                                                |                                             |                | 4,403    |                   |  
|Deferred income taxes                                                                                                                                                          |                                             |                | 27,734   |                   |  
|Redeemable preferred stock                                                                                                                                                     |                                             |                | 32,992   |                   |  
|Other non-current liabilities                                                                                                                                                  |                                             |                | 76,929   |                   |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|                                                                                                                                                                               | Total Liabilities                           |                | $        | 826,586           |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|Commitments and contingencies                                                                                                                                                  |                                             |                |          |                   |  
|Stockholders' deficit                                                                                                                                                          |                                             |                |          |                   |  
|Preferred stock, $0.01 par; authorized 50,000 shares; issued and outstanding: zero shares at March 29, 2008 and December 29, 2007                                              |                                             |                |         |                   |  
|Common stock, $0.01 par; authorized 4,205,600 shares at March 29, 2008 and December 29, 2007; issued and outstanding: 2,595,077 shares at March 29, 2008 and December 29, 2007 |                                             |                | 26       |                   |  
|Paid-in capital                                                                                                                                                                |                                             |                | 251,880  |                   |  
|Accumulated other comprehensive income (loss)                                                                                                                                  |                                             |                | (212     | )                 |  
|Accumulated deficit                                                                                                                                                            |                                             |                | (346,062 | )                 |  
|                                                                                                                                                                               |                                             |                |          |                   |  
|                                                                                                                                                                               | Total Stockholders' Deficit                 |                |          | (94,368           | )
|                                                                                                                                                                               |                                             |                |          |                   |  
|                                                                                                                                                                               | Total Liabilities and Stockholders' Deficit |                | $        | 732,218           |  
|                                                                                                                                                                               |                                             |                |          |                   |  

The
accompanying notes are an integral part of these financial statements.

7

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Duane Reade Holdings, Inc.        Consolidated Statements of Cash Flows (Unaudited)        (In thousands)

|                                                                            |                                       | 13 Weeks
Ended
March 29, 2008 |          | 13 Weeks
Ended
March 31, 2007 |  
|--------------------------------------------------------------------------- | ------------------------------------- | ----------------------------- | -------- | ----------------------------- | -
|Cash flows used in operating activities:                                    |                                       |                               |          |                               |  
|Net loss                                                                    |                                       | $                             | (20,993  | )                             | $
|Adjustments to reconcile net loss to net cash used in operating activities: |                                       |                               |          |                               |  
|Depreciation and amortization                                               |                                       |                               | 18,831   |                               |  
|Deferred income taxes                                                       |                                       |                               | 904      |                               |  
|Non-cash rent expense                                                       |                                       |                               | 2,721    |                               |  
|Other non-cash expense                                                      |                                       |                               | 2,745    |                               |  
|Change in operating assets and liabilities:                                 |                                       |                               |          |                               |  
|Receivables                                                                 |                                       |                               | 2,643    |                               |  
|Prepaid expenses and other current assets                                   |                                       |                               | (283     | )                             |  
|Inventories                                                                 |                                       |                               | (2,299   | )                             |  
|Accounts payable                                                            |                                       |                               | (2,230   | )                             |  
|Accrued expenses                                                            |                                       |                               | (1,849   | )                             |  
|Other assets and liabilities, net                                           |                                       |                               | (266     | )                             |  
|                                                                            |                                       |                               |          |                               |  
|                                                                            | NET CASH USED IN OPERATING ACTIVITIES |                               |          | (76                           | )
|                                                                            |                                       |                               |          |                               |  
|Cash flows used in investing activities:                                    |                                       |                               |          |                               |  
|Capital expenditures                                                        |                                       |                               | (7,236   | )                             |  
|Lease acquisition, customer file and other costs                            |                                       |                               | (1,705   | )                             |  
|Proceeds from sale of assets                                                |                                       |                               | 525      |                               |  
|                                                                            |                                       |                               |          |                               |  
|                                                                            | NET CASH USED IN INVESTING ACTIVITIES |                               |          | (8,416                        | )
|                                                                            |                                       |                               |          |                               |  
|Cash flows from financing activities:                                       |                                       |                               |          |                               |  
|Borrowings from revolving credit facility                                   |                                       |                               | 508,369  |                               |  
|Repayments of revolving credit facility                                     |                                       |                               | (499,033 | )                             |  
|Capital contributions                                                       |                                       |                               | 130      |                               |  
|Issuance of preferred stock                                                 |                                       |                               |         |                               |  
|Deferred financing costs                                                    |                                       |                               |         |                               |  
|Repayments of capital lease obligations                                     |                                       |                               | (954     | )                             |  
|                                                                            |                                       |                               |          |                               |  
|                                                                            | NET CASH PROVIDED BY FINANCING        |                               |          | 8,512                         |  
|                                                                            |                                       |                               |          |                               |  
|Net change in cash                                                          |                                       |                               | 20       |                               |  
|Cash at beginning of period                                                 |                                       |                               | 1,380    |                               |  
|                                                                            |                                       |                               |          |                               |  
|Cash at end of period                                                       |                                       | $                             | 1,400    |                               | $
|                                                                            |                                       |                               |          |                               |  

The
accompanying notes are an integral part of these financial statements.

8

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Duane Reade Holdings, Inc.        Consolidated Statements of Comprehensive Loss (Unaudited)        (in thousands)

|                                             |  | For the 13 Weeks Ended |        
|-------------------------------------------- |  | ---------------------- | -------
|
|Net loss                                     |  | $                      | (20,993
|Change in fair value of interest rate collar |  |                        | (216   
|                                             |  |                        |        
|Total Other Comprehensive Loss               |  |                        | (216   
|                                             |  |                        |        
|Total Comprehensive Loss                     |  | $                      | (21,209
|                                             |  |                        |        

The
accompanying notes are an integral part of these financial statements.

9

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Notes to Unaudited Consolidated Interim Financial Statements        (dollars in thousands)

1.    Basis of Presentation

Duane Reade Holdings, Inc. ("Duane Reade Holdings" or the "Company") was formed in December 2003 by Oak Hill Capital Partners, LP, a private equity
firm ("Oak Hill"), in order to acquire Duane Reade Inc. and its subsidiaries (the "Acquisition"). Duane Reade Holdings, Inc. is a wholly-owned subsidiary of Duane Reade
Shareholders, LLC ("Duane Reade Shareholders"), a parent entity also established to effectuate the Acquisition. The Acquisition was completed on July 30, 2004 through the merger of Duane
Reade Acquisition Corp. (a wholly owned subsidiary of Duane Reade Holdings, Inc.) into Duane Reade Inc. with Duane Reade Inc. being the surviving entity and a wholly owned
subsidiary of Duane Reade Holdings, Inc. after the merger transaction.

The
Company, along with certain of its subsidiaries, is a guarantor of the debt obligations of Duane Reade Inc. and Duane Reade, the New York general partnership that holds the
operating assets and liabilities ("Duane Reade GP"). The Company has no assets or operations other than its investment in its subsidiaries. The guarantees provided by the Company and its other
subsidiaries under the debt obligations of Duane Reade Inc. and Duane Reade GP (described in more detail in Note 6) are full and unconditional, joint and several.

The
Unaudited Consolidated Interim Financial Statements included herein reflect all adjustments which, in the opinion of management, are necessary to present a fair statement of the
results of operations, financial position, cash flows and comprehensive loss of the Company, and have been prepared, in all material respects, in accordance with the same accounting principles
followed in the preparation of the Company's Annual Consolidated Financial Statements for the year ended December 29, 2007. These Unaudited Consolidated Interim Financial Statements should be
read in conjunction with the Company's Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 29, 2007. The Unaudited
Consolidated Interim Financial Statements include the assets and operations of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. The
results for the interim periods presented are not necessarily indicative of the results expected for the full year.

Accounting change:During the fourth quarter of 2007, the Company changed its method of accounting
for the store occupancy costs reflected on its statements of operations. The change resulted in a reclassification of the store occupancy costs previously included within cost of sales to selling,
general and administrative expenses. The Company believes this change in accounting more closely aligns these store occupancy cost components to the nature of expenses included in its financial
statement captions, and will improve the comparability of its financial statement presentation with industry peers. For the thirteen weeks ended March 29, 2008 and March 31, 2007, the
change in accounting resulted in a decrease to cost of sales of $41.4 million and $40.8 million, respectively, with a corresponding increase to gross profit and selling, general and
administrative expenses for each of the affected periods. This accounting change had no effect on the operating loss for either of the periods presented.

2.    Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value
Measurements," which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS
No. 157 is applicable for the Company as of December 30, 2007, the first day of fiscal 2008. The FASB issued FASB Staff Position FAS 157-b,

10

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Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

2.    Recently Issued Accounting Pronouncements (Continued)

"Effective
Date of FASB Statement No. 157," which deferred the effective date of SFAS No. 157 for certain nonfinancial assets and liabilities until fiscal 2009. The Company has adopted
SFAS No. 157 to account for its financial assets and liabilities and such adoption did not have a material effect on its consolidated financial statements. The FASB Staff Position SFAS
No. 157-b defers the effective date of SFAS No. 157 for certain nonfinancial assets and liabilities until fiscal 2009 but the Company does not currently expect its adoption
to have a material effect on the Company's consolidated financial statements.

In
March 2008, the FASB issued FASB Statement No. 161, "Disclosures about Derivative Instruments and Hedging Activities." The new standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial
performance, and cash flows. SFAS No. 161 is effective prospectively for periods beginning on or after November 15, 2008. The adoption of SFAS No. 161 is not currently expected to
have a material effect on the Company's consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51." SFAS No. 160
establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent's ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. This statement also
establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for
fiscal years beginning on or after December 15, 2008. The adoption of SFAS No. 160 is not currently expected to have a material effect on the Company's consolidated financial statements.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement
No. 115." This statement permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is applicable for the Company as of
December 30, 2007, the first day of fiscal 2008. The adoption of SFAS No. 159 did not have a material impact on the Company's consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations." SFAS No. 141(R) expands the definition of transactions and events that qualify as business
combinations, requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in revenue,
not goodwill, changes the recognition timing for restructuring costs, and requires acquisition costs to be expensed as incurred. Adoption of SFAS No. 141(R) is required for business
combinations after December 15, 2008. Early adoption and retroactive application of SFAS No. 141(R) to fiscal years preceding the effective date are not permitted.

3.    Stock-Based Payment

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment." This statement established standards for the accounting for transactions in which
an entity exchanges its equity instruments for goods or services. Effective January 1, 2006, the Company adopted the fair value

11

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Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

3.    Stock-Based Payment (Continued)

recognition
provisions of SFAS No. 123(R), using the "modified" prospective transition method. Under that transition method, compensation expense recognized for the thirteen weeks ended
March 29, 2008 and March 31, 2007 reflects the vested portion of share-based payments granted on or after January 1, 2006 based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123(R). The Company has elected to recognize compensation expense on a straight-line basis over the vesting period of the respective
options. During the thirteen weeks ended March 29, 2008 and March 31, 2007, the Company recorded pre-tax compensation expense of approximately $33.3 thousand and
$514.3 thousand, respectively, attributable to the vested portion of stock options granted after the adoption date.

Management Stock Option Plan

The Company's Board of Directors adopted the Duane Reade Holdings, Inc. Management Stock Option Plan, referred to in this report as the "2004 Option Plan,"
which became effective on the date the Acquisition was completed. The 2004 Option Plan is administered by the compensation committee of the Board of Directors. Any officer, employee, director or
consultant of Duane Reade Holdings or any of its subsidiaries or affiliates is eligible to be designated a participant under the 2004 Option Plan. On March 27, 2007, the Company amended the
2004 Option Plan so that a maximum of 575,893 shares of its common stock may be granted under the 2004 Option Plan.

Under
the 2004 Option Plan, the compensation committee of Duane Reade Holdings may grant awards of nonqualified stock options, incentive stock options, or any combination of the
foregoing. A stock option granted under the 2004 Option Plan will provide a participant with the right to purchase, within a specified period of time, a stated number of shares of the Company's common
stock at the price specified in the award agreement. Stock options granted under the 2004 Option Plan will be subject to such terms, including the exercise price and the conditions and timing of
exercise, not inconsistent with the 2004 Option Plan, as may be determined by the compensation committee and specified in the applicable stock option agreement or thereafter.

There
were no options granted during the thirteen weeks ended March 29, 2008.

During
the thirteen weeks ended March 31, 2007, there were 168,600 options granted. The weighted-average grant-date fair value of the options granted during the
thirteen weeks ended March 31, 2007 was $5.59.

There
were no stock options exercised during the first thirteen weeks of either 2008 or 2007.

For
option grants on or after December 31, 2006, the Company estimated the fair value of such grants using a lattice-based option valuation model. Prior to December 31,
2006, the Company estimated the fair value of share-based payment awards using the Black-Scholes option pricing model. The Company believes the lattice-based option valuation model is a more accurate
model for valuing employee stock options since it best models the terms of its options.

The
fair value of each option grant during the thirteen weeks ended March 31, 2007 was estimated on the date of grant using the lattice-pricing model with the following
assumptions:



12

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Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

3.    Stock-Based Payment (Continued)



As
of March 29, 2008, there was $0.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under
the stock-based compensation plan. That cost is expected to be recognized on a straight-line basis over a weighted-average period of approximately three years.

As
of March 29, 2008, a total of 233,832 shares of common stock of the Company were reserved for the issuance of additional stock options. The Company expects to satisfy the
exercise of stock options utilizing newly-issued shares.

4.    Inventory and Cost of Sales

At March 29, 2008 and December 29, 2007, inventories, consisting solely of finished goods, would have been lower by $0.8 million and
$1.6 million, respectively, if they had been valued on a lower of first-in, first-out ("FIFO") cost or market basis instead of a last-in,
first-out ("LIFO") basis. Included within cost of sales are all warehouse expenses and distribution costs, except for depreciation and amortization expense which is shown separately on the
consolidated statement of operations. The Company reflects promotional allowances from vendors as a reduction of inventory or advertising expense, depending on the nature of the allowance, when such
inventory is sold or advertising or promotions have been completed and the related allowances have been earned.

5.    Exit and Disposal Activities

In connection with the July 30, 2004 acquisition of Duane Reade Inc. and in accordance with the provisions of Emerging Issues Task Force Issue
No. 95-3, "Recognition of Liabilities in Connection with Purchase Business Combinations," the Company established a reserve of $17.0 million for costs anticipated to be
incurred as a result of the planned closing of 11 of its stores. These costs primarily relate to rent, utilities and other on-going occupancy-related expenses. At March 29, 2008,
all of the planned closings had occurred, and the Company has recorded a cumulative net total of $13.2 million of primarily occupancy-related costs against this reserve resulting in the reserve
balance of $3.8 million at March 29, 2008. The balance of this reserve is expected to be utilized primarily for occupancy-related costs in these closed stores.

In
the normal course of its business, the Company closes underperforming locations. In accordance with the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities," the Company establishes reserves for costs anticipated to be incurred in connection with such store
closings. At March 29, 2008, the balance of this reserve was $3.0 million. This balance will also be used primarily for occupancy-related costs in these stores.

13

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Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

6.    Debt

Debt is summarized as follows (dollars in thousands):

Description of Instrument

March 29, 2008

December 29, 2007Current debt:Asset-based revolving loan facility(1)

$
150,686

$
141,352Non-current Debt:Senior secured floating rate notes due 2010

$
210,000

$
210,0009.75% Senior subordinated notes due 2011


195,000


195,0002.1478% Senior convertible notes due 2022


32


32Total Non-current debt

$
405,032

$
405,032Total Debt

$
555,718

$
546,384


---

Asset-Based Revolving Loan Facility

On July 22, 2004, in connection with the Acquisition, the asset-based revolving loan facility was amended to increase the borrowing capacity to an
aggregate principal amount of $250.0 million, subject to an adjusted borrowing base calculation based upon specified advance rates against the value of inventory, pharmacy prescription files
and certain accounts receivable. The original maturity date of the amended asset-based revolving loan facility was July 21, 2008. In August 2005, in conjunction with the issuance of
$50.0 million aggregate principal amount of senior secured floating rate notes due 2010, the Company permanently reduced the maximum availability under the amended asset-based revolving loan
facility by $25.0 million to $225.0 million. On July 7, 2006, the Company entered into a further amendment to the amended asset-based revolving loan facility to extend its
maturity from July 21, 2008 to July 21, 2011, subject to the requirement that the Company refinance or restructure the $210.0 million aggregate principal amount of the senior
secured floating rate notes due 2010 and the $195.0 million aggregate principal amount of the 9.75% senior subordinated notes due 2011, in each case, on terms reasonably acceptable to the
administrative agent and at least 120 days prior to each's respective scheduled maturity date. The Company fully intends to refinance or restructure the outstanding principal amounts of its
senior secured floating rate notes and senior subordinated notes within the required timeframe, in accordance with the requirements of the third amendment.

On
September 28, 2007, the asset-based revolving loan facility was amended to exclude from the definition of Capital Expenditures any expenditure made with the proceeds of any
equity securities
issued or capital contributions received by the Company, such as the proceeds of the redeemable preferred stock issued in 2007.

14

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

6.    Debt (Continued)

The
amended asset-based revolving loan facility includes a $50.0 million sub-limit for the issuance of letters of credit. Obligations under the revolving loan facility
are collateralized by a first priority interest in inventory, receivables, pharmacy prescription files, deposit accounts and certain other current assets. Under the amended asset-based revolving loan
facility, Duane Reade GP is the sole obligor. However, the amended asset-based revolving loan facility is guaranteed on a full and unconditional basis by the Company, Duane Reade Inc.
and each of the Company's other domestic subsidiaries other than the obligor.

The
amended asset-based revolving loan facility contains a single fixed charge coverage requirement which only becomes applicable when borrowings exceed 90 percent of the
borrowing base, as defined in the agreement governing the amended asset-based revolving loan facility. The July 2006 amendment reduced the ratios that the Company would be required to maintain in this
event. Borrowings under the amended asset-based revolving loan facility have not exceeded 90 percent of the borrowing base and, as a result, the fixed charge covenant has not become applicable.
There are no credit ratings related triggers in the amended asset-based revolving loan facility that would impact the cost of borrowing, annual amortization of principal or related indebtedness
maturity.

Revolving
loans under the amended asset-based revolving loan facility, at the Company's option, bear interest at either:



Borrowings
under the amended asset-based revolving loan facility continue to be primarily LIBOR-based. At March 29, 2008, the amended asset-based revolving loan facility bore
interest at a weighted average annual rate of 4.4%.

At
March 29, 2008, there was $150.7 million outstanding under the asset-based revolving loan facility, and approximately $63.0 million of remaining availability, net
of $6.3 million reserved for outstanding standby letters of credit. Obligations under this facility have been classified as current liabilities because cash receipts controlled by the lenders
are used to reduce outstanding debt, and the Company does not meet the criteria of SFAS No. 6, "Classification of Short-Term Obligations Expected to be
RefinancedAn Amendment of ARB No. 43, Chapter 3A"to classify the debt as long-term.

Senior Secured Floating Rate Notes due 2010.On December 20, 2004, the Company closed an
offering of $160.0 million aggregate principal amount of senior secured floating rate notes due 2010. Using the net proceeds from that offering, together with approximately $2.2 million
of borrowings under the amended asset-based revolving loan facility, the Company repaid all outstanding principal under its previously existing $155.0 million senior term loan facility, along
with approximately $3.6 million of early repayment premium and accrued but unpaid interest through December 20, 2004. On August 9, 2005, the Company issued a further
$50.0 million of senior secured floating rate notes. These new notes were issued under the same indenture as the senior secured floating rate notes issued in December 2004, although they do not
trade fungibly with those notes.

The
senior secured floating rate notes bear interest at a floating rate of LIBOR plus 4.50%, reset quarterly. Interest on the senior secured floating rate notes is payable quarterly on
each March 15,

15

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

6.    Debt (Continued)

June 15,
September 15, and December 15. The senior secured floating rate notes mature on December 15, 2010. At March 29, 2008, the senior secured floating rate notes
bore interest at a rate of 7.3%.

On
May 25, 2005, the Company entered into a hedging transaction through the acquisition of a "no cost collar." Under this arrangement, the Company capped its exposure on
$130.0 million of LIBOR-based borrowings under the senior secured floating rate notes at a maximum LIBOR rate of 5.30%. In addition, the Company established a minimum "floor" LIBOR rate of
3.45% in line with then current LIBOR rates. This hedging arrangement expires on June 16, 2008. The changes in the fair value of the collar agreement are reflected in the Consolidated
Statements of Comprehensive Loss included within the financial statements. At March 29, 2008, the LIBOR rate in effect for the senior secured floating rate notes was 2.8%, which fell below the
minimum allowable interest rate under the "no cost collar." As a result, the overall effective interest rate for the senior secured notes increased to 7.7%. On April 30, 2008, the Company
entered into another hedging transaction through the acquisition of an additional "no cost collar." This new "no cost collar" will become effective on June 15, 2008. See Note 12 for a
discussion of the terms of the new hedging arrangement.

The
Company guarantees the senior secured notes on a full and unconditional, senior secured basis. Duane Reade Inc. and Duane Reade GP are co-obligors under the
senior secured notes. The senior secured notes rank equally in right of payment with any of the Company's, Duane Reade Inc.'s or Duane Reade GP's unsubordinated indebtedness and senior
in right of payment to any of the Company's, Duane Reade Inc.'s or Duane Reade GP's subordinated or senior subordinated
indebtedness. All obligations under the senior secured notes are guaranteed on a senior basis by each of the Company's existing subsidiaries, other than Duane Reade Inc. and Duane
Reade GP, and will be guaranteed by future subsidiaries of Duane Reade Inc. and Duane Reade GP except certain foreign and certain domestic subsidiaries. The indenture governing
the senior secured notes contains customary events of default, which, if triggered, may result in the acceleration of the indebtedness outstanding under the indenture. The senior secured notes and the
guarantees are collateralized by a first priority interest in substantially all of Duane Reade Inc. and Duane Reade GP's assets other than certain excluded assets defined in the
indentures and those assets in which the lenders under the amended asset-based revolving loan facility have a first priority interest. The senior secured notes and the guarantees are also
collateralized by a second priority interest in all collateral pledged on a first priority basis to lenders under the amended asset-based revolving loan facility.

Upon
the occurrence of specified change of control events, Duane Reade Inc. and Duane Reade GP will be required to make an offer to repurchase all of the senior secured
notes at 101% of the outstanding principal amount of the senior secured notes plus accrued and unpaid interest to the date of repurchase. The indenture governing the senior secured notes contains
certain affirmative and negative covenants that limit the ability of Duane Reade Inc., Duane Reade GP and their restricted subsidiaries, as defined, to incur additional indebtedness, pay
dividends, make repayments on indebtedness that is subordinated to the senior secured notes and to make certain other restricted payments, incur certain liens, use proceeds from sales of assets, enter
into business combination transactions (including mergers, consolidations and asset sales), enter into sale-leaseback transactions, enter into transactions with affiliates and permit
restrictions on the payment of dividends by restricted subsidiaries. The indenture governing the senior secured notes contains customary events of default, which, if triggered, may result in the
acceleration of the indebtedness outstanding under the indenture. There are no credit ratings related triggers in the indenture governing the senior secured notes that

16

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

6.    Debt (Continued)

would
impact the cost of borrowing, annual amortization of principal or related indebtedness maturity. The indenture governing the senior secured notes does not contain financial maintenance
covenants.

At
March 29, 2008, the weighted average combined interest rate in effect on all variable rate debt outstanding, including the effect of the "no cost collar," was 6.3%.

Senior Subordinated Notes due 2011.On July 30, 2004, upon completion of the Acquisition,
Duane Reade Inc. and Duane Reade GP co-issued $195.0 million of 9.75% senior subordinated notes due 2011. The senior subordinated notes mature on August 1, 2011
and bear interest at 9.75% per annum payable in semi-annual installments on February 1 and August 1. The senior subordinated notes are uncollateralized obligations and
subordinated in right of payment to all of the Company's, Duane Reade Inc.'s and Duane Reade GP's existing and future unsubordinated indebtedness, including borrowings under the amended
asset-based revolving loan facility and the senior secured notes. The senior subordinated notes will rank equally with any future senior subordinated indebtedness and senior to any future subordinated
indebtedness. The senior subordinated notes are guaranteed on an uncollateralized, senior subordinated basis by the Company and all of Duane Reade Inc.'s existing direct and indirect domestic
subsidiaries other than Duane Reade GP, which is a co-obligor under the senior subordinated notes. Upon the occurrence of specified change of control events, the Company will be
required to make an offer to repurchase all of the
senior subordinated notes at 101% of the outstanding principal amount of the senior subordinated notes plus accrued and unpaid interest to the date of repurchase. The indenture governing the senior
subordinated notes contains certain affirmative and negative covenants that limit the ability of Duane Reade Inc., Duane Reade GP and their restricted subsidiaries to incur additional
indebtedness, pay dividends, make repayments on indebtedness that is subordinated to the senior subordinated notes and to make certain other restricted payments, incur certain liens, use proceeds from
sales of assets, enter into business combination transactions (including mergers, consolidations and asset sales), enter into transactions with affiliates and permit restrictions on the payment of
dividends by restricted subsidiaries. The indenture governing the senior subordinated notes contains customary events of default, which, if triggered, may result in the acceleration of the
indebtedness outstanding under the indenture. There are no credit ratings related triggers in the indenture governing the senior subordinated notes that would impact the cost of borrowing, annual
amortization of principal or related indebtedness maturity. The indenture governing the senior subordinated notes does not contain financial maintenance covenants.

2.1478% Senior Convertible Notes due 2022.On April 16, 2002, Duane Reade Inc.
completed an offering of $381.5 million aggregate principal amount of senior convertible notes maturing on April 16, 2022. The senior convertible notes were issued at a price of $572.76
per note (57.276% of the principal amount at maturity) and paid cash interest at the rate of 2.1478% per year on the principal amount at maturity, payable semi-annually in arrears on
April 16 and October 16 of each year beginning on October 16, 2002, until April 16, 2007. After that date, interest accrues on the notes as amortization of the original
issue discount representing a yield to maturity of 3.75% per year, computed on a semi-annual bond equivalent basis. In December 2002, Duane Reade Inc. repurchased a total of
$30.5 million principal value of the senior convertible notes at an average purchase price of $486.99 per $1,000 note, resulting in a remaining net outstanding balance of $201.0 million.

In
connection with the Acquisition, Duane Reade Inc. made a tender offer to repurchase all of the $351.0 million outstanding principal value of the senior convertible
notes. Upon the closing of the tender offer, a total of $350.9 million principal amount at maturity ($201.0 million issuance value) was

17

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

6.    Debt (Continued)

tendered
for repurchase, leaving only $55.0 thousand of principal amount at maturity ($32.0 thousand of issuance value) outstanding. Duane Reade Inc. may redeem for cash all or a
portion of the principal value of the outstanding senior convertible notes at any time after April 16, 2007, at a price equal to the sum of the issue price plus accrued original issue discount
and accrued cash interest, if any, to the redemption date.

7.    Issuance of Preferred Stock and Common Stock Warrants in Connection with the Acquisition of Store Leases

On February 20, 2007, the Company entered into an agreement to acquire up to eight leases from the Gristedes supermarket chain for certain locations in the
borough of Manhattan, New York City. The acquisition of the leases is subject to the satisfaction of certain conditions, including the receipt of landlord consents. As of March 29, 2008, the
Company had completed the lease acquisition and opening of five of the former Gristedes stores. The acquisition of these leases has been funded through the issuance of $39.4 million of
preferred stock and common stock warrants.

On
March 27, 2007, certain affiliates of Oak Hill Capital Partners L.P. made an equity commitment of $39.4 million in the form of Series A preferred stock and
warrants to acquire approximately 11% (on a fully diluted basis) of the Company's common stock at an exercise price of $75.00 per share. The proceeds from this capital infusion are to be used, in
part, to acquire the Gristedes leases and to fund certain other capital expenditures. Any funds raised through this commitment in excess of funds needed for the acquisition will be used to fund the
Company's normal capital spending, fund new store openings or reduce the Company's outstanding debt. The first portion of this equity commitment of $13.0 million was funded on March 27,
2007 and the balance of the $39.4 million commitment, in which certain members of senior management also elected to participate, was funded on June 28, 2007. The preferred stock has a
12-year mandatory redemption date from the issuance date and provides for an annual cash dividend of 10% payable quarterly subject to being declared by the Board of Directors. To the
extent the dividends are not paid in cash, the dividends will cumulate on a quarterly basis to the extent not paid quarterly. The dividends are recorded within interest expense on the Statement of
Operations. Under the agreements governing its indebtedness, the Company is not currently permitted to pay such dividends in cash. Each of the 525,334 shares of Series A preferred stock is
immediately redeemable without penalty, at the Company's option prior to the mandatory redemption date, at a liquidation preference of $75.00 per share plus any accrued but unpaid dividends as of the
redemption date. The Company has the right, at its option, immediately prior to an initial public offering (IPO), to require holders of the preferred stock to convert all (but not less than all) of
such shares into a number of shares of the Company's common stock equal to the liquidation preference for such shares of preferred stock, divided by the price per share of the Company's common stock
set forth in the final prospectus to be used in connection with the IPO. Upon the occurrence of a change in control, the Company will be required to redeem all outstanding shares of the
Series A preferred stock at a redemption price per share of $75.00 per share plus accrued and unpaid dividends.

The
warrants are exercisable initially to purchase an aggregate of up to 384,174 shares of the Company's common stock. The purchase price for each share of the Series A preferred
stock is $75.00
per share, and warrants are exercisable for the Company's common stock at a price per share of $75.00, subject to certain adjustments.

18

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

7.    Issuance of Preferred Stock and Common Stock Warrants in Connection with the Acquisition of Store Leases (Continued)

In accordance with SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," the Company has
recorded the portion of the proceeds that are attributable to the Series A preferred stock ($30.7 million) as a liability because of the mandatory redemption feature. The remaining
amount of $8.4 million (net of $0.3 million of expenses) was ascribed to the warrants, based on a relative fair value basis, and is recorded within additional paid-in
capital. The Company has also recorded a liability for the Series A preferred stock's mandatory redemption feature which is considered a derivative financial instrument. The
recorded liability for the Series A preferred stock's mandatory redemption feature was $4.9 million and $3.2 million at March 29, 2008 and December 29, 2007,
respectively. Such liability is included in "Other non-current liabilities" on the Consolidated Balance Sheet.

8.    Fair Value

On December 30, 2007, the first day of fiscal 2008, the Company adopted SFAS No. 157 to account for its financial assets and liabilities. This
standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, however, it applies to all
other accounting pronouncements that require or permit fair value measurements. This standard does not apply to fair value measurements related to share-based payments, nor does it apply to fair value
measurements related to inventory.

SFAS
No. 157 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the
fair value hierarchy under SFAS No. 157 are described below:



A
financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value estimates
presented in the tables below are based on the information available to the Company as of March 29, 2008 and December 29, 2007.

Valuation Techniques

At March 29, 2008, all of the Company's financial instruments had significant Level 3 inputs. The valuation approach used to calculate the
Series A preferred stock's mandatory redemption feature's fair value is a combination of future liquidity event probabilities, risk-adjusted returns, and a net present value
analysis. The valuation methodology applied to the profits interest is based on a Monte Carlo simulation, which estimates the fair value of the profits interest based on several inputs, including the
fair value of the Company's equity, future liquidity event probabilities and the expected volatility of the

19

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

8.    Fair Value (Continued)

underlying
equity value. The interest rate collar is valued using models that contain observable market data as well as models that have non-observable inputs, such as assumptions
regarding the future performance of the underlying assets. The guarantees for assigned store leases are valued using a probability weighted net present value analysis which considers the probability
of future events which may cause the Company to fulfill the guarantees.

Fair Value on a Recurring Basis

The assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the
valuations. As required by SFAS No. 157, the assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement
(dollars in thousands).

|                                                      |  | Level 1 |   | Level 2 |   | Level 3 |  | Total
|----------------------------------------------------- |  | ------- | - | ------- | - | ------- |  | -----
|Series A Preferred stockmandatory redemption feature |  | $       |  |         | $ |        |  | $    
|Profits interest                                      |  |         |  |         |   |        |  |      
|Interest rate collar                                  |  |         |  |         |   |        |  |      
|Guarantees                                            |  |         |  |         |   |        |  |      
|                                                      |  |         |   |         |   |         |  |      
|Total                                                 |  | $       |  |         | $ |        |  | $    
|                                                      |  |         |   |         |   |         |  |      

The
table presented below summarizes the change in balance sheet carrying values associated with the Company's Level 3 assets and liabilities recorded at fair value on a recurring
basis during the thirteen weeks ended March 29, 2008 (dollars in thousands). The amounts representing Level 3 liabilities are denoted in parentheses on the table below.

|                             |         | Preferred Stock
Mandatory
Redemption Feature(1) |        | Profits
Interest |        | Interest Rate
Collar(2) |   | Guarantee(3) |      | Total |     
|---------------------------- | ------- | ----------------------------------------------- | ------ | ---------------- | ------ | ----------------------- | - | ------------ | ---- | ----- | ----
|Balance at December 29, 2007 |         | $                                               | (3,173 | )                | $      | (1,671                  | ) | $            | 4    |       | $   
|                             | Losses |                                                 |        |                  |        |                         |   |              |      |       |     
|                             |         | Realized                                        |        |                  | (1,692 | )                       |   |             |      |       |    
|                             |         | Unrealized                                      |        |                  |       |                         |   |             |      |       | (216
|                             |         |                                                 |        |                  |        |                         |   |              |      |       |     
|Balance at March 29, 2008    |         | $                                               | (4,865 | )                | $      | (1,671                  | ) | $            | (212 | )     | $   
|                             |         |                                                 |        |                  |        |                         |   |              |      |       |     

---

20

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

8.    Fair Value (Continued)

Level 3 Gains and Losses

Since the changes in the fair value of the interest rate collar are included within other comprehensive loss, the Company did not have any unrealized gains or
losses associated with Level 3 financial instruments at March 29, 2008.

9.    Other Expenses

The table below provides detail of other expenses for the thirteen weeks ended March 29, 2008 and March 31, 2007 (dollars in thousands).

2008

2007Closed store costs

$
199

$
1,689Oak Hill management fee


312


312Accounting investigations





385Mr. Cuti matters


281


2,404Other


107


228Total Other expenses

$
899

$
5,018


In
the normal course of its business, the Company closes underperforming locations. In accordance with the provisions of SFAS No. 146, "Accounting for the Costs Associated with
Exit or Disposal Activities," the Company establishes reserves for closed store costs anticipated to be incurred in connection with such closings. See Note 11 for a discussion of the costs
relating to accounting investigations and the proceedings relating to Mr. Cuti. The Oak Hill management fee is payable quarterly.

10.    Income Taxes

Income taxes are recorded based on the estimated combined statutory tax rates expected to be applicable for the full fiscal year less applicable employment
related tax credits. The effective tax rate prior to the application of deferred tax asset valuation reserves is lower than the combined statutory rates, primarily reflecting the impact of these
income tax credits. The wage-based employment tax credits represent the economic benefits earned by the Company for its participation in various federal and state hiring incentive
programs. These benefits are based on the number of qualifying employees hired and retained by the Company for a specified time period. Employees qualify for these hiring programs primarily as a
result of their enrollment in various economic assistance programs.

As
a result of the Company's significant losses incurred in 2007 and 2006 and its anticipated future performance based on projections, the Company evaluated the need to record a
valuation allowance against its net deferred tax assets as part of the 2007 tax provision accounting procedures. The evaluation undertaken included a review of the individual deferred tax components
and a corresponding analysis of the anticipated time period during which the temporary differences giving rise to deferred tax assets and liabilities would reverse. Based on the results of this
analysis, the Company determined that, except for two specific items, all deferred tax assets and liabilities were expected to reverse within the same period. The non-reversing items total
$29.2 million and include post-2004 goodwill of $8.3 million and the deferred tax liability of $20.9 million associated with the trade name.

21

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

10.    Income Taxes (Continued)

Because
these items are not amortized for financial statement purposes, a reversal of the corresponding deferred tax liability is not expected to occur within the expiration period.

At
December 29, 2007, the Company had approximately $162.4 million of gross deferred tax assets and approximately $79.7 million of gross deferred tax liabilities,
resulting in a net deferred tax asset of $82.7 million. After adjusting for the value of the deferred tax liabilities that do not reverse, the resulting cumulative valuation allowance amounted
to $112.0 million, of which $43.5 million was recorded in 2007.

During
the thirteen weeks ended March 29, 2008, the Company incurred an additional pre-tax loss of $20.1 million and recorded an incremental valuation allowance
of $8.6 million. At March 29, 2008, the Company had approximately $164.8 million of gross deferred tax assets, approximately $74.3 million of gross deferred tax liabilities
and had recorded a cumulative valuation allowance of $120.6 million. The tax expense reported during the thirteen weeks ended March 29, 2008 and March 31, 2007 primarily results
from the deferred tax liabilities generated by non-amortizable goodwill.

During
the thirteen weeks ended March 29, 2008, there were no material changes to the Company's uncertain tax positions.

Duane
Reade Inc. is presently undergoing an examination of its New York State Franchise Tax filings for the 2001 through 2003 tax years. Adjustments proposed by New York state
have been previously accrued and, in management's opinion, are not considered material to the Company's consolidated financial statements.

The
Company reflects interest charges incurred in connection with audit settlements as interest expense; however, if any tax-related penalties were to be incurred, such
amounts would be recorded as a component of the income tax provision.

11.    Commitments and Contingencies

The Company is party to legal actions arising in the ordinary course of business. Based on information presently available to the Company, it believes that the
ultimate outcome of these actions will not have a material, adverse effect on its financial position, results of operations or cash flows. In addition, the Company is a party to the following legal
actions and matters:

During
2002, the Company initiated a legal action against its former property insurance carrier, in an attempt to recover what the Company believed to be a fair and reasonable settlement
for the business interruption portion of its claim originating from the September 11, 2001 World Trade Center terrorist attack, during which its single highest volume and most profitable store
was completely destroyed. After a lengthy litigation and appraisal process, an appraisal panel awarded the Company approximately $5.6 million (in addition to the $9.9 million that was
paid by the insurer to the Company in 2002). As a result of the insurer's refusal to pay this amount and also as a result of the Second Circuit Court of Appeals' interpretation of the Company's
insurance policy, in January 2007, the Company commenced another action in the U.S. District Court for the Southern District of New York to recover both the appraisal panel's award and additional
amounts under the policy. In August 2007, the District Court entered judgment in the amount of $0.8 million plus interest, and both parties appealed. The appeals have been briefed and are
awaiting argument in the Second Circuit Court of Appeals. However, due to the inherent uncertainty of litigation, there can be no assurance that this appeal will be successful.

22

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

11.    Commitments and Contingencies (Continued)

Accordingly,
given the risks and uncertainties inherent in litigation, there can be no definitive assurance that the Company will actually receive any or all of the panel's appraised
value of this claim, and the Company has not recognized any income related to this matter, other than $9.4 million of the original $9.9 million paid by the insurer in 2002. It should be
noted that any payment to the Company that might be forthcoming as a result of this claim may also result in the incurrence of additional expenses that are contingent upon the amount of such insurance
claim settlement. These expenses, if incurred, are not expected to exceed $4.0 million.

In
November 2004, Duane Reade Inc. was served with a purported class action complaint, Damassia v. Duane Reade Inc. The lawsuit was filed in the U.S. District Court for the
Southern District of New
York. The complaint alleges that, from the period beginning November 1998, the Company incorrectly gave some employees the title, "Assistant Manager," in an attempt to avoid paying these employees
overtime, in contravention of the Fair Labor Standards Act and New York law. The complaint seeks twice an unspecified amount of unpaid wages. The Company believes this claim to be without merit, and
the Company intends to defend itself against this claim. However, due to the uncertainty of litigation, there can be no assurance as to the ultimate outcome of this matter.

In
April 2006, the Company was served with a purported class action complaint, Chowdhury v. Duane Reade Inc. and Duane Reade Holdings, Inc. The complaint alleges that, from
a period beginning March 2000, the Company incorrectly classified certain employees in an attempt to avoid paying overtime to such employees, thereby violating the Fair Labor Standards Act and New
York law. The complaint seeks an unspecified amount of damages. The Company believes this claim to be without merit and intends to vigorously defend itself against this claim. However, due to the
inherent uncertainty of litigation, there can be no assurance as to the ultimate outcome of this matter.

In
November 2007, the Company was served with a subpoena from the Office of the Attorney General of the State of New York. The subpoena requested information regarding services to
customers with limited English proficiency. The Company has cooperated with the Office of the Attorney General and believes this matter will be settled on terms acceptable to it. Should this matter
not be settled, the Company believes it has valid defenses to any claims that may be made against it and will vigorously defend itself.

In
January 2008, the Company was served with a subpoena from the Department of Health and Human Services, Office of the Inspector General. The subpoena seeks information relating to the
operation of the Company's pharmacy kiosks and information relating to a business relationship that the Company had with Mobility Plus, a provider of durable medical equipment. In February 2008, the
Company received an identical subpoena from the Office of the Attorney General of the State of New York, Medicaid Fraud Control Unit. The Company is in the process of responding to the information
requests from both entities. While the Company believes that it has been in compliance with all applicable rules and regulations, at this stage, there can be no assurance as to the ultimate outcome of
this matter.

Proceedings Relating to Anthony J. Cuti

On September 1, 2006, Anthony J. Cuti, a former Chairman, President and Chief Executive Officer of the Company, initiated an arbitration before the
American Arbitration Association against Duane Reade Inc., Duane Reade Holdings, Inc. and Duane Reade Shareholders, LLC, which are referred to as the "respondents." The
arbitration relates to his termination in November 2005. Mr. Cuti asserts

23

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

11.    Commitments and Contingencies (Continued)

various
claims including, with respect to his employment agreement, breach of contract relating to the notice of termination provision, failure to make certain payments toward his 1998 corporate-owned
life insurance policy, relief from the non-competition and non-solicitation covenants, failure to provide adequate information relating to the valuation of his profits interest
and breach of the covenant of good faith and fair dealing. Other claims relate to the patent rights for the Company's virtual pharmacy kiosk system and payment of an alleged deferred 2001 bonus based
on any insurance recovery the Company may obtain on its business interruption claim in connection with the 2001 World Trade Center tragedy. On March 16, 2007, Mr. Cuti sought leave to
file an amended demand asserting additional allegations in support of his claim for breach of contract for failure to comply with the notice of termination provision in his employment agreement, and a
claim for defamation. On May 17, 2007, the arbitrator issued an order granting leave to file Mr. Cuti's amended demand. Mr. Cuti seeks monetary damages, declaratory relief,
rescission of his employment agreement and the payment of his legal costs and fees associated with his termination and the arbitration.

On
November 22, 2006, the respondents filed counterclaims and affirmative defenses against Mr. Cuti in the arbitration, alleging that between 2000 and 2005, Mr. Cuti
was responsible for improper practices involving invoice credits and rebillings for the construction of the Company's stores, that led to overstating the Company's publicly reported earnings, and that
caused the Company to create and maintain inaccurate records and publish financial statements containing misstatements. These counterclaims were based on information uncovered as of that date by an
investigation conducted by independent legal counsel and forensic accountants at the direction of the Audit Committee.

In
a press release dated April 2, 2007, the Company disclosed that, based on new information provided to the Company, the Audit Committee, with the assistance of independent
counsel and forensic accountants, was conducting a review and investigation concerning the propriety of certain real estate transactions and related matters and whether the accounting for such
transactions was proper. On April 9, 2007, the respondents sought leave to file proposed amended counterclaims based on that new information. On May 17, 2007, the arbitrator issued an
order granting leave to file the amended counterclaims. The amended counterclaims seek rescission of employment agreements entered into between the Company and Mr. Cuti, return of all
compensation paid under the employment agreements, other compensatory and punitive damages, and legal costs and fees associated with the Audit Committee's investigation and the arbitration.

On
May 18, 2007, the independent counsel and the forensic accountants completed their review and investigation. The independent counsel concluded that Mr. Cuti orchestrated
certain real estate and
other transactions that led to overstating the Company's publicly reported earnings, and that caused the Company to create and maintain inaccurate records and publish financial statements containing
misstatements. On May 22, 2007, the Audit Committee determined, after considering the results of the review and investigation, that certain of the Company's previously-issued financial
statements would have to be restated. The Company has filed the necessary restated financial statements for the periods affected.

On
May 22, 2007, the Company received a grand jury subpoena from the United States Attorney's Office for the Southern District of New York seeking documents relating to the
allegations in the amended counterclaims discussed above. The Company is cooperating fully with the investigation. The SEC has also requested that the Company provide it with information related to
this matter.

24

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

11.    Commitments and Contingencies (Continued)

On
May 25, 2007, the United States Attorney's Office for the Southern District of New York filed an application requesting that the arbitrator stay further proceedings in the
arbitration, including discovery, pending further developments in its criminal investigation of Mr. Cuti. Following briefing by the parties on the application, the arbitrator entered an order
staying the arbitration proceedings. The stay has been extended from time to time and is currently in effect until June 10, 2008.

Other

In connection with the assignment of certain store leases to third parties, the Company continues to guarantee lease obligations for seven former stores. The
respective purchasers have assumed the Company's obligations under these leases and are primarily liable for these obligations. Although the Company believes it to be unlikely, assuming that each
respective purchaser became insolvent, management estimates that the Company could settle these obligations for amounts substantially less than the aggregate obligation of $27.2 million as of
March 29, 2008. The obligations are for varying terms dependent upon the respective lease, the longest of which lasts through May 31, 2022.

12.    Subsequent Events

On April 20, 2008, the Company entered into a hedging transaction through the acquisition of a "no cost collar." Under this arrangement, the Company capped
its exposure on $210.0 million of LIBOR-based borrowings under the senior secured notes and the asset-based revolving loan facility at a maximum LIBOR rate of 5.2%. In addition, the Company
established a minimum "floor" LIBOR rate of 2.6% in line with then current LIBOR rates. This hedging arrangement expires on December 15, 2010.

On
April 17, 2008, David W. D'Arezzo, Senior Vice President and Chief Marketing Officer, resigned from the Company to assume a senior management position at a large southwest
regional company. The Company has initiated a search to fill the Chief Marketing Officer position and will move swiftly to identify another high caliber executive to join the senior management team.

On
March 31, 2008, the Company announced that John A. Lederer would be appointed as its Chief Executive Officer, Chairman of the Board and a Director. The Company has entered into
an employment agreement with Mr. Lederer, the material terms of which are summarized below. On April 2, 2008, Mr. Lederer was appointed to be the Company's Chief Executive
Officer, Chairman of the Board and a Director.

Mr. Lederer
will receive a base salary of $900,000 per year, subject to annual review. Mr. Lederer will be eligible for a bonus each year based on the Company's budgeted
EBITDA (defined in the employment agreement as certain specified target earnings (calculated consistently with calculations made for prior periods) before interest, income taxes, depreciation and
amortization, and in addition, to the extent the Company's Board acting reasonably and in good faith so determines, excluding acquisitions, divestitures, refinancings, any change required by GAAP or
other extraordinary, noncash or nonrecurring events). If the Company achieves its EBITDA target, this bonus will be 100% of his base salary. His maximum bonus, if the Company were to achieve 105% of
the EBITDA target, would be 150% of base salary, and his minimum bonus, if the Company were to achieve 95% of the EBITDA target, would be 50% of his base salary. Mr. Lederer's bonus would be
pro rated for achievement between 95% to 105% of the EBITDA target. The Company has guaranteed a bonus for fiscal year 2008 of no less than 100% of the base salary Mr. Lederer actually earns in
2008.

25

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

12.    Subsequent Events (Continued)

On
April 2, 2008, the Company granted Mr. Lederer options to purchase 165,000 shares of Duane Reade Holdings, Inc. common stock. The per share exercise price is
$100. Sixty percent of the options will vest ratably in annual installments over four years, subject to Mr. Lederer's continued employment, and 40% of the options will vest based on the
Company's achievement of performance targets. Fifty percent of the performance portion of Mr. Lederer's options will vest if and when the Company's principal shareholder, Oak Hill, receives at
least a 1.5x cash-on-cash return on its July 2004 investment in the Company, and the remaining 50% will vest if and when Oak Hill receives at least a 2x
cash-on-cash return on its July 2004 investment in the Company, subject to Mr. Lederer's continued employment through the date of any such return.

In
addition, Mr. Lederer will make an investment in Duane Reade Holdings, Inc. common stock equal to $2,000,000 by purchasing 20,000 shares of common stock at a price of
$100 per share.

If
Mr. Lederer is terminated for cause or resigns without good reason (as those terms are defined in the employment agreement), he will receive any accrued but unpaid base salary,
vacation and business expenses. If Mr. Lederer's employment terminates due to death or disability (as defined in the employment agreement), he will receive any accrued and unpaid base salary
plus continuation of salary for up to six months (until he becomes eligible for long-term disability coverage, in the case of disability), plus any earned but unpaid prior year's bonus,
together with a pro rata bonus for the year of termination, and any unpaid guaranteed bonus for 2008.

If
Mr. Lederer is terminated without cause or resigns for good reason, he will receive any earned but unpaid base salary, any earned but unpaid annual bonus, the guaranteed
minimum 2008 annual bonus if not already paid plus cash severance equal to 24 months of base salary whose present value would be paid in a single lump sum, plus two times a severance bonus paid
ratably for 24 months in accordance with the Company's regular payroll practices. If Mr. Lederer's employment terminates before the 2008 annual bonus is determined, the severance bonus
would be $900,000. If his employment terminates on or after the 2008 annual bonus is determined but before the 2009 annual bonus is determined, his severance bonus would be equal to the 2008 annual
bonus (without regard to the guaranteed minimum 2008 annual bonus). If Mr. Lederer's termination occurs on or after the determination of the 2009 annual bonus, the severance bonus would be the
average of the two annual bonuses paid before the termination of his employment (without regard to the guaranteed minimum 2008 annual bonus).

The
initial term of the employment agreement is four years. If either Mr. Lederer or the Company choose to not renew the term of the employment agreement, Mr. Lederer would
receive any accrued base salary plus any accrued but unpaid annual bonus and a pro rata bonus for the year of termination.

Mr. Lederer
will be subject to customary restrictive covenants, including confidentiality restrictions of unlimited duration, and noncompetition and nonsolicitation restrictions
during his employment and for two years following termination of employment for any reason (one year following the end of the employment term by reason of non-renewal).

Mr. Lederer
will be entitled to the retirement and welfare benefits that are generally available to the Company's other senior executives. Mr. Lederer will also be entitled
to reimbursement of certain costs and expenses to assist him with his relocation from Canada to the greater New York tri-state area, including up to two years of housing costs at up to
$10,000 per month, travel expenses for house-hunting trips, moving and closing costs, and $30,000 for any other expenses related to the relocation. To

26

---



Notes to Unaudited Consolidated Interim Financial Statements (Continued)

(dollars in thousands)

12.    Subsequent Events (Continued)

the
extent any of such reimbursements (but not the monthly allowance, other than the first three months) are taxable to Mr. Lederer, the Company will also pay him an additional payment such
that after the payment of all such taxes and any taxes on the additional payments, he will be in the same after-tax position as if no such tax had been imposed on the reimbursements.

The
Company has agreed to provide Mr. Lederer with up to $25,000 per year for personal travel for Mr. Lederer and Mr. Lederer's immediate family between Canada and
the New York Tri-State Area. The Company has also agreed to pay up to $40,000 of Mr. Lederer's legal fees and tax advice incurred in connection with the negotiation and
documentation of Mr. Lederer's employment agreement.

13.    Condensed Consolidating Interim Financial Information of Subsidiary Guarantors and Co-Obligors

The 9.75% senior subordinated notes due 2011 and the senior secured floating rate notes due 2010 were co-issued by Duane Reade Inc. and Duane
Reade GP, each of whom is considered a "co-obligor." The Company and each of its other subsidiaries, composed of DRI I Inc., Duane Reade International, Inc. and Duane
Reade Realty, Inc., are guarantors of such notes. The guarantee of the Company and of each subsidiary guarantor is full and unconditional and joint and several.

The
following condensed consolidating interim financial information for the Company presents the financial information of Duane Reade Holdings, Inc., the co-obligors
and the subsidiary guarantors, prepared on the equity basis of accounting. Such presentation is based on the Company's understanding and interpretation of Rule 3-10 under the
Securities and Exchange Commission's Regulation S-X. Income tax expense (benefit) and deferred income taxes have been allocated to individual entities according to the Company's
income tax allocation methodology. Certain of the prior year information has been adjusted to conform its presentation to the current year. The financial information may not necessarily be indicative
of results of operations or financial position had the subsidiary guarantors operated as independent entities. Figures presented for Duane Reade GP's statements of operations reflect the impact
of the change in accounting for store occupancy costs discussed in Note 1.

27

---





DUANE READE HOLDINGS, INC.        Condensed Consolidating Statement of Operations (Unaudited)        For the 13 weeks ended March 29, 2008        (in thousands)

|                                                                                  |                                   | Duane Reade
Holdings, Inc. |        | Duane
Reade Inc. |   | Duane
Reade GP |         | Subsidiary
Guarantors |         | Consolidating
Adjustments |   | Duane Reade
Holdings, Inc.
Consolidated |       
|--------------------------------------------------------------------------------- | --------------------------------- | -------------------------- | ------ | ---------------- | - | -------------- | ------- | --------------------- | ------- | ------------------------- | - | --------------------------------------- | ------
|Net sales                                                                         |                                   | $                          |       |                  | $ |               |         | $                     | 427,137 |                           | $ | 10,373                                  |       
|Cost of sales (exclusive of depreciation and amortization shown separately below) |                                   |                            |       |                  |   |               |         |                       | 294,445 |                           |   |                                        |       
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Gross profit                      |                            |        |                 |   |                |        |                       |         | 132,692                   |   |                                         | 10,373
|Selling, general and administrative expenses                                      |                                   |                            |       |                  |   |               |         |                       | 134,416 |                           |   | 120                                     |       
|Depreciation and amortization                                                     |                                   |                            |       |                  |   |               |         |                       | 17,919  |                           |   |                                        |       
|Store pre-opening expense                                                         |                                   |                            |       |                  |   |               |         |                       | 47      |                           |   |                                        |       
|Other expenses                                                                    |                                   |                            |       |                  |   |               |         |                       | 899     |                           |   |                                        |       
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Operating (loss) income           |                            |        |                 |   |                |        |                       |         | (20,589                   | ) |                                         | 10,253
|Equity earnings in affiliates                                                     |                                   |                            | 20,993 |                  |   | 20,993         |         |                       |        |                           |   | 382                                     |       
|Interest expense, net                                                             |                                   |                            |       |                  |   |               |         |                       | 15,906  |                           |   | (6,209                                  | )     
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Income (loss) before income taxes |                            |        | (20,993          | ) |                | (20,993 | )                     |         | (36,495                   | ) |                                         | 16,080
|Income tax (benefit) expense                                                      |                                   |                            |       |                  |   |               |         |                       | 1,749   |                           |   | (789                                    | )     
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Net income (loss)                 |                            | $      | (20,993          | ) | $              | (20,993 | )                     | $       | (38,244                   | ) | $                                       | 16,869
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       

28

---





DUANE READE HOLDINGS, INC.        Condensed Consolidating Statement of Operations (Unaudited)        For the 13 weeks ended March 31, 2007        (in thousands)

|                                                                                  |                                   | Duane Reade
Holdings, Inc. |        | Duane
Reade Inc. |   | Duane
Reade GP |         | Subsidiary
Guarantors |         | Consolidating
Adjustments |   | Duane Reade
Holdings, Inc.
Consolidated |       
|--------------------------------------------------------------------------------- | --------------------------------- | -------------------------- | ------ | ---------------- | - | -------------- | ------- | --------------------- | ------- | ------------------------- | - | --------------------------------------- | ------
|Net sales                                                                         |                                   | $                          |       |                  | $ |               |         | $                     | 414,388 |                           | $ | 9,999                                   |       
|Cost of sales (exclusive of depreciation and amortization shown separately below) |                                   |                            |       |                  |   |               |         |                       | 292,588 |                           |   |                                        |       
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Gross profit                      |                            |        |                 |   |                |        |                       |         | 121,800                   |   |                                         | 9,999 
|Selling, general and administrative expenses                                      |                                   |                            |       |                  |   |               |         |                       | 129,843 |                           |   | 85                                      |       
|Depreciation and amortization                                                     |                                   |                            |       |                  |   |               |         |                       | 18,037  |                           |   |                                        |       
|Store pre-opening expense                                                         |                                   |                            |       |                  |   |               |         |                       | 150     |                           |   |                                        |       
|Other expenses                                                                    |                                   |                            |       |                  |   |               |         |                       | 5,018   |                           |   |                                        |       
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Operating (loss) income           |                            |        |                 |   |                |        |                       |         | (31,248                   | ) |                                         | 9,914 
|Equity earnings in affiliates                                                     |                                   |                            | 30,535 |                  |   | 30,535         |         |                       |        |                           |   | 475                                     |       
|Interest expense, net                                                             |                                   |                            |       |                  |   |               |         |                       | 14,435  |                           |   | (6,394                                  | )     
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Income (loss) before income taxes |                            |        | (30,535          | ) |                | (30,535 | )                     |         | (45,683                   | ) |                                         | 15,833
|Income tax (benefit) expense                                                      |                                   |                            |       |                  |   |               |         |                       | 1,804   |                           |   | (644                                    | )     
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       
|                                                                                  | Net income (loss)                 |                            | $      | (30,535          | ) | $              | (30,535 | )                     | $       | (47,487                   | ) | $                                       | 16,477
|                                                                                  |                                   |                            |        |                  |   |                |         |                       |         |                           |   |                                         |       

29

---





DUANE READE HOLDINGS, INC.        Condensed Consolidating Balance Sheet (Unaudited)        As of March 29, 2008        (in thousands)

Duane Reade
Holdings, Inc.

Duane
Reade Inc.

Duane
Reade GP

Subsidiary
Guarantors

Consolidating
Adjustments

Duane Reade
Holdings, Inc.
ConsolidatedAssetsCurrent assetsCash

$


$


$
1,343

$
57

$


$
1,400Receivables








53,064








53,064Due from affiliates





78,115


107,271


(48
)

(185,338
)

Inventories








213,977








213,977Deferred income taxes





1,140


5,049


(6,189
)




Prepaid expenses and other assets








13,488








13,488Total current assets





79,255


394,192


(6,180
)

(185,338
)

281,929Investment in affiliates


(67,406
)

(67,416
)




(3,037
)

137,859


Property and equipment








192,930








192,930Goodwill








70,099








70,099Deferred income taxes





1,645


9,032


(10,677
)




Other assets








141,027


428,928


(382,695
)

187,260Total assets

$
(67,406
)
$
13,484

$
807,280

$
409,034

$
(430,174
)
$
732,218Liabilities and Stockholder's Equity (Deficit)Current liabilitiesAccounts payable

$


$


$
73,539

$


$


$
73,539Due to affiliates











185,336


(185,336
)

Accrued interest








4,101








4,101Accrued expenses





2,360


44,696








47,056Current portion of debt








150,686








150,686Current portion of capital lease obligation








4,114








4,114Total current liabilities





2,360


277,136


185,336


(185,336
)

279,496Long term debt








787,727





(382,695
)

405,032Capital lease obligation, less current portion








4,403








4,403Deferred income taxes





76,609


(77,100
)

28,225





27,734Redeemable preferred stock


31,113


31,113


32,992





(62,226
)

32,992Other non-current liabilities





1,932


74,997








76,929Total liabilities


31,113


112,014


1,100,155


213,561


(630,257
)

826,586Stockholder's equity (deficit)Common stock


26














26Paid-in-capital


247,520


247,535


251,906


2,395


(497,476
)

251,880Accumulated other comprehensive loss








(212
)







(212
)Retained earnings (deficit)


(346,065
)

(346,065
)

(544,569
)

193,078


697,559


(346,062
)Total stockholder's equity (deficit)


(98,519
)

(98,530
)

(292,875
)

195,473


200,083


(94,368
)Total liabilities and stockholder's equity (deficit)

$
(67,406
)
$
13,484

$
807,280

$
409,034

$
(430,174
)
$
732,218


30

---





DUANE READE HOLDINGS, INC.        Condensed Consolidating Balance Sheet (Unaudited)        As of December 29, 2007        (in thousands)

Duane Reade Holdings, Inc.

Duane Reade Inc.

Duane Reade GP

Subsidiary Guarantors

Consolidating Adjustments

Duane Reade Holdings, Inc. ConsolidatedAssetsCurrent assetsCash

$


$


$
1,343

$
37

$


$
1,380Receivables








55,707








55,707Due from affiliates





78,621


106,656


61


(185,338
)

Inventories








211,678








211,678Deferred income taxes





1,140


5,049


(6,189
)




Prepaid expenses and other assets








13,205








13,205Total current assets





79,761


393,638


(6,091
)

(185,338
)

281,970Investment in affiliates


(46,423
)

(46,423
)




(2,655
)

95,501


Property and equipment








195,740








195,740Goodwill








70,099








70,099Deferred income taxes





1,645


9,032


(10,677
)




Other assets








148,448


412,377


(366,145
)

194,680Total assets

$
(46,423
)
$
34,983

$
816,957

$
392,954

$
(455,982
)
$
742,489Liabilities and Stockholder's Equity (Deficit)Current liabilitiesAccounts payable

$


$


$
75,769

$


$


$
75,769Due to affiliates











185,336


(185,336
)

Accrued interest








9,158








9,158Accrued expenses





1,712


41,374








43,086Current portion of debt








141,352








141,352Current portion of capital lease obligation








3,994








3,994Total current liabilities





1,712


271,647


185,336


(185,336
)

273,359Long term debt








771,177





(366,145
)

405,032Capital lease obligation, less current portion








5,475








5,475Deferred income taxes





77,258


(78,849
)

29,014





27,423Redeemable preferred stock


31,113


31,113


31,786





(62,226
)

31,786Other non-current liabilities





2,436


70,301








72,737Total liabilities


31,113


112,519


1,071,537


214,350


(613,707
)

815,812Stockholder's equity (deficit)Common stock


26














26Paid-in-capital


247,509


247,535


251,743


2,395


(497,466
)

251,716Accumulated other comprehensive income








4








4Retained earnings (deficit)


(325,071
)

(325,071
)

(506,327
)

176,209


655,191


(325,069
)Total stockholder's equity (deficit)


(77,536
)

(77,536
)

(254,580
)

178,604


157,725


(73,323
)Total liabilities and stockholder's equity (deficit)

$
(46,423
)
$
34,983

$
816,957

$
392,954

$
(455,982
)
$
742,489


31

---





DUANE READE HOLDINGS, INC.        Condensed Consolidating Statement of Cash Flows (Unaudited)        For the 13 weeks ended March 29, 2008        (in thousands)

Duane Reade Holdings, Inc.

Duane Reade Inc.

Duane Reade GP

Subsidiary Guarantors

Consolidating Adjustments

Duane Reade Holdings, Inc. ConsolidatedCash flows used in operating activities:Net (loss) income

$
(20,993
)
$
(20,993
)
$
(38,244
)
$
16,869

$
42,368

$
(20,993
)Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:Depreciation and amortization








18,831








18,831Deferred income taxes





(56
)

1,749


(789
)




904Non-cash rent expense








2,721








2,721Other non-cash expense








2,745








2,745Equity in income of subsidiaries


20,993


20,993





382


(42,368
)

Changes in operating assets and liabilities:Receivables





(505
)

3,040


108





2,643Prepaid expenses and other current assets








(283
)







(283
)Inventories








(2,299
)







(2,299
)Accounts payable








(2,230
)







(2,230
)Accrued expenses





56


(1,905
)







(1,849
)Other assets and liabilities, net





505


15,779


(16,550
)




(266
)NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES








(96
)

20





(76
)Cash flows used in investing activities:Capital expenditures








(7,236
)







(7,236
)Lease acquisition and other costs








(1,705
)







(1,705
)Proceeds from sale of property








525








525NET CASH USED IN INVESTING ACTIVITIES








(8,416
)







(8,416
)Cash flows from financing activities:Borrowings from revolving credit facility








508,369








508,369Repayments of revolving credit facility








(499,033
)







(499,033
)Capital contributions








130








130Repayments of capital lease obligations








(954
)







(954
)NET CASH PROVIDED BY FINANCING ACTIVITIES








8,512








8,512Net increase in cash











20





20Cash at beginning of period








1,343


37





1,380Cash at end of period

$


$


$
1,343

$
57

$


$
1,400


32

---





DUANE READE HOLDINGS, INC.        Condensed Consolidating Statement of Cash Flows (Unaudited)        For the 13 weeks ended March 31, 2007        (in thousands)

|                                         |                                                                                      | Duane Reade
Holdings, Inc.                |   | Duane
Reade Inc. |        | Duane
Reade GP |         | Subsidiary
Guarantors |       | Consolidating
Adjustments |        | Duane Reade
Holdings, Inc.
Consolidated |       
|---------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | - | ---------------- | ------ | -------------- | ------- | --------------------- | ----- | ------------------------- | ------ | --------------------------------------- | ------
|Cash flows used in operating activities: |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         | Net (loss) income                                                                    |                                           | $ | (30,535          | )      | $              | (30,535 | )                     | $     | (47,487                   | )      | $                                       | 16,477
|                                         | Adjustments to reconcile net (loss) income to net cash used in operating activities: |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         |                                                                                      | Depreciation and amortization             |   |                  |       |                |         |                      |       |                           | 18,950 |                                         |       
|                                         |                                                                                      | Deferred income taxes                     |   |                  |       |                |         | (53                   | )     |                           | 1,804  |                                         |       
|                                         |                                                                                      | Non-cash rent expense                     |   |                  |       |                |         |                      |       |                           | 3,516  |                                         |       
|                                         |                                                                                      | Other non-cash expense                    |   |                  |       |                |         |                      |       |                           | 531    |                                         |       
|                                         |                                                                                      | Equity in income of subsidiaries          |   |                  | 30,535 |                |         | 30,535                |       |                           |       |                                         |       
|                                         | Changes in operating assets and liabilities:                                         |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         |                                                                                      | Receivables                               |   |                  |       |                |         | 109                   |       |                           | 3,057  |                                         |       
|                                         |                                                                                      | Prepaid expenses and other current assets |   |                  |       |                |         |                      |       |                           | (1,034 | )                                       |       
|                                         |                                                                                      | Inventories                               |   |                  |       |                |         |                      |       |                           | (1,166 | )                                       |       
|                                         |                                                                                      | Accounts payable                          |   |                  |       |                |         |                      |       |                           | 2,842  |                                         |       
|                                         |                                                                                      | Accrued expenses                          |   |                  |       |                |         | (56                   | )     |                           | (6,645 | )                                       |       
|                                         |                                                                                      | Other assets and liabilities, net         |   |                  |       |                |         |                      |       |                           | 18,620 |                                         |       
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         | NET CASH USED IN OPERATING ACTIVITIES                                                |                                           |   |                 |        |                |        |                       |       | (7,012                    | )      |                                         | (17   
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|Cash flows used in investing activities: |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         | Capital expenditures                                                                 |                                           |   |                 |        |                |        |                       |       | (6,949                    | )      |                                         |      
|                                         | Lease acquisition and other costs                                                    |                                           |   |                 |        |                |        |                       |       | (3,390                    | )      |                                         |      
|                                         | Proceeds from sale of property                                                       |                                           |   |                 |        |                |        |                       |       |                          |        |                                         |      
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         | NET CASH USED IN INVESTING ACTIVITIES                                                |                                           |   |                 |        |                |        |                       |       | (10,339                   | )      |                                         |      
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|Cash flows from financing activities:    |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         | Borrowings from revolving credit facility                                            |                                           |   |                 |        |                |        |                       |       | 498,423                   |        |                                         |      
|                                         | Repayments of revolving credit facility                                              |                                           |   |                 |        |                |        |                       |       | (494,341                  | )      |                                         |      
|                                         | Capital contributions                                                                |                                           |   |                 |        |                |        |                       |       | 1,362                     |        |                                         |      
|                                         | Issuance of preferred stock                                                          |                                           |   |                 |        |                |        |                       |       | 12,750                    |        |                                         |      
|                                         | Deferred financing costs                                                             |                                           |   |                 |        |                |        |                       |       | (5                        | )      |                                         |      
|                                         | Repayments of capital lease obligations                                              |                                           |   |                 |        |                |        |                       |       | (857                      | )      |                                         |      
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|                                         | NET CASH PROVIDED BY FINANCING ACTIVITIES                                            |                                           |   |                 |        |                |        |                       |       | 17,332                    |        |                                         |      
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|Net decrease in cash                     |                                                                                      |                                           |  |                  |        |               |         |                       | (19   | )                         |        | (17                                     | )     
|Cash at beginning of period              |                                                                                      |                                           |  |                  |        |               |         |                       | 1,370 |                           |        | 25                                      |       
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       
|Cash at end of period                    |                                                                                      | $                                         |  |                  | $      |               |         | $                     | 1,351 |                           | $      | 8                                       |       
|                                         |                                                                                      |                                           |   |                  |        |                |         |                       |       |                           |        |                                         |       

33

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

The following discussion regarding our financial condition and results of operations for the 13 weeks ended March 29, 2008 and the 13 weeks
ended March 31, 2007 should be read in conjunction with the more detailed financial information contained in our consolidated financial statements and their notes as well as the Special Note
Regarding Forward-Looking Statements that are contained elsewhere in this report.

During
the fourth quarter of 2007, we changed our method of accounting for store occupancy costs reflected on our statements of operations. The change resulted in a reclassification of
the store occupancy costs previously included within cost of sales to selling, general and administrative expenses. We believe this change in accounting more closely aligns these store occupancy cost
components to the nature of expenses included in our financial statement captions and improves the comparability of our financial statement presentation with industry peers. For the 13 weeks
ended March 29, 2008 and March 31, 2007, the change in accounting resulted in a decrease to cost of sales of $41.4 million and $40.8 million, respectively, with a
corresponding increase to gross profit and selling, general and administrative expenses. The change in accounting had no effect on the operating loss for any of the periods presented. This
Management's Discussion and Analysis of Financial Condition and Results of Operations has been updated to reflect the change in accounting for both periods presented.

General

Our business consists of the sale of a wide variety of health and beauty care products, convenience oriented food and general merchandise items and a pharmacy
operation managed to supply customers with their prescription needs. We refer to the non-prescription portion of our business as front-end sales because most of these sales are
processed through the front check-out sections of our stores. This portion of our business consists of brand name and private label items including health and beauty care items, food and
beverages, tobacco products, housewares, greeting cards, photofinishing services, photo supplies, seasonal and general merchandise and other products. Health and beauty care products, represent our
highest volume categories within front-end sales. The front-end portion of our business was 54.5% and
53.0% of our net sales in the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively, and is characterized by generally higher gross margins as compared to our pharmacy or
back-end business.

Because
of our numerous convenient locations in high-traffic commercial and residential areas and the lack of other convenience-oriented retailers in our core market areas,
our front-end business is generally a larger proportion of our total sales than for other major conventional drugstore chains, whose front-end sales average between 30% and 40%
of total sales. Over the last few years, pharmacy sales have experienced a slower rate of growth primarily due to reduced sales of hormonal replacement drugs and certain arthritis medications, reduced
third party reimbursement rates resulting from changes in regulations or cost-saving measures, limitations on maximum reimbursements for certain generic medications by third party plans,
increases in the percentage of sales represented by lower-priced generic medications and increased penetration by mail order and internet-based pharmacies. Our pharmacy sales include all items we sell
by prescriptions filled at our retail locations or by our Mail Order/Specialty Pharmacy facility and delivered directly to customers. In addition, we include in our pharmacy sales certain resales of
retail pharmaceutical inventory. Sales processed through third party, private and government-sponsored plans that contract with us as an authorized provider of prescriptions represented 93.2% and
93.1% of our prescription sales during the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively.

During
2003, President Bush signed the Medicare Modernization Act, which created a new Medicare Part D benefit that expanded Medicare coverage of prescription drugs for senior
citizens as

34

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well
as for certain "dual eligible" individuals that were previously covered under state administered Medicaid plans. This new Medicare coverage took effect in January 2006 and has resulted in
decreased pharmacy margins resulting from lower reimbursement rates than our current margins on state Medicaid prescriptions as well as prescriptions that are not subject to third party reimbursement.
The Medicaid Part D program grew rapidly during 2007 and 2006 and is projected to continue to grow in 2008 as more seniors become eligible and enroll for this coverage. The Medicare
Part D program represented approximately 12.7% and 11.9% of our retail pharmacy sales for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively.

State
Medicaid programs which provide prescription benefits to low income households and individuals represented approximately 14.1% and 14.4% of our retail pharmacy sales for the
thirteen weeks ended March 29, 2008 and March 31, 2007, respectively. Over the past several years, New York State reduced Medicaid and EPIC prescription reimbursement rates, adversely
impacting our pharmacy gross margins. New York State also increased co-payments by $1.00 per prescription for branded drugs and $0.50 per prescription for generics effective in 2006. Under
the Medicaid guidelines, providers cannot refuse to dispense prescriptions to Medicaid recipients who claim they do not have the means to pay the required co-payments. Most Medicaid
recipients do in fact decline to make the co-payments resulting in the requirement for the provider to absorb this cost. In April 2008, the New York State legislature enacted additional
reimbursement reductions with an annual impact estimated at approximately $1.4 million. The new reimbursement rates will become effective on July 1, 2008. The State of New Jersey is also
proposing reductions in dispensing fees and reimbursement
rates in 2008. While New Jersey's final budget proposal has not yet been approved, it is highly likely that there will ultimately be further reductions in reimbursements.

In
July 2007, the Centers for Medicare & Medicaid Services issued a final rule that may negatively affect our level of reimbursements for certain generic drugs by setting an upper
limit on the amount of reimbursement for such drugs based on the "Average Manufacturer Price." As a result of a lawsuit brought by the National Association of Chain Drug Stores and the National
Community Pharmacists Association to challenge the implementation of the new rule, a federal court has temporarily enjoined the implementation of the new rule pending the outcome of the lawsuit. In
addition, certain state and federal legislative proposals have been introduced that may modify or mitigate the effects of the new rule. The outcomes of the lawsuit and the legislative proposals are
uncertain at this time, so we currently are unable to determine what effect the new rule will ultimately have on our business.

In
an effort to offset some of the adverse pharmacy gross margin impacts from the trends discussed above, there has been an intensified effort on the part of retailers to support
increased utilization of lower priced but higher margin generic prescriptions in place of branded medications. New generic drug introductions have also enabled retailers to increase the proportion of
generic prescriptions to total prescriptions dispensed. Improved generic utilization rates as well as a combination of direct purchases and contractual wholesaler purchases enabled us to partially
offset the adverse margin impact of Medicare Part D and reduced state Medicaid reimbursement rates during 2006 and 2007.

We
are also impacted by recent legislation in states to increase the minimum hourly wages. New York State increased the minimum hourly wage from $5.15 to $6.00 on January 1, 2005,
to $6.75 on January 1, 2006, and again to $7.15 on January 1, 2007. New Jersey increased the minimum hourly wage from $5.15 to $6.15 on October 1, 2005 and again to $7.15 on
October 1, 2006. In addition, the U.S. Congress passed legislation that would result in a federal minimum hourly wage increase to $7.25 in July 2009. While these increases have impacted our
cost of labor, we have, and believe we can continue to, offset a significant portion of these cost increases through initiatives designed to further improve our labor efficiency.

35

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Our
primary assets are our ownership of 100% of the outstanding capital stock of Duane Reade Inc., which in turn owns 99% of the outstanding partnership interest of Duane
Reade GP and all of the outstanding common stock of DRI I Inc. DRI I Inc. owns the remaining 1% partnership interest in Duane Reade GP. Substantially all of our operations
are conducted through Duane Reade GP. In August 1999, we established two new subsidiaries, Duane Reade International, Inc. and Duane Reade Realty, Inc. Duane Reade GP
distributed to Duane Reade Inc. and DRI I Inc. all rights, title, and interest in all its trademarks, trade names and all other intellectual property rights. In turn, Duane
Reade Inc. and DRI I Inc. made a capital contribution of these intellectual property rights to Duane Reade International. This change created a controlled system to manage and exploit
these intellectual property rights separate and apart from the retail operations. In addition, Duane Reade GP distributed some of
its store leases to Duane Reade Inc. and DRI I Inc., which in turn made a capital contribution of these leases to Duane Reade Realty. Duane Reade Realty is the lessee under certain store
leases entered into after its creation. Duane Reade Realty subleases to Duane Reade GP the properties subject to those leases. The consolidated financial statements included in this report
reflect the accounts of Duane Reade Holdings, Inc. and its subsidiaries for all periods shown. All significant intercompany transactions and balances have been eliminated.

Considerations Related to Operating in the New York City Marketplace

We operate all of our stores in the New York metropolitan area. As a result, our performance will be substantially affected by economic conditions and other
factors affecting the region such as the regulatory environment, cost of energy, real estate, insurance, taxes and rent, weather, demographics, availability of labor and geopolitical factors such as
terrorism.

The
level of national economic activity as measured by a number of recent key national economic indicators has shown a slowing economy that may potentially lead to a recession in 2008 or
2009. The New York City economy may be particularly susceptible to a downturn because of difficulties in the financial services industry. Our sales and profitability have in the past been impacted by
events and other factors that affect New York City. The March 2008 unemployment data for New York City indicated an unemployment rate of 4.5%, compared to a national rate of 5.1%. Furthermore, to the
extent that personal disposable income declines as a result of falling housing prices, increased energy costs or other macroeconomic factors, we could experience lower profit margins, lower sales
(particularly in front-end merchandise) and increased levels of shrink.

Certain Line Items Presented

Net sales:Net sales include all front-end and pharmacy sales as well as certain resales of retail pharmaceutical
inventory that are required to be reported on a gross basis in accordance with Emerging Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a
Principal versus Net as an Agent." Such resales do not result in any material profit. We refer to net sales excluding such resale activity as "net retail sales" and pharmacy
sales excluding such resale activity as "pharmacy net retail sales." "Same-store sales" represent sales for stores that have been open for at least 13 months and exclude any resale
activity.

Cost of goods sold:Cost of goods sold includes all costs of products sold, net of any promotional income or rebates received
from manufacturers or wholesalers. Shrink losses are also recorded in cost of goods sold. Prior to the fourth quarter of fiscal 2007, we recorded store occupancy costs (including real
estate-related income) in cost of goods sold. In the fourth quarter of fiscal 2007, we changed our accounting for store occupancy costs to reclassify those costs to selling, general and administrative
expenses. We believe this change in accounting more closely aligns these store occupancy cost components to the nature of expenses included in our financial statement captions, and will improve the
comparability of our financial statement presentation with industry peers.

36

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Selling general & administrative expenses:SG&A includes employee wages and related costs, professional fees, store
occupancy costs, advertising expenses, credit card fees and all other store and office-related operating expenses. Any real estate-related income is included in store occupancy costs.

Depreciation and amortization:Depreciation and amortization consists primarily of depreciation of fixtures and equipment and
amortization of leasehold improvements as well as intangible assets, including pharmacy files and lease acquisition costs.

Store pre-opening expenses:These expenses represent the labor costs we incur related to our employees performing
various tasks associated with the opening of a new location.

Results of Operations

The Thirteen Weeks Ended March 29, 2008 as Compared to the Thirteen Weeks Ended March 31, 2007

For the thirteen weeks ended March 29, 2008, we achieved net sales of $427.1 million and incurred a net loss of $21.0 million, as compared to
net sales of $414.4 million and a net loss of $30.5 million during the thirteen weeks ended March 31, 2007. Pharmacy resale activity included in net sales was $12.2 million
in the first quarter of 2008, compared to $14.4 million in the previous year. The decrease in our net loss is attributable to the following factors:



The
favorable impact of these items was partially offset by:



37

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The
following sets forth the results of operations for the periods indicated:

For the 13 Weeks EndedMarch 29, 2008

March 31, 2007Dollars

% of Sales

Dollars

% of SalesIn thousands, except percentagesNet sales

$
427,137

100.0
%
$
414,388

100.0
%Cost of sales (exclusive of depreciation and amortization shown separately below)


294,445

68.9


292,588

70.6Gross profit


132,692

31.1


121,800

29.4Selling, general and administrative expenses


117,954

27.6


113,535

27.4Depreciation and amortization


17,919

4.2


18,037

4.4Store pre-opening expenses


47

0.0


150

0.0Other expenses


899

0.2


5,018

1.2Operating loss


(4,127
)
-1.0


(14,940
)
-3.6Interest expense, net


15,906

3.7


14,435

3.5Loss before income taxes


(20,033
)
-4.7


(29,375
)
-7.1Income tax provision


960

0.2


1,160

0.3Net loss

$
(20,993
)
-4.9
%
$
(30,535
)
-7.4
%


Net
sales were $427.1 million in the thirteen weeks ended March 29, 2008, compared to $414.4 million in the thirteen weeks ended March 31, 2007, representing
an increase of 3.1% or $12.7 million. Resale activity decreased by $2.2 million as compared to the prior year period, while net retail sales to retail customers increased by 3.7% over
this same period. Total same-store sales increased by 4.5% over the first quarter of last year.

Pharmacy
sales decreased to $194.2 million in the first quarter of 2008 from $194.9 million in the first quarter of 2007, a decrease of 0.3%, and represented 45.5% of total
sales, as compared with 47.0% of total sales in the first quarter of 2007. The decreased pharmacy sales are primarily due to a decrease in resale activity and an increase in the percentage of generic
drugs dispensed. During the first quarter of 2008, pharmacy net retail sales increased $1.6 million, or 0.9%, compared to the prior year period. Pharmacy same-store sales increased
by 1.5% from last year, and third-party reimbursed pharmacy sales represented 93.2% of total prescription sales compared to 93.1% in the first quarter of 2007. The percentage of generic drugs
dispensed increased by 4.8% over the prior year, negatively impacting the pharmacy same-store sales increase by approximately 4.2%, but contributing to an increase in gross margin per
prescription dispensed. Generic drugs generally have lower retail sales prices but are more profitable than branded drugs.

Front-end
sales increased from $219.5 million in the first quarter of 2007 to $232.9 million in the first quarter of 2008, an increase of 6.1%, and represented
54.5% of total sales during the first quarter of 2008, as compared to 53.0% of total sales in the first quarter of 2007. Front-end same-store sales increased by 7.0%, primarily
due to the continued strong performance in the food and beverage categories, over-the-counter products, and health and beauty items. The front-end sales increase
was favorably impacted by approximately 0.5% due to the shift
of the Easter holiday this year to the first quarter as compared to the second quarter in 2007. In addition, our front-end sales have been positively influenced by the increased tourism
levels in the greater New York metropolitan area.

During
the thirteen weeks ended March 29, 2008, we opened one store and closed one store, as compared to the two stores opened and the five stores closed during the thirteen weeks
ended

38

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March 31,
2007. At March 29, 2008, we operated 242 stores, as compared to 245 stores at March 31, 2007 and 242 stores at December 29, 2007.

Cost
of sales as a percentage of net sales was 68.9% and 70.6% during the first quarter of 2008 and 2007, respectively, resulting in a gross profit margin of 31.1% and 29.4% for each
respective period. The enhanced gross profit margin in 2008 reflects the impact of improved front-end selling margins resulting from improved assortments of higher margin products and
increased pharmacy margins due to higher rates of generic utilization.

Selling,
general and administrative expenses were $118.0 million, or 27.6% of net sales, and $113.5 million, or 27.4% of net sales, in the first quarter of 2008 and 2007,
respectively. The increase in the 2008 expense percentage as compared to 2007 was primarily attributable to increased advertising costs and recruitment fees paid in connection with the hiring of our
new CEO. The increase in the 2008 expense percentage also reflects increased pharmacists' labor costs and payroll costs associated with additional corporate staffing to support the continued
implementation of the Duane Reade Full Potential program. Improved leveraging of our store occupancy costs reduced the 2008 expense percentage as compared to 2007 by approximately 0.2%.

Depreciation
and amortization of property and equipment and intangible assets was $17.9 million in the first quarter of 2008, as compared to $18.0 million in the first
quarter of 2007.

We
incurred store pre-opening expenses of $47,000 in the first quarter of 2008 attributable to the opening of one new store, as compared to $150,000 in the first quarter of
2007 reflecting two new stores opened.

In
the first quarter of 2008, we incurred other expenses of $0.9 million, including costs associated with closed stores ($0.2 million), Oak Hill management fees
($0.3 million), costs associated with matters related to Mr. Cuti ($0.3 million) and other items ($0.1 million). During the first quarter of 2007, we incurred other
expenses of $5.0 million, including costs associated with the audit committee investigations and various other matters related to Mr. Cuti ($2.8 million), costs associated with
closed stores ($1.7 million), Oak Hill management fees ($0.3 million) and other items ($0.2 million).

Net
interest expense for the first quarter of 2008 was $15.9 million, as compared to $14.4 million in the first quarter of 2007. This increase was primarily attributable to
incremental non-cash interest expense incurred due to the increase in the fair value adjustment for our Series A preferred stock's mandatory redemption feature, which is considered
a derivative financial instrument, and was partially offset by lower floating interest rates on our variable rate borrowings as compared to the prior year. At March 29, 2008, the weighted
average interest rate on our variable rate outstanding debt was 6.3%, as compared to a weighted average rate of 8.6% at March 31, 2007.

In
the first quarter of 2008, we recorded an income tax provision of $1.0 million, reflecting an estimated effective tax rate of 4.8%. This expense is inclusive of an incremental
valuation allowance of $8.6 million that largely offset the tax benefit generated by our operating loss in the quarter. In the first quarter of 2007, we recorded an income tax provision of
$1.2 million, reflecting an estimated effective tax rate of 3.9% and inclusive of an incremental valuation allowance of $14.3 million that largely offset the tax benefit generated by our
operating loss in the quarter. The valuation allowances reflect the significant losses incurred in each period, as well as the anticipated financial performance over the next several years and the
unlikelihood of recognizing the future tax benefits of our accumulated losses.

39

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Liquidity and Capital Resources

Working Capital and Cash Flow

Working capital was $2.4 million as of March 29, 2008 and $8.6 million as of December 29, 2007. The primary factors affecting the
$6.2 million reduction in working capital from December 29, 2007 include:



These
items were partially offset by seasonally higher inventory levels of $2.3 million and reductions in accounts payable and accrued expenses of $3.3 million resulting
primarily from the timing of our bi-weekly payroll cycle and the semi-annual interest payment on our senior subordinated notes.

Working
capital reflects the classification of outstanding borrowings under our amended asset-based revolving loan facility of $150.7 million at March 29, 2008 and
$141.4 million at December 29, 2007 as current liabilities. This current classification is required because cash receipts controlled by the lenders are used to reduce outstanding debt,
and we do not meet the criteria of SFAS No. 6, "Classification of Short-Term Obligations Expected to be RefinancedAn Amendment of ARB
No. 43, Chapter 3A" to classify the debt as long-term, but is not an indication that this credit facility is expected to be retired within the next
year. This facility expires in July 2011 and we intend to continue to access it for our working capital needs throughout its remaining term.

Net
cash used in operating activities was $0.1 million in the thirteen weeks ended March 29, 2008 compared to net cash used in operating activities of $7.0 million
in the thirteen weeks ended March 31, 2007. The decrease is attributable to our improved operating results in the first quarter of 2008.

Net
cash used in investing activities was $8.4 million in the thirteen weeks ended March 29, 2008, compared to $10.3 million in the thirteen weeks ended
March 31, 2007. In the thirteen weeks ended March 29, 2008, we spent $7.2 million on capital expenditures, primarily related to new stores and the remodeling of existing
locations, and $1.7 million on lease acquisition and other costs. The net cash used in investing activities for the thirteen weeks ended March 29, 2008 also includes $0.5 million
of proceeds from the sale of assets. In the thirteen weeks ended March 31, 2007, we spent $6.9 million on capital expenditures, primarily related to new stores and the remodeling of
existing locations, and $3.4 million on lease acquisition and other costs.

Net
cash provided by financing activities was $8.5 million in the thirteen weeks ended March 29, 2008, compared to $17.3 million in the thirteen weeks ended
March 31, 2007. The net cash provided by financing activities for the thirteen weeks ended March 31, 2007 includes $12.7 million (net of expenses of $0.3 million) resulting
from the issuance of preferred stock and warrants. See Note 7 to our Unaudited Consolidated Interim Financial Statements contained elsewhere in this report for additional information regarding
this transaction. During the thirteen weeks ended March 29, 2008 and March 31, 2007, Oak Hill reimbursed us for a portion of our legal costs incurred in connection with the arbitration
proceedings relating to Mr. Cuti and discussed in Note 11 to our Unaudited Consolidated Interim Financial Statements contained elsewhere in this report. The reimbursements totaled
$0.1 million and $1.4 million for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively. The reimbursements are recorded as an additional capital
contribution within net cash provided by financing activities.

Operating Capital Requirements

Our operating capital requirements primarily result from opening new stores, remodeling and renovating existing retail locations, purchasing pharmacy files and
the continuing development of management information systems. We opened one new store in the first three months of 2008, two new

40

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stores
in the first three months of 2007, ten new stores during fiscal 2007 and five new stores during fiscal 2006. We currently plan to open 14 additional new stores in the remainder of 2008. We
currently plan to open 12 additional stores in 2009. The new store openings in 2008 include the acquisition of up to two leases in Manhattan from the Gristedes supermarket chain. This acquisition is
subject to various conditions including, in some cases, the receipt of landlord consents. The acquisition of the remaining Gristedes leases and the related build-out costs and working
capital commitments will be funded through the unspent portion of the $39.1 million of proceeds (net of expenses of $0.3 million) received from the issuance of preferred stock and
warrants in 2007. Any excess funds will be used to fund our normal capital spending, fund new store openings or reduce our outstanding debt. Capital spending in 2008 that is not related to the
Gristedes acquisition is expected to be approximately $43.7 million, with approximately $21.2 million related to maintenance capital spending and approximately $22.5 million
related to growth capital spending. Historically, we have been able to lease most of our store locations, so acquisitions of real estate are not expected to impact our capital requirements. We also
require working capital to support inventory for our existing and new stores.

Other Factors Influencing our Liquidity

In June 2005, the appraisal panel in the World Trade Center insurance claim litigation determined the amount of our business interruption loss as a result of the
events of September 11, 2001. This determination by the panel is subject to existing appeals and potentially additional appeals, and on June 22, 2005, the Second Circuit Court of Appeals
affirmed the decision of the trial court, with modifications, including modifications to certain of the legal tests on which the appraisal panel's decision was based. Based on this decision and
related modifications, the appraisal panel revised its previously issued determination to require an additional $5.6 million payment from the insurance carrier in addition to the
$9.9 million previously paid by the insurance carrier in 2002. As a result of the insurer's refusal to pay this amount and also as a result of the Second Circuit Court of Appeals'
interpretation of our insurance policy, in January 2007, we commenced another action in the U.S. District Court for the Southern District of New York to recover both the appraisal panel's award and
additional amounts under the policy. In August 2007, the District Court entered judgment in the amount of $0.8 million plus interest, and both parties appealed. The appeals have been briefed
and are awaiting argument in the Second Circuit Court of Appeals. However, due to the inherent uncertainty of litigation, there can be no assurance that this appeal will be successful. See
Note 11 to the Unaudited Consolidated Interim Financial Statements contained elsewhere in this report for a more detailed explanation of this matter.

Thirteen
of our stores, which generated approximately 5.9% of our net sales for fiscal 2007, have leases scheduled to expire before the end of fiscal 2009. One of these leases has a
renewal option. Although only one of these leases has a renewal option, in 2008, we have successfully negotiated lease renewals at two of the thirteen locations. We believe that we will be able to
renew the other expiring leases on economically favorable terms or, alternatively, find other economically attractive locations to lease.

As
of March 29, 2008, approximately 4,700 of our approximately 6,700 employees were represented by various labor unions and were covered by collective bargaining agreements.
Pursuant to the terms of the collective bargaining agreements covering these employees, we are required, in some instances, to pay specified annual increases in salary and benefits contributions
relating to the member employees. We do not believe that these increases will have a material impact on our liquidity or results of operations. Our collective bargaining agreements with the
RWDSU/Local 338 and Local 340A New York Joint Board, UNITE AFL-CIO, who, on a combined basis represent approximately 4,300 of our employees in all of our stores, expire on March 31,
2009. Approximately 400 of our employees in our two distribution centers in Maspeth, Queens, NY and North Bergen, NJ are represented by Local 210, International Brotherhood of Teamsters, Chauffeurs
and Warehousemen, under a collective bargaining agreement that expires on August 31, 2008.

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The following table presents details of our significant commitments and obligations as at March 29, 2008, except that the data provided with respect to operating leases is as of
December 29, 2007:

Payments due by PeriodContractual Cash Obligations

Total

Within 1 year

Within 2-3 years

Within 4-5 years

After 5 years(dollars in thousands)Long-Term Debt(1)

$
405,032

$


$
210,000

$
195,000

$
32Asset-Based Revolving Loan Facility(2)


150,686








150,686


Capital Lease Obligations(3)


8,516


4,114


3,964


438


Operating Leases(4)


1,286,674


128,277


249,790


235,018


673,589Fixed Interest Payments(5)


66,544


19,013


38,025


9,506


Severance Payments(6)


134


9


16


16


93Real Estate Litigation Settlement(7)


187


187








Redeemable Preferred Stock(8)


39,400











39,400Redeemable Preferred Stock Dividends(8)


89,496











89,496Total Contractual Cash Obligations

$
2,046,669

$
151,600

$
501,795

$
590,664

$
802,610


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The
following table presents details of our other significant commercial commitments as at March 29, 2008:

Amount of Commitment Expiration per PeriodOther Commercial Commitments

Total Amounts Committed

Within 1 year

2-3 years

4-5 years

After 5 years(dollars in thousands)Standby Letters of Credit(1)

$
6,334

$
6,334

$


$


$
Total Commercial Commitments

$
6,334

$
6,334

$


$


$



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We
are party to multi-year, merchandise supply agreements in the normal course of business. The largest of these agreements is with AmerisourceBergen, our primary
pharmaceutical supplier. Generally, these agreements provide for certain volume commitments and may be terminated by us, subject in some cases to specified termination payments, none of which we
believe would constitute a material, adverse effect on our financial position, results of operations or cash flows. It is the opinion of management that if any of these agreements were terminated or
if any contracting party was to experience events precluding fulfillment of its obligations, we would be able to find a suitable alternative supplier.

In
connection with the November 21, 2005 replacement of Mr. Cuti, Mr. Cuti's employment contract specifies payments to him in cash totaling up to
$6.6 million. We have paid the full $6.6 million amount as of December 29, 2007. In addition, the employment contract provides for continued health insurance coverage for
Mr. Cuti during the 25-month period following termination and, upon expiration of that period, if Mr. Cuti is not otherwise eligible under another employer's comparable
medical plan, lifetime retiree medical benefits at a cost not to exceed $50,000 annually. In an ongoing arbitration between Mr. Cuti and us (explained in more detail in Note 11 to our
Unaudited Consolidated Interim Financial Statements contained elsewhere in this report), we are seeking, among other forms of relief, rescission of employment agreements entered into between us and
Mr. Cuti, the return of all compensation paid under the employment agreements, including the benefits described in this paragraph, and other monetary damages.

In
connection with the Acquisition, Mr. Cuti was granted equity interests in Duane Reade Shareholders and Duane Reade Holdings, consisting of options to purchase shares of our
common stock and a profits interest in Duane Reade Shareholders. Mr. Cuti's employment contract provides that, as a result of his replacement on November 21, 2005, he had the right to
require us to purchase for cash to be paid over a two year period all or a portion of these equity interests as he may designate, at a value determined in accordance with a formula. In connection with
his replacement, we have treated all of his equity interests as having vested. The profits interest and options will have no value unless the value of Duane Reade Shareholders and Duane Reade
Holdings, respectively, appreciate following the Acquisition. Mr. Cuti's purchase right will be suspended at any time when the

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exercise
of such purchase rights would result in a default under the financing arrangements of Duane Reade Shareholders, Duane Reade Holdings or Duane Reade Inc. On December 21, 2005,
Mr. Cuti provided notice to Duane Reade Inc. that he was exercising his repurchase right to cause us to repurchase 5% of his profits interest. Pursuant to the procedures outlined in the
new employment agreement, Duane Reade Inc. has advised him that his profits interest as of December 21, 2005 was determined to have no value. The benefits described in this paragraph
were all granted under an employment agreement between Mr. Cuti and us. In an ongoing arbitration between Mr. Cuti and us (explained in more detail in Note 11 to our Unaudited
Consolidated Interim Financial Statements contained elsewhere in this report), we are seeking, among other forms of relief, rescission of employment agreements entered into between us and
Mr. Cuti and the return of all compensation paid under the employment agreements, including the benefits described in this paragraph. The determination that Mr. Cuti's profits interest
as of December 21, 2005 had no value is also one of several subjects specifically at issue in the arbitration.

In
connection with the assignment of certain store leases to third parties, we continue to guarantee lease obligations for seven former stores. The respective purchasers have assumed our
obligations under these leases and are primarily liable for these obligations. Although we believe it to be unlikely, assuming that each respective purchaser became insolvent, management estimates
that we could settle these obligations for amounts substantially less than the aggregate obligation of $27.2 million as of March 29, 2008. The obligations are for varying terms dependent
upon the respective lease, the longest of which lasts through May 31, 2022.

Debt

Refer to Note 6 to the Unaudited Consolidated Interim Financial Statements contained elsewhere in this report for a detailed description with respect to
the various components of our debt structure.

Liquidity Assessment

Duane Reade Holdings is a holding company formed in connection with the Acquisition to hold 100% of the common stock of Duane Reade Inc. Duane Reade
Holdings operates all of its business through Duane Reade Inc. and its subsidiaries and has no other independent assets, liabilities or operations, so, to the extent it has liquidity
requirements, it will depend on distributions of cash from Duane Reade Inc., to the extent permitted by the various agreements to which Duane Reade Inc. is a party. Currently, we do not
expect Duane Reade Holdings to have any material liquidity requirements.

We
believe that, based on current levels of operations and anticipated growth, cash flow from operations, together with other available sources of funds, including revolving loan
borrowings under the amended asset-based revolving loan facility, will be adequate for the next two years to make required payments on our indebtedness, to fund anticipated capital expenditures and
the acquisition of up to two additional Gristedes leases and to satisfy our working capital requirements. We base this belief on our cash flows from operations of $19.3 million in fiscal 2007,
projected improvements in working capital management, anticipated levels of capital expenditures and the available borrowing capacity under the $225.0 million amended asset-based revolving loan
facility, which was approximately $63.0 million at March 29, 2008. Our stockholder's deficit is expected to increase in 2008 due to continued losses; however, this deficit does not
impact our liquidity as noted above and has no impact on our debt covenants. Our ability to meet our debt service obligations and reduce our total debt will depend upon our future performance which,
in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. In addition, our operating results,
cash flow and capital resources may not be sufficient for repayment of our indebtedness in the future. Some risks that could adversely affect our ability to meet our debt service obligations include,
but are not limited to, reductions in third party prescription reimbursement rates, declines in the New York City economy, increases in competitive activity, adverse

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changes
in vendor credit terms, changes in drug consumption patterns, additional adverse legislative changes or a major disruption of business in our markets from a terrorist event, natural disaster
or other unexpected events. Other factors that may adversely affect our ability to service our debt are described above under "Special Note Regarding Forward-Looking Statements." Borrowings under the
amended asset-based revolving loan facility and the aggregate $210.0 million senior secured floating rate notes bear interest at floating rate. Therefore, our financial condition will be
affected by changes in prevailing interest rates. On May 25, 2005, we entered into a hedging transaction through the acquisition of a "no cost collar." Under this arrangement, we capped our
exposure on $130 million of LIBOR-based borrowings under the floating rate notes at a maximum LIBOR rate of 5.30%. In addition, we established a minimum "floor" LIBOR rate of 3.45%, in line
with then current LIBOR rates. This hedging arrangement expires on June 16, 2008. On April 30, 2008, we entered into another hedging transaction through the acquisition of an additional
"no cost collar." This new "no cost collar" will become effective on June 15, 2008. See Note 12 to our Unaudited Consolidated Interim Financial Statements contained elsewhere in this
report for a discussion of the terms of the new hedging arrangement.

Critical Accounting Policies

Our discussion of results of operations and financial condition relies on our consolidated financial statements that are prepared based on certain critical
accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how
they impact our financial reporting to gain a more complete understanding of our consolidated financial statements as a whole, as well as our related discussion and analysis presented herein. While we
believe that these accounting policies are grounded on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or
forecasts. The accounting policies and related risks described in our Annual Report on Form 10-K for the year ended December 29, 2007 are those that depend most heavily on
these judgments and estimates. At March 29, 2008, there have been no material changes to any of the Critical Accounting Policies contained therein.

Off-Balance Sheet Arrangements

We are not a party to any agreements with, or commitments to, any special purpose entities that would constitute material off-balance sheet financing
other than the operating lease commitments detailed in the Contractual Obligations and Commitments table presented above.

Seasonality

In general, sales of drugstore items such as prescription drugs, over-the-counter drugs and health and beauty care products exhibit
limited seasonality in the aggregate, but do vary by product category. Quarterly results are primarily affected by the timing of certain holidays, the timing of new store openings and the sale of
seasonal products, with the Christmas holiday season normally generating a higher proportion of sales and earnings than other periods.

Inflation

We believe that inflation has not had a material impact on our results of operations during the three years ended December 29, 2007 or the thirteen weeks
ended March 29, 2008.

Recently Issued Accounting Pronouncements

Refer to Note 2 of the Unaudited Consolidated Interim Financial Statements contained elsewhere in this report for a detailed description of various
recently issued accounting pronouncements.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial results are subject to risk from interest rate fluctuations on debt, which carries variable interest rates. Variable rate debt outstanding at
March 29, 2008 included $150.7 million of borrowings under our amended asset-based revolving loan facility and $210.0 million of senior secured floating rate notes. At
March 29, 2008, the weighted average combined interest rate in effect on all variable rate debt outstanding was 6.3%. A 0.50% change in interest rates applied to the $360.7 million
balance of floating rate debt would affect pre-tax annual results of operations by approximately $1.8 million, excluding the impact, if any, of the "no cost collar" as detailed
below. In addition, we also have $195.0 million of senior subordinated notes and $32.0 thousand of senior convertible notes outstanding at March 29, 2008. The senior subordinated
notes bear interest payable semi-annually at a fixed rate of 9.75% and are therefore not subject to risk from interest rate fluctuations. The senior convertible notes accrete interest at
an annual fixed rate of 3.75% and are also not subject to interest rate fluctuations.

On
May 25, 2005, we entered into a hedging transaction through the acquisition of a "no cost collar." Under this arrangement, we capped our exposure on $130 million of
LIBOR-based borrowings under the senior secured floating rate notes at a maximum LIBOR rate of 5.30%. In addition, we established a minimum "floor" LIBOR rate of 3.45%, in line with then current LIBOR
rates. This hedging arrangement expires on June 16, 2008. At March 29, 2008, the LIBOR rate in effect for the senior secured floating rate notes was 2.8%, which fell below the minimum
allowable interest rate under the "no cost collar." As a result, the overall effective interest rate for the senior secured floating rate notes increased to 7.7%. On April 30, 2008, we entered
into another hedging transaction through the acquisition of an additional "no cost collar." This new "no cost collar" will become effective on June 15, 2008. See Note 12 to our Unaudited
Consolidated Interim Financial Statements contained elsewhere in this report for a discussion of the terms of the new hedging arrangement.

The
principal objective of our investment management activities is to maintain acceptable levels of interest rate and liquidity risk to facilitate our funding needs. As part of our risk
management, we may
continue to use derivative financial products such as interest rate hedges and interest rate swaps in the future.

ITEM 4.    CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") designed to provide reasonable assurance that the information required to be reported in our Exchange Act filings is recorded, processed, summarized and reported within
the timeframes specified and pursuant to the regulations of the SEC, including controls and procedures designed to ensure that this information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that because of inherent limitations, our
disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

(a) Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934) as at the end of the period covered by this quarterly report.

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Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of that date, our disclosure controls and procedures required by
paragraph (b) of the Exchange Act Rules 13a-15 or 15d-15, were effective.

(b) Changes in Internal Control over Financial Reporting

During the first quarter of 2008, we hired a Director of Internal Audit, who will report to the Audit Committee of the Board of Directors. The purpose of this new
position is to design and implement a risk management assessment process as well as to monitor adherence to policies and procedures, conduct operational and financial audits designed to identify
control deficiencies, make recommendations to management and the Audit Committee to strengthen internal control over financial reporting and address opportunities to improve operations and financial
reporting. The Director of Internal Audit will also coordinate special audits as may be directed by the Audit Committee.

On
May 2, 2008, our Chief Compliance Officer resigned from the Company to assume a senior management position at a former employer. We are in the process of recruiting a new
executive to fill the position. We plan to utilize the services of an out-sourced interim Chief Compliance Officer until a permanent Chief Compliance Officer is appointed. The
responsibilities of the Chief Compliance Officer include monitoring our adherence to various regulatory requirements, codes of conduct and ethics standards, including those designed to ensure accurate
and timely financial reporting.

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PART II  OTHER INFORMATION

ITEM 1. Legal Proceedings

Refer to Note 11 of the Unaudited Consolidated Interim Financial Statements contained elsewhere in this report for a detailed description of the various
legal proceedings in which we are involved.

ITEM 1A. Risk Factors

For information regarding factors that could affect our results of operations, financial position and liquidity, see the risk factors discussion provided in
Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 29, 2007. See also "Special Note Regarding Forward-Looking Statements" above.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Submission of Matters to a Vote of Security Holders

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

Exhibit No.

Description10.1*

Conformed Copy of Employment Agreement by and between John A. Lederer and Duane Reade, Inc. dated as of March 13, 2008, as amended through May 1, 2008.10.2*

Nonqualified Stock Option Agreement, dated as of April 2, 2008, between Duane Reade Holdings, Inc. and John A. Lederer.31.1*

Sarbanes-Oxley Section 302 Certification of the Company's Chief Executive Officer ("CEO").31.2*

Sarbanes-Oxley Section 302 Certification of the Company's Chief Financial Officer ("CFO").32**

Sarbanes-Oxley Section 906 Certifications of the Company's CEO and CFO.


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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.

|Dated: May 12, 2008 |  | DUANE READE HOLDINGS, INC.(Registrant)                                                                                      
|------------------- |  | ----------------------------------------------------------------------------------------------------------------------------
|                    |  | /s/JOHN A. LEDERERJohn A. Lederer Chief Executive Officer, Chairman of the Board and Director
(Principal Executive Officer) 
|                    |  | /s/JOHN K. HENRYJohn K. Henry Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)

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