1385720--12/7/2007--SALLY_HOLDINGS

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Our historical consolidated financial information contained in this report does not represent our future financial position, results of operations or cash flows nor does it reflect what our financial position, results of operations or cash flows would have been as a separate reporting company during the periods presented. We may not be able to realize the anticipated benefits of our separation from Alberto-Culver on a timely basis or at all. As a separate entity, we do not enjoy all of the benefits of scale that Alberto-Culver achieved with the combination of the consumer products business and our business. We are a holding company, with no operations of our own, and we depend on our subsidiaries for cash. The beauty products distribution industry is highly competitive and is consolidating. We may be unable to anticipate changes in consumer preferences and buying trends or manage our product lines and inventory commensurate with consumer demand. We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us. If products sold by us are found to be defective in labeling or content, our credibility and that of the brands we sell may be harmed, market acceptance of our products may decrease and we may be exposed to liability in excess of our products liability insurance coverage and manufacturer indemnities. We could be adversely affected if we do not comply with laws and regulations or if we become subject to additional or more stringent laws and regulations. Product diversion could have an adverse impact on our revenues. BSG s financial results are affected by the financial results of BSG s franchised-based business (Armstrong McCall). Our new Internet-based business may be unsuccessful or may cause internal channel conflict. We may not be able to successfully identify acquisition candidates or successfully complete desirable acquisitions. If we acquire any businesses in the future, they could prove difficult to integrate, disrupt our business or have an adverse effect on our results of operations. If we are unable to profitably open and operate new stores, our business, financial condition and results of operations may be adversely affected. We are not certain that our ongoing cost control plans will continue to be successful. If we are unable to protect our intellectual property rights, specifically our trademarks, our ability to compete could be negatively impacted. Our ability to conduct business in international markets may be affected by legal, regulatory, and economic risks. We may be adversely affected by any disruption in our information technology systems. The occurrence of one or more natural disasters or acts of terrorism could adversely affect our operations and financial performance. Risks Relating to Our Substantial Indebtedness We have substantial debt and may incur substantial additional debt, which could adversely affect our financial health, our ability to obtain financing in the future and our ability to react to changes in our business. Despite our current indebtedness levels, we and our subsidiaries may be able to incur substantially more debt, including secured debt, which could further exacerbate the risks associated with our substantial indebtedness. The agreements and instruments governing our debt contain restrictions and limitations that could significantly impact our ability to operate our business. Our ability to generate the significant amount of cash needed to service all of our debt and our ability to refinance all or a portion of our indebtedness or obtain additional financing depend on many factors beyond our control. You should not expect Sally Capital to participate in making payments on the Notes. An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability. A decrease in interest rates would increase our interest expense (due to our interest rate swaps) and could reduce our profitability. Risks Relating to the Tax Treatment of Our Separation from Alberto-Culver and Relating To Sally Beauty s Largest Stockholder If the share distribution of Alberto-Culver common stock in the transactions separating us from Alberto-Culver did not constitute a tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as amended, or the Code, or if Sally Beauty became liable for additional taxes owed by Alberto-Culver, then we may be responsible for payment of significant U.S. federal income taxes. Actions taken by the Lavin family stockholders or by the CDR Investors could adversely affect the tax-free nature of the share distribution of Alberto-Culver common stock in connection with the transactions separating us from Alberto-Culver.

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1385720--12/7/2007--SALLY_HOLDINGS_LLC