Madacy Reports Second Quarter 2008 Results

- Reported net sales of $10.8 million in the Second Quarter, a decrease of 45.2% from the comparative period of the prior year

- At the end of the Second Quarter, Madacy took a charge in an aggregate amount of $3.0 million

- Reported EBITDA of ($3.214) million in the Second Quarter, a decrease of $3.558 million from the comparative period of the prior year

"This has been another challenging quarter for Madacy, a quarter in which sales were significantly lower than the seasonally high second quarter of 2007," said Hillel Frankel, President of Madacy. "EBITDA for the Second Quarter was weak primarily as a result of a charge in the amount of $3.0 million which we took at the end of the quarter. Business with mass merchant and specialty retailer accounts was below expectations, due in part to a weak retail environment and an overall level of caution regarding inventory levels. In addition, during the quarter one of our largest customers decided to exit the recorded music business. While a significant part of this business has been taken up by our other customers, this transition caused a disruption in our business in the quarter."

"Following the end of the last quarter, in response to our overall disappointing financial performance, Management undertook a significant review of all aspects of its cost of goods sold and selling, general and administrative expenses. We have taken certain steps to reduce our overall cost structure and continue to focus on other possible cost reductions. We expect that certain of the benefits coming out of the completed initiatives flowing from this review will be experienced in the second half of 2008. Finally, at the end of the Second Quarter, the Fund was not in compliance with its fixed charge coverage covenant. The Fund is currently working with its bank to amend its credit agreement to both revise the calculation of the fixed charge coverage covenant and to make certain other changes to improve the Fund's working capital liquidity. At present, the Fund's non-compliance with its fixed charge coverage covenant is being tolerated by its bank," said Mr. Frankel.

Review of Operations for the Second Quarter

Madacy recorded net sales of $10.8 million in the Second Quarter, a decrease of $8.8 million or 45.2% from the comparative period of the prior year

Madacy recorded gross margin of $1.3 million in the Second Quarter, a decrease of $3.6 million or 73.5% from the comparative period of the prior year. EBITDA was ($3.2) million in the Second Quarter, a decrease of $3.6 million from the comparative period of the prior year.

At the end of the Second Quarter, the Fund was not in compliance with its fixed charge coverage covenant. The Fund is currently working with its bank to amend its credit agreement to both revise the calculation of the fixed charge coverage covenant and to make certain other changes to improve the Fund's working capital liquidity. At present, the Fund's non-compliance with its fixed charge coverage covenant is being tolerated by its bank.

References to "EBITDA" are to earnings (loss) before interest, income taxes, amortization, mark-to-market (unrealized) gains or losses on foreign exchange and interest rate swap contracts, realized foreign exchange gains or losses on foreign exchange contracts entered into to eliminate foreign exchange exposure on distributions to unitholders and the share of net earnings (loss) of the Exchangeable Units interest.

EBITDA is not an earnings measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. Investors are cautioned that EBITDA should not replace net earnings or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, or cash flows from operating, investing and financing activities as a measure of the Fund's liquidity and cash flows. Our method of calculating EBITDA may differ from the methods used by other issuers. Therefore, our EBITDA may not be comparable to similar measures presented by other issuers. -- www.cnxmarketlink.com