Madacy Entertainment Income Fund reports second quarter 2008 results



    /NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN
    THE U.S./

    MONTREAL, Aug. 14 /CNW Telbec/ - Madacy Entertainment Income Fund
(TSX: MEG.UN) (the "Fund" or "Madacy") today announced financial and operating
results for its Second Quarter ended June 28, 2008 ("Second Quarter")

    
    - 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.

    Forward-Looking Statements

    Certain statements in this news release may contain forward-looking
statements, which reflect management's expectations regarding the future
growth, results of operations, performance and business prospects, and
opportunities of the Fund. Such forward-looking statements reflect
management's current beliefs and are based on information currently available
to us. Forward-looking statements involve significant risks and uncertainties.
A number of factors could cause actual results to differ materially from
results discussed in the forward-looking statements.

    About Madacy Entertainment Income Fund

    Madacy operates in the business of recorded music and home video products
with a primary focus on the development and marketing of budget and mid-priced
recorded music products. Madacy is also involved in the worldwide licensing of
its proprietary recordings. According to industry data, Madacy is the largest
independent budget and mid-priced music label in North America by number of
units sold. Madacy also develops and markets budget and mid-priced home video
products.
    Additional information relating to Madacy Entertainment Income Fund,
including Audited Financial Statements and the Management Discussion and
Analysis of the Fund as at December 31, 2007, is available at www.sedar.com
and on Madacy's website at www.madacy.com.
    The financial statements of the Fund are expressed in United States
dollars and are in accordance with Canadian GAAP.

    Attachments:
    ------------
    Selected Financial Information
    Unaudited Interim Consolidated Statements of Earnings
    Unaudited Interim Consolidated Balance Sheets
    Unaudited Interim Consolidated Statements of Cash Flows


    Exhibit 1

    MADACY ENTERTAINMENT INCOME FUND
    Selected Consolidated Financial Information

    (Unaudited)                                            Six           Six
    (in thousands of       Quarter       Quarter        months        months
     U.S. dollars except     ended         ended         ended         ended
     where indicated)      June 28,      June 30,      June 28,      June 30,
                              2008          2007          2008          2007
    Statement of
     Earnings Data:
      Net Sales           $ 10,728      $ 19,571      $ 23,546      $ 39,672
      Cost of Sales          9,434        14,686        19,485        28,917
      Gross Margin           1,294         4,885         4,061        10,755
      Gross Margin %          12.1%         25.0%        17.25%         27.1%
      Selling, General
       and Administra-
       tive Expenses         4,685         4,822         9,763         9,975
      Net Earnings (Loss)   (2,983)         (325)       (5,665)         (812)
      EBITDA              $ (3,214)          344      $ (5,244)     $  1,218

    Distributable Cash
     and Distributions:
      Distributable Cash  $ (3,715)         (147)     $ (6,255)     $    148
      Cash Distributions
       on Fund Units      $      -      $      -      $      -      $      -
      Cash Distributions
       on Exchangeable
       Units              $      -      $      -      $      -      $      -

    Balance Sheet Data:
      Total Assets        $ 67,480      $ 76,508      $ 67,480      $ 76,508
      Current Portion
       of Long-term Debt  $      -      $      -      $      -      $      -
      Long-term Debt      $ 12,854      $ 14,832      $ 12,854      $ 14,832

    Per Unit information:

    Basic and Diluted
     Net Earnings (Loss)  $ (0.396)     $ (0.043)     $ (0.751)     $ (0.108)
    Distributable Cash
     per Fund Unit (1)    $ (0.493)     $ (0.019)     $ (0.830)     $  0.020
    Cash Distributions
     on Fund Units        $      -      $      -      $      -      $      -
    Distributable Cash
     per Fund Unit (2)   C$ (0.597)    C$ (0.024)    C$ (1.006)    C$  0.024
    Cash Distributions
     on Fund Units       C$      -     C$      -     C$      -     C$      -

    Exchangeable Units
    ------------------

    Distributable Cash
     per Exchangeable
     Unit (1,2)          C$      -     C$      -     C$      -     C$      -
    Cash Distributions
     on Exchangeable
     Units                       -             -             -             -

    ------------------------------
    (1)Distributable Cash per Fund Unit and per Exchangeable Unit is derived
    by dividing the portion of Distributable Cash allocable to the Fund Units
    and to the Exchangeable Units by the aggregate number of issued Fund
    Units and Exchangeable Units, respectively. On an annual basis,
    Distributable Cash is allocated between the Fund Units and the
    Exchangeable Units based on distributions effected with respect to the
    year in accordance with the terms of the subordination agreement. In
    2008, Distributable Cash is being allocated in its entirety to the Fund
    Units as a result of the continuing suspension of distributions to
    holders of the Exchangeable Units, as was the case in 2007. See
    "Distributable Cash and Distributions" below for discussion of the Fund's
    policy regarding distributions to holders of Fund Units and Exchangeable
    Units.

    (2)Distributable Cash per Fund Unit and per Exchangeable Unit is
    presented in Canadian dollars for purposes of comparison to the Canadian
    dollar denominated cash distributions. For this purpose, United States
    dollar denominated Distributable Cash is converted into Canadian dollars
    applying the exchange rate of the Fund's foreign exchange contracts
    relating to the period, which is C$1.2122/US$1.00.


    Exhibit 2

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Statements of Earnings

                                                           Six-          Six-
                           Quarter       Quarter        months        months
                             ended         ended         ended         ended
                           June 28,      June 30,      June 28,      June 30,
                              2008          2007          2008          2007
                        -----------   -----------   -----------   -----------
    Net Sales             $ 10,728      $ 19,571      $ 23,546      $ 39,672
    Cost of Sales            9,434        14,686        19,485        28,917
                        -----------   -----------   -----------   -----------
    Gross Margin             1,294         4,885         4,061        10,755
                        -----------   -----------   -----------   -----------
    Expenses
      Selling, general
       & administrative      4,685         4,822         9,763         9,975
      Interest on bank
       indebtedness            124           329           207           564
      Interest on
       long-term debt          159           193           388           395
      Loss (gain) on
       derivative
       financial
       instruments and
       foreign currency
       translation            (118)       (1,189)          135        (1,422)
      Amortization of
       property and
       equipment                68           133           211           264
      Amortization of
       master recordings       198           329           531           653
      Amortization of
       intangible assets       762           762         1,525         1,525
                        -----------   -----------   -----------   -----------
                             5,878         5,379        12,760        11,954
                        -----------   -----------   -----------   -----------
    Earnings (Loss)
     Before Income
     Taxes and
     Exchangeable Units
     Interest               (4,584)         (494)       (8,699)       (1,199)
    Income taxes                 5             6            16            50
                        -----------   -----------   -----------   -----------
    Earnings (Loss)
     Before Exchangeable
     Units Interest         (4,589)         (500)       (8,715)       (1,249)
    Exchangeable Units
     interest                1,606           175         3,050           437
                        -----------   -----------   -----------   -----------
    Net Earnings (Loss)   $ (2,983)     $   (325)     $ (5,665)     $   (812)
                        -----------   -----------   -----------   -----------
                        -----------   -----------   -----------   -----------
    Basic and Diluted
     Net Earnings (Loss)
     per Unit             $(0.3956)     $(0.0431)     $(0.7513)     $(0.1077)
                        -----------   -----------   -----------   -----------
                        -----------   -----------   -----------   -----------
    Basic and Diluted
     Weighted Average
     Number of Units
     Outstanding         7,540,000     7,540,000     7,540,000     7,540,000
                        -----------   -----------   -----------   -----------
                        -----------   -----------   -----------   -----------


    Exhibit 3

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Balance Sheets

                                                       June 28,  December 31,
                                                          2008          2007
                                                    -----------   -----------
    ASSETS
    Current
      Cash                                            $    345      $    850
      Accounts receivable                               22,166        28,610
      Inventories                                       16,909        18,829
      Prepaid expenses                                   1,273           850
      Unrealized gain on foreign
       exchange contracts                                  311         1,486
      Supplier Advances                                  1,249         1,249
                                                    -----------   -----------
                                                        42,253        51,874

    Royalty Advances                                     1,513         1,317
    Property and Equipment                                 351           491
    Master Recordings                                    7,103         7,434
    Intangible Assets                                   16,260        17,785
                                                    -----------   -----------
                                                      $ 67,480      $ 78,901
                                                    -----------   -----------
                                                    -----------   -----------
    LIABILITIES
      Bank indebtedness                               $  6,445      $  5,859
      Accounts payable and accrued liabilities          16,502        19,848
      Income taxes payable                                  69            87
                                                    -----------   -----------
                                                        23,016        25,794

    Long-Term Debt                                      12,854        12,870
    Accrued Pension Liability                              516           448
                                                    -----------   -----------
                                                        36,386        39,112
                                                    -----------   -----------
    Exchangeable Units Interest                         11,240        14,290
                                                    -----------   -----------

    Commitments and Contingencies

    UNITHOLDERS' EQUITY
      Fund Units                                        54,990        54,990
      Accumulated other comprehensive income               102            82
      Retained Earnings (Deficit)                      (35,238)      (29,573)
                                                    -----------   -----------
                                                        19,854        25,499
                                                    -----------   -----------
                                                      $ 67,480      $ 78,901
                                                    -----------   -----------
                                                    -----------   -----------


    Exhibit 4

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Statements of Cash Flows

                                                           Six-          Six-
                           Quarter       Quarter        months        months
                             ended         ended         ended         ended
                           June 28,      June 30,      June 28,      June 30,
                              2008          2007          2008          2007
                        -----------   -----------   -----------   -----------

    Funds Provided
     (Used) -
    Operating Activities
    Net earnings (loss)   $ (2,983)     $   (325)     $ (5,665)     $   (812)
    Add (deduct) items
     not involving cash:
    Amortization of
      Property and
       equipment                68           133           211           264
      Master recordings        198           329           531           653
      Intangible assets        762           762         1,525         1,525
    Recovery of royalty
     advances                   89           190           196           389
    Write-off of royalty
     advances                    -           274             -           348
    Implicit interest on
     long-term debt            (17)           21            12            58
    Employee future
     benefits                   21            23            68            61
    Unrealized loss
     (gain) on derivative
     financial
     instruments and
     foreign currency
     translation               641          (620)        1,195          (725)
    Exchangeable Units
     interest               (1,606)         (175)       (3,050)         (437)
                        -----------   -----------   -----------   -----------
                            (2,827)          612        (4,977)        1,324
    Changes in non-cash
     operating elements
     of working capital      3,024         1,782         4,577          (240)
                        -----------   -----------   -----------   -----------
                               197         2,394          (400)        1,084
                        -----------   -----------   -----------   -----------
    Investing Activities
    Royalty advances          (192)          (77)         (392)         (324)
    Additions to
     property and
     equipment                 (15)          (12)          (71)          (26)
    Additions to master
     recordings               (133)          (85)         (200)         (158)
                        -----------   -----------   -----------   -----------
                              (340)         (174)         (663)         (508)
                        -----------   -----------   -----------   -----------
    Financing Activities
    Repayment of
     long-term debt              -       (10,000)            -       (10,000)
    Repayment of bank
     indebtedness                -        (7,500)            -        (7,500)
    Increase in
     long-term debt              -        14,832             -        14,832
    Increase (decrease)
     in bank indebtedness      163           615           558         2,472
                        -----------   -----------   -----------   -----------
                               163        (2,053)          558          (196)
                        -----------   -----------   -----------   -----------
    Increase (decrease)
     in Cash                    20           167           505           380
    Cash - Beginning of
     Period                    325           437           850           224
                        -----------   -----------   -----------   -----------
    Cash - End of Period  $    345      $    604      $    345      $    604
                        -----------   -----------   -----------   -----------
                        -----------   -----------   -----------   -----------
    
    %SEDAR: 00021901E




For further information:

For further information: Hillel Frankel, President, Madacy Entertainment
Income Fund, (514) 341-5600 x333

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