Madacy Entertainment Income Fund reports third quarter 2007 results



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

    MONTREAL, Nov. 6 /CNW Telbec/ - Madacy Entertainment Income Fund
(TSX: MEG.UN) (the "Fund" or "Madacy") today announced financial and operating
results for its third quarter ended September 29, 2007 ("Third Quarter")

    
    - Reported net sales of $33.4 million in the Third Quarter, an increase
      of 41.7% from the comparative period of the prior year.

    - Reported gross margin of $8.6 million, an increase of 11.6% from the
      comparative period of the prior year.

    - Reported EBITDA of $3.3 million in the Third Quarter, an increase of
      $0.4 million or 15.0% from the comparative period of the prior year.

    "This has been a very successful quarter for Madacy; a quarter of
continued sales growth at a time when the overall music industry continues to
face its challenges", said Hillel Frankel, President of Madacy. "With a
dynamic and attractive product offering, Madacy continues to build upon its
dominant position as the leading provider of budget and mid-priced music to
virtually all of North America's traditional retailers of recorded music. In
fact, sales to our top three customers, which are very much representative of
music retail, increased by over 50% in the quarter from the comparative
quarter of 2006. Most importantly, the consumer sales of our product continue
to be very strong as witnessed by the growth in the retail sales of our
product and our market share. We do, however, continue to work on reducing our
product costs and balancing our overall product mix with a view to increasing
our gross margin. During the past number of quarters, we have witnessed
tremendous success with a line of new proprietary products and while these
products have dramatically increased our net sales, they have a higher product
cost than our historic average and, consequently, we have realized a gross
margin percentage that was lower than anticipated. Overall, we continue to
capture market share and retailer shelf space and further entrench ourselves
as the premiere supplier of "value" music in the marketplace. We believe that
these steps are fundamental to our long-term success and profitability", said
Mr. Frankel.

    Review of Operations for the Third Quarter

    Madacy recorded net sales of $33.4 million in the Third Quarter, an
increase of $9.8 million or 41.7% from the comparative period of the prior
year (an increase of $9.1 million, or 39.3%, ignoring the current quarter low
margin sale of slow-moving inventory and the comparative quarter's one-time
royalty income).
    Madacy recorded gross margin of $8.6 million in the Third Quarter, an
increase of $0.9 million or 11.6% from the comparative period of the prior
year (an increase of $1.4 million, or 18.9%, ignoring the same items as
above).
    EBITDA was $3.27 million in the Third Quarter, an increase of $0.43 or
15.0% from the comparative period of the prior year.
    References to "EBITDA" are to earnings 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 exposure to foreign
exchange fluctuations on the Fund's distributions to Unitholders and the share
of net earnings 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, 2006, 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)                    Three       Three        Nine        Nine
    (in thousands of U.S.         months      months      months      months
     dollars except where          ended       ended       ended       ended
     indicated)                September   September   September   September
                                29, 2007    30, 2006    29, 2007    30, 2006

    Statement of Earnings Data:
     Net Sales                  $ 33,421    $ 23,583    $ 73,093    $ 51,780
     Cost of Sales                24,839      15,891      53,756      35,473
     Gross Margin                  8,582       7,692      19,337      16,307
      Gross Margin %                25.7%       32.6%       26.5%       31.5%
     Selling, General and
      Administrative Expenses      5,381       5,080      15,356      14,168
     Net Earnings (Loss)           1,263         549         451        (863)
     EBITDA                     $  3,265    $  2,840    $  4,483    $  2,656

    Distributable Cash and
     Distributions:
      Distributable Cash        $  2,792    $  2,221    $  2,940    $    360
      Cash Distributions on
       Fund Units               $      -    $    624    $      -    $  4,374
      Cash Distributions on
       Exchangeable Units       $      -    $      -    $      -    $    212

    Balance Sheet Data:
     Total Assets               $ 91,296    $120,654    $ 91,296    $120,654
     Current Portion of
      Long-term Debt            $      -    $ 10,000    $      -    $ 10,000
     Long-term Debt             $ 14,834    $      -    $ 14,834    $      -

    Per Unit information:
    Fund Units
    ----------
     Basic and Diluted Net
      Earnings (Loss)           $  0.168    $  0.073    $  0.060    $ (0.114)
     Distributable Cash per
      Fund Unit (1)             $  0.370    $  0.295    $  0.390    $  0.048
     Cash Distributions on
      Fund Units                $      -    $  0.083    $      -    $  0.580
     Distributable Cash per
      Fund Unit (2)            C$  0.449   C$  0.357   C$  0.473   C$  0.058
     Cash Distributions on
      Fund Units               C$      -   C$  0.094   C$      -   C$  0.657

    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 2007, 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.

    (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

    (unaudited)
    (in thousands of U.S. dollars except per unit amounts)

                                   Three       Three        Nine        Nine
                                  months      months      months      months
                                   ended       ended       ended       ended
                               September   September   September   September
                                29, 2007    30, 2006    29, 2007    30, 2006
                               ---------- ----------- ----------- -----------
                               ---------- ----------- ----------- -----------
    Net Sales                   $ 33,421    $ 23,583    $ 73,093    $ 51,780
    Cost of Sales                 24,839      15,891      53,756      35,473
                               ---------- ----------- ----------- -----------
    Gross Margin                   8,582       7,692      19,337      16,307
                               ---------- ----------- ----------- -----------
    Expenses
      Selling, general &
       administrative              5,381       5,080      15,356      14,168
      Interest on bank
       indebtedness                  133         256         697         656
      Interest on long-term
       debt                          292         159         687         489
      Loss (gain) on derivative
       financial instruments
       and foreign currency
       translation                  (412)        126      (1,834)     (1,574)
      Amortization of property
       and equipment                 138         130         402         398
      Amortization of master
       recordings                    331         309         984         940
      Amortization of deferred
       financing charges               -          37           -         105
      Amortization of intangible
       assets                        763         763       2,288       2,288
                               ---------- ----------- ----------- -----------
                                   6,626       6,860      18,580      17,470
                               ---------- ----------- ----------- -----------
    Earnings (Loss) Before
     Income Taxes and
     Exchangeable Units
     Interest                      1,956         832         757      (1,163)
    Income taxes                      13         (12)         63         165
                               ---------- ----------- ----------- -----------
    Earnings (Loss) Before
     Exchangeable Units
     Interest                      1,943         844         694      (1,328)
    Exchangeable Units
     interest                        680         295         243        (465)
                               ---------- ----------- ----------- -----------
    Net Earnings (Loss)         $  1,263    $    549    $    451    $   (863)
                               ---------- ----------- ----------- -----------
                               ---------- ----------- ----------- -----------
    Basic and Diluted Net
     Earnings (Loss) per Unit   $ 0.1675    $ 0.0728    $ 0.0598    $(0.1145)
                               ---------- ----------- ----------- -----------
                               ---------- ----------- ----------- -----------
    Basic Weighted Average
     Number of Units
     Outstanding               7,540,000   7,540,000   7,540,000   7,540,000
                               ---------- ----------- ----------- -----------
                               ---------- ----------- ----------- -----------
    Diluted Weighted Average
     Number of Units
     Outstanding              11,599,111  11,599,111  11,599,111   7,540,000
                               ---------- ----------- ----------- -----------
                               ---------- ----------- ----------- -----------

    Exhibit 3

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Balance Sheets

    Unaudited (in thousands of U.S. dollars)
                                                       September    December
                                                        29, 2007    31, 2006
                                                      -----------  ----------
    ASSETS
    Current
      Cash                                             $     129    $    224
      Accounts receivable                                 34,252      29,243
      Inventories                                         23,614      14,769
      Prepaid expenses                                     1,759         627
      Unrealized gain on foreign exchange contracts        1,448         197
      Supplier Advances                                    1,249           -
                                                      -----------  ----------
                                                          62,451      45,060

    Supplier Advances                                          -       1,249
    Royalty Advances                                       1,554       2,126
    Property and Equipment                                   594         901
    Master Recordings                                      7,724       8,477
    Deferred Financing Charges                                 -          43
    Intangible Assets                                     18,548      20,836
    Unrealized Gain on Foreign Exchange Contracts            425         302
                                                      -----------  ----------
                                                       $  91,296    $ 78,994
    LIABILITIES
    Current
      Bank indebtedness                                $   5,144    $  9,049
      Accounts payable and accrued liabilities            28,455      17,987
      Income taxes payable                                    82          79
      Distribution payable on Fund Units                     711         611
      Current portion of the long-term debt                    -      10,000
                                                      -----------  ----------
                                                          34,392      37,726

    Long-term debt                                        14,834           -
    Accrued Pension Liability                                435         351
                                                      -----------  ----------
                                                          49,661      38,077
                                                      -----------  ----------
    Exchangeable Units Interest                           14,937      14,694
                                                      -----------  ----------

    Commitments and Contingencies

    UNITHOLDERS' EQUITY
      Fund Units                                          54,990      54,990
      Accumulated other comprehensive income                  80          56
      Retained Earnings (Deficit)                        (28,372)    (28,823)
                                                      -----------  ----------
                                                          26,698      26,223
                                                      -----------  ----------
                                                       $  91,296    $ 78,994
                                                      -----------  ----------
                                                      -----------  ----------


    Exhibit 4

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Statements of Cash Flows

    Unaudited (in thousands of U.S. dollars)

                                   Three       Three        Nine        Nine
                                  months      months      months      months
                                   ended       ended       ended       ended
                               September   September   September   September
                                29, 2007    30, 2006    29, 2007    30, 2006
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Funds Provided (Used) -

    Operating Activities
    Net earnings (loss)         $  1,263    $    549    $    451    $   (863)
    Add (deduct) items not
     involving cash:
    Amortization of
      Property and equipment         138         130         402         398
      Master recordings              331         309         984         940
      Deferred financing
       charges                         -          37           -         105
      Intangible assets              763         763       2,288       2,288
    Recovery of royalty
     advances                        305         183         694         477
    Write-off of royalty
     advances                         81           -         429          32
    Implicit interest on
     long-term debt                   29           -          87           -
    Employee future benefits          23          19          84          44
    Unrealized loss (gain)
     on derivative financial
     instruments and foreign
     currency translation           (525)        444      (1,250)       (628)
    Exchangeable Units
     interest                        680         295         243        (465)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
                                   3,088       2,729       4,412       2,328
    Changes in non-cash
     operating elements
     of working capital           (4,275)     (6,305)     (4,515)     (1,988)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
                                  (1,187)     (3,576)       (103)        340
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Investing Activities
    Royalty advances                (227)       (252)       (551)       (690)
    Additions to property
     and equipment                   (69)        (66)        (95)       (143)
    Additions to master
     recordings                      (73)        (81)       (231)       (630)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
                                    (369)       (399)       (877)     (1,463)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Financing Activities
    Repayment of long-term
     debt                              -           -     (10,000)          -
    Repayment of bank
     indebtedness                      -           -      (7,500)          -
    Increase in long-term
     debt                              -           -      14,832           -
    Increase (decrease) in
     bank indebtedness             1,081       4,579       3,553       5,156
    Deferred financing charges         -           -           -         (23)
    Distributions paid on
     Exchangeable Units                -           -           -        (212)
    Distributions paid on
     Fund Units                        -        (633)          -      (4,357)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
                                   1,081       3,946         885         564
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Increase (decrease)
     in Cash                        (425)        (29)        (95)       (559)
    Cash - Beginning of Period       604         270         224         800
                              ----------- ----------- ----------- -----------
    Cash - End of Period       $     129    $    241    $    129    $    241
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    




For further information:

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

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