We, from time to time, make "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect the expectations of management at the time such statements are made. The reader can identify such forward-looking statements by the use of words such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intend(s)," "potential," "continue," or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including those set forth in Part I, Item 1A - Risk Factors of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which factors are specifically incorporated herein by this reference. All forward-looking statements included in this quarterly report on Form 10-Q are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements and do not intend to do so.

Overview

EDCI Holdings, Inc. ("EDCIH") is a holding company and parent of Entertainment Distribution Company, Inc. which, together with its wholly owned and controlled majority owned subsidiaries, is a multi-national company that is seeking to enhance stockholder value by pursuing acquisition opportunities while continuing to oversee its majority investment in Entertainment Distribution Company, LLC ("EDC"), a business operating in the optical disc manufacturing and distribution segment of the entertainment industry. EDCIH's principal executive offices are located in New York City at 1755 Broadway, 4th Floor, New York, New York, 10019. In this Form 10-Q, the terms "we," "us," "our" and "the Company" each refer to EDCI Holdings, Inc. and its wholly-owned and controlled majority owned subsidiaries on a consolidated basis unless the context requires otherwise. The term "EDCI" refers only to EDCI Holdings, Inc. and its direct and indirect wholly-owned subsidiaries, and the term "EDC" refers only to Entertainment Distribution Company, LLC ("EDC"), and its direct and indirect wholly-owned subsidiaries.

EDC is an industry leader in providing pre-recorded products and distribution services to the optical disc industry with operations currently serving central Europe and the United Kingdom ("UK"). EDC was formed by the acquisition of the U.S. and central European CD and DVD manufacturing and distribution operations from Universal Music Group ("Universal") in May 2005. As part of the transaction, EDC entered into supply agreements with Universal with initial terms of 10 years under which EDC became the exclusive manufacturer and distributor for Universal's CD and DVD manufacturing requirements and distribution requirements for the U.S. and central Europe.

EDC's core competencies are CD and DVD replication and logistic services, a market in a secular decline. As an independent service provider, EDC is pursuing opportunities to increase revenue by providing a wide range of physical manufacturing, distribution and value added services to entertainment content owners and their customers. These opportunities consist of manufacturing and/or distribution services agreements with existing or new customers. The rate of decline experienced in EDC's international markets is, as yet, not nearly as severe as that experienced in the U.S. market. On March 20, 2009, the Board of Directors of EDC approved a plan to consolidate EDC's Blackburn, UK and Hannover, Germany manufacturing volumes within the Hannover facility. As a result, EDC intends to cease by year-end 2009 substantially all operations presently conducted at its Blackburn facility in the United Kingdom, and resultantly produce all of the manufacturing volume for Universal, its largest customer, in EDC's Hannover plant through the expiration of the Universal manufacturing agreements in May 2015. Consummation of the Consolidation transaction requires the consent of the lenders pursuant to EDC's credit facility. We are currently in negotiations to obtain the consent of the lenders to proceed with the Consolidation transaction but have yet to reach an agreement.

Results of Continuing Operations

Three months ended March 31, 2009 compared to the three months ended March 31,
2008

Revenues. Revenues for the first quarter of 2009 were $41.3 million compared to
$58.6 million for the first quarter of 2008. The following table illustrates the
components of changes in our revenue when comparing the first quarter of 2008 to
the first quarter of 2009 by revenue line.

    (in millions)     March 31, 2008       Volume        Price/Mix      Exchange Rate       March 31, 2009

Product Revenues       $        43.1     $     (4.1)     $     (1.1)     $       (6.8)       $        31.1
Service Revenues                15.5           (3.4)           (0.3)             (1.6)                10.2
Total Revenue          $        58.6     $     (7.5)     $     (1.4)     $       (8.4)       $        41.3

Product Revenues. Product revenues were $31.1 million in the first quarter of 2009 compared to $43.1 million in the first quarter of 2008. The decrease is primarily due to unfavorable exchange rate fluctuations from the devaluing of the Euro and Pound and volume declines. Our central European operations were negatively impacted by lower revenue from our primary customer and unfavorable exchange rate fluctuations. Revenues of our UK operations in the first quarter of 2009 decreased compared to the first quarter of 2008 primarily due to unfavorable exchange rate fluctuations and lower volumes slightly offset by improved pricing.

Service Revenues. Service revenues were $10.2 million in the first quarter of 2009 compared to $15.5 million in the first quarter of 2008. Our central European operations experienced a decrease in volumes in the first quarter of 2009 compared to the same period of 2008 primarily due to the loss of a significant customer, revenues for which were included in the first quarter 2008, and unfavorable exchange rate fluctuations.

Gross Profit on Product Revenues and Service Revenues. Gross profits were 13.5% of revenues during the first quarter of 2009 compared to 18.9% of revenues in the first quarter of 2008. The following table shows the elements impacting our gross profit when comparing the first quarter of 2008 to the first quarter of 2009 by revenue line.

   (in millions)    March 31, 2008        Volume          Cost/Mix       Exchange Rate    March 31, 2009
                        $       %        $       %         $       %        $       %         $       %

Product Revenues       $  6.1 14.2%    $ (1.4) -1.9%    $  (1.0) -1.5%    $ (0.6) -0.8%      $  3.1 10.0%
Service Revenues          5.0 32.1%      (1.1) -3.5%       (1.0) -3.1%      (0.4) -1.3%         2.5 24.2%
Total Gross Profit     $ 11.1 18.9%    $ (2.5) -2.5%    $  (2.0) -1.9%    $ (1.0) -1.0%      $  5.6 13.5%

Product Revenues. Gross profit on product revenues was $3.1 million, or 10.0% of product revenues, in the first quarter of 2009 compared to $6.1 million, or 14.2% of product revenues, in the first quarter of 2008. Gross profit of our UK operations decreased as a result of volume declines, redundancy costs and unfavorable exchange rate fluctuations. Gross profit in our central European operations decreased in the first quarter of 2009 compared to the first quarter of 2008 primarily due to deteriorating special projects pricing and lower volumes.

Service Revenues. Gross profit on service revenues was $2.5 million, or 24.2% of service revenues, in the first quarter of 2009 compared to $5.0 million, or 32.1% of service revenues, in the first quarter of 2008. Our central European operations gross profit on service revenues declined in the first quarter of 2009 compared to the first quarter of 2008 primarily due to volume declines, which included the loss of a significant customer for which high margins were received and unfavorable exchange rate impact.

Selling, General and Administrative Expense (SG&A). SG&A expense was $7.1 million in the first quarter of 2009 compared to $9.5 million in the first quarter of 2008. The decrease is primarily due to exchange rate fluctuations, lower professional fees and a decrease in compensation.

Amortization of Intangible Assets. There was no amortization expense in the first quarter of 2009 compared to $1.6 million in the first quarter of 2008. During the fourth quarter of 2008, the Company conducted an impairment analysis of its intangible assets, which resulted in a complete write-off of the Company's central European intangible assets.

Other Income (Expenses)

Interest Income. Interest income in the first quarter of 2009 was $0.2 million compared to $1.1 million in the first quarter of 2008. Our interest income is primarily derived from income earned on excess cash held in interest-bearing money market accounts, treasury bills and short-term investments. The decrease reflects significantly lower interest rates based on our very conservative investment policy during the first quarter of 2009.

Interest Expense. Interest expense in the first quarter of 2009 was $0.2 million compared to $0.6 million in the first quarter of 2008. Our interest expense includes interest on our term debt and revolving credit facility, amortization of debt issuance costs, amortization of interest on our rebate obligations with Universal and interest due on loans to EDC by employees of our central European operations under a government regulated employee savings plan. The decrease was primarily due to a combination of lower outstanding balances and lower interest rates on our debt and reduced amortization of interest on our rebate obligations with Universal during the first quarter of 2009.

Gain (Loss) on Currency Swap, net. We recorded a gain on our currency swap of $2.1 million in the first quarter of 2009 compared to a loss of $2.6 million in the first quarter of 2008. In January 2009, the Euro weakened against the U.S. dollar and we were able to settle the cross currency swap for $2.1 million. The swap was recorded at its fair value of $4.2 million at the time of the settlement and thus a gain of $2.1 million was recognized on the transaction.

Gain (Loss) on Currency Transaction, net. We recorded a loss of less than $0.1 million in the first quarter of 2009 compared to a loss of $0.6 million in the first quarter of 2008 on intercompany transactions with our international operations denominated in their local currency.

Income Taxes. We recorded an income tax benefit of $0.2 million in the first quarter of 2009 compared to expense of $0.5 million in the first quarter of 2008. Taxable income from our central European operations was lower in the first quarter of 2009 than in the first quarter of 2008. No tax benefit has been provided for losses in the UK or U.S. We currently maintain a partial valuation allowance against our UK deferred tax assets due to projected future pretax losses. Additionally, we continue to maintain a full valuation allowance on our U.S. deferred tax assets until we reach an appropriate level of profitability in the U.S. In the event we determine that we will be able to realize our deferred tax assets in the future, an adjustment to the valuation allowance would increase income in the period such determination is made.

Financial Condition and Liquidity

Overview

At March 31, 2009, we had cash and cash equivalents totaling $75.7 million of which $51.9 million was cash held by EDCI and $23.8 million was cash held at EDC. At March 31, 2009, the principal sources of liquidity were our unrestricted cash and cash equivalents and the $2.5 million unused revolving line of credit under the EDC Senior Secured Credit Facility, which expires on June 30, 2010.

EDCI's investment policy permits investment in other highly-rated instruments, including: obligations of the U.S. government or U.S. government sponsored enterprises; Bankers' acceptances and certificates of deposits; money market funds; municipal securities; auction rate securities and other reset notes; corporate obligations and repurchase agreements backed by the U.S. government or U.S. government sponsored enterprises. No more than 10% of the total portfolio may be invested in the securities of any one issuer (other than treasury and money market funds). In addition, on March 10, 2009, the policy was amended to permit the investment of up to $10 million in below-investment-grade funds that are traded on a recognized stock exchange, subject to authorization from both the CEO and Chairman of EDCI.

At March 31, 2009, EDCI had investments of $1.0 million in auction-rate securities. Due to the uncertainty surrounding the liquidation of the investments, these investments have been classified as long-term on our consolidated balance sheet at Mach 31, 2009.

EDC expects to use its cash and cash equivalents for working capital and other general corporate purposes. EDC also expects to use its cash and cash equivalents for payments of debt obligations. EDCI plans to use its cash and cash equivalents in connection with its acquisition strategy. We believe that the liquidity position of each of EDCI and EDC are adequate to fund their operating needs and, in the case of EDC, to fund its debt maturities in 2009 and to provide EDC with flexibility to respond to further changes in its business environment. The challenges of the present business environment as well as risks related to the planned Blackburn - Hannover Consolidation may cause a material reduction in EDC's liquidity as a result of an adverse change in its cash flow from operations or its access to credit or other capital. EDC's ability to service its debt and operational requirements depends in part on the results of operations of its European subsidiaries and upon the ability of those subsidiaries to repay intercompany loans or otherwise distribute cash to EDC's U.S. entities.

Derivative Activities

EDC entered into a cross currency rate swap agreement with a commercial bank on May 31, 2005. The objective of this swap agreement was to manage foreign currency exposure arising from EDC's intercompany loan to its German subsidiary, and is therefore for purposes other than trading. In January 2009, the U.S. dollar strengthened versus the Euro and EDC was able to settle the currency swap obligation for $2.1 million on January 23, 2009.

Cash Flows

Operating Activities. Cash provided by operating activities in the three months ended March 31, 2009 was $1.3 million compared to cash used in operating activities of $7.2 million in the three months ended March 31, 2008. The positive cash flows from operating activities in the 2009 period was primarily due to working capital changes of $1.4 million and changes in other assets of $0.9 million offset by $1.3 million in losses (adjusted for non-cash items). The working capital changes in the three months ended March 31, 2009, including charges in current assets and liabilities classified as discontinued operations on the condensed consolidated balance sheet, were primarily driven by decreases in accounts receivable, inventory and prepaid and other current assets of $8.7 million, $1.2 million and $0.5 million, respectively, offset by decreases in accrued liabilities and income taxes of $4.6 million and accounts payable of $4.3 million. Income (adjusted for non-cash items) weakened by $3.2 million from income (adjusted for non-cash items) of $1.9 million for the three months ended March 31, 2008 primarily due to lower sales volume in the three months ended March 31, 2009.

Working capital changes in the three months ended March 31, 2009 included, without limitation:

? A decrease of $8.7 million in accounts receivable in the first quarter of 2009 compared to a decrease of $6.5 million in the first quarter of 2008. The overall decrease in AR reflects the collection of significant accounts receivable balances related to our now discontinued U.S. operations, which were outstanding at year end and the decrease in sales volumes in the first quarter of 2009 compared to the first quarter of 2008.

? A decrease of $4.3 million in accounts payable in the first quarter of 2009 compared to a decrease of $8.3 million in the first quarter of 2008. The first quarter of 2009 reflects the payment of accounts payable balances related to our now discontinued U.S. operations, which were outstanding at year end and lower purchasing levels in our continuing operations as volumes have declined as well as the timing of when payments were made compared to the first quarter of 2008.

? A decrease of $4.6 million in accrued liabilities and income taxes payable for the first quarter 2009 compared to a decrease of $7.4 million in the first quarter of 2008. The decrease in the first quarter of 2009 is primarily due to decreases in VAT accruals and compensation-related accruals in the UK. The first quarter of 2008 included payments of $6.1 million for German income taxes and payments of $1.1 million related to severance.

? A decrease of $0.5 million in prepaid expenses and other current assets in the first quarter of 2009 compared to an increase of $2.3 million in the first quarter of 2008. The decrease in the first quarter of 2009 was driven primarily by the collection of a tax refund of approx $0.8 million in the UK, which was recorded as a receivable at the end of 2008 and a decrease of approximately $0.8 million for billings related to pass through costs in Germany offset by an increase of $0.9 million in receivables recorded related to the sale of certain EDC U.S. assets to Sony DADC, Inc. The first quarter of 2008 included $4.8 million in prepayments for income taxes in Germany and the UK.

? A decrease of $1.2 million in inventories in the first quarter of 2009 compared to a decrease of $1.4 million in the first quarter of 2008. The decrease in both periods reflects the usage of seasonally high raw material inventories and lower purchases during the period at all locations.

Investing Activities. Investing activities in the three months ended March 31, 2009 included the release of $3.2 million of funds that were escrowed and used to pay costs directly related to the discontinued EDC U.S. operations and collection of approximately $1.4 million in proceeds related to the sale of certain EDC U.S. operations assets to Sony DADC, Inc. Also during the three months ended March 31, 2009, we had capital expenditures of $0.4 million.

Financing Activities. During the three months ended March 31, 2009, we made payments of $0.8 million under our long-term debt and capital lease obligations and $1.0 million under our employee loan agreements. Also, on January 23, 2009, we paid $2.1 million to settle our cross currency swap.

EDC has a Senior Secured Credit Facility with Wachovia Bank, National Association, as agent, for an aggregate principal amount of $9.8 million, consisting of a term facility of $7.3 million, and a revolving credit facility of up to €2.0 million (subject to a maximum $2.5 million based on prevailing interest rates). There were no outstanding borrowings under the revolving credit facility at March 31, 2009. Substantially all of EDC's assets are pledged as collateral to secure obligations under the Senior Secured Credit Facility.

During the first quarter of 2009, the Senior Secured Credit Facility was amended as noted below:

? On March 27, 2009, EDC completed an amendment to the facility which changed the EBITDA definition as follows: for the fiscal quarter ended December 31, 2008, and each fiscal quarter thereafter, EBITDA shall be calculated by adding back impairment charges, non-cash charges and one-time charges for the Sony Sale and any charges related to U.S. operations or discontinued operations (but not including any ongoing overhead from U.S. operations), and impairment charges pertaining to the write-down of intangibles of the German operations, which charges to be added back shall not exceed, in the aggregate, $30,000,000, to the extent such charges were deducted for the applicable period.

EDC's term loan expires on December 31, 2010. EDC's Senior Secured Credit Facility bears interest, at EDC's option, at either: (a) the higher of (i) the Prime Rate in effect and (ii) the Federal Funds Effective Rate in effect plus ½ of 1% and a 1.75% margin on the non-cash collateralized portion; or (b) LIBOR plus a 2.0% margin. The applicable LIBOR is determined periodically based on the length of the interest term selected by us. The weighted average interest rate on outstanding debt was 3.46% at March 31, 2009. In addition to interest, EDC pays a commitment fee of 0.5% per annum on the average daily unused amount. Scheduled payments under the term loan are due as follows: $1.6 million due on December 31 2009, $2.1 million due on June 30, 2010, and $3.6 million due on December 31, 2010.

The Senior Secured Credit Facility contains usual and customary restrictive covenants that, among other things, permit EDC to use the revolver only as a source of liquidity for EDC and its subsidiaries and place limitations on (i) EDC's ability to incur additional indebtedness; (ii) EDC's ability to make any payments to EDCI in the form of cash dividends, loans or advances (other than tax distributions) and (iii) asset dispositions by EDC. It also contains financial covenants relating to maximum consolidated EDC's and subsidiaries' leverage, minimum interest coverage and maximum senior secured leverage as defined therein. As of March 31, 2009, we were in compliance with all such covenants, as amended, under the facility.

Capital Expenditures

Capital expenditures amounted to approximately $0.4 million in the three months ended March 31, 2009 and are anticipated to be approximately $3.0 million for the remaining nine months of 2009. Anticipated expenditures in 2009 primarily relate to expansion costs related to the Blackburn - Hannover consolidation, normal equipment and facility maintenance, replacement and upgrades and efficiency improvements.

Outlook

EDC

The difficult operating environment and economic trends that EDC saw in 2008 continued in the first quarter of 2009. With the sale and wind down of EDC's U.S. operations, the sole EDC focus is on maximizing its historically profitable international operations. Industry estimates for decline rates of CD and DVD volumes have been in 10-15% range for 2009, but the challenging economic conditions render such forecasts particularly uncertain. As EDC did in 2008, EDC will continue its cost-savings initiatives and plan to right size operating capacity in 2009 to deal with forecasted and actual volume declines.

Blackburn - Hannover Consolidation

On March 20, 2009, the Board of Directors of EDC approved a plan to consolidate EDC's Blackburn, UK and Hannover, Germany manufacturing volumes within the Hannover facility (the "Consolidation"). As a result of the Consolidation, EDC intends to cease by year-end 2009 substantially all of the operations presently conducted at its Blackburn facility in the United Kingdom, and resultantly produce all of the manufacturing volume for Universal, its largest customer, in EDC's Hannover plant through the expiration of the Universal manufacturing agreements in May 2015.

EDC is implementing the Consolidation at this time as the result of on an extensive feasibility analysis that was based in part on a particular customer delivering to EDC in early February 2009 a sizable percentage cut in that customer's volume forecast for Blackburn that month. As a result of those and other forecast cuts, reasonable forecasts of continued unpredictability, if not outright erosion of the volume of sales and the pricing of music CDs that comprise substantially all of the business conducted at the Blackburn facility, and the potential loss of credit insurance for UK third party customers and other significant risks associated with continuing to operate in Blackburn, management determined and EDC's Board of Directors confirmed that it was no longer commercially reasonable to continue operating the Blackburn manufacturing facility. EDC Germany has entered into an agreement to provide financial support of up to £5.0 million to EDC Blackburn to insure that EDC Blackburn does not fall into insolvency due to over indebtedness or illiquidity resulting from the planned closure of the Blackburn facility.

Blackburn closure costs currently are forecast at approximately $8-9 million, comprised primarily of severance costs for approximately 270 employees, costs associated with exiting Blackburn's existing leases and costs associated with relocating equipment, parts and inventory from Blackburn to Hannover. Closure costs will be financed out of existing cash in the United Kingdom with additional financial and other support from the EDC German operations. As a result of continuing to manufacture in Hannover the Universal volume that was previously manufactured in Blackburn, without any significant increase in Hannover's fixed costs, after completion of the consolidation the overall profitability of the European operations is expected to be increased materially compared to what it would have been without such consolidation, resulting in an estimated payback of the closure costs in approximately 2.0 - 2.5 years.

EDC plans to substantially cease Blackburn operations at the end of 2009, after completion of the high-volume "peak" manufacturing period, to limit any potential customer disruption. Final closure of Blackburn is planned to occur prior to the next break option under the Blackburn lease on June 18, 2010. Consummation of the consolidation transaction requires the consent of the lenders pursuant to EDC's credit facility. We are currently in negotiations to obtain the consent of the lenders to proceed with the Consolidation transaction but have yet to reach an agreement amicable to both parties.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

In Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, we discussed the critical accounting policies that affect the more significant judgments and estimates used in the preparation of the Company's consolidated financial statements. We believe that there have been no significant changes to such critical accounting policies and estimates during the three months ended March 31, 2009.