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 11 East 44th Street, Suite 1201, New York, New York, 10017. 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 provides 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 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. We have elected to commence consolidation activities as we continue negotiations with the bank.

Results of Continuing Operations

Three months ended June 30, 2009 compared to the three months ended June 30,
2008

Revenues. Revenues for the second quarter of 2009 were $37.4 million compared to
$55.7 million for the second quarter of 2008. The following table illustrates
the components of changes in our revenue when comparing the second quarter of
2008 to the second quarter of 2009 by revenue line.

    (in millions)      June 30, 2008       Volume        Price/Mix      Exchange Rate       June 30, 2009

Product Revenues          $     41.7     $     (7.9)     $     (1.5)     $       (5.0)         $     27.3
Service Revenues                14.0           (2.6)             0.2             (1.5)               10.1
Total Revenue             $     55.7     $    (10.5)     $     (1.3)     $       (6.5)         $     37.4

Product Revenues. Product revenues were $27.3 million in the second quarter of 2009 compared to $41.7 million in the second quarter of 2008. The decrease is primarily due to volume declines and unfavorable exchange rate fluctuations from the devaluing of the Euro and Pound. Our central European operations were negatively impacted by lower revenue from our primary customer including lower pass-through cost revenues and unfavorable exchange rate fluctuations. Revenues of our UK operations in the second quarter of 2009 decreased compared to the second quarter of 2008 primarily due to lower volumes, which included the impact of our loss of certain customer accounts due to uneconomical pricing and excessive credit risk, and unfavorable exchange rate fluctuations offset by slightly improved pricing.

Service Revenues. Service revenues were $10.1 million in the second quarter of 2009 compared to $14.0 million in the second quarter of 2008. Our central European operations experienced a decrease in volumes in the second 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 second quarter 2008, and unfavorable exchange rate fluctuations.

Gross Profit on Product Revenues and Service Revenues. Gross profits were 15.2% of revenues during the second quarter of 2009 compared to 17.1% of revenues in the second quarter of 2008. The following table shows the elements impacting our gross profit when comparing the second quarter of 2008 to the second quarter of 2009 by revenue line.

   (in millions)    June 30, 2008        Volume         Cost/Mix     Exchange Rate    June 30, 2009
                       $       %        $       %        $     %        $       %        $       %

Product Revenues      $  5.3 12.7%    $ (2.5) -0.8%    $  1.1 0.4%    $ (0.6) -0.2%     $  3.3 12.1%
Service Revenues         4.2 30.0%      (1.6) -5.5%       0.1 0.3%      (0.3) -1.0%        2.4 23.8%
Total Gross Profit    $  9.5 17.1%    $ (4.1) -2.1%    $  1.2 0.5%    $ (0.9) -0.4%     $  5.7 15.2%

Product Revenues. Gross profit on product revenues was $3.3 million, or 12.1% of product revenues, in the second quarter of 2009 compared to $5.3 million, or 12.7% of product revenues, in the second quarter of 2008. Gross profit of our UK operations decreased as a result of volume declines and unfavorable exchange rate fluctuations offset by improved pricing. Gross profit in our central European operations decreased in the second quarter of 2009 compared to the second quarter of 2008 primarily due to lower volumes, deteriorating special projects pricing and unfavorable exchange rate fluctuations.

Service Revenues. Gross profit on service revenues was $2.4 million, or 23.8% of service revenues, in the second quarter of 2009 compared to $4.2 million, or 30.0% of service revenues, in the second quarter of 2008. Our central European operations gross profit on service revenues declined in the second quarter of 2009 compared to the second 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 $6.6 million in the second quarter of 2009 compared to $9.3 million in the second quarter of 2008. The decrease is primarily due to exchange rate fluctuations, a decrease in compensation expense, and a credit from the reduction of our post-retirement benefit obligation.

Severance Costs for UK Facility Closure. We recorded expense of $7.2 million in the second quarter of 2009 related to severance charges incurred in connection with the planned consolidation of our Blackburn, UK and Hannover, Germany operations.

Amortization of Intangible Assets. There was no amortization expense in the second quarter of 2009 compared to $1.7 million in the second 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 second quarter of 2009 was less than $0.1 million compared to $0.9 million in the second 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 second quarter of 2009.

Interest Expense. Interest expense in the second quarter of 2009 was $0.2 million compared to $0.6 million in the second 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 second quarter of 2009.

Gain (Loss) on Currency Swap, net. There was no gain on currency swap in the second quarter of 2009 compared to a gain of less than $0.1 million in the second 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.

Gain (Loss) on Currency Transaction, net. We recorded a gain of $0.5 million in the second quarter of 2009 compared to a loss of less than $0.1 million in the second 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 second quarter of 2009 compared to a benefit of $0.1 million in the second quarter of 2008. Taxable income from our central European operations was lower in the second quarter of 2009 than in the second quarter of 2008. No tax benefit has been provided for losses in the UK or U.S. We currently maintain a valuation allowance against our net UK deferred tax assets due to projected future pretax losses. Additionally, we continue to maintain a full valuation allowance on our net 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.

Six months ended June 30, 2009 compared to the six months ended June 30, 2008

Revenues. Revenues for the six months ended June 30, 2009 were $78.7 million compared to $114.4 million for the six months ended June 30, 2008. The following table illustrates the components of changes in our revenue when comparing the six months ended June 30, 2008 to the six months ended June 30, 2009 by revenue line.

                    June 30, 2008       Volume       Price/Mix      Exchange Rate    June 30, 2009

Product Revenues    $         84.8    $    (12.0)    $     (2.6)    $       (11.8)     $      58.4
Service Revenues              29.6          (6.0)          (0.2)             (3.1)            20.3
Total Revenue       $        114.4    $    (18.0)    $     (2.8)    $       (14.9)     $      78.7

Product Revenues. Product revenues were $58.4 million in the six months ended June 30, 2009 compared to $84.8 million in the six months ended June 30, 2008. The decrease is primarily due to volume declines and unfavorable exchange rate fluctuations from the devaluing of the Euro and Pound. Our central European operations were negatively impacted by unfavorable exchange rate fluctuations and lower revenue from our primary customer including lower pass-through cost revenues. Revenues of our UK operations in the six months ended June 30, 2009 decreased compared to the six months ended June 30, 2008 primarily due to volume declines, which included the impact of our loss of certain customer accounts due to uneconomical pricing and excessive credit risk, and unfavorable exchange rate fluctuations slightly offset by improved pricing.

Service Revenues. Service revenues were $20.3 million in the six months ended June 30, 2009 compared to $29.6 million in the six months ended June 30, 2008. Our central European operations experienced a decrease in volumes in the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to the loss of a significant customer, revenues for which were included in the six months ended June 30, 2008, and unfavorable exchange rate fluctuations.

Gross Profit on Product Revenues and Service Revenues. Gross profits were 14.4% of revenues during the six months ended June 30, 2009 compared to 18.0% of revenues in the six months ended June 30, 2008. The following table shows the elements impacting our gross profit when comparing the six months ended June 30, 2008 to the six months ended June 30, 2009 by revenue line.

                    June 30, 2008        Volume         Cost/Mix     Exchange Rate    June 30, 2009
                       $       %        $       %        $     %        $       %        $       %

Product Revenues      $ 11.5 13.6%    $ (3.9) -2.0%     $   - 0.0%    $ (1.2) -0.6%     $  6.4 11.0%
Service Revenues         9.1 30.7%      (3.7) -5.8%       0.2 0.3%      (0.7) -1.1%        4.9 24.1%
Total Gross Profit    $ 20.6 18.0%    $ (7.6) -3.0%    $  0.2 0.1%    $ (1.9) -0.7%     $ 11.3 14.4%

Product Revenues. Gross profit on product revenues was $6.4 million, or 11.0% of product revenues, in the six months ended June 30, 2009 compared to $11.5 million, or 13.6% of product revenues, in the six months ended June 30, 2008. Gross profit of our UK operations decreased as a result of volume declines and unfavorable exchange rate fluctuations, partially offset by cost savings efforts. Gross profit in our central European operations decreased in the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to deteriorating special projects pricing, lower volumes and unfavorable exchange rate fluctuations.

Service Revenues. Gross profit on service revenues was $4.9 million, or 24.1% of service revenues, in the six months ended June 30, 2009 compared to $9.1 million, or 30.7% of service revenues, in the six months ended June 30, 2008. Our central European operations gross profit on service revenues declined in the six months ended June 30, 2009 compared to the six months ended June 30, 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 $13.7 million in the six months ended June 30, 2009 compared to $18.8 million in the six months ended June 30, 2008. The decrease is primarily due to exchange rate fluctuations, lower professional fees, a decrease in compensation and a credit from the reduction of our post-retirement benefit obligation.

Severance Costs for UK Facility Closure. We recorded restructuring expense of $7.2 million in the six months ended June 30, 2009 related to severance charges incurred in connection with the planned consolidation of our Blackburn, UK and Hannover, Germany operations.

Amortization of Intangible Assets. There was no amortization expense in the six months ended June 30, 2009 compared to $3.2 million in the six months ended June 30, 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 six months ended June 30, 2009 was $0.3 million compared to $2.0 million in the six months ended June 30, 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 six months ended June 30, 2009.

Interest Expense. Interest expense in the six months ended June 30, 2009 was $0.4 million compared to $1.3 million in the six months ended June 30, 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 six months ended June 30, 2009.

Gain (Loss) on Currency Swap, net. We recorded a gain on our currency swap of $2.1 million in the six months ended June 30, 2009 compared to a loss of $2.6 million in the six months ended June 30, 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 gain of $0.5 million in the six months ended June 30, 2009 compared to a loss of $0.6 million in the six months ended June 30, 2008 on intercompany transactions with our international operations denominated in their local currency.

Income Taxes. We recorded an income tax benefit of $0.3 million in the six months ended June 30, 2009 compared to expense of $0.4 million in the six months ended June 30, 2008. Taxable income from our central European operations was lower in the six months ended June 30, 2009 than in the six months ended June 30, 2008. No tax benefit has been provided for losses in the UK or U.S. We currently maintain a valuation allowance against our net UK deferred tax assets due to projected future pretax losses. Additionally, we continue to maintain a full valuation allowance on our net 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 June 30, 2009, we had cash and cash equivalents totaling $79.0 million of which $51.4 million was cash held by EDCI and $27.6 million was cash held at EDC. At June 30, 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 CEO of EDCI. No amounts have been invested in such securities since the amendment.

At June 30, 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 June 30, 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 the pursuit of its strategic alternatives, which may include an acquisition or some recapitalization of EDCI's cash to its shareholders. 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 six months ended June 30, 2009 was $0.8 million compared to cash used in operating activities of $4.8 million in the six months ended June 30, 2008. The positive cash flows from operating activities in the 2009 period were primarily due to working capital changes of $0.7 million, changes in other assets of $1.0 million and changes in restricted cash of $0.6 million offset by $1.6 million in losses (adjusted for non-cash items). The working capital changes in the six months ended June 30, 2009 were primarily driven by decreases in accounts receivable, inventory and prepaid and other current assets of $12.9 million, $1.2 million and $1.8 million, respectively, offset by decreases in accounts payable of $8.3 million and accrued liabilities and income taxes payable of $6.9 million. Loss (adjusted for non-cash items) declined to $1.6 million in 2009 from income (adjusted for non-cash items) of $3.0 million for the six months ended June 30, 2008 primarily due to lower sales volume in the six months ended June 30, 2009.

Working capital changes in the six months ended June 30, 2009 included, without limitation:

? A decrease of $12.9 million in accounts receivable in the six months ended June 30, 2009 compared to a decrease of $7.6 million in the six months ended June 30, 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 six months ended June 30, 2009 compared to the six months ended June 30, 2008.

? A decrease of $8.3 million in accounts payable in the six months ended June 30, 2009 compared to a decrease of $9.3 million in the six months ended June 30, 2008. The six months ended June 30, 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 six months ended June 30, 2008.

? A decrease of $6.9 million in accrued liabilities and income taxes payable in the six months ended June 30, 2009 compared to a decrease of $8.6 million in the six months ended June 30, 2008. The decrease in the 2009 period reflects the settlement of approximately $4.3 million in liabilities related to our now discontinued U.S. operations and a decrease in VAT accruals in the UK.

? A decrease of $1.8 million in prepaid expenses and other current assets in the six months ended June 30, 2009 compared to an increase of $0.6 million in the six months ended June 30, 2008. The decrease in the six months ended June 30, 2009 was driven primarily by the collection of a tax refund of approximately $0.8 million in the UK, which was recorded as a receivable at the end of 2008 and a decrease of approximately $2.3 million for billings related to pass through costs in Germany offset by approximately $1.5 million in prepayments for income taxes in Germany. The six months ended June 30, 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 six months ended June 30, 2009 compared to a decrease of $2.0 million in the six months ended June 30, 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 six months ended June 30, 2009 included the release of $4.8 million of funds that were escrowed and used to pay costs directly related to the discontinued EDC U.S. operations and collection of approximately $2.1 million in proceeds related to the sale of certain EDC U.S. operations assets to Sony DADC, Inc. Also during the six months ended June 30, 2009, we had capital expenditures of $0.5 million. Additionally, on January 23, 2009, we paid $2.1 million to settle our cross currency swap.

Financing Activities. During the six months ended June 30, 2009, we made . . .