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 described under the heading "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, and Part I, Item 1A 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 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.

On September 9, 2009, the Company announced that its Board of Directors unanimously approved recommending a dissolution process to EDCIH's stockholders. In this regard, on October 14, 2009, the Board of Directors unanimously approved a Plan of Complete Liquidation and Dissolution (the "Plan of Dissolution"), subject to stockholder approval. The ultimate goal is to effect a distribution of the maximum amount of cash of EDCIH to its stockholders while retaining sufficient reserves to settle both known and unknown liabilities in accordance with state law requirements. The Plan of Dissolution provides for an orderly wind down of EDCIH's business and operations during a three-year statutory period under Delaware law. If the dissolution is approved by the stockholders, EDCIH expects to make an aggregate initial distribution of cash to its stockholders of up to $30.0 million. EDCI's indirect ownership of 97.99% of the membership units of EDC will be an asset of EDCI that is subject to the Plan of Dissolution. The Plan of Dissolution does not directly involve the operating business, assets, liabilities or corporate existence of EDC and its subsidiaries, however, subsequent to the stockholder ratification of the Plan of Dissolution, EDCI's consolidated financials will be required to reflect the value of EDC's assets and liabilities under liquidation accounting, During EDCI's three-year dissolution period, EDCI will continue to seek value for its investment in EDC by exploring strategic alternatives and seeking, as appropriate, cash distributions, subject to repayment of EDC's bank debt and other legal requirements. If EDCI continues to own any interest in EDC at the end of the three year dissolution period, EDCI anticipates transferring such interests to a liquidating trust, for the benefit of our stockholders.

If the Plan of Dissolution is approved by EDCIH's stockholders, EDCIH intends to file a certificate of dissolution with the Delaware Secretary of State as soon as reasonably practicable after receipt of the required revenue clearance certificate from the Delaware Department of Finance. The dissolution will be effective upon the effective date of the certificate of dissolution, or upon any later date specified in the certificate of dissolution. Thereafter, EDCIH will cease all business activities except for those relating to winding up EDCIH's business and affairs, including, but not limited to, gradually settling and closing its business, prosecuting and defending suits by or against EDCIH, seeking to convert EDCIH's assets into cash or cash equivalents, discharging or making provision for discharging EDCIH's known and unknown liabilities, making cash distributions to stockholders, withdrawing from all jurisdictions in which EDCIH is qualified to do business, and, if EDCIH is unable to convert any assets to cash or cash equivalents by the end of the statutory three-year dissolution period, distributing EDCIH's remaining assets among its stockholders in-kind according to their interests or placing them in a liquidating trust for the benefit of stockholders, and, subject to statutory limitations, taking all other actions necessary to wind up EDCIH's business and affairs.

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 wider 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, but is accelerating. 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.

If our stockholders do not approve the Plan of Dissolution, our Board of Directors will explore what, if any, alternatives are available for the future of EDCIH. Possible alternatives include continuing our efforts to identify an attractive acquisition in alternative industries using EDCIH's cash while continuing to oversee the EDC business with a focus on cash flow and continuing to explore strategic alternatives for EDC as they become available, or seeking voluntary dissolution at a later time and with diminished assets. If our stockholders do not approve the Plan of Dissolution, we expect that our cash resources will continue to diminish, potentially at a higher rate as EDCIH would need to augment its current staff to execute and integrate an acquisition. Alternatively, EDCIH could continue to pursue certain courses of action to reduce expenses and minimize cash burn.

Results of Continuing Operations

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

Revenues. Revenues for the third quarter of 2009 were $42.8 million compared to
$58.2 million for the third quarter of 2008. The following table illustrates the
components of changes in our revenue when comparing the third quarter of 2008 to
the third quarter of 2009 by revenue line.

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

Product Revenues        $           43.6      $     (7.9)     $     (2.7)     $        (2.1)          $       30.9
Service Revenues                    14.6            (2.0)           (0.1)              (0.6)                  11.9
Total Revenue           $           58.2      $     (9.9)     $     (2.8)     $        (2.7)          $       42.8

Product Revenues. Product revenues were $30.9 million in the third quarter of 2009 compared to $43.6 million in the third quarter of 2008. The decrease is due to volume declines, primarily related to our UK operations, deteriorating pricing 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. Overall volume declines for our central European operations were 2% when comparing the third quarter of 2009 to the same period of 2008. Revenues of our UK operations in the third quarter of 2009 decreased compared to the third quarter of 2008 primarily due to lower volumes, which included the impact of the loss of certain customer accounts due the announced closure of the Blackburn facility and our decision to forgo certain customer accounts with uneconomical pricing and excessive credit risk, and unfavorable exchange rate fluctuations, as well as slightly deteriorating pricing.

Service Revenues. Service revenues were $11.9 million in the third quarter of 2009 compared to $14.6 million in the third quarter of 2008. Our central European operations experienced a decrease in volumes in the third 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 third quarter 2008, and unfavorable exchange rate fluctuations.

Gross Profit on Product Revenues and Service Revenues. Gross profits were 16.3% of revenues during the third quarter of 2009 compared to 18.5% of revenues in the third quarter of 2008. The following table shows the elements impacting our gross profit when comparing the third quarter of 2008 to the third quarter of 2009 by revenue line.

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

Product Revenues         $  5.8    13.2%    $ (2.4) -2.1%    $   -  0.0%       $  -  0.0%        $  3.4    11.0%
Service Revenues            5.0    34.5%      (1.2) -3.9%        -  0.0%      (0.2) -0.6%           3.6    30.1%
Total Gross Profit       $ 10.8    18.5%    $ (3.6) -2.0%    $   -  0.0%    $ (0.2) -0.1%        $  7.0    16.3%

Product Revenues. Gross profit on product revenues was $3.4 million, or 11.0% of product revenues, in the third quarter of 2009 compared to $5.8 million, or 13.2% of product revenues, in the third quarter of 2008. Gross profit of our UK operations decreased as a result of volume declines offset by improved pricing. Gross profit in our central European operations decreased in the third quarter of 2009 compared to the third quarter of 2008 primarily due to lower volumes and deteriorating special projects pricing.

Service Revenues. Gross profit on service revenues was $3.6 million, or 30.1% of service revenues, in the third quarter of 2009 compared to $5.0 million, or 34.5% of service revenues, in the third quarter of 2008. Our central European operations gross profit on service revenues declined in the third quarter of 2009 compared to the third 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 $7.5 million in the third quarter of 2009 compared to $8.2 million in the third quarter of 2008. The decrease is primarily due to exchange rate fluctuations, a decrease in compensation expense and lower professional fees.

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

Other Income (Expenses)

Interest Income. Interest income in the third quarter of 2009 was less than $0.1 million compared to $0.8 million in the third 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 investment policy during the third quarter of 2009.

Interest Expense. Interest expense in the third quarter of 2009 was $0.2 million compared to $0.5 million in the third 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 third quarter of 2009.

Gain (Loss) on Currency Swap, net. There was no gain on currency swap in the third quarter of 2009 compared to a gain of $3.5 million in the third 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 less than $0.1 million in the third quarter of 2009 compared to a loss of $1.4 million in the third quarter of 2008 on intercompany transactions with our international operations denominated in their local currency.

Income Taxes. We recorded income tax expense of $0.7 million and $0.5 million in the third quarter ended 2009 and 2008, respectively. 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.

Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008

Revenues. Revenues for the nine months ended September 30, 2009 were $121.5 million compared to $172.6 million for the nine months ended September 30, 2008. The following table illustrates the components of changes in our revenue when comparing the nine months ended September 30, 2008 to the nine months ended September 30, 2009 by revenue line.

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

Product Revenues        $             128.5    $    (19.6)    $     (5.9)    $        (13.8)       $           89.2
Service Revenues                       44.1          (8.0)          (0.1)              (3.7)                   32.3
Total Revenue           $             172.6    $    (27.6)    $     (6.0)    $        (17.5)       $          121.5

Product Revenues. Product revenues were $89.2 million in the nine months ended September 30, 2009 compared to $128.5 million in the nine months ended September 30, 2008. The decrease is due to volume declines, primarily at our UK operations, 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. Overall volume declines for our central European operations were 5% when comparing the first nine months of 2009 to the same period in 2008. Revenues of our UK operations in the nine months ended September 30, 2009 decreased compared to the nine months ended September 30, 2009 primarily due to lower volumes, which included the impact of the loss of certain customer accounts due the announced closure of the Blackburn facility, our decision to forgo certain customer accounts with uneconomical pricing and excessive credit risk and unfavorable exchange rate fluctuations, slightly offset by improved pricing.

Service Revenues. Service revenues were $32.3 million in the nine months ended September 30, 2009 compared to $44.1 million in the nine months ended September 30, 2008. Our central European operations experienced a decrease in volumes in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 primarily due to the loss of a significant customer, revenues for which were included in the nine months ended September 30, 2008, and unfavorable exchange rate fluctuations.

Gross Profit on Product Revenues and Service Revenues. Gross profits were 15.1% of revenues during the nine months ended September 30, 2009 compared to 18.2% of revenues in the nine months ended September 30, 2008. The following table shows the elements impacting our gross profit when comparing the nine months ended September 30, 2008 to the nine months ended September 30, 2009 by revenue line.

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

Product Revenues           $ 17.2    13.4%     $  (6.3) -2.0%    $  0.1 0.0%    $ (1.2) -0.4%        $  9.8    11.0%
Service Revenues             14.1    32.0%        (4.9) -5.0%       0.2 0.2%      (0.9) -0.9%           8.5    26.2%
Total Gross Profit         $ 31.3    18.2%     $ (11.2) -2.7%    $  0.3 0.1%    $ (2.1) -0.5%        $ 18.3    15.1%

Product Revenues. Gross profit on product revenues was $9.8 million, or 11.0% of product revenues, in the nine months ended September 30, 2009 compared to $17.2 million, or 13.4% of product revenues, in the nine months ended September 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 nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 primarily due to deteriorating special projects pricing, lower volumes and unfavorable exchange rate fluctuations.

Service Revenues. Gross profit on service revenues was $8.5 million, or 26.2% of service revenues, in the nine months ended September 30, 2009 compared to $14.1 million, or 32.0% of service revenues, in the nine months ended September 30, 2008. Our central European operations gross profit on service revenues declined in the nine months ended September 30, 2009 compared to the nine months ended September 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 $21.2 million in the nine months ended September 30, 2009 compared to $27.1 million in the nine months ended September 30, 2008. The decrease is primarily due to exchange rate fluctuations, lower professional fees, 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 restructuring expense of $7.2 million in the nine months ended September 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 nine months ended September 30, 2009 compared to $4.8 million in the nine months ended September 30, 2008. During the fourth quarter of 2008, the Company conducted an impairment analysis of its intangible assets, which resulted in the full impairment of the Company's central European intangible assets.

Other Income (Expenses)

Interest Income. Interest income in the nine months ended September 30, 2009 was $0.3 million compared to $2.9 million in the nine months ended September 30, 2008. Our interest income is primarily derived from income earned on excess cash held in interest-bearing money market accounts, treasury bills and investments. The decrease reflects significantly lower interest rates based on our investment policy during the nine months ended September 30, 2009.

Interest Expense. Interest expense in the nine months ended September 30, 2009 was $0.6 million compared to $1.8 million in the nine months ended September 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 nine months ended September 30, 2009.

Gain (Loss) on Currency Swap, net. We recorded a gain on our currency swap of $2.1 million in the nine months ended September 30, 2009 compared to a gain of $0.9 million in the nine months ended September 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 nine months ended September 30, 2009 compared to a loss of $2.0 million in the nine months ended September 30, 2008 on intercompany transactions with our international operations denominated in their local currency.

Income Taxes. We recorded income tax expense of $0.4 million and $0.9 million in the nine months ended September 30, 2009 and 2008, respectively. Taxable income from operations was lower in the nine months ended September 30, 2009 than in the nine months ended September 30, 2008 resulting in lower expense. 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 September 30, 2009, we had cash and cash equivalents totaling $78.4 million of which $50.9 million was cash held by EDCI and $27.5 million was cash held at EDC. At September 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 September 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 September 30, 2009, EDCI had investments of $0.9 million in one auction-rate security. Due to the uncertainty surrounding the liquidation of the investment, this investment has been classified as long-term on our consolidated balance sheet at September 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. If the plan is approved, EDCI plans to use its cash and cash equivalents in connection with the 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 used in operating activities in the nine months ended September 30, 2009 was $0.3 million compared to cash provided by operating activities of $1.8 million in the nine months ended September 30, 2008. The negative cash flows from operating activities in the 2009 period were primarily due to $1.3 million in losses (adjusted for non-cash items) and working capital . . .