UNITED STATES SECURITIESTable ANDof EXCHANGE COMMISSIONContents

~~Washington,~~UNITED STATES ~~D.C.~~SECURITIES ~~20549~~AND EXCHANGE COMMISSION

~~FORM~~Washington, D.C. 20549 ~~10-Q~~

~~(Mark~~FORM ~~One)~~10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-26524

(Mark One)

~~LOUD TECHNOLOGIES~~þ ~~INC.~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~(Exact~~For ~~name~~the ofquarterly ~~registrant as~~period ~~specified~~ended inSeptember 30, ~~its charter)~~2008

Washington		91-1432133
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
16220 Wood-Red Road, N.E., Woodinville, Washington		98072
(Address of principal executive offices)		(Zip Code)
(425) 892-6500
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)

~~Indicate~~o byTRANSITION ~~check~~REPORT ~~mark~~PURSUANT ~~whether~~TO ~~the~~SECTION ~~registrant (1) has filed all reports required to be filed by Section~~ 13 orOR 15(d) ofOF ~~the~~THE ~~Securities~~SECURITIES ~~Exchange~~EXCHANGE ~~Act~~ACT ~~of 1934~~OF during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No ý1934

~~Indicate~~For ~~by check mark whether~~ the ~~registrant~~transition isperiod ~~an accelerated filer~~from to ~~(as defined in Rule 12b-2 of the Exchange Act).~~

~~Yes o No ý~~Commission File Number: 0-26524

~~Indicate~~LOUD ~~the~~TECHNOLOGIES ~~number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date~~INC.

Common Stock, no par value		22,568,316
Class		Number of Shares Outstanding (as of April 29, 2005)

(Exact name of registrant as specified in its charter)

LOUD TECHNOLOGIES INC.


Washington (State or other jurisdiction of incorporation or organization)		91-1432133 (I.R.S. Employer Identification No.)

16220 Wood-Red Road, N.E., Woodinville, Washington (Address of principal executive offices)		98072 (Zip Code)

~~FORM 10~~(425) 487-Q4333 (Registrant’s telephone number, including area code)

~~For the~~N/A ~~quarter~~(Former ~~ended~~name ~~March~~or 31former address, ~~2005~~if changed since last report)

~~INDEX~~Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and March 31, 2004
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and March 31, 2004
	Condensed Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2005
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

2Large accelerated filer o Accelerated filer o Non-accelerated filer þ(Do not check if a smaller reporting company) Smaller reporting company o

~~LOUD~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ~~TECHNOLOGIES~~Exchange ~~INC~~Act.): Yes o No þ

~~CONDENSED CONSOLIDATED~~The ~~BALANCE~~number ~~SHEETS~~of shares outstanding of the registrant’s common stock as of March 23, 2009 was 4,858,941.

~~(unaudited)~~LOUD TECHNOLOGIES INC.

~~(In~~FORM 10-Q ~~thousands,~~For ~~except~~the ~~share~~quarter ~~amounts)~~ended September 30, 2008

	March 31, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	772		$	450
Accounts receivable, net	29,420			16,800
Income taxes receivable	—			30
Inventories, net	42,696			27,959
Prepaid expenses and other current assets	2,443			2,861
Total current assets	75,331			48,100
Property, plant and equipment, net	10,284			7,381
Goodwill	5,075			—
Other intangible assets, net	12,882			5,128
Other assets, net	62			186
Total assets	$	103,634		$	60,795
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	49,152		$	11,826
Accounts payable	14,768			17,679
Accrued liabilities	10,751			6,972
Income taxes payable	1,521			1,466
Current portion of long-term debt	477			300
Current portion of payable to former Italian subsidiary	3,000			7,587
Total current liabilities	79,669			45,830
Long-term debt, excluding current portion	11,417			11,612
Other liabilities	4,700			33
Total liabilities	95,786			57,475
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value. Authorized 5,000,000 shares, no shares issued and outstanding	—			—
Common stock, no par value. Authorized 40,000,000 shares, issued and outstanding 22,568,316 and 22,138,191 shares at March 31, 2005 and December 31, 2004	39,983			38,778
Accumulated deficit	(32,135		)	(35,458		)
Total shareholders’ equity	7,848			3,320
Total liabilities and shareholders’ equity	$	103,634		$	60,795

INDEX

See accompanying notes to condensed consolidated financial statements.


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007	2

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2008 and September 30, 2007	3

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and September 30, 2007	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4T.	Controls and Procedures	27

PART II.	OTHER INFORMATION	30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 6.	Exhibits	32

SIGNATURES		33
EX-10.1
EX-31.1
EX-31.2
EX-32.1

3Table of Contents

LOUD TECHNOLOGIES INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except for share amounts)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	September 30,			December 31,
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	2,231		$	3,589
Accounts receivable, net of allowances of $3,824 and $3,537, respectively		23,849			25,204
Inventories		40,355			56,804
Prepaid expenses and other current assets		4,219			1,915

Total current assets		70,654			87,512
Property, plant and equipment, net		4,598			5,744
Goodwill		4,152			19,726
Other intangible assets, net		23,605			27,975
Deferred financing costs, net		2,514			2,621

Total assets	$	105,523		$	143,578


Liabilities and Shareholders’ (Deficit)
Current liabilities:
Short-term borrowings	$	1,834		$	1,318
Accounts payable		16,181			25,830
Accrued liabilities		9,740			11,020
Current deferred tax liabilities		209			299
Taxes payable		290			318

Current portion of long-term debt		3,000			8,000
Long-term debt, classified as current		90,443			—

Total current liabilities		121,697			46,785

Deferred tax liability		5,617			6,152
Long-term debt, excluding current portion		—			92,358
Convertible debt, net of discount		2,110			—

Total liabilities		129,424			145,295


Shareholders’ (deficit):
Preferred stock, no par value. Authorized 5,000,000 shares, no shares issued and outstanding		—			—
Common stock, no par value. Authorized 12,000,000 shares, issued and outstanding 4,858,941 and 4,618,942 shares at September 30, 2008 and December 31, 2007, respectively		42,000			41,810
Additional paid in capital		6,693			—
Accumulated deficit		(70,632	)		(43,662	)
Accumulated other comprehensive income (loss)		(1,962	)		135

Total shareholders’ (deficit)		(23,901	)		(1,717	)

Total liabilities and shareholders’ (deficit)	$	105,523		$	143,578

~~(Unaudited)~~See accompanying notes to condensed consolidated financial statements.

~~(In~~2 ~~thousands, except per share data)~~

	Three Months Ended March 31,
	2005			2004
Net sales	$	39,945		$	25,681
Cost of sales	26,610			18,769
Gross profit	13,335			6,912
Operating expenses:
Selling, general and administrative	9,545			8,292
Research and development	1,955			1,972
Total operating expenses	11,500			10,264
Operating income (loss)	1,835			(3,352		)
Other income (expense):
Interest income	29			—
Interest expense	(862		)	(761		)
Management fee	(328		)	(100		)
Other	(152		)	264
Total other (expense)	(1,313		)	(597		)
Income (loss) before income taxes and discontinued operations	522			(3,949		)
Provision for income taxes	26			5
Income (loss) from continuing operations	496			(3,954		)
Recognized gain on discontinued operations, net of income tax expense of $58	2,827			—
Net income (loss)	$	3,323		$	(3,954	)
Basic and diluted net income (loss) per share:
Basic and diluted net income (loss) from continuing operations	$	0.02		$	(0.19	)
Basic and diluted net income from discontinued operations	0.12			—
Basic and diluted net income (loss) per share	$	0.14		$	(0.19	)
Shares used in computing basic and diluted net income (loss) per share:
Basic	23,495			20,891
Diluted	24,264			20,891

~~See~~LOUD ~~accompanying~~TECHNOLOGIES ~~notes~~INC. AND toSUBSIDIARIES Condensed ~~condensed~~Consolidated Statements of Operations and Comprehensive Loss ~~consolidated~~(Unaudited) (In ~~financial~~thousands, ~~statements.~~except per share data)


	Three months ended						Nine months ended
	September 30,						September 30,
	2008			2007			2008			2007
Net sales	$	46,857		$	53,094		$	155,986		$	154,630
Cost of sales		34,961			37,954			111,163			111,351

Gross profit		11,896			15,140			44,823			43,279
Operating expenses:
Selling, general and administrative		11,759			11,442			35,282			33,975
Research and development		2,777			2,826			8,392			8,457
Restructuring costs		86			158			382			1,712
Impairment of Goodwill		15,510			—			15,510			—
Impairment of Intangibles		1,358			—			1,358			—

Total operating expenses		31,490			14,426			60,924			44,144

Operating income (loss)		(19,594	)		714			(16,101	)		(865	)
Other income (expense):
Interest income		63			—			91			22
Interest expense		(3,410	)		(3,052	)		(9,649	)		(7,660	)
Management fee		(172	)		(192	)		(694	)		(677	)
Foreign Exchange gain (loss)		(238	)		165			(345	)		104
Other		16			8			30			(1,986	)

Total other expenses		(3,741	)		(3,071	)		(10,567	)		(10,197	)

Loss before income taxes		(23,335	)		(2,357	)		(26,668	)		(11,062	)
Income tax expense (benefit)		73			(446	)		302			(451	)

Net loss	$	(23,408	)	$	(1,911	)	$	(26,970	)	$	(10,611	)

Per share data
Basic and diluted net loss per share	$	(4.82	)	$	(0.39	)	$	(5.55	)	$	(2.19	)

Shares used in computing basic and diluted net loss per share		4,859			4,859			4,859			4,847


Comprehensive loss:
Net loss	$	(23,408	)	$	(1,911	)	$	(26,970	)	$	(10,611	)
Foreign currency translation gain (loss)		(2,060	)		919			(2,097	)		1,006

Comprehensive loss	$	(25,468	)	$	(992	)	$	(29,067	)	$	(9,605	)

~~LOUD TECHNOLOGIES~~See ~~INC~~accompanying notes to condensed consolidated financial statements.

~~CONDENSED~~3 ~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

(Unaudited)Table of Contents

LOUD TECHNOLOGIES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (InUnaudited) (In thousands)

	Three Months Ended March 31,
	Nine months ended
	2005			2004
	September 30,
Operating activities
	2008				2007
Net income (loss)	$	3,323		$	(3,954	)
Operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net loss	$	(26,970	)		$	(10,611	)
Depreciation and amortization	883			768
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on asset dispositions	—			(111		)
Depreciation and amortization		3,974				3,632
Deferred stock compensation	15			14
Amortization and write-offs of deferred financing costs		444				2,946
Recognized gain on discontinued operations	(2,887		)	—
Changes in deferred income taxes		(202	)			(969	)
Non-cash interest expense	57			245
Write down of intangibles related to sale of distribution business		1,358				—
Changes in operating assets and liabilities:
Write down of inventories related to sale of distribution business		1,749				—
Accounts receivable	(667		)	1,689
Write down for impairment of goodwill		15,510				—
Inventories	1,516			2,040
Gain on asset dispositions		—				(526	)
Prepaid expenses and other current assets	735			(1,810		)
Stock-based compensation		189				229
Other assets	141			121
Non-cash interest expense		1,635				214
Accounts payable and accrued expenses	(8,039		)	2,827
Changes in operating assets and liabilities:
Income taxes payable	55			61
Account receivable		1,000				3,319
Other long term-liabilities	2,967			(10		)
Inventories		14,247				10,223
Net cash provided by (used in) operating activities	(1,901		)	1,880
Prepaid expenses and other current assets		(2,364	)			(130	)
Investing activities
Accounts payable, accrued liabilities and payable to former Italian subsidiary		(10,547	)			(7,660	)
Purchases of property, plant and equipment	(463		)	(839		)
Taxes payable		93				(172	)
Proceeds from sales of property, plant and equipment	—			752
Other liabilities		—				19
Acquisition of St. Louis Music, Inc.	(34,565		)	—
Net cash provided by operating activities		116				514
Net cash used in investing activities	(35,028		)	(87		)
Investment activities:
Financing activities
Proceeds from sales of property, plant and equipment		—				1,239
Payments on long-term debt	(75		)	(764		)
Purchases of property, plant and equipment		(1,344	)			(1,757	)
Net proceeds (payments) on bank line of credit and short-term borrowings	37,326			(1,555		)
Acquisition of St. Louis Music, Inc., including transaction fees paid		—				(3,181	)
Net cash provided by (used in) financing activities	37,251			(2,319		)
Acquisition of Martin Audio, Ltd., net of cash acquired of $3,696		—				(31,977	)
Increase (decrease) in cash and cash equivalents	322			(526		)
Net cash used in investing activities		(1,344	)			(35,676	)
Cash and cash equivalents at beginning of period	450			757
Financing activities:
Cash and cash equivalents at end of period	$	772		$	231
Payments on previous credit facility		—				(41,605	)
Payments on long-term debt		(7,250	)			(1,214	)
Issuance of long-term debt		—				102,000
Proceeds from issuance of convertible debt		7,500				—
Net proceeds (payments) on line of credit and short-term borrowings		516				(14,210	)
Net payment on debt and credit facility acquired in acquisition of Martin Audio, Ltd.		—				(3,030	)
Financing costs associated with debt issuance		(336	)			(2,946	)
Net proceeds from stock sales and exercise of stock options and warrants		1				224
Cash provided by financing activities		431				39,219
Effect of exchange rate changes on cash		(561	)			(198	)
Increase (decrease) in cash and cash equivalents		(1,358	)			3,859
Cash at beginning of period		3,589				311
Cash at end of period	$	2,231			$	4,170
Supplemental disclosure of cash flow information
Cash paid for interest	$	7,517			$	6,008
Cash paid for income taxes	$	533			$	817
Accrued acquisition-related expenses	$	—			$	551
Cash paid for acquisition-related expenses	$	—			$	1,518

See accompanying notes to condensed consolidated financial statements.

LOUD TECHNOLOGIESTable INC.of Contents

~~CONDENSED~~LOUD TECHNOLOGIES INC. ~~CONSOLIDATED~~NOTES ~~STATEMENT~~TO OFCONDENSED ~~SHAREHOLDERS’~~CONSOLIDATED ~~EQUITY~~FINANCIAL STATEMENTS September 30, 2008 (Unaudited)

~~Three months~~1. ~~ended~~Description ~~March~~of ~~31, 2005~~Business

LOUD Technologies Inc. (~~unaudited~~“LOUD” or the “Company”) was founded in 1988. The Company was incorporated in Washington under the name Mackie Designs Inc., and subsequently changed its name to LOUD Technologies Inc. LOUD is one of the world’s largest dedicated professional audio and music products companies. As the corporate parent for world-recognized brands Alvarez®, Ampeg®, Crate®, EAW®, Mackie®, Martin Audio®, and TAPCO®, LOUD engineers, markets and distributes a wide range of professional audio and musical instrument products worldwide.

~~(In~~Our product lines include sound reinforcement speakers, analog mixers, guitar and bass amplifiers ~~thousands)~~and professional loudspeaker systems. These products can be found in professional and project recording studios, video and broadcast suites, post-production facilities, sound reinforcement applications including churches and nightclubs, retail locations, and on major musical concert tours. The Company distributes its products primarily through retail dealers, mail order outlets and installed sound contractors. The Company has its primary operations in the United States with operations in the United Kingdom, Canada and China.

	Common Stock			Accumulated
	Shares	Amount		Deficit			Total
Balance at December 31, 2004	22,138	$	38,778	$	(35,458	)	$	3,320
Stock options exercised	33	—		—			—
Shares issued - acquisition of St. Louis Music, Inc.	397	1,190		—			1,190
Amortization of deferred stock compensation	—	15		—			15
Net income	—	—		3,323			3,323
Balance at March 31, 2005	22,568	$	39,983	$	(32,135	)	$	7,848

On April 11, 2007, the company acquired all of the outstanding capital stock of Martin Audio, Ltd. (“Martin Audio”), a UK-based manufacturer of loudspeakers and related equipment. The purchase price was $33.6 million, plus fees of $2.1 million, for a total consideration amount of $35.7 million. Management believes that the acquisition of Martin Audio added another well-known brand to the Company’s portfolio of brands and provided the Company with additional geographic and channel diversification.

~~See~~2. ~~accompanying~~Summary ~~notes~~of toSignificant ~~condensed consolidated~~Accounting ~~financial statements.~~Policies

6Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by LOUD ~~TECHNOLOGIES~~in ~~INC~~accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements and includes the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. In management’s opinion, all adjustments necessary for the fair presentation of the results of the interim periods are reflected herein. Operating results for the nine-month period ended September 30, 2008 are not necessarily indicative of future financial results.

~~NOTES~~Use ~~TO CONDENSED~~of ~~CONSOLIDATED FINANCIAL STATEMENTS~~Estimates

~~March~~The preparation of financial statements in conformity with U.S. GAAP requires the Company to make 31estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the allocation of purchase costs to the estimated fair value of assets acquired and liabilities assumed, ~~2005~~the carrying amount of property and equipment and intangibles; valuation allowances for receivables, inventories, deferred income tax assets and liabilities, goodwill impairment and debt classification. Actual results may differ from those estimates.

~~(Unaudited)~~Liquidity

1The Company is highly leveraged and maintains a senior credit facility that is critical to its liquidity and ongoing operations. ~~Description~~ ofThe ~~Business~~Financing Agreement (as defined in Note 8 (Financing)) relating to this credit facility requires us to maintain financial ratios such as a fixed charge coverage ratio and a consolidated leverage ratio. We are also required to meet certain EBITDA

~~We develop, manufacture and sell high-quality, affordable digital and~~5 analog audio mixers, speakers, guitar and bass amplifiers, branded musical instruments and related accessories, and other professional audio equipment on a worldwide basis. Our products are used by professional musicians, sound installation contractors and broadcast professionals both in sound recordings, live presentations systems and installed sound contractors. We distribute our products primarily through retail dealers, mail order outlets and installed sound contractors. We have our primary operations in the United States with smaller operations in the United Kingdom, Canada, China and Japan.

OnTable March 4, 2005, we acquired 100% of the shares of St. Louis Music, Inc., a Missouri based manufacturer, distributor and importer of branded musical instruments and professional audio products. This transaction is explained in more detail in Note 10 to these financial statements.Contents

2targets and adhere to certain capital expenditure limits. ~~Summary~~ The Financing Agreement also restricts our ability to obtain additional financing, pay dividends, or enter into mergers and acquisitions. From time to time, we have been in breach of ~~Significant~~certain ~~Accounting~~of the financial covenants in the Financing ~~Policies~~Agreement and have received forbearances from the lenders, entered into waiver agreements with respect to the defaults and amended the Financing Agreement. For example, we were in default on certain of the financial covenants as of the end of the quarter ended September 30, 2008. In connection with Amendment No. 4 to the Financing Agreement entered into on November 5, 2008, we received a waiver from the lenders for those defaults and amended various covenants. The specific defaults and Amendment No. 4 are more fully described in Note 8 (Financing) and Note 11 (Subsequent Events).

~~Basis~~There can be no assurances that we will be in compliance with the terms of ~~Presentation~~the Financing Agreement in future periods. One of our major suppliers of products suspended manufacturing products for us in the fourth quarter of 2008. The adverse impacts of the global economic downturn on our operating performance coupled with the disruption in supplies of products previously manufactured by this supplier is likely to cause us to be out of compliance with certain covenants under the Financing Agreement by the end of the first quarter of 2009 unless the lenders agree to waive such noncompliance or to amend the covenants. While these developments raise substantial doubt about the Company’s ability to continue as a going concern, the Company initiated an ongoing comprehensive supply recovery plan in December, 2008 and has already established two new contract manufacturing relationships, scheduled a $3.1 million investment in tooling, expanded capacity at a company-owned facility, and recovered production on 36 models which represent 35% of the 102 models to be recovered.

~~The~~If ~~accompanying~~we ~~unaudited~~do ~~condensed~~breach ~~consolidated~~any ~~financial~~covenants ~~statements have~~under ~~been~~our ~~prepared~~senior bysecured ~~LOUD~~credit ~~Technologies~~facility, ~~Inc.~~we ~~(“LOUD”~~intend orto seek waivers from the ~~“Company”)~~lenders inunder ~~accordance~~the Financing Agreement or to negotiate an amendment to the Financing ~~with~~Agreement Ucovenants.S. ~~generally~~However, ~~accepted~~there ~~accounting~~is ~~principles~~no ~~for~~assurance ~~interim~~that ~~financial statements~~the ~~and~~lenders ~~includes~~will grant waivers, agree to amend the ~~accounts~~covenants ofunder the ~~Company~~Financing ~~and~~Agreement, ~~its~~allow ~~subsidiaries.~~us ~~They~~to continue borrowing under this credit dofacility ~~not~~or ~~include~~otherwise ~~all~~agree ofto ~~the~~restructure ~~information~~our ~~and~~debt. ~~disclosures~~Moreover, ~~required~~it byis ~~generally~~likely that external sources ~~accepted~~of ~~accounting~~financing ~~principles~~necessary ~~for~~to ~~complete~~restructure ~~financial~~our ~~statements~~debt ~~and~~or ~~should~~fund our operations would not be available and ~~read~~our incontrolling ~~conjunction~~shareholder ~~with~~has ~~the~~not ~~financial~~provided ~~statements~~any ~~included~~assurances that it will provide additional financial support in the future. If we breach the covenants under our ~~Annual~~Financing ~~Report~~Agreement or onotherwise ~~Form~~default ~~10-K~~on ~~for~~our debt, the ~~year~~lenders ~~ended~~have ~~December~~a ~~31,~~variety ~~2004. In~~of ~~our~~remedies ~~opinion~~against us, including accelerating all ~~adjustments,~~amounts ~~consisting~~outstanding under the credit facility so that such amounts become due ofimmediately ~~normal~~and ~~recurring~~foreclosing ~~adjustments~~on ~~necessary~~their ~~for~~security interests, which would allow the ~~fair~~lenders ~~presentation~~(or a third party purchaser in a foreclosure sale) to take possession of all of our assets; any of such steps could impede our ability to continue as a going concern. If the supply disruption leads to an ~~results~~event of default under the ~~interim~~Financing ~~periods~~Agreement ~~are~~that ~~reflected~~is ~~herein.~~not ~~Operating~~cured ~~results~~or ~~for~~waived, and the lenders ~~three-month~~accelerate ~~period~~the ~~ended~~indebtedness ~~March~~outstanding ~~31,~~under ~~2005~~the Financing Agreement, ~~are~~it is likely that the Company would not ~~necessarily~~have ~~indicative~~sufficient cash flow from operations or access to other sources of financing ~~future~~necessary to meet its cash requirements. The accompanying unaudited condensed consolidated financial ~~results~~statements have been prepared assuming the Company will continue as a going concern and do not reflect all adjustments that might result from the outcome of the uncertainties discussed above.

Revenue Recognition

Revenues from sales of products, net of sales discounts, returns and allowances, are ~~generally~~ recognized upon shipment under an agreement with a customer when risk of loss has passed to the customer, all ~~significant~~ significant contractual obligations have been satisfied, the fee is fixed or determinable ~~and~~ and collection of the resulting receivable is considered probable. Products are generally shipped “FOB shipping point” with no right of return. We do have some dealers who finance their purchases through finance companies. We have manufacturer’s repurchase agreements with the finance companies and defer the revenue and related cost of goods sold of these sales at the time of the sale. We We then recognize the revenue and related cost of goods sold ~~from~~of these sales when the right of return no longer exists. Sales with contingencies, such as rights of return, rotation rights, conditional acceptance provisions and price protection, are ~~rare and insignificant and are~~ deferred until the ~~contigencies~~ contingencies have been satisfied or the ~~contigent~~contingent period has lapsed. ~~We generally warrant~~ our products against defects in materials and workmanship for periods of between one and six years. The estimated cost of warranty obligations, sales returns and other allowances are recognized at the time of revenue recognition based on contract terms and prior claims experience.

~~Stock-Based~~We ~~Compensation~~generally warrant our products against defects in materials and workmanship for periods of between one and six years, with the exception of Alvarez Yairi guitars, which have a limited lifetime warranty. The estimated cost of warranty obligations, sales returns and other allowances are recognized at the time of revenue recognition based on contract terms and prior claims experience.

~~Stock-based employee compensation plans are accounted for using the~~6 intrinsic-value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including SFAS Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price or if options were issued to non-employees.

WeTable have elected to apply the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of SFAS No. 123.Contents

7Foreign Currency

~~SFAS~~The ~~No.123,~~financial asstatements ~~amended,~~of ~~permits~~Martin ~~companies~~Audio toand ~~recognize,~~UK assubsidiaries ~~expense over~~have ~~the~~been ~~vesting~~translated ~~period,~~into ~~the~~U.S. Dollars. ~~fair~~The ~~value~~functional currency of ~~all~~these ~~stock-based~~subsidiaries ~~awards~~is on the ~~date of~~British ~~grant~~Pound. ~~The~~During ~~Black-Scholes~~2008 ~~option~~the Company ~~valuation~~determined ~~model~~that ~~was~~the ~~developed~~functional ~~for~~currency ~~use~~of inits UK subsidiary should be its local currency ~~estimating~~due ~~the~~principally ~~fair~~to ~~value~~integration of ~~traded~~the ~~options,~~operations ~~which~~of ~~have~~these nosubsidiaries ~~vesting~~with ~~restrictions~~Martin Audio. All assets and ~~are~~liabilities ~~fully~~in ~~transferable.~~the ~~Because~~balance ~~our~~sheet ~~stock-based~~of ~~compensation~~each ~~plans~~subsidiary ~~have characteristics~~are ~~significantly~~translated ~~different~~at ~~from~~period-end exchange ~~those~~rates. ofNet ~~traded~~sales, ~~options~~costs and ~~because~~ ~~changes~~expenses inare ~~the~~translated ~~subjective~~at ~~input~~average ~~assumptions~~rates ~~can~~of ~~materially~~exchange prevailing ~~affect~~during the ~~fair~~ ~~value~~period. ~~estimate,~~Translation ~~management~~gains ~~believes~~and ~~that~~losses ~~the~~are ~~existing~~accumulated ~~option~~in ~~valuation~~a separate component ~~models~~of doshareholder’s ~~not~~equity. ~~necessarily~~Prior ~~provide~~to a2008, ~~reliable~~the ~~single~~UK ~~measure~~subsidiary’s offunctional ~~the~~currency ~~fair~~was ~~value~~the U.S. ofDollar. ~~awards~~Assets ~~from~~and ~~the~~liabilities ~~plan.~~were ~~Therefore,~~recorded asin ~~permitted,~~foreign wecurrencies ~~apply~~and ~~the~~translated ~~existing~~into U.S. ~~accounting~~Dollars ~~rules~~at ~~under~~the ~~APB~~exchange ~~No. 25~~rate ~~and~~on ~~provide~~the ~~pro~~balance ~~forma~~sheet date, while net ~~loss~~sales, costs and ~~pro forma~~expense ~~loss~~and ~~per~~cash flows ~~share~~were ~~disclosures~~translated ~~for~~at ~~stock-based~~average ~~awards~~rates ~~made~~of asexchange ifprevailing during the ~~fair~~period. Foreign currency ~~value~~transaction ~~method~~gains ~~defined~~and inlosses ~~SFAS~~were ~~No. 123~~included ~~have~~in ~~been~~other ~~applied~~income (expense).

The ~~following~~functional ~~table~~currency ~~summarizes~~of ~~relevant~~the ~~information~~Company’s asother tointernational subsidiaries is the ~~reported~~U.S. Dollar. ~~amounts~~Assets ~~under~~and ~~the~~liabilities ~~Company’s~~recorded ~~intrinsic~~in ~~value~~foreign ~~method~~currencies ofare ~~accounting~~translated ~~for~~into ~~stock awards,~~U.S. ~~with~~Dollars ~~supplemental~~at ~~information~~the exchange asrate ifon the ~~fair~~balance ~~value~~sheet ~~recognition~~date. Net sales, costs and expense and cash flows are ~~provisions~~translated at average rates of ~~SFAS~~exchange Noprevailing during the period. ~~123~~Foreign ~~have~~currency ~~been~~transaction gains ~~applied:~~and losses are included in other income (expense).

	Three months ended March 31,
	2005			2004
	(in thousands)
Net income (loss):
As reported	$	3,323		$	(3,954	)
Less: Stock-based employee compensation determined under fair-value based method	(126		)	(214		)
Pro forma	$	3,197		$	(4,168	)
Basic net income (loss) per share:
As reported	$	0.14		$	(0.19	)
Pro forma	$	0.14		$	(0.20	)
Diluted net income (loss) per share:
As reported	$	0.14		$	(0.19	)
Pro forma	$	0.13		$	(0.20	)

Income Taxes

~~Concentration~~Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of ~~Credit~~existing assets and ~~Supply~~liabilities and their respective tax ~~Risk~~basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company has recorded a valuation allowance due to the uncertainty surrounding the ultimate realization of such assets. Management evaluates, on a periodic basis, the recoverability of the deferred tax assets and the amount of the valuation allowance. At such time as it is determined that it is more likely than not the deferred tax assets are realizable, the valuation allowance would be reduced.

WeThe ~~sell~~Company ~~products~~has onrecorded a ~~worldwide~~deferred ~~basis~~tax ~~and~~liability arelated ~~significant~~to ~~portion~~goodwill ofassociated ~~our~~with certain ~~accounts~~acquisitions ~~receivable~~which ~~are~~is ~~due~~being ~~from~~amortized ~~customers~~for ~~outside~~tax ofpurposes, ~~the~~but ~~U.S. Where~~not wefor ~~are~~book ~~exposed~~purposes. toAs ~~material~~goodwill ~~credit~~has an ~~risk~~indeterminable life, we ~~generally~~the ~~require~~Company ~~letters~~cannot ofreasonably ~~credit,~~estimate ~~advance~~the ~~payments~~amount, orif ~~carry~~any, ~~foreign credit~~of ~~insurance. No~~deferred ~~individual country~~tax ~~outside~~liabilities ofrelated ~~the~~to ~~U.S.~~goodwill ~~accounted~~which ~~for~~will ~~more~~reverse ~~than~~during ~~10%~~the of net ~~sales~~operating ~~from~~loss ~~continuing~~carry forward ~~operations~~period. inAccordingly, ~~any~~the ofCompany increases the ~~periods~~valuation ~~presented. Sales~~allowance towith ~~U.S.~~a ~~customers~~corresponding ~~are~~deferred tax ~~generally~~provision onas ~~open~~the ~~credit~~deferred ~~terms. In~~tax ~~the~~liability ~~U.S.,~~related weto ~~primarily~~goodwill ~~sell~~increases ~~our~~due ~~products~~to continued ~~through~~amortization ~~third-party~~of ~~resellers~~goodwill ~~and~~for ~~experience~~tax ~~individually~~purposes. ~~significant~~The ~~annual sales~~goodwill ~~volumes~~recorded ~~with~~for ~~major~~Martin ~~resellers. For~~Audio, which was ~~the~~impaired ~~three~~during ~~months~~the ~~ended~~third ~~March~~quarter ~~31,~~of ~~2005~~2008 ~~and~~(See ~~2004~~Note 7), weis ~~had~~not ~~sales~~deductible togoodwill ~~one~~for ~~customer of~~tax $5purposes.4 ~~million~~As ~~and~~such, ~~$2.6~~the ~~million,~~impairment ordoes ~~13.4%~~not ~~and~~affect ~~10.0%,~~the ~~respectively~~calculation of ~~consolidated net~~income ~~sales~~tax expense.

~~Many~~The ofCompany ~~our~~has ~~products~~also ~~are~~recorded ~~currently~~a ~~being~~deferred ~~manufactured~~tax ~~exclusively~~liability ~~by contract~~for ~~manufacturers~~the onintangible ~~our~~assets ~~behalf. For~~associated with the ~~three~~acquisition ~~months~~of ~~ended~~Martin ~~March~~Audio. ~~31,~~No ~~2005~~tax ~~and~~basis ~~2004,~~was ~~net~~created ~~sales~~in ~~of products~~the ~~manufactured~~accounting byfor ~~one~~the ~~manufacturer~~intangibles ~~were~~of this ~~$14.4 million~~acquisition, orcreating ~~36.1%,~~a ~~of consolidated~~deferred ~~net~~tax ~~sales,~~liability ~~and~~which ~~net~~decreases ~~sales~~over ~~from~~time ~~another~~as ~~manufacturer~~book ~~were~~amortization is $5recognized.~~6 million,~~ orThe ~~14.0%,~~deferred oftax ~~consolidated~~liability ~~net~~is ~~sales.~~in ~~Net~~a ~~sales~~foreign ~~for~~jurisdiction in which the ~~three~~Company ~~months~~is in ~~ended~~a ~~March~~net 31liability position, ~~2004~~and ~~for~~therefore, the ~~same~~Company ~~manufacturers~~does ~~were~~not ~~$6.8~~offset ~~million,~~the orliability ~~26.5%,~~against deferred ~~and~~tax ~~$0.6~~assets ~~million,~~in orthe ~~2.3%,~~United ~~respectively~~States.

~~Recent~~On January 1, 2007, the Company adopted the provision of Financial Standards Accounting ~~Pronouncements~~Board (“FASB”) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB 109” (“FIN 48”). As of each of September 30, 2008 and December 31, 2007, the Company had $1.5 million of unrecognized tax benefits. In accordance with FIN 48, the Company elected to recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of each of September 30, 2008 and December 31, 2007, the Company had approximately $0.4 million of accrued interest and penalties related to uncertain tax positions. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax position. The Company does not anticipate that total unrecognized tax benefits will significantly change within the next twelve months.

InA ~~December~~reconciliation ~~2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payments” (SFAS 123R), which requires the measurement~~ of ~~all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and~~ the ~~recording of such expense in an entity's statement of income. The accounting provisions of SFAS 123R are effective for annual reporting periods~~ beginning ~~after~~and ~~June 15, 2005. The Company is required to adopt SFAS 123R in the quarter~~ ending ~~March 31,~~balances ~~2006.~~of ~~The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. See “Stock-Based Compensation” above for~~ the ~~pro~~total ~~forma net income and net income per share~~ amounts ~~for the three months ended March 31, 2005 and 2004, as if the Company had applied the fair value recognition provisions~~ of ~~SFAS 123~~unrecognized ~~to measure compensation~~tax ~~expense~~benefits for employee stock incentive awards. The Company has completed a preliminary evaluation of the impact of adopting SFAS 123R and estimates that it will have a material impact on income from operations for the year ended December 31, 2006. This estimate is ~~based~~as onfollows ~~preliminary~~(in ~~information~~thousands): ~~available to the Company and could materially change based on actual facts and circumstances arising during the year ended December 31, 2006.~~

Accounting for Acquisitions


Balance at December 31, 2007	$	1,513
Decreases related to prior year tax positions		(84	)
Increases related to current year tax positions		90

Balance at September 30, 2008	$	1,519

~~Significant judgment is required to estimate the fair value of~~7 purchased assets and liabilities at the date of acquisition, including estimating future cash flows from the acquired business, determining appropriate discount rates, asset lives and other assumptions. Our process to determine the fair value of trademarks, customer relationships, developed technology includes the use of estimates including: the potential impact on operating results if the revenue estimates for customers acquired through the acquisition based on an assumed customer attrition rate; estimated costs willing to be incurred to purchase the capabilities gained through the developed technology and appropriate discount rates based on the particular business's weighted average cost of capital. We are still in the process of finalizing the estimated fair value of the purchased assets and liabilities related to the acquisition of St. Louis Music. We expect to complete this process, including assessing if St. Louis Music represents a separate reporting unit for purposes of measuring potential impairment of goodwill in the second quarter of 2005.

3. DiscontinuedTable Operationsof Contents

InConcentration ~~December 2003, we placed our wholly owned Italian subsidiary, Mackie Designs (Italy) S.p.A. (“Mackie Italy”), into an Italian form~~ of ~~court-supervised~~ ~~liquidation~~Credit and ~~sold~~Supply ~~all of the shares of Mackie Italy. Mackie Italy was a manufacturer of many of~~Risk our speaker products, which were purchased by the Company for subsequent sale outside of Italy. At the time of the sale, the Company owed Mackie Italy approximately $9.2 million related to the purchase of goods in the normal course of business. During 2004, we made payments to Mackie Italy of approximately $1.6 million, lowering our liability to $7.6 million at December 31, 2004. Additionally, Mackie Italy has a payable to a separate wholly owned subsidiary of the Company for approximately $2.7 million, which was fully reserved at the date of sale in 2003.

InWe ~~February~~sell ~~2005,~~products weon ~~made~~a anworldwide ~~offer~~basis toand ~~Mackie~~a ~~Italy~~significant toportion ~~settle~~of ~~any~~our accounts receivable are due ~~outstanding~~from ~~amounts~~customers ~~owed~~outside byof the ~~Company~~United States. Where we are exposed to ~~Mackie~~material ~~Italy~~credit ~~for~~risk, ~~$4.7~~at times ~~million. This~~we ~~proposal~~require ~~was~~letters ~~accepted~~of incredit ~~May~~or ~~2005~~advance payments. ~~Under~~ ~~the~~No ~~terms~~customers from any individual country outside of the ~~settlement~~United ~~agreement, we~~States ~~issued~~accounted afor ~~stand-by~~more ~~letter~~than 10% of ~~credit~~net sales from continuing operations in any of the periods presented. Sales to ~~Mackie~~United ~~Italy~~States ~~for~~customers $1are generally on open credit terms.0 In ~~million~~the United States, we primarily sell our products through certain resellers and weexperience ~~committed~~individually tosignificant ~~make~~annual ~~further~~sales ~~payments~~volumes ofwith $1major resellers.5 ~~million~~For ~~during~~the three-month periods ended September 30, 2008 and 2007, the ~~remainder~~Company had sales to one customer of ~~2005~~ $4.6 million and $27.2 4 million, ~~during~~or ~~2006~~9. We9% and 13.9%, respectively of consolidated net sales. For the nine-month periods ~~recognized~~ended aSeptember 30, ~~gain~~2008 onand ~~discontinued~~2007, ~~operations~~the Company had sales to the same customer of $220.90 million and $25.7 million, inor ~~the~~12.9% ~~first quarter~~and of16.6%, ~~2005~~respectively.

Substantially all of our products are manufactured exclusively by contract manufacturers on our behalf. Two contract manufacturers produced products that accounted for greater than 10% of the Company’s net sales for the three and nine month periods ended September 30, 2008 and 2007. For the three month periods ended September 30, 2008 and 2007, net sales of products manufactured by one manufacturer were $18.1 million and $14.8 million, or 38.6% and 27.9% of net sales, respectively, while net sales of products manufactured by another manufacturer were $11.4 million and $6.6 million, or 24.3% and 12.4% of consolidated net sales, respectively. For the nine-month periods ended September 30, 2008 and 2007, net sales of products manufactured by one manufacturer were $69.1 million and $57.6 million, or 44.3% or 37.2% of net sales, respectively, while net sales of products manufactured by another manufacturer were $31.2 million and $19.1 million, or 20.0% and 12.4% of consolidated net sales, respectively. For more information, see Part II, Item 1A “Risk Factors — Our operating performance will be adversely affected by difficulties we are experiencing with a major contract supplier”.

~~4. Net~~As ~~Income~~of ~~(Loss)~~September 30, ~~Per~~2008, ~~Share~~the Company had 500 employees of which approximately 23 were members of an organized labor union.

~~The following table sets forth the computation of basic and diluted net loss per share for the three months ended March 31, 2005 and 2004.~~ Stock ~~options~~ toBased ~~purchase 2,511,000 and 3,902,000 shares in 2005 and 2004,~~Compensation respectively, were excluded from the calculation of diluted per share amounts because they are antidilutive. Included in the denominator for computation of basic and diluted net income (loss) per share are 1.2 million warrants and 11,481 vested stock options with an exercise price of $.01 which are considered outstanding common shares.

	Three months ended March 31,
	2005		2004
	(in thousands, except per share data)
Numerator:
Net income (loss) from continuing operations	$	496	$	(3,954	)
Net income from discontinued operations	2,827		—
Numerator for basic and diluted net income (loss) per share	$	3,323	$	(3,954	)
Denominator:
Weighted average shares outstanding	22,283		19,608
Dilutive potential common shares from outstanding stock options and warrants	1,212		1,283
Denominator for basic net income (loss) per share – weighted average shares	23,495		20,891
Basic weighted average shares outstanding	23,495		20,891
Dilutive shares	769		—
Denominator for diluted net income (loss) per share – weighted average shares	24,264		20,891
Basic and diluted net income (loss) per share:
Continuing Operations	$	0.02	$	(0.19	)
Discontinued Operations	0.12		—
Basic and diluted net income (loss) per share	$	0.14	$	(0.19	)

The Company recorded stock- based compensation expense for the relevant period as follows (in thousands):

5. Inventories


	Three months ended				Nine months ended
	September 30,				September 30,
	2008		2007		2008		2007

Cost of sales	$	0	$	1	$	0	$	5
Selling, general and administrative		47		61		182		214
Research and development		2		3		7		10

Total stock-based compensation	$	49	$	65	$	189	$	229

~~Inventories~~During ~~consist~~the third quarter of 2008, the ~~following:~~Company granted options to purchase 40,000 shares at an exercise price of $4.61 per share pursuant to the Mackie Designs Inc. 2003 Stock Option Plan. The expected life for each award granted is calculated using the simplified method as described in SEC Staff Accounting Bulletin No. 107 (“SAB 107”). Expected volatility is based on the historical volatility of LOUD common stock. The risk free interest rate is based on the constant maturity U.S. Treasury rate with a remaining term equal to the expected life. Compensation expense recorded includes estimates of the ultimate number of options that are expected to vest.

	March 31, 2005		December 31, 2004
	(in thousands)
Raw materials	$	4,542	$	3,951
Work in process	1,206		657
Finished goods	36,948		23,351
	$	42,696	$	27,959

Recently Adopted Accounting Principles

9In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements”, (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.

~~6. Intangible Assets~~8

IntangibleTable assets consist of the following:Contents

	March 31, 2005			December 31, 2004
	(in thousands)
Trademarks	$	5,930		$	1,380
Developed technology	5,470			5,200
Customer relationships	3,080			—
Covenant not to compete	285			285
	14,765			6,865
Less accumulated amortization	(1,883		)	(1,737		)
	$	12,882		$	5,128

Effective January 1, 2008 the Company adopted SFAS 157 for our financial assets and liabilities. In accordance with the provisions of FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, we elected to defer implementation of SFAS 157 related to our non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. We are currently reviewing this provision of SFAS 157 to determine the impact on our non-financial assets and non-financial liabilities that are recognized or disclosed at fair value on a nonrecurring basis.

~~Amortization~~The ~~expense~~adoption ~~for~~of ~~intangible~~SFAS ~~assets~~157 ~~was~~with ~~$147,000~~respect to financial assets and ~~$106,000~~liabilities did not have a material impact on our financial results for the ~~three~~nine ~~month~~months ~~periods~~ ended ~~March 31~~September 30, ~~2005~~2008. ~~and~~SFAS ~~2004,~~No. 157 establishes ~~respectively~~a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:

~~Expected~~• ~~future~~Level ~~amortization~~1: ~~expense~~Observable ~~related~~inputs tosuch ~~intangible~~as quoted prices in active markets for identical assets or liabilities • Level 2: Inputs other than quoted prices that are observable for the ~~next~~asset ~~five~~or ~~years~~liability, iseither asdirectly ~~follows~~or (indirectly; these include quoted prices for similar assets or liabilities in ~~thousands)~~active markets and quoted prices for identical or similar assets or liabilities in markets that are not active • Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions

Year Ending March 31:
2006	$	903
2007	816
2008	816
2009	816
2010	811

The following table presents our financial assets that have been measured at fair value as of September 30, 2008 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.

7. Financing


	Balance as of September 30, 2008
	Level I		Level II		Level III
Short-term investment	$	76	$	—	$	—

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (a“SFAS 159”) ~~Short-term~~, ~~borrowings~~which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The Company adopted Statement No. 159, effective January 1, 2008, and did not elect the fair value option to measure certain financial instruments; consequently, Statement No. 159 has not had a material impact on the Company’s financial condition and results of operations.

WeNew ~~have~~Accounting ~~a revolving line of credit to borrow up to $25.0 million~~Pronouncements limited to a percentage of eligible collateral through March 2006. Interest is due monthly and is based on the banks prime rate or LIBOR plus a specified margin. At March 31, 2005, the average interest rate was 6.25%. This revolving line of credit is secured by substantially all U.S. assets (excluding St. Louis Music, Inc.) and accounts receivable of our U.K. subsidiary. At March 31, 2005, we had an outstanding balance on this line of credit of $16.0 million and available borrowing capacity of $3.2 million.

WeIn ~~also~~May 2008, ~~have~~the aFASB ~~revolving~~issued ~~short-term~~SFAS ~~demand~~No. 162, ~~credit~~“The ~~facility~~Hierarchy of ~~$40.0~~Generally Accepted Accounting ~~million~~Principles” ~~guaranteed~~(“SFAS by162”). ~~Sun~~SFAS ~~Capital~~162 ~~Partners~~identifies ~~III~~the ~~QP,~~sources ~~LP,~~of toaccounting ~~finance~~principles and the ~~acquisition~~framework offor ~~St.~~selecting ~~Louis~~principles ~~Music,~~to ~~Inc.~~be ~~and~~used ~~for~~in ~~future~~the ~~working~~preparation ~~capital~~and presentation of financial ~~requirements~~statements in accordance with generally accepted accounting principles. ~~Interest~~ isThis ~~due~~statement ~~monthly~~will be ~~and~~effective is60 days ~~based~~after onthe Securities and Exchange Commission (the ~~banks~~“SEC”) ~~prime~~approves ~~rate~~the orPublic Company ~~LIBOR~~Accounting ~~plus~~Oversight aBoard’s ~~specified~~amendments ~~margin. At~~to ~~March~~AU 31Section 411, ~~2005,~~The ~~the~~Meaning ~~average~~of ~~interest~~Present ~~rate~~Fairly in ~~was~~Conformity ~~4.5%. At~~With ~~March~~Generally ~~31,~~Accepted ~~2005,~~Accounting wePrinciples. ~~had~~The ~~an outstanding~~Company ~~balance~~does onnot ~~this~~expect ~~line~~the adoption of ~~credit~~SFAS of162 ~~$33.1~~to ~~million~~have ~~and~~a ~~available borrowing~~material ~~capacity~~impact ofon ~~$6.9~~its ~~million~~Consolidated Financial Statements.

~~The~~In ~~Company~~March 2008, ~~intends~~the toFASB ~~refinance~~issued ~~all~~SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements of ~~its~~SFAS ~~existing~~No. 133, “Accounting ~~credit~~for ~~facilities~~Derivative Instruments and Hedging Activities” (“SFAS 133”). It requires qualitative disclosures about objectives and tostrategies ~~extinguish~~for ~~Sun~~using ~~Capital~~derivatives, ~~Partners~~quantitative disclosures ~~III~~about fair value amounts of gains and losses on derivative instruments, ~~QP’s~~and ~~guarantee~~disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal periods beginning after Nov. 15, 2008. The Company does not expect the ~~near~~adoption ~~term~~of SFAS 161 to have a material impact on its Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (b“SFAS 141R”) ~~Long-term~~, ~~debt~~which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non controlling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. The requirements of SFAS 141R are effective for periods beginning after December 15, 2008. The Company is still assessing the full impact of this standard on its future Consolidated Financial Statements.

~~At March 31, 2005 and December 31, 2004, our long-term debt consisted~~9 ~~of the following, in thousands:~~

	March 31, 2005			December 31, 2004
	(In thousands)
U.S. term loan	$	477		$	552
U.S. subordinated note payable	11,417			11,360
	11,894			11,912
Less: current portion	(477		)	(300		)
Long-term portion of debt	$	11,417		$	11,612

~~Our U~~3.S. ~~term~~Net ~~loan~~Loss isPer ~~payable in monthly payments of $25,000.~~ Share This loan and the $25.0 million line of credit held by the same financial institution are both secured by substantially all of the assets of the Company (excluding St. Louis Music, Inc.), and are both senior to other long-term debt. The term loan bears interest at the bank’s prime rate plus a specified margin. This rate was 6.5% at March 31, 2005. The principal is due March 2006.

InBasic ~~March~~and ~~2003,~~diluted wenet ~~obtained~~loss aper ~~note~~common ~~payable~~share ~~for $11.0 million with another lender, which~~ is ~~subordinate~~computed toon the ~~$25.0~~basis ~~million line~~ of ~~credit. Interest~~the ~~accrues~~weighted ataverage ~~a rate~~ number of ~~10%. Prior~~common toshares ~~March~~outstanding ~~2005,~~for 8%the ~~was~~period. ~~paid~~Diluted ~~monthly while~~net ~~the~~income ~~remaining~~per 2%common ~~was~~share ~~paid~~would ~~monthly~~be ifcomputed on ~~there~~the ~~was~~basis aof ~~specific~~the ~~availability~~weighted ~~on our~~average ~~line~~number of ~~credit. At~~common ~~March~~shares ~~31,~~plus ~~2005~~dilutive ~~we have~~potential ~~added~~common ashares outstanding. ~~total~~Dilutive ofpotential ~~$417,000~~common inshares ~~accrued~~are ~~interest~~calculated tounder the ~~note~~treasury ~~payable. In~~stock ~~March 2005, we signed a loan amendment~~method. Securities that ~~now~~could ~~requires~~potentially usdilute toincome ~~pay~~per ~~the~~share ~~10%~~consist ~~interest~~of ~~monthly. The~~outstanding ~~principal~~stock isoptions ~~due~~and convertible ~~in May 2006~~debt.

10As the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same. Stock options to purchase 357,181 and 376,000 shares in 2008 and 2007, respectively, were excluded from the calculation of diluted per share amounts because they are anti-dilutive. The option strike prices were all greater than the stock price for both the three- and nine- month periods ended September 30, 2008 and 2007. In addition, shares issuable upon conversion of convertible debt have been excluded from the calculation of diluted loss per share because they are anti-dilutive.

84. ~~Guarantees~~ Restructuring Costs

InDuring ~~the~~2007, ~~ordinary~~management ~~course~~implemented ofa ~~business,~~restructuring weplan ~~are~~primarily ~~not~~consisting ~~subject~~of tothe ~~potential~~consolidation ~~obligations~~of ~~under~~our ~~guarantees~~LOUD ~~that~~UK ~~fall~~operations ~~within~~and ~~the~~a ~~scope~~shift of ~~FIN~~our Nodomestic manufacturing to overseas contract manufacturers. ~~45,~~ ~~Guarantor’s~~During ~~Accounting~~the ~~and~~nine-month ~~Disclosure~~period ~~Requirements for~~ended ~~Guarantees~~September 30, ~~Including~~2008 ~~Indirect~~we ~~Guarantees~~incurred approximately $382,000 of ~~Indebtedness~~restructuring ofcosts ~~Others~~primarily ~~except for~~representing ~~standard~~employee ~~indemnification~~severance and ~~warranty~~related ~~provisions~~costs ~~and~~for ~~give~~13 terminated ~~rise~~employees. ~~only~~We tohad ~~the disclosure~~$386,000 ~~requirements~~of ~~prescribed~~these byrestructuring ~~FIN~~amounts ~~No.~~remaining 45in accrued liabilities at September 30, 2008. The restructuring liability is summarized as follows (in thousands):

Indemnification and warranty provisions contained within our sales agreements are generally consistent with those prevalent in our industry. The duration of product warranties is generally one to six years following delivery of products.


Balance at December 31, 2007	$	462
New charges		382
Cash payments		(458	)

Balance at September 30, 2008	$	386

~~The~~In ~~warranty~~addition ~~liability~~see isNote ~~summarized~~11 as— ~~follows~~ (inSubsequent ~~thousands~~Events):.

	Three months ended March 31,
	2005		2004
Balance, beginning of period	978		1,081
Charged to cost of sales	568		682
Applied to liability	(316	)	(696	)
Balance, end of period	1,230		1,067

5. Inventories

~~9. Contingencies~~Inventories consist of the following (in thousands):

We are involved in various legal proceedings and claims that arise in the ordinary course of business. We currently believe that these matters will not have a material adverse impact on our financial position, liquidity or results of operations.


	September 30,		December 31,
	2008		2007

Raw materials	$	3,880	$	7,580
Work in process		79		65
Finished goods		36,396		49,159

	$	40,355	$	56,804

10The Company wrote down inventories by approximately $1. ~~Business~~7 million ~~Combinations~~during the three-month period ended September 30, 2008 in connection with the November 2008 sale of its distribution business discussed in Note 11 (Subsequent Events).

~~On March 4, 2005, in accordance with an acquisition agreement, we acquired 100% of the shares of St~~6. ~~Louis~~Other ~~Music,~~Intangible ~~Inc. (“St. Louis”), a~~Assets Missouri-based manufacturer, distributor and importer of branded musical instruments and professional audio products. The Company believes the acquisition of St. Louis Music will further diversify the Company’s product offerings to help acquire, retain and extend relationships with customers. Our total purchase consideration was approximately $44.7 million, consisting of $34.2 million in cash, a commitment to pay $3.0 million in two years, $1.2 million in shares of LOUD common stock valued using the February 18, 2005 closing price, liabilities assumed of $5.0 million and estimated transaction costs of $1.3 million (including approximately $0.4 million to Sun Capital Partners, Inc.). The $3.0 million future commitment is guaranteed by the Company and Sun Capital Partners III QP, LP, an affiliate of Sun Capital Partners Inc. and Sun Mackie, LLC, the Company’s principal shareholder. The St. Louis Music acquisition was conducted through SLM Holding Corp., a wholly owned subsidiary of the Company. Included in the Company's results of operations for the three months ended March 31, 2005, are the earnings of St. Louis Music, Inc. for the period March 5 through March 31, 2005.

InIntangible ~~connection~~assets ~~with~~consist ~~the~~of ~~acquisition,~~ the ~~purchase~~following ~~price was preliminarily allocated as follows~~ (~~this~~in ~~allocation has not been finalized, as we have not determined the fair value of all assets purchased from the acquisition and we have estimated our transaction costs~~ thousands):

Accounts receivable	$		11,953
	Gross			Accumulated
Inventories	16,253
	Amount			Amortization		Net
Prepaid expenses and other current assets	287
Customer and distributor relationships	$	12,282		$	1,553	$	10,729
Property, plant and equipment	3,177
Trademark		11,040			1,665		9,375
Goodwill	5,075
Developed technology		6,038			2,549		3,489
Trademarks (estimated life of 20 years)	4,550
Non-compete agreement		45			33		12
Developed technology (estimated life of 5 years)	270
Total intangible assets, September 30, 2008	$	29,405		$	5,800	$	23,605
Customer relationships (estimated life of 15 years)	3,080
Total intangible assets, December 31, 2007	$	32,785		$	4,810	$	27,975
Other assets	17
Total assets	$	44,662
Accounts payable	$	2,610
Accrued liabilities (including unpaid estimated transaction costs and remaining amount due to sellers)	6,297
Total liabilities		8,907
Common stock issued	1,190
Cash consideration paid, net of $88 cash acquired	$	34,565

~~Goodwill of $5.1 million, representing the excess of the purchase~~10 consideration over the fair value of tangible and identifiable intangible assets acquired, will not be amortized, consistent with the guidance in SFAS 142. Amortization of the entire $5.1 million is expected to be deductible for tax purposes.

11Table of Contents

The following ~~unaudited~~table ~~pro forma information~~ represents the ~~results~~write ~~of operations~~down ~~for LOUD and St. Louis Music, Inc. for the quarters ended March 31, 2005 and 2004, as if the acquisition had been consummated as~~ of ~~January~~intangibles 1,due ~~2005 and January 1, 2004, respectively. Included in the 2005 numbers are $2.1 million of transaction expenses that relate~~ to the ~~purchase~~sale of ~~St. Louis Music, Inc. that are nonrecurring in nature. This pro forma information does not purport to be indicative of what may occur in~~ the ~~future~~distribution business:

	Three months ended March 31,
	Gross			Accumulated
	2005		2004
	Amount			Amortization		Net
	(in thousands, except per share data)
Customer and distributor relationships	$	612		$	146	$	466
Net sales	$	56,533	$	46,810
Trademark		1,070			192		878
Gross profit	17,591		11,989
Developed technology		50			36		14
Net income (loss)	1,976		(3,786		)
Total write-off of intangible assets, September 30, 2008	$	1,732		$	374	$	1,358
Basic net income (loss) per share	$	0.08	$	(0.18	)

~~Item 2~~7. ~~Management’s~~ ~~Discussion and Analysis of Financial Condition and~~Goodwill ~~Results of Operations~~

The ~~following~~Company ~~discussion~~accounts ~~and analysis should be read in conjunction with our financial statements included in our Annual Report on Form 10-K~~ for ~~the~~goodwill ~~year ended December 31, 2004. This discussion contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks~~ and ~~uncertainties,~~ ~~such~~other asintangible ~~statements~~assets ofin ~~our~~accordance ~~plans,~~with ~~objectives,~~SFAS ~~expectations and intentions~~No. ~~Actual results could differ materially from those discussed herein~~ 142. ~~The~~ ~~cautionary statements made in this Quarterly Report on Form 10-Q and the~~In ~~Annual~~accordance ~~Report~~with onSFAS ~~Form 10-K should be read as being applicable to all forward-looking statements wherever they appear~~No. 142, Wewe ~~undertake~~allocate nogoodwill ~~obligation~~ to ~~publicly~~ ~~release~~our ~~any~~reporting ~~revisions to these forward-looking statements that may be required to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events~~units. ~~Forward-looking statements include,~~ without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or words or phrases of similar meaning.

~~Overview~~Changes in goodwill are as follows (in thousands):

LOUD Technologies Inc., a Washington corporation incorporated on November 16, 1988 under the name Mackie Designs Inc., engineers, manufactures and markets professional audio reproduction and recording equipment and software under the brand names Mackie, TAPCO, SIA, EAW and EAW Commercial. We changed our name to LOUD Technologies, Inc. on September 15, 2003.


Balance, December 31, 2007	$	19,726
Impairment of goodwill		(15,510	)
Effects of foreign currency translation		(64	)

Balance, September 30, 2008	$	4,152

~~Our~~In ~~primary~~accordance ~~products~~with ~~include~~SFAS ~~analog mixers~~No. 142, ~~sound~~the ~~reinforcement speakers,~~Company ~~professional~~applies ~~loudspeaker~~a ~~systems,~~fair ~~installed~~value ~~paging~~based ~~and~~impairment ~~music~~test to the net ~~distribution~~book ~~systems,~~value ~~preamplifiers,~~of ~~power~~goodwill ~~amplifiers,~~on ~~digital~~an ~~audio workstations~~annual ~~(DAW)~~basis and, ~~A/V~~if ~~software~~certain ~~control~~events ~~surfaces,~~or ~~digital~~circumstances ~~mixers,~~indicate ~~i/o~~that ~~devices~~an ~~and~~impairment ~~acoustic~~loss ~~test~~may ~~and~~have ~~measurement~~been ~~software~~incurred, on an interim basis. ~~These~~ ~~products~~The ~~are~~analysis ~~used~~of inpotential aimpairment ~~variety~~of goodwill requires a two-step process. The first step is the estimation of ~~applications,~~fair ~~including~~value. ~~home~~If ~~and~~step one ~~commercial~~indicates ~~recording~~that ~~studios~~impairment potentially exists, ~~live~~the second step is performed to measure the ~~performances~~amount ~~and~~of ~~fixed~~impairment, ~~installations~~if any. Goodwill impairment exists when the fair value of ~~all~~goodwill ~~sizes~~is less than its carrying value.

OnBased ~~March~~on 4,numerous ~~2005,~~factors inwhich ~~accordance~~arose ~~with~~in ~~an acquisition agreement, we acquired 100% of~~ the ~~shares~~current ~~of St. Louis Music~~quarter, ~~Inc.~~including ~~(“St~~but ~~Louis”),~~not alimited to ~~Missouri-based~~deteriorating ~~manufacturer,~~economic ~~distributor~~conditions and ~~importer~~related ofchallenges ~~branded~~in ~~musical instruments and professional audio products. The Company believes~~ the ~~acquisition~~markets ofand ~~St.~~industry ~~Louis~~in ~~Music~~which ~~will further~~we ~~diversify~~compete, the Company’s ~~product~~recent ~~offerings~~performance torelative ~~help acquire, retain and extend relationships with customers. Our total purchase consideration was approximately $44.7 million, consisting of $34.2 million in cash; a commitment~~ to ~~pay~~historical ~~$3.0~~operating ~~million in two years; $1.2 million shares of LOUD common stock valued using the February 18~~results, ~~2005 closing price,~~projected ~~liabilities assumed of $5.0 million and estimated transaction costs of $1.3 million. The $3.0 million~~ future ~~commitment~~ isoperating ~~guaranteed~~results, ~~by the Company~~ and ~~Sun~~troubles ~~Capital~~with ~~Partners~~a ~~III~~major QPsupplier, ~~LP,~~we ~~an affiliate~~performed ofgoodwill ~~Sun~~impairment testing ~~Capital~~for ~~Partners Inc. and Sun Mackie, LLC,~~ the ~~Company’s principal~~quarter ~~shareholder. The~~ended ~~St. Louis Music acquisition was conducted through SLM Holding Corp.~~September 30, ~~a wholly owned subsidiary of the Company~~2008.

InFor ~~December~~the ~~2003,~~purpose weof ~~placed~~this ~~our wholly owned Italian subsidiary~~analysis, ~~Mackie Designs~~our ~~(Italy)~~estimates ~~S.p.A.~~of ~~(“Mackie~~fair ~~Italy”)~~value ~~into~~are anbased ~~Italian~~on ~~form~~a combination of the ~~court-supervised~~income ~~liquidation~~approach, ~~and~~which ~~sold~~estimates ~~all of~~ the ~~shares~~fair value of ~~Mackie~~our ~~Italy. Mackie~~reporting ~~Italy~~units ~~was~~based aon ~~manufacturer~~the ~~of many of~~future ~~our~~discounted ~~speaker~~cash ~~products~~flows, ~~which~~and ~~were purchased by~~ the ~~Company~~market ~~for~~approach. ~~subsequent~~As ~~sale outside~~ of ~~Italy. At~~ the ~~time~~date of ~~the sale~~this filing, the Company ~~owed~~has ~~Mackie~~not completed ~~Italy~~this ~~approximately~~analysis ~~$9.2~~due ~~million related~~ to the ~~purchase~~ ofcomplexities ~~goods~~involved in determining the ~~normal~~implied ~~course~~fair value of the ~~business~~goodwill of each reporting unit. ~~During~~ ~~2004~~However, webased ~~made~~on ~~payments~~the work performed to ~~Mackie~~date, ~~Italy~~we have ofconcluded ~~approximately~~that ~~$1.6~~an ~~million,~~impairment ~~lowering~~loss ~~our~~is ~~liability~~probable toand ~~$7.6~~can ~~million~~be ~~at December~~reasonably ~~31, 2004~~estimated. ~~Additionally~~ Accordingly, ~~Mackie~~we ~~Italy~~have ~~has~~recorded a ~~payable~~non-cash togoodwill aimpairment ~~separate~~charge ~~wholly owned subsidiary~~ of ~~the Company for~~ approximately $215.7 5 million, ~~which~~representing our ~~was~~best ~~fully~~estimate ~~reserved~~of atthe impairment loss during the ~~date~~third quarter of ~~sale in 2003~~2008.

InWe ~~February~~expect ~~2005,~~to wefinalize ~~made~~our angoodwill ~~offer~~impairment toanalysis ~~Mackie~~during ~~Italy~~preparation of financial statements for the fourth quarter of 2008. There could be adjustments to ~~settle~~the ~~any~~goodwill impairment charge when ~~outstanding~~the ~~amounts~~goodwill ~~owed~~impairment bytest is completed. Any adjustments to the Company’s topreliminary ~~Mackie~~estimates as ~~Italy~~a result of completing this evaluation will be recorded in our financial statements for $4the year ended December 31, 2008.7

128. Financing

~~million. This~~On ~~proposal~~March 6, ~~was accepted~~2008 inwe ~~May~~entered ~~2005~~into a third amendment (“Amendment No. ~~Under~~ 3”) to the ~~terms~~Company’s offinancing ~~the~~agreement ~~settlement~~dated ~~agreement~~March 30, we2007, ~~issued~~as apreviously ~~stand-~~amended, by ~~letter~~and ofamong ~~credit~~Martin toHolding ~~Mackie Italy~~Limited ~~for~~(formerly ~~$1.0~~known ~~million~~as Grace Acquisitionco Limited), ~~and~~certain wesubsidiaries ~~committed~~of toLOUD, ~~make~~the ~~further~~lenders ~~payments~~party from oftime ~~$1.5~~to ~~million~~time ~~during the~~thereto, ~~remainder~~Ableco ofFinance ~~2005~~LLC and ~~$2.2~~GMAC ~~million~~Commercial ~~during~~Finance ~~2006~~LLC (the “Financing Agreement”). We ~~recognized~~Amendment aNo. 3 ~~gain~~modified oncertain ~~discontinued~~definitions used in the Financing Agreement and ~~operations~~required ofus ~~$2.9~~to ~~million~~reduce inthe balance outstanding under the ~~first~~Financing ~~quarter~~Agreement ofby ~~2005~~$7.5 million.

~~Critical Accounting Policies and~~11 ~~Judgments~~

TheTable preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.Contents

~~Significant~~Amendment ~~judgment~~No. 3 ismodified ~~required to estimate~~ the ~~fair~~definition ~~value~~ of ~~purchased assets~~“Consolidated ~~and~~EBITDA” ~~liabilities at the date of acquisition, including estimating future cash flows from the acquired business, determining appropriate discount rates, asset lives~~ and ~~other~~“Consolidated ~~assumptions. Our~~Funded ~~process~~Indebtedness” to ~~determine~~change the ~~fair~~calculations ~~value~~pursuant ofto ~~trademarks,~~these ~~customer relationships~~terms, ~~developed~~ ~~technology~~as ~~includes~~well ~~the~~as ~~use~~other ofterms ~~estimates~~used including: the potential impact on operating results if the revenue estimates for customers acquired through the acquisition based on an assumed customer attrition rate; estimated costs willing to be incurred to purchase the capabilities gained through the developed technology and appropriate discount rates based on the particular business's weighted average cost of capital. We are still in ~~the process of finalizing the estimated fair value of~~ the ~~purchased~~Financing ~~assets and liabilities related to the acquisition of St~~Agreement. ~~Louis~~ Music. We expect to complete this process, including assessing if St. Louis Music represents a separate reporting unit for purposes of measuring potential impairment of goodwill in the second quarter of 2005.

WeOn ~~believe~~November 5, ~~there~~2008, ~~have~~we ~~been~~entered nointo ~~additional~~a ~~significant~~fourth ~~changes~~amendment to the Financing Agreement (“Amendment No. 4”). Under Amendment No. 4, a new $5.0 million term loan (“Term Loan D”) was provided to the Company. A 100% participation interest in ~~our~~Term Loan D was purchased by an affiliate of Sun Mackie, ~~critical~~LLC, ~~accounting~~the ~~policies~~controlling ~~during~~shareholder of the ~~three~~Company ~~months~~(“Sun ~~ended~~Mackie”). ~~March~~Amendment 31No. 4 also provided that the Collateral Agent, ~~2005~~the asAdministrative Agent and the lenders waive compliance with certain ~~compared~~financial covenants set forth in the Financing Agreement, specifically, (a) the consolidated leverage ratio, the fixed charge coverage ratio and the EBITDA covenants (collectively the “Designated Financial Covenants”) and any Default and Event of Default that may have arisen prior to, ~~what~~or ~~was~~that ~~previously~~existed ~~disclosed~~on inthe ~~our~~effective ~~Form~~date ~~10-K~~of the amendment as a result of any failure to comply with the Designated Financial Covenants for the ~~year~~fiscal ~~ended December~~quarter 31ending September 30, ~~2004~~2008. See (b) “Long-term debt” below and Note 11 (Subsequent Events) for further information regarding Term Loan D and these amendments.

~~Estimates~~Our ~~and~~senior ~~Assumptions~~credit ~~Related~~facility togenerally accrues interest based on variable short-term interest rates. ~~Financial~~Increases ~~Statements~~in the prime rate or LIBOR would increase our interest expense, which would adversely affect our profitability and cash flows.

The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on(a) Short-~~going~~term ~~basis, we evaluate our estimates, including those affecting revenue~~borrowings recognition, the allowance for doubtful accounts, inventory valuation, intangible assets, income taxes and general business contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

~~Results~~As part of ~~Operations~~its senior credit facility, the Company has a line of credit under which it can borrow up to $10.0 million, subject to certain restrictions, including available borrowing capacity. At September 30, 2008, the line of credit had an outstanding balance of approximately $1.8 million with the ability to borrow up to an additional $8.2 million. Interest is due quarterly and is based on JP Morgan Chase Bank’s prime rate plus 0.5% or LIBOR plus 3.0%. If we were to breach our covenants or otherwise default on our obligations under the Financing Agreement governing this facility (which includes clauses that can cause a default based on a material adverse change to our business or otherwise subjectively accelerate the due date of our debt), we may be unable to borrow additional amounts under the line of credit. See Liquidity discussion in Note 2.

	Three months ended March 31,
	2005			2004
Net sales	$	39,945		$	25,681
Gross profit	13,335			6,912
Selling, general and administrative	9,545			8,292
Research and development	1,955			1,972
Total operating expenses	11,500			10,264
Other expense	(1,313		)	(597		)
Provision for income taxes	26			5
Income (loss) from continuing operations	496			(3,954		)
Recognized gain on discontinued operations	2,827			—
Net income (loss)	3,323			(3,954		)

(b) Long-term debt

~~Three~~At ~~Months~~September 30, ~~Ended~~2008 ~~March~~ and December 31, ~~2005~~2007, ~~vs.~~the ~~Three~~Company’s ~~Months~~long-term ~~Ended~~debt ~~March~~consisted ~~31,~~of ~~2004~~the following (in thousands):

Net Sales


	September 30,			December 31,
	2008			2007

Ableco Term Loan A	$	17,703		$	19,203
Ableco US Term Loan B		34,333			39,333
Ableco UK Term Loan B		28,750			29,500
Ableco Term Loan C		12,657			12,322

		93,443			100,358
Convertible debt, net of discount		2,110			—

		95,553			100,358
Less: current portion of long-term debt		(3,000	)		(8,000	)
Less: long-term debt portion classified as current		(90,443	)		—


Long-term debt	$	2,110		$	92,358

~~Net~~In ~~sales~~accordance ~~from~~with ~~continuing~~Emerging ~~operations~~Issues ~~increased~~Task byForce ~~55.5%~~Issue ~~to $39~~No.~~9 million~~ 86-30 ~~during~~(“EITF ~~the~~86-30”) ~~three~~“Classification ~~months ended March 31, 2005 from $25.7 million in the~~of ~~comparable~~Obligations ~~period~~When ina ~~2004. $6.1~~Violation ~~million of~~Is ~~this~~Waived ~~increase~~by ~~related to~~ the ~~acquisition~~Creditor”, ofat ~~St. Louis Music~~September 30, ~~Inc.~~2008, the ~~remaining~~ ~~increase~~Company ~~primarily~~has reclassified outstanding ~~related~~debt tounder ~~increased~~the ~~product~~Financing ~~availability~~Agreement ~~from~~as ~~our contract~~current ~~manufacturers~~in ~~and~~ the ~~introduction~~accompanying condensed ofconsolidated ~~new~~financial ~~products~~statements.

WeThe ~~expect~~$93.4 million ~~sales~~term inloans ~~future~~under ~~periods~~the $112 million senior secured credit facility require the Company to bemake ~~higher~~quarterly ~~than~~principal ~~sales~~payments. inAs of September 30, 2008, the ~~current~~interest rates ~~quarter~~applicable ~~primarily~~under ~~caused~~the byterm loans under the ~~benefit~~Financing Agreement were as follows: (a) Term Loan A bears interest at the JP Morgan Chase Bank’s prime rate plus 0.85% or LIBOR plus 3.35%, (b) Term Loans B bear interest at the JP Morgan Chase Bank’s reference rate, base rate or prime rate plus 3.25% or LIBOR plus 5.50%, and (c) Term Loan C bears interest at the JP Morgan Chase Bank’s reference rate, base rate or prime rate plus 4.5% or LIBOR plus 7.0%. In addition, Term Loan C bears additional paid in kind interest of 3.5%, added to the principal balance of Term Loan C on a monthly ~~complete~~basis. ~~quarter~~Interest is due quarterly on each term loan. The $112 million senior credit facility is secured by substantially all of ~~sales~~the ~~from~~assets Stof the Company and its subsidiaries. ~~Louis~~See ~~Music,~~Note ~~Inc~~11 (Subsequent Events) regarding Amendment No. 4.

~~Gross Profit~~12

GrossTable profit increased to $13.3 million, or 33.4% of net sales, in the three months ended March 31, 2005 from $6.9 million, or 26.9% of net sales, in the three months ended March 31, 2004. The increase in gross profit percentage is primarily a result of improved margins in the first quarter of 2005 as we recognize the benefit of lower costs in outsourcing our production oversees. There was alsoContents

13Pursuant to Amendment No. 4 to the Financing Agreement, the interest rates applicable to the existing term loans provided under the Financing Agreement increased from and after the date of Amendment No.4 to the following rates: (a) Term Loan A bears interest at the JP Morgan Chase Bank’s reference rate, base rate or prime rate plus 1.10% or LIBOR plus 3.6%, (b) Term Loans B bear interest at the JP Morgan Chase Bank’s reference rate, base rate or prime rate plus 4.25% or LIBOR plus 6.5%, and (c) Term Loan C bears paid in kind interest of 5.5% per annum in addition to the current cash interest due. An affiliate of Sun Mackie, LLC holds a participation of approximately 75% in Term Loan C.

aOn ~~percentage~~March 18, ~~decrease~~2008, inthe ~~costs~~Company ~~such~~issued asto ~~freight~~our controlling shareholder, ~~warehousing~~Sun Mackie LLC, a $7.5 million Convertible Senior Subordinated Secured Promissory Note due 2012 (the “Note”) that is secured by all of the assets of the Company now owned and thereafter acquired. The Note bears ~~warranty~~interest ~~expense~~at a rate of 15.25% per annum, payable in kind until maturity, and is convertible into common stock stated at a conversion price of $5.00 but is adjusted upon the ~~first~~occurance ~~quarter~~of ~~2005~~certain ~~compared~~events. toWe ~~2004~~paid Sun Mackie a fee of $150,000 upon issuance of the Note.

WeThe ~~expect~~Company ~~our~~applied ~~gross~~the ~~margin~~guidance ~~percentage~~of Emerging Issue Task Force (“EITF”) No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingent Adjustable Conversion Ratios” and EITF No. 00-27, “Application of Issue No. 98-5 Certain Convertible Instruments” and concluded that the convertible debt included a beneficial conversion feature, which was valued at $6.7 million using the fair value of the stock at the commitment date and the stated conversion rate. This amount was determined by multiplying the shares to ~~slightly~~be ~~decrease~~issued inupon ~~future~~conversion ~~quarters~~times the ~~primarily~~intrinsic ~~caused~~value per share. The number of shares to be issued upon conversion was calculated by adding athe ~~complete~~proceeds ~~quarter~~of $7.5 million plus the unpaid accrued interest at maturity and dividing this sum by the stated conversion price of ~~sales~~$5.00. The intrinsic value per share is the difference between the $7.35 fair-value of Stthe stock at commitment date less the stated conversion price. ~~Louis~~The beneficial ~~Music~~conversion feature was recorded as a debt discount, ~~Inc~~credited to additional paid in capital, and is being amortized to interest expense over the term of the Note using the effective interest method.’s As a result of options granted at an exercise price of $4.61 per share during the ~~products~~third ~~with~~quarter ~~lower~~of ~~margin~~2008, ~~percentages~~the conversion price was reset at an amount of $4.96 per share.

~~Selling~~Pursuant to the terms of the Convertible Senior Subordinated Secured Promissory Note, ~~General~~the Company must maintain compliance with certain restrictive covenants, including but not limited to cross-covenants with the Company’s Senior Subordinated debt and ~~Administrative~~timely filings with the Securities and Exchange Commission. As of September 30, 2008, the Company had not incurred an “event of default” because the holder of the notes had not provided written notice to the Company of any such default.

~~Selling,~~The ~~general~~following ~~and~~table ~~administrative~~summarizes ~~expenses~~the ~~increased~~activity byrelated ~~$1.2 million~~ to ~~$9.5 million in~~ the ~~three~~Company’s ~~months~~convertible ~~ended~~debt ~~March~~issued ~~31, 2005 from $8.3 million~~ in ~~the~~ ~~comparable period in 2004, of which $1.1~~March ~~million was due to the~~2008: acquisition of St. Louis Music, Inc., the remaining increase was primarily due to higher commission costs caused by higher revenues offset by decreases in telephone and utility expenses, lower allowances due to an improved accounts receivable aging and lower professional fees.

We expect our selling, general and administrative expenses to increase in future quarters with the addition of a complete quarter of expenses of St. Louis Music, Inc.


Face value of convertible debt(s)	$	7,500
Less: unamortized debt discounts		(6,017	)
Add: accreted interest		627

Total carrying value, net of debt discount September 30, 2008	$	2,110

~~Research~~The debt issuance costs associated with the financing are recorded as a long-term asset and ~~Development~~are being amortized over the term of the debt to interest expense using the effective interest method. The debt issuance costs include cash costs of $336,000 for legal and Sun Mackie related fees.

~~Research and development expenses were $2~~9.0 ~~million for both 2005 and~~Guarantees 2004. We have and will continue to invest in new products and improvements to existing products. Accordingly, we anticipate our research and development costs will be higher the remainder of 2005 compared to 2004.

~~Other~~In ~~Income~~the ordinary course of business, except for standard indemnification and warranty provisions that give rise only to the disclosure requirements prescribed by FIN No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (~~Expense~~“FIN 45”), the Company is not subject to any significant obligations under guarantees that fall within the scope of FIN 45.

~~Net~~Indemnification ~~other~~and ~~expense~~warranty ~~was~~provisions ~~$1.3~~contained ~~million~~within ~~for~~ the ~~three~~Company’s ~~months~~sales ~~ended~~agreements ~~March 31,~~are ~~2005~~generally asconsistent ~~compared~~with tothose ~~net~~prevalent ~~other~~in ~~expense~~its ~~of $0~~industry.6 ~~million for the three months ended March 31, 2004.~~ The ~~primary~~duration ~~causes~~ of ~~this~~product ~~fluctuation~~warranties ~~were~~is generally aone ~~$0.2~~to ~~million~~five ~~difference~~years infollowing ~~foreign~~delivery ~~exchange~~of ~~loss~~products, ~~an increase~~with inthe ~~management~~exception ~~fees~~ of ~~$0.2 million in~~ the ~~first quarter of 2005 as a~~Company’s ~~result~~Alvarez ofYairi ~~higher EBITDA~~guitars, ~~the~~which ~~acquisition~~have ~~of St. Louis Music, Inc. and~~ a ~~difference~~ inlimited ~~other~~lifetime ~~income (expense) of $0~~warranty.~~2 million primarily caused by a gain~~ ~~on sale of fixed assets of $0.1 million in the first quarter of 2004.~~

~~We expect other expense to increase in future quarters as a result of~~13 ~~higher interest expense caused by the increase in debt as a result of the St. Louis Music, Inc. acquisition.~~

IncomeTable Taxesof Contents

~~Income~~The ~~tax~~warranty ~~expense for the first quarter of 2005 was $26~~liability,~~000~~ ~~compared to~~which ~~$5,000~~is ~~for~~included ~~the comparable period~~ in ~~2004. The~~accrued ~~primary~~liabilities, ~~component of the 2005 tax~~ is ~~from~~summarized ~~our~~as ~~U.S.~~follows entities. The amount is computed by applying the Alternative Minimum Tax rate to the taxable income we are unable to apply towards our NOLs. The 2004 taxes primarily relate to our non-U.S. subsidiaries. No benefit was recognized (in ~~connection with our 2004 losses as~~ ~~recognition of such benefits depended on future profits, which are not assumed.~~thousands):

Recognized Gain on Discontinued Operations


	2008			2007
Balance at December 31, 2007 and 2006	$	1,065		$	1,160
Acquisition of Martin Audio					46
Charged to cost of sales		1,456			1,586
Applied to liability		(1,426	)		(1,733	)
Foreign currency adjustment		(6	)		2

Balance at September 30, 2008 and 2007	$	1,089		$	1,061

~~In March 2005, we recognized a $2~~10.8 ~~million~~Commitments ~~gain~~and ~~from the discontinued~~Contingencies operations of our former Italian subsidiary, net of tax of $0.1 million. This gain was a result of a settlement agreement with Mackie Italy to settle any net outstanding amounts owed by the Company.

~~Liquidity~~We are involved in various legal proceedings and ~~Capital~~claims ~~Resources~~that arise in the ordinary course of business. We believe that the ultimate resolution of these proceedings will not have a material effect on our financial position, liquidity or results of operations.

OnIn ~~March 4, 2005, in accordance with~~ the ~~acquisition~~normal ~~agreement,~~course ~~we acquired 100%~~ of business the ~~shares~~Company ofhas ~~St.~~entered ~~Louis~~into ~~Music,~~numerous ~~Inc.,~~purchase acommitments ~~Missouri-based~~from ~~manufacturer~~suppliers, ~~distributor~~including ~~and~~its ~~importer~~contract ofmanufacturers, ~~branded~~which ~~musical~~range ~~instruments~~between ~~and professional~~$20 million ~~audio products. The Company believes the acquisition will further diversify the Company’s product offerings~~ and ~~to help acquire, retain and extend relationships with customers~~$35 million.

~~In February 2005, we made an offer to Mackie Italy to settle any outstanding amounts owed by the Company for $4~~11.7 ~~million. This~~Subsequent ~~proposal was accepted in May 2005. Under the terms of the settlement agreement,~~Events we issued a stand-by letter of credit to Mackie Italy for $1.0 million, and we committed to make further payments of $1.5 million during the remainder of 2005 and $2.2 million during 2006. We recognized a gain on discontinued operations of $2.9 million in the first quarter of 2005.

AsOn October 21, 2008 the Company filed a Current Report on Form 8-K which disclosed that the Company intended to amend the disclosure relating to management’s report on the effectiveness of ~~March~~internal control over financial reporting contained in Amendment No. 2 (“Amendment No. 2”) to its Annual Report on Form 10-K for the year ended December 31, ~~2005,~~2007 we(the “Form 10-K”). Amendment No. 2 had been ~~cash~~filed ~~and~~on ~~cash~~July 25, ~~equivalents~~2008 in response to a comment letter from the Staff of ~~$772,000~~the Securities and ~~total~~Exchange ~~debt~~Commission ~~and~~noting, ~~short~~among other things, that the Company failed to include in its Form 10-~~term~~K the ~~borrowings~~Item 9A ofmanagement ~~$61.0~~report ~~million~~on internal control over financial reporting. At On March 24, 312009, ~~2005~~the weCompany ~~had~~filed ~~availability~~Amendment ~~of $~~No. 3 to the Form 10-K which amended the disclosure contained in Amendment No. 2 ~~million~~relating onto ~~our~~the ~~revolving~~effectiveness ~~line~~ of ~~credit,~~the Company’s internal control over financial reporting and disclosure $6controls and procedures.9 Amendment No. 3 to the Form 10-K included management’s ~~million~~conclusion onthat ~~our~~the ~~demand~~Company’s ~~line~~internal control over financial reporting and disclosure controls and procedures were not effective as of ~~credit~~December 31, 2007. For additional information see Part I, Item 4T “Controls and Procedures”.

~~Net~~On ~~Cash~~November 6, 2008, the Company filed a Current Report on Form 8-K which disclosed that the Company intended to amend the disclosure in Item 4 and Item 4T of its Quarterly Reports on Form 10-Q for the quarterly periods ending March 31, 2008, and June 30, 2008. On March 24, 2009, the Company filed an amendment to the Form 10-Q for the quarter ended March 31, 2008 which amended the disclosure therein in Item 4 relating to the effectiveness of the Company’s disclosure controls and procedures and an amendment to the Form 10-Q for the quarter ended June 30, 2008 which amended the disclosure therein in Item 4 relating to the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting (~~Used~~the “Form 10-Q/As”). ~~Provided~~The Form 10-Q/A’s included management’s conclusion that the Company’s disclosure controls and procedures were not effective as of the end of the periods covered by the Form 10-Q’s. For additional information see ~~Operating~~Part I, ~~Activities~~Item 4T “Controls and Procedures”.

~~Cash~~On ~~used~~November 6, by2008, ~~operating~~the ~~activities~~Company ~~was~~filed $1a Current Report on Form 8-K announcing a reorganization of its marketing, sales and engineering functions.9 ~~million~~The inreorganization was approved by the ~~three~~Board ~~months~~of ~~ended~~Directors ~~March~~on 31the same day. Under the new organization, ~~2005~~product strategy, ~~compared~~development and marketing for the company’s MI Brands and Pro business will be managed by separate, dedicated product management teams, while marketing communications for all LOUD brands will be consolidated and managed by a shared marketing support team. The Company’s worldwide engineering resources will be scaled accordingly to ~~cash~~support ~~provided~~a more focused product development schedule. LOUD will also move North American sales for its current captive sales force to a group of $1independent sales representation firms and consolidate portions of its international sales force.9 The reorganization is being implemented in response to the Company’s strategic review. The Company’s strategic review determined that the current economic environment did not provide the potential to deliver an acceptable long-term return on investment under the Company’s then-existing structure and that the Company’s remaining resources would be better spent addressing market needs and revenue opportunities in the musical instrument and pro audio equipment industry with a more focused development schedule.

millionTable for the comparable period in 2004. Net cash used by operating activities in the first three months of 2005 was primarily attributable to decreases in accounts payable and other accrued expenses, and the recognized gain on discontinued operations of Mackie Italy, partially offset by decreases in inventories and prepaid and other current assets. In the first three months of 2004, cash provided by operating activities was primarily attributable to a decrease in inventories, accounts receivable and other assets, and an increase in accounts payable and other accrued expenses, partially offset by an increase in prepaid expenses and other current assets.Contents

~~Net~~The ~~Cash~~restructuring ~~Used~~generated a net reduction of approximately 90 employees, or approximately 18% of the regular full-time staff, and was implemented by the end of 2008. The Company undertook the reduction in ~~Investing~~workforce in order to conserve cash and align its workforce within its anticipated ~~Activities~~staffing needs in light of its strategic refocusing of its development programs. The Company expects to incur charges relating to the restructuring plan of approximately $2.0 million, of which approximately $1.5 million relates to one-time termination benefits. These charges will result in cash expenditures, of which the Company expects $1.0 million will be incurred in the fourth quarter of 2008 and the remainder will be incurred during 2009. The above estimated costs and charges are preliminary and may vary materially based on various factors, including the timing and success of the Company’s reduction in workforce, the reorganization of its marketing, sales and engineering functions, and changes in management’s assumptions and projections.

~~Cash~~On ~~used~~November 6, in2008, ~~investing~~the ~~activities~~Company ~~was~~filed a Current Report on Form 8-K announcing it had entered into Amendment No. 4 to its financing agreement dated March 30, 2007. Under Amendment No. 4, a new $355.0 million ~~for~~term loan (“Term Loan D”) was provided to LOUD. The proceeds of the ~~first~~Term ~~three~~Loan D are ~~months~~required to be used to repay a portion of ~~2005~~the revolving loan under the Financing Agreement, pay fees and ~~$0.1~~costs ~~million~~associated ~~for~~with the ~~first~~Amendment, ~~three~~and ~~months~~fund ofworking ~~2004.~~capital ~~The~~to ~~cash~~the extent there are no ~~used~~outstanding inrevolver ~~investing~~loans ~~activities~~on the effective date of the Amendment. A 100% participation interest in ~~2005~~Term Loan D was ~~primarily~~purchased ~~related~~by an affiliate of Sun Mackie. Term Loan D bears interest at a per annum rate of 15.0% to be paid-in-kind by being added to the ~~acquisition~~principal balance of Term Loan D on a monthly basis on the first day of ~~St.~~each ~~Louis~~month ~~Music,~~after ~~Inc.~~the effective date of ~~$34.6~~the ~~million~~Amendment. The ~~Additionally,~~maturity indate ~~2005~~of ~~and~~Term ~~2004~~Loan D is March 30, ~~$0.5~~2012, ~~million~~at which time all principal and $0all accrued and unpaid interest are payable in cash.8 ~~million~~LOUD has paid an amendment fee to the Administrative Agent of ~~respectively~~$250,000 ~~consisted~~at closing, and to Sun Capital Partners Management, LLC, an affiliate of ~~purchases~~Sun Mackie, an amendment fee of ~~capital~~$250,000, ~~expenditures~~which ~~for~~amount ~~tooling~~is ~~used~~ due and payable in ~~manufacturing~~accordance bywith ~~our~~the ~~contract~~following schedule: ~~manufacturers. In~~(i) ~~2004~~$62,500 ~~this~~upon ~~amount~~entry ~~was~~into the Amendment, (ii) $62,500 on December 31, 2008, (iii) ~~offset~~$62,500 byon ~~cash~~March 31, ~~received~~2009 ofand (iv) $062,500 on June 30, 2009.7 ~~million~~Term ~~from~~Loan ~~the~~D ~~sale~~is ofsubject ~~manufacturing~~to the same ~~equipment~~terms inand ~~our~~certain ~~Woodinville~~events ~~location~~and defaults as term loans covered by the Financing Agreement.

AsAmendment ~~part~~No. 4 ofalso ~~our~~provided ~~third~~that ~~party~~the ~~manufacturing~~Collateral ~~agreements~~Agent, ~~many~~the ofAdministrative ~~our~~Agent and the lenders ~~contract~~waive ~~manufacturers~~compliance ~~require~~with ~~that~~certain wefinancial ~~invest~~covenants set forth in ~~tooling~~the ~~equipment~~Financing ~~prior~~Agreement, specifically, to(a) (the consolidated leverage ratio, (the fixed charge coverage ratio -(the EBITDA ~~start~~covenants) (collectively the “Designated Financial Covenants”) and any Default and Event of ~~manufacture. Accordingly~~Default that may have arisen prior to, weor ~~anticipate~~existed ~~capital~~on ~~spending~~the ateffective date of the amendment as a result of any ~~same~~failure ~~level~~to orcomply ~~higher~~with inthe ~~each~~Designated Financial Covenants for the fiscal quarter ending September 30, 2008. In addition, the lenders reset the calculation to begin effective the beginning of the fourth ~~remaining~~quarter ~~quarters~~2008 of ~~2005~~designated financial covenants.

~~Net~~Pursuant ~~Cash~~to Amendment No. 4 to the Financing Agreement, the interest rates applicable to the existing term loans provided under the Financing Agreement will increase from and after the date of Amendment No.4 to the following rates: (~~Used~~a) Term inLoan A bears interest at the JP Morgan Chase Bank’s reference rate, base rate or prime rate plus 1.10% or LIBOR plus 3.6%, (b) Term ~~Provided~~Loans byB bear ~~Financing~~interest ~~Activities~~at the JP Morgan Chase Bank’s reference rate, base rate or prime rate plus 4.25% or LIBOR plus 6.5%, and (c) Term Loan C bears paid in kind interest of 5.5% per annum, in addition to the cash interest currently payable. An affiliate of Sun Mackie, LLC holds a participation of approximately 75% in Term Loan C.

~~Cash~~On ~~provided~~November 6, by2008, ~~financing~~the ~~activities~~Company ~~was~~filed ~~$37.3~~a ~~million~~Current ~~during~~Report on Form 8-K announcing that the Board of ~~first~~Directors ~~three~~received ~~months~~a ofproposal ~~2005,~~from ~~compared~~Sun Mackie to ~~cash~~acquire ~~used~~all of ~~$2.3~~the ~~million~~outstanding ~~during~~shares ~~the~~of common ~~first~~stock ~~three~~of ~~months~~the Company not held by Sun Mackie for a price of ~~2004~~$1. ~~Financing~~45 ~~activities~~in ~~during~~cash ~~the~~per ~~first~~share. ~~quarter~~ The Board of Directors ~~2005~~appointed ~~related~~a ~~primarily~~Special Committee of independent directors to ~~the~~consider ~~acquisition~~and ofevaluate Stthe proposal. ~~Louis~~The ~~Music,~~Special ~~Inc.~~Committee ~~resulting~~retained independent financial advisors and legal counsel to assist in its work. On January 15, 2009, the Company filed a ~~new~~Current ~~demand~~Report ~~credit~~on ~~facility~~Form of8-K ~~$35.1~~announcing that ~~million~~the Company and Sun Mackie determined they are unable to complete the proposed going private transaction. In ~~addition~~the same Form 8-K, ~~this~~the ~~increase~~Company ~~was~~disclosed ~~due~~the todetermination ~~net~~by the Company’s Board ~~borrowings~~of onDirectors ~~our~~to ~~line~~cause ofthe ~~credit~~delisting of ~~$2.2~~the ~~million. Financing~~Company’s ~~activities~~common instock from the ~~first~~NASDAQ ~~quarter~~Stock ofMarket LLC ~~2004~~(the ~~relate~~“NASDAQ”) ~~primarily~~and to ~~payments~~terminate onthe ~~our~~registration ~~long-term~~of ~~debt~~its ofcommon ~~$0.8~~stock ~~million~~under ~~and~~the ~~net~~Securities Exchange ~~repayments~~Act onof ~~our~~1934, ~~line~~as ofamended ~~credit~~(the of“Exchange $1Act”).~~6 million.~~

~~Payments~~On November 14, 2008, the Company announced the sale of its SLM Marketplace catalog and ~~Proceeds~~accessories distribution ~~from~~business ~~Long-term~~and proprietary St. Louis Stage Gear brand, along with the Austin guitar and ~~Debt~~Knilling Instruments brands, ~~Line~~for approximately $1.9 million. As of ~~Credit~~September 30, 2008, as a result of the sale the Company reduced associated inventories to net realizable value of approximately $1.7 million, and ~~Other~~wrote ~~Short-term~~off ~~Borrowings~~intangible assets of approximately $1.4 million, associated with the brands.

~~We borrowed $35.1 million on a revolving short-term demand credit~~15 ~~facility, guaranteed by Sun Capital Partners III QP, LP, to finance the acquisition of St. Louis Music, Inc.~~

UnderTable the terms of the line of credit and subordinated loan agreements, we are required to maintain certain financial ratios, such as a cumulative EBITDA calculation. The agreement also provides, among other matters, restrictions on additional financing, dividends, mergers, acquisitions, and an annual capital expenditure limit.Contents

~~Ability~~On December 17, 2008, the Company filed a Current Report on Form 8-K announcing a disruption in the supply of the Company’s products that resulted in a backlog of orders. The Company learned recently that the supplier had ceased manufacturing products for the Company due to ~~stay~~financial difficulties the supplier is experiencing. The supplier had been producing products for the Company under contract since December 2000. Products produced by this supplier represented approximately 39.5% of the Company’s net sales in ~~compliance~~the ~~with~~year ended December 31, 2007, and ~~debt~~approximately ~~covenants~~46.7% of the Company’s net sales in the six month period ended June 30, 2008. For additional information, see Part II, Item 1A “Risk Factors — Our operating performance will be adversely affected by difficulties we are experiencing with a major contract supplier”.

WeOn ~~have~~January 7, ~~entered~~2009 ~~into~~the ~~amendments~~Company ofcompleted ~~our~~an ~~line~~additional reorganization of ~~credit~~its administration and operational ~~term~~support ~~loans~~functions. ~~in April,~~The ~~August~~restructuring ~~and~~generated ~~October~~a ofnet ~~2004,~~reduction ~~which~~of ~~have~~40 ~~revised~~employees, ~~debt covenants. The~~or ~~key~~approximately ~~financial~~8% ~~covenants are achievement~~ of ~~certain EBITDA targets for~~ the ~~term of~~regular ~~the~~full-time ~~agreement~~staff. The ~~October~~Company ~~agreement requires~~undertook ~~us to meet~~ the ~~EBITDA~~reduction ~~target~~in ~~for the previous twelve months measured~~workforce ~~quarterly~~in ~~beginning~~order ~~March~~to ~~31,~~conserve ~~2005. We met~~cash ~~this target at March 31, 2005~~ and ~~believe~~align weits ~~will~~workforce ~~meet~~within ~~this~~its ~~target~~anticipated ~~each quarter~~staffing ~~thereafter in 2005~~needs.

~~Commitments~~On February 2, 2009, the Company filed a Current Report on Form 8-K describing the results of an independent investigation by the audit committee, the Company’s plans relating to the completion and filing of corrective amendments to the Form 10-K and Form 10-Qs referred to in the first paragraph of this Note 11, and an update regarding its plans to delist its common stock from the NASDAQ and deregister its common stock under the Exchange Act.

WeOn February 26, 2009, the Company filed a Current Report on Form 8-K disclosing that it had received a staff determination letter from the ~~following~~NASDAQ ~~material~~indicating ~~contractual~~that ~~commitments~~the ~~related~~Company’s tocommon stock ~~operating~~would ~~leases~~be ~~for~~delisted ~~equipment~~on ~~facilities~~March at3, ~~March~~2009 ~~31,~~due ~~2005. In~~to the Company’s failure to timely submit an acceptable plan ~~addition,~~to weregain ~~had~~compliance ~~material~~with ~~obligations~~NASDAQ Marketplace Rule 4310(c)(14) related to ~~short-term~~its ~~and~~failure ~~long-term~~to ~~debt~~file a ~~arrangements,~~quarterly ~~excluding~~report ~~our~~on ~~accounts~~Form ~~payable~~10-Q ~~and~~for ~~accrued~~the ~~liabilities~~period ~~of $28.5~~ended September ~~million~~30, at2008 by the prescribed due date. On March 3, 312009, ~~2005:~~the Company’s common stock was delisted from the NASDAQ.

	Total		Less than 1 year		1-3 years
Operating leases	$	5,143	$	2,639	$	2,504
Lines of credit	49,152		49,152		—
Payable to former Italian Subsidiary	4,700		3,000		1,700
Other liabilities	3,000		—		3,000
Short-term and long-term debt	11,894		477		11,417
Total	$	73,889	$	55,268	$	18,621

WeTable believeof we have adequate resources to meet our obligations as they come due through December 31, 2005.Contents

Item 3 2. ~~Quantitative~~ Management’s Discussion and ~~Qualitative~~Analysis ~~Disclosures~~of ~~About~~Financial ~~Market~~Condition ~~Risk~~and Results of Operations

WeThis ~~are~~Quarterly ~~exposed~~Report on Form 10-Q contains forward-looking statements relating to ~~various~~LOUD Technologies ~~market~~Inc. ~~risks~~Except for historical information, ~~including~~the ~~changes~~following indiscussion ~~foreign~~contains ~~currency~~forward-looking ~~rates~~statements ~~and~~within ~~interest~~the ~~rates~~meaning of the Private Securities Litigation Reform Act of 1995. WeAll ~~may~~statements ~~enter~~other ~~into~~than ~~various~~statements ~~derivative~~of historical fact, including future results of ~~transactions~~operations toor ~~manage~~financial ~~certain~~position, made in this Quarterly Report on Form 10-Q are forward looking. The words “believe,” “expect,” “intend,” “anticipate,” “will,” “may,” variations of ~~these~~such ~~exposures;~~words, ~~however~~and similar expressions identify forward-looking statements, webut ~~did~~their absence does not ~~have~~mean ~~any~~that the ~~derivative~~statement ~~financial~~is ~~instruments~~not asforward-looking. ofThese forward-looking statements reflect management’s current expectations and involve risks and uncertainties. Our actual results could differ materially from results that may be anticipated by such forward-looking statements due to various uncertainties.

15The principal factors that could cause or contribute to such differences include, but are not limited to, the factors discussed in the section entitled “Risk Factors” in Part 1 — Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 and those discussed elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances that may subsequently arise. Readers are urged to review and consider carefully the various disclosures made in this report and in our other filings made with the SEC that disclose and describe the risks and factors that may affect our business, prospects and results of operations.

~~March~~You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. Operating results for the three and nine month periods ended September 30, 2008 are not necessarily indicative of future results including the full fiscal year. You should also refer to our Annual Consolidated Financial Statements, Notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, ~~2005~~2007, filed with the SEC on March 31, 2008.

~~At March 31, 2005, we had variable rate lines of credit with~~Overview outstanding balances of $49.1 million. As such, changes in U.S. interest rates affect interest paid on debt and we are exposed to interest rate risk. For the quarter ended March 31, 2005, an increase in the average interest rate of 10%, i.e. from 5.37% to 5.91%, would have resulted in an approximately $37,000 decrease in net income before income taxes. The fair value of such debt approximates the carrying amount on the consolidated balance sheet at March 31, 2005.

~~Our~~LOUD ~~non-U~~Technologies Inc.S. ~~subsidiaries~~was ~~have~~founded ~~functional~~in ~~currencies~~1988 ~~of the U.S. dollar~~ and ~~are~~incorporated ~~translated into U.S. dollars at exchange rates~~ in ~~effect~~Washington atunder the ~~balance~~name Mackie ~~sheet~~Designs ~~date~~Inc., ~~These~~and ~~subsidiaries~~subsequently ~~are~~changed ~~located~~its inname ~~the~~to ~~U.K.~~LOUD ~~and~~Technologies ~~Canada~~Inc. ~~Income~~ ~~and~~LOUD ~~expense~~is ~~items~~one ~~are~~of ~~translated at~~ the world’s ~~average~~largest ~~exchange~~dedicated ~~rates~~pro ~~prevailing~~audio ~~during~~and ~~the~~music ~~period~~products companies. AAs ~~10%~~the ~~decrease~~corporate inparent ~~the~~for ~~value~~world-recognized ofbrands ~~the~~Alvarez®, ~~U.S.~~Ampeg®, ~~dollar~~Crate®, ~~compared~~EAW®, toMackie®, ~~the~~Martin ~~local currencies of our non-U.S. subsidiaries~~Audio®, ~~throughout~~and ~~the quarter ended March 31~~Tapco®, ~~2005~~LOUD engineers, ~~would~~markets ~~have~~and ~~resulted in~~distributes ana ~~approximately~~wide ~~$50,000~~range ~~decrease~~of toprofessional ~~net~~audio ~~income~~and ~~before~~musical ~~income~~instrument products ~~taxes~~worldwide.

~~Item~~Our 4product lines include sound reinforcement speakers, analog mixers, guitar and bass amplifiers and professional loudspeaker systems. ~~Controls~~ These products can be found in professional and ~~Procedures~~project recording studios, video and broadcast suites, post-production facilities, sound reinforcement applications including churches and nightclubs, retail locations, and on major musical concert tours. We distribute our products primarily through retail dealers, mail order outlets and installed sound contractors. We have our primary operations in the United States with operations in the United Kingdom, Canada, China and Japan.

The Company ~~maintains~~has ~~disclosure~~the ~~controls~~following ~~and~~registered ~~procedures~~trademarks, ~~(as~~“MACKIE,” ~~defined in Rules 13a-15(e) and 15(d)-15(e) under~~ the ~~Securities~~running ~~Exchange~~man ~~Act of 1934~~figure, as“TAPCO,” ~~amended~~“EAW,” ~~(the~~“Alvarez”, “~~Exchange~~Ampeg”, ~~Act~~“Crate”)), ~~that~~and ~~are~~“Martin ~~designed~~Audio”. toTo ~~ensure~~the ~~that~~extent ~~information required~~our totrademarks beare unregistered; ~~disclosed~~we inare ~~the~~unaware ~~Company’s~~of ~~reports~~any ~~under~~conflicts ~~the~~with ~~Exchange~~trademarks ~~Act,~~owned ~~is recorded,~~by ~~processed,~~third ~~summarized~~parties. ~~and~~This document ~~reported~~also ~~within~~contains ~~the~~names ~~time~~and ~~periods~~marks ~~specified in~~of ~~the~~other ~~SEC’s rules and forms~~companies, and ~~that~~we ~~such~~claim ~~information~~no isrights ~~accumulated~~in ~~and~~the ~~communicated~~trademarks, toservice ~~the~~marks ~~Company’s~~and ~~management,~~trade ~~including~~names ~~the~~of ~~Company’s~~entities ~~Chief Executive~~other ~~Officer~~than ~~and~~those ~~Chief~~in ~~Financial~~which ~~Officer,~~we ashave ~~appropriate,~~a ~~to allow timely~~financial ~~decisions~~interest ~~regarding~~or ~~required~~licensing ~~disclosure~~right.

The Company ~~carried~~is ~~out~~highly anleveraged ~~evaluation,~~and ~~under~~maintains ~~the~~a ~~supervision~~senior ~~and~~credit ~~with the~~facility ~~participation~~that ofis ~~the~~critical ~~Company’s~~to ~~management~~its liquidity, ~~including~~growth ~~the~~and ~~Company’s~~ongoing ~~Chief Executive~~operations. ~~Officer~~The ~~and~~Financing ~~Chief~~Agreement ~~Financial~~(as ~~Officer,~~defined ofin ~~the~~Note ~~effectiveness~~8 (Financing) ofto the ~~Company’s~~ ~~“disclosure~~financial ~~controls~~statements ~~and~~included ~~procedures”~~elsewhere asin ofthis ~~the~~report) ~~end~~relating ofto ~~the~~this ~~period~~credit ~~covered~~facility byrequires ~~this~~us ~~report,~~to ~~pursuant~~maintain tofinancial ~~Rules~~ratios ~~13a-15(b)~~such ~~and~~as ~~15d-15(e)~~a ~~under~~fixed ~~the~~charge coverage ratio and a ~~Exchange~~consolidated ~~Act~~leverage ratio. ~~Based~~ onWe ~~that~~are ~~evaluation, the~~also ~~Company’s~~required ~~Chief~~to ~~Executive~~meet ~~Officer~~certain EBITDA targets and ~~Chief~~adhere ~~Financial~~to certain ~~Officer~~capital ~~have~~expenditure limits. The Financing Agreement also restricts our ability to obtain ~~concluded~~additional ~~that~~financing, ~~the~~pay ~~Company’s~~dividends, ~~disclosure~~or ~~controls~~enter into mergers and ~~procedures~~acquisitions. From time to time, aswe have been in breach of ~~the~~certain ~~end~~ of the ~~period~~financial ~~covered~~covenants byin ~~this~~the ~~report~~Financing Agreement and have received forbearances from the lenders, ~~were~~entered ~~effective~~into inwaiver ~~timely~~agreements ~~alerting~~with ~~them~~respect to ~~material~~ ~~information~~the ~~relating~~defaults and toamended the ~~Company~~Financing ~~required~~Agreement. toFor beexample, ~~included~~we were in default on certain of the financial ~~Company’s~~covenants ~~periodic~~as ~~SEC~~of ~~filings.~~the end of the

~~There has been no change in the Company’s internal control over~~17 financial reporting (as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

16Table of Contents

~~PART~~quarter IIended September 30, 2008. ~~OTHER~~ ~~INFORMATION~~In connection with Amendment No. 4 to the Financing Agreement entered into on November 5, 2008, we received a waiver from the lenders for those defaults and amended various covenants. The specific defaults and the Amendment are more fully described in Note 8 (Financing) and Note 11 (Subsequent Events) to the financial statements included elsewhere in this report.

There can be no assurances that we will be in compliance with the terms of the Financing Agreement in future periods. As discussed in Part II, Item 1A 1“Risk Factors — Our operating performance will be adversely affected by difficulties we are experiencing with a major contract supplier”. ~~Legal~~ One ~~Proceedings~~of our major suppliers suspended manufacturing products for us in the fourth quarter of 2008. The adverse impacts of the global economic downturn on our operating performance coupled with the disruption in supplies of products previously manufactured by this supplier is likely to cause us to be out of compliance with certain covenants under the Financing Agreement by the end of the first quarter of 2009 unless the lenders agree to waive such noncompliance or to amend the covenants. While these developments raise substantial doubt about the Company’s ability to continue as a going concern, the Company initiated an ongoing comprehensive supply recovery plan in December, 2008 and has already established two new contract manufacturing relationships, scheduled a $3.1 million investment in tooling, expanded capacity at a company-owned facility, and recovered production on 36 models which represent 35% of the 102 models to be recovered.

~~The~~If ~~Company~~we do breach the covenants under the Financing Agreement relating to our senior secured credit facility, we intend to seek waivers from the lenders under the Financing Agreement or to negotiate an amendment to the Financing Agreement covenants. However, there is ~~involved~~no inassurance ~~various~~that ~~legal~~the ~~proceedings~~lenders would ~~and~~grant ~~claims~~waivers, agree to amend the covenants under the Financing Agreement, allow us to continue borrowing under this credit facility or otherwise agree to restructure our debt or that we ~~arise~~would be able to obtain other financing. Moreover, it is likely that external sources of financing necessary to restructure our debt would not be available and our controlling shareholder has not provided any assurances that it will provide additional financial support in the ~~ordinary~~future. ~~course~~If we breach the covenants under our Financing Agreement or otherwise default on our debt, the lenders have a variety of ~~business.~~ remedies against us, including accelerating all amounts outstanding under the ~~The~~credit ~~outcome~~facility so that such amounts come due immediately and foreclosing on their security interests, which would allow the lenders (or a third party purchaser in a foreclosure sale) to take possession of all of our assets; any of such ~~matter~~steps could impede our ability to continue as a going concern. If the supply disruption leads to an event of default under the Financing Agreement that is ~~currently~~not cured or waived, and the lenders accelerate the indebtedness outstanding under the Financing Agreement, it is likely that the Company would not ~~determinable~~have sufficient cash flow from operations or access to other sources of financing necessary to meet its cash requirements.

~~Item 2. Unregistered~~Critical ~~Sales~~Accounting ofPolicies ~~Equity Securities~~ and ~~Use of Proceeds~~Judgments

~~None~~The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

~~Item~~We believe there have been no additional significant changes in our critical accounting policies ~~3. Defaults~~during ~~upon~~the ~~Senior~~nine ~~Securities~~months ended September 30, 2008 from that disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, except as follows.

~~None~~The Company reviews goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. In testing for potential impairment of goodwill, we estimate the fair value of our businesses to which goodwill relates and determine the carrying value (book value) of the assets and liabilities related to those businesses. The first step in the goodwill impairment analysis is to determine if the estimated fair value is less than the carrying value of each reporting unit. If the estimated fair value is less than the carrying value for that particular reporting unit, then we are required to perform a second step in the goodwill impairment analysis to estimate the fair value of all identifiable assets and liabilities of the reporting unit, in a manner similar to a purchase price allocation for an acquired business to determine the estimated fair value of goodwill. The amount of any goodwill impairment is determined through this process.

~~Item~~The process of evaluating the potential impairment of goodwill requires significant judgment at 4many points during the analysis. ~~Submission~~ In determining the carrying value of ~~Matters~~the reporting units, we had to aapply ~~Vote~~judgment ofto ~~Security~~allocate ~~Holders~~the assets and liabilities.

~~None.~~18

ItemTable 5. Otherof InformationContents

~~None~~In estimating the fair value of the reporting units with recognized goodwill for the purposes of our annual or periodic analyses, we make estimates and judgments about the future cash flows of these reporting units. Although our cash flow forecasts are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying reporting units, there is significant judgment in determining the cash flows attributable to these reporting units over their remaining useful lives.

~~Item~~Based on numerous factors which arose in the current quarter, including but not limited to 6deteriorating economic conditions and related challenges in the markets and industry in which we compete, the Company’s recent performance relative to historical operating results, projected future operating results, and troubles with a major supplier, we performed goodwill impairment testing for the quarter ended September 30, 2008. ~~Exhibits~~

~~Exhibits~~For the purpose of this analysis, our estimates of fair value are based on a combination of the income approach, which estimates the fair value of our reporting units based on the future discounted cash flows, and the market approach. As of the date of this filing, the Company has not completed this analysis due to the complexities involved in determining the implied fair value of the goodwill of each reporting unit. However, based on the work performed to date, we have concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, we have recorded a non-cash goodwill impairment charge of approximately $15.5 million, representing our best estimate of the impairment loss during the third quarter of 2008.

~~31.1~~We ~~Certification~~expect to finalize our goodwill impairment analysis during preparation of ~~Chief~~financial ~~Executive~~statements for ~~Officer~~the ~~Pursuant~~fourth quarter of 2008. There could be adjustments to ~~Section~~the ~~302~~goodwill impairment charge when ofthe goodwill impairment test is completed. Any adjustments to the ~~Sarbanes-Oxley~~Company’s ~~Act~~preliminary estimates as a result of ~~2002~~completing this evaluation will be recorded in our financial statements for the year ended December 31, 2008.

31Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.2S. ~~Certification~~GAAP and SEC regulations for interim financial statements. The preparation of ~~Chief~~these ~~Financial~~condensed consolidated ~~Officer~~financial ~~Pursuant~~statements requires us to ~~Section~~make ~~302~~estimates and judgments that affect the reported amounts of ~~the~~assets, ~~Sarbanes~~liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-~~Oxley~~going ~~Act~~basis, we evaluate our estimates including revenue recognition, the allowance for doubtful accounts, inventory valuation, intangible assets, income taxes and general business contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of ~~2002~~which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

~~32.1~~Results ~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906~~ of ~~the~~Operations ~~Sarbanes-Oxley~~(in ~~Act of 2002.~~thousands)


	Three months ended						Nine months ended
	September 30,						September 30,
	2008			2007			2008			2007

Net sales	$	46,857		$	53,094		$	155,986		$	154,630
Gross profit		11,896			15,140			44,823			43,279

Selling, general and administrative		11,759			11,442			35,282			33,975
Research and development		2,777			2,826			8,392			8,457
Restructuring costs		86			158			382			1,712
Impairment of goodwill		15,510			—			15,510			—

Impairment of intangibles		1,358			—			1,358			—


Total operating expenses	$	31,490		$	14,426		$	60,924		$	44,144
Operating income (loss)		(19,594	)		714			(16,101	)		(865	)
Interest and other expense		(3,741	)		(3,071	)		(10,567	)		(10,197	)
Provision for income taxes		73			(446	)		302			(451	)

Net income (loss)	$	(23,408	)	$	(1,911	)	$	(26,970	)	$	(10,611	)

~~SIGNATURES~~Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007

~~Pursuant to the requirements of the Securities Exchange Act of 1934,~~19 ~~the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

		LOUD Technologies Inc.
		(Registrant)
Dated: May 16, 2005	By:	/s/ James T. Engen
		James T. Engen
		President, Chief Executive Officer and Director
Dated: May 16, 2005	By:	/s/ Timothy P. O’Neil
		Timothy P. O’Neil
		Chief Financial Officer, Vice President, Secretary and Treasurer (Principal Financial and Accounting Officer)

18Net Loss

~~EXHIBIT~~Results of operations for the three months ended September 30, 2008, showed a net loss of ~~INDEX~~approximately $23.4 million, an increase of $21.5 million from a net loss of $1.9 million for the comparable period in 2007. Operating loss for the three months ended September 30, 2008 was $19.6 million compared to operating income of $0.7 million in the comparable period in 2007. The increase in net loss and operating loss is primarily due to a slower retail summer in 2008 that had fewer than normal customers entering into the musical instrument retail establishments, the continued challenge in delivering products to our customers due to supply chain constraints, and the write down of inventories and intangibles associated with the sale of the distribution business as described in Note 11 (Subsequent Events) to the financial statements included elsewhere in this report. In addition, the net loss was impacted significantly by the impairment of goodwill which arose in the current quarter, due to deteriorating economic conditions, related challenges in the markets and industry in which we compete, the Company’s recent performance relative to historical operating results, projected future operating results, and troubles with a major supplier.

Exhibit Number		Document Description
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Net Sales

19Net sales decreased by 11.7% to $46.9 million during the three months ended September 30, 2008 from $53.1 million in the comparable period in 2007. The decrease is primarily due to a slower retail summer in 2008 that had fewer than normal customers entering into the musical instrument retail establishments and the continued challenge in delivering products to our customers due to supply chain constraints. Due to deteriorating economic conditions as described in Part II, Item 1A “Risk Factors — Our operating performance, financial condition and liquidity may be adversely impacted by deteriorating economic conditions”, net sales in the fourth quarter of 2008 declined significantly compared to net sales in the quarter ended September 30, 2008, and the Company expects that net sales for 2009 will continue to be adversely impacted by this factor and by the supply chain disruption described in Part II, Item 1A “Risk Factors — Our operating performance will be adversely affected by difficulties we are experiencing with a major contract supplier”.

Gross Profit

Gross profit dollars decreased to $11.9 million, or 25.4% of net sales, in the three months ended September 30, 2008 compared to $15.1 million, or 28.5% of net sales, in the three months ended September 30, 2007. The decrease in gross profit percentage for 2008 primarily resulted from supply chain constraints, the declining economic environment, and the write down of approximately $1.7 million in inventory associated with the sale of the distribution business, slightly offset by the positive effects of a better mix of product sales.

Selling, General and Administrative

Selling, general and administrative expenses were relatively unchanged, increasing by $0.4 million to $11.8 million in the three months ended September 30, 2008 from $11.4 million in the comparable period in 2007.

Research and Development

Research and development expenses were $2.8 million in both the three months ended September 30, 2008 and the three months ended September 30, 2007.

Restructuring Costs

We incurred approximately $86,000 in restructuring costs during the three month period ended September 30, 2008, primarily attributed to employee severance and related costs for 13 terminated employees. In the comparable period in 2007, we incurred approximately $158,000 in restructuring costs, primarily related to the closure of our inside sales group in St. Louis.

On November 6, 2008, the Company filed a Current Report on Form 8-K announcing a reorganization of its marketing, sales and engineering functions. The reorganization was approved by the Board of Directors on the same day. Under the new organization, product strategy, development and marketing for the company’s MI Brands and Pro business will be managed by separate, dedicated product management teams, while marketing communications for all LOUD brands will be consolidated and managed by a shared marketing support team. The Company’s worldwide engineering resources will be scaled accordingly to support a more focused product development schedule. LOUD will also move North American sales for its current captive sales force to a group of independent sales representation firms and consolidate portions of its

international sales force. The reorganization is being implemented in response to the Company’s strategic review. The Company’s strategic review determined that the current economic environment did not provide the potential to deliver an acceptable long-term return on investment under the Company’s then-existing structure and that the Company’s remaining resources would be better spend addressing market needs and revenue opportunities in the musical instrument and pro audio equipment industry with a more focused development schedule.

The restructuring generated a net reduction of 90 employees, or approximately 18% of the regular full-time staff, and was implemented by the end of 2008. The Company undertook the reduction in workforce in order to conserve cash and align its workforce within its anticipated staffing needs in light of its strategic refocusing of its development programs. The Company expects to incur charges relating to the restructuring plan of approximately $2.0 million, of which approximately $1.5 million relates to one-time termination benefits. These charges will result in cash expenditures, of which the Company expects $1.0 million will be incurred in the fourth quarter and the remainder will be incurred during 2009. The above estimated costs and charges are preliminary and may vary materially based on various factors, including the timing and success of the Company’s reduction in workforce, the reorganization of its marketing, sales and engineering functions, and changes in management’s assumptions and projections.

On January 7, 2009, the Company completed an additional reorganization of its administration and operational support functions. The restructuring generated a net reduction of 40 employees, or approximately 8% of the regular full-time staff. The Company undertook the reduction in workforce in order to conserve cash and align its workforce within it anticipated staffing needs.

Impairment of Goodwill

As a result of numerous factors which arose in the third quarter of 2008, including but not limited to deteriorating economic conditions and related challenges in the markets and industry in which we compete, coupled with the Company’s recent performance relative to historical operating results, projected future operating results, and troubles with a major supplier, we performed goodwill impairment testing (and reflected a write off) during the quarter ended September 30, 2008. See Note 7 (Goodwill) for further discussion. The Company had no similar expense related to impairment of goodwill in 2007.

Impairment of Intangibles

The impairment of intangible assets is associated with the sale of the distribution business. See Note 11 (Subsequent Events) to the financial statements included elsewhere in this report.

Other Expense

Other expense was $3.7 million for the three months ended September 30, 2008 compared to $3.1 million in the comparable period last year. The increase in other expense of $0.6 million is primarily due to the cost associated with the Sun Mackie $7.5 million Convertible Senior Subordinated Secured Promissory Note due 2012 issued on March 18, 2008, and is carried on the Company’s balance sheet net of discount related to a beneficial conversion feature. The discount is being amortized into interest expense over the life of the note.

The majority of our debt has variable interest rates, and the interest expense component of other income (expense) in future quarters will be affected by changing interest rates.

Income Taxes

Income tax expense for the three months ended September 30, 2008 was $0.1 million compared to a benefit of ($0.4) million for the comparable period in 2007. The primary components of the 2008 income tax include income tax expense of $0.4 million related to Canadian and UK jurisdictions where we have taxable income, partially offset by a deferred tax benefit in the United Kingdom of $0.3 million recorded as a result of the partial amortization of the intangible assets for book purposes which reduces the deferred tax liability recorded as a result of the acquisition of Martin Audio. The primary components of the 2007 benefit is the deferred tax benefit recorded as a result of the amortization of the deferred tax liability recorded as a result of the acquisition of Martin Audio.

Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007

Net Sales

Net sales increased by 0.9% to $156.0 million during the nine months ended September 30, 2008 from $154.6 million in the comparable period in 2007. The change in sales is related to strength in certain core brands of Mackie, Ampeg, and EAW, as well as, strong international sales during the first six months of the year partially offset by slower third quarter sales primarily due to a slower retail summer in 2008 that had fewer than normal customers entering into the musical instrument retail establishments and the continued challenge in delivering products to our customers due to supply chain constraints.

Gross Profit

Gross profit increased to $44.8 million, or 28.7% of net sales, in the nine months ended September 30, 2008 from $43.3 million, or 28.0% of net sales, in the nine months ended September 30, 2007. Gross profit was primarily affected by the positive effect of a better mix of product sales in spite of supply constraints and the declining economic environment partially offset by the write down of approximately $1.7 million in inventory associated with the sale of the distribution business. In addition, gross profit was affected by slowing sales in the third quarter as described above.

Selling, General and Administrative

Selling, general and administrative expenses increased by $1.3 million to $35.3 million in the nine months ended September 30, 2008 from $34.0 million in the comparable period in 2007. The increase was primarily attributable to severance and termination costs incurred and lower marketing-related expenses.

Research and Development

Research and development expenses were approximately $8.4 million and $8.5 million for the nine month periods ended September 30, 2008 and 2007, respectively.

Restructuring Costs

Restructuring costs were $0.4 million in the nine months ended September 30, 2008, primarily attributable to employee severance and related costs for 23 employees. Restructuring costs were $1.7 million in the nine months ended September 30, 2007. The 2007 costs were primarily attributable to severance accruals related to the closure and overseas transfer of our domestic manufacturing plants and the closure of our St. Louis Music engineering functions.

On November 6, 2008, the Company filed a Current Report on Form 8-K announcing the reorganization of its marketing, sales and engineering functions as described above under “—Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007 — Restructuring Costs”.

Impairment of Goodwill

As a result of numerous factors which arose in the third quarter of 2008, including but not limited to deteriorating economic conditions and related challenges in the markets and industry in which we compete, coupled with, the Company’s recent performance relative to historical operating results, projected future operating results, and troubles with a major supplier, we performed goodwill impairment testing (and reflected a write off) during the quarter ended September 30, 2008. See Note 7 (Goodwill) for further discussion. The Company had no similar expense related to impairment of goodwill in 2007.

Impairment of Intangibles

The impairment of intangible assets is associated with the sale of the distribution business. See Note 11 (Subsequent Events) to the financial statements included elsewhere in this report.

Other Expense

Net other expense was $10.6 million for the nine months ended September 30, 2008 as compared to $10.2 million in the nine months ended September 30, 2007. The increase in other expense of $0.4 million is primarily due to an increase in foreign exchange losses.

Income Taxes

Income tax expense for the first nine months of 2008 was $0.3 million compared to income tax benefit of ($0.5) million for the comparable period in 2007. The primary components of the 2008 expense are obligations to foreign tax authorities related to the Company’s Canadian and UK jurisdictions where we have taxable income, and an increase to our income tax reserve partially offset by the deferred tax benefit recorded in the United Kingdom as a result of the partial amortization of the intangible assets for book purposes which reduces the deferred tax liability recorded as a result of the acquisition of Martin Audio. The primary components of the 2007 benefit is the deferred tax benefit recorded as a result of the partial amortization of the intangible assets giving rise to a deferred tax liability recorded as a result of the acquisition of Martin Audio. This deferred tax benefit was further impacted based on the enactment of a U.K. tax law during the quarter, which reduced the statutory tax rate. This deferred tax benefit was partially offset by current taxes due from our foreign subsidiaries and an increase to our income tax reserve.

Liquidity and Capital Resources

As of September 30, 2008, we had cash and cash equivalents of $2.2 million and outstanding short-term borrowings of $1.8 million. Also, at September 30, 2008, the Company had $93.4 million of debt classified as current in the financial statements included elsewhere in this report. At September 30, 2008 we had $8.2 million available on our revolving line of credit. See Note 8(a) to the financial statements included elsewhere in this report.

Net Cash Provided by Operating Activities

Cash provided by operating activities was $0.1million in the nine months ended September 30, 2008, compared to cash provided by operating activities of $0.5 million for the comparable period in 2007. The net loss for the first nine months of 2008 was approximately $27.0 million including $4.0 million in depreciation and amortization, $0.4 million in amortization of deferred financing costs, $1.4 million in the write down of intangibles related to the sale of the distribution business, $1.7 million in the write down of inventory related to the sale of the distribution business, $15.5 million in the write down of goodwill, $1.6 million in non-cash interest expense, and $0.2 million in stock based compensation expense. In the first nine months of 2008, an increase in prepaid other current assets of $2.4 million accompanied by a decrease in accounts payable and accrued liabilities of $10.5 million used cash, while a decrease to accounts receivable of $1.0 million and inventories of $14.3 million, provided cash. The net loss for the first nine months of 2007 was $10.6 million that included $3.6 million in depreciation and amortization, $2.9 million in amortization and write off of deferred financing costs, $0.2 million in stock- based compensation expense, a gain on asset dispositions of $0.5 million, and $0.2 million of non-cash interest expense. In the first nine months of 2007, a decrease to inventories and accounts receivable of $10.2 million and $3.3 million, respectively, provided cash while decreases to accounts payable, accrued liabilities and payable to our former Italian subsidiary of $7.7 million and taxes payable of $0.2 million used cash.

Net Cash Used in Investing Activities

Cash used in investing activities was $1.3 million for the first nine months of 2008, compared to $35.7 million for the first nine months of 2007. The cash used in investing activities for the first nine months of 2008 primarily related to purchases of new product tooling. The cash used in investing activities for the first nine months of 2007 primarily related to the acquisition of Martin Audio for $32.0 million and the payment of the St. Louis Music, Inc. future commitment to pay of $3.2 million.

Net Cash Provided by Financing Activities

Cash provided by financing activities was $0.4 million during the first nine months of 2008, compared to $39.2 million during the first nine months of 2007. Cash provided in the first nine months of 2008 is primarily attributable to the Sun Mackie Convertible Debt of $7.5 million which was used to partially pay down the existing debt and line of credit. Cash provided in the first nine months of 2007 is primarily attributable to a new credit facility of $102.0 million. During the first nine months of 2007, we paid off existing debt and credit facilities totaling $60.0 million. We also incurred $2.9 million in deferred financing costs.

Liquidity and Ability to Stay in Compliance With Debt Covenants

The primary sources of liquidity for our business are cash flow generated from operations, borrowings under the Company’s Financing Agreement relating to its senior credit facility, and loans from our controlling shareholder and its affiliates in the form of a convertible note, as well as participations by such affiliate in our senior credit facility. We expect that our principal uses of cash will be debt service requirements, working capital, capital expenditures and funds used for our restructuring plans.

Although borrowings under our revolving credit facility and cash flows from operations have historically been adequate to fund our debt service requirements, working capital requirements and capital expenditures, the continued weakness in the economy and the continued challenge in delivering products to our customers due to supply chain constraints, has resulted in a decrease in cash flows from operations. As described under Note 8 (Financing) and Note 11 (Subsequent Events) to the financial statements included elsewhere in this report, it was necessary for Sun Mackie, our controlling shareholder, to loan the Company $7.5 million in the form of a convertible note in March 2008, which was used to repay revolving senior indebtedness. In November 2008, it was necessary for us to borrow an additional $5 million as a Term Loan D under our senior credit facility, pursuant to Amendment No. 4 to the Financing Agreement relating to our senior credit facility. An affiliate of Sun Mackie purchased a 100% participation in that loan. We have therefore depended in large part on our controlling shareholder and balance sheet management for additional liquidity. Under Amendment No. 4, the proceeds of Term Loan D were required to be used to repay a portion of the revolving loan under the Financing Agreement, pay fees and costs associated with the Amendment, and fund working capital to the extent there are no outstanding revolver loans on the effective date of the Amendment. Term Loan D bears interest at a per annum rate of 15.0% to be paid-in-kind by being added to the principal balance of Term Loan D on a monthly basis on the first day of each month after the effective date of the Amendment. The maturity date of Term Loan D is March 30, 2012, at which time all principal and all accrued and unpaid interest are payable in cash. The Company paid an amendment fee to the Administrative Agent of $250,000 at closing, and to Sun Capital Partners Management, LLC, an affiliate of Sun Mackie, an amendment fee of $250,000, of which: (i) $62,500 was paid upon entry into the Amendment, (ii) $62,500 was paid on December 31, 2008, (iii) $62,500 is due on March 31, 2009 and (iv) $62,500 is due on June 30, 2009. Term Loan D is subject to the same terms and certain events and defaults as term loans covered by the Financing Agreement.

If global economic conditions continue to deteriorate and / or we experience further operational declines, we may need additional sources of liquidity in order to continue to operate our business and execute our restructuring plans. Given the unprecedented instability in worldwide credit markets, there can be no assurance that we will be able to obtain additional financing and, if we can obtain financing, that we will be able to do so on terms acceptable to us. See Part II, Item 1A “Risk Factors — Our operating performance, financial condition and liquidity may be adversely impacted by deteriorating economic conditions”.

There can be no assurances that we will be in compliance with the terms of the Financing Agreement in future periods. As discussed in Part II, Item 1A “Risk Factors — Our operating performance will be adversely affected by difficulties we are experiencing with a major contract supplier”, one of our major suppliers of products ceased manufacturing products for us in the fourth quarter of 2008. The adverse impacts of the global economic downturn on our operating performance coupled with the disruption in supplies of products previously manufactured by this supplier is likely to cause us to be out of compliance with certain covenants under the Financing Agreement by the end of the first quarter of 2009 unless the lenders agree to waive such noncompliance or to amend the covenants.

If we do breach the covenants under the Financing Agreement relating to our senior secured credit facility, we intend to seek waivers from the lenders under the Financing Agreement or to negotiate an amendment to the Financing Agreement covenants. However, there is no assurance that the lenders would grant waivers, agree to amend the covenants under the Financing Agreement, allow us to continue borrowing under this credit facility or otherwise agree to restructure our debt or that we would be able to obtain other financing. Moreover, it is likely that external sources of financing necessary to restructure our debt would not be available and our controlling shareholder has not provided any assurances that it will provide additional financial support in the future. If we breach the covenants under our Financing Agreement or otherwise default on our debt, the lenders have a variety of remedies against us, including accelerating all amounts outstanding under the credit facility so that such amounts come due immediately and foreclosing on their security interests, which would allow the lenders (or a third party purchaser in a foreclosure sale) to take possession of all of our assets; any of such steps could impede our ability to continue as a going concern. If the supply disruption leads to an event of default under the Financing Agreement that is not cured or waived, and the lenders accelerate the indebtedness outstanding under the Financing Agreement, it is likely that the Company would not have sufficient cash flow from operations or access to other sources of financing necessary to meet its cash requirements.

Commitments

We had the following significant contractual commitments related to operating leases for equipment facilities at September 30, 2008. In addition, we had significant obligations related to short-term and long-term debt arrangements, excluding our accounts payable, accrued liabilities and taxes payable of $26.2 million at September 30, 2008 (in thousands):


	Payments due by Period
			Less than
	Total		1 year		1-3 years		3-5 years		5+ years
Operating leases	$	6,086	$	2,378	$	3,479	$	229	$	—
Convertible debt, including interest		14,240		—		—		—		14,240
Short-term and long-term debt, including interest		127,146		12,183		23,666		91,297		—

Total	$	147,472	$	14,561	$	27,145	$	91,526	$	14,240

The above table does not include the Company’s new $5.0 million term loan entered into under the terms of Amendment No. 4, described above. In the normal course of business the Company has entered into numerous purchase commitments from suppliers, including its contract manufacturers, which are excluded from the above amounts and range between $20 million and $35 million.

There are no guarantees we will have adequate resources to meet our material obligations as they come due through September 30, 2009.

Other Considerations

In a Current Report on Form 8-K filed on October 21, 2008, the Company disclosed that it intended to amend the disclosure relating to the effectiveness of the Company’s internal control over financial reporting and disclosure controls contained in Amendment No. 2 to its Form 10-K filed on July 25, 2008 (“Amendment No. 2 to Form 10-K”), and that the Company was in the process of evaluating the effectiveness of its controls and how such disclosure should be amended. On March 24, 2009, the Company filed Amendment No. 3 to the Form 10-K which amended the disclosure contained in Amendment No. 2 relating to the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures. Amendment No. 3 to the Form 10-K included management’s conclusion that the Company’s internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2007. For additional information see Part I, Item 4T “Controls and Procedures”.

In a Current Report on Form 8-K filed on November 6, 2008, the Company disclosed that it intended to amend the disclosure in Item 4 and Item 4T of its Quarterly Reports on Form 10-Q for the quarterly periods ending March 31, 2008, and June 30, 2008. On March 24, 2009, the Company filed an amendment to the Form 10-Q for the quarter ended March 31, 2008 which amended the disclosure therein in Item 4 relating to the effectiveness of the Company’s disclosure controls and procedures and an amendment to the Form 10-Q for the quarter ended June 30, 2008 which amended the disclosure therein in Item 4 relating to the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting (the “Form 10-Q/As”). The Form 10-Q/A’s included management’s conclusion that the Company’s disclosure controls and procedures were not effective as of the end of the periods covered by the Form 10-Q’s. For additional information see Part I, Item 4T “Controls and Procedures”.

In a Current Report on Form 8-K filed on December 17, 2008, the Company reported that it has experienced a backlog of orders with a significant contract manufacturer in China due to manufacturing delays, which impacted sales and margins beginning in the second quarter of 2008. This backlog continued to negatively impact the Company’s operations in the second half of 2008. While the Company had thought such manufacturing delays would be temporary, the Company learned in the fourth quarter that this supplier had ceased manufacturing products for the Company due to difficulties the supplier is experiencing. The supplier has been producing products for the Company since December 2000. For the three month periods ended September 30, 2008 and 2007, net sales of products manufactured by this supplier were $18.1 million and $14.8 million, or 38.6% and 27.9% of net sales, respectively. For the nine-month periods ended September 30, 2008 and 2007, net sales of products manufactured by this supplier were $69.1 million and $57.6 million, or 44.3% or 37.2% of net sales, respectively, during those. The Company is in the process of establishing other contract manufacturing relationships to

resume production of products previously produced by this contract manufacturer. However, production by alternative contract manufacturers is unlikely to resume until the second quarter of 2009 at the earliest. The Company’s operating results for 2009 will be negatively impacted by this disruption in product supplies. See Part II, Item 1A “Risk Factors — Our operating performance will be adversely affected by difficulties we are experiencing with a major contract supplier”.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including changes in foreign currency rates and interest rates.

Our $93.4 million term loans have variable interest rates. As such, changes in U.S. interest rates affect interest paid on debt and we are exposed to interest rate risk. For the quarter ended September 30, 2008, an increase in the average interest rate of 10%, i.e. from 10.5% to 11.6%, would have resulted in an approximately $0.8 million increase in net loss before income taxes.

A majority of our sales are denominated in U.S. Dollars, and during the three months ended September 30, 2008 approximately 34.3% of our sales were denominated in foreign currencies. We ordinarily do not engage in hedging as a means to minimize our foreign currency risk and, instead, mitigate that exposure by limiting the portion of our sales that are denominated in other than U.S. Dollars. Assuming the same level of foreign currency denominated sales as in the three months ended September, 2008, a 10% decline in the average exchange rates for all these currencies would have caused a decline of approximately $1.5 million, or 3.1%, of our sales.

The majority of our products are manufactured by foreign third-party contract manufacturers with the majority of the contracts denominated in U.S. Dollars. Foreign third-party manufacturing creates risks that include fluctuations in currency exchange rates that could affect the price we pay for our product. Our two largest foreign contract manufacturers’ products represented 62.9% of our net sales for the nine months ended September 30, 2008. A 10% increase to the cost of the product sold that was manufactured by these two manufacturers would have resulted in an increase to cost of sales for the nine months ended September 30, 2008 of approximately $2.9 million.

Item 4T. Controls and Procedures

Background

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. In connection with that evaluation, management considered the following matters:

	•		During the quarter ended September 30, 2008, the Company received a comment letter from the staff of the SEC which brought to the Company’s attention its failure to include in the Form 10-K management’s report on the effectiveness of the Company’s internal control over financial reporting, as required under Rules 13a-15 and 15(d)-15 under the Exchange Act.

	•		As a result of the SEC comment letter, the Company filed Amendment No. 2 to Form 10-K which included management’s report on the effectiveness of the Company’s internal control over financial reporting.

	•		After the filing of Amendment No. 2 to Form 10-K, the Company received a second comment letter from the staff of the SEC which questioned the conclusion of Company management set forth in Amendment No. 2 to Form 10-K that the Company’s disclosure controls and procedures were effective as of the end of the 2007 fiscal year, in light of the Company’s failure to include management’s report on internal control over financial reporting in the Form 10-K.

	•		As a result of an internal review after the Company filed Amendment No. 2 to Form 10-K, the Company’s management and board of directors determined that appropriate procedures were not followed to ensure adequate internal review of Amendment No. 2 to Form 10-K before it was filed. In addition, such review raised questions about whether the steps previously taken to document and test the Company’s internal control over financial reporting had been sufficient to support a conclusion that such internal control over financial reporting was effective as of the end of 2007.

•

The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008 erroneously included a report from management on the effectiveness of internal control over financial reporting as of June 30, 2008, which was not required under the SEC’s rules. Moreover, the conclusions therein that the Company’s internal control over financial reporting was effective lacked an adequate basis because management had not actually conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of such date.

Audit Committee Investigation

In October 2008, the audit committee of the Company’s board of directors commenced an independent investigation of the Company’s disclosures relating to internal control over financial reporting and disclosure controls and procedures contained in the Form 10-K, Amendment No. 2 to Form 10-K and the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008 (the “Prior 10-Qs”). The investigation was conducted with the assistance of outside legal counsel and was conducted over an approximately ten-week period. The investigative work included, among other things: reviewing hard copy and electronic files obtained from the Company and other sources; and conducting interviews with directors, with present and former members of senior management, with former outside counsel and with a representative of the Company’s independent registered public accounting firm. In connection with its investigation, the members of the audit committee periodically met telephonically with the audit committee’s counsel and the Chairman of the audit committee periodically communicated with the audit committee’s counsel.

The audit committee investigation has now been completed. The key findings of the investigation were that:

	•		former management of the Company, and in particular the Company’s former Chief Financial Officer, apparently misunderstood the application of the SEC’s rules relating to management evaluation of the effectiveness of internal control over financial reporting to registrants that, like the Company, are neither large accelerated filers nor accelerated filers;

	•		as a consequence, the Company’s former management did not complete its evaluation of the Company’s internal control over financial reporting and failed to include the required report on the effectiveness of internal control over financial reporting in the Form 10-K;

	•		after the Company received the SEC comment letter that identified the Company’s failure to include the required management report on internal control in the Form 10-K, the Company’s former Chief Financial Officer caused Amendment No. 2 to Form 10-K to be prepared and filed, without involving the Company’s former Chief Executive Officer, the Company’s board of directors, the audit committee of the Company’s board of directors or the Company’s independent registered public accounting firm in the preparation or review of that filing;

	•		the conclusions of former management that the Company’s internal control over financial reporting was effective as of December 31, 2007, as disclosed in Amendment No. 2 to Form 10-K, lacked an adequate basis due to the failure of former management to complete the review and testing necessary to fully evaluate the effectiveness of the Company’s internal control over financial reporting; and

	•		the statements in Amendment No. 2 to Form 10-K and the Prior 10-Qs that management had concluded the Company’s disclosure controls and procedures were effective as of the end of the periods covered by such reports are not supported in light of the substantive and procedural deficiencies relating to the Form 10-K and Amendment No. 2 to Form 10-K described above.

The Chief Executive Officer and the Chief Financial Officer who were responsible for the filing of the Form 10-K and Amendment No. 2 to Form 10-K left the Company on August 15, 2008 and July 25, 2008, respectively.

In connection with the audit committee’s investigation, the investigators made certain recommendations for improvements in both the Company’s disclosure controls and procedures and its internal controls. The principal recommendations were that the Company:

•

develop a plan for completion of management’s evaluation of the Company’s internal control over financial

	•		make corrective filings amending the Form 10-K and the Prior 10-Q’s;

	•		to the extent the Company is legally required to do so in light of its decision to deregister its common stock under the Exchange Act, implement procedures to remedy the deficiencies in its disclosure controls and procedures; and

	•		to the extent such obligations remain relevant in light of the Company’s decision to deregister its common stock under the Exchange Act, institute training for the Company’s financial managers regarding the Company’s reporting obligations under the Exchange Act.

The Company’s management has implemented the recommendations from the audit committee investigation regarding completion of management’s evaluation of internal control over financial reporting and making corrective filings amending the Form 10-K and the Prior 10-Qs. In particular, management completed its evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 and, on March 24, 2009, the Company filed Amendment No. 3 to its Annual Report on Form 10-K for the year ended December 31, 2007 which contained disclosures regarding such evaluation, including management’s conclusion that the Company’s internal control over financial reporting was not effective as of December 31, 2007. Moreover, the Company has filed an amendment to each of the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008 to disclose management’s conclusions about the effectiveness of the Company’s disclosure controls and procedures as of the end of the periods covered by those reports. As reported in a Current Report on Form 8-K filed by the Company on January 15, 2009, the Company’s Board of Directors has determined to deregister the Company’s stock under the Exchange Act. Because deregistration of the Company’s stock under the Exchange Act would result in the termination of the Company’s reporting obligations under the Exchange Act, the Company will not implement the other recommendations that resulted from the audit committee investigation unless the Company does not complete the deregistration process as anticipated.

During the fourth quarter of 2008, the Company implemented the following changes to its disclosure controls and procedures:

	•		ensuring that the CEO and CFO review all documents to be filed with the SEC prior to submitting such documents to the audit committee for its review;

	•		ensuring that the Company’s independent registered public accounting firm is provided any such documents that contain financial statements or report events that may require financial statement disclosure prior to their filing with the SEC,;

	•		ensuring that the Company’s outside counsel review such documents prior to review by the board of directors or the audit committee, as applicable; and

	•		ensuring that the audit committee or the audit committee chair reviews any such documents that contain financial statements or report events that may require financial statement disclosure prior to their filing with the SEC.

Disclosure Controls and Procedures

Based on the audit committee investigation findings, the determination that the Company’s internal control over financial reporting was not effective as of December 31, 2007, and management’s evaluation of the effectiveness of the Company’s disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.

Internal Control Over Financial Reporting

During the quarter ended September 30, 2008, we made no change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal proceedings and claims that arise in the ordinary course of business. The Company believes that the ultimate resolution of these proceedings will not have a material effect on its financial position, liquidity, or results of operations.

Item 1A. Risk Factors

Except as disclosed below, there have been no material changes from the risk factors previously disclosed in the Report on Form 10-K for the fiscal year ended December 31, 2007.

Our operating performance, financial condition and liquidity may be adversely impacted by deteriorating economic conditions.

Deteriorating economic conditions in the United States and other markets pose numerous risks to our business. A slowdown or decline in U.S. and foreign economic growth is likely to adversely affect consumer confidence, disposable income or spending. Because most of our products are discretionary goods, our business may be particularly impacted by a slowdown in consumer spending. A slowdown in consumer spending could result in reduced sales of our products and increased price competition. Deteriorating economic conditions could adversely impact our retail customers, leading to longer sales cycles, reduced orders and greater difficulty managing inventory levels and collecting receivables. In addition, because we depend to a significant extent on borrowings under our senior credit facility and from our controlling shareholder, declines in our operating performance due to deteriorating economic conditions or otherwise could negatively impact our financial condition and liquidity. Tighter credit conditions could make it more difficult for us to obtain the debt financing we need to operate our business. There can be no assurance that we will be able to obtain additional financing on terms that are acceptable to us, or at all.

Our operating performance will be adversely affected by difficulties we are experiencing with a major contract supplier.

The Company has experienced a backlog of orders with a significant contract manufacturer in China, which impacted sales and margins beginning in the second quarter of 2008. This backlog continued to negatively impact the Company’s operations in the third quarter of 2008 and is expected to negatively impact the Company’s operations in the fourth quarter of 2008. While the Company had thought such manufacturing delays would be temporary, the Company learned in the fourth quarter that this supplier had ceased manufacturing products for the Company due to difficulties the supplier is experiencing. For the three month periods ended September 30, 2008 and 2007, net sales of products manufactured by this supplier were $18.1 million and $14.8 million, or 38.6% and 27.9% of net sales, respectively, during those periods. For the nine-month periods ended September 30, 2008 and 2007, net sales of products manufactured by this supplier were $69.1 million and $57.6 million, or 44.3% or 37.2% of net sales, respectively.

Although the Company has not terminated its manufacturing agreement with this supplier, the Company is in the process of evaluating its options and arranging for alternative contract manufacturers to resume production of the products previously manufactured by this supplier. The Company is also evaluating the feasibility of moving some of the production to manufacturing facilities owned by the Company. The timing for resuming production of the products previously manufactured by this supplier is uncertain, and will depend to a significant extent on the Company’s ability to obtain certain custom tooling used to manufacture the Company’s products. Although the Company has held discussions with the supplier regarding the return of the custom tooling in the possession of the supplier, which belongs to the Company, it is unlikely that the Company will be able to obtain much if any of such tooling from the supplier. In the mean time, the Company has contracted with third parties to manufacture replacement custom tooling relating to higher volume, higher margin products previously manufactured by this supplier. Production of these products is expected to be phased in over the course of 2009. As circumstances allow, the Company may obtain replacement custom tooling and initiate production of other products previously manufactured by this supplier.

Due to the disruption in the supply of the Company’s products, the Company anticipates a significant decline in net sales in 2009, with the most significant impact to be felt in the first and second quarters of 2009. Until the Company has better

visibility into when shipments of the affected products will resume, it is unable to estimate the full impact from this disruption. The Company has identified and begun to implement changes to its business and operating plans for 2009 in order to reduce costs in response to the anticipated decline in net sales. In addition to the anticipated decline in net sales, this supply disruption will create numerous risks for the Company, including the following:

	•		There is a material risk that the Company may be unable to comply with the terms and conditions of its senior credit facility, including but not limited to certain financial ratios, unless the Company obtains necessary waivers or enters into an amendment to the related Financing Agreement that address such potential noncompliance. Breaches of the terms and conditions of the Financing Agreement may lead to an event of default, which would prevent the Company from borrowing under the senior credit facility and would allow the lenders to accelerate all amounts outstanding under the Financing Agreement and exercise other remedies including foreclosure of their security interests relating to the senior credit facility.

	•		The Company may not have sufficient cash flow from operations or borrowings under its credit facilities to meet its cash requirements, particularly if the supply disruption results in an event of default under the Company’s senior credit facility that is not cured or waived, which could result in the Company’s inability to continue as a going concern.

	•		Potential customers may decide to purchase competing products rather than wait until the Company’s products are available again, which may lead to permanent loss of market share.

	•		The Company may encounter difficulties in managing new contract manufacturer relationships, such as lack of control over the manufacturing process, delivery times, sourcing of parts, and product quality, and imposition of unfavorable payment terms.

Our business may be adversely affected by recent restructurings.

As we announced on November 6, 2008, we recently implemented a restructuring of our marketing, sales and engineering functions. In addition, we completed an additional restructuring of our administrative and operational support functions in January 2009. Implementation of these restructurings will likely place significant strains on management and may impair our marketing, sales, engineering, administrative and operational support functions, as well as our relationships with customers and suppliers. In addition, the costs of implementing these restructurings will result in charges that will adversely affect our results of operations and may exceed our current estimates. These restructurings may not result in all of the cost savings and operational and strategic benefits that we currently anticipate.

The liquidity of our shares of common stock will be adversely affected by our delisting from the NASDAQ Stock Market and the plan to deregister.

In a Current Report on Form 8-K filed with the SEC on February 26, 2009, we announced that we had received a staff determination letter from NASDAQ indicating that the Company’s common stock would be delisted on March 3, 2009 due to the Company’s failure to timely submit an acceptable plan to regain compliance with NASDAQ Marketplace Rule 4310(c)(14) related to its failure to file a quarterly report on Form 10-Q for the period ended September 30, 2008 by the prescribed due date. On March 3, 2009, the Company’s common stock was delisted from the NASDAQ. This involuntary delisting superseded the Company’s decision, as disclosed in a Current Report on Form 8-K filed with the SEC on January 15, 2009, to voluntarily delist its common stock from the NASDAQ Stock Market LLC. In the January 15, 2009 Form 8-K, we also disclosed the decision to terminate the registration of our common stock under the Exchange Act. The Company’s common stock may be quoted over-the-counter on the Pink Sheets LLC if market makers commit to make a market in the Company’s shares. Pink Sheets LLC is an electronic network through which participating broker-dealers can make markets, and enter orders to buy and sell shares of issuers. However, the Company can provide no assurance that trading in its common stock will continue on the Pink Sheets or otherwise. Moreover, the Company’s common stock may become more illiquid now that it is no longer traded on NASDAQ, which could negatively impact market prices for the Company’s stock and make it more difficult for shareholders to sell their shares. Moreover, once we complete the deregistration of our common stock under the Exchange Act, we will no longer be required to file periodic and other reports with the SEC. As a consequence, there will be little if any public information available about the Company’s business, operations, financial condition, results of operations or other matters.

Item 6. Exhibits


Exhibit
Number		Description of Exhibits

3.1		Second Articles of Amendment To Restated Articles of Incorporation of LOUD Technologies Inc. (1)

3.2		Third Articles of Amendment to Restated Articles of Incorporation of LOUD Technologies Inc (1)

10.1		Form of Amendment No. 4 to Financing Agreement, Waiver and Consent by and among LOUD Technologies Inc., Grace Acquisition Co Limited, as the borrowers, each subsidiary of the Parent listed on the signature pages thereto, the lenders from time to time party thereto, Ableco Finance LLC, as collateral agent for the lenders, and GMAC Commercial Finance LLC, as administrative agent for the lenders, dated as of November 5, 2008.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 7, 2008

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	LOUD Technologies Inc. (Registrant)
Dated: March 26, 2009	By:	/s/ RODNEY E. OLSON
		Rodney E. Olson
		Chairman, President and Chief Executive Officer


Dated: March 26, 2009	By:	/s/ DAVID E. OLSON
		David E. Olson
		Chief Financial Officer, Senior Vice President, Secretary and Treasurer (Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit
Number		Description of Exhibits

3.1		Second Articles of Amendment To Restated Articles of Incorporation of LOUD Technologies Inc. (1)

3.2		Third Articles of Amendment to Restated Articles of Incorporation of LOUD Technologies Inc (1)

10.1		Form of Amendment No. 4 to Financing Agreement, Waiver and Consent by and among LOUD Technologies Inc., Grace Acquisition Co Limited, as the borrowers, each subsidiary of the Parent listed on the signature pages thereto, the lenders from time to time party thereto, Ableco Finance LLC, as collateral agent for the lenders, and GMAC Commercial Finance LLC, as administrative agent for the lenders, dated as of November 5, 2008.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 7, 2008

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