XS Cargo Income Fund Reports 2005 Fourth Quarter and Year End Results

EDMONTON, ALBERTA--(CCNMatthews - March 20, 2006) - XS Cargo Income Fund (the "Fund") (TSX:XSC.UN) today announced its results for the 2005 fourth quarter and year end, which include record sales and earnings from operations (1). The Fund's audited consolidated year end financial statements and Management's Discussion and Analysis ("MD&A") can be found on XS Cargo's website at www.xscargo.com and or SEDAR at www.sedar.com.

From the commencement of business operations on May 17, 2005 to December 31, 2005 the Fund reported sales of $69.0 million; earnings before non-controlling interest of $9.8 million or $0.82 per unit outstanding; net earnings of $5.0 million or $0.82 per unit and EBITDA (1) of $11.4 million. Distributable cash (1) was $10.9 million or $0.91 per unit compared to distributions declared of $8.4 million or $0.70 per unit, resulting in a payout ratio of 77.4%.

Based on the strength of its financial results, the Fund announced a 10% increase in its monthly distribution to $0.103 per unit ($1.24 per unit on an annualized basis) from $0.094 per unit ($1.12 per unit on an annualized basis). The increase in distributions will be effective for the March distribution, which will be paid on April 15, 2006 to holders of record of trust units on March 31, 2006.

Michael McKenna, President and Chief Executive Officer of the Fund stated, "We are pleased that the business posted record sales and earnings in its first year end as an income fund. During 2005, we successfully opened eight new stores bringing our total to 27 and doubled our distribution infrastructure. Our planned expansion to 70 stores across Canada continues with new store openings scheduled in Sudbury and Barrie, Ontario in March and April respectively."

Highlights for the year (2)

- Sales of $97.4 million, up 23.4% from 2004.

- Gross margin of $36.0 million, up 26.8% from 2004.

- Gross margin percentage of 37.0% compared to 36.0% in 2004.

- Earnings from operations (1) of $15.3 million, up 8.9% from 2004.

- The increase in earnings from operations for the year was achieved despite a significant disruption in supply caused by a trucking strike that shut down the Vancouver port during the third quarter. The supply disruption affected the flow of our merchandise directly imported from China and had a negative impact on sales and earnings during the third and beginning of the fourth quarter.

- Same store sales were down 8.7% from 2004 due primarily to the supply disruption in the third quarter as well as the impact of new stores opening in overlapping trading areas.

- Eight new stores and a new distribution centre in Mississauga, Ontario were opened during the year.

Highlights for the fourth quarter (2)

- Fourth quarter sales of $36.4 million, up 15.6% from the fourth quarter of 2004.

- Fourth quarter gross margin of $13.8 million, up 22.1% from the fourth quarter of 2004.

- Gross margin percentage of 37.8% compared to 36.3% for the fourth quarter of 2004.

- Earnings from operations of $6.7 million, up 7.9% from the fourth quarter of 2004.

- Two new stores were opened during the quarter, in Medicine Hat, Alberta and Surrey, British Columbia.

- Successfully introduced sales of two-year product replacement extended warranty plans ("PRPs") on October 1, 2005. During the three months since implementation, $0.8 million of PRPs were sold, however less than $0.1 million is recognized as revenue during the quarter. Revenue from PRP sales is deferred and recognized on a straight-line basis over the two-year terms of the PRPs.

- Distributable cash (1) of $0.53 per unit compared to distributions declared of $0.28 per unit resulting in a payout ratio of 52.6%. Due to the seasonal nature of our business, approximately 40% of our annual distributable cash (1) is generated in the fourth quarter. Since the Fund declares equal monthly distributions throughout the year, it is expected that distributable cash (1) will exceed distributions declared in the fourth quarter.

The Fund also announced amendments to its available credit facilities. The limit on the Term Loan was increased from $15.0 million to $17.5 million, with the additional $2.5 million available to be drawn at the Fund's option prior to August 2006. The limit on the Demand Revolving Operating Loan was increased from $7.5 million to $10.0 million until July 31, increasing further to $12.5 million during the peak purchasing season between August 1 and December 31. The additional credit facilities will be used to finance additional working capital requirements and capital assets related to store expansion and enable the Fund to make monthly distributions based on its estimate of distributable cash for the year, approximately 40% of which is expected to be generated in the fourth quarter.

Business of the Fund

The Fund commenced business operations on May 17, 2005, when it completed an initial public offering (the "IPO") of 6,106,000 trust units at a price of $10 per unit, for aggregate gross proceeds of $61,060,000. Concurrent with the closing of the IPO, the Fund acquired a 51% indirect interest in XS Cargo LP and XS Cargo LP acquired the net assets (the "Acquired Business") of Famous Brands (Edmonton) Inc. (the "Vendor"). XS Cargo LP operates 27 closeout retail stores in Alberta, British Columbia, Manitoba, Saskatchewan and Ontario.

(1) Non-GAAP Measures

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization and references to "distributable cash" are to cash available for distribution to Unitholders in accordance with the distribution policies of the Fund. Management believes that, in addition to income or loss, EBITDA is a useful supplemental measure of performance and cash available for distribution before debt service, changes in working capital, capital expenditures and income taxes. Specifically, management believes that EBITDA is the appropriate measure from which to make adjustments to determine the distributable cash of the Fund. Distributable cash of the Fund is a measure generally used by open-ended trusts as an indicator of financial performance. As one of the factors that may be considered relevant by prospective investors is the cash distributed by the Fund relative to the price of the Units, management believes that distributable cash of the Fund is a useful supplemental measure that may assist prospective investors in assessing an investment in the Fund.

Earnings from operations have been calculated as described below. In the case of the Fund, earnings from operations have been derived by adding interest expense, amortization of property and equipment and intangible assets, unit-based compensation and non-controlling interest to net earnings for the period. In the case of the Vendor, earnings from operations have been derived by adding amortization expense, employee profit sharing plan contributions, interest expense, and income tax expense to net earnings (loss) for the period.

EBITDA, distributable cash and earnings from operations are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that EBITDA, distributable cash and earnings from operations should not replace net income or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Fund's methods of calculating EBITDA, distributable cash and earnings from operations may differ from the methods used by other issuers and may not be comparable to similar measures presented by other issuers.

(2) The Fund commenced business operations on May 17, 2005 after acquiring the business from the Vendor. For purposes of the highlights for the year the results of operations of the Fund from May 17, 2005 to December 31, 2005 have been combined with the unaudited results of operations of the Vendor from January 31, 2005 to May 16, 2005. These combined 2005 results are compared to the unaudited results of the Vendor from January 1 to December 31, 2004. For the purposes of the fourth quarter highlights, the results of operations of the Fund from October 1 to December 31, 2005 are compared to the unaudited results of operations of the Vendor from October 1 to December 31, 2004.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements. You can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. These forward-looking statements include statements with respect to the amount and timing of the payment of distributions of the Fund. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in the press release. There can be no assurance that such expectations will prove to be correct.

Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, those discussed under "Risk Factors" in the Fund's MD&A.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and, except as required by law, the Fund assumes no obligation to update or revise them to reflect new events or circumstances.

XS Cargo Income Fund
Consolidated Balance Sheet
December 31, 2005
--------------------------------------------------------------------
Assets 
 Current                                                           $
  Cash                                                     7,442,496
  Rebate and other receivables                               501,486
  Inventory                                               15,752,388
  Deposits on inventory                                    4,079,482
  Prepaid expenses and deposits                              612,151
--------------------------------------------------------------------


                                                          28,388,003


Deferred charges (Note 7)                                    124,414


Property and equipment (Note 4)                            2,730,783


Intangible assets (Note 5)                                 7,910,000


Goodwill (Note 3)                                        101,788,426
--------------------------------------------------------------------


                                                         140,941,626
--------------------------------------------------------------------
--------------------------------------------------------------------


Liabilities 
 Current 
  Accounts payable and accrued liabilities                 7,094,948
  Deferred revenue (Note 7)                                  417,152
  Distributions payable to unitholders (Note 9)              572,438
  Distributions payable to 
   non-controlling interest (Note 10)                      1,000,943
--------------------------------------------------------------------
 
                                                           9,085,481


Term loan (Note 6)                                        15,000,000


Deferred revenue (Note 7)                                    352,753


Unamortized lease inducements (Note 8)                       142,116
--------------------------------------------------------------------
 
                                                          24,580,350


Non-controlling interest (Note 10)                        59,527,529
--------------------------------------------------------------------


                                                          84,107,879
--------------------------------------------------------------------
Commitments (Note 11)


Unitholders' Equity
 Fund Units (Note 9)                                      56,131,876
 Cumulative undistributed earnings                           701,871
--------------------------------------------------------------------


                                                          56,833,747
--------------------------------------------------------------------


                                                         140,941,626
--------------------------------------------------------------------
--------------------------------------------------------------------



XS Cargo Income Fund
Consolidated Statement of Earnings, Cumulative Earnings, and
 Cumulative Undistributed Earnings
For the period from April 6, 2005, including operations from 
 May 17, 2005 (date of commencement of business operations)
 to December 31, 2005


--------------------------------------------------------------------


                                                                   $
Sales                                                     68,967,157


Cost of sales                                             42,967,715
--------------------------------------------------------------------


Gross margin                                              25,999,442
--------------------------------------------------------------------


Expenses 
 Administrative and operating                             14,594,401
 Amortization of property and equipment                      337,148
 Amortization of intangible assets                           745,000
--------------------------------------------------------------------


                                                          15,676,549
--------------------------------------------------------------------


                                                          10,322,893
--------------------------------------------------------------------
Other expenses 
 Interest (Note 6)                                           504,922
 Foreign exchange loss                                        37,091
--------------------------------------------------------------------


                                                             542,013
--------------------------------------------------------------------


Earnings before non-controlling interest                   9,780,880


Non-controlling interest (Note 10)                         4,797,481
--------------------------------------------------------------------


Net earnings for the period                                4,983,399
--------------------------------------------------------------------
--------------------------------------------------------------------


Cumulative earnings, beginning of period                           -
--------------------------------------------------------------------
--------------------------------------------------------------------


Cumulative earnings, end of period                         4,983,399
--------------------------------------------------------------------
--------------------------------------------------------------------


Distributions declared during the period                  (4,281,528)
--------------------------------------------------------------------
--------------------------------------------------------------------


Cumulative undistributed earnings, end of period             701,871
--------------------------------------------------------------------
--------------------------------------------------------------------



Basic and diluted earnings per unit (Note 16)                  0.816
--------------------------------------------------------------------
--------------------------------------------------------------------



XS Cargo Income Fund
Consolidated Statement of Cash Flows
For the period from April 6, 2005, including operations from 
 May 17, 2005 (date of commencement of business operations) 
 to December 31, 2005
--------------------------------------------------------------------
Cash provided by (used for) the following activities                
                                                                   $
Operating activities
Net earnings for the period                                4,983,399
Items not affecting cash 
 Non-controlling interest                                  4,797,481
 Amortization of property and equipment                      337,148
 Amortization of intangible assets                           745,000
 Unit-based compensation (Note 13)                           187,330
 Lease inducements received, net of 
  amortization of lease inducements                          142,116
--------------------------------------------------------------------


                                                          11,192,474


Net change in non-cash working capital                     4,486,649
--------------------------------------------------------------------


                                                          15,679,123
--------------------------------------------------------------------


Financing activities 
 Repayment of amounts due to Vendor                         (901,394)
 Net proceeds from the issuance of Units                  56,131,876
 Proceeds from term loan                                  15,000,000
 Distributions paid on Fund Units                         (3,709,089)
 Distributions paid to non-controlling interest           (3,120,839)
--------------------------------------------------------------------


                                                          63,400,554
--------------------------------------------------------------------
Investing activities 
 Purchases of property and equipment                        (569,400)
 Business acquisition - net of cash acquired (Note 3)    (71,067,781)
--------------------------------------------------------------------


                                                         (71,637,181)
--------------------------------------------------------------------


Increase in cash                                           7,442,496


Cash, beginning of period                                          -
--------------------------------------------------------------------


Cash, end of period                                        7,442,496
--------------------------------------------------------------------
--------------------------------------------------------------------


Supplementary cash flow information:


 Interest paid                                               504,922