---

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

_________________

# FORM 10-K/A (Amendment No. 1)

||X| | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the
Fiscal Year Ended March 31, 2007
|--- | -----------------------------------------------------------------------------------------------------------------------------

OR

|[  ] | 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
000-11071

_________________



IMAGE ENTERTAINMENT,
INC. (Exact name of registrant as specified in its charter)

_________________

|                                               |                                        
|---------------------------------------------- | ---------------------------------------
|Delaware                                       | 84-0685613                             
|(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number)

20525 Nordhoff Street,
Suite 200, Chatsworth, California 91311(Address of principal executive offices,
including zip code)

(818) 407-9100(Registrants
telephone number, including area code)

Securities registered
pursuant to Section 12(b) of the Act:

|                                |                                          
|------------------------------- | -----------------------------------------
|Title of Each Class             | Name of Each Exchange on Which Registered
|Common Stock, par value $0.0001 | The NASDAQ Stock Market LLC              

Securities registered
pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.  YES [ ] NO |X|

Indicate
by check mark if the registrant is not required to file report pursuant to Section 13 or
Section 15(d) of the Act. YES [ ] NO |X|

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 |X| NO [ ]

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. |X|

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large
Accelerated filer  [ ]          Accelerated
Filer  [ ]          Non-
Accelerated Filer  |X|

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).  YES [ ] NO |X|

The
aggregate market value of the common stock held by non-affiliates of the registrant, based
upon the closing price of $3.48 for shares of the registrants common stock on
September 29, 2006, the last business day of the registrants most recently completed
second fiscal quarter as reported by the NASDAQ National Market®, was approximately
$31,798,782. In calculating such aggregate market value, shares of common stock owned of
record or beneficially by officers, directors and persons known to the registrant to own
more than five percent of the registrants voting securities (other than such persons
of whom the registrant became aware only through the filing of a Schedule 13G filed with
the Securities and Exchange Commission) were excluded because such persons may be deemed
to be affiliates. The registrant disclaims the existence of control or any admission
thereof for any other purpose.

The
number of shares outstanding of the registrant's common stock as of July 16, 2007:
 21,736,598

# DOCUMENTS INCORPORATED
BY REFERENCE

None.

---

---

# IMAGE ENTERTAINMENT,
INC. Annual Report on Form
10-K/A (Amendment No. 1) For The Fiscal Year Ended March 31, 2007

# TABLE OF CONTENTS

|           |                                                                                                |   
|---------- | ---------------------------------------------------------------------------------------------- | --
|PART III   |                                                                                                | 1 
|ITEM 10.   | Directors, Executive Officers and Corporate Governance                                         | 1 
|ITEM 11.   | Executive Compensation                                                                         | 8 
|ITEM 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 15
|ITEM 13.   | Certain Relationships and Related Transactions, and Director Independence                      | 18
|ITEM 14.   | Principal Accountant Fees and Services                                                         | 19
|PART IV    |                                                                                                | 20
|ITEM 15.   | Exhibits and Financial Statement Schedules                                                     | 20
|SIGNATURES |                                                                                                | 21

# Explanatory Note

The
purpose of this Form 10-K/A is to amend Part III, Items 10 through 14, of the Annual
Report on Form 10-K for the fiscal year ended March 31, 2007 of Image Entertainment, Inc.
("we," "us," "our," or "Image"), which was filed with the Securities and Exchange
Commission ("SEC") on June 29, 2007 (the "2007 Form 10-K").  Form 10-K General
Instruction G(3) requires the information contained herein be included in the Form 10-K
filing or incorporated by reference from our definitive Proxy Statement if such statement
is filed no later than 120 days after our last fiscal year end.  We do not expect to file
a definitive Proxy Statement containing the above referenced items within such 120-day
period and therefore the Part III information is filed hereby as an amendment to our 2007
Form 10-K.

2

---

# PART III

|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Directors

The
following persons are members of our board of directors ("Board").  Each successor
director shall hold office for a three-year term, until a successor is duly elected and
qualified or until his earlier death, resignation or removal from office.  The directors
were elected into the classes below at the 2006 Annual Meeting and will serve for an
initial term of one year for Class I directors, two years for Class II directors and
three years for Class III directors.  The directors will be up for election at the 2007
Annual Meeting for Class I directors, 2008 Annual Meeting for Class II directors and 2009
Annual Meeting for Class III directors.

|Name                | Director
Class | Age | Principal Occupation and Business Experience During Past Five Years and Other Directorships    
|------------------- | -------------- | --- | -----------------------------------------------------------------------------------------------
|Martin W. Greenwald | III            | 65  | Mr. Greenwald has served as our Chairman of the Board, President and Chief Executive Officer   
|                    |                |     | since 1981. During his tenure, we have transitioned from a leading independent laserdisc       
|                    |                |     | distributor, to a leading independent DVD distributor, and a cutting edge supplier of digital  
|                    |                |     | home entertainment. Mr. Greenwald was previously involved with the Digital Video Disc Group    
|                    |                |     | (now known as the Digital Entertainment Group), and previously chaired the Laserdisc           
|                    |                |     | Association/Optical Video Disc Association. He has been a guest lecturer at the USC Marshall   
|                    |                |     | School of Business and UCLA Anderson School of Management, and has been a guest speaker or     
|                    |                |     | panelist at numerous home video entertainment events. From 1990 to 1998, Mr. Greenwald served  
|                    |                |     | on the board of directors of The Entertainment Industry Foundation. He has been honored with   
|                    |                |     | the Visionary Award from the Entertainment AIDS Alliance, has served as director of the        
|                    |                |     | Permanent Charities Committee of the Entertainment Industries, and is an active supporter of   
|                    |                |     | Cedars Sinai Hospital's United Hostesses Charities and Didi Hirsch Community Mental Health     
|                    |                |     | Centers. Mr. Greenwald is a graduate of Fairleigh Dickinson University.                        
|David Coriat        | II             | 57  | Mr. Coriat has served as a member of our Board since 2005. Since 1986, Mr. Coriat has served   
|                    |                |     | as Executive Vice President, Chief Financial Officer and director of Standard Broadcasting     
|                    |                |     | Corporation Limited, the largest privately-owned multi-media company in Canada and one of our  
|                    |                |     | largest stockholders. Prior to joining Standard Broadcasting, Mr. Coriat enjoyed a successful  
|                    |                |     | career with an international accounting firm providing accounting advice to financial          
|                    |                |     | institutions, performing special investigations, feasibility studies and computer conversions. 
|                    |                |     | Mr. Coriat also served as chairman of Entertainment One Income Fund, in which Standard         
|                    |                |     | Broadcasting was a large shareholder.                                                          
|Ira Epstein         | II             | 75  | Mr. Epstein has served as a member of our Board since 1990. Mr. Epstein is an entertainment    
|                    |                |     | attorney representing high-profile clients in the television and motion picture industries, as 
|                    |                |     | well as related businesses throughout the entertainment industry. Mr. Epstein has been Of      
|                    |                |     | Counsel to the international law firm of Greenberg Traurig, LLP since June 2002. From 1993 to  
|                    |                |     | June 2002, he was Of Counsel to the Beverly Hills entertainment law firm Weissmann, Wolff,     
|                    |                |     | Bergman, Coleman, Silverman & Holmes, LLP. From 1975 to 1993, Mr. Epstein was the managing     
|                    |                |     | partner of the entertainment law firm Cooper, Epstein & Hurewitz. He has held officer and      
|                    |                |     | director positions in numerous corporations, formerly served as a Member of the Board of       
|                    |                |     | Trustees of the San Diego Arts Performance League, currently serves as a member of the Board of
|                    |                |     | Directors of the North Coast Repertory Company, where he served as Vice President prior to     
|                    |                |     | serving as President for the past four years, and serves as a member of the San Dieguito       
|                    |                |     | Planning Group, the North San Diego zoning and land use advisory group to the San Diego Board  
|                    |                |     | of Supervisors. Mr. Epstein obtained his J.D. from University of Nebraska College of Law, and  
|                    |                |     | was a Captain in the Judge Advocate General Air Force.                                         
|Gary Haber          | III            | 61  | Mr. Haber has served as a member of our Board since 2005. Mr. Haber is a respected 30-year     
|                    |                |     | entertainment industry Certified Public Accountant. Since its founding in 1977, Mr. Haber has  
|                    |                |     | served as principal of Haber Corporation, providing financial and business management services 
|                    |                |     | to top internationally-recognized artists in the music and entertainment industry. Haber       
|                    |                |     | Corporation also offers a variety of other services, including royalty participation           
|                    |                |     | accounting, royalty compliance audits, publishing administration, concert tour accounting, and 
|                    |                |     | valuations of copyrights and masters. Mr. Haber has frequently spoken at the Southern Regional 
|                    |                |     | Entertainment and Sports Law Seminar, and guest lectured at UCLA. He serves as President of    
|                    |                |     | the Nashville Screenwriters Conference, Treasurer and a member of the Board of Directors of the
|                    |                |     | Association of Independent Music Publishers (AIMP), and serves on the Boards of Directors of   
|                    |                |     | the Alliance of Artists Recording Companies (AARC), and the Academy of Country Music. Mr.      
|                    |                |     | Haber has a B.S. in Accounting from Long Island University.                                    

3

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|Name                | Director
Class | Age | Principal Occupation and Business Experience During Past Five Years and Other Directorships    
|------------------- | -------------- | --- | -----------------------------------------------------------------------------------------------
|M. Trevenen Huxley  | I              | 55  | Mr. Huxley is a leading digital media consultant who has served as a member of our Board since 
|                    |                |     | 1998 and as a consultant for our digital rights subsidiary, Egami Media, Inc. ("Egami"), from  
|                    |                |     | April 2005 through November 2006. In 1990, Mr. Huxley co-founded Muze Inc., which became the   
|                    |                |     | leading entertainment product database in the United States, served as its President and Chief 
|                    |                |     | Executive Officer from 1992 to March 1998, and its Executive Vice President for Business       
|                    |                |     | Development until November 2002. He led the technology team that developed and deployed over   
|                    |                |     | 5,000 entertainment information kiosks in retail music, book and video stores throughout the   
|                    |                |     | U.S. and spearheaded efforts that led to the use of Muze data by most of the major Internet    
|                    |                |     | entertainment retailers and portal sites, including Amazon and Yahoo! From 1998 to 2000, Mr.   
|                    |                |     | Huxley served as Co-Chair of an EC project funded under the European Commission Info 2000      
|                    |                |     | Program, which developed an analysis of the requirements for metadata for e-commerce in        
|                    |                |     | intellectual property in the network environment. He serves on the Board of Directors of The   
|                    |                |     | Center for Social and Emotional Education, a non-profit organization based in New York City.   
|Robert J. McCloskey | I              | 59  | Mr. McCloskey has served as a member of our Board since 2002. Mr. McCloskey is currently the   
|                    |                |     | President and Chief Executive Officer of Shopcast Television (TV) Inc., a position he has held 
|                    |                |     | since 2006. Shopcast Television operates in-store television networks for major retailers in   
|                    |                |     | Canada. From 1987 to August 2004, Mr. McCloskey served as Chairman of the Home Entertainment   
|                    |                |     | Group of Standard Broadcasting, as well as President and Chief Executive Officer of Video One  
|                    |                |     | Canada Limited. Prior to joining Video One, he spent 17 years in the consumer products         
|                    |                |     | industry in numerous senior domestic and international assignments with General Foods, Pepsico,
|                    |                |     | Rothmans International and Nabisco. Mr. McCloskey has a B.S. from Cornell University and an    
|                    |                |     | M.B.A. from York University.                                                                   

# Executive Officers

The following persons are our
executive officers, having been elected to their respective offices by our Board:

|Name                       | Age | Position                                                       
|-------------------------- | --- | ---------------------------------------------------------------
|Current Executive Officers |     |                                                                
|Martin W. Greenwald        | 65  | Chairman of the Board, Chief Executive Officer and President(1)
|David Borshell             | 42  | Chief Operating Officer                                        
|Jeff M. Framer             | 46  | Chief Financial Officer                                        
|Former Executive Officer   |     |                                                                
|Jeffrey Fink               | 50  | Former Chief Marketing Officer                                 

(1)    
          See Directors above for Mr. Greenwalds biography.

Executive
officers serve at the pleasure of our Board. There is no family relationship between any
executive officer or director. The following is a brief description of the business
experience of each of our executive officers during the past five years:

Mr.  Borshell
has served as our Chief Operating Officer since July 2000. Previously           he served
as our Senior Vice President, Sales, Marketing and Operations from           December
1994 to June 2000. Prior to 1994, Mr. Borshell held various positions           with us,
starting as an Account Executive in February 1986. Mr. Borshell is a
          contributor to the Digital Entertainment Group, an industry trade association
          devoted to fostering consumer awareness of the DVD format, as well as future
          digital home entertainment formats.

Mr. Framer
has served as our Chief Financial Officer since April 1993. Previously,           he
served as our Controller from September 1990 to March 1993. Mr. Framer was a
          Senior Manager, KPMG LLP, from July 1989 to September 1990; and a Manager, KPMG
          LLP, from July 1988 to June 1989. Mr. Framer received his B.S. in Business
          Administration and Accounting Theory and Practice from California State
          University at Northridge in 1984. Mr. Framer is a Certified Public Accountant.

Mr.
Fink served as our Chief Marketing Officer from January 2007 to June 2007. Prior
          to working with us, Mr. Fink served as Founder and Chief Executive Officer for
Media Content Management, Inc., an entertainment consulting company, from March 2006 to
January 2007. From January 2004 to February 2006, Mr. Fink served as Senior Executive
Vice President, Home           Entertainment for Miramax Films. From 1994 to
          December 2003, he served as President of Sales and Marketing at Artisan
          Entertainment. Mr. Fink has over 25 years experience in the home entertainment
          industry. Mr. Fink graduated in 1981 from Wayne State University with a B.A. in
          Business Administration.

# Section 16(a) Beneficial
Ownership Reporting Compliance

Under
Section 16(a) of the Securities Exchange Act of 1934, as amended (Exchange
Act), the directors, executive officers and the beneficial holders of more than 10%
of our common stock are required to file reports of ownership and changes in ownership
with the SEC. Based solely on our records and written representations from certain of
these persons, we believe that during fiscal year 2007 all applicable Section 16(a) filing
requirements were met.

4

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# Code of Ethics and
Governance Guidelines

Our
Code of Ethics Policy, which is applicable to all employees, including our principal
executive officer, principal financial officer and principal accounting officer, as well
as our Insider Trading Policy, Corporate Governance Guidelines, the written Charters for
our Audit, Compensation, and Nominations and Governance Committees, as well as periodic
and current reports filed with the SEC are available on our website,
www.image-entertainment.com, and are available in print to any shareholder upon request.
Amendments and waivers, if any, will be disclosed on our website. Such information is
incorporated herein by reference.

# Director Independence

The
Board has determined that David Coriat, Ira S. Epstein, Gary Haber, M. Trevenen Huxley and
Robert J. McCloskey are independent as that term is used in Item 7(d)(3)(iv) of Schedule
14A under the Exchange Act and NASD Marketplace Rule 4200(a)(15). There are no family
relationships among any of our directors, executive officers or key employees.

# Committees of the Board
and Attendance at Meetings

Our
Board meets on a regular basis during the year to review significant developments
affecting us and to act on matters requiring Board approval. It also holds special
meetings when an important matter requires Board action between scheduled meetings.
Members of senior management regularly attend Board meetings to report on and discuss
their respective areas of responsibility.

Although
the full Board considers our major decisions, the Board has established an Audit
Committee, a Compensation Committee, and a Nominations and Governance Committee to more
fully address certain areas of importance to us. In September 2005, the Board also
established a Special Committee to address an unsolicited proposal from Lions Gate
Entertainment and other alternatives to maximize stockholder value. The Board has
appointed individuals from among its members to serve on these four committees. The
membership of each of these four committees is composed entirely of independent directors.

In
fiscal 2007, the Audit Committee held a total of seven committee meetings, which consisted
of three special meetings and four regular meetings. Six of the meetings were attended by
all of the members and one was attended by all of the members except one, but a quorum was
present. The Compensation Committee held one special meeting attended by all of its
members. The Nominations and Governance Committee held two special meetings attended by
all of its members. The Special Committee held eleven special meetings, nine of which were
attended by all of its members and two of which were attended by all of its members except
one, but a quorum was present. No other committee meetings were held. All other committee
business was transacted in executive session of meetings of the full Board.

Audit
Committee. Our Audit Committee for fiscal 2007 was composed of Messrs. Haber, Coriat
and Epstein. Our Board has determined that Mr. Haber, the fiscal 2007 Chairman of the
Audit Committee, meets the requirements of audit committee financial expert as
that term is defined in Item 407(d)(5) of Regulation S-K under the Exchange Act. As
provided in the Audit Committees charter adopted on June 5, 2000, revised and
readopted on December 18, 2003, and filed in our proxy statement for fiscal 2004, the
Audit Committees primary functions are to:

| | (1) | monitor
the integrity of our financial reporting process and systems of internal
               controls regarding finance, accounting and legal compliance,
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | select
our independent auditors, monitor the independence and performance of our
               independent auditors and internal auditing department, and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | provide
an avenue of communication among the independent auditors, management,                the
internal auditing department, and the Board. 5
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------

5

---

Compensation
Committee. Our Compensation Committee for fiscal 2007 was composed of Messrs. Epstein
and McCloskey (Chairman). The Compensation Committees primary functions are to
review and approve salaries, bonuses and other compensation payable to our executive
officers. In addition, the Compensation Committee administers our 2004 Incentive
Compensation Plan, 1998 Incentive Plan, and employee benefit plans other than our 1994
Eligible Directors Stock Option Plan. For more information on this matter, please refer to
our Compensation Committee Report on Executive Compensation.

Nominating
and Governance Committee. Our Nominating and Governance Committee for fiscal 2007 was
composed of Messrs. McCloskey and Coriat (Chairman). This committees primary
function is to review and recommend our potential director candidates and corporate
governance matters. Prior to formation of this committee, this function was previously
assumed exclusively by independent directors of the Board voting in executive session.

The
charter of the Nominating and Governance Committee, which was filed in our proxy statement
for fiscal 2005, provides that the committee will consider Board candidates recommended
for consideration by our stockholders, provided the stockholders provide information
regarding candidates as required by the charter or reasonably requested by us within the
timeframe proscribed in Rule 14a-8 of Regulation 14A under the Exchange Act, and
other applicable rules and regulations. Recommendation materials are required to be
sent to the committee, c/o Robert McCloskey, at our corporate address. There are no
specific minimum qualifications required to be met by a director nominee recommended for a
position on the Board, nor are there any specific qualities or skills that are necessary
for one or more of the members of our Board to possess, other than as are necessary to
meet any requirements under the rules and regulations applicable to us. The
Nominating and Governance Committee considers a potential candidates experience,
areas of expertise, and other factors relative to the overall composition of the Board.

The
Nominating and Governance Committee considers director candidates that are suggested by
members of the Board, as well as management and stockholders.  Although it has not
previously done so, the committee may also retain a third-party executive search firm to
identify candidates. The process for identifying and evaluating nominees for director,
including nominees recommended by stockholders, involves reviewing potentially eligible
candidates, conducting background and reference checks, interviewing the candidate and
others (as schedules permit), meeting to consider and approve the candidate and, as
appropriate, preparing and presenting to the full Board an analysis with regard to
particular recommended candidates.  The committee endeavors to identify director
nominees who have the highest personal and professional integrity, have demonstrated
exceptional ability and judgment, and, together with other director nominees and members,
are expected to serve the long-term interest of our stockholders and contribute to our
overall corporate goals.

Special
Committee. Our Special Committee for fiscal 2007 was composed of Messrs. Haber,
McCloskey and Epstein (Chairman) and in October 2006, Mr. Coriat was added to the
membership. This committees primary function has been to address the unsolicited
proposal from Lions Gate Entertainment and to review and analyze other alternatives to
maximize stockholder value.

Annual
Meeting Attendance. We have adopted a policy encouraging attendance by the Board, if
practicable and time permitting, at our stockholder annual meetings, either in person, by
telephone or by other similar means of live communication including video conference or
webcast. All of our then-directors attended our 2006 Annual Meeting of Stockholders held
on October 10, 2006, except one.

Executive
Sessions of Non-Management Directors. Our non-management directors also meet in
executive sessions on an as needed basis.

# Communications with
Directors

Stockholders
may communicate with the Board or to one or more individual members of the Board by
writing Image Entertainment, Inc., 20525 Nordhoff Street, Suite 200, Chatsworth, CA 91311,
Attention: Corporate Secretary. As appropriate, communications received from stockholders
are forwarded directly to the Board, or to any individual member or members, depending on
the facts and circumstances outlined in the communication. The Board has authorized the
Secretary, in his discretion, to exclude communications that are patently unrelated to the
duties and responsibilities of the Board, such as spam, junk mail and mass mailings. In
addition, material that is unduly hostile, threatening, illegal or similarly unsuitable
will be excluded, with the provision that any communication that is filtered out by the
Secretary pursuant to the policy will be made available to any non-management director
upon request.

6

---

# Report of the Audit
Committee

Our
Audit Committee is composed of three independent directors and operates under a written
charter approved and annually reviewed by our Board. Our management is responsible for the
internal accounting controls and the financial reporting process, and the preparation of
financial statements in accordance with generally accepted accounting principles. Our
independent registered public accounting firm, BDO Seidman, LLP, is responsible for
performing an independent audit of our consolidated financial statements in accordance
with auditing standards generally accepted in the United States and performing timely
reviews of the quarterly financial statements in accordance with SAS No. 100. The Audit
Committees primary responsibility is to monitor and oversee these processes, and the
systems of internal controls that management and the Board have established. The Board has
determined that each of the members of the audit committee is an independent
director as that term is defined in Rule 4200(a)(15) of the Marketplace Rules of
Nasdaq.

In
connection with these responsibilities, the Audit Committee has reviewed and discussed
with management and the independent registered public accounting firm the fair and complete presentation of our
annual and quarterly financial results for the fiscal year ended March 31, 2007. In
addition, the Audit Committee has discussed with the independent registered public accounting firm the matters
required by Statement of Auditing Standards No. 61, Communication with Audit
Committees.

The
Audit Committee has also received the written disclosures and the letter from the
independent registered public accounting firm required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has discussed with the
independent registered public accounting firm that firms independence from us and our management. In
addition, the Audit Committee has considered whether non-audit services by the independent
registered public accounting firm are compatible with the independence requirements of Board Standard No. 1. The
Audit Committee has concluded that the independent registered public accounting firm is independent from us and
our management.

The
Audit Committee discussed with our independent registered public accounting firm the overall scope and plans for
their audit. The Audit Committee met with the independent registered public accounting firm, with and without
management present, to discuss the results of their examination, the evaluations of our
internal controls, and the overall quality of our financial reporting.

Based
on the Audit Committees discussions with management and the independent registered public accounting firm
and the Audit Committees review of the representations of management and the
independent registered public accounting firm, the Audit Committee has recommended to the Board that the audited
consolidated financial statements be included in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2007, for filing with the SEC. The Audit Committee and the
Board also have approved and recommended the selection of our independent registered public accounting firm.

| |                     
| | --------------------
| | AUDIT COMMITTEE     
| | Gary Haber, Chairman
| | David Coriat        
| | Ira S. Epstein      

---

(1)    
          The foregoing report of the Audit Committee does not constitute soliciting
          material and shall not be deemed filed or incorporated by reference into
          any other of our filings under the Securities Act of 1933 or the Exchange Act,
          except to the extent we specifically incorporate such report by reference
          therein.

# Report of the
Nominations and Governance Committee

The
Nominations and Governance Committee is composed of two independent directors and operates
under a written charter approved and annually reviewed by our Board.

| |                                     
| | ------------------------------------
| | NOMINATIONS AND GOVERNANCE COMMITTEE
| | David Coriat, Chairman              
| | Robert J. McCloskey                 

7

---

# Report of the
Compensation Committee

Our
Compensation Committee is composed entirely of independent directors. The Compensation
Committee reviews with the full Board all aspects of the compensation packages for each of
our executive officers. The Compensation Committee, and from time to time the full Board,
approves compensation packages and any amendments thereto. Executive officers who are also
directors do not participate in deliberations or decisions involving their own
compensation. The Compensation Committee administers our 1998 Incentive Plan, 2004
Incentive Compensation Plan and other employee benefit plans. This report addresses the
Compensation Committees objectives and its actions and decisions with respect to
compensation for the 2007 fiscal year.

The
Compensation Committee has reviewed and discussed with management the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K, which follows this
report (see Item 11. Executive Compensation  Compensation Discussion and
Analysis below). Based on such review and discussion, the Compensation Committee
recommended to our Board that the Compensation Discussion and Analysis section be included
in our 2007 Form 10-K.

| |                              
| | -----------------------------
| | COMPENSATION COMMITTEE       
| | Robert J. McCloskey, Chairman
| | Ira S. Epstein               

# ITEM 11. EXECUTIVE
COMPENSATION

# Compensation Discussion
and Analysis

Overview
of Compensation Program. The Compensation Committee is responsible for establishing,
implementing, and monitoring managements adherence to our compensation program. The
Compensation Committee oversees the compensation that is paid to our executive officers to
ensure that their compensation is fair, reasonable and competitive. In the event of newly
created positions or specific retention concerns, industry market research for salary and
benefits would be used to ensure fair compensation consistency.

Compensation
Program Objectives. Our goal is to maximize stockholder value over the long term by
implementing programs designed to enable us to attract, retain and motivate the best
possible key employees to operate and manage us at all levels. We offer a contributory
401(k) plan and provide health, life and disability insurance to full-time employees.

The
compensation packages contain the following components for each of the executive officers
listed in the Summary Compensation Table on page 11 below (referred to in this report as
our Named Executive Officers):

| |  | base
salary,
| | - | ------------

| |  | long-term
incentive compensation in the form of stock-based awards, including options and
restricted stock unit awards, and
| | - | ---------------------------------------------------------------------------------------------------------------------------

| |  | short-term
incentive compensation in the form of annual cash bonuses based on our financial
performance.
| | - | --------------------------------------------------------------------------------------------------------

Base
Salary. A Named Executive Officers base salary is determined by an assessment of
his sustained performance against individual job responsibilities, including, where
appropriate, the impact of his performance on our business results, current salary in
relation to the salary range designated for the job, experience and mastery, and potential
for advancement. In general, employment agreements with our Named Executive Officers
provide that base salary will increase five percent annually. In fiscal 2007, other than
the annual five percent raise, no other increases in base salary were made.

Bonuses.       The
criteria for calculating performance-based bonuses for our Named Executive
          Officers are set annually by the Compensation Committee. Annual bonuses, if
any,           are equal to 10% of consolidated pretax earnings adjusted to add back
noncash           amortization expense of restricted stock units and warrants, thereby
          establishing a direct link between incentive bonuses and our financial
          performance. An individual Named Executive Officers annual cash bonus is
a           percentage of the bonus pool determined by such persons job level.
Actual           cash bonuses are determined by applying a formula based on our
achievement of           consolidated pretax earnings, as adjusted, to each executive
officers job           level. Our Chief Executive Officer generally receives a
higher percentage than           the other Named Executive Officers, and the Named
Executive Officers generally           receive a higher percentage of the pool than other
officers. Specific bonus           amounts proposed for each officer are prepared by our
Chief Financial Officer           and Chief Operating Officer and are presented by our
Chief Executive Officer to           the Compensation Committee for their approval. The
bonuses awarded by us for           fiscal 2007 are described in the Summary Compensation
Table.

8

---

The
specific performance criteria and targets used to determine the bonuses and restricted
stock unit accelerated vesting are subject to change annually at the Compensation
Committees discretion to adjust for changes in our business, competitive conditions,
changes in our capitalization, performance and needs. Our Named Executive Officers are
eligible for cash bonuses as incentive short-term compensation, based on our financial
performance relative to annually determined performance targets. The cash bonus target for
fiscal 2007 was based on a percentage formula relative to 10% of consolidated pretax
earnings, adjusted to add back noncash amortization expense of restricted stock units and
warrants. Bonus criteria are subject to change annually at the discretion of the
Compensation Committee. Our Named Executive Officers did not earn financial
performance-based bonuses in fiscal 2007.

Option
Grants. The Compensation Committee views any option grant portion of the Named
Executive Officer compensation packages as a special form of long-term incentive
compensation to be awarded on a limited and non-regular basis. The objective of these
awards is to advance the longer-term interests of both us and our stockholders, and to
complement incentives tied to annual performance. These awards provide rewards to Named
Executive Officers based upon the creation of incremental stockholder value and the
attainment of long-term financial goals. Stock options produce value to our Named
Executive Officers only if the price of our stock appreciates, thereby directly linking
the interests of our Named Executive Officers with those of our stockholders.

When
granted, stock options are priced at or above the fair market value of our common stock on
the date of grant. Awards of stock options are determined based on the Compensation
Committees subjective determination of the amount of awards necessary, as a
supplement to a Named Executive Officers base salary and performance-based bonus, to
retain and motivate said Named Executive Officer. In fiscal 2007, there were no options
granted to our Named Executive Officers by the Compensation Committee.

Restricted
Stock Unit Grants. The Compensation Committee has the ability to authorize grants of
restricted stock units (RSUs) to our Named Executive Officers. In January
2007, we granted 10,000 RSUs to Jeffrey Fink, our Chief Marketing Officer, as an incentive
to join us. The RSUs were to vest over three years (3,300 shares on January 22, 2008,
3,300 shares on January 22, 2009, and 3,400 shares on January 22, 2010), except that Mr.
Fink was terminated in June 2007.

Retirement,
Perquisites and Other Benefits. Our Named Executive Officers receive medical, dental,
life and short and long-term disability insurance, 401(k) plan participation, vacation and
reimbursement for reasonable business expenses. Mr. Greenwald also receives personal life
insurance premium payments and reimbursements for medical expenses not covered by medical
insurance, an unaccountable personal expense allowance, and use of a company car. Messrs.
Borshell and Framer each receive a monthly car allowance.

Compensation
of Chief Executive Officer. The compensation of our Chief Executive Officer results
from his participation in the same compensation programs as our other Named Executive
Officers. The Compensation Committee applied the principles outlined above in establishing
Mr. Greenwalds compensation, in the same manner as they were applied to our other
Named Executive Officers.

Section
162(m) Policy. To the extent reasonably practicable and within the Compensation
Committees control, the Compensation Committee prefers to limit compensation in
ordinary circumstances to that which is deductible by us under Section 162(m) of the
Internal Revenue Code. During fiscal year 2007, all compensation paid to our Named
Executive Officers was within the Section 162(m) limit. Any existing grants of RSUs,
however, are not considered performance-based for these purposes and are included as
compensation for these purposes only when they vest. Accordingly, to the extent that the
value of shares vesting in any future year under RSU awards, when combined with salary,
allowances and other non-exempt compensation, exceeds $1,000,000, the excess would not be
deductible. The Compensation Committee does not expect non-exempt compensation to exceed
the applicable limit for fiscal year 2008.

9

---

Compensation
of Non-Employee Directors. Non-employee directors are each compensated $2,000 for each
meeting of the Board or a committee of the Board where in-person attendance is expected,
and $500 for each Board or committee meeting where telephonic attendance is expected. We
estimate we will have two in-person meetings and between ten and fifteen telephonic
meetings each year, resulting in approximately $9,000 to $11,500 in compensation per
non-employee director. In addition, we compensate our Audit Committee Chairman $2,500 per
quarter.

# Summary Compensation
Table for 2007 Fiscal Year

The
following table sets forth compensation paid to our Named Executive Officers for fiscal
2007, which ended on March 31, 2007:

|Name &
Principal Position | Fiscal
Year | Salary
($) (1) | Bonus
($) | Stock Awards
($) | Option
Awards ($) | Non-Equity
Incentive
Plan Bonus
($) | Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings
($) | All Other
Compensation
($)(2) | Total
Compensation ($)
|------------------------- | ----------- | -------------- | --------- | ---------------- | ----------------- | ----------------------------------- | ---------------------------------------------------------------------------- | ----------------------------- | ----------------------
|
|Martin W. Greenwald,      |             |                | 2007      |                  |                   | $                                   | 679,237                                                                      |                               | $ --                  
|President & Chief         |             |               
|Executive Officer         |             |               
|                          |             |                |           |                  |                   |                                     |                                                                              |                               |                       
|David Borshell,           |             |                | 2007      |                  |                   |                                     | 302,842                                                                      |                               | --                    
|Chief Operating           |             |               
|Officer                   |             |               
|                          |             |                |           |                  |                   |                                     |                                                                              |                               |                       
|Jeff M. Framer,           |             |                | 2007      |                  |                   |                                     | 285,699                                                                      |                               | --                    
|Chief Financial           |             |               
|Officer                   |             |               
|                          |             |                |           |                  |                   |                                     |                                                                              |                               |                       
|Former Executive Officer  |             |               
|Jeffrey Fink (3),         |             |                | 2007      |                  |                   |                                     | 47,596                                                                       |                               | --                    
|Chief Marketing           |             |               
|Officer                   |             |               

---

| | (1) | The salary figure for Mr. Greenwald includes a component characterized as an
               unaccountable personal expense allowance in his employment agreement.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes:
| | --- | ---------

| | a. | Medical
and dental insurance premiums and other payments in excess of those
               provided to other employees of $32,135 for Mr. Greenwald, $14,101 for Mr.
               Borshell and $14,334 for Mr. Framer.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Term
life insurance premium payments of $24,752 for Mr. Greenwald.
| | -- | ------------------------------------------------------------------

| | c. | Auto
allowances paid and other personal auto expenses of $23,793 for Mr.
               Greenwald, $12,600 for each of Mr. Borshell and Mr. Framer and $1,923 for Mr. Fink.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Our
contributions to a 401(k) plan of $4,478 for Mr. Borshell and $3,734 for Mr.
               Framer.
| | -- | -------------------------------------------------------------------------------------------------------

| | (3) | Mr. Finks employment with us terminated in June 2007.
| | --- | ------------------------------------------------------

10

---

# Employment Agreements

We
entered into employment agreements with each of the Named Executive Officers.  Mr. Finks
employment was terminated in June 2007.  The terms are summarized below.

Term.          Each
of the agreements with Messrs. Greenwald, Borshell and Framer is for three
          years, with two one-year extensions, beginning April 1, 2004. In October 2005,
          the Compensation Committee and our Board voted to extend each of these
          agreements for one year through March 31, 2008. The deadline to exercise the
          second one-year extension is July 20, 2007. The Agreement with Mr. Fink is for
          slightly more than 14 months, commencing January 22, 2007, and ending March 31,
          2008, with automatic annual renewals unless notice is given by either party by
          December 31 of any year, or within 60 days after the consummation of a change
of           control.

Base
Salary. Base salaries for the fiscal year ending March 31, 2007, for Messrs.
Greenwald, Borshell and Framer are $583,947, $303,119 and $285,961, respectively. Mr.
Greenwald has an annual unaccountable personal expense allowance of $95,825. Each officer
is entitled to receive an annual 5% increase. Base salary for Mr. Fink was $22,917 per
month, which would have increased to $27,083 per month upon the earlier of August 1, 2007,
or 30 days after the consummation of a change of control.

Cash
Bonus. The Named Executive Officers are eligible for cash bonuses as incentive
short-term compensation, based on our financial performance relative to annually
determined performance targets. The cash bonus target for fiscal 2007 was based on a
percentage formula relative to 10% of consolidated pretax earnings, adjusted to add back
noncash amortization expense of RSUs and warrants. Bonus criteria are subject to change
annually at the discretion of the Compensation Committee. The Named Executive Officers did
not earn financial performance-based bonuses in fiscal 2007.

Stock-Based
Awards. The Named Executive Officers are eligible for stock-based grants as the Board
or Compensation Committee determines.

Severance.          Severance
following death, disability or expiration of the term consists of base           salary,
expense allowance and insurance continuation for six months, and a pro           rata
portion of any bonus payable for the longer of six months or that part of           the
fiscal year occurring prior to expiration.

Termination.          If
employment is terminated without cause, the officer will continue to receive
          all compensation, rights and benefits under the agreement through the
expiration           of the term, plus the severance benefits described above. If an
officer resigns           for good reason or is terminated due to a change in control,
such officer will           receive all compensation and benefits under the agreement for
the longer of one           year or the remaining term, plus the severance benefits
described above. If an           officer is terminated for cause, no severance, bonus or
other compensation is           due or payable. In general, all unvested options and RSUs
will immediately vest           if employment is terminated without cause or the
executive resigns for good           reason following a change of control.

Fringe
Benefits. The Named Executive Officers receive medical, dental, life and short and
long-term disability insurance, 401(k) plan participation, vacation and reimbursement for
reasonable business expenses. Mr. Greenwald also receives personal life insurance premium
payments and reimbursements for medical expenses not covered by medical insurance, an
unaccountable personal expense allowance, and use of a company car. Messrs. Borshell,
Framer and Fink each receive a monthly car allowance.

Change
of Control Provisions. The Named Executive Officers each have change of
control provisions in their employment agreements that provide for protection in the event
of an early termination following a change of control. In any such case, they would
receive all of the compensation, rights and benefits they would normally be entitled to
under their respective agreement for the longer of the remainder of the term, or one year
following the early termination. In addition, they would receive severance normally
payable under such agreement. Each Named Executive Officer has the right to terminate his
employment agreement for good reason in the event an acquiring company takes
certain actions detrimental to him, which would allow him to receive all of the
compensation, rights and benefits he would normally be entitled to under his employment
agreement for the remainder of the term. Finally, he would also receive any legal fees and
expenses incurred in the enforcement of the employment agreement after any change of
control.

Potential
Payments Upon Termination or Change of Control. The estimated incremental compensation
payable to the Named Executive Officers in the event of the following triggering events,
assuming the triggering event occurred on March 30, 2007 (the last business day of fiscal
2007), is as follows:

Mr.
          Greenwald: (a) upon death or permanent disability, would receive approximately
          $442,086, which includes (i) base salary for 6 months of $306,572, (ii)
          pro-rated bonus for 6 months of zero, (iii) insurance for 6 months of $20,281,
          and (iv) accrued vacation of $115,233; (b) for termination by us without cause,
          or for termination by Mr. Greenwald for good reason, would receive
          approximately $1,197,754, which includes (i) base salary of 613,144, (ii)
          pro-rated bonus of zero, (iii) fringe benefits of $257,756 (includes insurance,
          car allowance, accrued vacation, personal life insurance of $32,393, and
          unaccountable personal  expense allowance of $95,825) through the remainder of the term, and
          (v) severance ((A) base salary for 6 months of $306,572, (B) pro-rated bonus
for           6 months of zero and (C) insurance for 6 months of $20,281); and (c) for
          termination by us without cause following a change of control, would receive
          approximately $1,217,754, which includes (i) base salary of $613,144, (ii)
          pro-rated bonus of zero, (iii) fringe benefits of $257,756 (includes insurance,
          car allowance, accrued vacation, personal life insurance of $32,393, and
          unaccountable personal  expense allowance of $95,825) for the longer of one year following
          termination or the expiration of the term (with the foregoing calculation
          assuming expiration of the term, which is one year), (v) severance ((A) base
          salary for 6 months of $306,572, (B) pro-rated bonus for 6 months of zero and
          (C) insurance for 6 months of $20,281), and (vi) actual legal fees estimated at
          $20,000.

Mr.
          Borshell: (a) upon death or permanent disability, would receive approximately
          $238,009, which includes (i) base salary for 6 months of $159,138, (ii)
          pro-rated bonus for 6 months of zero, (iii) insurance for 6 months of $10,367,
          and (iv) accrued vacation of $68,505; (b) for termination by us without cause,
          or for termination by Mr. Borshell for good reason, would receive
          approximately $589,617, which includes (i) base salary of $318,275, (ii)
          pro-rated bonus of zero, (iii) fringe benefits of $101,838 (includes insurance,
          car allowance and accrued vacation) through the remainder of the term, and (iv)
          severance ((A) base salary for 6 months of $159,138, (B) pro-rated bonus for 6
          months of zero and (C) insurance for 6 months of $10,367); and (c) for
          termination by us without cause following a change of control, would receive
          approximately $609,617, which includes (i) base salary of $318,275, (ii)
          pro-rated bonus of zero, (iii) fringe benefits of $101,838 (includes insurance,
          car allowance and accrued vacation), for the longer of one year following
          termination or the expiration of the term (with the foregoing calculation
          assuming expiration of the term, which is one year), (v) severance ((A) base
          salary for 6 months of $159,138, (B) pro-rated bonus for 6 months of zero and
          (C) insurance for 6 months of $10,367), and (vi) actual legal fees estimated at
          $20,000.

11

---

Mr.
          Framer: (a) upon death or permanent disability, would receive approximately
          $230,320, which includes (i) base salary for 6 months of $150,130, (ii)
          pro-rated bonus for 6 months of zero, (iii) insurance for 6 months of $10,367,
          and (iv) accrued vacation of $69,824; (b) for termination by us without cause,
          or for termination by Mr. Framer for good reason, would receive
          approximately $563,912, which includes (i) base salary of $300,259, (ii)
          pro-rated bonus of zero, (iii) fringe benefits of $103,157 (includes insurance,
          car allowance and accrued vacation) through the remainder of the term, and (iv)
          severance ((A) base salary for 6 months of $150,130, (B) pro-rated bonus for 6
          months of zero and (C) insurance for 6 months of $10,367); and (c) for
          termination by us without cause following a change of control, would receive
          approximately $583,912, which includes (i) base salary of $300,259, (ii)
          pro-rated bonus of zero, (iii) fringe benefits of $103,157 (includes insurance,
          car allowance and accrued vacation), for the longer of one year following
          termination or the expiration of the term (with the foregoing calculation
          assuming expiration of the term, which is one year), (iv) severance ((A) base
          salary for 6 months of $150,130, (B) pro-rated bonus for 6 months of zero, and
          (C) insurance for 6 months of $10,367), and (v) actual legal fees estimated at
          $20,000.

Mr.
          Finks employment with us terminated in June 2007.

The
foregoing estimations described above (a) do not include bonus amounts or option amounts
because we have not satisfied the financial thresholds necessary to pay such bonuses for
the fiscal year ended March 31, 2007, and (b) include estimated legal fees of $20,000 that
are required to be paid to the Named Executive Officers (except for Mr. Fink) following a
change of control. We exercise the discretion as to whether the estimated payments
described above are to be paid in lump sum payment amounts or in accordance with our
standard payment practices. Benefits generally available to all employees are not included
in these estimations. The above calculations are estimates only; the actual amount of
compensation can only be determined at the time of a triggering event.

# Grants of Plan-Based
Awards for 2007 Fiscal Year

The
following table summarizes options granted in fiscal 2007 to the Named Executive Officers:

|Name      | Grant Date | Estimated Future Payouts Under Annual Incentive
Bonus Plan (1) | All Other
Stock Awards:
No. of Shares
of Stock or
Units (2) | All Other
Option Awards:
No. of
Securities
Underlying
Options (#) | Exercise or
Base Price of
Option Awards
($/Sh) | Grant Date Fair
Value of Stock
and Option
Awards
|--------- | ---------- | -------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------
|Threshold | Target     | Maximum                                                        |                                                             |                                                                   |                                                |                                                 
|Current   |            |                                                                |                                                             |                                                                   |                                                |                                                 
|Executive
|Officers 
|          |            |                                                                |                                                             |                                                                   |                                                |                                                 
|Martin W.
|Greenwald | --         | --                                                             | --                                                          | --                                                                | --                                             | --                                              
|David    
|Borshell  | --         | --                                                             | --                                                          | --                                                                | --                                             | --                                              
|Jeff M.  
|Framer    | --         | --                                                             | --                                                          | --                                                                | --                                             | --                                              
|          |            |                                                                |                                                             |                                                                   |                                                |                                                 
|Former   
|Executive
|Officer  
|          |            |                                                                |                                                             |                                                                   |                                                |                                                 
|Jeffrey  
|Fink      | 1/22/07    | --                                                             | --                                                          | --                                                                | 10,000                                         | --                                              

---

|(1) | There
were no stock option grants in fiscal 2007 as part of an incentive bonus
               plan.
|--- | ---------------------------------------------------------------------------------------------------

|(2) | Mr.
Fink received 10,000 RSUs vesting over three years when he joined us, which
               RSUs were terminated when his employment with us ceased in June 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---

# Outstanding Equity
Awards at 2007 Fiscal Year End

All
equity awards reported in the table below were granted under the 1998 Incentive Plan or
2004 Incentive Compensation Plan. The table below generally sets forth the number of
outstanding equity awards that have not been earned or vested or that have not been
exercised by the Named Executive Officers as of March 31, 2007:

|Name      | No. of
Securities
Underlying
Unexercised
Options (#
Exercisable) | No. of
Securities
Underlying
Unexercised
Options (#
Unexercisable) | Equity
Incentive Plan
Awards: No. of
Securities
Underlying
Unexercised
Unearned
Options (#) | Option
Exercise
Price ($) | Option Expiration
Date | No. of
Shares or
Units of
Stock That
Have Not
Vested (#) | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)* | Equity     
Incentive  
Plan       
Awards: No.
of Unearned
Shares,    
Units or   
Other      
Rights That
Have Not   
Vested (#) | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)*
|--------- | ---------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------- | ---------------------- | -------------------------------------------------------- | ------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------
|Current   |                                                                  |                                                                    |                                                                                             |                           |                        |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|Executive
|Officers 
|         
|Martin W. | 120,000                                                          | --                                                                 | --                                                                                          | $  3.80                   | 9/21/2014(4)           | --                                                       | --                                                                 | --                                                                                                                                 | --                                                                                                                      
|Greenwald | 80,000                                                           |                                                                    |                                                                                             | 5.00                      | 9/21/2014(4)           |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 72,500                                                           |                                                                    |                                                                                             | 1.75                      | 10/1/2011(2)           |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 62,000                                                           |                                                                    |                                                                                             | 1.78                      | 3/5/2013(3)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 120,000                                                          |                                                                    |                                                                                             | 3.75                      | 7/2/2010(1)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 45,000                                                           |                                                                    |                                                                                             | 3.39                      | 1/4/2016(5)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|David    
|Borshell  | 108,000                                                          | --                                                                 | --                                                                                          | $  3.80                   | 9/21/2014(4)           | --                                                       | --                                                                 | --                                                                                                                                 | --                                                                                                                      
|          | 60,000                                                           |                                                                    |                                                                                             | 5.00                      | 9/21/2014(4)           |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 52,250                                                           |                                                                    |                                                                                             | 1.75                      | 10/1/2011(2)           |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 42,000                                                           |                                                                    |                                                                                             | 1.78                      | 3/5/2013(3)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 40,000                                                           |                                                                    |                                                                                             | 3.75                      | 7/2/2010(1)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 35,000                                                           |                                                                    |                                                                                             | 3.39                      | 1/4/2016(5)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|Jeff M.  
|Framer    | 84,000                                                           | --                                                                 | --                                                                                          | $  3.80                   | 9/21/2014(4)           | --                                                       | --                                                                 | --                                                                                                                                 | --                                                                                                                      
|          | 40,000                                                           |                                                                    |                                                                                             | 5.00                      | 9/21/2014(4)           |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 42,250                                                           |                                                                    |                                                                                             | 1.75                      | 10/1/2011(2)           |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 32,000                                                           |                                                                    |                                                                                             | 1.78                      | 3/5/2013(3)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 40,000                                                           |                                                                    |                                                                                             | 3.75                      | 7/2/2010(1)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|          | 35,000                                                           |                                                                    |                                                                                             | 3.39                      | 1/4/2016(5)            |                                                          |                                                                    |                                                                                                                                    |                                                                                                                         
|         
|Former   
|Executive
|Officer  
|         
|Jeffrey  
|Fink      | --                                                               | --                                                                 | --                                                                                          | --                        | --                     | 10,000(6)                                                | $41,900                                                            | --                                                                                                                                 | --                                                                                                                      

*     Uses closing stock price of $4.19
per share of our common stock at March 30, 2007, the last trading day of our fiscal year.

13

---

|(1) | Stock
Options granted on 7/3/2000 that were fully vested on 7/3/2003
               (one-seventh of the grant vested every six months beginning on July 3,
2000).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Stock
Options granted on 10/1/2001 that were fully vested on 10/1/2004
               (one-twelfth of the grant vested every three months beginning on January
2,                2002).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Stock
Options granted on 3/6/2003 that were fully vested on 3/6/2006
               (one-twelfth of the grant vested every three months beginning on June 6,
2003).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Stock
Options granted on 9/22/2004 (one-twentieth of the grant vested every
               three months beginning on December 22, 2004). Vesting was accelerated on
March                29, 2006 for all unvested options.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Stock
Options granted on 1/5/2006 (one-twentieth of the grant vested every three
               months beginning on April 5, 2006). Vesting was accelerated on March 29,
2006                for all unvested options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Restricted
Stock Units granted on 1/22/2007 (one-third of the grant would have                vested
on each of January 22, 2008, 2009 and 2010, respectively) were terminated
               when Mr. Finks employment terminated in June 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Option Exercises and
Stock Vested in 2007 Fiscal Year (1)

The
following table sets forth monetary information regarding the exercise of stock options,
SARs, or vesting of stock awards in fiscal 2007 by each of the Named Executive Officers:

|                    | Option Awards                             | Stock Awards                  
|------------------- | ----------------------------------------- | ------------------------------
|Name                | Number of Shares Acquired on
Exercise (#) | Value Realized on Exercise
($)
|Current Executive   |                                           |                               
|Officers           
|Martin W. Greenwald | --                                        | --                            
|David Borshell      | --                                        | --                            
|Jeff M. Framer      | --                                        | --                            
|Former Executive   
|Officer            
|Jeffrey Fink        | --                                        | --                            

|(1) | There
were no option exercises by the Named Executive Officers during fiscal           2007.
|--- | --------------------------------------------------------------------------------------------

# Director Compensation

The
following table sets forth information regarding the compensation of our non-employee
directors in fiscal 2007:

|Name                   | Fees Earned or Paid in
Cash (1) | Stock Awards (2) | All Other Compensation | Total  
|---------------------- | ------------------------------- | ---------------- | ---------------------- | -------
|David Coriat           | $14,000                         | $11,048          | --                     | $25,048
|Ira S. Epstein (3)     | $25,000                         | $11,048          | --                     | $36,048
|Gary Haber (4)         | $25,000                         | $11,048          | --                     | $36,048
|M. Trevenen Huxley (5) | $49,500                         | $11,048          | --                     | $60,548
|Robert J. McCloskey    | $16,000                         | $11,048          | --                     | $27,048

|(1) | Cash
compensation for Board and committee meeting attendance, service as a
               committee chairman and other service.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | The
amounts in the Stock Awards column includes the compensation
               cost for fiscal 2007 related to RSUs granted in fiscal 2007. Stock Award
value                is calculated by multiplying the RSUs issued by the closing market
price of our                common stock on the date of grant.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Representation
fee for meeting with ISS of $4,000 and total meeting fees of                $21,000.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | Audit
Committee Chairman fee of $10,000, paid quarterly, and total meeting fees
               of $15,000.
|--- | ----------------------------------------------------------------------------------------------------------

|(5) | Consulting
fees of $40,000 paid to Thinxinc, Inc., a company controlled by Mr.
               Huxley, and total meeting fees of $9,500. See Item 13. Certain
               Relationships and Related Transactions, and Director Independence below.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

# Compensation Committee
Interlocks and Insider Participation

Mr.
          Epstein is a non-employee director who served on our Compensation Committee for
          the entire fiscal year 2007. The international law firm of Greenberg Traurig,
          LLP was retained by us to provide legal services on December 14, 2001. Mr.
          Epstein became Of Counsel to Greenberg Traurig, LLP on July 1, 2002. We paid
          Greenberg Traurig, LLP fees for its legal services through the end of calendar
          2006 at prices that, in the opinion of management, are fair and reasonable and
          as favorable to us as those which could have been obtained from unrelated third
          parties. We are not currently using the services of Greenberg Traurig, LLP.

|ITEM 12. | SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The
following table sets forth certain information as of July 16, 2007, with respect to the
beneficial ownership of shares of our common stock owned by (i) each person, who, to our
knowledge based on Schedules 13G or 13D filed with the SEC, is the beneficial owner of
more than 5% of our outstanding common stock, (ii) each person who is currently a
director, (iii) each Named Executive Officer, and (iv) all of our current directors and
executive officers as a group. Unless indicated otherwise below, the person or entity
listed has sole voting and dispositive power with respect to the shares that are deemed
beneficially owned by such person or entity.

|Name of Beneficial Owner                                      | Shares of Common Stock
Beneficially Owned(1) | Percent of Common
Stock(2)
|------------------------------------------------------------- | -------------------------------------------- | --------------------------
|Image Investors Co.(3)                                        | 6,069,767                                    | 27.80%                    
|Standard Broadcasting Corp. Ltd.(4)                           | 1,542,283                                    | 7.10%                     
|MMCAP International Inc., SPC and MM Asset Management Inc.(5) | 1,090,465                                    | 5.02%                     
|Martin W. Greenwald(6)                                        | 1,321,604                                    | 5.95%                     
|David Borshell(7)                                             | 357,657                                      | 1.62%                     
|Jeff M. Framer(8)                                             | 292,031                                      | 1.33%                     
|Ira S. Epstein                                                | 69,720                                       | *                         
|M. Trevenen Huxley                                            | 41,720                                       | *                         
|Robert J. McCloskey                                           | 30,000                                       | *                         
|Gary Haber                                                    | 25,700                                       | *                         
|David Coriat                                                  | 5,000                                        | *                         
|Jeffrey Fink                                                  | -0-                                          | *                         
|All directors and executive officers as a group (9 persons)   | 2,143,432                                    | 9.32%                     

---

*Less than 1%

Notes to Beneficial
Ownership Table:

|(1) | The
number of shares beneficially owned includes shares of common stock in which           a
person has sole or shared voting power and/or sole or shared investment power.
          Except as noted below, each person named reportedly has sole voting and
          investment powers with respect to the common stock beneficially owned by that
          person, subject to applicable community property and similar laws. Except as
          noted below, each owners mailing address is c/o Image Entertainment,
Inc.,           20525 Nordhoff Street, Suite 200, Chatsworth, California 91311.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | On
July 16, 2007, there were 21,736,598 shares of our common stock, $.0001 par
          value, outstanding. Common stock not outstanding but which underlies options
and           rights (including warrants) vested as of, or vesting within, 60 days after
July           16, 2007, is deemed to be outstanding for the purpose of computing the
          percentage of the common stock beneficially owned by each named person (and the
          directors and executive officers as a group), but is not deemed to be
          outstanding for any other purpose.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The
mailing address of Image Investors Co. is c/o Metromedia Company, One
          Meadowlands Plaza, East Rutherford, NJ 07073. All of the shares of common stock
          are held of record by Image Investors Co. (IIC). The shares of
          common stock listed in the table as beneficially owned by IIC may also be
deemed           to be beneficially owned by John W. Kluge and Stuart Subotnick by virtue
of           their being directors, executive officers and the only stockholders of IIC.
With           respect to these shares, Messrs. Kluge and Subotnick share voting and
investment           powers. Amendment No. 11 (dated December 30, 1992) to a Schedule 13D
dated July           18, 1988, filed on behalf of IIC, John W. Kluge, and Stuart
Subotnick, states           that IIC and Messrs. Kluge and Subotnick each disclaims
membership in a           group, although a group might be deemed to exist.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

|(4) | The
mailing address of Standard Broadcasting Corporation Limited is 2 St. Clair
          Avenue West, Suite 1100, Toronto, Ontario, Canada M4V 1L6. Ownership based on
          information provided on Amendment No. 2 (filed May 11, 2006) to Schedule 13G
          dated September 25, 2002, filed with the SEC on behalf of Standard Broadcasting
          Corporation Limited.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The
mailing address of MMCAP International Inc. SPC is P.O. Box 32021, SMB,           Admiral
Financial Centre, 90 Fort Street, Grand Cayman, Cayman Islands BWI. The           mailing
address of MM Asset Management Inc. is 141 Adelaide Street West, Suite           410,
Toronto, Ontario, Canada M5H 3L5. The information provided herein is based           on
information provided on Schedule 13G, dated July 16, 2007, filed with the SEC
          on behalf of MMCAP International Inc. SPC and MM Asset Management Inc. The
          parties share voting and dispositive power with respect to the shares indicated
          as beneficially owned by them.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes
options to purchase 499,500 shares of common stock and 1,030 shares           owned by
MomAnDad, Inc., of which Martin W. Greenwald is a 50% owner.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes
options to purchase 337,250 shares of our common stock.
|--- | ----------------------------------------------------------------

|(8) | Includes
options to purchase 273,250 shares of our common stock.
|--- | ----------------------------------------------------------------

# Change in Control

For
a discussion of our potential merger, please refer to Item 1. Business  Recent
Events and other information regarding the potential merger included in the 2007
Form 10-K.

# Equity Compensation Plans

The
following table sets forth certain information as of March 31, 2007 with respect to our
equity compensation plans (including individual compensation arrangements) under which our
equity securities are authorized for issuance, aggregated by (i) all compensation plans
previously approved by our security holders, and (ii) all compensation plans not
previously approved by our security holders:

|Plan Category                             | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (1) | Weighted-average exercise
price of outstanding
options, warrantsand
rights | Number of securities remaining available for
future issuance under equity compensation plans
(excluding securities referenced in the first
column)
|----------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by     |                                                                                                 |                                                                            |                                                                                                                                                   
|security holders                          |                                                                                                 |                                                                           
|Equity compensation plans not approved by |                                                                                                 |                                                                           
|security holders:                         |                                                                                                 |                                                                           
|Compensatory warrants issued to service   |                                                                                                 |                                                                           
|providers                                 |                                                                                                 |                                                                            |                                                                                                                                                   
|                                          |                                                                                                 |                                                                            |                                                                                                                                                   
|Total                                     |                                                                                                 |                                                                            |                                                                                                                                                   
|                                          |                                                                                                 |                                                                            |                                                                                                                                                   

Notes to Equity
Compensation Plans Table:

|(1) | Includes
options granted to employees and directors.
|--- | ----------------------------------------------------

|(2) | The
compensatory warrants identified in the above table consist of approximately
               17 grants made to investors in exchange for their services in connection
with                the early repayment of a loan, a private placement offering and a
convertible                debt financing. These warrants expire on various dates
beginning in December                2007 and ending in August 2011 and have exercise
prices ranging from $2.04 to                $6.56 per share. In March 2004, in connection
with the early repayment of a                loan, we issued four-year warrants to an
investor to purchase up to 100,000                shares at $2.04 per share. In December
2004, we issued three-year warrants to                certain private placement investors
in connection with such private placement to                purchase up to 784,284 shares
at $6.56 per share. In August 2006, we issued a                five-year warrant in
connection with a convertible debt financing to an investor                to purchase up
to 1,000,000 shares at $4.25 per share. The warrant was recorded                as a
discount to the related $17 million debt and a long-term liability.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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# Stock Performance Graph

The
graph below compares our cumulative total return, the NASDAQ U.S. Market Index and our
selected peer group for the five-year period ended March 31, 2007. Our new peer group
consists of Handleman Company, Trans World Entertainment Corporation, Navarre Corporation,
Lions Gate Entertainment and Genius Products, Inc. We added Genius Products, Inc., an
entertainment products distribution company that distributes, licenses, acquires and
produces entertainment programming on DVD and emerging entertainment platforms. Genius
Products was added to our new peer group as most of their business parallels our own. Our
old peer group consisted of Handleman Company, Trans World Entertainment Corporation,
Navarre Corporation and Lions Gate Entertainment. The graph assumes an initial investment
in us of $100 on March 31, 2002, in the NASDAQ U.S. Market Index and in our peer group.
The graph also assumes reinvestment of dividends, if any. The stockholder return shown on
the graph below should not be considered indicative of future stockholder returns, and we
will not make or endorse any predictions of future stockholder returns.

# COMPARISON OF FIVE
YEAR CUMULATIVE TOTAL RETURN* AMONG IMAGE
ENTERTAINMENT, INC., THE NASDAQ U.S. MARKET INDEX, OUR NEW PEER GROUP AND
OUR OLD PEER GROUP



* $100 invested on 3/31/02 in stock
or index-including reinvestment of dividends. Fiscal year ending March 31.

|                         
|-------------------------
|
|Image Entertainment, Inc.
|NASDAQ U.S. Market       
|New Peer Group           
|Old Peer Group           

17

---

|ITEM 13. | CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

Our
policy on Related-Party Transactions in included in our revised Code of Conduct, which has
been reviewed and approved by the Board effective as of June 19, 2007. Our policy states
that each executive officer, director or nominee for director will disclose to the Audit
Committee of the Board the following information regarding a Related-Person Transaction
for review, approval or ratification by the Audit Committee: (i) the name of the
Related-Person (as defined by Item 404(a) of Regulation S-K under the Exchange Act), and
if he or she is an immediate family member of an executive officer, director or nominee
for director, the nature of such relationship; (ii) the Related-Persons interest in
the transaction; (iii) the approximate dollar value of the amount involved in the
transaction; (iv) the approximate dollar value of the amount of the Related-Persons
interest in the transaction; and (v) in the case of indebtedness, the largest total amount
of principal outstanding since the beginning of our last fiscal year, the amount of
principal outstanding as of the latest practicable date, the amount of principal paid
since the beginning of our last fiscal year, and the rate or amount of interest payable on
the indebtedness.

The
Audit Committees decision whether or not to approve or ratify the Related-Party
Transaction is made in light of its determination as to whether consummation of the
transaction is believed by the Audit Committee to not be or have been contrary to our best
interests. The Audit Committee may take into account the effect of a directors
Related-Person Transaction on such persons status as an independent member of our
Board and eligibility to serve on Board committees under SEC and stock exchange rules.

We
paid Greenberg Traurig, LLP, a law firm at which Mr. Epstein is Of Counsel, a total of
approximately $520,000 during fiscal 2007. The legal fees paid were, in the opinion of
management, fair and reasonable, and as favorable to us as those which could have been
obtained from unrelated third parties.

From
April 2005 to November 2006, M. Trevenen Huxley was consulting for Egami, our subsidiary
focused on the acquisition of and licensing digital programming. Mr. Huxley withdrew from
his service on our committees as a result, although he is still an independent
director as defined in NASD Marketplace Rule 4200(a)(15). We paid him $9,500, and a
corporation controlled by him $40,000, in fiscal 2007. The fees paid to Mr. Huxley and his
corporation were, in the opinion of management, fair and reasonable, and as favorable to
us as those which could have been obtained from unrelated third parties.

Dale
Borshell, the mother of David Borshell, our Chief Operating Officer, is a travel agent at
Travel Syndicate. For many years, we have used Travel Syndicate nearly exclusively for our
corporate travel needs. We paid Travel Syndicate approximately $216,000 via our Corporate
American Express Credit Card for travel services during fiscal 2007, which included
airplane ticket fees and costs, and expenses relating to hotel and other travel related
services. The fees paid to Travel Syndicate for travel plans made by Travel Syndicate, but
charged to the American Express card were, in the opinion of management, fair and
reasonable, and as favorable to us as those which could have been obtained through or from
unrelated third parties.

On
September 25, 2002, we sold $2.0 million of our common stock to Standard Broadcasting
Corporation Limited in a private placement. Standard Broadcasting is the largest privately
owned multi-media company in Canada. Video One, then a wholly-owned subsidiary of Standard
Broadcasting and the parent company of VidCanada (now known as Paradox Entertainment
Group) was at that time Canadas largest distributor of pre-recorded home
entertainment programming, including DVD, VHS and video games. VidCanada (now Paradox)
was, and continues to be, our exclusive distributor of our home entertainment programming
in Canada. The $2.0 million transaction represented a purchase of 1,801,315 shares of our
common stock at $1.11 per share, the closing price of our common stock on September 10,
2002. Additionally, we issued Standard Broadcasting a five-year warrant to purchase up to
270,198 additional shares at $1.22 per share. Contemporaneous with the private placement,
we signed a new five-year exclusive distribution agreement with VidCanada (now Paradox)
expiring in October 2007. In August 2004, Standard Broadcasting sold the operations and
assets of Video One to Canadian-based ROW Entertainment Income Fund. Immediately following
the sale, Standard Broadcasting held an approximate 16% interest in ROW Entertainment
Income Fund. Robert J. McCloskey, a member of our Board, served as the President and Chief
Executive Officer of Video One until August 2004. In June 2005, ROW Entertainment Income
Fund changed its name to Entertainment One Income Fund. David Coriat, a member of our
Board, currently serves as Executive Vice President, Chief Financial Officer and director
of Standard Broadcasting and formerly served as chairman of Entertainment One Income Fund.
Standard Broadcasting currently holds 1,542,283 shares of our common stock.

18

---

# Director Independence

For
a discussion of the independence of our directors, please see Item 10.  Directors,
Executive Officers and Corporate Governance above.

|ITEM 14. | PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Independent
Registered Public Accounting Firm. BDO Seidman, LLP has been our independent registered public
accounting firm since October 2004. There were no disagreements between us and BDO Seidman, LLP
in the preparation of this report.

Principal
Accountant Fees and Services. For the fiscal years ended March 31, 2007 and 2006, the
following fees were billed by BDO Seidman, LLP for the indicated services:

|                   | 2007 | 2006
|------------------ | ---- | ----
|Audit Fees         |      |     
|Audit-Related Fees |      |     
|Tax Fees           |      |     
|All Other Fees     |      |     
|                   |      |     
|Total Fees         |      |     
|                   |      |     

---

Audit
Fees. Consisted of fees billed for professional services rendered for: (i) the audit of
our consolidated financial statements; (ii) the review of interim consolidated financial
statements for our quarterly filings; and (iii) any services that are normally provided by
our principal accountant in connection with statutory and regulatory filings or
engagements.

Audit-Related
Fees. There were no audit-related fees during the fiscal year ended March 31, 2007. In the fiscal year ended
March 31, 2006, audit-related fees represent fees for due diligence and related consultations with the acquisition
of Public Media, Inc. dba Home Vision.

Tax
Fees. BDO Seidman, LLP does not perform professional services for tax compliance, tax advice or
tax planning for us.

All
Other Fees.  Consisted of fees for professional services related to our potential sale.

Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Registered Public Accounting Firm.Our Audit Committees policy is to pre-approve
the audit and non-audit services provided by the independent registered public accounting firm, in order to assure
that the provision of such services does not impair the auditors independence. Our
Audit Committee believes that the combination of general pre-approval of certain types of
services and specific pre-approval of other services will result in an effective and
efficient procedure to pre-approve services performed by the independent registered public accounting firm. Unless a
type of service to be provided by the independent registered public accounting firm has received general
pre-approval, it will require specific pre-approval by the Audit Committee. In determining
whether to grant general or specific pre-approval, our Audit Committee will consider
whether such services are consistent with the applicable rules and regulations on auditor
independence. The term of any pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee specifically provides for a different period. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services and is generally subject to a specific budget.
With respect to each proposed pre-approved service, the independent registered public accounting firm is required to
provide to the Audit Committee detailed back-up documentation regarding the specific
services to be provided.

19

---

All
of the fees paid to BDO Seidman, LLP in fiscal 2007 and 2006 were pre-approved by the Audit
Committee. Our Audit Committee has considered whether the provision of services other than
those described above under the heading of Audit Fees are compatible with
maintaining the independence of BDO Seidman, LLP.

# PART IV

|ITEM 15. | EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

The following documents are filed as
a part of this report:

| | (c) | Exhibits:
| | --- | ---------

|31.1* | Certification
by the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302                   of the Sarbanes-Oxley Act of 2002.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2* | Certification
by the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302                   of the Sarbanes-Oxley Act of 2002.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1* | Certification
by the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906                   of the Sarbanes-Oxley Act of 2002.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2* | Certification
by the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906                   of the Sarbanes-Oxley Act of 2002.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *
Exhibit(s) not previously filed with the Securities and Exchange Commission.
| | ------------------------------------------------------------------------------

20

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# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) 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.

| |                       | IMAGE ENTERTAINMENT, INC.                                   
| | --------------------- | ------------------------------------------------------------
| |                       | A Delaware corporation                                      
| | Dated:  July 27, 2007 | /s/ MARTIN W. GREENWALD                                     
| |                       | MARTIN W. GREENWALD                                         
| |                       | Chairman of the Board, President and Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

| | Dated:  July 27, 2007 | /s/ MARTIN W. GREENWALD                                             
| | --------------------- | --------------------------------------------------------------------
| |                       | MARTIN W. GREENWALD                                                 
| |                       | Chairman of the Board, President and Chief Executive Officer        
| |                       | (Principal Executive Officer)                                       
| | Dated:  July 27, 2007 | /s/ JEFF M. FRAMER                                                  
| |                       | JEFF M. FRAMER                                                      
| |                       | Chief Financial Officer (Principal Financial and Accounting Officer)
| | Dated:  July 27, 2007 | /s/ DAVID CORIAT                                                    
| |                       | DAVID CORIAT                                                        
| |                       | Director                                                            
| | Dated:  July 27, 2007 | /s/ IRA EPSTEIN                                                     
| |                       | IRA EPSTEIN                                                         
| |                       | Director                                                            
| | Dated:  July 27, 2007 | /s/ GARY HABER                                                      
| |                       | GARY HABER                                                          
| |                       | Director                                                            
| | Dated:  July 27, 2007 | /s/ M. TREVENEN HUXLEY                                              
| |                       | M. TREVENEN HUXLEY                                                  
| |                       | Director                                                            
| | Dated:  July 27, 2007 | /s/ ROBERT J. MCCLOSKEY                                             
| |                       | ROBERT J. MCCLOSKEY                                                 
| |                       | Director                                                            
| |                       |                                                                     

21