##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the Fiscal Year Ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the Transition Period from  To
 Commission File Number 000-11071
 
 
 IMAGE ENTERTAINMENT, INC.
  
 Delaware
    
    84-0685613(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification Number)
 20525 Nordhoff Street, Suite 200, Chatsworth, California 91311
 (818) 407-9100
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $0.0001
    
    The NASDAQ Stock Market LLC
 None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
 ®
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



IMAGE ENTERTAINMENT, INC.
Form 10-K Annual Report
For The Fiscal Year Ended March 31, 2008
 TABLE OF CONTENTS
 PART I
    
    
    3ITEM 1. Business
    
    
    3ITEM 1A. Risk Factors
    
    
    20ITEM 1B. Unresolved Staff Comments
    
    
    27ITEM 2. Properties
    
    
    27ITEM 3. Legal Proceedings
    
    
    27ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    29PART II
    
    
    30ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    30ITEM 6. Selected Financial Data
    
    
    32ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    60ITEM 8. Financial Statements and Supplementary Data
    
    
    62ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    93ITEM 9A. Controls and Procedures
    
    
    93ITEM 9B. Other Information
    
    
    93PART III
    
    
    94ITEM 10.
Directors, Executive Officers and Corporate Governance
    
    
    94ITEM 11.
Executive Compensation
    
    
    94ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    94ITEM 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    94ITEM 14. Principal Accountant Fees and Services
    
    
    94PART IV
    
    
    95ITEM 15. Exhibits and Financial Statement Schedules
    
    
    95SIGNATURES
    
    
    101Exhibit 10.25(a)Exhibit 10.26Exhibit 10.27Exhibit 21Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I
 FORWARD-LOOKING STATEMENTS
  
    
    changes in company-wide or business-unit strategies, which may result in changes
in the types or mix of businesses in which we are involved or choose to invest;
    
    changes in U.S. and global financial and equity markets, including market
disruptions and significant interest rate fluctuations, which may impede our access
to, or increase the cost of, external financing for our operations and investments;
    
    increased competitive pressures, both domestically and internationally, which
may, among other things, affect the performance of our business operations and
profit margins;
    
    changes in the mix of titles sold to customers and/or customer-spending patterns;
    
    legal and regulatory developments that may affect the protection of intellectual
property;
    
    the imposition by foreign countries of trade restrictions on motion picture or
television content requirements or quotas, and changes in international tax laws or
currency controls;
    
    technological developments that may affect the distribution of our products or
create new risks to our ability to protect our intellectual property; and
    
    changing public and consumer taste, which may among other things, affect the
entertainment and consumer products businesses generally.
  
 ITEM 1. BUSINESS
 OVERVIEW
 ®
   
    
    Feature Films
    
    Comedy
    
    Music concerts
    
    Urban
 
    
    Theatrical catalogue films
    
    Independent films
    
    Foreign and silent films
    
    Youth culture/lifestyle
    3




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##### Table of Contents




    
    Latin
    
    Theatre
    
    Country
 
    
    Television
    
    Gospel
     
    
    Albums
    
    Compilation CDs
    
    TV and movie soundtracks
    
    Stand-up comedy programs
 
    
    Broadway original cast recordings
    
    Audio recordings from our
live concert event DVDs
    
    
    Over 3,500 exclusive DVD titles
    
    Approximately 370 CD titles
    
    Digital rights to
 
    
    Over 2,000 video titles
    
    Over 300 audio titles
 
    
    Containing more than 4,500 individual tracks
   www.image-entertainment.com
  Fiscal Years EndedMarch 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2006DVD
    
    $
    88,030
    
    
    
    91.9
    %
    
    $
    90,243
    
    
    
    90.5
    %
    
    $
    97,956
    
    
    
    87.6
    %CD
    
    
    2,145
    
    
    
    2.2
    
    
    
    4,469
    
    
    
    4.5
    
    
    
    9,094
    
    
    
    8.1Sublicense
    
    
    2,142
    
    
    
    2.2
    
    
    
    2,310
    
    
    
    2.3
    
    
    
    2,819
    
    
    
    2.5Digital
    
    
    2,148
    
    
    
    2.3
    
    
    
    1,214
    
    
    
    1.2
    
    
    
    178
    
    
    
    0.0Broadcast
    
    
    1,144
    
    
    
    1.2
    
    
    
    924
    
    
    
    0.9
    
    
    
    494
    
    
    
    0.4Other
    
    
    209
    
    
    
    0.2
    
    
    
    591
    
    
    
    0.6
    
    
    
    1,361
    
    
    
    1.4TOTAL
    
    $
    95,818
    
    
    
    100
    %
    
    $
    99,751
    
    
    
    100
    %
    
    $
    111,902
    
    
    
    100
    %
  4




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##### Table of Contents



BUSINESS SEGMENTS
  
    
    Domestic (U.S. and Canada)
    
    Digital
    
    International
    Fiscal Years Ended
    
    
    
    
    
    
    Fiscal Years EndedMarch 31,
    
    
    
    
    
    
    March 31,(in thousands)
    
    2008
    
    
    2007
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeNet revenues:Domestic
    
    $
    91,806
    
    
    $
    95,863
    
    
    
    (4.2
    )%
    
    $
    95,863
    
    
    $
    108,704
    
    
    
    (11.8
    )%Digital
    
    
    2,148
    
    
    
    1,214
    
    
    
    76.9
    
    
    
    1,214
    
    
    
    178
    
    
    
    582.0International
    
    
    1,864
    
    
    
    2,674
    
    
    
    (30.3
    )
    
    
    2,674
    
    
    
    3,020
    
    
    
    (11.5
    )Consolidated
    
    $
    95,818
    
    
    $
    99,751
    
    
    
    (3.9
    )%
    
    $
    99,751
    
    
    $
    111,902
    
    
    
    (10.9
    )%
 See
 Domestic
 The DVD Release
Report
 Total Number
    
    
    Number of
    
    
    ImageType of DVD Content
    
    of DVD Titles
    
    
    Image Titles
    
    
    PercentageMusic
    
    
    10,804
    
    
    
    615
    
    
    
    5.7
    %Special Interest
    
    
    21,555
    
    
    
    549
    
    
    
    2.5
    %Theatrical Catalog (pre-1997)
    
    
    11,900
    
    
    
    498
    
    
    
    4.2
    %Foreign Language (including distributed lines)
    
    
    7,765
    
    
    
    303
    
    
    
    3.9
    %Television Programming
    
    
    5,132
    
    
    
    204
    
    
    
    4.0
    %Direct to DVD
    
    
    9,323
    
    
    
    452
    
    
    
    4.8
    %All Other
    
    
    20,562
    
    
    
    908
    
    
    
    4.4
    %Total Releases  Cumulative through 6/13/08
    
    
    87,041
    
    
    
    3,529
    
    
    
    4.1
    %
  5




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##### Table of Contents



Source: DVD Release Report Revised 6/13/08
  Exclusive Acquisition.
 
    
    independent content suppliers
    
    producers
    
    music artists
    
    record labels
    
    artist management and talent agencies
    
    foreign sales companies
   
    
    First, we deduct our negotiated distribution fee (varies by agreement based on
the size of the advance and level of risk);
    
    Next, we deduct and recoup all of our costs and expenses such as marketing,
manufacturing, production and shipping costs;
    
    Next, if an advance or minimum guarantee was paid to the content supplier, we
recoup that amount; and
    
    Finally, from the balance, considered net profits, a percentage split is
divided between us and the content supplier.
    Focus on Cast Driven Feature Film DVD Distribution.
   6




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##### Table of Contents



®
 Mining of Images Library.
  Images Participation in the High Definition DVD Market. ® Suburban Girl Breaker Morant Before the Devil Knows Youre The Air I Breathe Company Mariah Carey: The Adventures of Mimi Manilow Live Heart: Alive in Seattle Roy Orbison: Black & White
Night Chicago / Earth Wind &
Fire: Live at the Greek Moody Blues: Lovely to See You Live Korn: Live on the Other Side The Secret Stuck Encounters at the End of the World Re-Cycle Then
She Found Me When We Left Earth: The
NASA Missions
  7




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##### Table of Contents



One Village Entertainment.
    Additional Value-Added Services.
 
    
    creation of packaging
    
    DVD authoring and compression
    
    menu design
    
    video master quality control
    
    manufacturing
    
    marketing
  8




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##### Table of Contents




    
    sales
    
    music clearance
    
    warehousing
    
    distribution
    
    for some titles, the addition of enhancements such as:
 
    
    multiple audio tracks
    
    commentaries
    
    foreign language tracks
    
    behind-the-scenes footage
    
    interviews
    
    discographies
  New Criterion Distribution Agreement.
 Distribution Services.
 Manufacturing.
  9




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##### Table of Contents



Marketing.
 
    
    point-of-sale advertising
    
    print advertising in trade and consumer publications
    
    national television and radio advertising campaigns
    
    Internet advertising, including viral and social network marketing campaigns
    
    minimal direct response campaigns
    
    dealer incentive programs
    
    trade show exhibits
    
    bulletins featuring new releases and catalogue promotions
   Customers.
  
    
    traditional retailers
    
    specialty retailers
    
    Internet retailers
    
    wholesale distributors
    
    alternative distribution
 
    
    direct-to-consumer print catalogs
    
    direct response campaigns
    
    subscription service/club sales
    
    home shopping television channels
    
    other non-traditional sales channels
    
    kiosks and rentailers
    
    sub-distributors
  
    
    Amazon.com, Inc.
    
    Barnes & Noble
    
    Best Buy Co., Inc.
    
    Borders Group Inc.
    
    Costco
    
    Handleman Company
    
    Infinity Resources (Critics Choice Video, Inc. and DeepDiscount.com)
    
    Target
    
    Wal-Mart (through Anderson Merchandisers)
  10




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##### Table of Contents




    
    AEC One Stop Group
    
    Baker & Taylor
    
    Ingram Entertainment, Inc.
    
    Paradox Entertainment
    
    VPD
    
    Waxworks
  
    
    Blockbuster Inc.
    
    DVD Play
    
    Family Video
    
    Hastings
    
    Movie Gallery, Inc. (including Hollywood Video)
    
    Netflix, Inc.
    
    Redbox
    
    Video Warehouse
 Special Markets:
 
    
    Acorn Media
    
    Ark Media
    
    BBC Worldwide
    
    BMG Columbia House
    
    Follett Library
    
    Forest Incentives
    
    Four Winds Trading Company
    
    Midwest Tapes
    
    Movies Unlimited
    
    Niche Sales
    
    Olive Films
    
    PBS Video
    
    Waxworks (Team Marketing)
     11




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##### Table of Contents



Worldwide Broadcast
   
    
    Worldwide Television. Buyers of our standard and high-definition content are
typically cable, pay-per-view, or satellite broadcasters, and sometimes terrestrial
(free) television broadcasters.  Under a typical broadcast license we receive payment
of a one-time, fixed, non-refundable fee for a multi-year exploitation term and in many
instances for a specified number of telecasts.  Our obligations under broadcast
licensing are usually only to provide a broadcast master of the title, ensure that
music synchronization rights are secured along with the providing of documentation that
Image has the right to distribute any and all titles licensed.
 
    
    The exclusive worldwide sales agency agreement with London-based
NBD Television Ltd. (NBD) terminated in January 2008. NBD
had sublicensed to third parties on a
territory by territory basis approximately 100 of our current 250 title
broadcast television library. NBD represented us for conventional television
broadcast sales, whether standard or high-definition, including cable,
pay-per-view, video-on-demand, satellite television, and sales to non-theatrical
venues.
 
    
    Worldwide PPV and VOD.With respect to pay-per-view (PPV),
video-on-demand (VOD) and electronic sell-through (EST) in the television
environment, Image has a North American sales agency agreement with Warner Digital
Distribution, a division of Time-Warner, Inc. (Warner).  Warner, on our behalf,
sublicenses our premiere high-end programs to cable, satellite and hotel/motel
operators who are in the VOD and EST businesses.  Revenue is typically derived on a
revenue sharing basis whereby Warners sub-licensees retain a percentage of the revenue
while passing back to Warner both Warners and Images share of the revenue.  Our
obligations with Warner is to provide a broadcast master of the title, an MPAA approved
trailer, artwork and promotional materials already created by Image for DVD
distribution, to ensure that music synchronization rights are secured along with the
providing of documentation that Image has the right to distribute any and all titles
licensed.
 
    
    Worldwide Non-theatrical. In the non-theatrical areas of airlines, ships at
sea, schools, hospitals and other institutions, Image has entered into exclusive output
agreements with Jaguar Distribution, Inc. (Jaguar) (airlines, merchant marine
vessels), Swank Motion Pictures, Inc. (Swank) (cruise lines, schools, hospitals and
other institutions). Under a typical license we may receive payment of a one-time, fixed,
non-refundable fee for a pre-determined exhibition term through our sales agents from
their sub-licensees or we may receive payment together with regular periodic reporting of sales.
Our obligations with both Jaguar and Swank is to provide a
broadcast master of the title, an MPAA
approved trailer, artwork and promotional materials already created by Image for DVD
distribution, to ensure that music synchronization rights are secured along with the
providing of documentation that Image has the right to distribute any and all titles
licensed.
    
    Worldwide Hotel/Motel For Performance Properties.For exploitation of our
music and stand-up comedy performances for hotels and motels, we entered into a
non-exclusive output arrangement with Instant Media Network (IMN).  
IMN is partially owned
by Lodgenet and On Command  the two largest distributors of entertainment product to
the hotel/motel industry in North America.
  12




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##### Table of Contents



Digital
   
    
    Download-to-rent (VOD)
 
    
    A la carte download-to-rent
    
    Subscription rental
    
    Ad-supported rental
 
    
    Download-to-own or electronic
sell-through (EST)
        
    
    Amazon.com (audio and video)
    
    Bit Torrent (video)
    
    CinemaNow.com (video)
    
    Emusic.com (audio)
    
    Hudson (audio and video)
    
    Hulu.com (video)
    
    IODA (audio)
    
    iTunes (audio and video)
    
    Movielink.com (video)
    
    MSPOT (audio and video)
    
    Musicgiants.com (audio)
    
    Napster (audio)
    
    Netflix.com (video)
    
    Overdrive (video)
    
    Rhapsody (audio)
    
    Walmart.com (audio)
    
    YouTube.com (video)
  13




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##### Table of Contents



International
 International Sublicensing.
 COST STRUCTURE
      
    
    DVD and CD replication
    
    packaging
    
    advertising, promotion, and market development funds provided to retail
customers
    
    domestic shipping costs from self-distribution of exclusive content
    
    personnel
    
    music publishing on exclusive music-related DVD and CD titles
  14




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COMPETITION
  
    
    Major Motion Picture Studios
 
    
    Sony Pictures
    
    Disney
    
    Fox
    
    Paramount
    
    Universal
    
    Warner
 
    
    Mini-Majors
 
    
    Lions Gate
    
    The Weinstein Company/Genius Products
    
    Starz/Anchor Bay
 
    
    Major Music Labels
 
    
    Sony BMG
    
    EMI
    
    Universal
    
    Warner Music Group
 
    
    Independent Music Labels
    
    Independent DVD and CD Content Suppliers
  
    
    major motion picture studios
    
    independent DVD and CD suppliers
    
    major and independent music labels who offer DVD content
    
    other home entertainment providers
  Competition for Content
   15




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##### Table of Contents




    
    the high quality of expertise and service our employees provide;
    
    our status as an independent which allows freedom from the major labels, more
creative control to the content creator, comparatively fewer obstacles in content
creation, marketing and distribution, and comparatively simpler accounting for
royalties and net profits to the supplier;
    
    our long history and solid reputation of working effectively with artists, their
management and other valuable suppliers of entertainment programming;
    
    our ability to acquire home entertainment rights for feature films as an
attractive alternative for producers;
    
    the quality of our finished titles;
    
    our specialized marketing expertise in areas such as comedy, urban, Latin,
music-related, Broadway and special interest titles;
    
    our wide-ranging in-house services ;
    
    our direct and long-standing relationships with mass merchants and traditional
and online retailers of entertainment titles;
    
    relationships with key producers and agents who have confidence in our systems
allowing for on-time, accurate reporting, and the ability for Image to generate and
pay net profits; and
    
    proven, highly-integrated, and scalable infrastructure which provides content
owners with assurance that their product will be well managed through all links of
the entertainment supply chain.
 Competition for Retail Shelf Space
    16




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Vendor Managed Inventory (VMI) .
  17




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##### Table of Contents




    
    sell more units and reduce returned items by better matching inventory to
real-time demand;
    
    reduce potential overproduction and excess inventory quantities by more
accurately forecasting orders;
    
    reduce processing and warehousing fees by maintaining a leaner supply chain; and
    
    increase our importance as a direct supplier of participating retail partners.
 Competition for Retailer Open to Buy Dollars
   Increasing Competition
  INDUSTRY
TRENDS
       18




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##### Table of Contents



TRADEMARKS
  
    
    Image
    
    Image Entertainment
    
    the Image Entertainment logo
    
    Image Music Group
    
    the Egami Media logo
    
    Image Entertainment Japan
    
    Home Vision HVE Entertainment
  EMPLOYEES
  SEASONALITY
 Our Results of Operations Fluctuate Based on Seasonality and Variability.
 
    
    the popularity of exclusive titles in release during the quarter;
    
    timing of delivery or non-delivery of DVD or CD content or rights clearances by
our content providers;
    
    our marketing and promotional activities;
    
    our rights and distribution activities;
    
    the availability of retailer shelf-space;
    
    the level of retailer open to buy dollars;
    
    the extension, termination or non-renewal of existing distribution rights; and
    
    general economic changes affecting the buying habits of our customers,
particularly those changes affecting consumer demand for home entertainment
hardware, packaged media and digital content.
  19




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##### Table of Contents



ITEM 1A. RISK FACTORS
  Risks Relating to Our Business
 We Have an Accumulated Deficit and May Incur Additional Losses.
 Our
Operating Liquidity Depends on our Ability to Borrow Against Our
Revolving Line of Credit.
 We Have Only Limited Working Capital and Limited Access to Financing and We May Need
Additional Funding to Continue Acquiring Desirable Programming.
  Our Credit Facility Contains Covenants that May Limit the Way We Conduct Business.
 We Have a High Concentration of Sales to Relatively Few Customers Which May Result In
Significant Uncollectible Accounts Receivable Exposure.
   20




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We Have a High Concentration of Sales From Relatively Few Titles. Jeff Dunham: Spark of Insanity Shark Week: 20 th Anniversary Collection : Suburban Girl Caligula: Imperial Edition Gabriel Iglesis:
Hot and Fluffy
 We May Not Be Successful In Acquiring Cast Driven Finished Feature Film Content or Selling
Feature Film Content.
 Our Current DVD and CD Genre Revenue Concentrations May Become Unpopular With Our Retail
Customers and End-Consumers, Which May Adversely Affect Our Business.
 Inventory Obsolescence May Adversely Affect Our Business.
 We May Not be Able to Recoup Advances That We Pay to Secure Exclusive Distribution Rights.
  21




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##### Table of Contents



Problems Distributing Our Programming Internationally May Adversely Affect Our Business.
 We Have Direct and Indirect Foreign Currency Exchange Risk.
 Inability to Maintain Relationships with Our Program Suppliers and Vendors May Adversely
Affect Our Business.
 The Full Exploitation of Our Rights Requires Us to Conduct Business in Areas Where Our
Expertise Is Limited.
 Loss of Key Personnel May Adversely Affect Our Business.
 To Be Successful, We Need to Attract and Retain Qualified Personnel.
 Occurrence of Events for Which We Are Not Insured May Adversely Affect Our Business.
  22




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Risks Relating to Our Industry
 The Standard DVD Format Has Matured. see
 Decreasing Retail Prices for DVDs May Negatively Impact Our Revenues.
 Failure to Effectively Expand Vendor Managed Inventory (VMI) May Adversely Affect Our
Business
 Our Success Depends on the Commercial Success of Our Programming.
 Decreasing Retail Shelf Space May Limit Sales of Our Programming
  23




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##### Table of Contents



see
 Our Prior Film Production Efforts May Not be Successful Financially.
 We May Not Be Able to Keep Pace with Technological Advances.
 An Increase In Product Returns May Adversely Affect Our Business.
 Illegal Piracy May Reduce Our Revenues.
  24




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##### Table of Contents



Others Failure to Promote Our Programming May Adversely Affect Our Business.
 If DVD Cannot Compete Successfully with Other Formats of Home Entertainment, Our Revenues May
Be Negatively Impacted.
 If We Cannot Continue to Secure DVD Distribution Rights, Our Business May Be Materially
Adversely Affected. see
 We May Not Possess Satisfactory Rights in Our Properties.
 Changes in the Unites States, Global or Regional Economic Conditions Could Adversely Affect
the Profitability of Our Business.
  25




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##### Table of Contents



Legislative Actions,
Higher Director and Officer Insurance Costs and Potential New Accounting
Pronouncements are Likely to Cause Our General and Administrative Expenses to Increase and Impact
Our Future Financial Condition and Results of Operations.
 We Depend on
Third Party Shipping and Fulfillment Companies for the Delivery of Our Products.
 Protecting and Defending against Intellectual Property Claims May Have a Material Adverse
Effect on Our Business.
 Risks Relating to Our Stock
 Our Stock Price May Be Subject to Substantial Volatility, and You May Lose All or a
Substantial Part of Your Investment. ®
 Any Future Sales of Equity May Significantly Impact the Market Price of Our Common Stock.
  26




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##### Table of Contents



If We are Unable to Conclude that our Internal Control over Financial Reporting is Effective,
our Stock Price would be Negatively Impacted.
 
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
     
 ITEM 3. LEGAL PROCEEDINGS
 BTP Acquisition Company  Termination Fee Litigation
   See
 BTP Acquisition Company/CT1 Holdings   Output Distribution Agreement Litigation
   27




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##### Table of Contents



See
 Subsequent Event  BTP Litigation Settlement Agreement and Mutual Release
    Lions Gate Films, Inc. v. Image Entertainment, Inc. and Subsequent Event Dismissal
   Image Entertainment, Inc. v. Relativity Media, LLC and Subsequent Event Settlement
    28




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##### Table of Contents



Dismissed Shareholder Complaint
 Henzel v. Image
Entertainment, Inc., et al.
 Other Matters
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  VOTES FOR
    
    
    VOTES AGAINST
    
    
    VOTES WITHHELD
    
    
    NOT VOTED1. Election of Class I DirectorsM. Trevenen Huxley
    
    
    16,028,913
    
    
    
    
    
    
    
    1,293,179
    
    
    
    Robert J. McCloskey
    
    
    16,027,763
    
    
    
    
    
    
    
    1,294,329
    
    
    
    
 VOTES FOR
    
    
    VOTES AGAINST
    
    
    VOTES WITHHELD
    
    
    NOT VOTED2. Ratification of
selection of BDO
Seidman, LLP as the Companys
independent
registered public
accounting firm
    
    
    17,251,334
    
    
    
    64,309
    
    
    
    6,449
    
    
    
    
  29




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##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 ®
 Fiscal Year Ended March 31, 2008
    
    High
    
    
    LowQuarter ended June 30, 2007
    
    $
    4.340
    
    
    $
    4.170Quarter ended September 30, 2007
    
    $
    4.380
    
    
    $
    4.040Quarter ended December 31, 2007
    
    $
    4.470
    
    
    $
    3.500Quarter ended March 31, 2008
    
    $
    3.590
    
    
    $
    1.110
 Fiscal Year Ended March 31, 2007
    
    High
    
    
    LowQuarter ended June 30, 2006
    
    $
    3.950
    
    
    $
    3.500Quarter ended September 30, 2006
    
    $
    3.850
    
    
    $
    3.420Quarter ended December 31, 2006
    
    $
    3.650
    
    
    $
    3.260Quarter ended March 31, 2007
    
    $
    4.190
    
    
    $
    3.050
 Stockholders
  Dividend Policy
  Stock Performance Graph
   30




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##### Table of Contents



COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG IMAGE ENTERTAINMENT, INC., THE NASDAQ COMPOSITE INDEX,
AND OUR PEER GROUP
 
 *
    
    $100 invested on 3/31/03 in stock or index-including reinvestment of dividends. Fiscal year
ending March 31. 3/03
    
    
    3/04
    
    
    3/05
    
    
    3/06
    
    
    3/07
    
    
    3/08Image Entertainment, Inc.
    
    
    100.00
    
    
    
    139.83
    
    
    
    231.78
    
    
    
    156.78
    
    
    
    177.54
    
    
    
    71.19NASDAQ Composite
    
    
    100.00
    
    
    
    151.41
    
    
    
    152.88
    
    
    
    181.51
    
    
    
    190.24
    
    
    
    177.63Peer Group
    
    
    100.00
    
    
    
    238.58
    
    
    
    318.22
    
    
    
    221.99
    
    
    
    240.74
    
    
    
    167.28
  31




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Years Ended March 31,(In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Statement of Operations Data:Net revenues
    
    $
    95,818
    
    
    $
    99,751
    
    
    $
    111,902
    
    
    $
    118,383
    
    
    $
    84,840Operating costs and expenses
    
    
    115,488
    1
    
    
    109,885
    2
    
    
    111,378
    3
    
    
    112,380
    4
    
    
    85,106Earnings (loss) from operations
    
    
    (19,670
    )
    
    
    (10,134
    )
    
    
    524
    
    
    
    6,003
    
    
    
    (266
    )Interest expense, net
    
    
    3,341
    
    
    
    2,434
    
    
    
    707
    
    
    
    665
    
    
    
    818Other expense (income)
    
    
    (4
    )
    
    
    
    
    
    
    (3
    )
    
    
    49
    
    
    
    (213
    )Earnings (loss) from continuing
operations before income taxes
    
    
    (23,011
    )
    
    
    (12,568
    )
    
    
    (180
    )
    
    
    5,289
    
    
    
    (871
    )Income tax expense
    
    
    42
    
    
    
    43
    
    
    
    27
    
    
    
    162
    5
    
    
    6,244
    6Earnings (loss) from continuing
operations
    
    
    (23,053
    )
    
    
    (12,611
    )
    
    
    (207
    )
    
    
    5,127
    
    
    
    (7,115
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,441Net earnings (loss)
    
    $
    (23,053
    )
    
    $
    (12,611
    )
    
    $
    (207
    )
    
    $
    5,127
    
    
    $
    (9,556
    )Earnings (loss) per share:Continuing operationsBasic
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )
    
    $
    .27
    
    
    $
    (.39
    )Diluted
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )
    
    $
    .26
    
    
    $
    (.39
    )Discontinued operationsBasic and diluted
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (.13
    )Earnings (loss) per share:Basic
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )
    
    $
    .27
    
    
    $
    (.52
    )Diluted
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )
    
    $
    .26
    
    
    $
    (.52
    )Weighted average shares outstandingBasic
    
    
    21,734
    
    
    
    21,482
    
    
    
    21,273
    
    
    
    19,100
    
    
    
    18,250Diluted
    
    
    21,734
    
    
    
    21,482
    
    
    
    21,273
    
    
    
    19,912
    
    
    
    18,250
 
 1
    
    Includes (i) a $10.4 million fourth quarter charge in accelerated amortization and
fair value writedown of film costs primarily related to the maturation of the DVD marketplace
and related contraction in available shelf space for previously released programming, (ii)
$2.2 million in legal, investment banking and other expenses associated with negotiations,
related disputes and the eventual termination of the proposed merger agreement between us and
BTP Acquisition Company LLC, as further set forth in Note 13. Commitments and Contingencies -
Legal Proceedings, (iii) a $979,000 charge for the value of the retirement package to our
CEO, who resigned and the severance commitment for two employees who left our employ at March
31, 2008 and (iv) $1.0 million in charges associated with the closure of our Las Vegas,
distribution facility and termination of the lease ($612,000 in restructuring costs and
$400,000 in accelerated depreciation and amortization of property, plant and equipment).2
    
    Includes a (i) $2.2 million write-off of assets relating to our distribution agreement
with Source Entertainment, Inc. which filed for bankruptcy protection in May 2007, (ii) $1.4
million in legal, investment banking and other expenses associated with negotiations, related
disputes and the eventual termination of the proposed merger agreement between us and BTP
Acquisition Company LLC, as further set forth in Item 3. Legal Proceedings, (iii) $634,000
in fees and expenses associated with the Lions Gate proxy contest and Special Committee of
our Board, (iv) $488,000 in severance and UK office closure costs and (v) a net $432,000
charge associated with the Chapter 11 filing MTS (Tower Records).3
    
    Includes a $1,566,000 charge associated with the Chapter 11 filing of Musicland
Holding Corp. and a $248,000 impairment charge associated with software not utilized. Also
includes a $562,000 credit to cost of sales from the reversal of an over accrual for music
publishing liabilities associated with a DVD series.4
    
    Includes a $499,000 non-recurring noncash credit related to the discontinuation of our
international distribution of DVDs through subdistributors.5
    
    Income tax expense reflects the use of net operating losses against taxable income.6
    
    Income tax expense reflects establishing a valuation allowance against 100% of net
deferred tax assets.  32




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##### Table of Contents



March 31,(In thousands)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Balance Sheet Data:Total assets
    
    $
    84,813
    
    
    $
    90,696
    
    
    $
    87,675
    
    
    $
    75,186
    
    
    $
    64,132Long-term debt and
capital leases,
excluding current
portion and debt
discount
    
    
    16,437
    
    
    
    22,151
    
    
    
    
    
    
    
    
    
    
    
    1,333Net stockholders equity
    
    
    7,226
    
    
    
    29,580
    
    
    
    41,643
    
    
    
    41,833
    
    
    
    22,335
  33




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Overview
 Revenue Sources
   Cost Structure
 Acquisition of Exclusive Rights
  Fiscal 2008 Highlights:
 
    
    Consolidated net revenues decreased 3.9% to $95,818,000, from net revenues of
$99,751,000 for fiscal 2007.
 
    
    Digital distribution revenues grew 76.9% to $2,148,000, compared to $1,214,000.
 
    
    Consolidated gross profit margins were 10.8%, compared to 17.8% for fiscal 2007.
 
    
    The gross profit margins in fiscal 2008 are inclusive of the $10.4 million
fourth quarter charge. See Recent Events  Maturation of DVD Marketplace,
Resulting Acceleration of Amortization and Fair Value Writedown of Film Costs at
March 31, 2008 below. This total charge negatively impacted gross margins in
fiscal 2008 by 10.9%.
    
    The gross profit margins in fiscal 2007 are inclusive of the $2.2 million
write-off of assets. The Source asset impairment write-down negatively impacted
gross profit margins in fiscal 2007 by 2.2%.
 
    
    Consolidated selling expenses approximated 10.9% of net revenues, marginally up from
10.5% of net revenues for fiscal 2007.
  34




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##### Table of Contents




    
    Consolidated general and administrative expenses were $19,014,000, up 9.2% from
$17,407,000 for fiscal 2007. Fiscal 2008 included:
 
    
    $1,918,000 in BTP-related expenses, compared to $1.4 million
during fiscal 2007. See Recent Events  Termination of Definitive
Agreement to Sell Image to BTP; Output Distribution Agreement with BTP-Affiliate
CT1; and Related Disputes and Subsequent Event  BTP Litigation Settlement
Agreement and Mutual Release below.
    
    $979,000 in severance and retirement package charges.
See Recent Events  Resignation of CEO and Appointment of New
President below.
    
    $400,000 in accelerated depreciation and amortization of
property, plant and equipment. See Recent Events  Fulfillment Services
Agreement, Closure of Las Vegas Facility and Lease Termination below.
    
    $384,000 in Sarbanes-Oxley Section 404 compliance consulting
    
    $346,000 in legal settlement expenses relating to an executive
officers separation of employment
    
    $250,000 in legal expenses associated with the dismissed
stockholder complaint relating to the proposed BTP merger agreement.
 
    
    Restructuring expenses of $612,000 relating to the closure of our Las Vegas, Nevada
distribution facility.
 
    
    $364,000 in involuntary employee termination.
    
    $248,000 in lease termination expenses.
 
    
    Noncash interest expense totaled $1,666,000 and $1,273,000 associated with our
manufacturing advance and convertible debt and warrant issues in fiscal 2008 and 2007,
respectively.
    
    Our net loss was $23,053,000 ($1.06 per diluted share), compared to a net loss of
$12,611,000 ($.59 per diluted share) for fiscal 2007.
    
    On May 4, 2007, we entered into a three-year Loan and Security Agreement with
Wachovia Capital Finance Corporation (Western) (Wachovia), which provided us with a
revolving line of credit of up to $15 million based upon eligible receivables.
 
    
    In April 2008, we amended our May 2007 Loan and
Security Agreement with Wachovia to increase our maximum borrowing availability
under our revolving line of credit to $20 million, up from $15 million and
reduce minimum financial covenant levels on a going forward basis.
 
    
    On November 1, 2007, we replaced our existing exclusive distribution agreement with
The Criterion Collection with a new agreement which, among other things, extends the
term of our exclusive relationship through July 31, 2013. See New Exclusive
Distribution Agreement with the Criterion Collection below.
    
    On December 18, 2007, Image and Entertainment One (E1), including its subsidiaries
Seville Pictures and Paradox Entertainment, reached an exclusive agreement to renew and
expand our existing output agreement providing E1 with the Canadian rights to our
upcoming product in the areas of theatrical, home entertainment, television and digital
through 2012.
    
    On February 5, 2008, our Board of Directors approved an amendment to its Rights
Agreement, dated as of October 31, 2005 to, among other things, amend the definition of
acquiring person in Section 1 of the Rights Agreement to decrease the threshold of
percentage ownership of our common stock in the definition from 30% to 15%.
    
    On April 1, 2008, we announced the retirement of then CEO Martin W. Greenwald and
that then COO David Borshell was promoted to President.
  35




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##### Table of Contents




    
    On April 3, 2008, we announced two new additions to the executive management team -
Bill Bromiley as Chief Acquisitions Officer and Rick Eiberg as Senior Vice President,
Operations and Chief Technology Officer.
    
    On June 24, 2008, the Company, BTP and its affiliates entered into a Settlement
Agreement and Mutual Release. Pursuant to the Settlement Agreement, the $3 Million
held in trust in connection with certain extensions to the Merger Agreement was
disbursed $2 million to Image and $1 million plus accrued interest to BTP. As part of
the settlement, the parties agreed not to pursue the disposition of any of the
contested termination or business interruption fees.
    
    On June 25, 2008, shortly after Lions Gates motion for a temporary restraining
order (seeking to stop Image from releasing the film on home entertainment formats) was
denied, Lions Gate filed a dismissal without prejudice of the lawsuit relating to this
matter.
   See following page
  36




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##### Table of Contents



Titles Released in Fiscal Year 2008
  DVD Titles
 Comedy:
 Jeff Dunham: Spark of Insanity
The Axis of Evil Comedy Tour
Steven Wright: When the Leaves Blow Away
Joe Rogan Live
Comedians of Comedy
Daniel Tosh: Completely Serious
Gabriel Iglesias: Hot & Fluffy
Mike Marino: New Jerseys Bad Boy of Comedy
Bob & Tom Comedy All Stars Tour
Tommy Tiernan: Something Mental
Doug Stanhope: No Refunds
 TV (Discovery Channel):
 Survivorman
Shark Week: 20 th Anniversary Collection
Dirty Jobs Collections 1 & 2
Man vs. Wild
Mythbusters: Collections 1 &2
Deadliest Catch: Seasons 2 & 3
Passport to Europe with Samantha Brown:
 Music-Related:
 Dinosaur Jr.: Live in the Middle East
Sammy Hagar: Live in St. Louis
Beatles Biggest Secrets
Moody Blues: Classic Artists
Yes: Classic Artists
Dionne Warwick Live
Junior Wells: Blues Legends
 Urban:
 The Notorious B.I.G.: Bigger Than Life
Beef 4  Holla at Me
Lord Help Us
Ganked
Bling
 Features/Other:
 Suburban Girl
Sisters
Fingerprints
Bugs! A Rainforest Adventure  Darwins Nightmare
David and Lisa
Zatoichi: The Blind Swordsman Vol. 1-4
Hunchback of Notre Dame: The Ultimate Edition  Shaolin Family Soccer (Foreign)
51 Birch Street
Cabinet of Dr. Caligari (2005)
Nailed  Surveillance
Splinter
Souls Midnight
Caligula: Imperial Edition
Driftwood
Undead or Alive
 Criterion Branded:
 The Last Emperor
Stranger Than Paradise
Sansho the Bailiff
The Third Man
Ace in the Hole
La Jetee: Sans Soleil
House of Games
Army of Shadows
Robinson Crusoe on Mars
The Documentaries of Louis Malle
Three Films by Hiroshi Teshigahara
Days of Heaven
Two-Lane Blacktop
Breathless
Berlin Alexanderplatz
 CD Titles
 Megadeth: That One Night: Live in Buenos Aires
Willie Nelson: Live at Billy Bobs Texas: Limited Edition
CD/DVD
    37




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##### Table of Contents



Projected Titles for Release in Fiscal Year 2009
  DVD Titles
 Comedy:
 Kevin Downey, Jr.: Im Not Gay, But Dont Stop
Jeff Dunham: Christmas Special
Comedy Jump Off: The Latino Explosion
Al Ducharme: Spineless and Lovin It
Rita Rudner: Live from Las Vegas
Steve-O: Out on Bail
Drew Hastings: Irked & Miffed
Bill Burr: Why Do I Do This?
Ralphie May
Louis CK
 TV (Discovery Channel):
 Fearless Planet
When We Left Earth: The NASA Missions
Shark Week: Ocean of Fear
Dirty Jobs: Collection 3
Storm Chasers: Perfect Disaster
Human Body: Pushing the Limits
Battlefield Diaries
Into Alaska with Jeff Corwin  Mythbusters: Collection 3
Man vs. Wild
Josh Bernstein
Iditarod
Deadliest Catch: Collection 3
 Music-Related:
 Farm Aid: 20 th Anniversary
Mariah Carey: The Adventures of Mimi
Gigantour 2
Company
Experience Hendrix: Jimi Hendrix
Story of the Year: Our Time Is Now (Two Years in the Life of...)
Jethro Tull: Classic Artists
The Who: At Kilburn: 1977
 Urban:
 Ghostride the Whip
Love & Other Four Letter Words
Death Toll  Life & Lyrics
Che
Im Through with White Girls
South of Pico
2 Turntables & a Mic
 Sports  ProElite (MMA):
 Elite XC: Shamrock vs. Baroni
Elite XC: Destiny (Gracie vs. Shamrock)
Elite XC: Renegade (Diaz vs. Noons)
Elite Presents  ShoXC: Onslaught
Elite XC: Street Certified (Kimbo vs. Tank)
Elite XC: Uprising (Rua vs. Lawler)
 Features/Other:
 Before the Devil Knows Youre Dead
The Chosen One
Then She Found Me
Stuck
The Walker
The Secret
Dead Fish
Nanking
War Dance
Numb
My Name Is Bruce
The Color of Freedom
The Air I Breathe
Organizm
Love & Other Disasters
Love for Sale
Encounters at the End of the World
Battle for Haditha
Banshee
$5 Dollars a Day
My Sexiest Year
The Last Word
The Passage
Careless
The Tracey Fragments
Six Reasons Why
Autumn Hearts: A New Beginning
Peaches
Walker Payne
Re-cycle
Taxi to the Dark Side
The Riddle
 Criterion Branded:
 The Thief of Bagdad
Mon Oncle Antoine
Trafic
Before the Rain
Patriotism
Mishima: A Life in Four Chapters
Classe Tous Risques
Missing
Salo
Bottle Rocket
El Norte
Spy Who Came in from the Cold
Hit
White Dog
Paris, Texas
Wings of Desire
 CD Titles
 Mint Condition: E-Life
Gigantour 2
Susan Gibson: New Dog Old Tricks
A Catered Affair
    38




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##### Table of Contents



Recent Events
 Maturation of DVD Marketplace,
Resulting Acceleration of Amortization and Fair Value Writedown of Film
Costs at March 31, 2008
 ®
       39




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##### Table of Contents



Termination of Definitive Agreement to Sell Image to BTP; Output Distribution Agreement with
BTP-Affiliate CT1 Holdings, LLC; and Related Disputes
      
    
    In connection with the December 7, 2007 extension, BTP deposited $2 million in a
trust account. In consideration with the extension, Image entered into a multi-year
feature film output distribution agreement with CT1 Holdings, LLC (CT1), an
affiliate of David Bergstein and the parent company of ThinkFilm and Capitol Films.
The distribution agreement covered various new film productions and certain
existing film libraries controlled by CT1.
    
    In connection with the January 14, 2008 extension, BTP deposited an additional
$1 million in a trust account. This deposit, combined with the $2 million
deposited by BTP in December in connection with the prior extension, increased the
total deposit received from BTP and held in trust to $3 million.
 . See
 See
  40




---



##### Table of Contents



Subsequent Event  BTP Litigation Settlement Agreement and Mutual Release
    Resignation of CEO and Appointment of New President
    Expansion of Executive Management Team
     41




---



##### Table of Contents



Amendment to Rights Agreement
  Feature Film Division Infrastructure Additions  Fiscal 2009 Expansion Initiative
    The Killer Poison Jack Frost
   See 
  42




---



##### Table of Contents



Acquisition of Feature Film Exclusive Distribution Rights from BTP Affiliates
  Films under Separate Exclusive Distribution Agreements
 
    
    Before the Devil Knows Youre Dead- A crime thriller directed by Sidney Lumet and
starring Philip Seymour Hoffman, Ethan Hawke, Albert Finney and Marisa Tomei. When two
brothers organize the robbery of their parents jewelry store the job goes horribly wrong,
triggering a series of events that sends them, their father and one brothers wife hurtling
towards a shattering climax. This title was released in the first quarter of fiscal 2009.
 
    
    Image was dismissed from an arbitration claim by Lions Gate on Before the Devil
Knows Youre Deadon May 5, 2008. The claim alleged that this film was part of a
multi-picture output distribution agreement between Lions Gate and ThinkFilm and was
improperly obtained by Image. The related legal action was dismissed by Lions Gate. See Item 3.
Legal Proceedings above.
 
    
    My Sexiest Year- A comedy directed by Howard Himelstein and starring Frankie Muniz and
Harvey Keitel. The film is a romantic coming-of-age story in which the kindness bestowed by
a glamorous model is returned 30 years later by the young man in whom she inspired the
first stirrings of confidence and love. This title has not yet been scheduled for DVD
release.
    
    The Last Word- The film stars two-time Academy Award nominated Actress Winona Ryder
(Little Women, The Age of Innocence, Edward Scissorhands,), Wes Bentley (Ghost
Rider, American Beauty) and Emmy Award winning actor Ray Romano (Everybody Loves
Raymond,  Ice Age: The Meltdown). The film is a comedy about a man (Bentley) who makes
his living composing other peoples suicide notes enters into a romance with the sister
(Ryder) of a recent client. This title has not yet been scheduled for DVD release.
    
    Five Dollars a Day- A comedy directed by Nigel Cole and starring Christopher Walken,
Sharon Stone, Amanda Peet and Dean Cain. The conservative son of a thrifty conman
begrudgingly joins his father on the road  after being released from jail for one of his
dads earlier crimes. This title has not yet been scheduled for DVD release.
 Films Acquired Under the CT1 Distribution Agreement
 
    
    The Air I Breathe- A drama directed by Jieho Lee and starring Sarah Michelle Gellar,
Kevin Bacon, Brendan Fraser, Forest Whitaker, Andy Garcia, Emile Hirsch and Julie Delpy.
The drama is based on an ancient Chinese proverb that breaks life down into four emotional
cornerstones: happiness, pleasure, sorrow and love. A businessman bets his life on a horse
race; a gangster sees the future; a pop star (Gellar) falls prey to a crime boss; a doctor
must save the love of his life. This title was released on DVD in the first quarter of
fiscal 2009.
    
    In the Shadow of the Moon- A documentary presented by Ron Howard and directed by David
Sington, starring the surviving crew members from NASAs Apollo missions, including Buzz
Aldrin, Alan Bean and Michael Collins, who tell their stories in their own words. The film
includes archive footage of Neil Armstrong. Motion picture studio Lions Gate shares the
distribution rights for this film under a distribution agreement with ThinkFilm for
exclusive distribution to certain retail sell-through accounts. This title was released on
DVD in the fourth quarter of fiscal 2008.
  43




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##### Table of Contents



Taxi to the Dark
Side ®
 
    
    From the director of Enron: The Smartest Guys in the Room, Alex Gibneys Taxi
to the Dark Sideis a gripping investigation into the reckless abuse of power by
the current administration. The film is slated for DVD release in the second
quarter of fiscal 2009.
 Then She Found Me ®
 
    
    The film was released by ThinkFilm to the top 25 markets as well as adding
select expansion in existing markets, raising the engagement count to well over 100
screens. The title is scheduled for DVD release during the second quarter of
fiscal 2009.
 Performance of BTP Affiliate titles :
  Before the Devil Knows Youre Dead
 Other Acquired Feature Film and Brand Rights For Fiscal 2009 Distribution
 Numb Numb
 The Secret Love and Other Disasters The
Secret Love and Other Disasters The Secret Love
and Other Disasters
 Far North The Color of Freedom Goodbye Bafana Autumn Hearts
 
    
    The Color of Freedompremiered at the Berlin Film Festival and stars Joseph
Fiennes, Dennis Haysbert and Diana Kruger. It tells the true story of James
Gregory, a white South African prison guard whose views were altered by the
prisoner he guarded for twenty years  Nelson Mandela. The film was directed by
Bille August, winner of The Peace Film Award. The title was released on DVD during
the first quarter of fiscal 2009.
    
    Far Northis a dark epic thriller about two womens battle for survival in the
remote, desolate Arctic Tundra. When a strange man unexpectedly arrives at their
camp, jealousy plays out with terrifying and horrific consequences as they compete
for his affection. The film stars Michelle Yeoh, Sean Bean
and Michelle Krusiec. This title is scheduled to be released on DVD in the second
quarter of fiscal 2009.
    
    Autumn Heartspremiered as Torontos closing night film (then-titled Emotional
Arithmetic) and stars Susan Sarandon, Gabriel Byrne, Max Von Sydow, Christopher
Plummer and Roy Dupuis. The film, tells the story of three people who formed a
life-long bond while housed at a World War II detention camp reuniting after 35
years. The separation from each other inflicted deep emotional wounds. This title
is scheduled for release on DVD during the second quarter of fiscal 2009.
  44




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##### Table of Contents



Destiny Renegade
 The Chosen One Benchwarmers Deuce
Bigelow: European Gigolo 50 First Dates The Hot Chick Pulp
Fiction Fargo Two And A Half Men, Legally Blonde Traffic The Mask
 Battle for
Haditha Battle for Haditha
 Stuck Edmond House of Re-Animator
 Renewal of Canadian Distribution Agreement through December 2012
    45




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##### Table of Contents



Stuck Re-Cycle My Name is Bruce The Last
Emperor Megadeth Shark Week John Pinette: Im Starvin Steven Wright: When the Leaves Blow Mythbusters Collection Caligula: Imperial Edition Breaker Morant
  New Exclusive Distribution Agreement with the Criterion Collection
    Seven Samurai The Seventh Seal, 81/2 The Third Man House of Games Days of Heaven Fear and Loathing in Las Vegas
 Early
Bergman The Documentaries of Louis Malle Postwar Kurosawa
   46




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##### Table of Contents



Launch of One Village Entertainment
  ® Notorious BIG: Bigger Than Life Thug Angel: Life of Tupac Shakur Beef I/II/III
  
    
    Love and Other 4 Letter Words, a romantic comedy starring Tangi Miller, Flex Alexander
and Essence Atkins. This title was released on DVD during the first quarter of fiscal 2009.
    
    Two Turntables and a Mic, a music documentary about the life and untimely death of Jam
Master Jay with guest appearances by Russell Simmons, Reverend Run, Jay-Z, LL Cool J and 50
Cent. This title is scheduled for release on DVD during the fourth quarter of fiscal 2009.
    
    Life Is Not a Fairy Tale, the highest-rated program in the history of VH-1, starring
Fantasia Barrino. This film is not yet scheduled for release on DVD.
  Fulfillment Services Agreement, Closure of Las Vegas Facility and Lease Termination
     47




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Termination of our Distribution Facility Operating Lease
   Liquidity and Capital Resources
  
    
    operating cash flows
    
    availability under our revolving line of credit
    
    private placement of debt and equity instruments
    
    advances from our disc manufacturer and exclusive content subdistributors
   
    
    Borrowings under our revolving bank line of credit of approximately $5.2 million.
    
    Increase in accounts payable and accrued expenses of approximately $3.4 million,
relating to fourth quarter inventory purchases for sale in fiscal 2009.
    
    Collection of accounts receivable of $1.5 million.
    
    The remaining $1.3 million advance on future purchases from Paradox. See
Advances under New Entertainment One Canadian Distribution Agreement below.
    
    Reduced capital expenditures for property, plant and equipment of $1.1 million.
    
    Proceeds from the exercise of employee stock options and warrants totaling $512,000
and $204,000, respectively.
  
    
    Advances for content acquisition as a result of approximately $2.8 million in
advances paid to BTP affiliates Capitol Films and CT1 in connection with the exclusive
distribution rights for titles to be released after March 31, 2008. See
Acquisition of Feature Film Exclusive Distribution Rights from BTP Affiliates above.
    
    Principal payments of $2.8 million to reduce our manufacturing advance liability to
Arvato.
    
    Increase in inventory purchases of approximately $4.6 million.
    
    $2.2 million in fees and expenses paid during fiscal 2008 related to the BTP
terminated merger process, related disputes and resulting litigation. See 
Termination of Definitive Agreement to Sell Image to BTP;  Distribution Agreement with
BTP-Affiliate CT1 Holdings, LLC; and Related Disputes as well as Subsequent Event -
BTP Litigation Settlement Agreement and Mutual Release above.
 Amendment to Revolving Credit Facility.
   48




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##### Table of Contents




    
    March 31, 2008, .00 to 1.0
    
    September 30, 2008, .50 to 1.0
    
    December 31, 2008, 1.0 to 1.0
  
    
    March 31, 2009, 1.0 to 1.0
    
    June 30, 2009, 1.1 to 1.0
    Private Placement of Senior Convertible Note and Warrant.
   49




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Disc Replication Advance .
 Contractual Obligations and Commercial Commitments.
 Payments due by period(in thousands)
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    TotalContractual obligations:Operating lease obligations
    
    $
    1,014
    
    
    $
    1,041
    
    
    $
    1,068
    
    
    $
    1,095
    
    
    $
    1,123
    
    
    $
    1,439
    
    
    $
    6,780Capital lease obligations
    
    
    75
    
    
    
    83
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203Long-term debt obligations
    
    
    6,800
    
    
    
    10,800
    
    
    
    5,175
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    23,775Revolving credit facility
    
    
    5,165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,165Licensing and exclusive
distribution obligations
    
    
    9,525
    
    
    
    458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,983Employment obligations
    
    
    3,898
    
    
    
    1,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,291Total
    
    $
    26,477
    
    
    $
    13,775
    
    
    $
    6,288
    
    
    $
    2,095
    
    
    $
    1,123
    
    
    $
    1,439
    
    
    $
    51,197
   Long-Term Debt.
 (In thousands)
    
    2008
    
    
    2007Subordinated senior convertible note, net of $1,003 discount
    
    $
    15,997
    
    
    $
    15,430Subordinated manufacturing advance obligation, net of $705 discount
    
    
    6,071
    
    
    
    8,13022,068
    
    
    
    23,560Less current portion of long-term debt, net of $1,041 discount
    
    
    5,759
    
    
    
    1,612Long-term debt less current portion and debt discounts
    
    $
    16,309
    
    
    $
    21,948
 Debt Instruments and Related Covenants. See
 Sony BMG Recoupment of Royalty Advance for International Sublicense Rights.
  50




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##### Table of Contents



Advances under New Entertainment One Canadian Distribution Agreement.
 Off-Balance Sheet Arrangements.
 Conclusion . See
  Critical Accounting Policies
   Revenue Recognition
  51




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Royalty and Distribution Fees
 See
 Inventory Valuation See
  52




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##### Table of Contents



Allowance for Sales Returns and Doubtful Accounts Receivable
  Valuation of Deferred Income Taxes.
  53




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Results of Operations
 Net Revenues
  2008
    
    
    2007
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % Change(in thousands)
    
    
    
    
    
    (in thousands)Net revenues:Domestic
    
    $
    91,806
    
    
    $
    95,863
    
    
    
    (4.2
    )%
    
    $
    95,863
    
    
    $
    108,704
    
    
    
    (11.8
    )%Digital
    
    
    2,148
    
    
    
    1,214
    
    
    
    76.9
    
    
    
    1,214
    
    
    
    178
    
    
    
    582.0International
    
    
    1,864
    
    
    
    2,674
    
    
    
    (30.3
    )
    
    
    2,674
    
    
    
    3,020
    
    
    
    (11.5
    )Consolidated
    
    $
    95,818
    
    
    $
    99,751
    
    
    
    (3.9
    )%
    
    $
    99,751
    
    
    $
    111,902
    
    
    
    (10.9
    )%
 Fiscal 2008 Compared to 2007 and 2006
 Domestic Revenues. See
  The Chronicles of Narnia ( The Lion The Witch And The Wardrobe, The Silver Chair and Prince Caspian and The Voyage Of The Dawn
Treader) The Bill Jeff Larry and Ron Twilight Zone: Definitive Edition Seasons 4 and 5,
  Digital Revenues.
 International Revenues.
   54




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Cost of Sales
  2008
    
    
    2007
    
    
    
    
    
    
    2007
    
    
    2006(in thousands)
    
    
    
    
    
    
    (in thousands)Cost of sales:Domestic
    
    $
    82,933
    
    
    $
    79,607
    
    
    
    
    
    
    $
    79,607
    
    
    $
    81,799Digital
    
    
    1,234
    
    
    
    762
    
    
    
    
    
    
    
    762
    
    
    
    110International
    
    
    1,283
    
    
    
    1,653
    
    
    
    
    
    
    
    1,653
    
    
    
    2,259Consolidated
    
    $
    85,450
    
    
    $
    82,022
    
    
    
    
    
    
    $
    82,022
    
    
    $
    84,168% Change
    
    
    
    
    
    
    
    
    
    % ChangeAs a percentage of segment net revenues:Domestic
    
    
    90.3
    %
    
    
    83.0
    %
    
    
    7.3
    %
    
    
    83.0
    %
    
    
    75.2
    %
    
    
    7.8
    %Digital
    
    
    57.4
    
    
    
    62.8
    
    
    
    (5.4
    )
    
    
    62.8
    
    
    
    61.8
    
    
    
    1.0International
    
    
    68.8
    
    
    
    61.8
    
    
    
    7.0
    
    
    
    61.8
    
    
    
    74.8
    
    
    
    (13.0
    )Consolidated
    
    
    89.2
    %
    
    
    82.2
    %
    
    
    7.0
    %
    
    
    82.2
    %
    
    
    75.2
    %
    
    
    7.0
    %
  Domestic Gross Margin
 See
  
    
    the sales mix of individual titles;
 
    
    the strength of a titles sales performance;
 
    
    the selling price of a title;
 
    
    the costs that we are responsible for, including disc manufacturing costs; and
 
    
    third party net profit participations, specifically the royalty rates, distribution fees
retained and profit splits inherent in the agreements.
  
    
    As a result of maturation of the DVD marketplace, we reduced the fair value of our
advance royalty and distribution fees by $7.2 million and the value of our inventories by
$3.2 million during the fourth quarter of fiscal 2008. For comparative purposes,
accelerated amortization and fair value writedown of film costs totaled $13.3 million in
2008, including the March 2008 charge, $5.2 million in 2007 and $3.8 million in 2006.
 
    
    The sales mix of titles sold during fiscal 2007 was comparable in terms of gross margins
with fiscal 2006; however, the sales mix was more favorable for fiscal 2008. We had a
larger share of revenue generated by higher-margin exclusive programming agreements
compared to lower-margin exclusive programming agreements.
  55




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
    
    We incurred lower market development funds, as a percentage of net revenues, for product
sold to our customers during fiscal 2008 in a continued effort to control costs in this
area. For fiscal 2008 our market development funds were 3.8%, as compared to 4.8% and 4.7%
for fiscal 2007 and 2006, respectively.
 
    
    At lower revenue levels, fixed costs included in cost of sales represent a higher
percentage of net revenues, negatively impacting our gross margin percentage.
  International Gross Margin
   Selling Expenses
  2008
    
    
    2007
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % Change(in thousands)
    
    
    
    
    
    (in thousands)Selling expenses:Domestic
    
    $
    9,902
    
    
    $
    10,029
    
    
    
    (1.3
    )%
    
    $
    10,029
    
    
    $
    10,451
    
    
    
    (4.0
    )%Digital
    
    
    226
    
    
    
    308
    
    
    
    (26.6
    )
    
    
    308
    
    
    
    196
    
    
    
    57.1International
    
    
    284
    
    
    
    119
    
    
    
    138.7
    
    
    
    119
    
    
    
    103
    
    
    
    15.5Consolidated
    
    $
    10,412
    
    
    $
    10,456
    
    
    
    (0.4
    )%
    
    $
    10,456
    
    
    $
    10,750
    
    
    
    (2.7
    )%As a percentage of segment net revenues:Domestic
    
    
    10.8
    %
    
    
    10.5
    %
    
    
    0.3
    %
    
    
    10.5
    %
    
    
    9.6
    %
    
    
    0.9
    %Digital
    
    
    10.5
    
    
    
    25.4
    
    
    
    (14.9
    )
    
    
    25.4
    
    
    
    110.1
    
    
    
    (84.7
    )International
    
    
    15.2
    
    
    
    4.5
    
    
    
    10.7
    
    
    
    4.5
    
    
    
    3.4
    
    
    
    1.1Consolidated
    
    
    10.9
    %
    
    
    10.5
    %
    
    
    0.4
    %
    
    
    10.5
    %
    
    
    9.6
    %
    
    
    0.9
    %
  56




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Fiscal 2008 Compared to 2007 and 2006
 Domestic Selling Expenses.
  
    
    Personnel costs were down $489,000 in fiscal 2008.
 
    
    Advertising and promotion expenditures were up $287,000 in fiscal 2008.
 
    
    Trade shows and conference expenditures were up $102,000 in fiscal 2008.
  
    
    Severance costs totaled $225,000 for fiscal 2007.
 
    
    Compensation expense, exclusive of severance costs, was down $108,000 for fiscal
2007 as compared to fiscal 2006.
 
    
    Advertising and promotional expenses were down approximately $642,000 due to reduced
customer advertising and fewer shipments of screeners, catalogs and mailers, offset by
greater third-party publicity consultants on several of our new DVD and CD releases for
fiscal 2007.
 
    
    As a percentage of revenues, advertising and promotional expenses
were 4.3% of segment net revenues, down slightly from 4.4% for fiscal 2006, due
primarily to lower consumer advertising in 2007.
 Digital Selling Expenses.
 International
Selling Expenses
 General and Administrative Expenses
  2008
    
    
    2007
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % Change(in thousands)
    
    
    
    
    
    (in thousands)General and administrative expenses:Domestic
    
    $
    18,231
    
    
    $
    16,623
    
    
    
    9.7
    %
    
    $
    16,623
    
    
    $
    15,812
    
    
    
    5.1
    %Digital
    
    
    379
    
    
    
    304
    
    
    
    24.7
    
    
    
    304
    
    
    
    202
    
    
    
    50.5International
    
    
    404
    
    
    
    480
    
    
    
    (15.8
    )
    
    
    480
    
    
    
    446
    
    
    
    7.6Consolidated
    
    $
    19,014
    
    
    $
    17,407
    
    
    
    9.2
    %
    
    $
    17,407
    
    
    $
    16,460
    
    
    
    5.8
    %As a percentage of segment net revenues:Domestic
    
    
    19.9
    %
    
    
    17.3
    %
    
    
    2.6
    %
    
    
    17.3
    %
    
    
    14.5
    %
    
    
    2.8
    %Digital
    
    
    17.6
    
    
    
    25.0
    
    
    
    (7.4
    )
    
    
    25.0
    
    
    
    113.5
    
    
    
    (88.5
    )International
    
    
    21.7
    
    
    
    18.0
    
    
    
    3.7
    
    
    
    18.0
    
    
    
    14.8
    
    
    
    3.2Consolidated
    
    
    19.8
    %
    
    
    17.4
    %
    
    
    2.4
    %
    
    
    17.4
    %
    
    
    14.7
    %
    
    
    2.7
    %
 Fiscal 2008 Compared to 2007 and 2006
 Domestic General and Administrative Expenses
  
    
    CEO retirement package expense plus other personnel severance of $979,000 for the CEO
and two other employees who ceased employment at March 31, 2008.
 
    
    Increased other legal fees of $320,000, primarily associated with defending
distribution rights claims and an executive employment separation.
  57




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
    
    BTP-related expenses increased $547,000 to $1.9 million for fiscal 2008,
as compared to $1.4 million for fiscal 2007. The expenses in both years consisted of
legal, investment banking and other related expenses associated with the negotiations,
related disputes and the eventual termination of the proposed merger agreement between us
and BTP, as further set forth in Item 3. Legal Proceedings above.
 
    
    Accelerated depreciation and amortization of $400,000, associated with the closure of
our Las Vegas, Nevada distribution facility.
 
    
    Sarbanes-Oxley compliance related consulting costs of $384,000.
 
    
    A legal settlement $346,000, associated with an executive officer separation of
employment.
 
    
    Legal expenses of $250,000 relating to a dismissed shareholder claim as a result of the
proposed BTP merger transaction.
 
    
    Increased consulting costs of $189,000 relating to continuing development of our
information technology infrastructure system.
 
    
    Increased travel expenditures of $138,000.
  
    
    Reduced bad debt expense of $423,000. Net charge of $432,000 associated with Towers
bankruptcy filing in fiscal 2007.
 
    
    Lower depreciation and amortization of property and equipment of $353,000 as a result of
the closure of our distribution facility and reduced capital expenditures for fiscal 2008.
 
    
    Reduced temporary labor expenses of $338,000.
 
    
    Expenses associated with the Lions Gate proxy contest and Special Committee of our Board
totaling $634,000 for fiscal 2007 and none in fiscal 2008. These costs included investment
banking, special committee and legal fees, proxy solicitor fees, financial printer fees,
press release costs, and independent proxy vote processor fees.
  
    
    Legal and investment banking expenses associated with the proposed BTP merger
agreement of $1.4 million during fiscal 2007.
 
    
    Expenses associated with the Lions Gate proxy contest and Special Committee of our
Board totaling $634,000 and $247,000 for fiscal 2007 and 2006. These costs include
investment banking, special committee and legal fees in 2007 and 2006 and proxy
solicitor fees, financial printer fees, press release costs, and independent proxy vote
processor fees in 2007.
 
    
    Net charge of $432,000 associated with Towers bankruptcy filing in fiscal 2007.
 
    
    In fiscal 2006, we incurred a bad debt charge of $1.6 million as
a result of the January 12, 2006, bankruptcy filing of Musicland.
 
    
    Temporary labor expenses of $438,000 for fiscal 2007 associated with inputting and
auditing the data entered into our content rights management system and for the
auditing of contractual data prior to it being entered into our new royalty and
distribution system.
 
    
    Severance and UK office closure costs totaled $263,000.
 
    
    In fiscal 2007, we had increased expenses of $145,000 for consulting and
professional services in connection with information technology systems and accounting.
 
    
    Insurance expenses, primarily for medical and directors and officers liability, were
higher by $125,000 in fiscal 2007 as compared to fiscal 2006.
 
    
    Depreciation expense was down $700,000 in fiscal 2007 as compared to fiscal 2006.
Many Las Vegas distribution facility assets became fully depreciated in fiscal 2007,
reducing comparative depreciation expense in fiscal 2007.
 
    
    In fiscal 2006, we incurred an impairment charge for the cumulative cost of a
third-party software program totaling $248,000.
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Digital General and Administrative Expenses
  International General and Administrative Expenses
  Restructuring Expenses
  Other Income and Expenses
  Interest Expense
 2008
    
    
    2007
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % Change(in thousands)
    
    
    
    
    
    (in thousands)Interest expense, net of
interest income
    
    $
    3,345
    
    
    $
    2,434
    
    
    
    37.4
    %
    
    $
    2,434
    
    
    $
    707
    
    
    
    244.3
    %As a percent of net revenues
    
    
    3.5
    %
    
    
    2.4
    %
    
    
    1.1
    %
    
    
    2.4
    %
    
    
    0.6
    %
    
    
    1.8
    %
  Income Taxes
     59




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##### Table of Contents



Consolidated Net Loss
  Recently Issued Accounting Pronouncements
       60




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Fluctuations
    Foreign Exchange Rate Fluctuations
   61




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    63Consolidated Balance Sheets as of March 31, 2008 and 2007
    
    
    64Consolidated Statements of Operations for the years ended March 31, 2008, 2007 and 2006
    
    
    66Consolidated Statements of Shareholders Equity for the years ended March 31, 2008, 2007 and 2006
    
    
    67Consolidated Statements of Cash Flows for the years ended March 31, 2008, 2007 and 2006
    
    
    68Notes to Consolidated Financial Statements
    
    
    71Schedule II  Valuation and Qualifying Accounts for the years ended March 31, 2008, 2007 and 2006
    
    
    100
  62




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Report of Independent Registered Public Accounting Firm
 
      
  63




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CONSOLIDATED BALANCE SHEETS
 March 31, 2008 and 2007
 ASSETS
 (In thousands)
    
    2008
    
    
    2007Current assets:Cash and cash equivalents
    
    $
    1,606
    
    
    $
    2,341Accounts
receivable, net of allowances of
$8,548  2008
$8,956  2007
    
    
    17,873
    
    
    
    19,360Inventories
    
    
    16,379
    
    
    
    16,742Royalty and distribution fee advances
    
    
    13,939
    
    
    
    13,118Prepaid expenses and other assets
    
    
    1,488
    
    
    
    1,302Total current assets
    
    
    51,285
    
    
    
    52,863Noncurrent inventories, principally production costs
    
    
    2,632
    
    
    
    2,808Noncurrent royalty and distribution advances
    
    
    21,356
    
    
    
    23,397Property, equipment and improvements, net
    
    
    3,089
    
    
    
    4,692Goodwill
    
    
    5,715
    
    
    
    5,715Other assets
    
    
    736
    
    
    
    1,221$
    84,813
    
    
    $
    90,696
 See accompanying notes to consolidated financial statements.
  64




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CONSOLIDATED BALANCE SHEETS, CONTINUED
 March 31, 2008 and 2007
 LIABILITIES AND SHAREHOLDERS EQUITY
 (In thousands, except share data)
    
    2008
    
    
    2007Current liabilities:Accounts payable
    
    $
    11,387
    
    
    $
    7,431Accrued liabilities
    
    
    5,877
    
    
    
    6,039Accrued royalties and distribution fees
    
    
    13,961
    
    
    
    9,881Accrued music publishing fees
    
    
    5,971
    
    
    
    5,945Deferred revenue
    
    
    10,598
    
    
    
    5,039Revolving credit facility
    
    
    5,165
    
    
    
    Current portion of long-term debt, less debt discount
    
    
    5,759
    
    
    
    1,612Total current liabilities
    
    
    58,718
    
    
    
    35,947Long-term debt, less current portion, less debt discount
    
    
    16,309
    
    
    
    21,948Other long-term liabilities, less current portion
    
    
    2,560
    
    
    
    3,221Total liabilities
    
    
    77,587
    
    
    
    61,116Commitments and Contingencies (Notes 8, 9 and 13)Shareholders equity:Preferred stock, $.0001 par value, 25 million shares
authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.0001 par value, 100 million shares
authorized; 21,856,000 and 21,577,000 issued and
outstanding in 2008 and 2007, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    52,618
    
    
    
    51,847Accumulated other comprehensive income
    
    
    
    
    
    
    3Accumulated deficit
    
    
    (45,394
    )
    
    
    (22,272
    )Net shareholders equity
    
    
    7,226
    
    
    
    29,580$
    84,813
    
    
    $
    90,696
 See accompanying notes to consolidated financial statements.
  65




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CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended March 31, 2008, 2007 and 2006
 (In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2006NET REVENUES
    
    $
    95,818
    
    
    $
    99,751
    
    
    $
    111,902OPERATING COSTS AND EXPENSES:Cost of sales
    
    
    85,450
    
    
    
    82,022
    
    
    
    84,168Selling expenses
    
    
    10,412
    
    
    
    10,456
    
    
    
    10,750General and administrative expenses
    
    
    19,014
    
    
    
    17,407
    
    
    
    16,460Restructuring expenses
    
    
    612
    
    
    
    
    
    
    
    115,488
    
    
    
    109,885
    
    
    
    111,378EARNINGS (LOSS) FROM OPERATIONS
    
    
    (19,670
    )
    
    
    (10,134
    )
    
    
    524OTHER EXPENSES (INCOME):Interest expense, net
    
    
    3,345
    
    
    
    2,434
    
    
    
    707Other income
    
    
    (4
    )
    
    
    
    
    
    
    (3
    )3,341
    
    
    
    2,434
    
    
    
    704LOSS BEFORE INCOME TAXES
    
    
    (23,011
    )
    
    
    (12,568
    )
    
    
    (180
    )INCOME TAX EXPENSE
    
    
    42
    
    
    
    43
    
    
    
    27NET LOSS
    
    $
    (23,053
    )
    
    $
    (12,611
    )
    
    $
    (207
    )NET LOSS PER SHARE:Net loss  basic and diluted
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:Basic and diluted
    
    
    21,734
    
    
    
    21,482
    
    
    
    21,273
 See accompanying notes to consolidated financial statements.
  66




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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 For the Years Ended March 31, 2008, 2007 and 2006
 AccumulatedCommon
    
    
    Common
    
    
    Additional
    
    
    OtherStock
    
    
    Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Accumulated(In thousands)
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    TotalBalance at March 31, 2005
    
    
    21,252
    
    
    $
    47,513
    
    
    $
    3,774
    
    
    
    
    
    
    $
    (9,454
    )
    
    $
    41,833Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (207
    )
    
    
    (207
    )Foreign currency
translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Total comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211
    )Incorporation in State
of Delaware
    
    
    
    
    
    
    (47,511
    )
    
    
    47,511
    
    
    
    
    
    
    
    
    
    
    
    Exercise of options
    
    
    2
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Exercise of stock warrant
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acceleration of vesting
of stock options
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Balance at March 31, 2006
    
    
    21,296
    
    
    
    2
    
    
    
    51,306
    
    
    
    (4
    )
    
    
    (9,661
    )
    
    
    41,643Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,611
    )
    
    
    (12,611
    )Foreign currency
translation gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Total comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,604
    )Issuance of stock warrant
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    194Exercise of options
    
    
    10
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Exercise of stock warrant
    
    
    271
    
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    330Balance at March 31, 2007
    
    
    21,577
    
    
    
    2
    
    
    
    51,847
    
    
    
    3
    
    
    
    (22,272
    )
    
    
    29,580Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,053
    )
    
    
    (23,053
    )Foreign currency
translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Total comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,056
    )Issuance of restricted
stock units
    
    
    16
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    55Exercise of options
    
    
    152
    
    
    
    
    
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    512Exercise of stock warrant
    
    
    111
    
    
    
    
    
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    204Adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    (69
    )Balance at March 31, 2008
    
    
    21,856
    
    
    $
    2
    
    
    $
    52,618
    
    
    $
    
    
    
    $
    (45,394
    )
    
    $
    7,226
 See accompanying notes to consolidated financial statements.
  67




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CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended March 31, 2008, 2007 and 2006
 (In thousands)
    
    2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (23,053
    )
    
    $
    (12,611
    )
    
    $
    (207
    )Adjustments to reconcile net loss to net cash
used in operating activities:Amortization of production costs
    
    
    4,219
    
    
    
    4,529
    
    
    
    4,537Depreciation and other amortization
    
    
    3,736
    
    
    
    3,124
    
    
    
    2,603Provision for lower of cost or market inventory
write-downs
    
    
    4,886
    
    
    
    1,866
    
    
    
    1,808Provision for doubtful accounts, sales returns and
other credits
    
    
    362
    
    
    
    (356
    )
    
    
    2,257Accelerated amortization and fair value writedown of
advance royalty and distribution fees
    
    
    8,373
    
    
    
    3,330
    
    
    
    1,987Severance Accrual
    
    
    979
    
    
    
    
    
    
    
    Asset impairment write-off
    
    
    
    
    
    
    
    
    
    
    248Loss on disposal of assets
    
    
    39
    
    
    
    
    
    
    
    Other
    
    
    (4
    )
    
    
    
    
    
    
    Acceleration of vesting of employee stock options
    
    
    
    
    
    
    
    
    
    
    16Changes in assets and liabilities associated with
operating activities:Accounts receivable
    
    
    1,125
    
    
    
    (1,842
    )
    
    
    7,447Inventories
    
    
    (4,589
    )
    
    
    (1,722
    )
    
    
    (2,349
    )Royalty and distribution fee advances
    
    
    (4,256
    )
    
    
    (4,405
    )
    
    
    (12,100
    )Production cost expenditures
    
    
    (3,977
    )
    
    
    (3,920
    )
    
    
    (4,456
    )Prepaid expenses and other assets
    
    
    (93
    )
    
    
    (1
    )
    
    
    170Accounts payable, accrued royalties, fees and
liabilities
    
    
    3,350
    
    
    
    1,375
    
    
    
    (8,266
    )Deferred revenue
    
    
    5,559
    
    
    
    (712
    )
    
    
    359Net cash used in operating activities
    
    
    (3,344
    )
    
    
    (11,345
    )
    
    
    (5,946
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (506
    )
    
    
    (1,595
    )
    
    
    (1,132
    )Acquisition of business, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (8,241
    )Net cash used in investing activities
    
    
    (506
    )
    
    
    (1,595
    )
    
    
    (9,373
    )
 See accompanying notes to consolidated financial statements.
  68




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CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
 For the Years Ended March 31, 2008, 2007 and 2006
 (In thousands)
    
    2008
    
    
    2007
    
    
    2006CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under revolving credit facility
    
    $
    91,447
    
    
    $
    48,764
    
    
    $
    35,987Repayments of borrowings under revolving credit facility
    
    
    (86,282
    )
    
    
    (60,264
    )
    
    
    (24,487
    )Proceeds from issuance of long-term debt, net of costs
    
    
    
    
    
    
    25,813
    
    
    
    Repayments of long-term debt
    
    
    (2,766
    )
    
    
    (458
    )
    
    
    (1,337
    )Principal payments under capital lease obligations
    
    
    
    
    
    
    
    
    
    
    (109
    )Proceeds from exercise of common stock warrant
    
    
    204
    
    
    
    330
    
    
    
    Proceeds from exercise of employee stock option
    
    
    512
    
    
    
    17
    
    
    
    5Net cash provided by financing activities
    
    
    3,115
    
    
    
    14,202
    
    
    
    10,059INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
    
    
    (735
    )
    
    
    1,262
    
    
    
    (5,260
    )Cash and cash equivalents at beginning of year
    
    
    2,341
    
    
    
    1,079
    
    
    
    6,339Cash and cash equivalents at end of year
    
    $
    1,606
    
    
    $
    2,341
    
    
    $
    1,079SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    1,315
    
    
    $
    1,148
    
    
    $
    667Income taxes
    
    $
    34
    
    
    $
    6
    
    
    $
    28
 See accompanying notes to consolidated financial statements.
  69




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
 For the Years Ended March 31, 2008, 2007 and 2006
   See accompanying notes to consolidated financial statements.
  70




---



##### Table of Contents



Note 1. Basis of Presentation and Summary of Significant Accounting Policies.
 Basis of Presentation and Principles of Consolidation.
 Business.
 Use of Estimates in Preparation of Financial Statements.
 Cash and Cash Equivalents
 Fair Value of Financial Instruments.
 Revenue Recognition.
 Inventories. See
 Non-Recoupable Production Costs. See
  71




---



##### Table of Contents



Royalty and Distribution Fee Advances, Recoupable Production Advances. See
 Property, Equipment and Improvements. (3-7 years) See
 Advertising Costs.
 Market Development Funds.
 Allowances Received From Vendors.
 Shipping Income and Expenses.
  72




---



##### Table of Contents



Major Customers and Suppliers.
 See
 Goodwill.
 Impairment of Long-Lived Assets.
 See
 Foreign Currency Transactions.
 Income Taxes. Accounting for Income Taxes
  Earnings/Loss per Share.
 Comprehensive Income (Loss).
  73




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##### Table of Contents



Stock Options.
     (In thousands, except per share data)
    
    2006Consolidated net loss, as reported
    
    $
    (207
    )Add: Stock-based employee compensation expense included in the
reported consolidated net loss, net of related tax effects
    
    
    16Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
    
    
    (1,861
    )Pro forma consolidated net loss
    
    $
    (2,052
    )Consolidated net loss per share:As reportedBasic and diluted
    
    $
    (.01
    )Pro formaBasic and diluted
    
    $
    (.10
    )
  74




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##### Table of Contents



2006Expected life (years)
    
    
    2.5  5.0Interest rate
    
    
    2.76  4.39
    %Volatility
    
    
    60-67
    %Dividend yield
    
    
    0.00
    %Weighted-average fair value of options granted during the year
    
    $
    1.8377
 Recently Issued Accounting Standards.
     75




---



##### Table of Contents



Reclassifications.
 Note 2.
    
    Maturation of DVD Marketplace, Related Acceleration of Amortization and Fair Value Writedown
of Film Costs at March 31, 2008.
 ®
      76




---



##### Table of Contents



Note 3. Resignation of CEO and Related Charge for Retirement Package.
    Note 4. Fulfillment Services Agreement, Closure of Las Vegas Facility and Lease Termination.
     77




---



##### Table of Contents



(In thousands)Beginning liability at March 31, 2007
    
    $
    Costs charged to expense during the fiscal year ended March 31, 2008
    
    
    612Costs paid or otherwise settled during the fiscal 2008 period
    
    
    (612
    )Ending liability at March 31, 2008
    
    $
    
 Note 5. Inventories.
  (In thousands)
    
    2008
    
    
    2007DVD
    
    $
    11,453
    
    
    $
    10,724Other
    
    
    2,563
    
    
    
    3,58814,016
    
    
    
    14,312Production costs, net
    
    
    4,995
    
    
    
    5,23819,011
    
    
    
    19,550Less current portion of inventories
    
    
    16,379
    
    
    
    16,742Noncurrent inventories, principally non-recoupable
production costs
    
    $
    2,632
    
    
    $
    2,808
  Note 6. Property, Equipment and Improvements.
  (In thousands)
    
    2008
    
    
    2007Machinery, equipment and software
    
    $
    10,320
    
    
    $
    18,995Leasehold improvements
    
    
    844
    
    
    
    887Other
    
    
    164
    
    
    
    18711,328
    
    
    
    20,069Less accumulated depreciation and amortization
    
    
    8,239
    
    
    
    15,377$
    3,089
    
    
    $
    4,692
 See
 Note 7. Investment in Film Production.
  (In thousands)
    
    2008
    
    
    2007Released, net of accumulated amortization
    
    $
    1,431
    
    
    $
    183Completed and not released
    
    
    2,598
    
    
    
    3,950In process
    
    
    
    
    
    
    1,948In development
    
    
    
    
    
    
    57$
    4,029
    
    
    $
    6,138
  78




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##### Table of Contents



Note 8. Subsequent Event  Amendment to Revolving Credit Facility.
     
    
    March 31, 2008, .00 to 1.0
    
    September 30, 2008, .50 to 1.0
    
    December 31, 2008, 1.0 to 1.0
  
    
    March 31, 2009, 1.0 to 1.0
    
    June 30, 2009, 1.1 to 1.0
     79




---



##### Table of Contents



Note 9. Long-Term Debt.
 Disc Replication Advance
 Private Placement of Senior Convertible Note and Warrant.
       80




---



##### Table of Contents



Derivative Instruments and Hedging Activities Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity Issuers Accounting for
Freestanding Financial Instruments Composed of More Than One Option or Forward Contract Embodying
Obligations under FASB Statement No. 150
   (In thousands)
    
    March 31, 2008
    
    
    March 31, 2007Subordinated senior convertible note, less debt
discount of $1,003  March 31, 2008; $1,570  March
31, 2007
    
    $
    15,997
    
    
    $
    15,430Subordinated manufacturing advance obligation, less
debt discount of $705  March 31, 2008; $1,411 
March 31, 2007
    
    
    6,071
    
    
    
    8,13022,068
    
    
    
    23,560Current portion of long-term debt, less debt discount
of $1,041- March 31, 2008; $588  March 31, 2007
    
    
    5,759
    
    
    
    1,612Long-term debt, less current portion and debt discount
    
    $
    16,309
    
    
    $
    21,948
 Note 10. New Exclusive Distribution Agreement with the Criterion Collection.
    Seven Samurai The Seventh Seal 81/2 The Third Man House of Games Days of Heaven Fear and Loathing in Las Vegas
  81




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##### Table of Contents



Note 11. Fiscal 2007 and 2006 Bad Debt Charges Due to Customer Bankruptcy Filings.
   Note 12. Fiscal 2007 Asset Impairment Write-Down  Source Entertainment, Inc Chapter 11
Bankruptcy Filing.
  Note 13. Commitments and Contingencies.
 Operating Leases
  See
  82




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##### Table of Contents



Fiscal
    
    Amount(In thousands)2009
    
    $
    1,0142010
    
    
    1,0412011
    
    
    1,0682012
    
    
    1,0952013
    
    
    1,123Thereafter
    
    
    1,439$
    6,780
  Employment Agreements.
 Other
 Fiscal
    
    Amount(in thousands)2009
    
    $
    9,5252010
    
    
    458$
    9,983
  Legal Proceedings
 BTP Acquisition Company  Termination Fee Litigation
   See
 BTP Acquisition Company/CT1 Holdings  Output Distribution Agreement Litigation
    83




---



##### Table of Contents



See
 Subsequent Event  BTP Litigation Settlement Agreement and Mutual Release
    Lions Gate Films, Inc. v. Image Entertainment, Inc. and Subsequent Event Dismissal
   Image Entertainment, Inc. v. Relativity Media, LLC and Subsequent Event Settlement
    84




---



##### Table of Contents



Dismissed Shareholder Claim.
 Henzel v. Image
Entertainment, Inc., et al.
 Other Matters.
  Note 14. Shareholders Equity.
 Stock Awards, Options and Warrants .
  See
  Per Share
    
    
    Weighted Average(In thousands, except per share data)
    
    Shares
    
    
    Price Range
    
    
    Price Per ShareOutstanding, March 31, 2005
    
    
    2,444
    
    
    $
    1.68-7.94
    
    
    $
    4.180Granted
    
    
    403
    
    
    
    2.94-5.36
    
    
    
    3.362Exercised
    
    
    (3
    )
    
    
    1.75
    
    
    
    1.750Canceled
    
    
    (198
    )
    
    
    3.80-7.75
    
    
    
    7.099Outstanding, March 31, 2006
    
    
    2,646
    
    
    
    1.68-7.94
    
    
    
    3.782Granted
    
    
    5
    
    
    
    3.55
    
    
    
    3.550Exercised
    
    
    (10
    )
    
    
    1.68-1.75
    
    
    
    1.715Canceled
    
    
    (212
    )
    
    
    3.55-7.94
    
    
    
    6.615Outstanding, March 31, 2007
    
    
    2,429
    
    
    
    1.68-6.67
    
    
    
    3.547Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (152
    )
    
    
    1.75-3.80
    
    
    
    3.373Canceled
    
    
    (153
    )
    
    
    3.39-6.67
    
    
    
    4.246Outstanding, March 31, 2008
    
    
    2,124
    
    
    
    1.68-6.67
    
    
    $
    3.509
  85




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##### Table of Contents



Options Outstanding and ExercisableWeightedAverage
    
    
    WeightedRange of
    
    Shares
    
    
    Remaining
    
    
    AverageExercise Prices
    
    (In thousands)
    
    
    Life (Years)
    
    
    Exercise PriceUnder $2.00
    
    
    412
    
    
    
    4.0
    
    
    $
    1.759$2.01 to $4.00
    
    
    1,442
    
    
    
    5.8
    
    
    
    3.634$4.01 to $6.00
    
    
    190
    
    
    
    6.5
    
    
    
    5.021$6.01 to $8.00
    
    
    80
    
    
    
    1.0
    
    
    
    6.6682,124
  Warrants Outstanding and ExercisableWeightedAverage
    
    
    WeightedShares
    
    
    Remaining
    
    
    AverageExercise Price
    
    (In thousands)
    
    
    Life (Years)
    
    
    Exercise Price$4.25
    
    
    1,000
    
    
    
    3.42
    
    
    $
    4.251,000
 Stockholder Rights Plan.
  Shelf Registrations .
 Convertible Note Payable in Image Common Stock. See
  86




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##### Table of Contents



See
 Note 15. Net Loss per Share Data.
  (In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2006Net loss  basic and diluted numerator
    
    $
    (23,053
    )
    
    $
    (12,611
    )
    
    $
    (207
    )Weighted average common shares outstanding  basic denominator
    
    
    21,734
    
    
    
    21,482
    
    
    
    21,273Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding  diluted denominator
    
    
    21,734
    
    
    
    21,482
    
    
    
    21,273Net loss per share:Basic and diluted net loss per share
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )
  Note 16. Income Taxes.
 Adoption of FASB Interpretation No. 48.
   Balance as of April 1, 2007 (in thousands)
    
    $
    119Additions based on current year tax positions
    
    
    21Additions for prior year tax positions
    
    
    8Reductions for prior year tax positions
    
    
    Settlement of uncertain tax positions
    
    
    Reductions related to lapse of statute of limitations
    
    
    (26
    )Balance at March 31, 2008
    
    $
    122
  87




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##### Table of Contents



Valuation of Deferred Income Taxes
   (In thousands)
    
    2008
    
    
    2007
    
    
    2006CurrentFederal
    
    $
    
    
    
    $
    (22
    )
    
    $
    (39
    )State
    
    
    34
    
    
    
    30
    
    
    
    5Foreign
    
    
    8
    
    
    
    35
    
    
    
    6142
    
    
    
    43
    
    
    
    27DeferredFederal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Tax Expense
    
    $
    42
    
    
    $
    43
    
    
    $
    27
  (In thousands)
    
    2008
    
    
    2007Deferred tax assets:Provision for lower of cost or market inventory writedowns
    
    $
    2,938
    
    
    $
    1,140Net operating loss carryforwards
    
    
    11,844
    
    
    
    5,944Allowance for sales returns
    
    
    1,822
    
    
    
    1,596Allowance for doubtful accounts receivable
    
    
    99
    
    
    
    52Legal settlement accrual
    
    
    183
    
    
    
    Tax credits
    
    
    980
    
    
    
    949Writedown of royalty and distribution fee advances
    
    
    246
    
    
    
    321Other
    
    
    1,253
    
    
    
    582Deferred tax assets
    
    
    19,365
    
    
    
    10,584Less valuation allowance
    
    
    (19,033
    )
    
    
    (10,034
    )Deferred tax assets
    
    
    332
    
    
    
    550Deferred tax liabilities:Depreciation and amortization
    
    
    (314
    )
    
    
    (534
    )Other
    
    
    (18
    )
    
    
    (16
    )Deferred tax liabilities
    
    
    (332
    )
    
    
    (550
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  88




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(In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2006Expected income tax expense (benefit)
    
    $
    (7,823
    )
    
    $
    (4,273
    )
    
    $
    (61
    )State income tax expense (benefit), net of Federal benefit
    
    
    (1,190
    )
    
    
    (188
    )
    
    
    (554
    )Change in valuation allowance
    
    
    8,999
    
    
    
    4,043
    
    
    
    585Non-deductible expenses
    
    
    62
    
    
    
    49
    
    
    
    49Other
    
    
    (6
    )
    
    
    412
    
    
    
    8$
    42
    
    
    $
    43
    
    
    $
    27
 Note 17. Other Items  Statements of Operations.
 Fourth Quarter Adjustments
 Fiscal 2008. See
   Fiscal 2007.
 Fiscal 2006.
 Note 18. Employee Benefit Plan.
   89




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Note 19. Segment Information.
 Disclosures about Segments of and
Enterprises and Related Information
    90




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2008(In thousands)
    
    Domestic
    
    
    Digital
    
    
    International
    
    
    ConsolidatedNet revenues
    
    $
    91,806
    
    
    $
    2,148
    
    
    $
    1,864
    
    
    $
    95,818Operating costs and expenses
    
    
    111,679
    
    
    
    1,839
    
    
    
    1,970
    
    
    
    115,488Earnings (loss) from operations
    
    
    (19,873
    )
    
    
    309
    
    
    
    (106
    )
    
    
    (19,670
    )Other expense
    
    
    3,341
    
    
    
    
    
    
    
    
    
    
    
    3,341Earnings (loss) before income taxes
    
    $
    (23,214
    )
    
    $
    309
    
    
    $
    (106
    )
    
    $
    (23,011
    )
  2007(In thousands)
    
    Domestic
    
    
    Digital
    
    
    International
    
    
    ConsolidatedNet revenues
    
    $
    95,863
    
    
    $
    1,214
    
    
    $
    2,674
    
    
    $
    99,751Operating costs and expenses
    
    
    106,259
    
    
    
    1,374
    
    
    
    2,252
    
    
    
    109,885Earnings (loss) from operations
    
    
    (10,396
    )
    
    
    (160
    )
    
    
    422
    
    
    
    (10,134
    )Other expense
    
    
    2,434
    
    
    
    
    
    
    
    
    
    
    
    2,434Earnings (loss) before income taxes
    
    $
    (12,830
    )
    
    $
    (160
    )
    
    $
    422
    
    
    $
    (12,568
    )
  2006(In thousands)
    
    Domestic
    
    
    Digital
    
    
    International
    
    
    ConsolidatedNet revenues
    
    $
    108,704
    
    
    $
    178
    
    
    $
    3,020
    
    
    $
    111,902Operating costs and expenses
    
    
    108,062
    
    
    
    508
    
    
    
    2,808
    
    
    
    111,378Earnings (loss) from operations
    
    
    642
    
    
    
    (330
    )
    
    
    212
    
    
    
    524Other expense
    
    
    704
    
    
    
    
    
    
    
    
    
    
    
    704Earnings (loss) before income taxes
    
    $
    (62
    )
    
    $
    (330
    )
    
    $
    212
    
    
    $
    (180
    )
 As of March 31,(In thousands)
    
    2008
    
    
    2007Total assets:Domestic
    
    $
    83,683
    
    
    $
    89,482Digital
    
    
    282
    
    
    
    443International
    
    
    848
    
    
    
    771Consolidated total assets
    
    $
    84,813
    
    
    $
    90,696
  91




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##### Table of Contents



Note 20. Quarterly Financial Data. (Unaudited)
  Quarter EndedJune 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,(In thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007Net revenues
    
    $
    20,878
    
    
    $
    22,347
    
    
    $
    21,633
    
    
    $
    22,842
    
    
    $
    27,343
    
    
    $
    24,360
    
    
    $
    25,964
    
    
    $
    30,202Loss before income tax
    
    
    (2,577
    )
    
    
    (2,314
    )
    
    
    (3,667
    )
    
    
    (3,791
    )
    
    
    (2,045
    )
    
    
    (3,456
    )
    
    
    (14,722
    )2
    
    
    (3,007
    )3Net loss
    
    $
    (2,599
    )
    
    $
    (2,314
    )
    
    $
    (3,683
    )
    
    $
    (3,791
    )
    
    $
    (2,052
    )
    
    $
    (3,456
    )
    
    $
    (14,719
    )
    
    $
    (3,050
    )Net loss per share1 
Basic and diluted
    
    $
    (.12
    )
    
    $
    (.11
    )
    
    $
    (.17
    )
    
    $
    (.18
    )
    
    $
    (.09
    )
    
    $
    (.16
    )
    
    $
    (.68
    )
    
    $
    (.14
    )Weighted average common shares used
in computation of net loss per
share:Basic and diluted
    
    
    21,696
    
    
    
    21,296
    
    
    
    21,739
    
    
    
    21,478
    
    
    
    21,740
    
    
    
    21,577
    
    
    
    21,750
    
    
    
    21,577
 
 1
    
    Net loss per share is computed independently for each of the quarters represented in
accordance with SFAS No. 128. Therefore, the sum of the quarterly net loss per share may not
equal the total computed for the fiscal year or any cumulative interim period.2
    
    Includes (i) a $10.4 million fourth quarter charge in accelerated amortization and
fair value writedown of film assets primarily related to the maturation of the DVD marketplace
and related contraction in available shelf space for previously released programming, (ii)
$610,000 in legal, investment banking and other expenses associated with negotiations, related
disputes and the eventual termination of the proposed merger agreement between us and BTP
Acquisition Company LLC, as further set forth in Note 13. Commitments and Contingencies -
Legal Proceedings above, (iii) a $979,000 charge for the value of the retirement package to
our CEO, who resigned and the severance commitment for two employees who left our employ at
March 31, 2008 and (iv) a $599,000 net charge for the change in the fair value of the
warrant liability and the embedded derivatives within our convertible note payable.3
    
    Includes a $2.2 million write-off of assets relating to our distribution agreement
with Source Entertainment, Inc. which filed for bankruptcy protection in May 2007 and $1.2
million in legal, investment banking and other expenses associated with negotiations, related
disputes and the eventual termination of the proposed merger agreement between us and BTP
Acquisition Company LLC, as further set forth in Note 13. Commitments and Contingencies -
Legal Proceedings above.  92




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ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Internal Control Over Financial Reporting
 Managements Annual Report on Internal Control Over Financial Reporting
  
    
    concern the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
    
    provide reasonable assurance that (a) transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and (b) that our receipts and expenditures are being recorded
and made only in accordance with managements authorizations; and
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets.
  Internal
ControlIntegrated Framework
  
 ITEM 9B. OTHER INFORMATION
   93




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PART III
  www.image-entertainment.com
  94




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Page(a) Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    63Consolidated Balance Sheets as of March 31, 2008 and 2007
    
    
    64Consolidated Statements of Operations for the years ended
March 31, 2008, 2007 and 2006
    
    
    66Consolidated Statements of Shareholders Equity for the years ended
March 31, 2008, 2007 and 2006
    
    
    67Consolidated Statements of Cash Flows for the years ended
March 31, 2008, 2007 and 2006
    
    
    68Notes to Consolidated Financial Statements
    
    
    71(b) Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    
    100(c) Exhibits:
 2.1
    
    
    Agreement and Plan of Merger, dated as of March 29, 2007, among BTP Acquisition Company, LLC
a Delaware limited liability company, IEAC, Inc., a Delaware corporation and a wholly-owned
subsidiary of BTP Acquisition Company, LLC, and the Registrant. Filed as Exhibit 2.1 to the
Registrants Form 8-K dated April 2, 2007, and incorporated by reference herein.2.2
    
    
    Amended and Restated Agreement and Plan of Merger, dated as of June 27, 2007, among BTP
Acquisition Company, LLC a Delaware limited liability company, IEAC, Inc., a Delaware
corporation and a wholly-owned subsidiary of BTP Acquisition Company, LLC, and the Registrant.
Filed as Exhibit 2.1 to the Registrants Form 8-K dated July 2, 2007, and incorporated by
reference herein.3.1
    
    
    Certificate of Incorporation. Filed as Exhibit B of Appendix B of the Registrants Proxy
Statement dated July 29, 2005, as amended by a certificate of correction as reflected in the
Registrants Form 8-K filed on May 15, 2006, each incorporated by reference herein.3.2
    
    
    Bylaws. Filed as Exhibit C of Appendix B of the Registrants Proxy Statement dated July 29,
2005, and incorporated by reference herein.4.1
    
    
    Specimen Common Stock certificate. Filed as Exhibit 4.1 to the Registrants Registration
Statement on Form S-3/A (No. 333-128487), effective October 21, 2005, and to the Registrants
Registration Statement on Form S-3 (No. 333-138701), effective December 13, 2006, and
incorporated by reference herein.4.2
    
    
    Rights Agreement dated as of October 31, 2005, by and between the Registrant and
Computershare Trust Company, Inc. Filed as Exhibit 4.1 to the Registrants Form 8-K/A dated
November 2, 2005, and incorporated by reference herein.4.2
    (a)
    
    Amendment No. 1 to Rights Agreement, dated as of March 29, 2007, by and between the
Registrant and Computershare Trust Company, N.A., a Delaware corporation, as Rights Agent.
Filed as Exhibit 4.1 to the Registrants Form 8-K dated April 2, 2007, and incorporated by
reference herein.4.2
    (b)
    
    Amendment No. 2 to Rights Agreement, dated as of June 25, 2007, by and between the
Registrant and Computershare Trust Company, N.A., a Delaware corporation, as Rights Agent.
Filed as Exhibit 4.1 to the Registrants Form 8-K dated July 2, 2007, and incorporated by
reference herein.
  95




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4.2
    (c)
    
    Amendment No. 3 to Rights Agreement, dated as of February 2, 2008, by and between the
Registrant and Computershare Trust Company, N.A., a Delaware corporation, as Rights Agent.
Filed as Exhibit 4.1 to the Registrants Form 8-K dated February 5, 2007, and incorporated by
reference herein.4.3
    
    
    Securities Purchase Agreement, dated as of August 30, 2006, between the Registrant and the
buyers named therein. Filed as Exhibit 10.1 to the Registrants Form 8-K dated August 31,
2006, and incorporated by reference herein.4.4
    
    
    Registration Rights Agreement, dated as of August 30, 2006, between the Registrant and the
buyers named therein. Filed as Exhibit 10.4 to the Registrants Form 8-K dated August 31,
2006, and incorporated by reference herein.4.5
    
    
    Form of Senior Convertible Note. Filed as Exhibit 10.2 to the Registrants Form 8-K dated
August 31, 2006, and incorporated by reference herein.4.6
    
    
    Form of Warrant. Filed as Exhibit 10.3 to the Registrants Form 8-K dated August 31, 2006,
and incorporated by reference herein.4.7
    
    
    Amendment and Exchange Agreement, dated November 10, 2006, by and between the Registrant and
Portside Growth and Opportunity Fund. Filed as Exhibit 4.6 to the Registrants Registration
Statement on Form S-3 (No. 333-138701), effective December 13, 2006, and incorporated by
reference herein.4.8
    
    
    Warrant Issued Pursuant to Amendment and Exchange Agreement. Filed as Exhibit 4.7 to the
Registrants Registration Statement on Form S-3 (No. 333-138701), effective December 13, 2006,
and incorporated by reference herein.10.1
    
    
    Amended and Restated Loan and Security Agreement, dated as of August 10, 2005, by and between
the Registrant and Wells Fargo Foothill, Inc. Filed as Exhibit 10.1 to the Registrants Form
10-Q for the quarter ended June 30, 2005, and incorporated by reference herein.10.2
    
    
    Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated as of November 3,
2005, by and between the Registrant and Wells Fargo Foothill, Inc. Filed as Exhibit 10.1 to
the Registrants Form 10-Q for the quarter ended September 30, 2005, and incorporated by
reference herein.10.3
    
    
    Amendment No. 2 to Amended and Restated Loan and Security Agreement, dated as of June 23,
2006, by and between the Registrant and Wells Fargo Foothill, Inc. Filed as Exhibit 10.3 to
the Registrants Form 10-K for the fiscal year ended March 31, 2006, and incorporated by
reference herein.10.4
    
    
    Amendment No. 3 to Amended and Restated Loan and Security Agreement, dated as of August 9,
2006, by and between the Registrant and Wells Fargo Foothill, Inc. Filed as Exhibit 10.1 to
the Registrants Form 10-Q for the quarter ended June 30, 2006, and incorporated by reference
herein.10.5
    
    
    Amendment No. 4 to Amended and Restated Loan and Security Agreement, dated as of November 13,
2006, by and between the Registrant and Wells Fargo Foothill, Inc. Filed as Exhibit 10.1 to
the Registrants Form 10-Q for the quarter ended September 30, 2006, and incorporated by
reference herein.10.6
    
    
    Amendment No. 5 to Amended and Restated Loan and Security Agreement, dated as of January 11,
2007, by and between the Registrant and Wells Fargo Foothill, Inc. Filed as Exhibit 10.1 to
the Registrants Form 10-Q for the quarter ended December 31, 2006, and incorporated by
reference herein.
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10.7
    
    
    Amendment No. 6 to Amended and Restated Loan and Security Agreement, dated as of January 11,
2007, by and between the Registrant and Wells Fargo Foothill, Inc. Filed as Exhibit 10.2 to
the Registrants Form 10-Q for the quarter ended December 31, 2006, and incorporated by
reference herein.10.8
    
    
    Warrant, dated March 24, 2003, between the Registrant and Image Investors Co. Filed as
Exhibit 99.2 to the Registrants Form 8-K dated March 26, 2003, and incorporated by reference
herein.10.9
    
    
    Employment Agreement, dated as of April 1, 2004, between the Registrant and Martin W.
Greenwald. Filed as Exhibit 10.42 to the Registrants Form 10-K for the fiscal year ended
March 31, 2004, and incorporated by reference herein.10.9(a)
    
    
    Amendment No. 1 to Employment Agreement, dated as of June 1, 2004, by and between the
Registrant and Martin W. Greenwald. Filed as Exhibit 10.42(a) to the Registrants Form 10-K
for the fiscal year ended March 31, 2004, and incorporated by reference herein.10.9(b)
    
    
    Amendment to Employment Agreement, dated as of March 29, 2007, by and between the
Registrant and Martin W. Greenwald. Filed as Exhibit 10.1 to the Registrants Form 8-K dated
April 2, 2007, and incorporated by reference herein.10.9(c)
    
    
    Amendment to Employment Agreement, dated as of May 31, 2007, by and between the Registrant
and Martin W. Greenwald. Filed as Exhibit 10.1 to the Registrants Form 8-K dated June 1,
2007, and incorporated by reference herein.10.9(d)
    
    
    Amendment to Employment Agreement, dated as of June 29, 2007, by and between the
Registrant and Martin W. Greenwald. Filed as Exhibit 10.1 to the Registrants Form 8-K dated
July 2, 2007, and incorporated by reference herein.10.10
    
    
    Employment Agreement, dated as of April 1, 2004, between the Registrant and David A.
Borshell. Filed as Exhibit 10.43 to the Registrants Form 10-K for the fiscal year ended
March 31, 2004, and incorporated by reference herein.10.10(a)
    
    
    Amendment to Employment Agreement, dated as of March 29, 2007, by and between the
Registrant and David Borshell. Filed as Exhibit 10.2 to the Registrants Form 8-K dated April
2, 2007, and incorporated by reference herein.10.10(b)
    
    
    Amendment to Employment Agreement, dated as of May 31, 2007, by and between the
Registrant and David Borshell. Filed as Exhibit 10.2 to the Registrants Form 8-K dated June
1, 2007, and incorporated by reference herein.10.10(c)
    
    
    Amendment to Employment Agreement, dated as of June 29, 2007, by and between the
Registrant and David Borshell. Filed as Exhibit 10.2 to the Registrants Form 8-K dated July
2, 2007, and incorporated by reference herein.10.11
    
    
    Employment Agreement, dated as of April 1, 2004, between the Registrant and Jeff M. Framer.
Filed as Exhibit 10.44 to the Registrants Form 10-K for the fiscal year ended March 31, 2004,
and incorporated by reference herein.10.11(a)
    
    
    Amendment to Employment Agreement, dated as of March 29, 2007, by and between the
Registrant and Jeff Framer. Filed as Exhibit 10.3 to the Registrants Form 8-K dated April 2,
2007, and incorporated by reference herein.10.11(b)
    
    
    Amendment to Employment Agreement, dated as of May 31, 2007, by and between the
Registrant and Jeff Framer. Filed as Exhibit 10.3 to the Registrants Form 8-K dated June 1,
2007, and incorporated by reference herein.
  97




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10.11(c)
    
    
    Amendment to Employment Agreement, dated as of June 29, 2007, by and between the
Registrant and Jeff Framer. Filed as Exhibit 10.3 to the Registrants Form 8-K dated July 2,
2007, and incorporated by reference herein.10.12
    
    
    Employment Agreement, dated as of January 22, 2007, by and between the Registrant and
Jeffrey Fink. Filed as Exhibit 10.3 to the Registrants Form 10-Q for the quarter ended
December 31, 2006, and incorporated by reference herein.10.13
    
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image and David Borshell.
Filed as Exhibit 10.1 to the Registrants Form 8-K dated April 7, 2008, and incorporated by
reference herein.10.14
    
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image and Jeff M. Framer.
Filed as Exhibit 10.2 to the Registrants Form 8-K dated April 7, 2008, and incorporated by
reference herein.10.15
    
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image and Bill Bromiley.
Filed as Exhibit 10.3 to the Registrants Form 8-K dated April 7, 2008, and incorporated by
reference herein.10.16
    
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image and Derek Eiberg.
Filed as Exhibit 10.4 to the Registrants Form 8-K dated April 7, 2008, and incorporated by
reference herein.10.17
    
    
    Form of Purchase Agreement, dated December 20, 2004, between the Registrant and investors.
Filed as Exhibit 99.1 to the Registrants Form 8-K dated December 21, 2004, and incorporated
by reference herein.10.18
    
    
    Form of Warrant, dated December 20, 2004, between the Registrant and investors. Filed as
Exhibit 99.2 to the Registrants Form 8-K dated December 21, 2004, and incorporated by
reference herein.10.19
    
    
    Image Entertainment, Inc. 2004 Incentive Compensation Plan. Filed as Exhibit A to the
Registrants Notice of Annual Meeting and Proxy Statement dated July 29, 2004, and
incorporated herein by this reference.10.20
    
    
    Egami Media, Inc. 2005 Incentive Compensation Plan. Filed as Exhibit 10.14 to the
Registrants Form 10-K for the fiscal year ended March 31, 2005, and incorporated by reference
herein.10.21
    
    
    Form of Indemnification Agreement, between the Registrant and its directors and officers.
Filed as Exhibit 10.1 to the Registrants Form 8-K dated October 24, 2005, and incorporated by
reference herein.10.22
    
    
    Form of Stock Unit Award Grant Notice and Agreement for the Image Entertainment, Inc. 2004
Incentive Compensation Plan. Filed as Exhibit 10.4 to the Registrants Form 10-Q for the
quarter ended December 31, 2006, and incorporated by reference herein.10.23
    
    
    Form of Option Agreement Amendment, between the Registrant and its optionees. Filed as
Exhibit 10.1 to the Registrants Form 8-K dated March 29, 2006, and incorporated by reference
herein.10.24
    
    
    Form of Support Agreement by and between BTP Acquisition Company, LLC, a Delaware limited
liability company, and certain of the Registrants stockholders. Filed as Exhibit 99.2 to the
Registrants Form 8-K dated April 2, 2007, and incorporated by reference herein.10.25
    
    
    Loan and Security Agreement, dated as of May 4, 2007, by and between Wachovia Capital
Finance Corporation (Western) and the Registrant. Filed as Exhibit 10.21 to the Registrants
Form 10-K dated June 29, 2007, and incorporated by reference herein.10.25(a)*
    
    
    First Amendment to Loan and Security Agreement, dated as of April 28, 2008, by and
between Wachovia Capital Finance Corporation (Western) and the Registrant.
  98




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10.26*
    
    
    Settlement Agreement and Release of Claims, dated as of March 18, 2008, by and between the
Registrant and Jeffrey Fink.10.27*
    
    
    Separation Agreement and General Release of All Claims, dated as of May 15, 2008, by and
between the Registrant and Martin W. Greenwald.10.28
    
    
    Settlement Agreement and Mutual Release, dated as of June 24, 2008, by and between the
Registrant and CT1 Holdings, LLC, Capitol Films US, LLC, ThinkFilm, LLC, BTP Acquisition
Company, LLC, IEAC, Inc. R2D2, LLC and David Bergstein. (Portions of
this exhibit have been omitted pursuant to a request for confidential
treatment.) Filed as Exhibit 10.1 to the Registrants Form 8-K dated
June 24, 2008, and incorporated by reference herein.14.1
    
    
    Code of Ethics Policy, dated November 1, 2003. Filed as Exhibit 10.45 to the Registrants
Form 10-K for the fiscal year ended March 31, 2004, and incorporated by reference herein.21*
    
    
    Subsidiaries of the Registrant.23.1*
    
    
    Consent Letter of BDO Seidman LLP, Independent Registered Public Accounting Firm.31.1*
    
    
    Certification by the President, 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 President, 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 2002.99.1
    
    
    Notice of termination of the Amended and Restated Agreement and Plan of Merger, dated as of
June 27, 2007 by and among Image Entertainment, Inc., BTP Acquisition Company, LLC and IEAC,
Inc., sent by the Company on February 5, 2008. Filed as Exhibit 99.1 to the Registrants Form
8-K dated February 5, 2008, and incorporated by reference herein.99.2
    
    
    Notice of payment, pursuant to the Irrevocable Trust Instructions, dated as of January 14,
2008, by and among Image Entertainment, Inc., BTP Acquisition Company, LLC and Manatt, Phelps
& Phillips, LLP, sent by the Company on February 5, 2008. Filed as Exhibit 99.2 to the
Registrants Form 8-K dated February 5, 2008, and incorporated by reference herein.99.3
    
    
    Complaint filed by Image Entertainment, Inc. in the Court of Chancery of the State of
Delaware on February 11, 2008 (without exhibits). Filed as Exhibit 99.1 to the Registrants
Form 8-K dated February 11, 2008, and incorporated by reference herein.
 *
    
    Exhibit(s) not previously filed with the Securities and Exchange Commission.
    
    Management Contracts, Compensatory Plans or Arrangements.  99




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##### Table of Contents



SCHEDULE II
  Valuation and Qualifying Accounts 
 For the Years Ended March 31, 2008, 2007 and 2006
 Allowance for Doubtful AccountsAdditionsBalance at
    
    
    Charged toBeginning
    
    
    Costs and
    
    
    Amounts
    
    
    Balance at(In thousands)
    
    of Year
    
    
    Expenses
    
    
    Written-Off
    
    
    End of YearFor the Year Ended March 31, 2008:
    
    $
    133
    
    
    $
    152
    
    
    $
    (46
    )
    
    $
    239For the Year Ended March 31, 2007:
    
    $
    177
    
    
    $
    476
    
    
    $
    (520
    )
    
    $
    133For the Year Ended March 31, 2006:
    
    $
    240
    
    
    $
    1,605
    
    
    $
    (1,668
    )
    
    $
    177
 Allowance for Sales ReturnsAdditionsBalance at
    
    
    Charged toBeginning
    
    
    Costs and
    
    
    Amounts
    
    
    Balance at(In thousands)
    
    of Year
    
    
    Expenses
    
    
    Written-Off
    
    
    End of YearFor the Year Ended March 31, 2008:
    
    $
    8,823
    
    
    $
    28,427
    
    
    $
    (28,941
    )
    
    $
    8,309For the Year Ended March 31, 2007:
    
    $
    8,995
    
    
    $
    28,719
    
    
    $
    (28,891
    )
    
    $
    8,823For the Year Ended March 31, 2006:
    
    $
    8,406
    
    
    $
    31,715
    
    
    $
    (31,126
    )
    
    $
    8,995
 Allowance for Deferred Tax AssetsBalance atBeginning
    
    
    
    
    
    
    
    
    
    
    Balance at(In thousands)
    
    of Year
    
    
    Additions
    
    
    Deletions
    
    
    End of YearFor the Year Ended March 31, 2008:
    
    $
    10,034
    
    
    $
    8,999
    
    
    $
    
    
    
    $
    19,033For the Year Ended March 31, 2007:
    
    $
    5,991
    
    
    $
    4,043
    
    
    $
    
    
    
    $
    10,034For the Year Ended March 31, 2006:
    
    $
    5,406
    
    
    $
    585
    
    
    $
    
    
    
    $
    5,991
 Reconciliation to Consolidated Balance Sheets
 At March 31,(In thousands)
    
    2008
    
    
    2007Allowance for Doubtful Accounts:Balance at End of Year
    
    $
    239
    
    
    $
    133Allowance for Sales Returns:Balance at End of Year
    
    
    8,309
    
    
    
    8,823Allowances
    
    $
    8,548
    
    
    $
    8,956
  100




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##### Table of Contents



SIGNATURES
  IMAGE ENTERTAINMENT, INC.
A Delaware corporationDated:  June 30, 2008
    /s/ DAVID BORSHELLDAVID BORSHELLPresident (Principal Executive Officer)  Dated: June 30, 2008
    
    /s/ DAVID BORSHELL

DAVID BORSHELLPresident (Principal Executive Officer)Dated: June 30, 2008
    
    /s/ JEFF M. FRAMERJEFF M. FRAMERChief Financial Officer (Principal Financial and Accounting Officer)Dated: June 30, 2008
    
    /s/ MARTIN W. GREENWALDMARTIN W. GREENWALDChairman of the Board and DirectorDated: June 30, 2008
    
    /s/ DAVID CORIATDAVID CORIATDirectorDated: June 30, 2008
    
    /s/ IRA EPSTEINIRA EPSTEINDirectorDated: June 30, 2008
    
    /s/ GARY HABERGARY HABERDirectorDated: June 30, 2008
    
    /s/ M. TREVENEN HUXLEYM. TREVENEN HUXLEYDirectorDated: June 30, 2008
    
    /s/ ROBERT J. MCCLOSKEYROBERT J. MCCLOSKEYDirector
  101




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.25
    (a)*
    
    First Amendment to Loan and Security Agreement, dated as of April 28, 2008, by and
between Wachovia Capital Finance Corporation (Western) and the Registrant.10.26
    *
    
    Settlement Agreement and Release of Claims, dated as of March 18, 2008, by and between the
Registrant and Jeffrey Fink.10.27
    *
    
    Separation Agreement and General Release of All Claims, dated as of May 15, 2008, by and
between the Registrant and Martin W. Greenwald.21
    *
    
    Subsidiaries of the Registrant.23.1
    *
    
    Consent Letter of BDO Seidman LLP, Independent Registered Public Accounting Firm.31.1
    *
    
    Certification by the President, 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 President, 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.
    
    Management Contracts, Compensatory Plans or Arrangements.  102