##### 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, 2009
 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
(State or other jurisdiction of incorporation)
    
    84-0685613
(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
Preferred Stock Purchase Rights
    
    The NASDAQ Stock Market LLC
 None
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(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, 2009
 TABLE OF CONTENTS
  
 PART I
    
    
    
    
    3ITEM 1.
    
    Business
    
    
    4ITEM 1A.
    
    Risk Factors
    
    
    22ITEM 1B.
    
    Unresolved Staff Comments
    
    
    33ITEM 2.
    
    Properties
    
    
    33ITEM 3.
    
    Legal Proceedings
    
    
    34ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34PART II
    
    
    
    
    35ITEM 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    35ITEM 6.
    
    Selected Financial Data
    
    
    37ITEM 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    39ITEM 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    59ITEM 8.
    
    Financial Statements and Supplementary Data
    
    
    60ITEM 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    94ITEM 9A(T).
    
    Controls and Procedures
    
    
    94ITEM 9B.
    
    Other Information
    
    
    95PART III
    
    
    
    
    96ITEM 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    96ITEM 11.
    
    Executive Compensation
    
    
    96ITEM 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    96ITEM 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    96ITEM 14.
    
    Principal Accountant Fees and Services
    
    
    96PART IV
    
    
    
    
    97ITEM 15.
    
    Exhibits and Financial Statement Schedules
    
    
    97SIGNATURES
    
    
    
    
    103Exhibit 3.1Exhibit 10.13Exhibit 10.14Exhibit 10.15Exhibit 10.21Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 32.1




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##### Table of Contents



PART I
 FORWARD-LOOKING STATEMENTS
  
    
    the report of our independent registered public accounting firm expresses
substantial doubt about our ability to continue as a going concern;
    
    our liquidity substantially depends on our ability to borrow against our
revolving line of credit, which may not have any or sufficient availability for us
to operate our business;
    
    our history of losses and the potential additional losses;
    
    our limited working capital and limited access to financing, which may inhibit us
from acquiring desirable programming or continuing as a going concern;
    
    our need to renegotiate or refinance future payments on our remaining senior
convertible indebtedness in the near term, which renegotiation may not be successful
and refinancing may not be available on favorable terms, if at all, which may
trigger defaults under our other debt agreements, create liquidity issues and
prevent us from continuing as a going concern;
    
    our need to pay past due amounts to our exclusive DVD manufacturer and exclusive
provider of warehouse and distributor services, which if not paid, could result in a
termination of our replication and fulfillment agreement thereby adversely impacting
our business;
    
    our inability to secure DVD distribution rights due to current liquidity issues,
which may adversely impact our business, results of operations and financial
condition;
    
    ongoing current economic slowdowns effect on consumers and retailers
willingness to purchase our products;
    
    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;
    
    our high concentration of sales to relatively few customers and titles;
    
    our inability to acquire cast-driven finished feature film content or sell
feature film content;
    
    changing public and consumer taste, which may among other things, affect the
entertainment and consumer products businesses generally;
    
    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;
    
    decreasing retail shelf space for our industry that may impact our business;
    
    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;
    
    technological developments that may affect the distribution of our products or
create new risks to our ability to protect our intellectual property;
    
    the ability of our common stock to continue trading on NASDAQ;
    
    legal and regulatory developments that may affect the protection of intellectual
property; and
    
    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.
 Image Entertainment, Inc.
    
    3




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##### Table of Contents



ITEM 1. BUSINESS
 Overview
  ®
  
    
    Feature Films
    
    Comedy
    
    Music concerts
    
    Urban
    
    Theatre
    
    Documentaries
    
    Theatrical catalogue films
    
    Independent films
    
    Foreign films
    
    Youth culture/lifestyle
    
    Television
    
    Gospel
  
    
    Albums
    
    Compilation CDs
    
    Stand-up comedy programs
    
    Broadway original cast recordings
    
    Audio recordings from our  live concert event DVDs
  
    
    Approximately 3,200 exclusive DVD titles
    
    Approximately 340 CD titles
    
    Digital rights to
 
    
    Over 2,000 video programs
    
    Over 300 audio titles
 
    
    Containing more than 5,100 individual tracks
   4
    
    Image Entertainment, Inc.




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Fiscal Years EndedMarch 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2007DVD
    
    $
    107,776
    
    
    
    82.5
    %
    
    $
    87,522
    
    
    
    91.4
    %
    
    $
    90,023
    
    
    
    90.3
    %Blu-ray
    
    
    8,090
    
    
    
    6.2
    
    
    
    508
    
    
    
    0.5
    
    
    
    220
    
    
    
    0.2CD
    
    
    3,152
    
    
    
    2.4
    
    
    
    2,145
    
    
    
    2.2
    
    
    
    4,469
    
    
    
    4.5Sublicense
    
    
    1,900
    
    
    
    1.4
    
    
    
    2,142
    
    
    
    2.2
    
    
    
    2,310
    
    
    
    2.3Digital
    
    
    4,198
    
    
    
    3.2
    
    
    
    2,148
    
    
    
    2.3
    
    
    
    1,214
    
    
    
    1.2Broadcast
    
    
    4,942
    
    
    
    3.8
    
    
    
    1,144
    
    
    
    1.2
    
    
    
    924
    
    
    
    0.9Other*
    
    
    633
    
    
    
    0.5
    
    
    
    209
    
    
    
    0.2
    
    
    
    591
    
    
    
    0.6TOTAL
    
    $
    130,691
    
    
    
    100
    %
    
    $
    95,818
    
    
    
    100
    %
    
    $
    99,751
    
    
    
    100
    %
 *
    
    Other includes theatrical, non-theatrical and DVD audio revenue streams. Image Entertainment, Inc.
    
    5




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##### Table of Contents



Partial
List of Titles Released in Fiscal 2009
 DVD Titles
 Features/Other:
 Before the Devil Knows Youre Dead
Then She Found Me
Stuck
The Walker
The Secret
Dead Fish
Nanking
Blindsight
In the Electric Mist
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
Careless
The Tracey Fragments
This is Not a Test
Roman Polanski: Wanted & Desired
Six Reasons Why
Autumn Hearts: A New Beginning
Peaches
Walker Payne
Re-cycle
Taxi to the Dark Side
The Riddle
Che  AKA Che Guevara
 Comedy:
 Kevin Downey, Jr.: Im Not Gay, But Dont Stop
Jeff Dunham: Christmas Special
Comedy Jump Off: Volume 3: 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?
Louis CK: Chewed Up
Craig Ferguson: A Wee Bit O Revolution
Aisha Tyler is Lit: Live at the Fillmore
 TV:
 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: Collection 1 Season 2
Deadliest Catch: Season 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...)
The Who: At Kilburn: 1977
k.d. lang: Live in London with the BBC Concert Orchestra
 Urban:
 Ghostride the Whip
Love & Other Four Letter Words
Death Toll  Life & Lyrics
Im Through with White Girls
South of Pico
Soul Mate
Sugarhouse
 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)
 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
White Dog
 6
    
    Image Entertainment, Inc.




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Partial List of Projected Titles for Release in Fiscal 2010
 DVD Titles
 Features/Other:
 Management
The Other Man
Powder Blue
Edge of Love
Ramen Girl
The Last Word
Lost in Austen
Forest of Death
Hearts of War
The Boxer
Incendiary
Body Armour
Phoebe in Wonderland
Resolved
Unknown Woman
$5 Dollars a Day
My Sexiest Year
Everest
The Echo
Bald
Narrows
Franklyn
Bridge to Nowhere
Alien Trespass
Adam Resurrected
American Violet
Bigfoot
Seamstress
The Crew
 Urban:
 I Do...I Did
Truth Hall
The Greatest Song
Stick Up Kids
Theres a Stranger in my House
Kiss and Tail: Hollywood Jump Off
2 Turntables and a Microphone: The Life and Death of Jam Master Jay
Applause for Miss E
Mothers Prayer
 Criterion Branded:
 Science is Fiction: 23 Films by Jean Painleve
The Hit
Empire of Passion
In the Realm of the Senses
Eclipse Series 16: Alexander Kordas Private Lives
Wise Blood
Friends of Eddie Coyle
Pigs, Pimps and Prostitutes: 3 Films by Shohei Imamura
Wings of Desire
 Comedy:
 Greg Behrendt: Is That Guy from That Thing
Charlie Murphy: I Will Not Apologize
Adam Ferrara: Funny As Hell
Ralphie May: Austin-tatious
Terry Fator: Live from Las Vegas
Michael Loftus: Youve Changed
 TV:
 One Way Out
Man vs. Wild: Season 3
Time Warp
Survivorman: Season 3
Extreme Engineering: Collection 2
Mythbusters: Collection 4
The Future: A 360 Degree View
Iditarod: The Toughest Race on Earth
Deadliest Catch: Season 4
Wreckreation Nation: Season 1
Ghost Hunters: Military Investigations
Ghost Hunters: Fans Favorite Investigations
 Music-Related:
 Engelbert Humperdinck: Greatest Performances: 
1966-1977
Taylor Hicks: Whomp at the Warfield
Yes: Keys to Ascension
Starting Line: Somebodys Going to Miss Us
 Image Entertainment, Inc.
    
    7




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Financial Information About Geographic Areas
  Fiscal 2009
    
    
    Fiscal 2008
    
    
    Fiscal 2007United States
    
    $
    125,345,000
    
    
    $
    91,440,000
    
    
    $
    94,039,000All Foreign Countries1
    
    
    5,346,000
    
    
    
    4,378,000
    
    
    
    5,712,000Total
    
    $
    130,691,000
    
    
    $
    95,818,000
    
    
    $
    99,751,000
 1
    
    Canadian-generated net revenues of $3,263,000, $2,514,000 and $3,038,000, included in
the preceding numbers for fiscal 2009, 2008 and 2007, respectively, are a component of the domestic
business segment net revenues for each of those years. See
 Business Segments
  
    
    Domestic (U.S. and Canada)
    
    Digital
    
    International
    Fiscal Years Ended
    
    
    
    
    
    
    Fiscal Years EndedMarch 31,
    
    
    
    
    
    
    March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    % ChangeNet revenues:Domestic
    
    $
    124,410
    
    
    $
    91,806
    
    
    
    35.5
    %
    
    $
    91,806
    
    
    $
    95,863
    
    
    
    (4.2
    )%Digital
    
    
    4,198
    
    
    
    2,148
    
    
    
    95.4
    
    
    
    2,148
    
    
    
    1,214
    
    
    
    76.9International
    
    
    2,083
    
    
    
    1,864
    
    
    
    11.7
    
    
    
    1,864
    
    
    
    2,674
    
    
    
    (30.3
    )Consolidated
    
    $
    130,691
    
    
    $
    95,818
    
    
    
    36.4
    %
    
    $
    95,818
    
    
    $
    99,751
    
    
    
    (3.9
    )%
 See
  8
    
    Image Entertainment, Inc.




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Domestic (U.S. and Canada)
 DVD Release Report DVD Release Report
 Percentage of TotalTotal Number
    
    Number of
    
    Number of TitlesType of DVD Content
    
    of DVD Titles
    
    Image Titles
    
    Released by ImageMusic
    
    
    12,259
    
    
    
    622
    
    
    
    5.1
    %Special Interest
    
    
    25,666
    
    
    
    602
    
    
    
    2.3
    %Theatrical Catalog (pre-1997)
    
    
    13,080
    
    
    
    501
    
    
    
    3.8
    %Direct to DVD
    
    
    10,527
    
    
    
    492
    
    
    
    4.7
    %Foreign Language (including distributed lines)
    
    
    9,272
    
    
    
    325
    
    
    
    3.5
    %Television Programming
    
    
    5,983
    
    
    
    232
    
    
    
    3.9
    %All Other
    
    
    23,461
    
    
    
    433
    
    
    
    1.8
    %Total Releases  Cumulative through June 12, 2009
    
    
    100,248
    
    
    
    3,207
    
    
    
    3.2
    %
 Source: DVD Release Report Revised June 11, 2009.
  
    
    the ability to entertain people at home for a reasonable price at convenient times;
    
    the opportunity to choose from a broad selection of programming;
    
    the ability to select specific scenes quickly from interactive DVD menus; and
    
    the audio and video quality of the DVD format.
  Exclusive Acquisition.
 
    
    independent content suppliers;
    
    producers;
    
    music artists;
    
    record labels;
    
    artist management and talent agencies; and
    
    foreign sales companies.
   
    
    First, we deduct our negotiated distribution fee (varies by agreement based on
the size of the advance, expected demand for the title and level of risk);
    
    Next, we deduct and recoup all of our costs and expenses such as marketing,
manufacturing, production and shipping costs;
  Image Entertainment, Inc.
    
    9




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
    
    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
sometimes divided between us and the content supplier.
    Focus
on DVD Distribution of Cast-Driven Feature Films.
  Theatrical Distribution .
 Management
   10
    
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
    
    to empower us to more aggressively negotiate our acquisitions for more high-profile
feature films;
    
    to increase the home video and broadcast market value of the title;
    
    in some instances turn a profit for us solely on the theatrical side; and
    
    to act as a lightning rod for film producers looking for alternative distribution
opportunities.
 The Other Man
 Mining of Images Library.
 Participation in the High-Definition DVD Market. Shark Week: The Great Bites Collection Magic of Flight The Seventh Seal Kagemusha Management, Powder Blue Edge of Love
   Additional Value-Added Services.
 
    
    creation of packaging;
    
    DVD authoring and compression;
    
    menu design;
    
    video master quality control;
    
    manufacturing;
    
    marketing;
    
    sales;
    
    music clearance;
    
    warehousing;
    
    distribution; and
    
    for some titles, the addition of enhancements such as:
 
    
    multiple audio tracks;
    
    commentaries;
    
    foreign language tracks;
    
    behind-the-scenes footage;
    
    interviews; and
  Image Entertainment, Inc.
    
    11




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
    
    discographies.
  Criterion Distribution Agreement.
 Distribution Services.
 Manufacturing.
 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; and
    
    bulletins featuring new releases and catalogue promotions.
   12
    
    Image Entertainment, Inc.




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www.image-entertainment.com
 Customers.
  
    
    traditional retailers;
    
    specialty retailers;
    
    rental customers
    
    Internet retailers;
    
    wholesale distributors; and
    
    alternative distribution:
 
    
    direct-to-consumer print catalogs;
    
    direct response campaigns;
    
    subscription service/club sales;
    
    home shopping television channels;
    
    oother non-traditional sales channels;
    
    kiosks; and
    
    sub-distributors.
  
    
    Amazon.com, Inc.
    
    Barnes & Noble
    
    Best Buy Co., Inc.
    
    Borders Group Inc.
    
    Costco
    
    Infinity Resources (Critics Choice Video)
    
    Target
    
    Wal-Mart (through Anderson Merchandisers)
  
    
    Alliance Entertainment LLC (AEC)
    
    Baker & Taylor
    
    E1 Entertainment
    
    Ingram Entertainment, Inc.
    
    VPD
  
    
    Blockbuster Inc.
    
    DVD Play
    
    Family Video
    
    Hastings
    
    Movie Gallery, Inc. (including Hollywood Video)
    
    Netflix, Inc.
    
    Redbox
    
    Video Warehouse
   Image Entertainment, Inc.
    
    13




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See
  Backlog.
 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
 Digital
   
    
    Download-to-rent
 
    
    A la carte download-to-rent
    
    Subscription rental
    
    Ad-supported rental
 
    
    Download-to-own, (EST)
   14
    
    Image Entertainment, Inc.




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
    
    Amazon.com (audio and video)
    
    Bell Canada (video)
    
    Blockbuster.com (video)
    
    Emusic.com (audio)
    
    Hudson (mobile audio and mobile video)
    
    Hulu.com (video)
    
    Liquid Digital (audio)
    
    iTunes (audio and video, ringtones)
    
    Medianet, Inc. (audio)
    
    mSpot (mobile audio and mobile video)
    
    Movielink (video)
    
    Napster (audio)
    
    Netflix.com (video)
    
    Overdrive (video)
    
    Rhapsody (audio)
    
    YouTube.com (video)
  Image Entertainment, Inc.
    
    15




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International
  Broadcast (Operations Bifurcated between Domestic and International Business Segments)
   Worldwide Television
 
 Worldwide PPV and VOD .
  16
    
    Image Entertainment, Inc.




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##### Table of Contents



Worldwide Non-theatrical.
 Worldwide Hotel/ Motel For Performance Properties .
 Competition
  
    
    Major Motion Picture Studios
 
    
    Sony Pictures
    
    Disney
    
    Fox
    
    Paramount
    
    Universal
    
    Warner Brothers
 
    
    Mini-Majors
 
    
    Lions Gate
    
    Starz/Anchor Bay
 
    
    Major Music Labels
 
    
    Sony
    
    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
   Image Entertainment, Inc.
    
    17




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Competition for Content
      
    
    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;
  18
    
    Image Entertainment, Inc.




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##### Table of Contents




    
    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
          Image Entertainment, Inc.
    
    19




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Competition for Retailer Open to Buy Dollars
   Increasing Competition
   Industry Trends
    20
    
    Image Entertainment, Inc.




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Proposed Mergers
 See
 See
 Trademarks
  
    
    Image
    
    Image Entertainment
    
    the Image Entertainment logo
    
    Image Music Group
    
    the Egami Media logo
    
    Image Entertainment Japan
    
    Home Vision HVE Entertainment
   Employees
   Image Entertainment, Inc.
    
    21




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##### Table of Contents



Seasonality
  
    
    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.
 Available Information
 www.image-entertainment.com
 
 ITEM 1A. RISK FACTORS
  Risks Relating to Our Business
 The report of our independent registered public accounting firm contains an explanatory
paragraph expressing substantial doubt about our ability to continue as a going concern.
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Our liquidity substantially depends on our ability to borrow against our revolving line of
credit.
 Our credit facility contains covenants that may limit the way we conduct business.
 
    
    incur or guarantee additional indebtedness;
    
    pay dividends and make other distributions;
    
    pre-pay any subordinated indebtedness;
    
    make investments and other restricted payments;
    
    make capital expenditures;
    
    make acquisitions; and
    
    sell assets.
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##### Table of Contents



We
have a history of losses and may incur additional losses and have limited working capital and limited access to financing. We will need additional
funding to continue acquiring desirable programming or to continue as
a going concern.
  We rely on a third-party to manufacture, warehouse and distribute our products and are
significantly past due the related agreements payment terms. If this service provider terminates
our replication and fulfillment agreement upon notice of default by us, our business would be
adversely affected.
 If we are unable to renegotiate or refinance the payment terms under our senior convertible
note, we will trigger cross-defaults under our other debt agreements, face liquidity issues and be
unable to continue as a going concern.
 We generate significant amounts of net revenue for programming from one content supplier. If
this content provider terminates our exclusive distribution agreement due to a default by us or
otherwise, our business would be adversely impacted.
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The current economic slowdown has and may continue to adversely impact our business, results
of operations and financial condition.
 A further tightening of the credit markets may have an adverse effect on our ability to obtain
financing.
 Failure to secure DVD distribution rights may adversely impact our business, results of
operations and financial condition. see
 We have a high concentration of sales to relatively few customers, the loss of which may
adversely impact our liquidity, business, results of operations and financial condition.
  Our high concentration of sales to relatively few customers may result in significant
uncollectible accounts receivable exposure, which may adversely impact our liquidity, business,
results of operations and financial condition.
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##### Table of Contents



We have a high concentration of sales from relatively few titles, which may impact future net
revenues if we do not acquire additional titles.
 We
may not be successful in acquiring cast-driven finished feature film content or selling
feature film content, which could adversely impact our business, results of operations and
financial condition.
 Our inability to gauge and predict the commercial success of our programming could adversely
impact our business, results of operations and financial condition.
 Our current DVD and CD genre revenue concentrations may become unpopular with our retail
customers and end-consumers, which may adversely impact our business.
 Inventory obsolescence may adversely impact our business, results of operations and financial
condition.
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We may be unable to recoup advances paid to secure exclusive distribution rights.
 Risks associated with distributing our programming internationally may adversely impact our
business, results of operations and financial condition.
 
    
    cancellation or renegotiation of contracts;
    
    changes in laws and policies affecting international trade (including taxes);
    
    credit risk;
    
    fluctuating foreign exchange rates and controls;
    
    civil strife;
    
    acts of war;
    
    guerilla activities;
    
    insurrection;
    
    terrorism;
    
    changing retailer and consumer tastes and preferences with regard to our
programming;
    
    differing degrees of protection of our intellectual property;
    
    cultural barriers; and
    
    potential instability of foreign economies and governments.
  Inability to maintain relationships with our program suppliers and vendors may adversely
impact our business.
 
    
    we are unable to renew our existing agreements as they expire;
    
    our current program suppliers do not continue to support the DVD format in
accordance with our exclusive agreements;
    
    our current content suppliers do not continue to license titles to us on the current
terms or on terms favorable to us; or
    
    we are unable to establish new beneficial supplier relationships to ensure
acquisition of exclusive titles in a timely and efficient manner.
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We may not be able to keep pace with technological advances, which may adversely impact our
business, results of operations and financial condition.
 Failure by third parties to promote our programming may adversely impact our business.
 An increase in product returns may adversely impact our business, results of operations and
financial condition.
 We may not possess satisfactory rights in our properties, which may adversely impact our
business, results of operations and financial condition.
 Protecting and defending against intellectual property claims may have a material adverse
impact on our business, results of operations and financial condition.
   The full exploitation of our rights requires us to conduct business in areas where our
expertise is limited.
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We depend on key and highly skilled personnel to operate our business, and if we are unable to
retain our current personnel or hire additional personnel our ability to develop and successfully
market our business could be harmed.
 The occurrence of uninsured events may adversely impact our business, results of operations
and financial condition.
 We face direct and indirect foreign currency exchange risk.
 We depend on third-party shipping and fulfillment companies for the delivery of our products.
If these companies experience operational difficulties or disruptions, our business could be
adversely impacted.
 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.
  Image Entertainment, Inc.
    
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Risks Relating to Our Industry
 The standard DVD format has matured.
 Decreasing
retail prices for DVDs may negatively impact our revenues and gross
profit margins.
 Decreasing retail shelf space for our industry may limit sales of our programming, which may
adversely impact our business, results of operations and financial condition
 see
  Illegal piracy may reduce our revenues and adversely impact our results of operation.
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If DVD cannot compete successfully with other formats of home entertainment, our revenues may
be adversely impacted.
 The motion picture industry is rapidly evolving, and recent trends have shown that audience
response to both traditional and emerging distribution channels is volatile and difficult to
predict.
  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.
 We may be delisted from The NASDAQ Stock Market if we do not satisfy continued listing
requirements.
   Image Entertainment, Inc.
    
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If our common stock were delisted from The NASDAQ Stock Market, you may find it difficult to
dispose of your shares.
  If our common stock were delisted from The NASDAQ Stock Market, the delisting would trigger
default of a listing requirement covenant under our senior convertible note.
 Any future sales of equity may significantly impact the market price of our common stock.
 If we are unable to conclude that our internal control over financial reporting is effective,
our stock price may be negatively impacted.
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Certain provisions in our charter documents and Delaware law, as well as our stockholder
rights plan, could discourage takeover attempts and lead to management entrenchment.
 
    
    no cumulative voting in the election of directors, which limits the ability of
minority stockholders to elect director candidates;
    
    a classified board of directors with three-year staggered terms, which may delay the
ability of stockholders to change the membership of a majority of our board of
directors;
    
    the exclusive right of our board of directors to elect a director to fill any
vacancies, which prevents stockholders from being able to fill vacancies on our board
of directors;
    
    the ability of our board of directors to determine to issue shares of preferred
stock and to determine the price and other terms of those shares, including preferences
and voting rights, without stockholder approval, which could be used to significantly
dilute the ownership of a hostile acquirer;
    
    a prohibition on stockholder action by written consent or electronic transmission,
which forces stockholder action to be taken at an annual or special meeting of our
stockholders;
    
    the requirement that, except as required by law and subject to any rights of holders
of preferred stock, a special meeting of stockholders may be called only by the
chairman of the board of directors, the chief executive officer, the president and the
secretary, in each case pursuant to a resolution of the board of directors, which may
delay the ability of our stockholders to force consideration of a proposal or to take
action, including the removal of directors; and
    
    advance notice procedures that stockholders must comply with in order to nominate
candidates to our board of directors or to propose matters to be acted upon at a
stockholders meeting, which may discourage or deter a potential acquirer from
conducting a solicitation of proxies to elect the acquirers own slate of directors or
otherwise attempting to obtain control of us.
   
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   Image Entertainment, Inc.
    
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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
    
    a proposal to adopt the Agreement and Plan of Merger, dated as of November 20, 2008,
among Nyx Acquisitions, Inc., a Delaware corporation, The Conceived Group, Inc., a
Delaware corporation and a direct wholly owned subsidiary of Nyx, and Image, pursuant
to which, among other things, (i) The Conceived Group, Inc. will merge with and into
Image upon the terms and subject to the conditions set forth in the merger agreement,
with Image surviving the merger as a majority-owned subsidiary of Nyx, and (ii) upon
consummation of the merger, each issued and outstanding share of Image common stock
will be converted into the right to receive $2.75 per share in cash, without interest
(Proposal 1), and
    
    a proposal to adjourn or postpone the special meeting to a later date to solicit
additional proxies if there are insufficient votes at the time of the meeting to adopt
the merger agreement (Proposal 2).
  VOTES FOR
    
    VOTES AGAINST
    
    ABSTENTIONS
    
    BROKER NON-VOTESProposal 1
    
    
    13,888,173
    
    
    
    44,045
    
    
    
    4,565
    
    
    Proposal 2
    
    
    13,733,931
    
    
    
    190,851
    
    
    
    12,001
    
    
    
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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Information
 ®
 Fiscal Year Ended March 31, 2009
    
    High
    
    LowQuarter ended June 30, 2008
    
    $
    1.850
    
    
    $
    0.800Quarter ended September 30, 2008
    
    $
    1.290
    
    
    $
    0.750Quarter ended December 31, 2008
    
    $
    2.150
    
    
    $
    0.410Quarter ended March 31, 2009
    
    $
    2.390
    
    
    $
    0.730
 Fiscal Year Ended March 31, 2008
    
    High
    
    LowQuarter ended June 30, 2007
    
    $
    4.350
    
    
    $
    4.130Quarter ended September 30, 2007
    
    $
    4.390
    
    
    $
    3.910Quarter ended December 31, 2007
    
    $
    4.500
    
    
    $
    3.310Quarter ended March 31, 2008
    
    $
    3.800
    
    
    $
    1.040
 Stockholders
  Dividend Policy
  Stock Performance Graph
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##### Table of Contents



COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG IMAGE ENTERTAINMENT, INC., THE NASDAQ COMPOSITE INDEX,
AN OLD PEER GROUP AND A NEW PEER GROUP
 
  3/04
    
    3/05
    
    3/06
    
    3/07
    
    3/08
    
    3/09Image Entertainment, Inc.
    
    
    100.00
    
    
    
    165.76
    
    
    
    112.12
    
    
    
    126.97
    
    
    
    50.91
    
    
    
    39.09NASDAQ Composite
    
    
    100.00
    
    
    
    101.46
    
    
    
    120.54
    
    
    
    127.18
    
    
    
    119.09
    
    
    
    78.60Old Peer Group
    
    
    100.00
    
    
    
    133.38
    
    
    
    93.04
    
    
    
    100.90
    
    
    
    70.11
    
    
    
    32.02New Peer Group
    
    
    100.00
    
    
    
    131.11
    
    
    
    83.17
    
    
    
    103.92
    
    
    
    70.11
    
    
    
    28.31
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ITEM 6.
    
    SELECTED FINANCIAL DATA
   Years Ended March 31,(In thousands, except per share data)
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005Statement of Operations Data:Net revenues
    
    $
    130,691
    
    
    $
    95,818
    
    
    $
    99,751
    
    
    $
    111,902
    
    
    $
    118,383Operating costs and expenses
    
    
    134,341
    1
    
    
    115,488
    3
    
    
    109,885
    4
    
    
    111,378
    5
    
    
    112,380
    6Earnings (loss) from operations
    
    
    (3,650
    )
    
    
    (19,670
    )
    
    
    (10,134
    )
    
    
    524
    
    
    
    6,003Interest expense, net
    
    
    3,320
    
    
    
    3,345
    
    
    
    2,434
    
    
    
    707
    
    
    
    665Other expense (income)
    
    
    (5,205
    )2
    
    
    (4
    )
    
    
    
    
    
    
    (3
    )
    
    
    49Earnings (loss) from operations
before income taxes
    
    
    (1,765
    )
    
    
    (23,011
    )
    
    
    (12,568
    )
    
    
    (180
    )
    
    
    5,289Income tax expense
    
    
    39
    
    
    
    42
    
    
    
    43
    
    
    
    27
    
    
    
    162
    7Net earnings (loss)
    
    $
    (1,804
    )
    
    $
    (23,053
    )
    
    $
    (12,611
    )
    
    $
    (207
    )
    
    $
    5,127Earnings (loss) per share:Basic
    
    $
    (.08
    )
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )
    
    $
    .27Diluted
    
    $
    (.08
    )
    
    $
    (1.06
    )
    
    $
    (.59
    )
    
    $
    (.01
    )
    
    $
    .26Weighted average shares outstandingBasic
    
    
    21,856
    
    
    
    21,734
    
    
    
    21,482
    
    
    
    21,273
    
    
    
    19,100Diluted
    
    
    21,856
    
    
    
    21,734
    
    
    
    21,482
    
    
    
    21,273
    
    
    
    19,912
 1
    
    Includes (i) a $4.8 million fourth quarter charge in accelerated amortization and fair
value write down of film assets primarily related to the continuing contraction of the DVD
marketplace and related contraction in available shelf space for previously released
programming, (ii) $1.1 million in legal, investment banking and other expenses associated with
negotiations and the eventual termination of the proposed merger agreement between us and Nyx
Acquisitions, Inc., (iii) a $499,000 charge for the value of the severance granted to our
former President who left our employ in March 2009 and (iv) a $439,000 net charge for
severance related to our February 2009 cost reduction plan.2
    
    Includes (i) $2.0 million received pursuant to a settlement agreement and mutual
release relating to a merger agreement and distribution agreement,
(ii) $1.0 million received in non-refundable consideration for
the extension of the closing date of a merger
agreement ultimately terminated in April 2009, (iii) $2.4 million pursuant to the termination
of an agreement with a content supplier, and (iv) a $209,000 noncash expense for the change in
fair value of a warrant liability and the embedded derivatives within our convertible note
payable.3
    
    Includes (i) a $10.4 million fourth quarter charge in accelerated amortization and
fair value write down 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, (iii) a $979,000 charge for the value of the retirement package
to our former Chief Executive Officer, 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).4
    
    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, (iii) $634,000 in fees and expenses associated with the Lions Gate
proxy  Image Entertainment, Inc.
    
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##### Table of Contents



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 of MTS (Tower Records).5
    
    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.6
    
    Includes a $499,000 non-recurring noncash credit related to the discontinuation of our
international distribution of DVDs through sub-distributors.7
    
    Income tax expense reflects the use of net operating losses against taxable income. March 31,(In thousands)
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005Balance Sheet Data:Total assets
    
    $
    84,713
    
    
    $
    84,370
    
    
    $
    89,711
    
    
    $
    86,875
    
    
    $
    73,456Long-term debt and
capital leases,
excluding current
portion and debt
discount
    
    
    5,708
    
    
    
    16,437
    
    
    
    22,151
    
    
    
    
    
    
    
    Net stockholders equity
    
    
    5,497
    
    
    
    7,226
    
    
    
    29,580
    
    
    
    41,643
    
    
    
    41,833
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
contains forward-looking statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. As described at the beginning of this Annual
Report under the heading Forward-Looking Statements, our actual results could differ materially
from those anticipated in these forward-looking statements. Factors that could contribute to such
differences include those discussed elsewhere in this Annual Report under the heading
Forward-Looking Statements and in the section entitled Risk Factors. You should not place
undue reliance on these forward-looking statements, which apply only as of the date of this Annual
Report. Except as may be required under federal law, we undertake no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes available or other
events occur
 You should read the following discussion and analysis in conjunction with our consolidated
financial statements and related footnotes included in Item 8 of this Annual Report.
 Overview
 General
  
    
    domestic (which consists of the United States and Canada);
    
    digital; and
    
    international
 see
 Revenue Sources
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Cost Structure
     
    
    DVD replication;
    
    packaging;
    
    advertising, promotion, and market development funds provided to retail
customers;
    
    domestic shipping costs from self-distribution of exclusive content;
    
    personnel; and
    
    music publishing on exclusive music-related DVD and CD titles.
  Fiscal 2009 Highlights
 
    
    Consolidated net revenues increased 36% to $130,691,000 for fiscal 2009, from
$95,818,000, for fiscal 2008.
 
    
    Digital distribution revenues increased 95% to $4,198,000, from $2,148,000 in fiscal 2008.
    
    Domestic DVD revenues increased 23% to $107,776,000, from $87,522,000 in fiscal 2008.
    
    Domestic Blu-ray revenues increased to $8,090,000, from $508,000 in fiscal 2008.
    
    Broadcast revenues increased 332% to $4,942,000, from $1,144,000 in fiscal 2008.
 
    
    Consolidated gross profit margins were 21.0% for fiscal 2009, compared to 10.8% for fiscal 2008.
 
    
    The gross profit margins in fiscal 2009 include a $4.8 million
fourth quarter charge representing accelerated amortization and fair value write
downs, down from a fourth quarter fiscal 2008 charge for accelerated
amortization and fair value write downs of $10.4 million. See 
Trends Impacting Our Business below. The fourth quarter fiscal 2009 charge
negatively impacted fiscal 2009 gross margins by 3.7%, down from 10.9% for the
fourth quarter fiscal 2008 charge.
 
    
    Consolidated selling expenses approximated 10.9% of net revenues for each of fiscal
2009 and 2008.
    
    Consolidated general and administrative expenses were $16,879,000 for fiscal 2009,
down 11.2% from $19,014,000 for fiscal 2008. See Results of
OperationsGeneral and Administrative Expense below.
  40
    
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
    
    Noncash interest expense for fiscal 2009 associated with our manufacturing advance
and convertible note totaled $1,461,000, down 12.3% from $1,666,000 in fiscal 2008.
    
    Our net loss for fiscal 2009 was $1,804,000 ($.08 per diluted share), compared to a
net loss of $23,053,000 ($1.06 per diluted share) for fiscal 2008.
    
    We attempted to merge with Nyx Acquisitions, Inc., but the merger agreement was
terminated due to Nyxs inability to obtain the necessary financing to consummate the
merger. See Recent EventsMerger Agreement Termination below.
    
    We received a $2 million settlement in connection with the June 2008 settlement of
our disputes with BTP Acquisition Company, LLC. The disputes related to a terminated
merger agreement and a content distribution agreement.
    
    We began to execute a strategic realignment plan and cost reduction plan in our
fourth quarter. See Liquidity and Capital Resources  Liquidity 
Strategic Realignment and Cost Reduction Plan below.
    
    In March 2009, we announced the departure of then-President, David Borshell. Mr.
Borshell was replaced by Mr. Jeff Framer, who has been with us for 19 years and served
as our Chief Financial Officer for the past 15 years. Rick Eiberg, who served as
Executive Vice President, Operations and Chief Technology Officer since April 2008, was
promoted to Chief Operating Officer.
  Recent Events
 Merger Agreement Termination
   Distribution Agreement with Universal International Music for Europe, Africa, South America
and the Middle East
   Image Entertainment, Inc.
    
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AECs Parents Bankruptcy Filing
  Loan Agreement Amendment
  Trends Impacting Our Business
      42
    
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Liquidity and Capital Resources
 Going Concern and Liquidity
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Reasons for Constrained Liquidity
  
    
    costly terminated merger processes;
    
    our January 2009 principal payment to Portside Growth
and Opportunity Fund (Portside);
    
    significant advance payments made for high profile content not yet released on DVD; and
    
    the economic slowdowns negative impact on our customers buying habits.
 Costly Terminated Merger Processes
  Our January 2009 Principal Payment to Portside
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##### Table of Contents



Significant Advance Payments Made For High Profile Content Not Yet Released on DVD
  The Economic Slowdowns Negative Impact on our Customers Buying Habits
   Plans to Improve Our Liquidity
  Strategic Realignment and Cost Reduction Plan.
   
    
    In February 2009, we reduced corporate headcount by 10% to 126 employees, from 140
employees, saving approximately $1.5 million in annual personnel costs, including benefits.
In June 2009, we further reduced corporate headcount by another 14%, from 126 employees to
108, saving an additional approximately $1.5 million in annual personnel costs, including
benefits. Total annual personnel cost savings is expected to be $3.0 million, including
benefits.
  Image Entertainment, Inc.
    
    45




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##### Table of Contents




    
    Other cost reductions are estimated to save an additional $1.0 million in annual general
and administrative and selling expenses being phased in the next six months. Cost
reduction areas include discretionary advertising, trade shows, travel, health care costs,
discretionary information technology expenditures and sales commission restructuring.
 Engagement of Investment Banking Firm
   Working Capital
   
    
    operating cash flows;
    
    availability under our revolving line of credit;
    
    private placement of debt and equity instruments;
    
    advances from our disc manufacturer, sublicensors, subdistributors; and
    
    trade credit.
  
    
    $2.0 million received pursuant to a legal settlement relating to a terminated merger
agreement and a distribution agreement;
    
    $1.5 million advance received during the March 2009 quarter in accordance with our
Canadian distribution agreement with Entertainment One;
    
    $1.0 million received in non-refundable consideration
for the extension of the closing date of a merger agreement that was terminated in April 2009;
    
    $2.4 million pursuant to the termination of an agreement with a content supplier;
    
    net borrowings of $5.8 million under our revolving line of credit to fund advance
content acquisition, participation payments and increased advertising and promotional
expenditures; and
    
    increased accounts payable, accrued royalties, fees and liabilities arising from
delayed payments as a consequence of our current liquidity constraints.
  
    
    increased trade accounts receivables of $3.6 million;
    
    increased royalty and distribution fee advance payments for exclusive content of
$3.9 million; and
    
    principal payments of $7.4 million under our manufacturing advance obligation.
 Capital Resources
 Cash.
 Revolving Credit Facility.
   46
    
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
    
    March 31, 2009, 1.0 to 1.0
    
    June 30, 2009, 1.1 to 1.0
       Private Placement of Senior Convertible Note and Warrant.
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Disc Replication Advance.
   48
    
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Contractual Obligations and Commercial Commitments
  (in thousands)
    
    Payments due by periodContractual obligations:
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter
    
    
    TotalOperating lease obligations
    
    $
    1,041
    
    
    $
    1,068
    
    
    $
    1,095
    
    
    $
    1,123
    
    
    $
    1,150
    
    
    $
    289
    
    
    $
    5,766Capital lease obligations
    
    
    83
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128Long-term debt obligations
    
    
    10,608
    
    
    
    4,776
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,384Revolving credit facility
    
    
    10,933
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,933Licensing and exclusive
distribution obligations
    
    
    26,363
    
    
    
    18,560
    
    
    
    18,448
    
    
    
    18,448
    
    
    
    6,037
    
    
    
    
    
    
    
    87,856Employment obligations
    
    
    2,546
    
    
    
    1,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,621Total
    
    $
    51,574
    
    
    $
    25,524
    
    
    $
    20,543
    
    
    $
    19,571
    
    
    $
    7,187
    
    
    $
    289
    
    
    $
    124,688
     (In thousands)
    
    March 31, 2009
    
    
    March 31, 2008Subordinated senior convertible note, less debt discount of $447-March 31, 2009; $1,003-March 31,
2008
    
    $
    12,553
    
    
    $
    15,997Subordinated manufacturing advance obligation, less
debt discount of $180-March 31, 2009; $705-March 31,
2008
    
    
    3,204
    
    
    
    6,07115,757
    
    
    
    22,068Current portion of long-term debt, less debt
discount of $514-March 31, 2009; $1,041-March 31,
2008
    
    
    10,094
    
    
    
    5,759Long-term debt less current portion and debt discount
    
    $
    5,663
    
    
    $
    16,309
 Results of Operations
 Net Revenues
  2009
    
    
    2008
    
    

    % Change
    
    
    2008
    
    
    2007
    
    
    % Change(in thousands)
    
    

    
    
    
    
    (in thousands)Net revenues:Domestic
    
    $
    124,410
    
    
    $
    91,806
    
    
    
    35.5
    %
    
    $
    91,806
    
    
    $
    95,863
    
    
    
    (4.2
    )%Digital
    
    
    4,198
    
    
    
    2,148
    
    
    
    95.4
    
    
    
    2,148
    
    
    
    1,214
    
    
    
    76.9International
    
    
    2,083
    
    
    
    1,864
    
    
    
    11.7
    
    
    
    1,864
    
    
    
    2,674
    
    
    
    (30.3
    )Consolidated
    
    $
    130,691
    
    
    $
    95,818
    
    
    
    36.4
    %
    
    $
    95,818
    
    
    $
    99,751
    
    
    
    (3.9
    )%
 Domestic Revenues.
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Digital Revenues.
    International Revenues.
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Cost of Sales
  2009
    
    
    2008
    
    
    
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    
    
    
    (in thousands)Cost of sales:Domestic
    
    $
    99,362
    
    
    $
    82,933
    
    
    
    
    
    
    $
    82,933
    
    
    $
    79,607Digital
    
    
    2,338
    
    
    
    1,234
    
    
    
    
    
    
    
    1,234
    
    
    
    762International
    
    
    1,537
    
    
    
    1,283
    
    
    
    
    
    
    
    1,283
    
    
    
    1,653Consolidated
    
    $
    103,237
    
    
    $
    85,450
    
    
    
    
    
    
    $
    85,450
    
    
    $
    82,022% Change
    
    
    
    
    
    
    
    
    
    
    % ChangeAs a percentage of segment net revenues:Domestic
    
    
    79.9
    %
    
    
    90.3
    %
    
    
    (10.4
    )%
    
    
    90.3
    %
    
    
    83.0
    %
    
    
    7.3
    %Digital
    
    
    55.7
    
    
    
    57.4
    
    
    
    (1.7
    )
    
    
    57.4
    
    
    
    62.8
    
    
    
    (5.4
    )International
    
    
    73.8
    
    
    
    68.8
    
    
    
    5.0
    
    
    
    68.8
    
    
    
    61.8
    
    
    
    7.0Consolidated
    
    
    79.0
    %
    
    
    89.2
    %
    
    
    (10.2
    )%
    
    
    89.2
    %
    
    
    82.2
    %
    
    
    7.0
    %
  Gross Margin
  Domestic Gross Margin.
  
    
    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
    
    net-profit participations, specifically the royalty rates, distribution fees retained
and profit splits inherent in the agreements.
  
    
    During fiscal 2009, accelerated amortization and fair value write down of film costs
totaled $6.7 million, relating to the continuing contraction in the DVD and CD marketplace
and negatively impacted gross margins for the domestic segment, as a percentage of net
revenues, by 5.4% for fiscal 2009. During fiscal 2008, accelerated amortization and fair
value write down of film costs totaled $13.3 million, negatively impacting fiscal 2008
gross margins by 14.4%. See Trends Impacting Our Business;
    
    During fiscal 2009, we benefited from a larger share of revenue generated by
higher-margin exclusive programming agreements related to feature film distribution;
    
    We incurred reduced distribution expenses pursuant to the agreement with Arvato for
replicating, warehousing, freight and fulfilling our retail orders which has positively
impacted our gross margins. Warehousing, shipping, freight and fulfillment expenses were
4.5% of domestic revenues for fiscal 2009, compared to 6.3% for fiscal 2008;
    
    In our continuing efforts to increase customer demand for our programming, we incurred
higher market development funds and pricing adjustments, as a percentage of domestic net
revenues, for product sold to our customers during fiscal 2009, as compared to fiscal 2008.
For fiscal 2009, our market development funds and pricing adjustments were 6.5% of
domestic revenues (calculated gross of these reductions), as compared to 3.8% for fiscal
2008. The trend of higher market development funds is expected to continue as shelf space
becomes more expensive for independent programming; and
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
    
    Accelerated amortization and fair value write down of film costs totaled $5.2 million in
2007, negatively impacting gross margins by 5.4%, which was less than during 2008.
Included in fiscal 2007, was a $2.2 million write-down of assets related to our
distribution agreement with Source Entertainment, who filed for bankruptcy protection. The
write-down was equal to the difference between the present value of expected profits to be
recognized on Source-branded titles that we expected to release in the future and the net
book value of assets related to our exclusive distribution agreement with Source. The
write-down negatively impacted gross margins for the domestic segment, as a percentage of
segment net revenues, by 2.2%.
    
    The sales mix of titles sold was more favorable for fiscal 2008 than during fiscal 2007.
We had a larger share of revenue generated by higher-margin exclusive programming
agreements compared to lower-margin exclusive programming agreements.
    
    We incurred lower market development funds, as a percentage of net revenues, for product
sold to our customers during fiscal 2008 as compared with fiscal 2007. Our market
development funds were 3.8% and 4.8% for fiscal 2008 and 2007, 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.
 
    
    Reduced expenses from the closure of our Las Vegas warehouse and distribution
facility and reduced expenses afforded to us from the agreement with Arvato for
replicating, warehousing and fulfilling our retail orders has positively
impacted our gross profit margins. Warehousing, shipping, freight and
fulfillment expenses were 6.3% and 8.7% of domestic revenues for fiscal 2008
and 2007, respectively.
 Digital Gross Margin.
 International Gross Margin.
 Selling Expenses
  2009
    
    
    2008
    
    

    % Change
    
    
    2008
    
    
    2007
    
    
    % Change(in thousands)
    
    

    
    
    
    
    (in thousands)Selling expenses:Domestic
    
    $
    13,352
    
    
    $
    9,902
    
    
    
    34.8
    %
    
    $
    9,902
    
    
    $
    10,029
    
    
    
    (1.3
    )%Digital
    
    
    327
    
    
    
    226
    
    
    
    44.7
    
    
    
    226
    
    
    
    308
    
    
    
    (26.6
    )International
    
    
    546
    
    
    
    284
    
    
    
    92.3
    
    
    
    284
    
    
    
    119
    
    
    
    138.7Consolidated
    
    $
    14,225
    
    
    $
    10,412
    
    
    
    36.6
    %
    
    $
    10,412
    
    
    $
    10,456
    
    
    
    (0.4
    )%As a percentage of segment net revenues:Domestic
    
    
    10.7
    %
    
    
    10.8
    %
    
    
    (0.1
    )%
    
    
    10.8
    %
    
    
    10.5
    %
    
    
    0.3
    %Digital
    
    
    7.8
    
    
    
    10.5
    
    
    
    (2.7
    )
    
    
    10.5
    
    
    
    25.4
    
    
    
    (14.9
    )International
    
    
    26.2
    
    
    
    15.2
    
    
    
    11.0
    
    
    
    15.2
    
    
    
    4.5
    
    
    
    10.7Consolidated
    
    
    10.9
    %
    
    
    10.9
    %
    
    
    0.0
    %
    
    
    10.9
    %
    
    
    10.5
    %
    
    
    0.4
    %
 Domestic Selling Expenses.
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
    
    Personnel costs were down $489,000 in fiscal 2008.
    
    Offset in part by :
 
    
    Advertising and promotion expenditures which were higher by $287,000 in fiscal 2008.
    
    Trade shows and conference expenditures which were higher by $102,000 in fiscal 2008.
 Digital Selling Expenses.
 International Selling Expenses
 General and Administrative Expenses
  2009
    
    
    2008
    
    

    % Change
    
    
    2008
    
    
    2007
    
    
    % Change(in thousands)
    
    

    

    
    
    
    (in thousands)General and administrative expenses:Domestic
    
    $
    15,793
    
    
    $
    18,231
    
    
    
    (13.4
    )%
    
    $
    18,231
    
    
    $
    16,623
    
    
    
    9.7
    %Digital
    
    
    772
    
    
    
    379
    
    
    
    103.7
    
    
    
    379
    
    
    
    304
    
    
    
    24.7International
    
    
    314
    
    
    
    404
    
    
    
    (22.3
    )
    
    
    404
    
    
    
    480
    
    
    
    (15.8
    )Consolidated
    
    $
    16,879
    
    
    $
    19,014
    
    
    
    (11.2
    )%
    
    $
    19,014
    
    
    $
    17,407
    
    
    
    9.2
    %As a percentage of segment net revenues:Domestic
    
    
    12.7
    %
    
    
    19.9
    %
    
    
    (7.2
    )%
    
    
    19.9
    %
    
    
    17.3
    %
    
    
    2.6
    %Digital
    
    
    18.4
    
    
    
    17.6
    
    
    
    0.8
    
    
    
    17.6
    
    
    
    25.0
    
    
    
    (7.4
    )International
    
    
    15.1
    
    
    
    21.7
    
    
    
    (6.6
    )
    
    
    21.7
    
    
    
    18.0
    
    
    
    3.7Consolidated
    
    
    12.9
    %
    
    
    19.8
    %
    
    
    (6.9
    )%
    
    
    19.8
    %
    
    
    17.4
    %
    
    
    2.4
    %
 Domestic General and Administrative Expenses.
 
    
    Severance accrued for the departure of our former President in fiscal 2009 totaled
$499,000 as compared to the amounts accrued for the departure of our
former Chief Executive
Officer, two other employees and our Chief Marketing Officer, including legal costs, in fiscal 2008 of $1,325,000;
    
    We incurred reduced non-operating expenses associated with two separate merger
processes for fiscal 2009 as compared to the fiscal 2008 period. During fiscal 2009, the
expenses related to the ongoing merger process with Nyx and resolving disputes with BTP.
In the prior year periods, the expenses related to a terminated merger process.
 
    
    For fiscal 2009, we incurred $1,208,000 in legal, investment banking
and other costs related to the merger processes as compared to
$2,150,000 for
fiscal 2008;
 
    
    We reduced third-party consulting expenses primarily relating to our continuing
compliance with the requirements of Sarbanes-Oxley Section 404 by $198,000 for fiscal 2009
as compared to fiscal 2008; and
    
    We incurred reduced property and equipment depreciation and amortization expenses of
approximately $659,000 for fiscal 2009, as a result of the prior fiscal year closure of
our Las Vegas, Nevada distribution facility.
  
    
    Severance accrued for the February 2009 lay off of 14 employees of $439,000; and
    
    Increased Board of Director fees (non-merger process related) of $200,000 for fiscal
2009 over fiscal 2008.
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
    
    Retirement package expense plus other personnel severance of $979,000 for our former
Chief Executive Officer 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 BTP-related expenses increased $547,000 to $1.9 million
for fiscal 2008, as compared to $1.4 million for fiscal 2007. The BTP-related 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;
    
    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 of $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; and
    
    Increased travel expenditures of $138,000.
 Digital General and Administrative Expenses.
 International General and Administrative Expenses.
 Restructuring Expenses
  Other Income and Expenses
  
    
    $2.0 million pursuant to a settlement agreement and mutual
release relating to a terminated merger agreement and distribution agreement.
 
    
    $1.0 million in non-refundable consideration for the
extension of the closing date of a merger agreement subsequently terminated in April
2009.
 
    
    $2.4 million pursuant to the termination of an agreement with a
content supplier.
 
    
    ($209,000) in noncash expense resulting from the change in fair value of a
warrant and embedded derivatives.
  Interest Expense
 2009
    
    
    2008
    
    

    % Change
    
    
    2008
    
    
    2007
    
    
    % Change(in thousands)
    
    
    
    
    
    (in thousands)Interest expense, net of
interest income
    
    $
    3,320
    
    
    $
    3,345
    
    
    
    (0.7
    )%
    
    $
    3,345
    
    
    $
    2,434
    
    
    
    37.4
    %As a percent of net revenues
    
    
    2.5
    %
    
    
    3.5
    %
    
    
    (1.0
    )%
    
    
    3.5
    %
    
    
    2.4
    %
    
    
    1.1
    %
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Income Taxes
    Off-Balance Sheet Arrangements
  Critical Accounting Policies
   Revenue Recognition Accounting by
Producers or Distributors of Films and Staff Accounting Bulletin Revenue
Recognition
 Royalty and Distribution Fees (including Recoupable Production Costs)
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See
 Inventory Valuation See
 Allowance for Sales Returns and Doubtful Accounts Receivable
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Valuation of Deferred Income Taxes.
 Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an Amendment of FASB Statement No. 115
 Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active
 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Companys
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Own Stock
 Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) Accounting for Convertible Debt and Debt issued
with Stock Purchase Warrants.
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles
 Goodwill and Other Intangible Assets Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Fluctuation Risk
   Foreign Exchange Rate Fluctuation Risk
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    61Consolidated Balance Sheets as of March 31, 2009 and 2008
    
    
    62Consolidated Statements of Operations for the years ended March 31, 2009, 2008 and 2007
    
    
    64Consolidated Statements of Stockholders Equity and Comprehensive Loss for the years ended
March 31, 2009, 2008 and 2007
    
    
    65Consolidated Statements of Cash Flows for the years ended March 31, 2009, 2008 and 2007
    
    
    66Notes to Consolidated Financial Statements
    
    
    69Schedule II  Valuation and Qualifying Accounts for the years ended March 31, 2009, 2008 and 2007
    
    
    102
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IMAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
 
      Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109
  
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CONSOLIDATED BALANCE SHEETS
  
 ASSETS
 (In thousands)
    
    2009
    
    
    2008Current assets:Cash and cash equivalents
    
    $
    802
    
    
    $
    1,606Accounts
receivable, net of allowances of
$10,217  2009
$8,548  2008
    
    
    19,376
    
    
    
    17,430Inventories
    
    
    14,629
    
    
    
    16,379Royalty and distribution fee advances
    
    
    16,570
    
    
    
    13,939Prepaid expenses and other assets
    
    
    1,545
    
    
    
    1,488Total current assets
    
    
    52,922
    
    
    
    50,842Noncurrent inventories, principally production costs
    
    
    2,506
    
    
    
    2,632Noncurrent royalty and distribution advances
    
    
    21,188
    
    
    
    21,356Property, equipment and improvements, net
    
    
    2,161
    
    
    
    3,089Goodwill
    
    
    5,715
    
    
    
    5,715Other assets
    
    
    221
    
    
    
    736$
    84,713
    
    
    $
    84,370
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



CONSOLIDATED BALANCE SHEETS, CONTINUED
  
 LIABILITIES AND STOCKHOLDERS EQUITY
 (In thousands, except share data)
    
    2009
    
    
    2008Current liabilities:Accounts payable
    
    $
    12,761
    
    
    $
    11,387Accrued liabilities
    
    
    5,626
    
    
    
    5,877Accrued royalties and distribution fees
    
    
    20,777
    
    
    
    13,961Accrued music publishing fees
    
    
    6,222
    
    
    
    5,971Deferred revenue
    
    
    5,035
    
    
    
    10,155Revolving credit facility
    
    
    10,933
    
    
    
    5,165Current portion of long-term debt, less debt discount
    
    
    10,094
    
    
    
    5,759Total current liabilities
    
    
    71,448
    
    
    
    58,275Long-term debt, less current portion, less debt discount
    
    
    5,663
    
    
    
    16,309Other long-term liabilities, less current portion
    
    
    2,105
    
    
    
    2,560Total liabilities
    
    
    79,216
    
    
    
    77,144Commitments and Contingencies (Notes 2, 4, 5, 10, 11 and 12)Stockholders 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 issued and outstanding in 2009
and 2008, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    52,693
    
    
    
    52,618Accumulated deficit
    
    
    (47,198
    )
    
    
    (45,394
    )Net stockholders equity
    
    
    5,497
    
    
    
    7,226$
    84,713
    
    
    $
    84,370
 See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
  
 (In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2007NET REVENUES
    
    $
    130,691
    
    
    $
    95,818
    
    
    $
    99,751OPERATING COSTS AND EXPENSES:Cost of sales
    
    
    103,237
    
    
    
    85,450
    
    
    
    82,022Selling expenses
    
    
    14,225
    
    
    
    10,412
    
    
    
    10,456General and administrative expenses
    
    
    16,879
    
    
    
    19,014
    
    
    
    17,407Restructuring expenses
    
    
    
    
    
    
    612
    
    
    
    134,341
    
    
    
    115,488
    
    
    
    109,885LOSS FROM OPERATIONS
    
    
    (3,650
    )
    
    
    (19,670
    )
    
    
    (10,134
    )OTHER EXPENSES (INCOME):Interest expense, net
    
    
    3,320
    
    
    
    3,345
    
    
    
    2,434Other income
    
    
    (5,205
    )
    
    
    (4
    )
    
    
    (1,885
    )
    
    
    3,341
    
    
    
    2,434LOSS BEFORE INCOME TAXES
    
    
    (1,765
    )
    
    
    (23,011
    )
    
    
    (12,568
    )INCOME TAX EXPENSE
    
    
    39
    
    
    
    42
    
    
    
    43NET LOSS
    
    $
    (1,804
    )
    
    $
    (23,053
    )
    
    $
    (12,611
    )NET LOSS PER SHARE:Net loss  basic and diluted
    
    $
    (.08
    )
    
    $
    (1.06
    )
    
    $
    (.59
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:Basic and diluted
    
    
    21,856
    
    
    
    21,734
    
    
    
    21,482
 See accompanying notes to consolidated financial statements.
 64
    
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS
  
 Accumulated OtherCommon Stock
    
    
    Common Stock
    
    
    Additional Paid-In
    
    
    Comprehensive(In thousands)
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Accumulated Deficit
    
    
    TotalBalance at March 31, 2006
    
    
    21,296
    
    
    $
    2
    
    
    $
    51,306
    
    
    $
    (4
    )
    
    $
    (9,661
    )
    
    $
    41,643Comprehensive loss:Net 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
    )
    
    
    29,580Comprehensive loss:Net 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
    )
    
    
    7,226Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,804
    )
    
    
    (1,804
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Balance at March 31, 2009
    
    
    21,856
    
    
    $
    2
    
    
    $
    52,693
    
    
    $
    
    
    
    $
    (47,198
    )
    
    $
    5,497
 See accompanying notes to consolidated financial statements.
 Image Entertainment, Inc.
    
    65




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CONSOLIDATED STATEMENTS OF CASH FLOWS
  
 (In thousands)
    
    2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (1,804
    )
    
    $
    (23,053
    )
    
    $
    (12,611
    )Adjustments to reconcile net loss to net cash
provided by
(used in) operating activities:Amortization of production costs
    
    
    4,881
    
    
    
    4,219
    
    
    
    4,529Depreciation and other amortization
    
    
    2,757
    
    
    
    3,736
    
    
    
    3,124Provision for lower of cost or market inventory
write-downs
    
    
    2,559
    
    
    
    4,886
    
    
    
    1,866Provision for doubtful accounts, sales returns and
other credits
    
    
    1,692
    
    
    
    362
    
    
    
    (356
    )Accelerated amortization and fair value write down
of advance royalty and distribution fees
    
    
    3,866
    
    
    
    8,373
    
    
    
    3,330Revaluation
of warrant and embedded derivatives liability
    
    
    209
    
    
    
    (4
    )
    
    
    Share-based compensation
    
    
    75
    
    
    
    
    
    
    
    Loss on disposal of assets
    
    
    
    
    
    
    39
    
    
    
    Changes in assets and liabilities associated with
operating activities:Accounts receivable
    
    
    (3,638
    )
    
    
    583
    
    
    
    (1,657
    )Inventories
    
    
    (560
    )
    
    
    (4,589
    )
    
    
    (1,722
    )Royalty and distribution fee advances
    
    
    (3,930
    )
    
    
    (4,256
    )
    
    
    (4,405
    )Production cost expenditures
    
    
    (5,004
    )
    
    
    (3,977
    )
    
    
    (3,920
    )Prepaid expenses and other assets
    
    
    78
    
    
    
    (93
    )
    
    
    (1
    )Accounts payable, accrued royalties, fees and
liabilities
    
    
    5,126
    
    
    
    4,329
    
    
    
    1,375Deferred revenue
    
    
    (5,120
    )
    
    
    6,101
    
    
    
    (897
    )Net cash provided by (used in) operating
activities
    
    
    1,187
    
    
    
    (3,344
    )
    
    
    (11,345
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (368
    )
    
    
    (506
    )
    
    
    (1,595
    )Net cash used in investing activities
    
    
    (368
    )
    
    
    (506
    )
    
    
    (1,595
    )
 See accompanying notes to consolidated financial statements.
 66
    
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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
  
 (In thousands)
    
    2009
    
    
    2008
    
    
    2007CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under revolving credit facility
    
    $
    131,964
    
    
    $
    91,447
    
    
    $
    48,764Repayments of borrowings under revolving credit facility
    
    
    (126,196
    )
    
    
    (86,282
    )
    
    
    (60,264
    )Proceeds from issuance of long-term debt, net of costs
    
    
    
    
    
    
    
    
    
    
    25,813Repayments of long-term debt
    
    
    (7,391
    )
    
    
    (2,766
    )
    
    
    (458
    )Proceeds from exercise of common stock warrant
    
    
    
    
    
    
    204
    
    
    
    330Proceeds from exercise of employee stock option
    
    
    
    
    
    
    512
    
    
    
    17Net cash (used in) provided by financing activities
    
    
    (1,623
    )
    
    
    3,115
    
    
    
    14,202INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
    
    
    (804
    )
    
    
    (735
    )
    
    
    1,262Cash and cash equivalents at beginning of year
    
    
    1,606
    
    
    
    2,341
    
    
    
    1,079Cash and cash equivalents at end of year
    
    $
    802
    
    
    $
    1,606
    
    
    $
    2,341SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    1,913
    
    
    $
    1,315
    
    
    $
    1,148Income taxes
    
    $
    324
    
    
    $
    34
    
    
    $
    6
 See accompanying notes to consolidated financial statements.
 Image Entertainment, Inc.
    
    67




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CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
  
   See accompanying notes to consolidated financial statements.
 68
    
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##### 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. Accounting
by Producers or Distributors of Films Revenue Recognition
 Inventories.
 Non-Recoupable Production Costs.
  Image Entertainment, Inc.
    
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Royalty and Distribution Fee Advances, Recoupable Production Advances.
 Property, Equipment and Improvements.
 Advertising Costs. Reporting
on Advertising Costs Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendors
Products
 Market Development Funds.
 Allowances Received From Vendors. Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a Vendor
 Shipping Income and Expenses. Accounting for Shipping
and Handling Fees and Costs
 Major Customers and Suppliers.
  70
    
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See
 Goodwill.
 Impairment of Long-Lived Assets.
 See
 Foreign Currency Transactions.
 Income Taxes. Accounting for Income Taxes
  Earnings/Loss per Share.
 Comprehensive Income (Loss).
  Image Entertainment, Inc.
    
    71




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##### Table of Contents



Stock Options. Share-Based
Payment  an Amendment of SFAS No.s 123 and 95
  Restricted Stock Units.
 Stock-Based Compensation Valuation and Expense Information.
 Fiscal Year EndedMarch 31, 2009Risk-free interest rate
    
    3.18% - 3.39%Expected term (in years)
    
    3.9 to 4.6 yearsExpected volatility for options
    
    68%-70%Expected dividend yield
    
    0%
   Recently Issued Accounting Standards. Fair Value
Measurements
 The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an Amendment of FASB Statement No. 115
  72
    
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##### Table of Contents



Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active
 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Companys Own Stock
 Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) Accounting for Convertible Debt and Debt
issued with Stock Purchase Warrants
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles
 Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
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Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements
 Reclassifications.
 Note 2. Going Concern and Liquidity
    74
    
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##### Table of Contents




    
    costly terminated merger processes
    
    our January 30, 2009 principal payment to Portside
    
    significant advance payments made for high profile content not yet released on DVD
    
    the economic slowdowns negative impact on our customers buying habits
 Costly Terminated Merger Processes
  Our January 30, 2009 Principal Payment to Portside
    Significant Advance Payments Made For High Profile Content Not Yet Released on DVD
  Image Entertainment, Inc.
    
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The Economic Slowdowns Negative Impact on our Customers Buying Habits
   Plans to Improve Our Liquidity
  Strategic Realignment and Cost Reduction Plan.
   
    
    In February 2009, we reduced corporate headcount by 10% to 126 employees, from 140
employees, saving approximately $1.5 million in annual personnel costs, including benefits.
In June 2009, we further reduced corporate headcount by another 14%, from 126 employees to
108, saving an additional approximately $1.5 million in annual personnel costs, including
benefits. Total annual personnel cost savings is expected to be $3.0 million, including
benefits.
    
    Other cost reductions are estimated to save an additional $1.0 million in annual general
and administrative and selling expenses being phased in the next six months. Cost
reduction areas include discretionary advertising, trade shows, travel, health care costs,
discretionary information technology expenditures and sales commission restructuring.
 Engagement of Investment Banking Firm
   76
    
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Note 3. Terminated Merger Agreements.
 Fiscal 2009 Nyx Acquisitions, Inc.
   
    
    Contemporaneously with the execution of the Nyx Merger Agreement, Nyx made an
initial deposit of $0.5 million into a trust account in order to secure payment of
a $1.8 million business interruption fee.
    
    On February 11, 2009, Nyx paid the remaining $1.3 million into the trust account
to secure the payment of the business interruption fee.
    
    On February 27, 2009, we agreed to extend the Nyx Merger closing date to March
20, 2009 upon receipt from Nyx of an additional $0.5 million, increasing the
business interruption fee to $2.3 million. The $0.5 million was subsequently
received into the trust account.
    
    On March 24, 2009, Nyx increased the total business interruption fee to $2.5
million by paying an additional $0.2 million into the trust account and agreed to
release $1.0 million of the funds held in trust to us all in exchange for an
extension of the closing date to April 6, 2009.
    
    By March 31, 2009, we had received the $1.0 million from the trust account,
leaving $1.5 million to secure payment of the balance of the business interruption
fee as of March 31, 2009.
    Fiscal 2008 BTP Acquisition Company, LLC
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##### Table of Contents




    
    In connection with the December 7, 2007 extension, BTP deposited $2.0 million in
a trust account. In consideration for the extension, we entered into a multi-year
feature film output distribution agreement (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
$1.0 million in a trust account. This deposit, combined with the $2.0 million
deposited by BTP in December 2007 in connection with the prior extension, increased
the total deposit received from BTP and held in trust to $3.0 million.
      Note 4. Film Cost Accelerated Amortization and Fair Value Write-downs.
   78
    
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Note 5. AECs Parents Bankruptcy Filing
   Image Entertainment, Inc.
    
    79




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Note 6. Fiscal 2009 and 2008 Charges Relating to Executive Officer Departures and Cost Reduction
Plan.
 Fiscal 2009.
    Fiscal 2008.
   Note 7. Inventories.
  (In thousands)
    
    2009
    
    
    2008DVD
    
    $
    9,458
    
    
    $
    11,453Other
    
    
    2,558
    
    
    
    2,56312,016
    
    
    
    14,016Production costs, net
    
    
    5,119
    
    
    
    4,99517,135
    
    
    
    19,011Less current portion of inventories
    
    
    14,629
    
    
    
    16,379Noncurrent inventories, principally non-recoupable
production costs
    
    $
    2,506
    
    
    $
    2,632
  Note 8. Investment in Film Production.
  (In thousands)
    
    2009
    
    
    2008Released, net of accumulated amortization
    
    $
    2,148
    
    
    $
    1,431Completed and not released
    
    
    
    
    
    
    2,598$
    2,148
    
    
    $
    4,029
  80
    
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##### Table of Contents



Note 9. Property, Equipment and Improvements.
  (In thousands)
    
    2009
    
    
    2008Machinery, equipment and software
    
    $
    8,195
    
    
    $
    10,320Leasehold improvements
    
    
    927
    
    
    
    844Other
    
    
    60
    
    
    
    1649,182
    
    
    
    11,328Less accumulated depreciation and amortization
    
    
    7,021
    
    
    
    8,239$
    2,161
    
    
    $
    3,089
 See
 Note 10. Revolving Credit Facility.
    
    
    March 31, 2009, 1.0 to 1.0
    
    June 30, 2009, 1.1 to 1.0
      Image Entertainment, Inc.
    
    81




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##### Table of Contents



Note 11. Long-Term Debt.
 Disc Replication Agreement and Related Advance
  Senior Convertible Note and Warrant.
     82
    
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##### 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, 2009
    
    
    March 31, 2008Subordinated senior convertible note, less debt
discount of $447-March 31, 2009; $1,003-March 31,
2008
    
    $
    12,553
    
    
    $
    15,997Subordinated manufacturing advance obligation, less
debt discount of $180-March 31, 2009; $705-March 31,
2008
    
    
    3,204
    
    
    
    6,07115,757
    
    
    
    22,068Current portion of long-term debt, less debt
discount of $514-March 31, 2009; $1,041-March 31,
2008
    
    
    10,094
    
    
    
    5,759Long-term debt less current portion and debt discount
    
    $
    5,663
    
    
    $
    16,309
  Image Entertainment, Inc.
    
    83




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##### Table of Contents



Note 12. Commitments and Contingencies.
 Operating Leases
  See
  Fiscal
    
    Amount(In thousands)2010
    
    $
    1,0412011
    
    
    1,0682012
    
    
    1,0952013
    
    
    1,1232014
    
    
    1,150Thereafter
    
    
    289$
    5,766
  Employment Agreements.
 Other
 Fiscal
    
    Amount(in thousands)2010
    
    $
    26,3632011
    
    
    18,5602012
    
    
    18,4482013
    
    
    18,4482014
    
    
    6,037$
    87,856
  Fiscal 2008 Criterion Agreement
   84
    
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##### Table of Contents



Accounting by Producers or Distributors of Film.
  Note 13. Stockholders Equity.
 Stock Awards, Options and Warrants .
     Weighted-Average
    
    
    AggregateShares
    
    
    Weighted-Average
    
    
    Remaining
    
    
    Intrinsic ValueOptions
    
    (000)
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ($000)Outstanding
at March 31, 2008
    
    
    2,124
    
    
    $
    3.509Granted
    
    
    343
    
    
    
    1.140Exercised
    
    
    
    
    
    
    Forfeited or Expired
    
    
    140
    
    
    
    5.134Outstanding at March 31, 2009
    
    
    2,327
    
    
    $
    3.062
    
    
    
    5.197
    
    
    $
    50Exercisable at March 31, 2009
    
    
    2,060
    
    
    $
    3.311
    
    
    
    4.679
    
    
    $
    10
    Image Entertainment, Inc.
    
    85




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##### Table of Contents



Shares
    
    Weighted-Average Grant-DateNonvested Shares
    
    (000)
    
    Fair ValueNonvested at
March 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    343
    
    
    
    0.617Vested
    
    
    69
    
    
    
    0.618Forfeited
    
    
    7
    
    
    
    0.615Nonvested at March 31, 2009
    
    
    267
    
    
    $
    0.617
    Options Outstanding
    
    Options ExercisableNumber
    
    Weighted-Average
    
    
    
    
    
    Numberof Shares at
    
    Remaining
    
    Weighted
    
    of Shares at
    
    WeightedRange of
    
    March 31, 2009
    
    Contractual Life
    
    Average
    
    March 31, 2009
    
    AverageExercise Prices
    
    (In thousands)
    
    (Years)
    
    Exercise Price
    
    (In thousands)
    
    Exercise PriceUnder $2.00
    
    
    747
    
    
    
    5.8
    
    
    $
    1.481
    
    
    
    480
    
    
    $
    1.670$2.01 to $4.00
    
    
    1,390
    
    
    
    4.8
    
    
    
    3.645
    
    
    
    1,390
    
    
    
    3.645$4.01 to $6.00
    
    
    190
    
    
    
    5.5
    
    
    
    5.021
    
    
    
    190
    
    
    
    5.0212,327
    
    
    
    
    
    
    
    
    
    
    
    2,060
  Warrants Outstanding and ExercisableWeightedAverage
    
    WeightedShares
    
    Remaining
    
    AverageExercise Price
    
    (In thousands)
    
    Life (Years)
    
    Exercise Price$
    4.25
    
    
    
    1,000
    
    
    
    2.42
    
    
    $
    4.25
 Stockholder Rights Plan.
   86
    
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##### Table of Contents



Convertible Note Payable in Common Stock. See
 Note 14. Net Loss per Share Data.
  (In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2007Net loss  basic and diluted numerator
    
    $
    (1,804
    )
    
    $
    (23,053
    )
    
    $
    (12,611
    )Weighted average common shares outstanding  basic denominator
    
    
    21,856
    
    
    
    21,734
    
    
    
    21,482Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding  diluted denominator
    
    
    21,856
    
    
    
    21,734
    
    
    
    21,482Net loss per share:Basic and diluted net loss per share
    
    $
    (.08
    )
    
    $
    (1.06
    )
    
    $
    (.59
    )
  Note 15. Income Taxes.
 Adoption of FASB Interpretation No. 48. Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
  Balance at March 31, 2008
    
    $
    106Additions based on current year tax positions
    
    
    17Additions for prior year tax positions
    
    
    Reductions related to lapse of statute of limitations
    
    
    (18
    )Balance at March 31, 2009
    
    $
    105
   Image Entertainment, Inc.
    
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Valuation of Deferred Income Taxes
   (In thousands)
    
    2009
    
    
    2008
    
    
    2007CurrentFederal
    
    $
    
    
    
    $
    
    
    
    $
    (22
    )State
    
    
    36
    
    
    
    34
    
    
    
    30Foreign
    
    
    3
    
    
    
    8
    
    
    
    3539
    
    
    
    42
    
    
    
    43DeferredFederal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Tax Expense
    
    $
    39
    
    
    $
    42
    
    
    $
    43
  (In thousands)
    
    2009
    
    
    2008Deferred tax assets:Provision for lower of cost or market inventory write downs
    
    $
    3,426
    
    
    $
    2,938Net operating loss carryforwards
    
    
    12,909
    
    
    
    11,844Allowance for sales returns
    
    
    2,198
    
    
    
    1,822Allowance for doubtful accounts receivable
    
    
    64
    
    
    
    99Unrealized gain/loss
    
    
    79
    
    
    
    229Legal settlement accrual
    
    
    213
    
    
    
    183Tax credits
    
    
    708
    
    
    
    980Write down of royalty and distribution fee advances
    
    
    91
    
    
    
    246Other
    
    
    17
    
    
    
    1,024Deferred tax assets
    
    
    19,705
    
    
    
    19,365Less valuation allowance
    
    
    (19,387
    )
    
    
    (19,033
    )Deferred tax assets
    
    
    318
    
    
    
    332Deferred tax liabilities:Depreciation and amortization
    
    
    (124
    )
    
    
    (314
    )Other
    
    
    (194
    )
    
    
    (18
    )Deferred tax liabilities
    
    
    (318
    )
    
    
    (332
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  88
    
    Image Entertainment, Inc.




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##### Table of Contents



(In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2007Expected income tax benefit
    
    $
    (600
    )
    
    $
    (7,823
    )
    
    $
    (4,273
    )State income tax benefit, net of Federal benefit
    
    
    (54
    )
    
    
    (1,190
    )
    
    
    (188
    )Change in valuation allowance
    
    
    354
    
    
    
    8,999
    
    
    
    4,043Non-deductible expenses
    
    
    61
    
    
    
    62
    
    
    
    49Provision to Return Adjustments
    
    
    240
    
    
    
    
    
    
    
    Other
    
    
    38
    
    
    
    (6
    )
    
    
    412$
    39
    
    
    $
    42
    
    
    $
    43
 Note 16. Other Items  Statements of Operations.
 Other Income (Expense)
  
    
    $2.0 million pursuant to a settlement agreement and mutual
release relating to the BTP Merger Agreement and related Distribution Agreement.
    
    $1.0 million in non-refundable consideration for an
extension of the closing date of a merger agreement subsequently terminated
in April 2009.
    
    $2.4 million pursuant to the termination of an agreement with a
content supplier.
    
    ($209,000) in noncash expense resulting from the change in fair value of a
warrant and embedded derivatives.
  Fourth Quarter Adjustments
 Fiscal 2009.
    Fiscal 2008.
   Image Entertainment, Inc.
    
    89




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Fiscal 2007.
  Note 17. Fiscal 2008 Fulfillment Services Agreement, Closure of Las Vegas Facility and Lease
Termination.
  Accounting for Costs Associated with Exit or Disposal Activities
 Accounting for Impairment or Disposal of Long-Lived Assets
     90
    
    Image Entertainment, Inc.




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##### 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 18. Related Party Consulting Agreement.
   Note 19. Employee Benefit Plan.
  Note 20. Segment Information.
 Disclosures about Segments of and
Enterprises and Related Information
    Image Entertainment, Inc.
    
    91




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##### Table of Contents



2009(In thousands)
    
    Domestic
    
    
    Digital
    
    
    International
    
    
    ConsolidatedNet revenues
    
    $
    124,410
    
    
    $
    4,198
    
    
    $
    2,083
    
    
    $
    130,691Operating costs and expenses
    
    
    128,507
    
    
    
    3,437
    
    
    
    2,397
    
    
    
    134,341Earnings (loss) from operations
    
    
    (4,097
    )
    
    
    761
    
    
    
    (314
    )
    
    
    (3,650
    )Other (income)
    
    
    (1,885
    )
    
    
    
    
    
    
    
    
    
    
    (1,885
    )Earnings (loss) before income taxes
    
    $
    (2,212
    )
    
    $
    761
    
    
    $
    (314
    )
    
    $
    (1,765
    )
  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
    )
 As of March 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Total assets:Domestic
    
    $
    83,188
    
    
    $
    83,240
    
    
    $
    88,497Digital
    
    
    800
    
    
    
    282
    
    
    
    443International
    
    
    725
    
    
    
    848
    
    
    
    771Consolidated total assets
    
    $
    84,713
    
    
    $
    84,370
    
    
    $
    89,711
  92
    
    Image Entertainment, Inc.




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Note 21. Quarterly Financial Data. (Unaudited)
  Quarter EndedJune 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,(In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008Net revenues
    
    $
    32,577
    
    
    $
    20,878
    
    
    $
    32,389
    
    
    $
    21,633
    
    
    $
    39,156
    
    
    $
    27,343
    
    
    $
    26,569
    
    
    $
    25,964Earnings (loss) before income tax
    
    
    1,714
    
    
    
    (2,577
    )
    
    
    (421
    )
    
    
    (3,667
    )
    
    
    318
    
    
    
    (2,045
    )
    
    
    (3,376
    )2
    
    
    (14,722
    )3Net earnings (loss)
    
    $
    1,696
    
    
    $
    (2,599
    )
    
    $
    (465
    )
    
    $
    (3,683
    )
    
    $
    304
    
    
    $
    (2,052
    )
    
    $
    (3,379
    )
    
    $
    (14,719
    )Net earnings (loss) per share1 
Basic and diluted
    
    $
    .08
    
    
    $
    (.12
    )
    
    $
    (.02
    )
    
    $
    (.17
    )
    
    $
    .01
    
    
    $
    (.09
    )
    
    $
    (.15
    )
    
    $
    (.68
    )Weighted average common shares used in
computation of net loss per share:Basic
    
    
    21,856
    
    
    
    21,696
    
    
    
    21,856
    
    
    
    21,739
    
    
    
    21,856
    
    
    
    21,740
    
    
    
    21,856
    
    
    
    21,750Diluted
    
    
    21,856
    
    
    
    21,696
    
    
    
    21,856
    
    
    
    21,739
    
    
    
    21,947
    
    
    
    21,740
    
    
    
    21,856
    
    
    
    21,750
 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 $4.8 million fourth quarter charge in accelerated amortization and
fair value write down of film assets primarily related to the continuing contraction of the
DVD marketplace and related contraction in available shelf space for previously released
programming, (ii) $1.2 million in legal, investment banking and other expenses associated with
negotiations and the eventual termination of the proposed merger agreement between us and Nyx
and the related disputes associated with the terminated merger agreement with BTP Acquisition
Company, LLC, (iii) a $499,000 charge for the value of the severance granted to our former
President who left our employ in March 2009, (iv) a $439,000 net charge for severance related
to our February 2009 cost reduction plan, (v) $1.0 million in
other income representing non-refundable consideration for an
extension of the closing date of a merger agreement subsequently
terminated in April 2009, (vi) $1.6 million other income received
pursuant to the termination of an agreement with a content supplier
and (vii) $400,000 in noncash income for the change in
the fair value of the warrant liability and the embedded derivatives within our convertible
note payable.3
    
    Includes (i) a $10.4 million fourth quarter charge in accelerated amortization and
fair value write down 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, (iii) a $979,000 charge for the value of the retirement package to our
former Chief Executive Officer, 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.  Image Entertainment, Inc.
    
    93




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A(T). 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 our assets;
    
    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
  94
    
    Image Entertainment, Inc.




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Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
    Image Entertainment, Inc.
    
    95




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  www.image-entertainment.com www.image-entertainment.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
   96
    
    Image Entertainment, Inc.




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PART IV
 
 Item 15. Exhibits And Financial Statement Schedules
 (a)
    
    The following documents are filed as a part of this report:
 Page1.
    
    Financial Statements.Report of Independent Registered Public Accounting Firm
    
    [61]Consolidated Balance Sheets as of March 31, 2009 and 2008
    
    [62]Consolidated Statements of Operations for the years ended
March 31, 2009, 2008 and 2007
    
    [64]Consolidated
Statements of Stockholders Equity and Comprehensive Loss for
the years ended
March 31, 2009, 2008 and 2007
    
    [65]Consolidated Statements of Cash Flows for the years ended
March 31, 2009, 2008 and 2007
    
    [66]Notes to Consolidated Financial Statements
    
    [69]2.
    
    Financial Statement Schedule:Schedule I  Valuation and Qualifying Accounts
    
    [101]
 (b)
    
    Exhibits.2.1
    
    Amended and Restated Agreement and Plan of Merger, dated as of June 27, 2007,
among BTP Acquisition Company, LLC, IEAC, Inc. and Image Entertainment, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on dated July 2, 2007).2.2
    
    Agreement and Plan of Merger, dated as of November 20, 2008, among Nyx
Acquisitions, Inc., The Conceived Group, Inc., and Image Entertainment, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on November 21, 2008).2.2(a)
    
    First Amendment to Agreement and Plan of Merger, dated February 27, 2009, among Nyx
Acquisitions, Inc., The Conceived Group, Inc., and Image Entertainment, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on March 4, 2009).2.2(b)
    
    Second Amendment to Agreement and Plan of Merger, dated March 24, 2009, among Nyx
Acquisitions, Inc., The Conceived Group, Inc., and Image Entertainment, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on March 25, 2009).2.2(c)
    
    Third Amendment to Agreement and Plan of Merger, dated April 8, 2009, among Nyx
Acquisitions, Inc., The Conceived Group, Inc., and Image Entertainment, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on April 10, 2009).2.2(d)
    
    Fourth Amendment to Agreement and Plan of Merger, dated April 14, 2009, among Nyx
Acquisitions, Inc., The Conceived Group, Inc., and Image Entertainment, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on April 17, 2009).3.1*
    
    Certificate of Incorporation of Registrant.
  Image Entertainment, Inc.
    
    97




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##### Table of Contents



3.2
    
    Certificate of Designation of Series A Junior Participating Preferred Stock
(incorporated herein by reference to Exhibit A to Exhibit 4.1 to the Registrants
Current Report on Form 8-K/A (File No. 000-11071) filed with on November 2, 2005).3.3
    
    Bylaws of Registrant (incorporated by reference to Exhibit C to Appendix B to
the Registrants definitive proxy statement on Schedule 14A (File No. 000-11071) filed
on July 27, 2005).4.1
    
    Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to
the Registrants Registration Statement on Form S-3 (File No. 333-138701) filed on
November 14, 2006).4.2
    
    Rights Agreement dated as of October 31, 2005, by and between Image
Entertainment, Inc. and Computershare Trust Company, Inc. (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K/A (File No. 000-11071) filed
on November 2, 2005).4.2(a)
    
    Amendment No. 1 to Rights Agreement, dated as of March 29, 2007, by and between Image
Entertainment, Inc. and Computershare Trust Company, N.A., as Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on April 2, 2007).4.2(b)
    
    Amendment No. 2 to Rights Agreement, dated as of June 25, 2007, by and between Image
Entertainment, Inc. and Computershare Trust Company, N.A., as Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on July 2, 2007).4.2(c)
    
    Amendment No. 3 to Rights Agreement, dated as of February 2, 2008, by and between
Image Entertainment, Inc. and Computershare Trust Company, N.A., as Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on February 6, 2008).4.2(d)
    
    Amendment No. 4 to Rights Agreement, dated as of November 20, 2008, between Image
Entertainment, Inc. and Computershare Trust Company, N.A., as Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on November 21, 2008).4.3
    
    Securities Purchase Agreement, dated as of August 30, 2006, between Image
Entertainment, Inc. and the buyers named therein (incorporated by reference to Exhibit
10.1 to the Registrants Current Report on Form 8-K (File No. 000-11071) filed on
August 31, 2006).4.4
    
    Registration Rights Agreement, dated as of August 30, 2006, between Image
Entertainment, Inc. and the buyers named therein (incorporated by reference to Exhibit
10.4 to the Registrants Current Report on Form 8-K (File No. 000-11071) filed on
August 31, 2006).4.5
    
    Form of Senior Convertible Note (incorporated by reference to Exhibit 10.2 to
the Registrants Current Report on Form 8-K (File No. 000-11071) filed on August 31,
2006).4.6
    
    Form of Warrant (incorporated by reference to Exhibit 10.3 to the Registrants
Current Report on Form 8-K (File No. 000-11071) filed on August 31, 2006).4.7
    
    Amendment and Exchange Agreement, dated November 10, 2006, by and between Image
Entertainment, Inc. and Portside Growth and Opportunity Fund (incorporated by reference
to Exhibit 4.6 to the Registrants Registration Statement on Form S-3 (No. 333-138701)
filed on November 14, 2006).4.8
    
    Warrant Issued Pursuant to Amendment and Exchange Agreement (incorporated by
reference to Exhibit 4.7 to the Registrants Registration Statement on Form S-3 (No.
333-138701) filed on November 14, 2006).
  98
    
    Image Entertainment, Inc.




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4.9
    
    Warrant, dated March 24, 2003, between Image Entertainment, Inc. and Image
Investors Co. (incorporated by reference to Exhibit 99.2 to the Registrants Current
Report on Form 8-K (File No. 000-11071) filed on March 26, 2003).4.10
    
    Form of Purchase Agreement, dated December 20, 2004, between Image
Entertainment, Inc. and the purchasers named therein (incorporated by reference to
Exhibit 99.1 to the Registrants Current Report on Form 8-K (File No. 000-11071) filed
on December 21, 2004).4.11
    
    Form of Warrant, dated December 20, 2004 (incorporated by reference to Exhibit
99.2 to the Registrants Current Report on Form 8-K (File No. 000-11071) filed on
December 21, 2004).10.1
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image
Entertainment, Inc. and David Borshell (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on Form 8-K (File No. 000-11071) filed on April 11,
2008).10.1(a)
    
    Amendment to Employment Letter Agreement, dated as of December 22, 2008, between
Image Entertainment, Inc. and David Borshell (incorporated by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K (File No. 000-11071) filed on December
29, 2008).10.2
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image
Entertainment, Inc. and Jeff M. Framer (incorporated by reference to Exhibit 10.2 to
the Registrants Current Report on Form 8-K (File No. 000-11071) filed on April 11,
2008).10.2(a)
    
    Amendment to Employment Letter Agreement, dated as of December 22, 2008, between
Image Entertainment, Inc. and Jeff Framer (incorporated by reference to Exhibit 10.2 to
the Registrants Current Report on Form 8-K (File No. 000-11071) filed on December 29,
2008).10.3
    
    Employment Agreement, dated as of March 31, 2009, between Image Entertainment,
Inc. and Jeff M. Framer (incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K (File No. 000-11071) filed on April 10, 2009).10.4
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image
Entertainment, Inc. and Bill Bromiley (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K (File No. 000-11071) filed on April 11, 2008).10.4(a)
    
    Amendment to Employment Letter Agreement, dated as of December 22, 2008, between
Image Entertainment, Inc. and Bill Bromiley (incorporated by reference to Exhibit 10.3
to the Registrants Current Report on Form 8-K (File No. 000-11071) filed on December
29, 2008).10.5
    
    Employment Agreement, dated as of March 31, 2009, between Image Entertainment,
Inc. and Bill Bromiley (incorporated by reference to Exhibit 10.3 to the Registrants
Current Report on Form 8-K (File No. 000-11071) filed on April 10, 2009).10.6
    
    Employment Letter Agreement, dated as of April 1, 2008, between Image
Entertainment, Inc. and Derek Eiberg (incorporated by reference to Exhibit 10.4 to the
Registrants Current Report on Form 8-K (File No. 000-11071) filed on April 11, 2008).10.6(a)
    
    Amendment to Employment Letter Agreement, dated as of December 22, 2008, between
Image Entertainment, Inc. and Derek Eiberg (incorporated by reference to Exhibit 10.4
to the Registrants Current Report on Form 8-K (File No. 000-11071) filed on December
29, 2008).10.7
    
    Employment Agreement, dated as of March 31, 2009, between Image Entertainment,
Inc. and Derek Eiberg (incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K (File No. 000-11071) filed on April 10, 2009).
  Image Entertainment, Inc.
    
    99




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##### Table of Contents



10.8
    
    Image Entertainment, Inc. 2004 Incentive Compensation Plan (incorporated by
reference to Exhibit A to the Registrants Definitive Proxy Statement on Form DEF 14A
(File No. 000-11071) filed on July 29, 2004).10.9
    
    Egami Media, Inc. 2005 Incentive Compensation Plan (incorporated by reference
to Exhibit 10.14 to the Registrants Annual Report on Form 10-K (File No. 000-11071)
filed on June 17, 2005).10.10
    
    Form of Indemnification Agreement, between the Registrant and its directors and
officers (incorporated by reference to Exhibit 10.1 to the Registrants Current Report
on Form 8-K (File No. 000-11071) filed on October 24, 2005).10.11
    
    Form of Stock Unit Award Grant Notice and Agreement for the Image Entertainment, Inc.
2004 Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 to the
Registrants Quarterly Report on Form 10-Q (File No. 000-11071) filed on February 14,
2007).10.12
    
    Form of Option Agreement Amendment (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K (File No. 000-11071) filed on March 31, 2006).10.13*
    
    Image Entertainment, Inc. 2008 Stock Awards and Incentive Plan (as amended and
restated on May 1, 2009).10.14*
    
    Form of Nonqualified Stock Option Agreement for the Image Entertainment, Inc. 2008
Stock Awards and Incentive Plan.10.15*
    
    Form of Incentive Stock Option Agreement for the Image Entertainment, Inc. 2008
Stock Awards and Incentive Plan.10.16
    
    Loan and Security Agreement, dated as of May 4, 2007, by and between Wachovia
Capital Finance Corporation (Western) and Image Entertainment, Inc., as Administrative
Borrower, Egami Media, Inc., Image Entertainment (Uk), Inc. and Home Vision
Entertainment, Inc., as Guarantors, and the Lenders named therein (incorporated by
reference to Exhibit 10.21 to the Registrants Annual Report on Form 10-K (File No.
000-11071) filed on June 29, 2007).10.16(a)
    
    First Amendment to Loan and Security Agreement, dated as of April 28, 2008, by and
between Wachovia Capital Finance Corporation (Western) and Image Entertainment, Inc.
(incorporated by reference to Exhibit 10.25(a) to the Registrants Annual Report on
Form 10-K (File No. 000-11071) filed on June 30, 2008).10.16(b)
    
    Second Amendment to Loan and Security Agreement, dated as of June 23, 2009, between
Wachovia Capital Finance Corporation (Western), Image Entertainment, Inc., Egami Media,
Inc. and Image Entertainment (UK), Inc. (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on Form 8-K (File No. 000-11071) filed on June 25,
2009).10.17
    
    Settlement Agreement and Release of Claims, dated as of March 18, 2008, by and
between Image Entertainment, Inc. and Jeffrey Fink (incorporated by reference to
Exhibit 10.26 to the Registrants Annual Report on Form 10-K (File No. 000-11071) filed
on June 30, 2008).10.18
    
    Separation Agreement and General Release of All Claims, dated as of May 15, 2008, by
and between Image Entertainment, Inc. and Martin W. Greenwald (incorporated by
reference to Exhibit 10.27 to the Registrants Annual Report on Form 10-K (File No.
000-11071) filed on June 30, 2008).10.19▲
    
    Settlement Agreement and Mutual Release, dated as of June 24, 2008, by and between
Image Entertainment, Inc. and CT1 Holdings, LLC, Capitol Films US, LLC, ThinkFilm, LLC,
BTP Acquisition Company, LLC, IEAC, Inc. R2D2, LLC and David Bergstein (incorporated by
reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No.
000-11071) filed on June 30, 2008).
  100
    
    Image Entertainment, Inc.




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10.20
    
    Consulting Agreement, dated as of April 1, 2009, by and between Image
Entertainment, Inc. and EIM Capital Management, Inc. (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 000-11071) filed
on April 3, 2009).10.21*
    
    Waiver and Release Agreement, dated as of June 11, 2009, by and between Image
Entertainment, Inc. and David Borshell.21.1*
    
    Subsidiaries of the Registrant.23.1*
    
    Consent of BDO Seidman LLP, Independent Registered Public Accounting Firm.31.1*
    
    Rule 13a-14(a)/15d-14(a) Certification of President and Chief Financial Officer.32.1*
    
    Section 1350 Certification of President and Chief Financial Officer.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 Registrant on February 5, 2008 (incorporated
by reference to Exhibit 99.1 to the Registrants Current Report on Form 8-K (File No.
000-11071) filed on February 6, 2008).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 Registrant on February 5, 2008
(incorporated by reference to Exhibit 99.2 to the Registrants Current Report on Form
8-K (File No. 000-11071) filed on February 6, 2008).99.3
    
    Notice of termination of the Agreement and Plan of Merger, among Nyx
Acquisitions, Inc., The Conceived Group, Inc., and Image Entertainment, Inc., sent by
the Registrant on April 17, 2009 (incorporated by reference to Exhibit 99.1 to the
Registrants Current Report on Form 8-K (File No. 000-11071) filed on April 23, 2009).
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement.▲
    
    Certain information in this exhibit has been omitted and filed separately with the SEC pursuant
to a confidential treatment request that has been granted by the SEC.  Image Entertainment, Inc.
    
    101




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##### Table of Contents



SCHEDULE II
 Valuation and Qualifying Accounts 
For the Years Ended March 31, 2009, 2008 and 2007
 Allowance for Doubtful AccountsAdditions ChargedBalance at
    
    
    to Costs and
    
    
    
    
    
    
    Balance at(In thousands)
    
    Beginning of Year
    
    
    Expenses
    
    
    Amounts Written-Off
    
    
    End of YearFor the Year Ended March 31, 2009:
    
    $
    239
    
    
    $
    (51
    )
    
    $
    (23
    )
    
    $
    165For the Year Ended March 31, 2008:
    
    $
    133
    
    
    $
    152
    
    
    $
    (46
    )
    
    $
    239For the Year Ended March 31, 2007:
    
    $
    177
    
    
    $
    476
    
    
    $
    (520
    )
    
    $
    133Allowance for Sales ReturnsAdditions ChargedBalance at
    
    
    to Costs and
    
    
    
    
    
    
    Balance at(In thousands)
    
    Beginning of Year
    
    
    Expenses
    
    
    Amounts Written-Off
    
    
    End of YearFor the Year Ended March 31, 2009:
    
    $
    8,309
    
    
    $
    31,757
    
    
    $
    (30,014
    )
    
    $
    10,052For 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
    )
    
    $
    8,823Allowance for Deferred Tax AssetsBalance at
    
    
    
    
    
    
    
    
    
    
    Balance at(In thousands)
    
    Beginning of Year
    
    
    Additions
    
    
    Deletions
    
    
    End of YearFor the Year Ended March 31, 2009:
    
    $
    19,033
    
    
    $
    348
    
    
    $
    
    
    
    $
    19,381For the Year Ended March 31, 2008:
    
    $
    10,034
    
    
    $
    8,999
    
    
    $
    
    
    
    $
    19,033For the Year Ended March 31, 2007:
    
    $
    5,991
    
    
    $
    4,043
    
    
    $
    
    
    
    $
    10,034
 Reconciliation to Consolidated Balance Sheets
 At March 31,(In thousands)
    
    2009
    
    
    2008Allowance for Doubtful Accounts:Balance at End of Year
    
    $
    165
    
    
    $
    239Allowance for Sales Returns:Balance at End of Year
    
    
    10,052
    
    
    
    8,309Allowances
    
    $
    10,217
    
    
    $
    8,548
  102
    
    Image Entertainment, Inc.




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##### Table of Contents



SIGNATURES
  IMAGE ENTERTAINMENT, INC.
A Delaware corporationDated:  June 29, 2009
    /s/ JEFF M. FRAMERJEFF M. FRAMERPresident and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)  Dated:  June 29, 2009
    /s/ JEFF M. FRAMERJEFF M. FRAMERPresident and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)Dated:  June 29, 2009
    /s/ MARTIN W. GREENWALDMARTIN W. GREENWALDChairman of the Board and DirectorDated:  June 29, 2009
    /s/ DAVID CORIATDAVID CORIATDirectorDated:  June 29, 2009
    /s/ IRA EPSTEINIRA EPSTEINDirectorDated:  June 29, 2009
    /s/ GARY HABERGARY HABERDirectorDated:  June 29, 2009
    /s/ M. TREVENEN HUXLEYM. TREVENEN HUXLEYDirectorDated:  June 29, 2009
    /s/ ROBERT J. MCCLOSKEYROBERT J. MCCLOSKEYDirector  Image Entertainment, Inc.
    
    103




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##### Table of Contents



EXHIBITS INDEX
 3.1
    
    Certificate of Incorporation of Registrant.10.13
    
    Image Entertainment, Inc. 2008 Stock Awards and Incentive Plan (as amended and
restated on May 1, 2009).10.14
    
    Form of Nonqualified Stock Option Agreement for the Image Entertainment, Inc. 2008
Stock Awards and Incentive Plan.10.15
    
    Form of Incentive Stock Option Agreement for the Image Entertainment, Inc. 2008 Stock
Awards and Incentive Plan.10.21
    
    Waiver and Release Agreement, dated as of June 11, 2009, by and between Image
Entertainment, Inc. and David Borshell.21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of BDO Seidman LLP, Independent Registered Public Accounting Firm.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of President and Chief Financial Officer.32.1
    
    Section 1350 Certification of President and Chief Financial Officer.
 
 
    
    Management contract or compensatory plan or arrangement.  104
    
    Image Entertainment, Inc.