Image Entertainment Releases 2Q Financial Results

"We are pleased to have delivered operating income in spite of the economic slow down and Image's capital challenges. Our efforts to reduce costs have contributed stronger results while robust demand for our exclusive Criterion programming and the success of our feature film Management drove revenues," said Jeff M. Framer, President and Chief Financial Officer of Image Entertainment. "We continue to work with our financial advisors to explore our strategic alternatives. However, the holder of our Senior Secured Convertible Note in the principal amount of $15.7 million has exercised its right to demand a payment of $4,043,767 on November 15. We do not have the funds necessary to make the payment. Failure to make the payment would constitute an event of default under the Note and entitle the holder to accelerate the Note. It would also constitute default under our other debt agreements, including a Loan and Security Agreement with Wachovia Capital Finance Corp. (Western). We are in discussion with the holder of the Note but cannot predict whether we will be successful in avoiding a default under the Note."

In a release dated November 12, the company stated:

Financial Summary - Second Quarter of Fiscal 2010, Ended September 30, 2009

- Net revenues decreased 7.9 percent to $29,840,000, from net revenues of $32,389,000 for the three months ended September 30, 2008. The reduction in revenues was due to a weaker new release schedule and what we believe to a continuing negative impact on the company's revenues from the current economic slowdown.

- Gross profit margins were 25.5 percent, up from 24.8 percent for the three months ended September 30, 2008.

- Selling expenses were 8.3 percent of net revenues, down from 12.5 percent of net revenues for the three months ended September 30, 2008, primarily due to reduced advertising and promotional expenditures as well as reduced personnel costs.

- General and administrative expenses decreased 1.7 percent to $3,533,000, from $3,594,000, for the three months ended September 30, 2008. Costs incurred evaluating strategic alternatives during the September 2009 quarter totaled $346,000.

- Earnings from operations were $1,582,000, up from $396,000 for the three months ended September 30, 2008.

- Net interest expense was $606,000, down from $863,000 for the three months ended September 30, 2008.

- Loss on extinguishment of debt was $2,181,000. Results from the July 30, amendment of the company's senior secured convertible note, which, among other things, increased the outstanding principal under the convertible note to $15,701,000, from $13,000,000, increased the interest rate to 8.875 percent, from 7.875 percent and provided for a minimum 90-day extension to the $4 million bi-annual principal payment originally due on July 30.

- Other expense of $405,000 represents a noncash expense resulting from the change in fair value of a warrant and embedded derivatives.

- Net loss was $1,614,000 ($.07 per diluted share), compared to net loss of $465,000 ($.02 per diluted share), for the three months ended September 30, 2008.

- On October 28, the company further amended its debt senior secured convertible note with Portside extending the next $4 million principal installment from October 30, to November 15, or, in certain circumstances, November 30.

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