<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ................ To
.................
Commission File Number 0-11071
IMAGE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
California 84-0685613
---------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9333 Oso Avenue, Chatsworth, California 91311
-----------------------------------------------------------------
(Address of principal executive offices, including zip code)
(818) 407-9100
-----------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ( X ) No ( )
Number of shares outstanding of the registrant's common stock on August 4, 1995,
1995: 13,796,618
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS.
--------------------
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and March 31, 1995
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,858,490 $ 2,187,063
Accounts receivable, net of allowances of
$2,400,000 - June 30, 1995;
$2,700,000 - March 31, 1995 13,763,515 11,986,576
Inventories 15,798,077 16,283,281
Prepaid expenses and other assets 740,813 668,590
Notes receivable, net of deferred gain
of $2,626,450 327,421 352,017
Property, equipment and improvements, net of
accumulated depreciation and amortization of
$3,803,434 - June 30, 1995;
$3,578,700 - March 31, 1995 2,171,861 2,013,403
----------- -----------
$35,660,177 $33,490,930
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and March 31, 1995
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1995
------------- --------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 9,732,899 $ 11,150,261
Accrued royalties 5,740,183 5,564,812
Revolving credit facility 2,635,182 ---
Capital lease obligations 65,664 103,358
----------- ------------
Total liabilities 18,173,928 16,818,431
----------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value, 3,365,385 shares
authorized; none issued and outstanding --- ---
Common stock, no par value, 25,000,000 shares
authorized; 13,789,399 and 13,797,429 issued
and outstanding at June 30, 1995 and
March 31, 1995, respectively 24,684,208 25,216,305
Stock warrants (494,855) (582,006)
Additional paid-in capital 3,064,129 3,064,129
Accumulated deficit (9,767,233) (11,025,929)
----------- ------------
Net shareholders' equity 17,486,249 16,672,499
----------- ------------
$35,660,177 $ 33,490,930
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended June 30, 1995 and 1994
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
NET SALES $18,129,257 $16,102,580
OPERATING COSTS AND EXPENSES:
Cost of laserdisc sales 14,123,659 12,500,331
Selling expenses 912,547 745,526
General and administrative expenses 1,050,010 898,657
Amortization of production costs 696,682 805,761
----------- -----------
16,782,898 14,950,275
----------- -----------
OPERATING INCOME 1,346,359 1,152,305
OTHER EXPENSES (INCOME):
Interest expense 30,864 462,519
Interest income (80,201) (117,717)
Amortization of deferred financing costs --- 47,984
----------- -----------
(49,337) 392,786
----------- -----------
INCOME BEFORE INCOME TAXES 1,395,696 759,519
INCOME TAXES 137,000 20,000
----------- -----------
NET INCOME $ 1,258,696 $ 739,519
=========== ===========
NET INCOME PER SHARE (Note 5) $ .09 $ .06
=========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
OUTSTANDING (Note 5) 18,017,268 12,631,762
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended June 30, 1995 and 1994
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,258,696 $ 739,519
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 921,413 998,599
Amortization of loan costs --- 82,200
Amortization of stock warrants 87,151 87,151
Changes in assets and liabilities associated
with operating activities, net of acquired business:
Accounts receivable 1,082,020 21,310
Insurance settlement receivable --- 6,543,059
Laserdisc inventory 2,224,429 (784,700)
Royalty and distribution fee advances, net 20,267 379,063
Production cost expenditures (742,237) (721,393)
Prepaid expenses and other assets (18,398) 139,508
Notes receivable 24,596 78,760
Accounts payable, accrued royalties
and liabilities (3,002,731) (3,124,478)
----------- -----------
Net cash provided by operating activities 1,855,206 4,438,598
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments --- (1,015,479)
Proceeds from maturities of short-term investments --- 2,806,272
Capital expenditures (177,590) (204,952)
Acquisition of business, less cash acquired (3,071,580) ---
----------- -----------
Net cash (used) provided by investing activities (3,249,170) 1,585,841
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
For the Three Months Ended June 30, 1995 and 1994
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances under revolving credit facility $ 4,556,836 $ ---
Repayment of advances under revolving credit facility (1,921,654) ---
Principal payments under capital lease obligations (37,694) (87,621)
Repurchase of common stock (602,564) ---
Net proceeds from exercise of stock options 70,467 28,135
----------- ----------
Net cash provided (used) by financing activities 2,065,391 (59,486)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 671,427 5,964,953
Cash and cash equivalents at beginning of period 2,187,063 2,355,649
----------- ----------
Cash and cash equivalents at end of period $ 2,858,490 $8,320,602
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 32,869 $ 843,475
Income taxes $ 35,000 $ ---
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION.
The accompanying consolidated financial statements as of and for the three
months ended June 30, 1995 include the accounts of Image Entertainment, Inc. and
its wholly-owned subsidiary U.S. Laser Video Distributors, Inc. (collectively,
the "Company"). All significant intercompany balances and transactions have
been eliminated in consolidation.
The accompanying consolidated balance sheet at June 30, 1995 and the related
consolidated statements of operations and cash flows for the three-month periods
ended June 30, 1995 and 1994 of the Company included herein are unaudited;
however, such information reflects all adjustments of a normal recurring nature
which management believes are necessary for a fair presentation of results for
the interim periods. The accompanying consolidated financial information for
the three months ended June 30, 1995 and 1994 should be read in conjunction with
the Financial Statements, the Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's March
31, 1995 Form 10-K.
Certain 1994 amounts have been reclassified to conform with the 1995
presentation.
Sales are seasonal in nature, but also vary with the popularity of titles in
release. The results of operations for the three months ended June 30, 1995 are
not necessarily indicative of the results to be expected for the entire fiscal
year ending March 31, 1996.
NOTE 2. ACQUISITION.
Effective June 8, 1995, Image NewCo., Inc. ("NewCo"),a newly created wholly-
owned subsidiary, acquired and assumed substantially all of the assets and
liabilities, respectively, of V.T. Laser, Inc., a privately held New Jersey
based corporation doing business as "U.S. Laser Video Distributors," for a
purchase price of approximately $3.1 million in cash. The name of NewCo was
subsequently changed to U.S. Laser Video Distributors, Inc. ("U.S. Laser").
U.S. Laser is a nonexclusive distributor of optical disc programming and the
publisher of LASERVIEWS: America's Laser Disc Magazine, a bimonthly consumer
periodical focusing on product announcements, software reviews and articles of
general interest to the laserdisc consumer. U.S. Laser has been in the laserdisc
distribution business since 1985.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the acquired assets and assumed liabilities were recorded at fair
market value on the acquisition date. The operating results of U.S. Laser, for
the 22 day period from the acquisition date to June 30, 1995, are included in
the accompanying consolidated statement of operations for the three months ended
June 30, 1995. The purchase price approximated the fair market value of the net
assets acquired, therefore, the related goodwill recorded was immaterial. U.S.
Laser's net sales and net income since its acquisition were immaterial to the
consolidated balances for the three months ended June 30, 1995. The acquisition
of U.S. Laser does not qualify as a significant subsidiary and accordingly,
proforma information is not presented.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3. INVENTORIES.
Inventories at June 30, 1995 and March 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
----------- -----------
<S> <C> <C>
Laserdisc inventory $11,220,262 $11,730,755
Royalty and distribution fee advances 3,383,026 3,403,293
Production costs 1,194,789 1,149,233
----------- -----------
$15,798,077 $16,283,281
=========== ===========
</TABLE>
Production costs are net of accumulated amortization of $4,758,072 and
$4,838,547 at June 30, 1995 and March 31, 1995, respectively.
NOTE 4. INCOME TAXES.
Income taxes were computed using the effective tax rate estimated to be
applicable for the full fiscal year, which is subject to ongoing review and
evaluation by management. The majority of Federal and a portion of state income
taxes are offset by the utilization of net operating loss carryforwards.
NOTE 5. NET INCOME PER SHARE.
Net income per share was based on the weighted average number of common shares
and common share equivalents (e.g., options and warrants), if dilutive,
outstanding for each of the periods presented. The amount of dilution to be
reflected in net income per share was computed by application of the treasury
stock method. In periods where the amount of common stock issuable if all
options and warrants are deemed exercised exceeds 20% of the total shares
outstanding at the end of the period, the treasury stock method was modified, as
required by Accounting Principles Board Opinion No. 15, to adequately reflect
the dilutive effect of options and warrants on net income per share.
Under the modified treasury stock method, net income per share data were
computed as if all outstanding options and warrants were exercised at the
beginning of the period (or on the issuance date, if issued during the period)
and as if the funds obtained thereby were applied as follows: first to
repurchase up to 20% of the outstanding shares at the average market price
during the period, then any remaining proceeds were applied to reduce long-term
debt and, if any proceeds remained thereafter, such proceeds were applied to
invest in short-term U.S. government securities. If the result of the foregoing
application of proceeds had an aggregate dilutive effect on net income per
share, the net income per share calculation must reflect the shares issuable
upon the assumed exercise of options and warrants, net of the assumed repurchase
of shares, and adjustments to net income resulting from the assumed application
of proceeds. If, on the other hand, the aggregate effect was anti-dilutive,
common share equivalents and adjustments to net income resulting from the
assumed application of proceeds were excluded from the calculation of net income
per share.
The effects of the application of the modified treasury stock method were
included in determining net income per share for the June 1995 quarter and were
excluded from the per-share amounts for the June 1994 quarter.
Fully diluted net income per share was not presented for the periods ended June
30, 1995 and 1994 since the amounts did not differ significantly from the
primary net income per share.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
The following table sets forth the calculation of net income per share for the
quarters ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net income, unadjusted $ 1,258,696 $ 739,519
Add: reduction of interest expense on
assumed reduction of debt,
net of taxes 9,590 ---
Add: interest income on assumed investment
in U.S. government securities,
net of taxes 267,086 ---
----------- -----------
Net income, as adjusted $ 1,535,372 $ 739,519
=========== ===========
Weighted average common shares and
common share equivalents outstanding:
Common shares 13,762,239 12,631,762
Common stock options and warrants 4,255,029 ---
----------- -----------
18,017,268 12,631,762
=========== ===========
Net income per share $ .09 $ .06
=========== ===========
</TABLE>
NOTE 6. REVOLVING CREDIT AND TERM LOAN FACILITY.
At June 30, 1995, the Company had $2,635,182 in borrowings outstanding under its
November 15, 1994, three year, $15,000,000 revolving credit and term loan
facility with Foothill Capital Corporation. The Borrowings are secured by
substantially all of the Company's assets and bear interest at prime plus 1.5%
(10.5% at June 30, 1995).
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
-------------
GENERAL
Since 1983, the Company has distributed a broad range of programming
on laserdisc for home viewing. The Company generally enters into license
agreements whereby it acquires the exclusive right to manufacture and distribute
laserdisc programming. In addition, the Company acts as an exclusive and
nonexclusive wholesale distributor of laserdisc programming.
RESULTS OF OPERATIONS
The Company's net sales for the three months ended June 30, 1995
increased 12.6% to $18,129,257 from $16,102,580 for the three months ended June
30, 1994. Operating income increased 16.8% to $1,346,359 for the June 1995
quarter from $1,152,305 for the June 1994 quarter. Net income increased 70.2%
to $1,258,696, or $.09 per share, for the June 1995 quarter from $739,519, or
$.06 per share, for the June 1994 quarter.
THE THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1994
Net sales for the June 1995 quarter increased 12.6% to $18,129,257
from $16,102,580 for the June 1994 quarter. This increase is a result of
stronger catalogue title sales, the acquisition of U.S. Laser (see Note 2 to the
---
consolidated financial statements), and sales of salvaged inventory retained as
part of the June 1994 insurance settlement relating to the January 17, 1994
Northridge earthquake. Net sales are also affected by the popularity of new
releases.
Cost of laserdisc sales increased to $14,123,659 for the June 1995
quarter from $12,500,331 for the June 1994 quarter. As a percentage of net
sales, cost of laserdisc sales for the June 1995 quarter increased to 77.9% from
77.6% for the June 1994 quarter. During the June 1995 quarter, sales of
salvaged inventory decreased cost of laserdisc sales as a percentage of net
sales to 77.9% from 79.7%. The increase in cost of sales as a percentage of net
sales for the June 1995 quarter was due primarily to the fluctuation in sales
mix described below and a June 1995 catalogue title sales promotion and, in part
to the acquisition of U.S. Laser (U.S. Laser has substantially lower margins as
a pure nonexclusive distributor). The sales mix of higher-margin exclusive
product and lower-margin nonexclusive product and the margins within each
category vary with the availability and popularity of titles and the Company's
marketing emphasis. Lower-margin nonexclusive product sales accounted for 12.7%
and 10.6% of net sales for June 1995 and 1994 quarters, respectively.
Selling expenses for the June 1995 quarter increased 22.4% to $912,547
from $745,526 for the June 1994 quarter. As a percentage of net sales, selling
expenses for the June 1995 quarter increased to 5.0% from 4.6% for the June 1994
quarter. An increase in market development funds provided to customers for
advertising, marketing and related purposes as well as the acquisition of U.S.
Laser accounted for the percentage increase.
General and administrative expenses for the June 1995 quarter
increased 16.8% to $1,050,010 from $898,657 for the June 1994 quarter. As a
percentage of net sales, general and administrative expenses for the June 1995
quarter increased to 5.8% from 5.6% for the June 1994 quarter. The acquisition
of U.S. Laser as well as higher depreciation expense related to the creative
service department's digital pre-press system primarily accounted for the
absolute dollar and percentage increase.
Amortization of production costs for the June 1995 quarter decreased
13.5% to $696,682 from $805,761 for the June 1994 quarter. This decrease is
attributable to cost savings afforded by the creative service department's
digital pre-press system installed in December 1994 which has substantially
reduced
9
<PAGE>
the outsourcing of laserdisc jacket film color separations. Amortization of
production costs is also a function of the timing and number of Image exclusive
titles placed into production.
Interest expense was $30,864 for the June 1995 quarter, a 94.0%
decrease from $510,503 in combined interest expense and amortization of deferred
financing costs for the June 1994 quarter. Improved cash flow from operations
and the November 1994 refinancing of senior notes with a revolving credit
facility resulted in substantially less borrowings outstanding in the June 30,
1995 quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements vary primarily with the
level of its licensing, production and distribution activities. The principal
uses of working capital are for program licensing costs (i.e., royalty payments,
----
including advances, to program suppliers), distribution fee advances,
manufacturing and production costs, costs of acquiring finished product for
wholesale distribution, principal and interest payments on long-term debt and
selling, general and administrative expenses. Working capital requirements
increase as licensing and distribution activities increase. Working capital has
historically been provided by private sales of common stock, notes representing
long-term debt, bank borrowings and cash flows from operations. For the June
1995 quarter, operating activities provided cash and cash equivalents of
$1,855,206, investing activities used cash and cash equivalents of $3,249,170
and financing activities provided cash and cash equivalents of $2,065,391,
resulting in a net increase in cash and cash equivalents of $671,427.
Effective June 8, 1995, the Company acquired and assumed substantially
all of the assets and liabilities, respectively, of V.T. Laser, Inc., a
privately held New Jersey based corporation doing business as "U.S. Laser Video
Distributors," for a purchase price of approximately $3.1 million in cash. The
transaction was funded through operating cash flow and borrowings under the
Company's revolving credit facility.
At June 30, 1995, the Company had $2,635,182 in borrowings outstanding
under its November 15, 1994, three year, $15,000,000 revolving credit and term
loan facility with Foothill Capital Corporation ("Foothill") and had borrowing
availability of $5,246,176 under the revolving credit and term loan facility.
The Borrowings are secured by substantially all of the Company's assets and bear
interest at prime plus 1.5% (10.5% at June 30, 1995). The facility agreement
requires the Company to comply with certain financial and operating covenants.
With respect to the June 8, 1995 acquisition of U.S. Laser, Foothill waived
compliance with certain covenants which restrict corporate acquisitions and
related expenditures. At June 30, 1995, the Company was in compliance with all
financial and other operating covenants.
At June 30, 1995, the Company had $2,990,000 of outstanding letters of
credit of which $990,000 and $2,000,000 were issued and guaranteed,
respectively, by Foothill and expire on November 15, 1995. These letters of
credit secure balances due to program suppliers.
During the June 1995 quarter, the Company repurchased 86,200 shares of
its common stock for $602,564 under its stock repurchase program approved by the
Company's Board of Directors on January 16, 1995.
At June 30, 1995, the Company had license obligations for royalty
advances and minimum guarantees and exclusive distribution fee obligations for
minimum guarantees of approximately $5,697,000 for the remainder of fiscal 1996,
$3,969,000 during fiscal 1997, $4,358,000 during fiscal 1998, $4,619,000 during
fiscal 1999 and $2,627,000 during fiscal 2000. These advances and guarantees
are recoupable against royalties and distribution fees earned by the licensors
and program suppliers, respectively. Depending upon the competition for license
and exclusive distribution rights, the Company may have to pay increased
advances, guarantees and/or royalty rates in order to acquire or retain such
rights in the future.
10
<PAGE>
Management believes its internal and external sources of funding are
adequate to meet anticipated operating needs for the next twelve months.
SUMMARY AND OUTLOOK
The Company continues to aggressively license new programming for
laserdisc distribution as well as seek to renew and extend relationships with
existing studios as distribution and/or license agreements mature. The Company
believes the laserdisc industry will continue its growth through the turn of the
century.
In addition to its laserdisc licensing and distribution, the Company
continues to seek investment opportunities in growth oriented companies
complementary to the Company's existing operations, such as proprietary content
production or software distribution businesses. Should suitable investment
opportunities arise that would require funds in excess of those provided by
operations and availability under the Company's revolving credit facility,
additional financing sources may be sought.
11
<PAGE>
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The consolidated financial statements as of June 30, 1995 and for the
three-month periods ended June 30, 1995 and 1994 in this Form 10-Q have been
reviewed by KPMG Peat Marwick LLP, independent certified public accountants, in
accordance with established professional standards and procedures for such a
review.
The report of KPMG Peat Marwick LLP commenting upon their review
follows.
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Image Entertainment, Inc.
We have reviewed the condensed consolidated balance sheet of Image
Entertainment, Inc. as of June 30, 1995, and the related condensed consolidated
statements of operations and cash flows for the three month periods ended June
30, 1995 and 1994 in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Image Entertainment, Inc.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with general accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Image Entertainment, Inc. as of March 31, 1995,
and the related statements of operations and cash flows for the year then ended
(not presented herein); and in our report dated June 6, 1995, except for Note
14, which was as of June 8, 1995, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of March 31, 1995, is fairly presented,
in all material respects, in relation to the balance sheet from which it has
been derived.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
August 2, 1995
13
<PAGE>
PART II - OTHER INFORMATION
------------------------------
ITEM 1. LEGAL PROCEEDINGS.
-----------------
Not Applicable
ITEM 2. CHANGES IN SECURITIES.
---------------------
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not Applicable
ITEM 5. OTHER INFORMATION.
-----------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits
See Exhibit Index on page 16
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMAGE ENTERTAINMENT, INC.
Date: August 7, 1995 By: /s/MARTIN W. GREENWALD
------------------------------------
Martin W. Greenwald
Chairman of the Board,
Chief Executive Officer,
President and Treasurer
Date: August 7, 1995 By: /s/JEFF M. FRAMER
------------------------------------
Jeff M. Framer
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.1* Amendment No. 1 dated and effective as of July 1, 1995 to
Employment Agreement of Martin W. Greenwald dated July 1,
1994.
10.2* Amendment No. 1 dated and effective as of July 1, 1995 to
Employment Agreement of Cheryl Lee dated July 1, 1994.
10.3* Amendment No. 1 dated and effective as of July 1, 1995 to
Employment Agreement of Jeff Framer dated July 1, 1994.
10.4* Amendment No. 2 dated and effective as of July 1, 1995 to
Employment Agreement of David Borshell dated July 1, 1994.
15* Letter re unaudited interim financial information.
27* Financial Data Schedule.
</TABLE>
* EXHIBIT(S) NOT PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
16
<PAGE>
EXHIBIT 10.1
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT DATED JULY 1, 1994
Reference is made to that certain Employment Agreement dated as of July 1,
1994 (the "Agreement"), by and between Image Entertainment, Inc., a California
---------
corporation ("Image"), and Martin W. Greenwald, an individual ("Executive").
----- ---------
All defined terms not defined herein will have the meanings set forth in the
Agreement.
1. EFFECTIVE DATE. All of the terms and conditions of this Amendment will be
applicable commencing on and effective as of July 1, 1995 (the "Effective
---------
Date").
----
2. TERM OF AGREEMENT. Paragraph 1 of the Agreement is hereby amended to the
following extent:
a. The words "a 2-year term" in line 2 are replaced by the words "the
period."
b. The words "June 30, 1996" in line 2 and line 4 are replaced by the
words "June 30, 1998."
c. The words "June 30, 1995" in line 3 are replaced by the words "June
30, 1997."
d. The words "June 30, 1997" in line 5 are replaced by the words "June
30, 1999."
3. BASE SALARY AND PERSONAL EXPENSES. Paragraph 3(a) and Paragraph 5(b)(ii)
of the Agreement are hereby amended to the following extent:
a. For each year of the Term, commencing on the Effective Date, Executive
will receive a 5% increase to Executive's then base salary and a 5%
increase to Executive's then personal expense allocation.
4. GENERAL PROVISIONS.
a. Headings. Article and paragraph headings, as used in this Amendment,
--------
are for convenience only and are not a part hereof, and will not be
used to interpret any provision of this Amendment or the Agreement.
b. Integration. The parties hereby acknowledge and agree that the
-----------
Agreement as amended hereby constitutes the entire agreement between
the parties with respect to the subject matter hereof.
c. Severability. In the event that any provision of the Agreement as
------------
amended hereby will be held invalid or unenforceable, such provision
will be severable from, and such invalidity or unenforceability will
not be construed to have any effect on, the remaining provisions of
the Agreement.
d. Ratification and Confirmation of Agreement. Except as set forth herein
------------------------------------------
to the contrary, the Agreement is hereby ratified and affirmed;
provided, however, that in the event of any inconsistencies, the
-------- -------
terms, conditions and definitions set forth herein will control.
IN WITNESS WHEREOF, each of the parties has executed and entered into this
Amendment as of the Effective Date set forth above.
"Image Entertainment, Inc.": "Executive"
------------------------- ---------
/s/MARTIN W. GREENWALD /s/MARTIN W. GREENWALD
---------------------- ----------------------
Martin W. Greenwald, President Martin W. Greenwald, an individual
<PAGE>
EXHIBIT 10.2
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT DATED JULY 1, 1994
Reference is made to that certain Employment Agreement dated as of July 1,
1994 (the "Agreement"), by and between Image Entertainment, Inc., a California
---------
corporation ("Image"), and Cheryl Lee, an individual ("Executive"). All defined
----- ---------
terms not defined herein will have the meanings set forth in the Agreement.
1. EFFECTIVE DATE. All of the terms and conditions of this Amendment will be
applicable commencing on and effective as of July 1, 1995 (the "Effective
---------
Date").
----
2. TERM OF AGREEMENT. Paragraph 1 of the Agreement is hereby amended to the
following extent:
a. The words "a 2-year term" in line 2 are replaced by the words "the
period."
b. The words "June 30, 1996" in line 2 and line 4 are replaced by the
words "June 30, 1998."
c. The words "June 30, 1995" in line 3 are replaced by the words "June
30, 1997."
d. The words "June 30, 1997" in line 5 are replaced by the words "June
30, 1999."
3. BASE SALARY. Paragraph 3(a) of the Agreement is hereby amended to the
following extent:
a. For each year of the Term, commencing on the Effective Date, Executive
will receive a 5% increase to Executive's then base salary.
4. GENERAL PROVISIONS.
a. Headings. Article and paragraph headings, as used in this Amendment,
--------
are for convenience only and are not a part hereof, and will not be
used to interpret any provision of this Amendment or the Agreement.
b. Integration. The parties hereby acknowledge and agree that the
-----------
Agreement as amended hereby constitutes the entire agreement between
the parties with respect to the subject matter hereof.
c. Severability. In the event that any provision of the Agreement as
------------
amended hereby will be held invalid or unenforceable, such provision
will be severable from, and such invalidity or unenforceability will
not be construed to have any effect on, the remaining provisions of
the Agreement.
d. Ratification and Confirmation of Agreement. Except as set forth herein
------------------------------------------
to the contrary, the Agreement is hereby ratified and affirmed;
provided, however, that in the event of any inconsistencies, the
-------- -------
terms, conditions and definitions set forth herein will control.
IN WITNESS WHEREOF, each of the parties has executed and entered into this
Amendment as of the Effective Date set forth above.
"Image Entertainment, Inc.": "Executive":
------------------------- ---------
/s/MARTIN W. GREENWALD /s/CHERYL LEE
---------------------- -------------
Martin W. Greenwald, President Cheryl Lee, an individual
<PAGE>
EXHIBIT 10.3
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT DATED JULY 1, 1994
Reference is made to that certain Employment Agreement dated as of July 1,
1994 (the "Agreement"), by and between Image Entertainment, Inc., a California
---------
corporation ("Image"), and Jeff Framer, an individual ("Executive"). All
----- ---------
defined terms not defined herein will have the meanings set forth in the
Agreement.
1. EFFECTIVE DATE. All of the terms and conditions of this Amendment will be
applicable commencing on and effective as of July 1, 1995 (the "Effective
---------
Date").
----
2. TERM OF AGREEMENT. Paragraph 1 of the Agreement is hereby amended to the
following extent:
a. The words "a 2-year term" in line 2 are replaced by the words "the
period."
b. The words "June 30, 1996" in line 2 and line 4 are replaced by the
words "June 30, 1998."
c. The words "June 30, 1995" in line 3 are replaced by the words "June
30, 1997."
d. The words "June 30, 1997" in line 5 are replaced by the words "June
30, 1999."
3. BASE SALARY. Paragraph 3(a) of the Agreement is hereby amended to the
following extent:
a. For each year of the Term, commencing on the Effective Date, Executive
will receive a 5% increase to Executive's then base salary.
4. GENERAL PROVISIONS.
a. Headings. Article and paragraph headings, as used in this Amendment,
--------
are for convenience only and are not a part hereof, and will not be
used to interpret any provision of this Amendment or the Agreement.
b. Integration. The parties hereby acknowledge and agree that the
-----------
Agreement as amended hereby constitutes the entire agreement between
the parties with respect to the subject matter hereof.
c. Severability. In the event that any provision of the Agreement as
------------
amended hereby will be held invalid or unenforceable, such provision
will be severable from, and such invalidity or unenforceability will
not be construed to have any effect on, the remaining provisions of
the Agreement.
d. Ratification and Confirmation of Agreement. Except as set forth herein
------------------------------------------
to the contrary, the Agreement is hereby ratified and affirmed;
provided, however, that in the event of any inconsistencies, the
-------- -------
terms, conditions and definitions set forth herein will control.
IN WITNESS WHEREOF, each of the parties has executed and entered into this
Amendment as of the Effective Date set forth above.
"Image Entertainment, Inc.": "Executive"":
------------------------- ---------
/s/MARTIN W. GREENWALD /s/JEFF FRAMER
---------------------- --------------
Martin W. Greenwald, President Jeff Framer, an individual
<PAGE>
EXHIBIT 10.4
AMENDMENT #2 TO
EMPLOYMENT AGREEMENT DATED JULY 1, 1994
Reference is made to that certain Employment Agreement dated as of July 1,
1994 (the "Agreement"), by and between Image Entertainment, Inc., a California
---------
corporation ("Image"), and David Borshell, an individual ("Executive"). All
----- ---------
defined terms not defined herein will have the meanings set forth in the
Agreement.
1. EFFECTIVE DATE. All of the terms and conditions of this Amendment will be
applicable commencing on and effective as of July 1, 1995 (the "Effective
---------
Date").
----
2. TERM OF AGREEMENT. Paragraph 1 of the Agreement is hereby amended to the
following extent:
a. The words "a 2-year term" in line 2 are replaced by the words "the
period."
b. The words "June 30, 1996" in line 2 and line 4 are replaced by the words
"June 30, 1998."
c. The words "June 30, 1995" in line 3 are replaced by the words "June 30,
1997."
d. The words "June 30, 1997" in line 5 are replaced by the words "June 30,
1999."
3. BASE SALARY. Paragraph 3(a) of the Agreement is hereby amended to the
following extent:
a. For each year of the Term, commencing on the Effective Date, Executive
will receive a 5% increase to Executive's then base salary; provided,
--------
however, that notwithstanding the foregoing, Executive's annual base
-------
salary increase for the period commencing on the Effective Date and
ending on June 30, 1996 will be 15.5%.
4. GENERAL PROVISIONS.
a. Headings. Article and paragraph headings, as used in this Amendment, are
--------
for convenience only and are not a part hereof, and will not be used to
interpret any provision of this Amendment or the Agreement.
b. Integration. The parties hereby acknowledge and agree that the Agreement
-----------
as amended hereby constitutes the entire agreement between the parties
with respect to the subject matter hereof.
c. Severability. In the event that any provision of the Agreement as
------------
amended hereby will be held invalid or unenforceable, such provision
will be severable from, and such invalidity or unenforceability will not
be construed to have any effect on, the remaining provisions of the
Agreement.
d. Ratification and Confirmation of Agreement. Except as set forth herein
------------------------------------------
to the contrary, the Agreement is hereby ratified and affirmed;
provided, however, that in the event of any inconsistencies, the terms,
-------- -------
conditions and definitions set forth herein will control.
IN WITNESS WHEREOF, each of the parties has executed and entered into this
Amendment as of the Effective Date set forth above.
"Image Entertainment, Inc.": "Executive":
------------------------- ---------
/s/MARTIN W. GREENWALD /s/DAVID BORSHELL
---------------------- -----------------
Martin W. Greenwald, President David Borshell, an individual
<PAGE>
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' CONSENT
--------------------------------
Image Entertainment, Inc.
Chatsworth, California
Gentlemen:
Re: Registration Statement Nos. 33-43241, 33-55393 and 33-57336
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated August 2, 1995 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/s/KPMG PEAT MARWICK LLP
Los Angeles, California
August 8, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-03-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,858,490
<SECURITIES> 0
<RECEIVABLES> 16,163,515
<ALLOWANCES> 2,400,000
<INVENTORY> 15,798,077
<CURRENT-ASSETS> 0<F1>
<PP&E> 5,975,295
<DEPRECIATION> 3,803,434
<TOTAL-ASSETS> 35,660,177
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
<COMMON> 24,684,208
0
0
<OTHER-SE> (7,197,959)
<TOTAL-LIABILITY-AND-EQUITY> 35,660,177
<SALES> 18,129,257
<TOTAL-REVENUES> 18,129,257
<CGS> 14,123,659
<TOTAL-COSTS> 14,123,659
<OTHER-EXPENSES> 696,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,864
<INCOME-PRETAX> 1,395,696
<INCOME-TAX> 137,000
<INCOME-CONTINUING> 1,258,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,258,696
<EPS-PRIMARY> .09
<EPS-DILUTED> 0<F2>
<FN>
<F1>The Company has an unclassified balance sheet due to the nature of its
industry.
<F2>Not presented since the amounts do not differ significantly from the primary
net income per share.
</FN>
</TABLE>
