<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, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For The Transition Period From TO
--------- -------
Commission File Number 0-11071
_______________________
IMAGE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
_______________________
CALIFORNIA 84-0685613
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation)
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 6, 1996:
13,699,028
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<PAGE>
PART I - FINANCIAL INFORMATION
==============================
ITEM 1. FINANCIAL STATEMENTS.
--------------------
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and March 31, 1996
================================================================================
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- ---------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,836,252 $ 4,665,942
Accounts receivable, net of allowances of
$2,829,000 - June 30, 1996;
$3,183,000 - March 31, 1996 13,945,386 13,333,372
Inventories 19,391,999 18,445,137
Prepaid expenses and other assets 1,522,061 906,098
Notes receivable, net 34,452 75,908
Property, equipment and improvements, net of
accumulated depreciation and amortization of
$3,331,501 - June 30, 1996;
$3,145,347 - March 31, 1996 1,993,902 1,979,211
----------- -----------
$38,724,052 $39,405,668
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and March 31, 1996
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
-------------- ---------------
(unaudited)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $13,463,449 $13,606,541
Accrued royalties 4,977,291 5,273,698
----------- -----------
Total liabilities 18,440,740 18,880,239
----------- -----------
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; 13,699,028 and 13,556,160 issued
and outstanding at June 30, 1996 and
March 31, 1996, respectively 20,186,091 21,121,582
Stock warrants (146,250) (233,401)
Additional paid-in capital 3,064,129 3,064,129
Accumulated deficit (2,820,658) (3,426,881)
----------- -----------
Net shareholders' equity 20,283,312 20,525,429
----------- -----------
$38,724,052 $39,405,668
=========== ===========
</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, 1996 and 1995
================================================================================
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
NET SALES $20,146,600 $18,129,257
OPERATING COSTS AND EXPENSES:
Cost of laserdisc sales 15,981,387 14,123,659
Selling expenses 1,080,690 912,547
General and administrative expenses 1,462,172 1,050,010
Amortization of production costs 771,980 696,682
----------- -----------
19,296,229 16,782,898
----------- -----------
OPERATING INCOME 850,371 1,346,359
OTHER EXPENSES (INCOME):
Interest expense 26,068 30,864
Interest income (94,920) (80,201)
----------- -----------
(68,852) (49,337)
----------- -----------
INCOME BEFORE INCOME TAXES 919,223 1,395,696
INCOME TAXES 313,000 137,000
----------- -----------
NET INCOME $ 606,223 $ 1,258,696
=========== ===========
NET INCOME PER SHARE (Note 4) $ .04 $ .09
=========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
OUTSTANDING (Note 4) 16,032,630 18,017,268
=========== ===========
</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, 1996 and 1995
===============================================================================
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 606,223 $ 1,258,696
Adjustments to reconcile net income
to net cash (used) provided by operating activities:
Depreciation and amortization 189,955 224,731
Amortization of production costs 771,980 696,682
Amortization of stock warrants 87,151 87,151
Provision for doubtful accounts 216,049 43,402
Changes in assets and liabilities associated
with operating activities, net of acquired business:
Accounts receivable (828,063) 1,038,618
Laserdisc inventory (360,282) 2,224,429
Royalty and distribution fee advances, net (595,181) 20,267
Production cost expenditures (763,379) (742,237)
Prepaid expenses and other assets (619,763) (18,398)
Notes receivable 41,456 24,596
Accounts payable, accrued royalties
and liabilities (1,241,624) (3,002,731)
----------- -----------
Net cash (used) provided by operating activities (2,495,478) 1,855,206
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (200,845) (177,590)
Acquisition of business, less cash acquired - (3,071,580)
----------- -----------
Net cash used by investing activities (200,845) (3,249,170)
----------- -----------
</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, 1996 and 1995
================================================================================
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<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)
Repurchase of common stock (171,860) (602,564)
Net proceeds from exercise of stock options 38,493 70,467
----------- -----------
Net cash (used) provided by financing activities (133,367) 2,065,391
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (2,829,690) 671,427
Cash and cash equivalents at beginning of period 4,665,942 2,187,063
----------- -----------
Cash and cash equivalents at end of period $ 1,836,252 $ 2,858,490
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 19,554 $ 32,869
Income taxes $ 130,000 $ 35,000
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF A NONCASH FINANCING ACTIVITY:
On June 27, 1996, the Board of Directors entered into an agreement to purchase
138,000 shares of the Company's common stock held by Martin W. Greenwald, the
Company's Chairman and Chief Executive Officer for $802,125. At June 30, 1996
the transaction was recorded as a reduction to common stock and an increase to
accounts payable and accrued liabilities.
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, 1996 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, 1996 and the
related consolidated statements of operations and cash flows for the
three-month periods ended June 30, 1996 and 1995 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, 1996 and 1995 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, 1996 Form 10-K.
Certain fiscal 1996 amounts have been reclassified to conform with the
fiscal 1997 presentation.
Acquisition. The consolidated statements of operations for the three
-----------
months ended June 30, 1996 and 1995 included the operating results of
the Company's wholly-owned subsidiary U.S. Laser Video Distributors,
Inc. ("U.S. Laser"). For the three months ended June 30, 1996,
operating results of U.S. Laser were included for the entire three-
month period versus the 17 business day period commencing on the June
8, 1995 acquisition of U.S. Laser which were included for the June 1995
quarter.
Seasonality and Variability. The Company has generally experienced
---------------------------
higher sales of laserdiscs in the quarters ended December 31 and March
31 due to increased consumer spending associated with the year-end
holidays and the home video release of many high profile, high budget
summer theatrical releases; however, since most sales of a title occur
in the first few months after its release, seasonal sales also vary
with the popularity of titles in release. In addition to seasonality
issues, other factors have contributed to the fluctuation in the
Company's net sales on a quarterly basis. These factors include: (i)
the popularity of titles in release during the quarter; (ii) the
Company's marketing and promotional activities; (iii) the Company's
rights and distribution activities; (iv) the extension, termination or
non-renewal of existing license and distribution rights; and (v)
general economic changes affecting consumer demand for laserdisc
hardware and software and affecting the buying habits of the Company's
customers. The results of operations for the three months ended June
30, 1996 are not necessarily indicative of the results to be expected
for the entire fiscal year ending March 31, 1997.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
NOTE 2. INVENTORIES.
Inventories at June 30, 1996 and March 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
<S> <C> <C>
Laserdisc inventory $14,316,558 $13,956,276
Royalty and distribution fee advances 3,764,625 3,169,444
Production costs 1,310,816 1,319,417
----------- -----------
$19,391,999 $18,445,137
=========== ===========
</TABLE>
Production costs are net of accumulated amortization of $4,892,609 and
$4,941,715 at June 30, 1996 and March 31, 1996, respectively.
NOTE 3. INCOME TAXES.
Income taxes for the June 1996 quarter were computed using the
effective tax rate estimated to be applicable for the full fiscal year
ending March 31, 1997, which is subject to ongoing review and
evaluation by management. A portion of Federal income taxes for the
quarter ended June 30, 1996 were offset by the utilization of net
operating loss carryforwards.
NOTE 4. 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 is 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 any outstanding long-term debt and, if any
proceeds remained thereafter, such proceeds were applied to invest in
U.S. government securities. If the result of the foregoing application
of proceeds has 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
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
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 are excluded from the calculation of net income per share.
The modified treasury stock method was used to determine net income per
share for the three months ended June 30, 1996 and 1995.
Fully diluted net income per share was not presented for the periods
ended June 30, 1996 and 1995 since the amounts did not differ
significantly from the primary net income per share.
The following table sets forth the calculation of net income per share
for the quarters ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
As Presented
------------
Net income $ 606,223 $ 1,258,696
----------- -----------
Adjustments
-----------
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 88,791 267,086
------------ ----------
Adjustments to net income 88,791 276,676
----------- -----------
As Adjusted
-----------
Net income $ 695,014 $ 1,535,372
=========== ===========
Weighted average common shares and
common share equivalents outstanding:
Common shares 13,722,842 13,762,239
Common stock options and warrants 2,309,788 4,255,029
----------- -----------
16,032,630 18,017,268
=========== ===========
Net income per share $ .04 $ .09
=========== ===========
</TABLE>
NOTE 5. REVOLVING CREDIT AND TERM LOAN FACILITY.
At June 30, 1996, the Company had no borrowings outstanding under its
November 15, 1994, three year, $15,000,000 revolving credit and term
loan facility with Foothill Capital Corporation. Borrowings are secured
by substantially all of the Company's assets and bear interest at prime
plus 1.5% (9.75% at June 30, 1996).
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 entertainment 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, 1996 increased
11.1% to $20,146,600 from $18,129,257 for the June 1995 quarter. Operating
income for the June 1996 quarter decreased 36.8% to $850,371 from $1,346,359 for
the June 1995 quarter. Pretax income for the June 1996 quarter fell 34.1% to
$919,223 from $1,395,696 for the June 1995 quarter. Net income for the June
1996 quarter decreased 51.8% to $606,223, or $.04 per share, from $1,258,696, or
$.09 per share, for the June 1995 quarter. The Company's effective tax rate for
fiscal 1997 is estimated to be 34.0%, substantially higher than the 9.8% for the
June 1995 quarter.
THE THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
Net sales for the June 1996 quarter increased 11.1% to $20,146,600 from
$18,129,257 for the June 1995 quarter. This increase resulted primarily from
the acquisition of U.S. Laser in June 1995. Net sales of U.S. Laser were
included in consolidated net sales for the entire three months ended June 30,
1996 versus 17 business days for the June 1995 quarter (from the June 8, 1995
acquisition date through June 30, 1995). Net sales for the June 1996 quarter,
exclusive of U.S. Laser's net sales, increased 3.1% to $17,914,872 from
$17,372,566 for the June 1995 quarter. The June 1996 quarter's net sales
benefitted from MGM/UA new releases under a May 1996 exclusive output license
agreement which releases included titles such as GOLDENEYE, GET SHORTY and
LEAVING LAS VEGAS, see Summary and Outlook below. However, the Company's net
---
sales of catalogue titles (previously released laserdisc titles) in the June
1996 quarter were weaker than those in the June 1995 quarter due primarily to
retail softness experienced by the chain music/video stores, and confusion and
uncertainty in the laserdisc marketplace about the pending introduction of DVD
software, a new 5-inch format, and how its compressed digital video and audio
quality will compare to laserdisc software. In the future, the Company expects
that net sales will be affected by the popularity of new releases, the
prevailing economic environment and the extent of the Company's distribution of
the DVD format and DVD's market penetration.
Cost of laserdisc sales for the June 1996 quarter increased to $15,981,387
from $14,123,659 for the June 1995 quarter. As a percentage of net sales, cost
of laserdisc sales for the June 1996 quarter increased to 79.3% from 77.9% for
the June 1995 quarter. The June 1996 quarter's increase in cost of laserdisc
sales as a percentage of net sales resulted primarily from comparatively reduced
sales of
9
<PAGE>
higher-margin salvaged inventory retained as part of a June 1994 insurance
settlement, increased lower-margin nonexclusive product sales as a percentage of
total net sales and contractual price concessions on certain MGM/UA new
releases, all further described as follows. During the June 1996 and 1995
quarters, sales of aforementioned salvaged inventory decreased cost of laserdisc
sales as a percentage of net sales (exclusive of U.S. Laser's net sales) to
78.9% from 79.4% for the June 1996 quarter and to 77.5% from 79.3% in the June
1995 quarter. At June 30, 1996, the Company had minimal salvaged inventory
remaining on hand. During the quarter ended June 30, 1996, one of the Company's
largest exclusive product customers began buying nonexclusive laserdisc product
from the Company which contributed to the percentage increase in nonexclusive
product sales. The Company's May 1996 license agreement securing distribution
rights of MGM/UA titles stipulated that the Company honor existing pricing
arrangements with respect to fourteen new release titles offered to customers by
MGM/UA's former distributor prior to the agreement's effective date. Seven of
the fourteen new titles were released during the June 1996 quarter and their
pricing reduced expected margins on those seven new release titles by
approximately 3.0%. The remaining seven new release titles will be sold on
similar terms.
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, including lower-margin U.S. Laser sales
(U.S. Laser has substantially lower margins because it is solely a nonexclusive
distributor), accounted for 25.8% of net sales in the June 1996 quarter compared
to 16.5% in the June 1995 quarter. Cost of laserdisc sales as a percentage of
net sales for the June 1996 quarter, exclusive of U.S. Laser's net sales and
cost of laserdisc sales, increased to 78.9% from 77.5% for the June 1995
quarter.
Selling expenses for June 1996 quarter increased 18.4% to $1,080,690 from
$912,547 for the June 1995 quarter. As a percentage of net sales, selling
expenses for the June 1996 quarter increased to 5.4% from 5.0% for the June 1995
quarter. This increase resulted primarily from increased trade advertising of
exclusive titles, increased market development funds provided to customers,
increased sales promotion (which included bundling laserdisc software with
laserdisc players) and the fabrication cost of DVD software display prototypes
associated with the Company's agreement with Thomson Consumer Electronics, see
---
Summary and Outlook below. Selling expenses, exclusive of U.S. Laser's selling
expenses, increased 14.5% to $972,310 for the June 1996 quarter from $849,120
for the June 1995 quarter and, as a percentage of net sales, increased to 5.4%
for the June 1996 quarter from 4.9% from the June 1995 quarter. The Company
expects to increase its expenditures for market development, trade advertising
and sales promotions for the balance of fiscal 1997 as compared to fiscal 1996.
General and administrative expenses for the June 1996 quarter increased
39.3% to $1,462,172 from $1,050,010 for the June 1995 quarter. As a percentage
of net sales, general and administrative expenses for the June 1996 quarter
increased to 7.3% from 5.8% for the June 1995 quarter. This increase resulted
primarily from the inclusion of a full quarter of U.S. Laser's general and
administrative expenses in the June 1996 quarter, an increase in the provision
for doubtful accounts due to continued softness in the retail entertainment
software market, higher insurance premium costs and higher personnel and fringe
benefit costs. General and administrative expenses, exclusive of U.S. Laser's
general and administrative expenses, increased 23.3% to $1,228,955 for the June
1996 quarter from
10
<PAGE>
$996,841 for the June 1995 quarter and, as a percentage of net sales, general
and administrative expenses was 6.9% for the June 1996 quarter versus 5.7% for
the 1995 quarter.
Amortization of production costs for the June 1996 quarter increased 10.8%
to $771,980 from $696,682 for the June 1995 quarter. As a percentage of net
sales, amortization of production costs were 3.8% for the June 1996 and 1995
quarters. As a nonexclusive distributor, U.S. Laser does not incur production
costs. Amortization of production costs as a percentage of net sales, exclusive
of U.S. Laser's net sales, was 4.3% for the June 1996 quarter versus 4.0% for
the June 1995 quarter. The Company expects amortization of production costs to
continue to be a function of the timing and number of exclusive titles placed
into production.
Interest expense for the June 1996 quarter decreased 15.5% to $26,068 from
$30,864 for the June 1995 quarter. Interest income for the June 1996 quarter
increased 18.4% to $94,920 from $80,201 for the June 1995 quarter. The June
1995 quarter saw the utilization of cash and borrowings under the Company's
revolving credit facility to finance the acquisition of U.S. Laser.
The effective income tax rate for the June 1996 quarter was approximately
34.0%, substantially higher than 9.8% for the June 1995 quarter. Net operating
loss carryforwards for Federal and state tax purposes were utilized to offset
taxable income in the June 1995 quarter. However, the net operating loss
carryforward for the state tax purposes was fully utilized during fiscal 1996,
and the Federal net operating loss carryforward is expected to be fully utilized
in fiscal 1997, together leading to a higher effective income tax rate for
Federal and state tax purposes for fiscal 1997.
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 and selling, general and administrative expenses. Since
January 1995, the Company has used working capital for both the repurchase of
its common stock and the acquisition of the assets of U.S. Laser. 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 1996 quarter, operating activities used cash and cash
equivalents of $2,495,478, investing activities used cash and cash equivalents
of $200,845 and financing activities used cash and cash equivalents of $133,367,
resulting in a net decrease in cash and cash equivalents of $2,829,690.
At June 30, 1996, the Company had no borrowings outstanding under its
November 15, 1994, three year, $15,000,000 revolving credit and term loan
facility with Foothill Capital Corporation. Funds available for borrowing under
the revolving credit facility may not exceed the borrowing base, as defined in
the facility agreement. At June 30, 1996, the Company had total borrowing
availability of approximately $8,500,000 under the revolving credit and term
loan facility, which is net of availability securing
11
<PAGE>
outstanding letters of credit. Borrowings are secured by substantially all of
the Company's assets and bear interest at prime plus 1.5% (9.75% at June 30,
1996). The facility agreement requires the Company to comply with certain
financial and operating covenants. At June 30, 1996, the Company was in
compliance with all financial and operating covenants.
At June 30, 1996, the Company had $2,500,000 of outstanding letters of
credit issued and guaranteed by the Company's lender and expiring on November
15, 1996. These letters of credit secure balances due to program suppliers.
On June 27, 1996, the Company's Board of Directors approved a 500,000
share increase to the Company's January 1995 authorization to repurchase up to
one million shares of outstanding common stock. Purchases will be made from
time to time in the open market and/or privately negotiated transactions based
on current market conditions and other factors. Also on June 27, 1996, the
Board of Directors entered into an agreement to purchase 138,000 shares of the
Company's common stock held by Martin W. Greenwald, the Company's Chairman and
Chief Executive Officer, at a per share purchase price of $5.8125, representing
a $0.3125 per share discount to the then market price. During the June 1996
quarter, the Company purchased 166,000 shares of its common stock for $973,985
under its stock repurchase program. Since January 1995 and through June 30,
1996, the Company has repurchased 1,074,100 shares of its common stock for
$7,230,616.
At June 30, 1996, the Company had license obligations for royalty advances
and minimum guarantees and exclusive distribution fee obligations for minimum
guarantees of approximately $8,678,000 for the remainder of fiscal 1997,
$4,226,000 during fiscal 1998, $8,067,000 during fiscal 1999 and $11,473,000
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.
Management believes that cash available from operations and its revolving
credit and term loan facility will be adequate to meet anticipated working
capital requirements for the next twelve months. The Company is seeking
additional sources of financing in connection with its consideration of
acquisition opportunities and its proposed new distribution facility in Las
Vegas, Nevada. See Summary and Outlook below.
---
SUMMARY AND OUTLOOK
During the first quarter of fiscal 1997 and fourth quarter of fiscal 1996,
the Company experienced weaker net sales of catalogue titles (previously
released laserdisc titles) versus the same prior-year periods. Management
believes this to be a result of a soft retail environment affecting the chain
music/video stores and confusion and uncertainty in the laserdisc marketplace
about the pending introduction of the digital video disc ("DVD") format.
Management believes, although there can be no assurance, that the retail
environment affecting the chain music/video stores will strengthen over the long
12
<PAGE>
term and is looking forward to releasing future high visibility titles, such as
Toy Story, Independence Day, Pocahontas, The Rock, Courage Under Fire, The
Birdcage and Broken Arrow.
The promotion surrounding the pending introduction of the new DVD format
has created confusion and uncertainty in the laserdisc marketplace. In the
event that the DVD format is released in the foreseeable future, it could have
an impact on the laserdisc market. However, no verifiable information currently
exists relative to the format's introduction date (or the number of studios
participating in the initial roll-out), expected consumer acceptance, expected
market penetration, video quality (as compared to laserdisc quality), software
price (i.e., sell-through only pricing versus two-tiered sell-through and rental
pricing), hardware price, production cost, and the number and breadth of titles
that will be available when the format is introduced and, subsequent thereto,
the frequency and number of additional new and catalogue titles expected to be
released in the format. The Company nevertheless believes, although there can
be no assurance, that the laserdisc format will remain viable despite the
introduction of DVD because over 10,000 titles in a broad range of categories
are available on laserdisc, an established consumer base exists for laserdisc,
many laserdiscs are released in the special edition format that appeals to
collectors and many laserdisc consumers own large collections of laserdisc
titles.
In April 1996, the Company entered into an agreement in principle pursuant
to which Thomson Consumer Electronics, a leading hardware manufacturer whose
brands include RCA, GE and Proscan, granted exclusive rights to the Company for
the distribution to authorized Thomson hardware dealers (potentially 5,000 of
approximately 14,000 locations) of DVD software. The parties contemplate
entering into a definitive agreement in fiscal 1997, which agreement will
include, among other provisions, the term of the agreement and a list of the
participating studios whose titles will be distributed by the Company to Thomson
dealers. The Company does not have verifiable information with respect to the
DVD format's introduction date.
In May 1996, the Company entered into an exclusive laserdisc output
license and distribution agreement pursuant to which the Company acquired the
right to replicate, market and distribute MGM/UA Home Entertainment programming
on laserdisc in the United States and Canada through the year 2001.
In July 1996, the Company extended its July 1, 1992 exclusive laserdisc
purchase and distribution agreement with Twentieth Century Fox Home
Entertainment giving the Company exclusive laserdisc distribution rights to
Twentieth Century Fox Home Entertainment programming through June 30, 1999.
In June 1996, the Company entered into an agreement to purchase
approximately 16.5 acres of unimproved real property in Las Vegas, Nevada for
approximately $4 million. The property is located adjacent to McCarran
International Airport. The Company intends to build a 76,000 square foot
automated distribution facility on approximately 8 acres of the acquired
property to accommodate anticipated business growth through the year 1999 and
allow for a 24-hour product turn. The architectural plans allow for expansion
of the building's footprint up to a maximum of 150,000 square feet to
accommodate additional business growth. The Company plans to sell the balance
of the property which is subject to customary zoning and other commercial
property restrictions and which consists of high
13
<PAGE>
visibility street-frontage. The new facility will replace the Company's existing
48,300 square foot leased facility in Chatsworth, California. The Company
intends to sublease the Chatsworth, California space through the termination of
its leasehold obligations. The Company believes the new facility will be
completed by June 1, 1997. The close of escrow and ultimate purchase of the
property is contingent upon the achievement of certain rezoning objectives and
the obtaining of acceptable financing. The total estimated project cost,
assuming the divestiture of approximately 8.5 acres of the new property and
inclusive of building construction and equipment costs, is $7.5 million, for
which the Company is currently seeking financing. There can be no assurances
that the Company will obtain such financing on terms and conditions reasonable
or acceptable to the Company. The Company is considering the creation of a new
division, Image Distribution Services, that will offer third-party distribution
services such as inventory management, order processing and distribution.
In September 1996, the Company expects to release the first of several
fully-interactive CD-ROM titles jointly developed, published and distributed by
the Company and The Voyager Company. The first release is A Night To Remember,
the 1958 British classic documenting the tragic sinking of the ocean liner
Titanic. In addition to the full-length feature film, the CD-ROM will contain a
wealth of ancillary material including the ship's blueprint, passenger log and
disaster time line. The Company also expects to release under the arrangement
two additional titles in calendar 1996, King Kong and Citizen Kane. The Voyager
Company is a New York based privately held company that develops, publishes and
distributes innovative, entertainment programming on CD-ROM. The Voyager
Company also produces the acclaimed Criterion Collection line of laserdisc
programming which the Company distributes exclusively.
The Company continues to license new programming for laserdisc
distribution as well as seek to renew and extend relationships with existing
studios. The Company will seek exclusive and nonexclusive DVD distribution
rights where available.
In addition to its laserdisc licensing and distribution, the Company
continues to seek investment opportunities in growth oriented companies which
would be complementary to the Company's existing operations such as proprietary
content production or software distribution businesses. Should additional
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.
14
<PAGE>
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The consolidated financial statements as of June 30, 1996 and for the
three-month periods ended June 30, 1996 and 1995 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.
15
<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, 1996, and the related condensed consolidated
statements of operations and cash flows for the three-month periods ended June
30, 1996 and 1995 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 consolidated balance sheet of Image Entertainment, Inc. as of
March 31, 1996, and the related consolidated statements of operations and cash
flows for the year then ended (not presented herein); and in our report dated
May 24, 1996, except for Note 14, which was as of June 5, 1996, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 1996, 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 6, 1996
16
<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 19
(b) Reports on Form 8-K
None
17
<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 14, 1996 By: /s/ MARTIN W. GREENWALD
-----------------------
Martin W. Greenwald
Chairman of the Board, Chief Executive
Officer, President and Treasurer
Date: August 14, 1996 By: /s/ JEFF M. FRAMER
------------------
Jeff M. Framer
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
================
Exhibit No. Description
- ----------- -----------
10.1* Stock Purchase Agreement between the Company and Stuart Segall
dated as of July 12, 1995.
10.2* Stock Purchase Agreement between the Company and Martin W.
Greenwald dated as of June 27, 1996.
10.3* Amendment No. 2 dated and effective as of July 1, 1996 to
Employment Agreement of Martin W. Greenwald dated July 1, 1994.
15* Letter re unaudited interim financial information.
27* Financial Data Schedule.
* EXHIBIT(S) NOT PREVIOUSLY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
19
<PAGE>
EXHIBIT 10.1
STOCK REPURCHASE AGREEMENT
--------------------------
THIS STOCK REPURCHASE AGREEMENT ("Agreement") is made and entered into this
---------
12th day of July, 1995, by and between STUART SEGALL, an individual ("Segall"),
------
and IMAGE ENTERTAINMENT, INC., a California corporation (the "Company").
-------
RECITALS
A. On January 12, 1995, Company's Board of Directors (the "Board")
-----
authorized the repurchase of up to one million shares of the Company's
common stock, no par value (the "Common Stock"), which repurchase
------------
program was publicly announced in a January 16, 1995 press release.
B. On January 26, 1995, the Company entered into a stock purchase
agreement with Kyle Kirkland, a director of the Company, pursuant to
which the Company purchased 60,000 shares of restricted Common Stock,
at a purchase price of $7.4375 per share (the "Kirkland Agreement").
------------------
C. On January 26, 1995, the Company entered into a warrant purchase
agreement with Dana Messina, pursuant to which the Company purchased
14,000 warrants exercisable at $2.50 per share, at a purchase price of
$7.4375 per share (the "Messina Agreement").
------------------
D. The $7.4375 per share purchase price set forth in the Kirkland
Agreement and the Messina Agreement was established by the Board with
reference to the prices at which the Company was buying back Common
Stock in the open market under its announced repurchase program.
E. Segall acquired 378,992 shares of Common Stock upon exercise on
November 15, 1994 of a non-compensatory warrant dated December 18,
1985 at an exercise price of $0.594 per share, which such stock is
represented by Stock Certificate #19886.
F. Segall acquired 44,216 shares of Common Stock upon exercise on
December 12, 1994 of an option dated December 31, 1984 granted under a
Company stock option plan at an exercise price of $1.070 per share,
which such stock is represented by Stock Certificate #19914.
G. Segall desires to sell to the Company 137,000 shares of Common Stock,
consisting of 92,784 shares from Stock Certificate #19886 and 44,216
shares from Stock Certificate #19914, and the Company deems it to be
in its best interest to purchase said 137,000 shares of Common Stock
from Segall, on the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. STOCK REPURCHASE TRANSACTION.
a. PURCHASE AND SALE OF THE SHARES. Segall hereby sells, assigns,
transfers and delivers to the Company 137,000 shares of Common Stock,
by delivery of Stock Certificate #19886 and Stock Certificate #19914
evidencing the same, duly endorsed for transfer, and against delivery
thereof and in full payment therefor, the Company hereby agrees to
deliver to Segall, upon receipt of the Stock Certificates, a check in
the aggregate amount of $899,062.50, representing a purchase price of
$6.5625 per share.
b. REISSUANCE OF STOCK CERTIFICATE FOR BALANCE OF WARRANT SHARES. Image
will cause its transfer agent to reissue in the name of and deliver to
Segall at the address set forth in Paragraph 4 below, 286,208
- 1 -
<PAGE>
shares of Common Stock, representing the unpurchased balance of the
shares of Common Stock evidenced by Stock Certificate #19886.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants that:
a. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has all
of the requisite corporate power and authority to carry out the
transaction contemplated by this Agreement;
b. The execution, delivery and performance of this Agreement have been
duly authorized by the Company's Board of Directors and shall not
violate any provisions of any judicial or governmental decree, order
or judgment, or conflict with, or result in a breach of, or constitute
a default under any agreement, instrument or understanding to which
the Company is a party or by which the Company is bound; and,
c. The Company's annual report on Form 10-K for the fiscal year ended
March 31, 1995, a copy of which has been made available to Segall by
the Company, contained no untrue statement of any material fact and
did not omit a material fact required to be stated therein where
necessary to make the statements therein not misleading.
3. REPRESENTATIONS AND WARRANTIES OF SEGALL. Segall hereby represents and
warrants that:
a. Segall is the owner of the Share, beneficially and of record, and that
such Shares are free and clear of all liens, claims and encumbrances
of any kind; and,
b. Segall and Segall's legal and financial advisors (collectively,
"Advisors") have carefully read this Agreement; that all documents,
--------
records and books pertaining to this transaction have been made
available to Segall and his Advisors for inspection; that in
evaluating the fairness and adequacy of this transaction Segall and
his Advisors have not relied upon any representations or other
information, whether oral or written, other than as set forth herein;
and, that Segall and his Advisors have had the opportunity to discuss
this transaction with representatives of the Company and to ask
questions of them.
4. GENERAL PROVISIONS.
a. Assignment. Neither party will assign or transfer the whole or any
----------
part of this Agreement to any person, firm or company without the
prior written consent of the other party.
b. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of California applicable to contracts made
and fully performed in California, and the state and/or federal courts
in Los Angeles, California shall have exclusive jurisdiction.
c. No Implied Waivers. The failure of one party hereto at any time to
------------------
require performance by the other of any provision hereof will not in
any way affect such party's right to require full performance thereof
at any time thereafter nor will the waiver by one party hereto of a
breach of any provision hereof be taken or held to be the waiver by
such party of any succeeding breach of such provision or as a waiver
of the provision itself.
d. Notice. All notices hereunder will be in writing, and will be sent by
------
regular mail (or transmission by facsimile transmission if confirmed
by such mailing), and will be directed to the following addresses, or
at such other address as may be specified in a notice given in
accordance herewith:
- 2 -
<PAGE>
To Segall: Stu Segall Productions
4705 Ruffin Road
San Diego, California 92123
Attn: Stuart Segall
To Image: Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, California 91311
Attn: Cheryl Lee, Esq., CAO & General Counsel
e. Entire Agreement and Modification. This Agreement constitutes the
---------------------------------
entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior or contemporaneous
communications or agreements with regard to the subject matter hereof.
This Agreement may not be modified except in writing signed by each
party hereto.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the day and year first above written.
"SEGALL":
/s/ STUART SEGALL
-----------------------------------
STUART SEGALL, an individual
THE "COMPANY":
IMAGE ENTERTAINMENT, INC.
/s/ MARTIN W. GREENWALD
-----------------------------------
MARTIN W. GREENWALD, President
- 3 -
<PAGE>
EXHIBIT 10.2
STOCK REPURCHASE AGREEMENT
--------------------------
THIS STOCK REPURCHASE AGREEMENT ("Agreement") is made and entered into this
---------
27th day of June, 1996, by and between MARTIN W. GREENWALD, an individual
("Greenwald"), and IMAGE ENTERTAINMENT, INC., a California corporation (the
----------
"Company").
- --------
RECITALS
A. On January 12, 1995, Company's Board of Directors (the "Board")
-----
authorized the repurchase of up to one million shares of the Company's
common stock, no par value (the "Common Stock"), which repurchase
------------
program was publicly announced in a January 16, 1995 press release.
B. On January 26, 1995, the Company entered into a stock purchase
agreement with Kyle Kirkland, a director of the Company, pursuant to
which the Company purchased 60,000 shares of restricted Common Stock,
at a purchase price of $7.4375 per share (the "Kirkland Agreement").
------------------
C. On January 26, 1995, the Company entered into a warrant purchase
agreement with Dana Messina, pursuant to which the Company purchased
14,000 warrants exercisable at $2.50 per share, at a purchase price of
$7.4375 per share (the "Messina Agreement").
------------------
D. The $7.4375 per share purchase price set forth in the Kirkland
Agreement and the Messina Agreement was established by the Board with
reference to the prices at which the Company was buying back Common
Stock in the open market under its announced repurchase program.
E. On July 12, 1995, the Company entered into a stock purchase agreement
with Stuart Segall, a director of the Company, pursuant to which the
Company purchased 137,000 shares of restricted Common Stock, at a
purchase price of $6.5625 per share (the "Segall Agreement").
----------------
F. The $6.5625 share price set forth in the Segall Agreement was
established by the Board and was substantially the same discount to
market as the per share purchase price applicable under the Kirkland
Agreement.
G. On June 27, 1996, the Board of Directors met to discuss an offer by
Greenwald to sell the Company approximately 138,000 shares of common
stock held by him and some discount to market to be established by the
Board.
H. The closing price of the Company's common stock on June 27, 1996 was
$6.125, and the discount to market established by the Board as
applicable to Greenwald's purchase is $0.3125 off the closing price.
I. Greenwald desires to sell to the Company 138,000 shares of Common Stock,
consisting of 81,849 shares from Stock Certificate #19885 and 56,151
shares from Stock Certificate #19913, and the Company deems it to be in
its best interest to purchase said 138,000 shares of Common Stock from
Greenwald at a per share purchase price of $5.8125, which represents the
same discount to market as the per share purchase price applicable under
the Segall Agreement, on the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
- 1 -
<PAGE>
1. STOCK REPURCHASE TRANSACTION.
a. PURCHASE AND SALE OF THE SHARES. Greenwald hereby sells, assigns,
transfers and delivers to the Company 138,000 shares of Common Stock,
by delivery of Stock Certificate #19885 and Stock Certificate #19913
evidencing the same, duly endorsed for transfer, and against delivery
thereof and in full payment therefor, the Company hereby agrees to
deliver to Greenwald, upon receipt of the Stock Certificates, a check
in the aggregate amount of $802,125.00, representing a purchase price
of $5.8125 per share.
b. REISSUANCE OF STOCK CERTIFICATE FOR BALANCE OF WARRANT SHARES. Image
will cause its transfer agent to reissue in the name of and deliver
to Greenwald at the address set forth in Paragraph 4 below, 297,143
shares of Common Stock, representing the unpurchased balance of the
shares of Common Stock evidenced by Stock Certificate #19885.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants that:
a. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has all
of the requisite corporate power and authority to carry out the
transaction contemplated by this Agreement;
b. The execution, delivery and performance of this Agreement have been
duly authorized by the Company's Board of Directors and shall not
violate any provisions of any judicial or governmental decree, order
or judgment, or conflict with, or result in a breach of, or
constitute a default under any agreement, instrument or understanding
to which the Company is a party or by which the Company is bound;
and,
c. The Company's annual report on Form 10-K for the fiscal year ended
March 31, 1996, a copy of which has been made available to Greenwald
by the Company, contained no untrue statement of any material fact
and did not omit a material fact required to be stated therein where
necessary to make the statements therein not misleading.
3. REPRESENTATIONS AND WARRANTIES OF GREENWALD. Greenwald hereby represents
and warrants that:
a. Greenwald is the owner of the Shares, beneficially and of record, and
that such Shares are free and clear of all liens, claims and
encumbrances of any kind; and,
b. Greenwald and Greenwald's legal and financial advisors (collectively,
"Advisors")have carefully read this Agreement;that all documents,
----------
records and books pertaining to this transaction have been
made available to Greenwald and his Advisors for inspection; that in
evaluating the fairness and adequacy of this transaction Greenwald
and his Advisors have not relied upon any representations or other
information, whether oral or written, other than as set forth herein;
and, that Greenwald and his Advisors have had the opportunity to
discuss this transaction with representatives of the Company and to
ask questions of them.
4. GENERAL PROVISIONS.
a. Assignment. Neither party will assign or transfer the whole or any
----------
part of this Agreement to any person, firm or company without the
prior written consent of the other party.
b. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of California applicable to contracts made
and fully performed in California, and the state and/or federal
courts in Los Angeles, California shall have exclusive jurisdiction.
- 2 -
<PAGE>
c. No Implied Waivers. The failure of one party hereto at any time to
------------------
require performance by the other of any provision hereof will not in
any way affect such party's right to require full performance thereof
at any time thereafter nor will the waiver by one party hereto of a
breach of any provision hereof be taken or held to be the waiver by
such party of any succeeding breach of such provision or as a waiver
of the provision itself.
d. Notice. All notices hereunder will be in writing, and will be sent by
------
regular mail (or transmission by facsimile transmission if confirmed
by such mailing), and will be directed to the following addresses, or
at such other address as may be specified in a notice given in
accordance herewith:
To Greenwald: Martin Greenwald
349 S. Linden Drive, #B
Beverly Hills, California 90212
To Image: Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, California 91311
Attn: Cheryl Lee, Esq., CAO & General
Counsel
e. Entire Agreement and Modification. This Agreement constitutes the
---------------------------------
entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior or contemporaneous
communications or agreements with regard to the subject matter
hereof. This Agreement may not be modified except in writing signed
by each party hereto.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the day and year first above written.
"GREENWALD":
/s/ MARTIN W. GREENWALD
----------------------------------
MARTIN W. GREENWALD, an individual
THE "COMPANY":
IMAGE ENTERTAINMENT, INC.
/s/ MARTIN W. GREENWALD
----------------------------------
MARTIN W. GREENWALD, President
- 3 -
<PAGE>
EXHIBIT 10.3
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 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, 1996 (the "Effective
---------
Date").
----
2. FRINGE BENEFITS. Paragraph 5(b)(i) "CEO Fringe Benefits - Personal Life and
Disability Insurance" of the Agreement is hereby amended to the following
extent:
The words "$17,000 per annum" in line 7 are replaced by the words
"$30,000 per annum."
3. 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 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 6, 1996 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.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
August 6, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,836,252
<SECURITIES> 0
<RECEIVABLES> 16,774,386
<ALLOWANCES> 2,829,000
<INVENTORY> 19,391,999
<CURRENT-ASSETS> 0<F1>
<PP&E> 5,325,403
<DEPRECIATION> 3,331,501
<TOTAL-ASSETS> 38,724,052
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 20,186,091
<OTHER-SE> 97,221
<TOTAL-LIABILITY-AND-EQUITY> 38,724,052
<SALES> 20,146,600
<TOTAL-REVENUES> 20,146,600
<CGS> 15,981,387
<TOTAL-COSTS> 15,981,387
<OTHER-EXPENSES> 771,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,068
<INCOME-PRETAX> 919,223
<INCOME-TAX> 313,000
<INCOME-CONTINUING> 606,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 606,223
<EPS-PRIMARY> .04
<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>
