IMAGE ENTERTAINMENT INC, S-2/A, 1998-12-21

IMAGE ENTERTAINMENT INC
S-2/A, 1998-12-21
ALLIED TO MOTION PICTURE PRODUCTION

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As filed with the Securities and Exchange
Commission on December 21, 1998
Registration No. 333-65611

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
AMENDMENT NO. 5
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
________________________
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 Identification Number)
organization)
9333 Oso Avenue
Chatsworth, California 91311
(818) 407-9100
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
________________________

Cheryl Lee
Chief Administrative Officer, General Counsel & Secretary
Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, California 91311
(818) 407-9100
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Richard A. Boehmer, Esq. Aaron A. Grunfeld, Esq.
O'Melveny & Myers LLP Resch Polster Alpert & Berger LLP
400 S. Hope Street 10390 Santa Monica Boulevard
Los Angeles, California 90071 Los Angeles, California
(213) 430-6000 (310) 277-8300
________________________

Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration Statement
becomes effective.

If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act, check the following box: [ ]

If the registrant elects to deliver its latest annual report
to security holders, or a complete and legible facsimile thereof
pursuant to Item 11(a)(1) of this Form, check the following box: [ ]

If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering: [ ]

If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: [ ]

If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box: [ ]

________________________

The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933, or
until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may
determine.

SUBJECT TO COMPLETION, DATED DECEMBER 21, 1998

PROSPECTUS

[Image Entertainment Logo]

2,400,000 SHARES
IMAGE ENTERTAINMENT, INC.
COMMON STOCK

Image Entertainment, Inc. is offering for sale up to
2,400,000 shares of common stock. We will reserve up to
1,000,000 shares to sell directly to Image Investors Co.,
our largest shareholder, or its affiliates. If Image
Investors Co. or its affiliates desire to purchase shares,
we will make the sale to them on the same terms and conditions
available to the public, except that we will pay a lower
commission for the sale. Otherwise, we will make those
shares available to the public.

Our common stock is traded on the Nasdaq National
Market System under the symbol "DISK."

These securities involve a high degree of risk.
See "Risk Factors" beginning on page 4.

Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved of
these securities or passed upon the accuracy or adequacy of
this prospectus. Any representation to the contrary is a
criminal offense.

There is no minimum number of shares required to be
sold in this offering.

<TABLE>
<CAPTION>
==============================================================
Price to Underwriter's Proceeds to
Public Commission Us
- --------------------------------------------------------------
<S> <C> <C> <C>
Per Share............$ $ $
- --------------------------------------------------------------
Total ...............$ $ $
==============================================================
</TABLE>

The table above assumes that we sell all 2,400,000 shares
and does not include estimated expenses of $____ payable by
us (including the underwriter's non-accountable expense
allowance of 2.0% of the gross proceeds from this offering).

We have retained MDB Capital Group LLC to act as the
exclusive underwriter in connection with the arrangement of
this offering. The underwriter is not obligated to itself
purchase any shares being offered or required to sell a
specific number or dollar amount of shares. The underwriter
will use its best efforts to sell all of the shares being
offered to a limited number of institutional and other
accredited investors. This offering will continue until we
agree with the underwriter that it shall terminate. There
will not be any escrow, trust or similar account for the
funds to be received from the sale of these shares.

MDB CAPITAL GROUP LLC
______________, 1998

<TABLE>
<CAPTION>
TABLE OF CONTENTS

Prospectus Summary 1 Legal Matters 21
Risk Factors 4 Experts 22
About Image Entertainment 12 Available Information 22
Recent Developments 13 Incorporation of Certain
Use of Proceeds 17 Information
Price Range of Common Stock 17 by Reference; Deliveries 22
Selected Historical Financial Forward Looking Statements 23
Information 17 Company's 10-K for fiscal year
Certain Transactions 19 ended March 31, 1998, as amended App. A
Description of Capital Stock 19 Company's 10-Q for fiscal
Plan of Distribution 21 quarter ended September 30,
1998, as amended App. B
Company's Proxy Statement dated
July 29, 1998 App. C

</TABLE>

PROSPECTUS SUMMARY

This section is only a summary of the information
contained in this prospectus. You should read this summary
along with the more detailed information and the financial
statements and the notes thereto appearing in other sections
of this prospectus. In addition to historical information,
this prospectus contains certain forward-looking statements
which we believe are within the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on the beliefs of our
management and information currently available to our
management, but involve risks and uncertainties.
Our actual results or experience could differ significantly
from those discussed in the forward-looking statements.

About Image Entertainment

Image Entertainment distributes feature films, music
videos, documentaries and other entertainment video
programming on laserdisc, DVD and videocassette. We have
distributed titles on laserdisc since 1983 and are the
largest licensee and distributor of laserdiscs in North
America. DVD is a new, smaller optical disc format which
became available to consumers in March 1997, at which time
we began distributing titles on DVD. Our primary business
is the distribution of laserdisc and DVD titles, but we
occasionally distribute videocassette titles. The titles we
distribute are produced by major motion picture studios and
other program suppliers. We manufacture and replicate some
of these titles under license agreements or other
arrangements which generally grant us exclusive distribution
rights for the United States and Canada. We also distribute
titles that we purchase in finished form and we generally do
not have exclusive distribution rights to these titles. In
all, we distribute thousands of titles on laserdisc, over
1,000 titles on DVD and a limited number of titles on
videocassette.

Our principal executive offices are located at 9333
Oso Avenue, Chatsworth, California 91311 and our telephone
number is (818) 407-9100.

The Pending Acquisition

On August 20, 1998, we agreed to acquire certain
assets and liabilities of the DVD and LD retail sales business from
the seller, Ken Crane's Magnavox City, Inc. These include
the "kencranes.com" site on the World Wide Web, a mail-order
catalog business and a lease of an approximately 8,000
square foot retail store located in Westminster, California.
The closing of the acquisition depends on the success of
this offering and on obtaining our lenders' consent. Upon
the closing of the acquisition, we will make cash payments
totaling $5,000,000 to the seller, Ken Crane, Jr., Pamela
Crane and Casey Crane, collectively, and will issue
$2,000,000 worth, or 258,370 shares (valued at the time of
signing the asset purchase agreement) of our common stock to
the seller. Ken Crane, Jr., who has over 13 years of
experience in the optical disc retail sales business, will
join us and will manage the newly acquired business.

The Offering

- We are offering 2,400,000 shares of common stock.

- If we sell all 2,400,000 shares, we will have
15,951,038 shares of common stock outstanding after
the offering. This is based on the number of shares
outstanding at November 6,1998 and excludes certain
outstanding options, warrants and other rights
to acquire our common stock.

- Use of Proceeds. If we sell enough shares to
generate sufficient proceeds to consummate the
acquisition of the DVD and LD retail sales business
of Ken Crane's Magnavox City, Inc., we will use
the proceeds to pay all amounts due upon the
closing of such acquisition and for general corporate
and working capital purposes.

- Alternative Use of Proceeds. If we do not sell
enough shares and are unable to find alternative
financing to generate sufficient
proceeds to consummate the acquisition, we will use
the proceeds to seek additional DVD distribution rights, to
potentially develop our own web site for retail sales
of DVDs and LDs and for general corporate and working
capital purposes.

Summary Financial Information

We have derived the following summary historical consolidated
financial data from our fiscal year-end audited
financial statements for the fiscal years ended March 31, 1994 through 1998
and our unaudited financial statements for the six months ended
September 30, 1997 and 1998. Operating data for the six months ended
September 30, 1998 is not necessarily indicative of results for the entire
year. You should read this summary information along with the
Selected Historical Financial Information included later in
this prospectus and the financial information described
above. You should also consider the information in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations section in the Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 and in the Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1998.

<TABLE>
<CAPTION>
=======================================================================================================================
Statement of Operations Data
(in thousands, except per
share data) Six months ended
September 30, Fiscal year ended March 31,
--------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- ---------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,974 $33,314 $75,516 $85,650 $95,086 $85,591 $65,577
Income (loss) before (483) (375) (9,581) 972 7,599 7,530 3,739
extraordinary item
Extraordinary item, net of taxes - - - (127) - (1,219) (378)
Net income (loss) (483) (375) (9,581) 845 7,599 6,311 3,361

Net income (loss) per share
Basic (.04) (.03) (.71) .06 .56 .48 .27
Diluted (.04) (.03) (.71) .06 .51 .40 .23

<CAPTION>
Balance Sheet Data
(in thousands) As of September 30, As of March 31,
--------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>

Total assets $37,485 $42,553 $33,781 $46,448 $39,406 $33,491 $42,526
Total liabilities 29,093 24,518 25,116 28,397 18,880 16,818 31,412
Net shareholders' equity 8,372 18,035 8,665 18,051 20,526 16,673 11,114

</TABLE>

In the above statement of operations data, the
loss before extraordinary item for the fiscal year ended March 31,
1998 includes:

- Non-cash charge of $8,133,000 to reduce the
carrying value of our LD inventory to its net realizable
value,

- Non-cash charge of $4,246,000 to provide for
estimated losses on LD license and exclusive distribution
agreements, and

- Non-recurring charge of $825,000 related to the
closure of our subsidiary, U.S. Laser Video
Distributors, Inc., of which $202,000 is
composed primarily of fees and expenses associated with
facility lease termination and employee severance
payments and $623,000 (a non-cash charge) is
composed of the write-off of unamortized
facility leasehold improvements and goodwill.

In the above statement of operations data, the
loss before extraordinary item for the fiscal year ended March 31,
1997 includes:

- Non-cash charge of $1,964,000 to reduce the
carrying value of our LD inventory to its estimated net
realizable value,

- Non-cash charge of $1,946,000 to provide for
estimated doubtful accounts receivable, and

- A non-recurring charge composed primarily of
legal and accounting fees associated with the termination
of acquisition negotiations.

In addition, in the above statement of
operations data, the extraordinary item is composed of costs associated with
early retirement of debt, net of related taxes of $56,000
for 1997, $34,000 for 1995 and $10,000 for 1994.

RISK FACTORS

The shares of common stock being offered involve a high
degree of risk. You should carefully consider the following
risk factors and all other information contained in this
prospectus before you buy shares of our common stock:

1. Risks Associated with Image Entertainment and this Offering

We May Be Unable to Complete the Acquisition if the
Underwriter Does Not Sell a Sufficient Number of Shares. MDB
Capital Group LLC has agreed to use its best efforts to sell
up to a maximum of 2,400,000 shares on our behalf, but has
not committed to purchase or sell any minimum number of
shares. The underwriter is not required to sell any
specific number or dollar amount of shares. We cannot
assure you that the underwriter will be able to sell a
sufficient number of shares on our behalf to allow us to
complete the acquisition of the DVD and LD retail sales
business of Ken Crane's Magnavox City, Inc. If the
underwriter does not sell a sufficient number of shares to
allow us to complete the acquisition, we will be unable to
complete the acquisition unless we can raise additional
funds to finance the acquisition. We cannot assure you that
we will be able to raise additional funds other than those
generated by this offering.

If We Do Not Complete the Acquisition, We Will Use the
Proceeds from the Offering to Seek Additional DVD Rights and
to Potentially Develop a Web Site to Sell LDs and DVDs.
If we do not sell enough shares or otherwise raise
sufficient funds to complete the acquisition, we will use
the net proceeds from this offering to seek additional
exclusive DVD distribution rights and to potentially develop
our own web site for the retail sale of LDs and DVDs
directly to the public. We believe that it would take at
least six months to develop this web site, and at least one
to two years to market this web site, in order to achieve
the level of customer awareness that the "kencranes.com"
site on the World Wide Web currently enjoys. The
development of such a web site would require an investment
of approximately $1.6 to $2.0 million for set-up and
operational costs through the first year of operation.
These costs would include, among other things, the
acquisition of suitable computer systems, the acquisition or
development of appropriate software, marketing costs,
personnel costs and other overhead and related costs. We
cannot assure you that we will be able to establish a web
site that would enjoy the same goodwill that the
kencranes.com web site currently enjoys or that would
otherwise successfully compete with existing or future
competitors in the LD and DVD retail sales business. See
"-Risks Associated with the kencranes.com Web Site and
Retail Sales over the Internet" below for a discussion of
additional risks involved with developing and maintaining a
web site for retail sales of LDs and DVDs. See "-Dependence
on Certain Program Suppliers and Vendors" and "-Potential
Inability to Continue to Secure DVD Rights and Distribution"
below for a discussion of additional risks associated with
our program suppliers and distribution rights.

If We Do Not Obtain Our Lenders' Consents, We Will Be
Unable to Complete the Acquisition. We cannot close the
acquisition unless our lenders consent to the acquisition.
We believe that our lenders will only consent to the
acquisition if we raise sufficient funds to provide us with
additional working capital to fund continued operations
after the acquisition is completed. However, our lenders
have not communicated to us the actual amount of additional
working capital that they would require us to have for their
consent, and have not given us any assurance that they will
consent to the acquisition. Therefore, we cannot assure you
that these lenders will, in fact, consent to the acquisition
regardless of the amount of funds that we raise.

If We Do Not Close the Acquisition By January 15,
1999, the Seller May Terminate the Acquisition. If we
do not close the acquisition by January 15, 1999 and
the seller does not extend the acquisition agreement,
we will not be able to use the proceeds of this offering
for the acquisition. Instead, we will use the proceeds to
potentially develop our own web site for the retail
sale of LDs and DVDs and to obtain additional DVD
distribution rights.

Our Limited Liquidity and Capital Resources May
Constrain Our Ability to Operate Our Business. Because of
certain developments during the second half of fiscal 1997
and the first quarter of fiscal 1998, we became concerned
that our then-current sources of working capital may have
been insufficient to fund working capital requirements in
fiscal 1998.

These developments included the following:

- the February 1997 suspension of $2.7 million in
accounts receivable due from Musicland (our then-
largest customer),

- the July 1997 Chapter 11 bankruptcy filing by
Alliance Entertainment Corp. (our then-second largest
customer),

- the then-unsuccessful efforts to sell the front 8.8
acres of our Nevada land,

- the ongoing adverse impact of DVD on LD sales, and

- the increased cash requirements to exclusively
license DVD programming.

In September 1997, we raised additional capital by
obtaining a $5 million convertible loan from Image Investors
Co., our largest shareholder, which we believe successfully
alleviated our short-term liquidity constraints. We believe
that the proceeds we will receive from this offering,
together with our existing resources and anticipated cash
flows from operations, will be sufficient to satisfy our
working capital requirements for at least 12 months
following this offering. However, we cannot assure you that
such proceeds, resources and anticipated cash flows will be
sufficient or that we will not require additional financing
within that time period. If we do not have working capital
sufficient to satisfy our requirements, we may seek to raise
additional funds through public or private financing or
other arrangements. Any additional equity financing may be
dilutive to shareholders. We cannot assure you that we
would be able to raise capital on terms to our satisfaction.
If we are unable to raise capital when needed, our business,
financial condition and results of operations could be
materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" in our Annual
Report on Form 10-K for the fiscal year ended March 31, 1998
for additional information about our liquidity and capital
resources.

We Have Experienced Significant Operating and Net
Losses and Our Future Profitability Remains Uncertain.
We incurred an operating loss of $9,089,000 and a net loss
of $9,581,000 for the fiscal year ended March 31, 1998.
We cannot assure you that we will achieve or sustain
profitability, and we may have significant or increasing
operating and net losses in the future. Our losses during
the 1998 fiscal year were primarily a result of DVD's
continued negative impact on LD programming sales. In
addition to decreased net sales due to the decline in LD
sales, we experienced a rapid decline in the net realizable
value of our LD-related assets due to DVD's negative impact.
Our decline in net sales was partially offset by sales from
our distribution of DVD programming. Our ability to increase
revenues and achieve profitability and positive cash flow
will depend upon our ability to transition from LD sales to
DVD sales and our ability to increase DVD programming sales
and procure DVD license and distribution rights. See "-Potential
Inability to Continue to Secure DVD Rights and Distribution"
above for a discussion about risks associated with our
ability to compete successfully in the DVD market.

We Expect to Incur Considerable Expenses in Integrating
the Computer Systems, Employees and Other Infrastructure of
the Acquired Business. We cannot assure you that we will be
able to successfully integrate the systems, employees
(including five managerial employees), infrastructure and
other resources of the acquired business to efficiently
support the newly combined businesses.

If We Cannot Maintain Relationships with Our Program
Suppliers and Vendors, Our Business May Be Adversely
Affected. We receive a significant amount of our revenues
from the distribution of those LDs and DVDs for which we have
exclusive agreements with program suppliers. For the fiscal
year ended March 31, 1998, approximately 75.3% of our net
sales were from titles covered by exclusive arrangements.
We cannot assure you that we will be able to renew these
exclusive rights as the existing agreements with each
program supplier expire. In addition, we cannot assure you
that our current program suppliers will continue to license
titles to us on the current terms or that we will be able to
establish new program supplier relationships to ensure
acquisition of titles in a timely and efficient manner or on
an

exclusive basis. If we cannot maintain relationships
with our program suppliers, on an exclusive basis or
otherwise, we could suffer a material adverse effect on
our business, prospects, financial condition and results
of operations.

If We Cannot Continue to Secure LD License and
Distribution Rights, Our Future Revenues May Be Negatively
Impacted. We cannot assure you that we will be able to
continue to secure LD license and distribution rights on
terms acceptable to us. We compete directly with Pioneer
and other independent licensees for LD distribution rights.
Pioneer licenses and distributes LDs and has exclusive LD
output license agreements with Paramount and Universal. We
also compete with LD sub-distributors and Columbia/TriStar,
which sells its own programming directly to retailers and to
other distributors in addition to its sales to us. We
expect to continue to be able to purchase LD titles
on a wholesale basis from Columbia/TriStar but
we cannot assure you that we will continue to be able
to do so if Columbia/TriStar elects to sell direct,
increase the number of entities distributing its
programming or limit our access to programming.

If We Cannot Continue to Secure DVD License and
Distribution Rights, Our Business May be Materially Adversely
Affected. We cannot assure you that we will be able
to continue to secure DVD license and distribution rights on
terms acceptable to us. Given the relative newness of the
DVD format and its uncertain position in the home video
software market, none of the major motion picture studios
has granted exclusive licenses for its new releases and most
popular catalogue titles. Instead, the major motion picture
studios sell this programming directly to retailers, other
distributors and us. Given that DVD is positioned to become
a replacement for VHS (although it remains to be seen
whether this will occur), we also compete with independent
licensing and distribution entities from the VHS sector of
the home video market. This is different from the LD market
(which is an established specialized market) in which we
face licensing and distribution competition from significantly
fewer sources. We expect to be able to purchase DVD titles
on a wholesale basis from all participating program
suppliers for sale to our customers but we cannot assure you
that we will be able to continue to do so if DVD program
suppliers elect to sell direct, increase the number of
entities distributing their programming or limit our access
to their programming.

If LD and DVD Cannot Compete Successfully with Other
Forms of Home Video Entertainment, Our Future Revenues
May Be Negatively Impacted. Both the LD and DVD formats
compete with other forms of in-home entertainment,
such as VHS, network, syndicated, cable and pay-per-view
television and home satellite systems. The LD and DVD
formats also compete with new and emerging technologies in
the entertainment industry, such as entertainment
programming on the Internet, video-on-demand, high-
definition television, digital videotape and optical discs
with greater storage capacity. These alternate forms of
leisure-time entertainment and novel means of video delivery
could negatively impact the overall market for LD and DVD
sales and us. In addition, emerging technology may allow
consumers to download audio or video programming directly to
the consumer's home computer from the Internet and store
such products on a recordable disc. The development and
advancement of such technology into a viable alternative to
purchasing LDs or DVDs could have a material adverse effect
on our business, prospects, results of operation and
financial condition.

Any Reduction in the Amount of Product That Our
Largest Customers Purchase from Us May Adversely Affect
Our Business. Our aggregate sales to our three largest
customers (Norwalk Record Distributors, Ken Crane's Home
Entertainment and Musicland) accounted for approximately
31% of our net sales for the fiscal year ended March 31,
1998. Any significant delay or reduction in orders from
these customers or any nonpayment or late payment of
amounts due by these customers could have a material
adverse effect on our business, prospects, results of
operations and financial condition. We cannot assure you
that these customers will continue their current buying
patterns or that we will be able to maintain our current
relationships with each of them. Further, if we complete
the acquisition, our other large customers could consider
us to be a more direct competitive threat to their businesses.
If so, our customers may reduce the amount of product
they purchase from us which may result in a material adverse
effect on our business, prospects, results of operations
and financial condition.

The Rapid Decline of the LD Industry Has Adversely
Affected Our Business. Due to the growth of the market for
DVDs, LD programming sales decreased significantly during
the fiscal year ended March

31, 1998. The decrease in LD programming sales has had
a significant adverse impact on our business operations
and profitability, and we incurred substantial losses
during fiscal 1998 due largely to this decrease. We cannot
assure you that the LD market will stabilize or improve
at any time in the future or that we will be able to
distribute LDs profitably at any time in the future.
See "-Potential Inability to Sustain LD Business During
Transition Period Caused by DVD" below for a discussion
about risks associated with our ability to sustain our
core LD business and "-Significant Operating and Net
Losses; Uncertainty of Future Profitability" above for a
discussion about our recent losses resulting from the
decline in our LD business.

Further Delays in Opening Our New Distribution Facility
Could Have a Material Adverse Effect on Our Business. Further
delays in opening our new distribution facility in Las Vegas,
Nevada or any inability to correct problems that arise with
its automated systems could have a material adverse effect
on our business, prospects, results of operation and financial
condition. We have experienced delays in opening our new
automated distribution facility due to delays in customizing
the software used to manage the distribution system.
Programmers from the software vendor have been working to
finalize the software package. We currently expect that
our distribution center will be operational to distribute
some new releases by the end of the year, and that all new
releases will be shipping from our new facility by the end
of January 1999. We currently expect our distribution facility
to be capable of shipping all product (new releases and catalog
titles) by the end of February 1999. However, we cannot assure
you that our distribution facility will actually become
operational by these dates or that the automated systems will
operate as planned without further delay. To date, we have not
experienced any material adverse effects from the delayed
opening of our distribution facility because we continue to
operate our existing distribution facility as usual.

If We Cannot Sustain Our LD Business During the
Transition Period Caused by DVD, Our Business May Be
Adversely Impacted. We cannot assure you that we
will be able to sustain our core LD business until a
transition can be made to DVD, if ever, or that LD program
suppliers and LD hardware manufacturers will continue to
support the LD format during the transition period. If we
can successfully maintain our LD business during such a
transition period, we cannot assure you that we will be able
to license and distribute DVD programming with the same
success we have experienced in the LD market, either
generally or with the selection and pricing margins we
currently offer our customers.

If the DVD Market Does Not Continue to Grow, Our DVD
Business May Not Be Profitable. Our business is increasingly
dependent on the growth of the market for DVDs, which
have not yet received mass market acceptance. We believe
that the lack of mass market acceptance of DVD is principally
due to the following factors:

- the lack of a consumer-priced recordable DVD
player,

- the lack of an established rental market,

- consumer confusion regarding the features,
availability and potential of the format,

- the large number of titles currently available on
LD, and

- potential competition from the "DIVX" DVD format
(see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-General-Potential
Competing Format to DVD" in our Annual Report on
form 10-K for the fiscal year ended March 31, 1998 for a
discussion of the "DIVX" DVD format).

All of these factors could impede the growth and
acceptance of DVD. We cannot assure you that a rental
market will develop or that a consumer-priced recordable DVD
player (which could lead to greater mass-market appeal) will
be available in the future. In addition, we cannot assure
you that studios and program suppliers will release a wide
variety of release and catalogue DVD titles to increase
availability and therefore the appeal of the DVD format.

If Our LD/DVD Production and Replication Vendors Do
Not Continue to Provide Services to Us, Our Production
Costs May Increase Significantly. We expect to be able
to continue using various outside vendors to author,
compress and replicate marketable DVD titles for release
under our exclusive DVD license agreements. Despite LD's
decline, we also believe that we will be able to use
several outside manufacturing facilities to replicate
our LD products. However, we cannot assure you that
our vendors will continue to provide such services at
the same or higher level of quality and quantity, or that we
will be able to access or afford alternative vendors for
such services.

Our Results of Operation Fluctuate Based on Seasonality
and Variability. We have generally experienced higher sales
of LDs and DVDs in the quarters ended December 31 and March
31 due to increased consumer spending associated with the
year-end holidays and because most sales of a title occur in
the first few months after its release. Accordingly, our
revenues and results of operations may vary significantly
from period to period, and the results of any one period may
not be indicative of the results of any future periods.
This seasonality also causes our revenues to be concentrated
in the last two quarters of the fiscal year. In addition to
seasonality issues, other factors have contributed to
variability in our LD and DVD net sales on a quarterly
basis. These factors include:

- DVD's negative impact on LD sales,

- the popularity of titles in release during the
quarter,

- our marketing and promotional activities,

- our rights and distribution activities,

- the extension, termination or non-renewal of
existing license and distribution rights, and

- general economic changes affecting the buying
habits of our customers, particularly those changes
affecting consumer demand for LD and DVD hardware
and software.

Our Stock Price Has Been Highly Volatile. The price of
our common stock has historically fluctuated based on many
factors. These factors include our operating results and
financial condition, the perception of the value of our LD
and DVD offerings, overall stock market conditions and the
market for similar securities. In recent months, the
volatility of our stock price has been even higher, as shown
in the table below:

Percentage Change
Date Closing Price from Previous Date
Listed
March 31, 1998 $3.063 N/A
July 17, 1998 $10.00 Increase 226%
October 14, 1998 $3.125 Decrease 69%
November 4, 1998 $5.50 Increase 76%

See "Price Range of Common Stock" beginning on page 17
of this prospectus for additional information regarding the
price range of our common stock.

If Our Key Personnel Leave Us, Our Business May Be
Adversely Affected. Our success greatly depends on the
efforts of our executive management, including the President
and Chief Executive Officer, Chief Financial Officer,
Chief Administrative Officer and General Counsel, and
Senior Vice President of Sales, Marketing and Operations.
In addition, our ability to operate the acquired business
successfully will significantly depend on the services and
contributions of Ken Crane, Jr., to whom we will make a
one-time payment of $1.5 million upon the closing of the
acquisition. Although we will enter into an employment

agreement with Ken Crane, Jr. upon the closing of the
acquisition, we cannot assure you that Ken Crane, Jr.
will continue his employment for any specified period of
time or that the success he enjoyed operating an independent
company can be matched. Our business and operations may
be adversely affected if one or more key executives or if
Ken Crane, Jr. were to leave.

If the Shares of Our Common Stock Eligible for Future
Sale are Sold, the Market Price of Our Common Stock May Be
Adversely Affected. Sales of substantial amounts of our
common stock in the public market after this offering or
the anticipation of such sales could have a material
adverse effect on then-prevailing market prices. As of
November 6, 1998, there were outstanding options, warrants
and rights to purchase or acquire 2,761,505 shares of our
common stock, including 2,564,352 that are exercisable within
60 days after such date. As of such date, Image Investors
Co., our largest shareholder, had demand registration rights
and piggyback registration rights (not applicable to this
offering) relating to 4,696,378 shares of our common stock
owned by it. See "Security Ownership of Certain Beneficial
Owners and Management" in our Proxy Statement dated July 29,
1998 and "Description of Capital Stock" below for additional
information regarding registration rights.

2. We Will Face Risks in Selling Our Products over
the Internet

One of our principal business objectives is to increase
our direct-to-consumer sales. To that end, we have recently
agreed to acquire the acquired business, which includes the
kencranes.com web site. If the acquisition is not
completed, we intend to establish our own web site for the
retail sale of DVDs and LDs. In either case, we will face
the risks described below in operating a retail sales
business over the Internet. If we do not complete the
acquisition and instead develop a new web site for retail
sales, we will also face the risks described under the
heading "Risks Associated with Image Entertainment and this
Offering - Use of Proceeds if We Do Not Complete the
Acquisition" on page 4 above.

If We Cannot Compete Successfully in the Internet
Commerce Industry, Our Retail Sales May Be Adversely Affected.
We cannot assure you that the kencranes.com web site will
be able to compete successfully against current or future
competitors. The market for commerce over the Internet
is new, rapidly evolving and intensely competitive. We expect
this competition to intensify in the future due in part
to the minimal barriers to entry and the relatively low
cost to launch a new web site. We will compete with a
variety of other companies for sales of LDs and DVDs over
the Internet. Some of these competitors can devote
substantial resources to Internet commerce in the near
future. The kencranes.com web site will also compete
with traditional retailers of LDs and DVDs, including
mail-order houses and video clubs.

We believe that the principal competitive factors we
will face in selling LDs and DVDs through the kencranes.com
web site are brand recognition, selection, availability,
price, effectiveness of advertising, customer service,
technical expertise, convenience, accessibility, quality of
search tools, quality of editorial and other site content
and reliability and speed of fulfillment. Many of the
current and potential competitors of the acquired business
have large customer bases, greater brand recognition and
significantly greater financial, marketing and other
resources than we have. In addition, some competitors may
be able to obtain merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory
availability policies and devote more resources to web site
and systems development than we can. The kencranes.com web
site could suffer reduced operating margins and market share
and brand recognition based on increased competition.

If We Cannot Keep Pace with Rapid Technological Change,
Our Retail Sales May Be Adversely Affected. We cannot
assure you that we will successfully use new technologies
effectively or adapt the kencranes.com web site or the
systems of the acquired business to customer requirements
or emerging industry standards. The technology used in
the Internet commerce industry changes rapidly. This rapid
change results in the availability of many new products and
services, new industry standards and frequent changes in
user and customer requirements and preferences. The success
of the kencranes.com web site will depend, in part, on our
ability to do the following:

- license leading technologies useful in the Internet
sales business,

- enhance the kencranes.com web site's existing
services,

- develop new services and technology that address
the increasingly sophisticated and varied needs of our
customers, and

- respond to technological advances and emerging
industry standards and practices on a cost-
effective and timely basis.

If Internet Commerce Does Not Continue to Grow, Our
Internet Sales Business May Be Adversely Affected. We
cannot assure you that acceptance and use of the Internet
and World Wide Web will continue to develop or that a
sufficiently broad base of consumers will adopt and use the
Internet and World Wide Web as a medium of commerce.
Potential future revenues and profits from sales over the
Internet substantially depend on the widespread acceptance
and use of the Internet as an effective medium of commerce
by consumers. Rapid growth in the use of and interest in the
World Wide Web, the Internet and other on-line services is a
recent phenomenon. For the kencranes.com web site to be
successful, consumers who have historically used traditional
means of commerce to purchase merchandise must accept and
utilize novel ways of conducting business and exchanging
information.

If the Internet and other on-line services continue to
experience significant growth in the number of users, the
frequency of use or bandwidth requirements, the
infrastructure for the Internet could be affected by
capacity constraints. In addition, the Internet could lose
its viability due to delays in the development or adoption
of new standards and protocols required to handle increased
levels of service activity. Changes in or insufficient
availability of telecommunications services to support the
Internet also could result in slower response times and
could adversely affect usage of the Internet. Our business,
prospects, financial condition and results of operations
could be materially adversely affected if use of the
Internet does not continue to grow or grows more slowly than
expected, if the infrastructure for the Internet does not
effectively support growth that may occur, or if the
Internet does not become a viable commercial marketplace.

We Will Face Security Risks in Selling Product over
the Internet. Secure transmission of confidential
information over public networks is a significant
barrier to Internet commerce. Advances in computer
capabilities, new discoveries in the field of
cryptography or other developments could compromise the
security measures we employ to protect customer transaction
data. In addition, concerns over the security of
transactions conducted on the Internet and the privacy of
users in general may inhibit the growth of Internet
commerce. To the extent that our activities or the
activities of third-party contractors involve the storage
and transmission of proprietary information, such as credit
card numbers, security breaches could damage our reputation
and expose us to a risk of loss or litigation and possible
liability. We may be required to expend significant capital
and other resources to protect against such security
breaches or to alleviate security-related problems and we
cannot assure you that our security measures will prevent
security breaches. Any compromise of our security systems
could have a material adverse effect on our reputation,
business, prospects, financial condition and results of
operations.

We May Experience Capacity Constraints and Other
System Development Problems Relating to the Operation
of the kencranes.com Web Site. A key element of our
business strategy is to generate a high level of use of
the kencranes.com web site. We believe that the
satisfactory performance, reliability and availability
of the kencranes.com web site and the related
transaction-processing systems and network infrastructure
will be critical to our reputation and our ability to
attract and retain customers and to maintain adequate
customer service levels. Accordingly, if the acquisition
is completed, we plan to upgrade or replace all of the
systems that currently operate the kencranes.com web
site and to integrate such systems with the new distribution
facility. The upgrade and/or replacement of the systems may
require substantial amounts of capital investment. We
cannot assure you that we will be able to find sources for
such capital on terms suitable to us. Any inability on our
part to work out any technical problems in the upgrade or
replacement of the kencranes.com web site's transaction-
processing systems or the distribution center integration in
a timely manner could have a material adverse effect on our
business, prospects, financial condition and results of
operations.

Even if we are able to develop adequate transaction-
processing systems and to integrate the kencranes.com web
site with the distribution center in a timely manner,
periodic system interruptions may occur on the kencranes.com
web site. While we believe that we will be able to upgrade
or install new hardware and software that will be sufficient
to accommodate the anticipated traffic on the kencranes.com
web site, we cannot assure you that periodic system
interruptions will not occur even after the upgrade or
installation. Any substantial increase in the volume of
traffic on the kencranes.com web site or the number of
orders placed by customers will require us to further expand
and upgrade our technology, transaction-processing systems
and network infrastructure. In addition, we are dependent
upon web browser companies and Internet service providers
for access to our products and services. Viewers have
experienced and may in the future experience difficulties
due to system or software failures or incompatibilities not
within our control. Any system interruptions that result in
the unavailability of the kencranes.com web site or reduced
order fulfillment performance would reduce the volume of
goods sold and the attractiveness of our product and service
offerings and could have a material adverse effect on us.

Laws Restricting Internet Commerce Could Adversely
Affect Our Business. We could be materially adversely
affected by any new legislation or regulation or by the
application or interpretation of existing laws to the
Internet. Federal, state and foreign governmental
organizations are currently considering many legislative
and regulatory proposals. If a government authority were
to adopt laws or regulations that cover Internet-related
issues such as user privacy, pricing and characteristics
and quality of products and services provided, the growth
of the Internet could be adversely affected. This could
lead to a decrease in demand for products offered over
the Internet, including those that the kencranes.com web
site offers, and could increase the cost of doing business
on the Internet. In addition, we do not know how existing
laws governing issues such as property ownership, copyright,
trade secret, libel and personal privacy will be applied
to the rapidly-changing Internet.

If the kencranes.com Web Site Experiences System
Interruptions Due to Year 2000 Non-Compliance, Our
Internet Sales May Be Adversely Affected. We are
aware of the issues associated with the programming
code in existing computer systems as the year 2000
approaches. We intend to install year 2000 compliant
systems for the kencranes.com web site when we perform
the hardware and software upgrades or replacements
described above. However, we cannot assure you that
we will be able to successfully install the new systems
before the time necessary to avoid year 2000 related
problems. In addition, we cannot assure you that the new
systems will actually perform adequately when the year 2000
arrives. Because the kencranes.com web site's systems will
depend on other systems that we do not control, any year
2000 compliance problems in such other systems could
materially adversely affect the kencranes.com web site. Any
system interruption in the kencranes.com web site resulting
from year 2000 compliance problems could materially
adversely affect our business, results of operations,
financial condition and prospects.

ABOUT IMAGE ENTERTAINMENT

Image Entertainment is the largest licensee and
wholesale distributor of LDs in North America and has
distributed a broad range of LD programming since 1983. With
the March 1997 introduction of the DVD, a new optical disc
format, to the consumer market, Image began distributing DVD
titles on a non-exclusive wholesale basis and shortly
thereafter began releasing exclusively licensed DVD
programming in June 1997. Image's DVD sales are a rapidly
growing part of its business. For the six months ended
September 30, 1998, DVD sales represented approximately 42%
of Image's net sales compared to approximately 13% during
the same period in 1997. This is also a percentage increase
compared to Image's fiscal year ended March 31, 1998, during
which DVD sales represented approximately 21% of Image's net
sales.

Image distributes thousands of titles on LD and over
1,000 titles on DVD. These titles range from feature films
and music videos to family, documentary and special interest
programming. Image has exclusive agreements with Disney's
Buena Vista Home Video, Playboy Home Video, Twentieth
Century Fox Home Entertainment, Warner Home Video, New Line
Home Video, Orion Home Video, The Criterion Collection and
numerous other program suppliers. These agreements provide
Image exclusive distribution rights to certain LD titles.
In addition, Image has exclusive agreements with Universal
(50 titles), Orion (12 titles), Playboy (all output) and
numerous other program suppliers granting Image exclusive
distribution rights to certain DVD titles. Image also
distributes LDs and DVDs on a non-exclusive basis. Image is
actively pursuing additional DVD license and distribution
rights. Where Image is unable to secure such rights, it
will attempt to purchase and distribute DVD programming on a
non-exclusive wholesale basis.

On August 20, 1998, Image's wholly-owned subsidiary
("Image/KC") agreed to acquire certain assets and
liabilities of the acquired business from the seller, Ken
Crane's Magnavox City, Inc. The acquired business consists
of the kencranes.com web site, a mail-order catalog business
and a lease of an approximately 8,000 square foot retail
store located in Westminster, California. The acquired
business had net sales of approximately $16.9 million for
its fiscal year ended July 31, 1998. Image believes that
the acquisition will enable it to increase its public
presence by reaching its customers directly through the
kencranes.com web site. The closing of the acquisition,
currently expected to be completed late in Image's third
fiscal quarter or early in its fourth fiscal quarter, is
contingent on Image raising sufficient funds to make all
payments required in connection with the acquisition. See
"Recent Developments-The Acquisition" and "Use of Proceeds."
The acquired business has historically been one of Image's
largest customers. During the fiscal year ended March 31,
1998, Image had net sales to the acquired business of
approximately $8.1 million, representing approximately 10.7%
of Image's net sales during such period. During the six
months ended September 30, 1998, Image had net sales to the
acquired business of approximately $3.2 million,
representing approximately 10.2% of Image's net sales during
such period.

Image has not paid any cash dividends on its common
stock in recent years and does not anticipate that it will
pay dividends in the foreseeable future. Image was
incorporated in the State of Colorado in April 1975 as Key
International Film Distributors, Inc., adopted its present
name in June 1983 and reincorporated into California in
November 1989. Image maintains its executive offices at
9333 Oso Avenue, Chatsworth, California 91311 and its
telephone number is (818) 407-9100.

For additional information concerning Image, see the
Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, filed with the Securities and Exchange
Commission on June 25, 1998, as amended by Amendment No. 1
thereto, filed with the Commission on November 30, 1998; the
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, filed with the Commission on
November 12, 1998, as amended by Amendment No. 1 thereto,
filed with the Commission on November 30, 1998; and the
Proxy Statement dated July 29, 1998 delivered concurrently
with this prospectus.

RECENT DEVELOPMENTS

The Pending Acquisition

On August 20, 1998, our subsidiary Image/KC agreed to
acquire certain assets and liabilities (as described more
fully below) of the DVD and LD retail sales business of the
seller. The acquired business, which sells LDs and DVDs
through the kencranes.com web site, a mail-order catalog and
an approximately 8,000 square foot retail store located in
Westminster, California, had net sales of approximately
$16.9 million for its fiscal year ended July 31, 1998. The
acquired business has historically been, and currently is,
one of Image's largest customers. During the fiscal year
ended March 31, 1998, Image had net sales to the acquired
business of approximately $8.1 million, representing
approximately 10.7% of Image's net sales during such period.
During the six months ended June 30, 1998, Image had net
sales to the acquired business of approximately $3.2
million, representing approximately 10.2% of Image's net
sales during such period. Accordingly, Image will eliminate
all significant intercompany balances and transactions when
it consolidates the financial position and results of
operations of the acquired business with those of Image.

<TABLE>
<CAPTION>
Selected unaudited financial information regarding the
acquired business for the year ended July 31, 1998 is as
follows (in thousands)<1>:
<S> <C>
Net sales $16,900

Cost of goods sold $16,428<2>
-------
Net Income $ 472
=======
- --------------------
<FN>
<1> The financial information is unaudited; however,
the information for the acquired business gives
effect to all adjustments (which include normal
recurring accruals) necessary, in the opinion of
management of the acquired business, to present
fairly the selected financial information for the
year ended July 31, 1998.

<2> Includes purchases from Image aggregating $8,069,
which are marked-up by various percentages and then
sold to consumers by the acquired business.
</FN>
</TABLE>

Image believes that the acquired business will generate
future operating benefits by providing a wider distribution
channel for Image's products in the form of increased access
to Internet, mail order and retail. The net assets of the
acquired business are expected to be minimal. Accordingly,
a significant portion of the purchase price will be
allocated to intangible assets including goodwill and
covenants not to compete. The allocation of the purchase
price, including the intangible assets, will be based upon
the estimated fair values of the respective assets. The
goodwill will be amortized over a 15 year period and the
covenants not to compete will be amortized over 5 years,
except that the value assigned to the consulting agreements
described below for Pamela Crane and Casey Crane will be
amortized over the one-year life of those agreements.

Image believes that the acquired business will be able
to take advantage of the growing level of commerce conducted
over the Internet. Aggregate product sales made over the
World Wide Web in 1997 reached approximately $3.4 billion,
representing an increase of approximately 216% from 1996.
In addition, Image expects that by March 1999, the
kencranes.com web site will be integrated with Image's new
automated distribution facility in Las Vegas, Nevada
(currently expected to be shipping product by December 31,
1998), which Image believes will provide increased
efficiency in general, including the ability to fulfill and
ship orders quickly. Image believes this will be a key
feature in ensuring customer satisfaction and customer
loyalty and that it will ultimately result in increased
traffic volume on the kencranes.com web site and an
increased volume of orders.

The kencranes.com web site differs from Image's current
web site at www.Image-Entertainment.com because visitors to
the kencranes.com web site can purchase LDs and DVDs
directly from the kencranes.com web site. The kencranes.com
web site lists retail prices, has "shopping cart" and "check
out" features, allows for consumer interaction via e-mail,
lists over 10,000 items that can be purchased directly from
the site and provides synopses of each such item. Image's
existing web site does not sell product, but rather simply
provides information regarding Image, its new releases (and
suggested retail prices of same) and other general Company
and industry news.

The Asset Purchase Agreement dated as of August 20,
1998 between the seller and Image/KC, as amended (the
"Purchase Agreement"), contains the following material
provisions:

- Image/KC will acquire certain assets of the seller,
including, among other things:

- all rights to the kencranes.com web site and
the seller's mail-order business,

- all leasehold interests (and fixtures and
improvements) of the acquired business
(including the Westminster store),

- all of the acquired business's inventory
(other than adult entertainment titles),

- all of seller's rights under certain license
and distribution agreements, and

- all of seller's intangible property rights
relating to the acquired business.

- Image/KC will receive an exclusive, irrevocable,
royalty-free license to use the "Ken Crane's" name
and its derivatives in connection with the acquired
business and no other person (including the seller)
may use the name in a similar context.

- Image/KC will pay the seller $3 million in cash, of
which $500,000 will be held in escrow for 90 days
and will be paid to the seller in full only if no
claims for indemnity arise prior to the expiration
of the 90-day period.

- Image will issue to the seller $2,000,000 worth of
its common stock, or 258,370 shares, based on the
average closing price of the common stock for the
10 trading days prior to the signing of the Purchase
Agreement.

- Image/KC will assume: (1) certain trade payables of
the seller (the amount of which will be offset by
the value of a portion of the assets acquired), (2)
the seller's obligations under the Westminster
store lease, and (3) the seller's obligations with
respect to certain of its LD and DVD suppliers.

In addition, the Purchase Agreement requires that Ken
Crane, Jr. execute an employment agreement with Image/KC
upon the closing of the acquisition. Upon doing so, Ken
Crane, Jr. will become the Vice President - General Manager
of Image/KC and will receive a one-time signing bonus of
$1.5 million (which Image will record as a component of the
purchase price). Ken Crane, Jr. has over 13 years of
experience in the optical disc retail sales business and has
been primarily responsible for building the acquired
business. Ken Crane, Jr.'s employment agreement will also
include the following material terms:

- A five-year term, renewable by Image/KC for up to
two additional one-year terms,

- Ken Crane, Jr. will receive a salary of $150,000
per year (with 5.0% cumulative annual increases),

- Ken Crane, Jr. will receive a bonus equal to the
sum of (1) 0.40% of annual net revenues of Image/KC
plus (2) 5.0% of Image/KC's pre-tax profits (which will
be determined by adjusting the operating income of
Image/KC (after any extraordinary items, as
defined) to reflect particular income and/or expense items,
including, without limitation, inter-company
allocations of corporate overhead, as defined), and

- Standard non-compete terms preventing Ken Crane,
Jr. from competing with Image/KC during the term of his
employment.

The total purchase price for the acquired business is
as follows (in thousands):

Cash payments to seller $3,000
Common Stock of Image
issued to the seller $2,000
Signing bonus paid to Ken
Crane, Jr. $1,500
Consulting payments to
Pamela and Casey Crane $ 500
Costs and expenses $ 300
------
$7,300
======

Ken Crane, Jr. will oversee day-to-day management of
the retail sales business of Image/KC. Pursuant to
consulting agreements to be executed with Image/KC, which
will include standard confidentiality and non-compete terms
during the term of the agreements, Pamela Crane and Casey
Crane, the sister and brother of Ken Crane, Jr., will also
each receive payments totaling $250,000 (which will be paid
half at closing and half in January 1999 and will be
recorded as a component of the purchase price) for their
consulting services pursuant to consulting agreements that
include confidentiality and non-compete provisions.

The Purchase Agreement grants the seller an exchange
right with respect to the common stock being issued to the
seller in the event that Image, through a subsidiary,
undertakes an underwritten, registered public offering of
the stock of a company that owns the assets of the acquired
business within one year after the closing of the
acquisition. In that event, the seller would have the
right, subject to applicable legal limits and conditioned
upon the closing of such offering, to exchange up to 50% of
the shares of common stock acquired by the seller upon the
closing of the acquisition, for shares of such company based
on a pricing formula established in the Purchase Agreement.

The Purchase Agreement includes standard
representations and warranties by the seller regarding the
acquired business and mutual indemnification obligations of
the parties, as well as standard closing conditions
(including obtaining the consent of certain of Image's
lenders and Image's raising sufficient funds to make all
required payments in connection with the acquisition). In
addition, the seller has agreed not to compete with Image
for a period of five years after the date of the closing of
the acquisition in certain locations.

The seller, d/b/a Ken Crane's Home Entertainment, is a
family run business which was founded by Charles K. Crane.
Charles K. Crane, the father of Ken Crane, Jr., has managed
the business, either directly or through a family trust,
since its inception. The seller's primary business has
traditionally consisted of retail sales of home video and
audio equipment through its hardware division. Ken Crane,
Jr. has been involved in the family business since 1972, and
in 1985 began selling LDs to the public and established the
acquired business. Since that time, Ken Crane, Jr. has been
primarily responsible for the management of the acquired
business, overseeing its growth into its current status as a
retail seller of LDs and DVDs through the various channels
described above.

New Board Member

On September 11, 1998, Image's shareholders elected M.
Trevenen Huxley, 46, to serve as a director of Image. Mr.
Huxley's election filled the vacancy created when Mr. Russ
Harris passed away on July 31, 1998. In 1990, Mr. Huxley co-
founded Muze, Inc., a provider of digital information about
music, books and movies. From 1992 to March 1998, Mr.
Huxley served as the President and Chief Executive Officer
of Muze, Inc. and is currently its Executive Vice President
for Business Development. Mr. Huxley is also a member of
Muze, Inc.'s Board of Directors. Muze, Inc. is a closely-
held corporation which is controlled by John W. Kluge.
Stuart Subotnick also owns a minority interest in Muze, Inc.
Messrs. Kluge and Subotnick, through Image Investors Co.,
are also the largest shareholders of Image.

Adoption of 1998 Incentive Plan

Image's shareholders approved the Image Entertainment,
Inc. 1998 Incentive Plan at the Annual Meeting of
Shareholders held on September 11, 1998. For a description
of the material provisions of the 1998 Incentive Plan, see
"Proposal 2-Approval of 1998 Incentive Plan" beginning at
page 16 of Image's Proxy Statement delivered with this
prospectus. The complete text of the 1998 Incentive Plan
has been filed as an exhibit to the electronic version of
the Proxy Statement and can be reviewed on the Commission's
web site at http://www.sec.gov.

New Employment Agreements for Management

Image confirmed new employment agreements during
November 1998 with each of Martin Greenwald, Cheryl Lee,
Jeff Framer and David Borshell, which agreements would be
effective from July 1, 1998 and would remain effective for a
term of two years (subject to evergreen annual extensions
thereafter absent at least six months advance notice of
termination by either Image or the executive). In addition
to the salary, bonus, allowance and stock award amounts
described in the Proxy Statement, the new employment
agreements provide for different benefits upon a termination
of employment. Such benefits vary depending upon the reason
for the termination and when it occurs. (Capitalized terms
used but not defined below have the meanings assigned to
them in the employment agreements.)

If an employment agreement is terminated prior to the
expiration of the Term and prior to a Change in Control
"Without Cause" (which generally means for any reason other
than (a) death or disability, (b) for Cause or (c) a
voluntary termination), the executive will continue to
receive base salary (and, for Mr. Greenwald, allowances) and
bonus compensation earned, certain fringe benefits
(including medical, dental, short and long-term disability
and life insurance), and any options and other stock-based
awards consistent with the terms of the awards
(collectively, the "Aggregate Compensation"), through the
remainder of the Term. The executive will also receive
severance benefits consisting of an additional six months
continuation of salary and insurance and a pro rata portion
of any bonus payable for six months or for any partial
fiscal year that has occurred prior to the expiration of the
Term, whichever is greater (the "Severance Benefits"). If
the employment agreement is terminated prior to the
expiration of the Term but upon or after a Change in Control
(1) for any reason other than (a) death or disability, (b)
for Cause or (c) a voluntary termination (other than a
termination for "Good Reason"), or (2) by the executive for
"Good Reason" (which generally includes a material reduction
in duties, status, compensation or benefits, a material
breach by Image, or a forced relocation), the executive will
be entitled to the Aggregate Compensation for the longer of
one year after the termination or through the expiration of
the Term, plus the Severance Benefits.

In addition, all unvested existing options granted to
the executive will immediately vest if the agreement is
terminated by Image "Without Cause", or by the executive for
"Good Reason" after a Change in Control. Any unvested
portion of the executive's Restricted Stock Unit Award that
has not expired will vest immediately if the agreement is
terminated by Image "Without Cause" within one year after a
Change in Control, or less than three months prior to and in
express anticipation of an announced Change in Control, but
not earlier than December 6, 1998.

USE OF PROCEEDS

If Image sells all 2,400,000 shares of its common stock
being offered, the net proceeds to Image from such sale are
estimated to be approximately $9.8 million (assuming an
offering price to the public equal to $4.75 per share, the
closing price of Image's common stock on November 24, 1998).
Image intends to use $5 million of the net proceeds to make
the payments required to be made upon the closing of the
acquisition, including $3 million to the seller, $1.5
million to Ken Crane, Jr. upon the execution of his
employment agreement and $250,000 to each of Pamela Crane
and Casey Crane for consulting services to be rendered to
Image/KC. Additional net proceeds will be used for general
corporate and working capital purposes.

If Image does not receive net proceeds from this
offering and from alternative financing sources to raise
funds in an amount sufficient to close the acquisition,
Image intends to use approximately $1.6 to $2.0 million of
the proceeds to develop and operate a new web site for
retail sales of LDs and DVDs. Image intends to use the
balance of the proceeds for the acquisition of additional
exclusive DVD rights and for general corporate and working
capital purposes.

PRICE RANGE OF COMMON STOCK

Image's common stock is traded on the Nasdaq National
Market System under the symbol "DISK" and has been included
on the Nasdaq National Market System since February 19,
1991. The following table sets forth the high and low
closing prices for Image's common stock as reported on the
Nasdaq National Market System since the beginning of Image's
1997 fiscal year.

Quarter Ended High Low

December 31, 1998 (through
November 24, 1998) $ 5.50 $3.125
September 30, 1998 10.00 3.25
June 30, 1998 7.50 3.313

March 31, 1998 4.375 3.00
December 31, 1997 4.875 3.1875
September 30, 1997 4.125 3.00
June 30, 1997 4.375 3.3125

March 31, 1997 5.125 3.375
December 31, 1996 5.125 3.00
September 30, 1996 6.00 4.75
June 30, 1996 7.9375 5.875

SELECTED HISTORICAL FINANCIAL INFORMATION

The selected historical financial data of Image
presented below as of and for the years ended March 31, 1994
through 1998 are derived from the consolidated financial
statements of Image, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The
summary historical financial data of Image presented below
as of September 30, 1998 and 1997 and for the six months
ended September 30, 1998 and 1997 are derived from unaudited
consolidated financial statements of Image that, in the
opinion of management, contain all necessary adjustments of
a normal recurring nature to present the financial
statements in conformity with generally accepted accounting
principles. The consolidated financial statements of Image
as of March 31, 1998 and 1997 and for each of the years in
the three-year period ended March 31, 1998 and the
independent auditors' report thereon are contained in
Image's Annual Report. The consolidated financial
statements of Image as of September 30, 1998 and for the six
months ended September 30, 1998 and 1997 are contained in
Image's Quarterly Report. Operating data for the six months
ended September 30, 1998 is not necessarily indicative of
results for the entire year. The historical consolidated
financial statements and related notes and "Management's
Discussion and

Analysis of Financial Condition and Results
of Operations" included in the Annual Report and the
Quarterly Report should be read along with this Selected
Historical Financial Information.

<TABLE>
<CAPTION>
================================================================================================================
Statement of Operations Data
(in thousands, except per Six months ended
share data) September 30, Fiscal year ended March 31,
--------------------- -------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,974 $33,314 $75,516 $85,650 $95,086 $85,591 $65,578
Operating costs and expenses 31,140 33,416 84,605<1> 83,399<2> 86,926 77,851 60,576
Operating income (loss) (166) (102) (9,089) 2,251 8,160 7,740 5,002
Interest expense (354) (332) (662) (415) (155) (1,184) (2,336)
Interest income 48 53 118 231 337 518 487
Other expense - - - (662)<3> - - -
Amortization of deferred
financing costs - - - - - (111) (270)
Net gain on insurance settlement - - - - - 742 960
Income (loss) before income taxes
and extraordinary item (472) (381) (9,633) 1,405 8,342 7,705 3,843
Income tax (expense) benefit (11) 6 52 (433) (743) (175) (104)
Income (loss) before
extraordinary item (483) (375) (9,581) 972 7,599 7,530 3,739
Extraordinary item, net of taxes - - - (127)<4> - (1,219)<4> (378)<4>

Net income (loss) $ (483) (375) (9,581) 845 7,599 6,311 3,361
Income (loss) per
share:
Income (loss) before
extraordinary item
Basic (.04) (.03) (.71) .07 .56 .57 .30
Diluted (.04) (.03) (.71) .07 .51 .48 .26
Net income (loss)
Basic (.04) (.03) (.71) .06 .56 .48 .27
Diluted (.04) (.03) (.71) .06 .51 .40 .23
Weighted average number
of shares outstanding
Basic 13,526 13,457 13,471 13,504 13,569 13,255 12,347
Diluted 13,526 13,457 13,471 13,836 14,802 15,641 14,392

<CAPTION>
Balance Sheet Data(in thousands)
As of September 30, As of March 31,
--------------------- --------------------------------------------------------
1998 1997 1988 1997 1996 1995 1994
---------- --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $ 37,465 $ 42,553 $ 33,781 $ 46,448 $ 39,406 $ 33,491 $ 42,526
Total liabilities 29,093 24,518 25,116 28,397 18,880 16,818 31,412
Net shareholders' equity 8,372 18,035 8,665 18,051 20,526 16,673 11,114
================================================================================================================

<FN>

<1> Includes non-cash charges of $8,133,000 and $4,246,000
to reduce the carrying value of Image's LD inventory to its
net realizable value and to provide for estimated losses on
LD license and exclusive distribution agreements,
respectively. Also includes a non-recurring charge of
$825,000 related to the closure of Image's subsidiary, U.S.
Laser Video Distributors, Inc., of which $202,000 is
composed primarily of fees and expenses associated with
facility lease termination and employee severance payments,
and $623,000 (a non-cash charge) is composed of the write-
off of unamortized facility leasehold improvements and
goodwill.

<2> Includes non-cash charges of $1,964,000 and $1,946,000
to reduce the carrying value of Image's LD inventory to its
estimated net realizable value and to provide for estimated
doubtful accounts receivable, respectively.

<3> Other expense represents a non-recurring charge composed
primarily of legal and accounting fees associated with the
termination of acquisition negotiations.

<4> Extraordinary item is composed of costs associated with
early retirement of debt, net of related taxes of $56,000,
$34,000, and $10,000 for fiscal 1997, 1995 and 1994,
respectively.

</FN>
</TABLE>

CERTAIN TRANSACTIONS

Upon consummation of the acquisition, Image/KC will pay
$3 million in cash to the seller and will cause Image to
issue 258,370 shares of its common stock to the seller, of
which the Crane Family Trust, dated December 22, 1984 (the
"Trust"), a revocable trust, is the sole shareholder.
Charles K. Crane, the father of Ken Crane, Jr., is the sole
trustee of the Trust. Ken Crane, Jr., Pamela Crane (the
sister of Ken Crane, Jr.) and Casey Crane (the brother of
Ken Crane, Jr.) are the sole beneficiaries of the Trust.
Upon the closing of the acquisition, Ken Crane, Jr. will
execute an employment agreement with Image/KC, will become
the Vice President - General Manager of Image/KC and will
receive a signing bonus, an annual salary and a bonus based
on Image/KC's performance. In addition, Pamela Crane and
Casey Crane will each receive payments of $250,000 (half
upon the closing of the acquisition and half in January
1999) for consulting services. See "Recent Developments -
The Acquisition" and "Use of Proceeds."

See "Certain Transactions" in Image's Proxy Statement
for additional information with respect to related party
transactions.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of Image consists of
25,000,000 shares of common stock, no par value per share,
and 3,365,385 shares of preferred stock, $1 par value per
share. As of November 6, 1998, 13,551,038 shares of common
stock were outstanding and held of record by approximately
1,665 holders. No shares of preferred stock are issued and
outstanding as of the date hereof.

The following description of Image's capital stock is a
summary of its material terms. It is not complete and is
subject in all respects to applicable California law and to
the provisions of Image's Restated Articles of Incorporation
("Restated Articles") and Bylaws, copies of which have been
incorporated by reference as exhibits to the Registration
Statement of which this prospectus is a part.

Common Stock

Subject to the rights of the holders of any preferred
stock which may be outstanding, each holder of common stock
on the applicable record date is entitled to receive such
dividends as may be declared by the Board of Directors out
of funds legally available therefor and, in the event of
liquidation, to share pro rata in any distribution of
Image's assets after the payment or providing for the
payment of liabilities and the liquidation preference of any
outstanding preferred stock. Each holder of common stock is
entitled to one vote for each share held of record on the
applicable record date on all matters presented to a vote of
shareholders. The holders of common stock have cumulative
voting rights with respect to the election of directors to
the extent provided in Section 708 of the California General
Corporation Law. Except as described below, there are no
preemptive, subscription, conversion or redemption rights
pertaining to the shares of common stock.

On November 6, 1998, there were 2,564,352 shares of
common stock underlying options, warrants and other
conversion rights exercisable within 60 days of that date.
This includes 1,379,310 shares of common stock issuable
upon conversion of a $5 million loan made by Image Investors
Co. ("IIC") to Image under a Credit Agreement (the "Credit
Agreement") dated as of September 29, 1997 between Image
and IIC. The Credit Agreement provides IIC with standard
anti-dilution rights as well as demand and piggyback
registration rights with respect to these shares. In
addition to its rights under the Credit Agreement, IIC has
demand and piggyback registration rights with respect to
3,293,680 shares of common stock beneficially owned by it.
IIC's piggyback registration rights are applicable only
when Image offers shares in a registered offering on
behalf of another shareholder of Image.

A Stock Purchase Agreement dated as of December 29,
1987, as amended (the "12-29-87 Agreement"), provides IIC
and certain other investors with anti-dilution protection
for the shares owned by them. This protection allows these
shareholders to purchase additional shares of Image's common
stock to maintain their respective percentage ownership
interest in Image. These rights are triggered if, among

other things, (1) shares of Image's common stock are sold
for less than 80% of fair market value or (2) rights to
purchase common stock for less than 80% of fair market
value are sold. According to Image's records, as of
September 25, 1998, up to approximately 13.3% of Image's
outstanding shares were entitled to these anti-dilution rights.

Investors who have anti-dilution rights under the 12-29-87
Agreement also have registration rights with respect to shares
issued based on anti-dilution rights. Registration rights
apply to 32,746 shares issuable upon outstanding anti-dilution
rights (including 23,388 shares issuable to IIC). The
anti-dilution rights under the 12-29-87 Agreement expire on
July 7, 2002. See Note 12 of the Notes to the financial
statements in Image's Annual Report for further discussion
about anti-dilution rights.

Image has not paid dividends on its common stock in
recent years and does not anticipate that it will pay
dividends in the foreseeable future. In addition, the terms
of certain of Image's loan agreements impose restrictions on
its ability to pay dividends on its common stock. All of
the outstanding shares of common stock are fully paid and
non-assessable, and these shares of common stock will be
fully paid and non-assessable when issued.

Preferred Stock

Image is authorized to issue 3,365,385 shares of
preferred stock, $1 par value per share. The Board of
Directors has the authority to issue preferred stock in one
or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and
the number of shares constituting any series, or the
designation of such series, without further vote or action
by the shareholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a
change in control of Image without further action by the
shareholders and may adversely affect the voting and other
rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. At
present, Image has no outstanding preferred stock and does
not plan to issue any preferred stock.

Anti-Takeover Provisions

Certain provisions of Image's Restated Articles and
Bylaws may be deemed to have anti-takeover effects and may
delay, defer or prevent a tender offer or takeover attempt
that a shareholder might consider to be in such
shareholder's best interest, including those attempts that
might result in a premium over the market price for the
shares held by shareholders. The following is a brief
summary of these anti-takeover provisions:

- - The Restated Articles authorize the Board of Directors to
issue and to establish the series, rights, preferences
and limitations of up to 3,365,385 shares of preferred stock
without shareholder approval.

- - The Bylaws limit the ability of persons other than the
Board of Directors to call special meetings of the
shareholders.

- - The Bylaws require that the Board of Directors consist of
a minimum of four (4) and a maximum of seven (7) directors.
The provision establishing the minimum number of directors
may not be amended if the votes cast against such an
amendment are equal to or greater than 16-2/3 % of the
outstanding shares entitled to vote. No amendment may
change the maximum number of authorized directors to a
number greater than two times the stated minimum number
of directors minus one. No reduction of the authorized
number of directors has the effect of removing any director
before the expiration of such director's term of office.

- - The Bylaws require advance notice of nominations, other
than by the Board of Directors, for elections of
directors.

Transfer Agent and Registrar

The Transfer Agent and Registrar for Image's common
stock is American Securities Transfer & Trust, 938 Quail
Street, Suite 101, Lakewood, Colorado 80215.

PLAN OF DISTRIBUTION

The common stock is being offered for sale by Image on
a best efforts basis to a limited number of accredited
investors. Shares will be sold on a straight best efforts basis
and no minimum number of shares is required to be sold.
MDB Capital Group LLC, the underwriter, has been
retained pursuant to a Placement Agent Agreement to act as
the exclusive agent for Image in connection with the
arrangement of offers and sales of the common stock on a
best efforts basis.

The underwriter is not obligated to, and does not intend
itself to, take (or purchase) any of the shares of common
stock being offered. The underwriter intends to obtain
indications of interest from potential investors for the
purchase of the shares being offered and will use its best
efforts to sell as many of the 2,400,000 shares being offered
as it can immediately after the Registration Statement is
declared effective. Image will attempt to have the
Registration Statement declared effective as soon as
possible. Investors' funds will not be accepted prior to
effectiveness of the Registration Statement. Notifications of
intentions to purchase and definitive prospectuses will be
distributed to all investors at the time of pricing, informing
investors of the settlement date, which will be scheduled for
three business days after pricing. Once the shares to be sold
have been allocated by the underwriter and Image, investors
will receive confirmation of the acceptance or rejection of
their indication of interest and trades will be settled on
the scheduled settlement date, on a delivery versus payment
basis for institutional accredited investors through the
underwriter's clearing firm. Accredited investors other than
institutional accredited investors will be required to
establish securities accounts with the underwriter and to settle
the transaction on the scheduled settlement date. This offering
will continue until such time as Image and the underwriter
agree that enough indications of interest have been received.
The underwriter reserves the right to withdraw, cancel, modify
or reject an order for the purchase of shares in whole or in
part for any reason and Image reserves the right to terminate
this offering at any time.

The offering price for the common stock offered hereby
was determined by Image and the underwriter based primarily
on the closing price of $____ for Image's common stock on
__________, 1998. In determining the offering price, Image
and the underwriter also considered general market
conditions, trading volume of Image's common stock and
overall demand for this offering.

The underwriter will receive a commission equal to 8.0%
of the gross proceeds received by Image upon the sale of
these securities, except that the commission will be reduced
to 4.0% for the sale of shares to Image Investors Co.,
Image's largest shareholder, or its affiliates. The
underwriter may allow to certain dealers who are members of
the National Association of Securities Dealers concessions
of not in excess of 5.0%. Image has agreed to pay to the
underwriter, on a non-accountable basis, 2.0% of the gross
proceeds ($228,000 assuming the sale of 2,400,000 shares at
$4.75 per share, the closing price of Image's common stock
on November 24, 1998) from the sale of the shares to cover
the underwriter's out-of-pocket expenses, including, without
limitation, counsel fees. Image has also agreed to
indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the shares of common stock being
offered will be passed upon for Image by O'Melveny & Myers
LLP, Los Angeles, California. Certain legal matters will be
passed upon for the underwriter by Resch Polster Alpert &
Berger LLP, Los Angeles, California.

EXPERTS

The financial statements of Image Entertainment, Inc.,
as of March 31, 1998, and for each of the years in the three-
year period ended March 31, 1998, have been incorporated
herein by this reference and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated
herein by this reference, and upon the authority of said
firm as experts in accounting and auditing.

AVAILABLE INFORMATION

Image is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and in
accordance therewith files periodic reports and other
information with the Commission relating to its business,
financial statements and other matters. These periodic
reports may be inspected at the Commission's principal
offices at 450 Fifth Street, NW, Washington, D.C.
20549. Information on the operation of the Commission's
reference room may be obtained by calling the Commission at
(800) SEC-0330. Copies of these materials may be obtained
from the Commission's offices at prescribed rates set by
the Commission. Some of Image's reports and registration,
proxy and information statements that have been filed with
the Commission through the Electronic Data Gathering,
Analysis and Retrieval System are publicly available
through the Commission's web site (http://www.sec.gov).
Some information, reports and proxy statements of Image
are also available for inspection at the offices of the
Nasdaq Market Reports Section, 1735 K Street, Washington,
D.C. 20006.

We have not authorized any dealer, salesperson or other
individual to give any information or to make any
representations in connection with this offering except for
those contained in or incorporated into this prospectus.
You should not rely on any information provided to you or
representations made to you except as contained in or
incorporated into this prospectus. There may have been
changes in the affairs of Image since the date of this
prospectus. You should not imply that the information
contained in or incorporated into this prospectus has been
updated even though it is delivered to you, or your purchase
of shares occurs, after the date of this prospectus. We are
not offering shares or soliciting offers to buy shares to or
from anyone in any State in which such offer or solicitation
is not authorized or in which we are not qualified to do so.
We are not offering shares or soliciting offers to buy
shares to or from anyone to whom it is unlawful to make such
offer or solicitation.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE;
DELIVERIES

Image's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998, filed with the Commission on June 25,
1998, as amended by Amendment No. 1 thereto, filed with the
Commission on November 30, 1998; Image's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1998,
filed with the Commission on November 12, 1998, as amended
by Amendment No. 1 thereto, filed with the Commission on
November 30, 1998; and all other reports filed with the
Commission by Image (File No. 0-11071) pursuant to Sections
13(a) or 15(d) of the Exchange Act since March 31, 1998 are
incorporated herein by this reference.

Concurrently with the delivery of this prospectus,
Image is delivering to each person to whom a copy of this
prospectus is delivered copies of the Annual Report, the
Quarterly Report and Image's Proxy Statement dated July 29,
1998. Upon oral or written request therefor, Image will
provide free of charge to any person, including any
beneficial owner, to whom a copy of this prospectus is
delivered, any or all of the documents incorporated herein
by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference
into the information that this prospectus incorporates by
reference). Requests for any such documents should be made
to Image Entertainment, Inc., 9333 Oso Avenue, Chatsworth,
California 91311, Telephone (818) 407-9100, Attention:
Corporate Secretary.

FORWARD LOOKING STATEMENTS

This prospectus contains certain forward-looking
statements which we believe are within the meaning of the
"safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking
statements are based on the beliefs of Image's management
as well as assumptions made by and information currently
available to Image's management. When used in this
document, the words "anticipate," "believe," "may,"
"estimate," "expect" and similar expressions, variations of
such terms or the negative of such terms as they relate to
Image or its management are intended to identify such
forward-looking statements. Such statements are based on
management's current expectations and are subject to certain
risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, Image's actual
results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-
looking statements. Important factors that could cause or
contribute to such difference include those discussed under
"Risk Factors" in this prospectus and in the Annual Report.
Prospective investors are cautioned not to place undue
reliance on such forward-looking statements, which speak
only as of their dates. Image undertakes no obligation to
update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
Prospective investors should carefully consider the
information set forth under "Risk Factors" in this
prospectus.

[Image Entertainment Logo]

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

SEC registration fee $2,500
NASD filing fee $1,500
Nasdaq listing application $17,500
Printing and engraving expenses $10,000
Accounting fees and expenses $75,000
Legal fees and expenses $125,000
Miscellaneous expenses $43,500
Total $275,000

Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Image has adopted provisions in its Restated Articles
that eliminate liability of the directors of Image for
monetary damages to the fullest extent permissible under
California law and that authorize Image to provide for the
indemnification of agents (as defined in Section 317 of the
California General Corporation Law) of Image to the fullest
extent permissible under California law. Article VI,
Section 1 of Image's Bylaws provides for indemnification of
agents of Image to the fullest extent permissible under
California law. Image's Bylaws establish that, for purposes
of Article VI of the Bylaws, an agent is any person who is
or was a director, officer employee or other agent of Image,
or is or was serving at the request of Image as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a predecessor
corporation of Image or of another enterprise at the request
of such predecessor corporation.

Under California law, indemnification for expenses,
including amounts paid on settling or otherwise disposing of
a threatened or pending action or defending against the same
can be made in certain circumstances by action of Image
through: (1) a majority vote of a quorum of Image's Board
of Directors consisting of directors who are not party to
the proceedings; (2) approval of the shareholders, with the
shares owned by the person to be indemnified not being
entitled to vote thereon; or (3) such court in which the
proceeding is or was pending upon application by designated
parties. Under certain circumstances, an agent can be
indemnified even when found liable. Indemnification is
mandatory where the agent's defense is successful on the
merits. California law allows Image to make advances of
expenses for certain actions upon the receipt of an
undertaking that the agent will reimburse the corporation if
the agent is found liable.

Image maintains a directors' and officers' insurance
and company reimbursement policy. With certain exceptions,
the policy insures directors and officers against losses
arising from certain wrongful acts in their capacities as
directors and officers and reimburses Image for such loss
for which Image has lawfully indemnified the directors and
officers.

Image has entered into Indemnity Agreements with its
directors and officers. The Indemnity Agreements provide
for the indemnification of each of Image's officers and
directors in certain third-party proceedings and in certain
proceedings by or in the name of Image. In addition, the
Indemnity Agreements provide for the advance payment by
Image of expenses incurred by an indemnitee in such
proceedings.

Image has also entered into employment agreements with
certain of its officers that include indemnification
provisions. The employment agreements provide for
indemnification of such officers to the maximum extent
permitted by law and require Image to maintain directors'
and officers' liability insurance for the benefit of such
officers under certain circumstances.

The Placement Agent Agreement between Image and MDB
Capital Group LLC provides for indemnification of certain
persons related to Image (including directors and officers)
in certain limited circumstances.

See Item 17 below for information regarding the
position of the Commission with respect to the effect of any
indemnification for liabilities arising under the Securities
Act.

Item 16. EXHIBITS

Exhibit
Number Description of Exhibit

1* Form of Placement Agent Agreement.

2.1* Asset Purchase Agreement dated as of August 20, 1998
by and between Image Newco, Inc. and Ken Crane's
Magnavox City, Inc.

2.2* First Amendment to Asset Purchase Agreement dated as
of October 3, 1998 by and between Image Newco, Inc.
and Ken Crane's Magnavox City, Inc.

3.1 Restated Articles of Incorporation. Filed as
Exhibit 3.1 of Image's Form 10-K for the year
ended March 31, 1995 and incorporated herein by
this reference.

3.2 Bylaws. Filed as Exhibit 3.2 of Image's Form 10-K
for the year ended March 31, 1995 and incorporated
herein by this reference.

4* Specimen Common Stock certificate.

5* Opinion of O'Melveny & Myers LLP, counsel to
Image, as to the legality of the common stock
offered hereby (including consent).

10.1 Image's Restated 1989 Incentive Stock Option Plan,
as amended. Filed as Exhibit 10.1 of Image's
Form 10-K for the year ended March 31, 1992 and
incorporated herein by this reference.

10.2 Image's 1998 Incentive Plan. Filed as Exhibit A of
Image's Proxy Statement dated July 29, 1998 and
incorporated herein by this reference.

10.3 Image's 1990 Stock Option Plan. Filed as Exhibit A
of Image's Proxy Statement dated December 27, 1990
and incorporated herein by this reference.

10.4 Image's Restated 1992 Stock Option Plan. Filed as
Exhibit A of Image's Proxy Statement dated
September 9, 1994 and incorporated herein by this
reference.

10.5 Image's 1994 Eligible Directors Stock Option Plan
and Form of Eligible Director Non-Qualified Stock
Option Agreement. Filed as Exhibit 10.4 of
Image's Form 10-K for the year ended March 31,
1995 and incorporated herein by this reference.

10.6 Form of Option Agreement dated October 15, 1991
between Image and Martin W. Greenwald. Filed as
Exhibit 10.3 of Image's 10-Q for the quarter ended
September 30, 1991 and incorporated herein by this
reference.

10.7 Option granted August 13, 1992 by Image to Cheryl
Lee. Filed as Exhibit 10.12 of Image's Form 10-K for
the year ended March 31, 1994 and incorporated
herein by this reference.

10.8 Form of Option granted May 19, 1994 to Jeff Framer,
Cheryl Lee and David Borshell. Filed as Exhibit
10.24 to Image's Form 10-K for the year ended
March 31, 1994 and incorporated herein by this
reference.

10.9* Eligible Director Non-Qualified Stock Option
Agreement dated as of July 22, 1998 between Image
and Stuart Segall.

10.10* Eligible Director Non-Qualified Stock Option
Agreement dated as of September 17, 1998 between
Image and Mark Trevenen Huxley.

10.11* Form of Termination Agreement between Image and each
of Martin W. Greenwald, Cheryl Lee, Jeff Framer
and David Borshell (relating to the termination of
their former employment agreements).

10.12* Employment Agreement dated as of July 1, 1998
between Image and Martin W. Greenwald.

10.13* Employment Agreement dated as of July 1, 1998
between Image and Cheryl Lee.

10.14* Employment Agreement dated as of July 1, 1998
between Image and Jeff Framer.

10.15* Employment Agreement dated as of July 1, 1998
between Image and David Borshell.

10.16* Form of Performance Restricted Stock Unit Award
Agreement (and related General Provisions) between
Image and each of Martin W. Greenwald, Cheryl Lee,
Jeff Framer and David Borshell (appended as
Exhibit A to Exhibits 10.12 through 10.15).

10.17 Form of Indemnity Agreement between Image and its
directors and officers. Filed as Exhibit F of
Image's Proxy Statement dated September 5, 1989
and incorporated herein by this reference.

10.18 Stock Purchase Agreement among Image, Directors of
Image and various Buyers dated December 29, 1987.
Filed as Exhibit 4.3 of Image's Form 8-K dated
December 29, 1987 and incorporated herein by this
reference.

10.18.a Form of First Amendment dated July 7, 1992 to the
Stock Purchase Agreement referenced in Exhibit
10.18 above. Filed as Exhibit 10.5 of Image's
Form 10-Q for the quarter ended September 30, 1992
and incorporated herein by this reference.

10.19 Stock Purchase Agreement among Image, Directors of
Image and Image Investors Co. dated June 27, 1990.
Filed as Exhibit 10.53 of Image's Form 10-K for
the year ended March 31, 1990, and incorporated
herein by this reference. Image and Image
Investors Co. are also parties to the Stock
Purchase Agreements dated July 14, 1988, November
30, 1988, January 11, 1989, February 14, 1989, May
10, 1989 and June 20, 1990, which are virtually
identical to this Exhibit (except for the number
of shares of common stock purchased), and which
were incorporated by reference therein. The
number of shares purchased under the prior
agreements were 85,124, 118,778, 297,977,
1,187,783, 593,891 and 673,077, respectively.

10.20 Stock Purchase Agreement between Image and Image
Investors Co. dated December 30, 1992, including
Warrant. Filed as Exhibit 10.6 of Image's Form 10-
Q for the quarter ended December 31, 1992 and
incorporated herein by this reference.

10.21 Stock Purchase Agreement between Image and Stuart
Segall dated as of July 12, 1995. Filed as
Exhibit 10.1 of Image's Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein
by this reference.

10.22 Stock Purchase Agreement between Image and Martin W.
Greenwald dated as of June 27, 1996. Filed as
Exhibit 10.2 of Image's Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein
by this reference.

10.23 Purchase and Sale Agreement between Image and LEI
Partners, L.P. dated December 31, 1990. Filed as
Exhibit 10.1 of Image's Form 10-Q for the quarter
ended December 31, 1990 and incorporated herein by
this reference.

10.24 Standard Industrial Lease for 9333 Oso Avenue,
Chatsworth, California, dated December 1, 1993 and
effective April 1, 1994, between Image and P&R
Investment Company. Filed as Exhibit 10.1 of
Image's Form 10-Q for the quarter ended December
31, 1993 and incorporated herein by this
reference.

10.25 Standard Industrial Lease for 20350 Prairie Street,
Chatsworth, California, dated December 1, 1993 and
effective April 1, 1994, between Image and P&R
Investment Company. Filed as Exhibit 10.2 of
Image's Form 10-Q for the quarter ended December
31, 1993 and incorporated herein by this
reference.

10.25.a Surrender of Lease and Termination Agreement for
20350 Prairie Street, Chatsworth, California,
dated and effective February 2, 1998, between
Image and P&R Investment Company. Filed as
Exhibit 10.20.c of Image's Form 10-K for the year
ended March 31, 1998 and incorporated herein by
this reference.

10.26 Agreement for Purchase and Sale dated June 5, 1996
between Airport Center Partnership and Image.
Filed as Exhibit 10.19 of Image's Form 10-K for
the year ended March 31, 1996 and incorporated
herein by this reference.

10.27 Construction Agreement between Image and Carson
Construction Management, Inc. dated as of November
25, 1996. Filed as Exhibit 10.23 of Image's Form
10-K for the year ended March 31, 1997 and
incorporated herein by this reference.

10.28 Business Loan Agreement between Image and Bank of
America National Trust and Savings Association
dated March 10, 1997. Filed as Exhibit 10.26 of
Image's Form 10-K for the year ended March 31,
1998 and incorporated herein by this reference.

10.28.a Amendment No. 1 dated as of February 4, 1998 to
Business Loan Agreement between Image and Bank of
America National Trust and Savings Association
dated March 10, 1997. Filed as Exhibit 10.23.a of
Image's Form 10-K for the year ended March 31,
1998 and incorporated herein by this reference.

10.28.b Amendment No. 2 dated as of June 29, 1998 to
Business Loan Agreement between Image and Bank of
America National Trust and Savings Association
dated March 10, 1997. Filed as Exhibit 10.3 of
Image's Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by this reference.

10.29 Lease Intended as Security between Image and BA
Leasing & Capital Corporation dated March 19, 1997.
Filed as Exhibit 10.24 of Image's Form 10-K for
the year ended March 31, 1998 and incorporated
herein by this reference.

10.29.a (First) Amendment dated March 19, 1997 to Lease
Intended as Security between Image and BA Leasing
& Capital Corporation dated March 19, 1997. Filed
as Exhibit 10.24.a of Image's Form 10-K for the
year ended March 31, 1998 and incorporated herein
by this reference.

10.29.b Second Amendment dated February 8, 1998 to Lease
Intended as Security between Image and BA Leasing &
Capital Corporation dated March 19, 1997. Filed
as Exhibit

10.24.b of Image's Form 10-K for the
year ended March 31, 1998 and incorporated herein
by this reference.

10.29.c Third Amendment dated September 25, 1998 to Lease
Intended as Security between Image and BA Leasing
& Capital Corporation dated March 19, 1997. Filed
as Exhibit 10.1 of Image's Form 10-Q for the
quarter ended September 30, 1998 and incorporated
herein by this reference.

10.30 Agreement for Purchase and Sale dated May 13, 1998
between Image and Jackson-Shaw Company. Filed as
Exhibit 10.25 of Image's Form 10-K for the year
ended March 31, 1998 and incorporated herein by
this reference.

10.31 Loan Agreement between Image and Union Bank of
California, N.A. dated as of December 17, 1996.
Filed as Exhibit 10.20 of Image's Form 10-K for
the year ended March 31, 1997 and incorporated
herein by this reference.

10.31.a Amendment No. 1 dated as of February 5, 1997 to Loan
Agreement dated as of December 17, 1996 by and
between Image and Union Bank of California, N.A.
Filed as Exhibit 10.20.A of Image's Form 10-K for
the year ended March 31, 1997 and incorporated
herein by this reference.

10.31.b Amendment No. 2 dated as of February 25, 1997 to
Loan Agreement dated as of December 17, 1996 by and
between Image and Union Bank of California, N.A.
Filed as Exhibit 10.20.B of Image's Form 10-K for
the year ended March 31, 1997 and incorporated
herein by this reference.

10.31.c Amendment No. 3 dated as of September 27, 1997 to
Loan Agreement dated as of December 17, 1996 by
and between Image and Union Bank of California,
N.A. Filed as Exhibit 10.26.c of Image's Form 10-K
for the year ended March 31, 1998 and incorporated
herein by this reference.

10.31.d Amendment No. 4 dated as of October 31, 1997 to Loan
Agreement dated as of December 17, 1996 by and
between Image and Union Bank of California, N.A.
Filed as Exhibit 10.26.d of Image's Form 10-K for
the year ended March 31, 1998 and incorporated
herein by this reference.

10.31.e Amendment No. 5 dated as of January 28, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between Image and Union Bank of California, N.A.
Filed as Exhibit 10.26.e of Image's Form 10-K for
the year ended March 31, 1998 and incorporated
herein by this reference.

10.31.f Amendment No. 6 dated as of June 18, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between Image and Union Bank of California, N.A.
Filed as Exhibit 10.26.f of Image's Form 10-K for
the year ended March 31, 1998 and incorporated
herein by this reference.

10.31.g Amendment No. 7 dated as of July 13, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between Image and Union Bank of California, N.A.
Filed as Exhibit 10.2 of Image's Form 10-Q for the
quarter ended June 30, 1998 and incorporated
herein by this reference.

10.31.h Amendment No. 8 dated as of October 23, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between Image and Union Bank of California, N.A.
Filed as Exhibit 10.2 of Image's Form 10-Q for the
quarter ended September 30, 1998 and incorporated
herein by this reference.

10.32 Credit Agreement dated as of September 29, 1997 by
and between Image and Image Investors Co. Filed as
Exhibit 10.27 of Image's Form 10-K for the year
ended March 31, 1998 and incorporated herein by
this reference.

15 Letter re: Unaudited Interim Financial Information.

23.1 Consent Letter of KPMG Peat Marwick LLP, Independent
Certified Public Accountants.

23.2* Consent Letter of O'Melveny & Myers LLP, counsel to
Image (included with Exhibit 5).

24* Power of Attorney (included on page II-8).

- --------------
*Previously filed.

Item 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities
Act of 1933:

(1) the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed
by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it
was declared effective; and

(2) each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors,
officers or controlling persons of the registrant pursuant
to the provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.

SIGNATURES

Pursuant to the requirements of the Securities Act
of 1933, as amended, the Registrant has duly caused this
Amendment No. 5 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized,
in the City of Los Angeles, State of California, on December
21, 1998.

IMAGE ENTERTAINMENT, INC.,
a California corporation

By: /s/ Martin W. Greenwald
-----------------------------
MARTIN W. GREENWALD,
Chairman of the Board,
Chief Executive Officer, President and Treasurer

Pursuant to the requirements of the Securities Act of
1933, this Amendment No. 5 to the Registration Statement has
been signed below by the following persons in the capacities
and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Martin W. Greenwald
- ----------------------- Chairman of the December 21, 1998
Martin W. Greenwald Board, Chief
Executive Officer,
President and
Treasurer
/s/ Jeff M. Framer
- ------------------------ Chief Financial December 21, 1998
Jeff M. Framer Officer (Principal
Financial and
Accounting Officer)
*
- ------------------------ Director December 21, 1998
Stuart Segall

*
- ------------------------ Director December 21, 1998
Ira Epstein

*
- ------------------------ Director December 21, 1998
M. Trevenen Huxley

* By /s/ Martin w. Greenwald
---------------------------------
Martin W. Greenwald
Attorney-in-Fact
</TABLE>

Image Entertainment, Inc.
Chatsworth, California

Re: Unaudited Financial Information

We acknowledge our awareness of the use herein of our report
dated October 30, 1998 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
December 18, 1998

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Image Entertainment, Inc.:

We consent to the use of our reports incorporated by reference
herein and to the reference to our firm under the heading
"Experts" in the prospectus.

/s/ KPMG Peat Marwick LLP

Los Angeles, California
December 18, 1998