216324--6/29/2010--IMAGE_ENTERTAINMENT

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{capital, credit, financial}

{customer, product, revenue}

{stock, price, share}

{product, market, service}

{condition, economic, financial}

{loan, real, estate}

{debt, indebtedness, cash}

{stock, price, operating}

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{acquisition, growth, future}

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Risks Relating to Our Business The report of our independent registered public accounting firm contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our liquidity substantially depends on our ability to borrow against our revolving line of credit. Failure to replace our revolving line of credit would negatively impact our business, results of operations and liquidity Our credit facility contains covenants that may limit the way we conduct business. We have a history of (and may continue to incur) losses, limited working capital and limited access to financing. We will need additional funding to continue acquiring desirable programming and to continue as a going concern. We generate significant amounts of net revenue for programming from one content supplier, the loss of which would adversely impact our business. The current economic slowdown may continue to adversely impact our business, results of operations and financial condition. A further tightening of the credit markets may have an adverse effect on our ability to obtain financing. Failure to secure DVD distribution rights may adversely impact our business, results of operations and financial condition. We have a high concentration of sales to relatively few customers, the loss of which may adversely impact our liquidity, business, results of operations and financial condition. Our high concentration of sales to relatively few customers may result in significant uncollectible accounts receivable exposure, which may adversely impact our liquidity, business, results of operations and financial condition. We have a high concentration of sales from relatively few titles, which may impact future net revenues if we do not acquire additional titles. Our acquisition of cast-driven finished feature film content may not be successful, which could adversely impact our business, results of operations and financial condition. We are subject to risks associated with our strategy of pursuing acquisitions, joint ventures and partnering arrangements. Our inability to gauge and predict the commercial success of our programming could adversely impact our business, results of operations and financial condition. Our current DVD and CD genre revenue concentrations may become unpopular with our retail customers and end-consumers, which may adversely impact our business. Inventory obsolescence may adversely impact our business, results of operations and financial condition. We may be unable to recoup advances paid to secure exclusive distribution rights. Risks associated with distributing our programming internationally may adversely impact our business, results of operations and financial condition. Inability to maintain relationships with our program suppliers and vendors may adversely impact our business. We may not be able to keep pace with technological advances, which may adversely impact our business, results of operations and financial condition. Failure by third parties to promote our programming may adversely impact our business. An increase in product returns may adversely impact our business, results of operations and financial condition. We may not possess satisfactory rights in our properties, which may adversely impact our business, results of operations and financial condition. Protecting and defending against intellectual property claims may have a material adverse impact on our business, results of operations and financial condition. We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our current personnel or hire additional personnel, our ability to develop and successfully market our business could be harmed. The occurrence of uninsured events may adversely impact our business, results of operations and financial condition. We face direct and indirect foreign currency exchange risk. We depend on third-party shipping and fulfillment companies for the delivery of our products. If these companies experience operational difficulties or disruptions, our business could be adversely impacted. Legislative actions, higher directors and officers insurance costs and potential new accounting pronouncements are likely to cause our general and administrative expenses to increase and impact our future financial condition and results of operations. Risks Relating to Our Industry The standard DVD format has matured. Decreasing retail prices for DVDs may negatively impact our revenues and gross profit margins. Decreasing retail shelf space for our industry may limit sales of our programming, which may adversely impact our business, results of operations and financial condition Illegal piracy may reduce our revenues and adversely impact our results of operation. If DVD cannot compete successfully with other formats of home entertainment, our revenues may be adversely impacted. The motion picture industry is rapidly evolving, and recent trends have shown that audience response to both traditional and emerging distribution channels is volatile and difficult to predict. Risks Relating to Our Stock Our recent issuance of preferred stock resulted in substantial dilution to our stockholders, and the rights of the holders of preferred stock could render future financings and merger and acquisition transactions more difficult. Because of its significant stock ownership, our largest stockholders can exert significant influence over our future direction. As a result of our delisting from The Nasdaq Stock Market, we are not currently subject to its corporate governance requirements and you may not have the same protections afforded to stockholders of listed companies. Our stock price may be subject to substantial volatility, and you may lose all or a substantial part of your investment. You may find it difficult to dispose of your shares. The delisting of our common stock from The Nasdaq Global Market could result in loss of investors, increased obligations under state securities laws, decreased coverage by securities analysts and a higher cost of capital. Any future sales of equity may significantly impact the market price of our common stock. If we are unable to conclude that our internal control over financial reporting is effective, our stock price may be negatively impacted. Certain provisions in our charter documents and Delaware law, as well as our stockholder rights plan, could discourage takeover attempts and lead to management entrenchment.

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216324--6/29/2010--IMAGE_ENTERTAINMENT_INC