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Image Given Warning by Auditor, Stock Plunges

6 Jul, 2009 By: Erik Gruenwedel

As expected, Image Entertainment July 6 said its annual report for the fiscal year ended March 31 contained language from an independent auditor expressing “substantial doubt” the Chatsworth, Calif.-based distributor could maintain operations for a reasonable period of time.

The opinion, included in Image’s 10-K regulatory filing, was attributed to the company’s recurring losses from operations, negative cash flow and limited access to capital.

During last month’s financial call, Jeffrey Framer, president of Image, said auditors had included the language due to liquidity and access to credit issues, including two $4 million credit payments due in the next 12 months.

Framer said Image June 23 amended its loan agreement with Wachovia that negated a possible automatic default of the agreement triggered by the auditor’s “qualified opinion” on Image’s financial status.

“We are extremely glad Wachovia worked with us in reaching such resolution,” Framer said at the time during a call with investors.

Image’s decision to focus on cast-driven, under-the-radar feature films helped it streamline a fiscal year 2009 fourth-quarter (ended March 31) net loss to $3.3 million, compared to a net loss of $14.7 million during the previous year period.

Despite the positive reaction to feature films, Image said the ongoing economic climate prevented issuing a fiscal 2010 guidance.

The company reported last month it was working with financial advisor Houlihan Lokey Howard & Zukin Capital to explore “various alternatives,” including the sale of the company.

Image shares fell more than 20% July 6 to 68 cents per share — the worst decline since Nov. 8, 2008.

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