Image Entertainment Inc. warned that it may default on a payment due in a couple of days, but it said it is working with a creditor to alter terms. It also reported a larger second quarter loss due largely to a weak video release schedule.

Image of Chatsworth faces a $4 million payment on a convertible note on Nov. 15 but does not have the money, said Chief Financial Officer Jeff Framer. Failure to pay will result in a default, and trigger other defaults, loan and security agreement with Wachovia Capital Finance Corp.

“We are in discussion with the holder of the note but cannot predict whether we will be successful in avoiding a default under the note,” Framer said in a statement.

After the markets closed Thursday, the home entertainment producer and distributor reported a net loss of $1.6 million (-7 cents per share) for the quarter ended September 30, compared with a loss of $465,000 (-2 cents) a year ago. Net revenues fell 8 percent to $29.8 million.

The company continues to have challenges getting a greater percentage of revenue from more popular media formats. Revenues from domestic DVDs fell more than 12 percent to less than $25 million, and broadcast revenue fell nearly 48 percent to $612,000. But Blu-ray disc sales more than doubled to $2.6 million, and digital distribution deals rose nearly 9 percent to $1 million

Image had few new releases in the quarter. The strongest was “Management,” starring Jennifer Aniston, Steve Zahn and Woody Harrelson, coming near the end of the quarter.

The company did not provide quarterly or annual revenue guidance for fiscal 2010. Earlier this year, the board contracted with a financial advisor to explore strategic alternatives.

Shares were down 13 cents, or 16 percent, to 69 cents in midday trading on the Nasdaq. The NASDAQ Global Market notified Image in September that its stock was in danger of being delisted if it could not maintain a minimum share bid price of $1 for 10 straight business days by March 15.

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