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When Blockbuster Inc. (NYSE:BBI) filed its 2009 annual report in March, it included the dreaded “going concern” sentence, indicating that it needed to boost its operating income and restructure its debt. Its first quarter report released on May 13th showed the company’s operating income was not positive and the debt restructuring didn’t happen although total debt fell by $44 million.  Blockbuster has suffered stiff competition from kiosk rental stations such as Redbox and mail delivery company Netflix, Inc. (NASDAQ:NFLX). Online streaming is also threatening to make Blockbuster’s brick-and-mortar stores even more of an albatross than they are already. The major threat here is Wal-Mart Stores, Inc. (NYSE:WMT), which recently purchased a streaming video company and is no doubt gearing up to launch its own streaming service.

Now, the company is fighting with bondholders over terms for restructuring Blockbuster’s debt of about $900 million. The dispute, according to The Wall Street Journal, involves a group of bondholders who are willing to eliminate $300 million in debt for a “lion’s share” of Blockbuster’s new equity. The sticking point is that the group is willing to invest $30 million in new money in the re-tooled Blockbuster, but Blockbuster wants $100 million.

The company is also negotiating with bondholders who are owed around $630 million, trying to get the creditors to cancel $20 million in quarterly amortization payments. Apparently, these bondholders, who are senior to the other group, want their “lion’s share” of the company as well in exchange for eliminating these payments.

A third option is that NCR Corp. (NYSE:NCR) would save the day with an investment in Blockbuster. NCR makes the video rental machines for Blockbuster, which has installed more than 4,000 of the machines as of the end of the first quarter. NCR has offered no comment on the idea.

Blockbuster is also the target of an angry shareholder who is putting himself up for a board seat. The shareholder, Gregory Meyer, owns 620,000 shares of Class A common stock (0.44%) and 25,000 shares of Class B common stock. Blockbuster issued a statement this week saying that electing Meyer “would be a mistake.”

It wouldn’t be the first mistake that the company’s shareholders have made. Blockbuster shares are trading today at $0.35. Tell me that’s not the result of a series of mistakes.

Paul Ausick