Great, thank you for the suggestion Krikor. What do you think of this portion of code which is in the template found here: /templates/mytemplatename/code/com_k2/models

//Item image
if ($params->get('feedItemImage') && JFile::exists(JPATH_SITE.DS.'media'.DS.'k2'.DS.'items'.DS.'cache'.DS.md5("Image".$item->id).'_'.$params->get('feedImgSize').'.jpg'))
{
$altText = $item->image_caption ? $item->image_caption : $item->title;
$item->description .= '<div class="K2FeedImage"><img src="'.JURI::root().'media/k2/items/cache/'.md5('Image'.$item->id).'_'.$params->get('feedImgSize').'.jpg" alt="'.$altText.'" /></div>';
}

item.php file

Hello,
Does your template override the model as well?
Also the JFile::exists(JPATH_SITE.DS.'media'.DS.'k2'.DS.'items'.DS.'cache'.DS.md5("Image".$item->id).'_'.$params->get('feedImgSize').'.jpg')) part checks to see whether an image is actually present, so this code looks good.
Furthermore if this is a commercial template, then you can ask the template's developer for guidance.

Krikor, It is a custom template and I have no contact with them.
When you state: " Does your template override the model as well" - I'm unsure what you mean or where I should check for this. Would you please give me a little more info as to what to look for and where?

Thank you very much,
~J

I can only send you some guidance on how to locate the files you need to check
getk2.org/documentation/tutorials/174-templating-with-k2-and-the-concepts-of-sub-templates
www.joomlaworks.net/blog/item/194-k2-inheritance-sub-templating

As for the actual code, since this is a custom template I am afraid I cannot provide any solid info.

Thanks Krikor, I'm continuing to troubleshoot.

The only thing i've done is cleared cache in the Joomla admin area for JCH Optimize Pro plugin as the site is still under development and it's necessary to do that in order to see updates.You should scan your site to see in which items the image is missing and furthermore you need to double check your template to make sure that the image is not being requested if it is not present.

Forgot to add, that it might be a module as well.
The K2 Content module does have the proper check but a broken override or a 3rd party module might cause this issue.