XNAS:RLJE RLJ Entertainment Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number: 000-54276

 

RLJ ACQUISITION, INC.
(Exact name of Registrant as specified in its charter)

 

Nevada   27-3970903
 (State or other jurisdiction of incorporation)    (IRS Employer Identification Number)
     
3 Bethesda Metro Center, Suite 1000
Bethesda, Maryland 20814
(Address of principal executive offices)
 
(301) 280-7737
 (Registrant’s telephone number, including area code)

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer þ Smaller reporting company ¨
    (Do not check if a smaller  
    reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). þ Yes ¨ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

The number of shares of common stock outstanding as of August 13, 2012 was 17,968,750.

 

 

 

 
 

 

TABLE OF CONTENTS

 

  Page
   
PART I — FINANCIAL INFORMATION 1
ITEM 1. Financial Statements. 1
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 19
ITEM 4. Controls and Procedures. 19
   
PART II — OTHER INFORMATION 19
ITEM 1. Legal Proceedings. 19
ITEM 1A. Risk Factors. 19
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds. 30
ITEM 3. Defaults upon Senior Securities. 30
ITEM 4. Mine Safety Disclosures. 30
ITEM 5. Other Information. 30
ITEM 6. Exhibits. 30
   
SIGNATURES 32

 

 
 

 

Forward-Looking Statements

 

Certain statements contained in this report, and the information incorporated by reference herein, which reflect our current views with respect to future events and financial performance, and any other statements of a future or forward-looking nature, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give current expectations or forecasts of future events. Our forward-looking statements include, but are not limited to, statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about:

 

·our ability to complete our initial business combination;

 

·our ability to integrate Image Entertainment, Inc.’s or Acorn Media Group, Inc.’s business and operations;

 

·our success in retaining or recruiting our officers, key employees or directors following our initial business combination;

 

·our potential ability to obtain additional financing to complete our initial business combination;

 

·our public securities’ limited liquidity and trading;

 

·the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;

 

·the deterioration of general economic conditions, either nationally or in the local markets in which we operate;

 

·the dissolution and liquidation of our company as a result of a failure to close the business combination; or

 

·our financial performance.

 

 
 

 

The forward-looking statements contained or incorporated by reference in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us and speak only as of the date of such statement. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in Part II — Other Information, “Item 1A. Risk Factors” and elsewhere in this report and in our annual report on Form 10-K for the year ended December 31, 2011, and those described in our future reports filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

References in this report to “we,” “us” or “our company” refer to RLJ Acquisition, Inc. References in this report to our “public shares” are to shares of our common stock sold as part of the units in our initial public offering (whether they are purchased in our initial public offering or thereafter in the open market) and references to “public stockholders” refer to the holders of our public shares, including our initial stockholders (as defined below) to the extent our initial stockholders purchased public shares, provided that each initial stockholder’s status as a “public stockholder” shall only exist with respect to such public shares. References in this report to our “management” or our “management team” refer to our officers and directors, references to our “sponsor” refer to RLJ SPAC Acquisition, LLC, a Delaware limited liability company, and references to our “initial stockholders” refer to our sponsor, William S. Cohen and Morris Goldfarb.

 

 
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. Financial Statements.

 

RLJ Acquisition, Inc.

(a corporation in the development stage)

 

CONDENSED BALANCE SHEETS

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
ASSETS          
Current assets:          
Cash  $207,817   $1,162,666 
Prepaid expenses   79,690    16,892 
Total current assets   287,507    1,179,558 
Noncurrent asset:          
Investments held in Trust Account   143,148,099    143,115,258 
Total assets  $143,435,606   $144,294,816 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable  $-   $21,448 
Accrued expenses   45,289    66,225 
Due to affiliate   493,197    67,878 
Total current liabilities   538,486    155,551 
Other liabilities:          
Deferred underwriters' fee   3,593,750    3,593,750 
Total liabilities   4,132,236    3,749,301 
           
Common stock subject to possible redemption 13,497,826 at June 30, 2012 and 13,622,664 at December 31, 2011 (at redemption value of $9.95 per share)   134,303,369    135,545,507 
           
Commitments and contingencies          
Stockholders' equity          
Common stock, $0.001 par value. Authorized 250,000,000 shares; 4,470,924 shares issued and outstanding at June 30, 2012 and 4,346,086 shares issued and outstanding at December 31, 2011 (which excludes 13,497,826 and 13,622,664 shares subject to possible redemption at June 30, 2012 and December 31, 2011, respectively)   4,471    4,346 
Additional paid-in captial   6,684,386    5,442,373 
Deficit accumulated during the development stage   (1,688,856)   (446,711)
Total stockholders' equity   5,000,001    5,000,008 
Total liabilities and stockholders' equity  $143,435,606   $144,294,816 

 

See accompanying notes to condensed interim financial statements.

 

1
 

 

RLJ Acquisition, Inc.

(a corporation in the development stage)

 

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Six Months   Six Months   Three Months   Three Months   November 12, 2010 
   Ended   Ended   Ended   Ended   (date of inception) to 
   June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011   June 30, 2012 
                     
Formation costs  $-   $48,014   $-   $-   $73,213 
General and administrative expenses   1,274,986    145,299    900,868    110,243    1,732,492 
Loss from operations   (1,274,986)   (193,313)   (900,868)   (110,243)   (1,805,705)
Other Income                         
Interest Income   32,841    43,559    19,562    21,382    116,849 
                          
Net loss  $(1,242,145)  $(149,754)  $(881,306)  $(88,861)  $(1,688,856)
                          
Loss per common share:                         
Basic and diluted  $(0.28)  $(0.03)  $(0.20)  $(0.02)  $(0.40)
Weighted average common shares outstanding                         
Basic and diluted   4,426,638    4,324,503    4,470,924    4,617,531    4,232,266 

 

See accompanying notes to condensed interim financial statements.

 

2
 

 

RLJ Acquisition, Inc.

(a corporation in the development stage)

 

CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

 

For the Period from November 12, 2010 (date of inception) to June 30, 2012

 

               Deficit     
               Accumulated     
               During the     
   Common Stock   Additional   Development   Stockholders' 
   Shares   Amount   Paid-In Capital   Stage   Equity 
                     
Sale of common stock issued to initial stockholder on November 18, 2010 at $.0070 per share   3,593,750 $ 3,594 $ 21,406 $ - $ 25,000
                          
Net loss   -    -    -    (25,199)   (25,199)
                          
Balances at December 31, 2010   3,593,750    3,594    21,406    (25,199)   (199)
                          
Sale on February 22, 2011 of 14,375,000 units at $10 per unit, net of underwriters' fee and offering expenses (including 13,622,664 shares subject to possible redemption) 14,375,000 14,375 135,952,851 - 135,967,226  
                          
Sale on February 22, 2011 of 6,666,667 private placement warrants to the sponsor at $0.75 per warrant   - - 5,000,000 - 5,000,000  
                          
Net proceeds subject to possible redemption of 13,622,664 shares at redemption value (13,622,664 ) (13,623 ) (135,531,884 ) - (135,545,507 )
                          
Net loss   -    -    -    (421,512)   (421,512)
                          
Balances at December 31, 2011   4,346,086    4,346    5,442,373    (446,711)   5,000,008 
                          
Change in proceeds subject to possible redemption 13,497,826                         
ordinary shares at redemption value (unaudited)   124,838    125    1,242,013         1,242,138 
                          
Net loss (unaudited)                  (1,242,145)   (1,242,145)
                          
Balances at June 30, 2012 (unaudited)   4,470,924   $4,471   $6,684,386   $(1,688,856)  $5,000,001 

 

See accompanying notes to condensed interim financial statements.

 

3
 

 

RLJ Acquisition, Inc.

(a corporation in the development stage)

 

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months   Six Months   November 12, 2010 
   Ended   Ended   (date of inception) to 
   June 30, 2012   June 30, 2011   June 30, 2012 
             
Cash flows from operating activities:               
Net loss  $(1,242,145)  $(149,754)  $(1,688,856)
Adjustments to reconcile net loss to net cash used in operating activities:               
Increase (decrease) in cash attributable to changes in operating assets and liabilities:               
Prepaid expenses   (62,798)   (73,092)   (79,690)
Accounts payable   (21,448)        - 
Accrued expenses   (20,936)   18,288    45,289 
Due to affiliate   425,319    (35,294)   493,197 
Net cash used in operating activities   (922,008)   (239,852)   (1,230,060)
                
Cash flows from investing activities:               
Principal deposited in Trust Account        (143,031,250)   (143,031,250)
Interest reinvested in Trust Account   (32,841)   (43,559)   (116,849)
Net cash used in investing activities   (32,841)   (143,074,809)   (143,148,099)
                
Cash flows from financing activities:               
Proceeds from the issuance of stock to initial stockholder             25,000 
Proceeds from public offering        143,750,000    143,750,000 
Proceeds from issuance of warrants        5,000,000    5,000,000 
Proceeds from issuance of notes payable - related party             225,000 
Payments on notes payable - related party        (225,000)   (225,000)
Payment of offering costs        (4,139,024)   (4,189,024)
Net cash provided by financing activities   -    144,385,976    144,585,976 
Increase (decrease) in cash   (954,849)   1,071,315    207,817 
Cash at beginning of the period   1,162,666    249,976      
Cash at end of the period  $207,817   $1,321,291   $207,817 
                
Supplemental disclosure of non-cash financing activities:               
Deferred underwriters' fee  $-   $3,593,750   $3,593,750 

 

See accompanying notes to condensed interim financial statements.

 

4
 

 

RLJ ACQUISITION, INC.

(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

For the period from November 12, 2010 (date of inception) to June 30, 2012

 

(1) Organization, Nature of Business Operations and Going Concern Consideration

 

RLJ Acquisition, Inc. (the Company) is a newly-organized blank check company formed on November 12, 2010 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

 

The Company's sponsor is RLJ SPAC Acquisition, LLC (the Sponsor). At June 30, 2012, the Company had not commenced any operations. All activity through June 30, 2012 relates to the Company's formation, the initial public offering described in Note 4, and the pursuit of a proposed business combination described in Note 5 . The Company selected December 31 as its fiscal year-end.

 

The Company consummated its initial public offering (the Offering) on February 22, 2011 and received net proceeds of $140,156,250, before deducting deferred underwriting compensation of $3,593,750, plus $5,000,000 received for the purchase of 6,666,667 warrants by the Sponsor. The Company's management has broad discretion with respect to the specific application of the net proceeds of the Offering, although substantially all of the net proceeds of the Offering are intended to be generally applied toward effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company's efforts in identifying prospective target businesses will not be limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination. Instead, the Company intends to focus on various industries and target businesses that may provide significant opportunities for growth.

 

Upon the closing of the Offering and simultaneous private placement of the Sponsor Warrants (as defined below in Note 5), $143,031,250 was placed in a trust account (Trust Account). Except for a portion of the interest income earned on the Trust Account balance that may be released to the Company to pay any income taxes and to fund the Company's working capital requirements, and any amounts necessary to purchase up to 25% of the Company's shares issued as part of the Units described in Note 4 (public shares) if the Company seeks stockholder approval for its initial business combination, none of the funds held in the Trust Account will be released until the earlier of the completion of the Company's initial business combination and the redemption of 100% of the Company's public shares if the Company is unable to consummate a business combination within 21 months from the closing of the Offering (subject to the requirements of law). The proceeds deposited in the Trust Account could become subject to the claims of the Company's creditors, if any, which could have priority over the claims of the Company's public stockholders.

 

The Company will provide its stockholders with the opportunity to redeem their public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account, less franchise and income taxes payable, upon the consummation of the Company's initial business combination, subject to the limitations described herein. There will be no redemption rights with respect to outstanding warrants, which will expire worthless in the event the Company does not consummate a business combination. Unlike many other blank check companies that hold stockholder votes and conduct proxy solicitations in conjunction with their initial business combinations and provide for related redemptions of public shares for cash upon consummation of such initial business combinations even when a vote is not required by law, the Company intends to consummate its initial business combination and conduct the redemptions without a stockholder vote pursuant to Rule 13e-4 and Regulation 14E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which regulates issuer tender offers, and the Company will file tender offer documents with the Securities and Exchange Commission (the SEC). The tender offer documents will contain substantially the same financial and other information about the Company's initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. In the event the Company conducts redemptions pursuant to the tender offer rules, its offer to redeem shares shall remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act. If however, a stockholder vote is required by law, or the Company decides to hold a stockholder vote for business or other legal reasons, the Company will, like other blank check companies, conduct the redemptions pursuant to the proxy rules and not pursuant to the tender offer rules.

 

5
 

 

RLJ ACQUISITION, INC.

(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

For the period from November 12, 2010 (date of inception) to June 30, 2012

 

If the Company seeks stockholder approval, the Company will consummate its initial business combination only if a majority of the outstanding shares of common stock voted are voted in favor of the business combination. In such case, the initial stockholders (as defined below in Note 6) have agreed to vote their Founder Shares (as defined below in Note 6) as well as any public shares purchased during or after the Offering in favor of the Company's initial business combination. In addition, the initial stockholders have agreed to waive their redemption rights with respect to their Founder Shares and any public shares they may hold in connection with the consummation by the Company of a business combination.

 

If the Company does not effect a business combination within 21 months from the closing of the Offering, the Company will liquidate the Trust Account and distribute the amount held in the Trust Account, including interest but net of franchise and income taxes payable and less up to $100,000 of such net interest that may be released to the Company from the Trust Account to pay liquidation expenses, to the Company’s public shareholders, subject in each case to the Company’s obligations under Nevada law to provide for claims of creditors and the requirements of other applicable law.

 

The initial stockholders have agreed to waive their redemption rights with respect to their Founder Shares if the Company fails to consummate a business combination within the 21-month time period, although the initial stockholders will be entitled to redemption with respect to any public shares they hold if the Company fails to consummate a business combination within such time period. In the event of a liquidation, it is likely that the per-share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per share in the Offering (assuming no value is attributed to the warrants contained in the Units sold in the Offering discussed in Note 4).

 

In the event that the Company does not consummate a Business Combination by November 22, 2012, the proceeds held in the Trust Account will be distributed to the Company’s stockholders, excluding the Founders. After distributing the proceeds of the Trust Account, the Company will promptly distribute the balance of its net assets to its remaining stockholders according to the Company’s plan of dissolution. This mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern.

 

(2) Basis of Presentation

 

The accompanying condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange of Commission (SEC), and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position as of June 30, 2012 and the results of operations for the three months and six months ended June 30, 2012 and 2011, and for the period from November 12, 2010 (date of inception) to June 30, 2012. Certain information and disclosures normally included in interim financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed balance sheet as of December 31, 2011, as presented herein, was derived from the Company’s audited financial statements as reported in Form 10-K filed with the SEC in March 2012.

 

The results of operations for the six months ended June 30, 2012 are not necessarily indicative of the results of operations to be expected for a full fiscal year. These unaudited condensed interim financial statements should be read in conjunction with the Company’s audited financial statements as of December 31, 2011, which are included in Form 10-K filed with the SEC in March 2012.

 

6
 

 

RLJ ACQUISITION, INC.

(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

 For the period from November 12, 2010 (date of inception) to June 30, 2012

 

(3) Summary of Significant Accounting Policies

 

(a)Fair Value of Financial instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, “Fair Value Measurements and Disclosures”, approximates the carrying amounts represented in the accompanying condensed balance sheets.

 

(b)Use of Estimates

The preparation of condensed interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

(c)Recent Accounting Pronouncements

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company's condensed interim financial statements.

 

(d)Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

(e)Development stage company

The Company complies with the reporting requirement of FASB ASC 915, “Development Stage Entities.” At June 30, 2012, the Company had not commenced any operations nor generated revenue to date. All activity through June 30, 2012 relates to the Company’s formation, the Offering and the pursuit of a proposed business combination. Following the Offering, the Company will not generate any operating revenues until after completion of a business transaction at the earliest, if at all. The Company generates non-operating income in the form of interest income on the designated Trust Account.

 

(f)Net loss per common share

The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if convertible securities were to be exercised or converted or otherwise resulted in the issuance of common stock that then shared in the earnings of the entity. Since the effects of outstanding warrant conversions are antidilutive in all periods presented it has been excluded from the computation of diluted loss per common share.

 

(g)Restricted cash equivalents held in the Trust Account 

The amounts held in the Trust Account represent substantially all of the proceeds of the Offering and are classified as restricted assets since such amounts can only be used by the Company in connection with the consummation of a business combination. The funds held in the Trust Account are invested primarily in United States Treasury Securities. The Company considers Treasury Bills with a maturity of 3 months or less to be cash equivalents.

 

7
 

 

RLJ ACQUISITION, INC.

(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

For the period from November 12, 2010 (date of inception) to June 30, 2012

 

(h)Securities held in Trust Account

Investment securities consist of United States Treasury securities. The Company classifies its securities as held-to-maturity in accordance with FASB ASC 320 “Investments - Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost and adjusted for the amortization or accretion of premiums or discounts.

 

A decline in the market value of held-to-maturity securities below cost that is deemed to be other than temporary, results in an impairment that reduces the carrying costs to such securities' fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and the duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.

 

Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest method. Such amortization and accretion is included in the “interest income” line item in the statements of operations. Interest income is recognized when earned.

 

(i)Income Taxes

The Company complies with FASB ASC 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the interim financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company established a full valuation allowance of $422,000 and $143,000 at June 30, 2012 and December 31, 2011, respectively. The deferred tax asset is comprised of expenses non-deductible in the development state. Effective tax rates differ from statutory rates due to timing differences in the deductibility of expenses.

 

The Company adopted the provisions of FASB ASC 740-10-25 which establishes recognition requirements for the accounting for income taxes. There were no unrecognized tax benefits as of June 30, 2012. The section prescribes a recognition threshold and a measurement attribute for the interim financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at June 30, 2012 and December 31, 2011. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.  The Company is subject to income tax examinations by major taxing authorities since inception. The adoption of the provisions of FASB ASC 740-10-25 did not have a material impact on the Company’s financial position and results of operation and cash flows as of and for the periods ended June 30, 2012 and December 31, 2011.

 

The Company may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

8
 

 

RLJ ACQUISITION, INC.

(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

For the period from November 12, 2010 (date of inception) to June 30, 2012

 

(j)Redeemable Common Stock

The Company accounts for redeemable common stock that is subject to redemption for cash or other assets by classifying it outside of permanent equity if it is redeemable at the option of the holder. Under no circumstances, except for a final liquidation event, will the Company redeem its public shares in an amount that would cause its stockholders’ equity to be less than $5,000,001. The Company determined the $5,000,001 threshold in order to reduce the likelihood that it will become subject to the SEC’s “penny stock” rules promulgated under the Exchange Act, which apply to transactions in securities of certain companies with stockholders’ equity of $5,000,000 or less and a market price per share of less than $5.00.

 

Accordingly, 13,497,826 and 13,622,664 of common shares have been classified outside of permanent equity at redemption value at June 30, 2012 and December 31, 2011, respectively, which is equal to the per share amount held in the Trust Account. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of common stock subject to redemption equal its redemption value at the end of each reporting period.

 

(k)Reclassifications

Certain reclassifications have been made to amounts previously reported for 2011 to conform with the new 2012 presentation. Such reclassifications have no effect on previously reported net loss.

 

(4)Initial Public Offering

 

On February 22, 2011, the Company consummated its Offering of 14,375,000 of its units, including units issued and sold pursuant to the underwriters’ over-allotment option (Unit). Each Unit consists of one share of the Company's common stock, $0.001 par value per share, and one warrant (Warrant). Each Warrant entitles the holder to purchase one share of the Company's common stock at a price of $12.00 per share, subject to adjustment. The Warrants will become exercisable on the later of 30 days after the completion of the Company's initial business combination or February 22, 2012, twelve months from the closing of the Offering, provided in each case that the Company has an effective registration statement under the Securities Act of 1933, as amended, covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available, and will expire five years after the completion of the Company's initial business combination or earlier upon redemption or liquidation. If the Company is unable to deliver registered shares of common stock to the holder upon exercise of warrants during the exercise period, there will be no cash settlement of the warrants and the warrants will expire worthless. Once the warrants become exercisable, the Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days prior written notice of redemption, only in the event that the last sales price of the Company's common stock equals or exceeds $17.50 per share for any 20 trading days within the 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders.

 

(5)Proposed Business Combination

 

On April 2, 2012, the Company announced that it had entered into agreements to acquire each of Image Entertainment, Inc. (Image) and Acorn Media Group, Inc (Acorn). The new combined company will be named RLJ Entertainment, Inc. (RLJ Entertainment). Under the terms of the agreements, the holders of common stock of Image will receive from RLJ Entertainment 2,139,000 shares of common stock of RLJ Entertainment, subject to adjustment as set forth in the agreement, and the holders of preferred stock of Image will receive aggregate consideration of $22,600,000, which will be paid in cash and in the form of promissory notes to the holders of preferred stock of Image. The shareholders of Acorn will receive approximately $105 million in cash, 1,000,000 shares of common stock of RLJ Entertainment and warrants to purchase 1,000,000 shares of common stock of RLJ Entertainment. After the completion of the business combination, the current stockholders of Image and Acorn will own approximately 11% and 5% of RLJ Entertainment, respectively, assuming no redemptions. The current stockholders of the Company will own approximately 84% of RLJ Entertainment, assuming no redemptions

 

9
 

 

RLJ ACQUISITION, INC.
(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

For the period from November 12, 2010 (date of inception) to June 30, 2012

  

RLJ Entertainment will prepare its financial statements in accordance with GAAP. The business combination will be accounted for by applying the acquisition method, which requires the determination of the acquirer, the acquisition date, the fair value of the purchase consideration to be transferred, the fair value of assets and liabilities of the acquirees and the measurement of goodwill. ACS Topic 805-10, “Business Combinations – Overall” (“ASC 805-10”) provides that in identifying the acquiring entity in a combination effected through a transfer of additional assets and exchange of equity interest, all pertinent facts and circumstances must be considered, including the relative voting rights of the shareholders of the constituent companies in the combined entity, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of additional assets and equity securities in the business combination, including payment of any premium.

 

Based on RLJ Entertainment Inc. being the entity issuing its equity interest in the business combination and retaining approximately 84% of the post-business combination common stock, the current RLJ directors representing two out of nine directors of the combined company and the other terms of the business combinations, RLJ Entertainment will be considered to be the acquirer of Image and Acorn for accounting purposes. This means that RLJ Entertainment will allocate the purchase price to the fair value of Image’s and Acorn’s assets and liabilities at the acquisition date, with any excess purchase price being recorded as goodwill.

 

(6)Related Party Transactions

 

(a)Note Payable – Related Party

The Company issued an aggregate of $225,000 in an unsecured promissory note to the Sponsor, on November 18, 2010. The note was non-interest bearing and payable within 60 days following the date of the consummation of the Offering by the Company. The note was paid in full on February 22, 2011.

 

(b)Services Agreement

The Company has agreed to pay $10,000 a month for office space, administrative services and secretarial support to RLJ Companies, LLC, an affiliate of the Sponsor. Services commenced on February 22, 2011 and will terminate upon the earlier of the consummation by the Company of an initial business combination and the liquidation of the Company.

 

(c)Due to Affiliates

As of June 30, 2012, RLJ Companies, LLC has paid certain offering, and formation and operating costs on behalf of the Company. The total of such costs do not bear interest, and is due on demand.

 

(d)Sponsor Warrants

Simultaneously with the consummation of the Offering, the Company consummated a private placement of 6,666,667 warrants to the Sponsor at a price of $0.75 per warrant (a purchase price of $5,000,000). The Sponsor has agreed that the warrants purchased by it will not be sold or transferred until 30 days following consummation of a Business Transaction, subject to certain limited exceptions. If the Company does not complete a business transaction, then the proceeds will be part of the liquidating distribution to the public shareholders and the warrants issued to the Sponsor will expire worthless. The Company classified the private placement warrants within permanent equity as additional paid-in capital in accordance with FASB ASC 815-40.

 

10
 

 

RLJ ACQUISITION, INC.
(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

For the period from November 12, 2010 (date of inception) to June 30, 2012

 

The Sponsor is entitled to registration rights pursuant to a registration rights agreement signed in connection with the consummation of the Offering. The Sponsor will be entitled to demand registration rights and certain “piggy-back” registration rights with respect to its ordinary shares, the warrants and the ordinary shares underlying the warrants, commencing on the date such ordinary shares or warrants are released from lockup. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

 

(7)Founder Shares

 

On November 18, 2010, the Sponsor and two of the Company’s independent directors, William S. Cohen, and Morris Goldfarb, purchased 3,593,750 shares of common stock (Founder Shares) for an aggregate amount of $25,000, or $0.0070 per share.

 

The Founder Shares are identical to the shares of common stock included in the Units sold in the Offering except that the Founder Shares are subject to certain transfer restrictions, as described in more detail below.

 

With certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company's officers and directors and other persons or entities affiliated with the initial stockholders, each of whom will be subject to the same transfer restrictions) until the earlier of one year after the completion of the Company's initial business combination or earlier if, subsequent to the Company's business combination, the last sales price of the Company's common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for at least one period of 20 trading days within any 30-trading day period commencing at least 150 days after the Company's initial business combination and the date on which the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company's stockholders having the right to exchange their shares of common stock for cash, securities or other property.

 

A portion of the Founders Shares in an amount equal to 2.5% of the Company's issued and outstanding shares immediately after the Offering, will be subject to forfeiture by the initial stockholders in the event the last sales price of the Company's stock does not equal or exceed $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for at least one trading period of 20 trading days within any 30-trading day period within 12 months following the closing of the Company's initial business combination. An additional 2.5% of the Company’s issued and outstanding shares immediately after the Offering will be subject to forfeiture by the initial stockholders in the event the last sales price of the Company’s stock does not equal or exceed $13.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for at least one period of 20 trading days within any 30-trading period during the period between 12 and 24 months following the closing of the Company’s initial business combination.

 

(8)Commitments

 

The Company paid an underwriting discount of 2.5% of the Offering proceeds to the underwriters at the closing of the Offering. The Company will pay the underwriters an additional contingent fee of 2.5% of the Offering proceeds payable solely upon the consummation of its initial Business Combination.  Such contingent fee is reflected as deferred underwriters’ fee of $3,593,750 at June 30, 2012 and December 31, 2011.

 

11
 

 

RLJ ACQUISITION, INC.
(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

For the period from November 12, 2010 (date of inception) to June 30, 2012

 

(9)Investment in Trust Account

 

Subsequent to the Offering, an amount of $143,031,250 (including $3,593,750 of deferred underwriters’ fee) of the net proceeds of the Offering, was deposited in a Trust Account and invested only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 have a maturity of 180 days or less until the earlier of (i) the consummation of a business combination, or (ii) liquidation of the Company.

 

As of June 30, 2012, investment securities in the Company’s Trust Account consist of $143,147,568 in United States Treasury Bills and another $531 is held as cash in the account. As of December 31, 2011, investment securities in the Company’s Trust Account consisted of $143,113,569 in United States Treasury Bills and another $1,689 was held as cash in the account. The Company classifies its United States Treasury and equivalent securities as held-to-maturity in accordance with FASB ASC 320 “Investments – Debt and Equity Securities”. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance sheets and adjusted for the amortization or accretion of premiums or discounts. The carrying amount, excluding accrued interest income, gross unrealized holding gain (loss) and fair value of held to maturity securities at June 30, 2012 and December 31, 2011 are as follows:

 

       Gross     
       Unrealized     
       Holding     
June 30, 2012  Carrying Value   Gain   Fair Value 
             
Held-to-maturity:               
U.S. Treasury Securities  $143,147,568   $1,432   $143,149,000 

 

       Gross     
       Unrealized     
       Holding     
December 31, 2011  Carrying Value   Loss   Fair Value 
             
Held-to-maturity:               
U.S. Treasury Securities  $143,113,569   $(1,431)  $143,112,138 

 

(10)Fair Value Measurements

 

The Company adopted ASC 820, “Fair Value Measurement” for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The adoption of ASC 820 did not have an impact on the Company’s financial position or results of operations.

 

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability:

 

12
 

 

RLJ ACQUISITION, INC.
(a corporation in the development stage)

 

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS – (Continued)

For the period from November 12, 2010 (date of inception) to June 30, 2012

 

       Quoted Prices   Significant   Significant 
       In   Other   Other 
       Active   Observable   Unobservable 
       Markets   Inputs   Inputs 
Description  June 30, 2012   (Level 1)   (Level 2)   (Level 3) 
Assets:                    
                     
Restricted cash equivalents held in Trust Account  $143,149,000   $143,149,000         

 

       Quoted Prices   Significant   Significant 
       In   Other   Other 
       Active   Observable   Unobservable 
       Markets   Inputs   Inputs 
Description  December 31, 2011   (Level 1)   (Level 2)   (Level 3) 
Assets:                    
                     
Restricted cash equivalents held in Trust Account  $143,112,138   $143,112,138         

 

(11)      Subsequent Events

 

On August 10, 2012, RLJ Entertainment filed with the SEC a final joint proxy statement/prospectus for the Company and Image in connection with the registration of the shares and warrants of RLJ Entertainment to be issued pursuant to the Agreement and Plan of Merger, by and between the Company and Image, dated April 2, 2012 (the merger agreement), and the Stock Purchase Agreement, by and among, the Company, Acorn, the stockholders of Acorn and Peter Edwards, as the stockholder representative, dated April 2, 2012. Also, on August 10, 2012, the Company filed a definitive proxy statement with the SEC in connection with a special meeting of its stockholders that will be held on September 20, 2012 to consider and vote upon, among other things, a proposal to approve the merger agreement.

  

13
 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

We are a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We consummated our initial public offering on February 22, 2011.

 

We have neither engaged in any operations nor generated any revenues from operations to date. Our entire activity since inception has been to prepare for and consummate our initial public offering and to identify and investigate targets for a business combination. We will not generate any operating revenues until consummation of a business combination. We will generate non-operating income in the form of interest income on cash and cash equivalents.

 

Net (loss) for the three months ended June 30, 2012 was $(881,306), which consisted of $19,562 in interest income offset by $900,868 in formation and operating expenses. Net (loss) for the six months ended June 30, 2012 was $(1,242,145), which consisted of $32,841 in interest income offset by $1,274,986 in formation and operating expenses. Net (loss) for the period from November 12, 2010 (inception) to June 30, 2012 was $(1,688,856), which consisted of $116,849 in interest income offset by $1,805,705 in formation and operating expenses. The trustee of the trust account will pay any taxes resulting from interest accrued on the funds held in the trust account out of the funds held in the trust account.

 

Proposed Business Combination with Image and Acorn

 

On April 2, 2012, we entered into an Agreement and Plan of Merger, which we refer to as the merger agreement, with Image Entertainment, Inc., or Image. Image is a leading independent licensee and distributor of entertainment programming in North America. Concurrently with the execution of the merger agreement, we entered into a Stock Purchase Agreement, which we refer to as the Acorn purchase agreement, with Acorn Media Group, Inc., or Acorn, the shareholders of Acorn and Peter Edwards, as the shareholder representative. Acorn is a leading distributor of high-quality video products and related merchandise to the North American, United Kingdom, and Australian markets.

 

After the completion of the proposed business combination contemplated by the merger agreement and the Acorn purchase agreement, which we refer to as the Business Combination, the current stockholders of Image and Acorn will own approximately 11% and 5%, respectively, of a new combined company, RLJ Entertainment, Inc., or RLJ Entertainment, and our public stockholders and initial stockholders will own approximately 84% of RLJ Entertainment, assuming that none of our stockholders exercise their rights to redeem stock they hold in connection with the transactions contemplated by the merger agreement. RLJ Entertainment has applied to list its shares of common stock and warrants to purchase shares of its common stock on The Nasdaq Stock Market.

 

14
 

 

The Image Merger Agreement

 

The merger agreement provides that we will incorporate three subsidiaries: (i) RLJ Entertainment, a Nevada corporation, which will initially be directly wholly owned by us; (ii) RLJ Merger Sub I, Inc., a Nevada corporation, or RLJ Sub, which will be wholly owned by RLJ Entertainment, and (iii) RLJ Merger Sub II, Inc., a Delaware corporation, or Image Sub, which will also be wholly owned by RLJ Entertainment. At the closing of the transactions contemplated by the Business Combination, Image Sub will merge with and into Image, with Image surviving as a wholly owned subsidiary of RLJ Entertainment, and RLJ Sub will merge with and into us, with our company surviving as a wholly owned subsidiary of RLJ Entertainment.

 

At the closing of the merger agreement, the outstanding shares of Image common stock (excluding dissenting shares) will be automatically converted, in the aggregate, into the right to receive a total of 2,289,000 shares of common stock of RLJ Entertainment, subject to adjustment as set forth in the merger agreement. Immediately prior to the consummation of the merger agreement, all shares of the Series B preferred stock of Image, which we refer to as the preferred shares, will be purchased by RLJ Entertainment pursuant to a Preferred Stock Purchase Agreement between us and the holders of the preferred shares. The aggregate purchase price for all of the preferred shares will be $22,600,000. Certain holders of the preferred shares will receive only cash in the aggregate amount of $600,000. The remaining holders of preferred shares will receive $22,000,000, comprised of cash and subordinated promissory notes of RLJ Entertainment in amounts to be determined by the amount of cash available to us at the closing of the merger agreement. The subordinated promissory notes will bear interest at the rate of 12% per annum. As a result of the closing of the merger agreement, each preferred share will be canceled.

 

RLJ Entertainment will grant registration rights to certain holders of the preferred shares, including two demand registrations on Form S-3, for the shares of common stock of RLJ Entertainment to be received by them in the Business Combination.

 

At the closing of the merger agreement, each share of our common stock will be automatically converted into one share of common stock of RLJ Entertainment. Each warrant to purchase shares of our common stock will convert into a right to acquire equal number of shares of common stock of RLJ Entertainment on the same contractual terms and conditions as were in effect immediately prior to the closing of the merger agreement.

 

In connection with the Business Combination, the holders of the shares of out common stock which were sold in our initial public offering may request redemption of their shares of our common stock for cash in an amount equal to their pro rata share of the aggregate amount on deposit in a trust account holding the proceeds of our initial public offering.

 

Pursuant to a support agreement, the controlling stockholders of Image, have agreed to vote the Image shares they control in favor of the transactions contemplated by the merger agreement. Each of the initial stockholders previously agreed to vote all of their shares of our common stock acquired in, or prior or subsequent to, our initial public offering, which shares constitute approximately 21.7% of our outstanding shares of common stock, for the transactions contemplated by the merger agreement.

 

15
 

 

On August 10, 2012, RLJ Entertainment filed with the SEC a final joint proxy statement/prospectus for us and Image in connection with the registration of the shares and warrants of RLJ Entertainment to be issued pursuant to the merger agreement and the Acorn purchase agreement. Also, on August 10, 2012, we filed a definitive proxy statement, which we refer to as the Definitive Proxy Statement, with the SEC in connection with a special meeting of our stockholders that will be held on September 20, 2012 to consider and vote upon, among other things, a proposal to approve the merger agreement. For a more complete discussion of the proposed business combination with Image and Acorn, including the risks that are applicable to us with respect to such business combination, please see our Definitive Proxy Statement.

 

The Acorn Purchase Agreement

 

Concurrently with the execution of the merger agreement, we entered into the Acorn purchase agreement with Acorn, the shareholders of Acorn and Peter Edwards, as the shareholder representative. Pursuant to the Acorn purchase agreement, the shareholders of Acorn will sell all of the issued and outstanding shares of capital stock of Acorn to us.

 

The aggregate purchase price to be paid to the shareholders of Acorn is comprised of (i) $101,818,343 in cash, plus an amount equal to the aggregate transaction costs incident to the negotiation, preparation or consummation of the acquisition by Acorn Productions Limited, a wholly owned subsidiary of Acorn, of Agatha Christie Limited (except for those transaction costs funded from working capital of Acorn or any Acorn subsidiary), (ii) 1,000,000 newly issued shares of common stock of RLJ Entertainment and (iii) newly issued warrants to purchase 1,000,000 shares of the common stock of RLJ Entertainment. The cash portion of the purchase price to be paid to the shareholders of Acorn at closing will be reduced by the (i) transaction costs incurred by Acorn and Acorn’s subsidiaries since January 1, 2012 in connection with the Acorn transaction, including the payments required to be made to cancel the outstanding options to purchase shares of capital stock of Acorn’s subsidiaries and to buy out the minority holders of Acorn’s subsidiaries; (ii) the amount required to repay Acorn’s SunTrust Bank senior term loan and to repay the principal amount of certain subordinated notes issued by Acorn; and (iii) $5,000,000 (an indemnification escrow, which amount will be released from escrow within 3 days of the 18-month anniversary of the closing, less any amounts paid to or claimed by RLJ prior to the 18-month anniversary of the closing). The cash purchase price will be subject to a post-closing adjustment based upon the closing net working capital of Acorn.

 

Off-Balance Sheet Arrangements

 

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

 

Contractual Obligations

 

We do not have any long term debt, capital lease obligations, operating lease obligations or purchase obligations.

 

16
 

 

Liquidity and Capital Resources

 

The net proceeds from (i) the sale of the units in our initial public offering (including the underwriters’ over-allotment option), after deducting approximately $5.7 million to be applied to underwriting discounts, offering expenses and working capital (including approximately $3.6 million of deferred underwriting discounts) and (ii) the sale of the sponsors’ warrants for a purchase price of $5.0 million, was approximately $143.0 million. All of these net proceeds were placed in trust.

 

As of June 30, 2012, we had cash outside of the trust account of approximately $208,000, cash held in the trust account of approximately $143 million, and total liabilities of approximately $135 million (which includes approximately $134 million of common stock which is subject to possible redemption). We believe that the funds available to us outside of the trust account will be sufficient to allow us to operate until November 22, 2012, assuming that the Business Combination or another transaction is not consummated during that time.

 

Subject to our stockholders’ approval of the Business Combination, we will use substantially all of the funds held in the trust account (net of franchise and income taxes payable and deferred underwriting commissions) to acquire Image and Acorn, including structuring, negotiating and consummating the acquisitions. To the extent that our capital stock or debt is used, in whole or in part, as consideration to consummate our initial business combination, or the purchase price together with funds used for redemption is less than the amount in the trust account, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions or pursue our growth strategies.

 

We will use these funds to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and consummate a business combination.

 

In order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we consummate an initial business combination, we would repay such loaned amounts. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment, other than the interest on such proceeds that may be released to us for working capital purposes. Such loans may be convertible into founders shares or warrants of the post business combination entity at a price of $0.75 per warrant at the option of the lender. The warrants would be identical to the sponsor warrants. None of the sponsor warrants, any shares of common stock issuable upon exercise thereof or the founders shares will have recourse to the proceeds held in our trust account. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.

 

17
 

 

We expect our primary liquidity requirements prior to the consummation of our initial business combination or our liquidation to include approximately $2.0 million for legal, accounting and other expenses associated with structuring, negotiating and documenting successful business combinations; $210,000 for office space, administrative services and support payable to our sponsor, representing $10,000 per month for up to 21 months; $250,000 for legal and accounting fees related to regulatory reporting requirements; $50,000 for printing; $250,000 for consulting and travel for the search for a business combination target; and approximately $180,000 for general working capital that will be used for miscellaneous expenses and reserves.

 

These amounts are estimates and may differ materially from our actual expenses. In addition, we could use a portion of the funds not being placed in the trust account to pay commitment fees for financing, fees to consultants to assist us with our search for a target business or as a down payment or to fund a “no-shop” provision (a provision designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into an agreement where we paid for the right to receive exclusivity from a target business, the amount that would be used as a down payment or to fund a “no-shop” provision would be determined based on the terms of the specific business combination and the amount of our available funds at the time. Our forfeiture of such funds (whether as a result of our breach or otherwise) could result in our not having sufficient funds to continue searching for, or conducting due diligence with respect to, prospective target businesses.

 

We do not believe we will need to raise additional funds following our initial public offering in order to meet the expenditures required for operating our business. However, we will rely on the funds available to us outside of the trust account and interest earned of up to $2.0 million, subject to adjustment, on the trust account (net of franchise and income taxes payable) that may be available to us to fund such expenditures along with any loans from our sponsor, affiliates of our sponsor, our directors or our officers, as discussed above. If our estimates of the costs of undertaking in-depth due diligence and negotiating an initial business combination is less than the actual amount necessary to do so, or the amount of interest available to us from the trust account is less than $2.0 million as a result of the current interest rate environment, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business combination. Following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

 

18
 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. Approximately $143.0 million of the net offering proceeds (which includes $3.6 million of the proceeds attributable to the underwriters’ discount) has been placed into a trust account maintained by Continental Stock Transfer & Trust Company, acting as trustee. As of June 30, 2012, the balance of the trust account was $143.0 million. The proceeds held in trust will only be invested in U.S. “government securities” defined as any Treasury Bill issued by the United States having a maturity of 180 days or less and/or in any open ended money market(s) selected by us meeting the conditions of Sections (c)(2), (c)(3) and (c)(4) of Rule 2a-7 under the Investment Company Act of 1970. Thus, we are subject to market risk primarily through the effect of changes in interest rates on government securities. The effect of other changes, such as foreign exchange rates, commodity prices and/or equity prices, does not pose significant market risk to us.

 

ITEM 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

We evaluated the effectiveness of our disclosure controls and procedures, as defined in the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. H. Van Sinclair, our Chief Executive Officer, and Lisa W. Pickrum, our Chief Financial Officer, participated in this evaluation. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the report.

 

(b) Changes in Internal Controls over Financial Reporting

 

As a result of the evaluation completed by our Chief Executive Officer and Chief Financial Officer, we have concluded that there were no changes during the fiscal quarter ended June 30, 2012 in our internal controls over financial reporting, which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II — OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

None.

 

ITEM 1A. Risk Factors.

 

Other than the additional risk factors set forth below, and the risk factors disclosed in our Definitive Proxy Statement filed with the SEC on August 10, 2012, which are incorporated herein by reference, there have been no material changes in our risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

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We may have insufficient time or funds to complete an alternative business combination if the merger proposal set forth in the Definitive Proxy Statement is not approved and adopted by our stockholders or the Image merger is otherwise not completed.

 

We must complete our initial business combination by November 22, 2012. If the merger proposal set forth in the Definitive Proxy Statement is not approved and adopted by our stockholders, we will not complete the Business Combination and may not be able to consummate an alternative business combination within the required time frame, either due to insufficient time or insufficient operating funds. In addition, our negotiating position and our ability to conduct adequate due diligence on any potential target may be reduced as the deadline for the consummation of a business combination approaches.

 

Our board did not obtain a fairness opinion in determining whether or not to proceed with the Business Combination and, as a result, the terms may not be fair from a financial point of view to our stockholders.

 

In analyzing the Business Combination, our board conducted significant due diligence on Image and Acorn, including, among other things, researching the industries in which Image and Acorn operate, reviewing comparisons of comparable companies and performing a discounted cash flow analysis. Our board believes because of the financial skills and background of its directors, it was qualified to conclude that the Business Combination was fair from a financial perspective to its stockholders. Notwithstanding the foregoing, our board did not obtain a fairness opinion to assist it in its determination. Accordingly, our board may be incorrect in its assessment of the transaction.

 

Our stockholders cannot be sure of the market value of the shares of RLJ Entertainment common stock to be issued upon completion of the Business Combination.

 

Our stockholders will receive a fixed number of shares of RLJ Entertainment common stock in the Business Combination rather than a number of shares with a particular fixed market value. The market values of our common stock at the time of the Business Combination may vary significantly from their prices on the date the merger agreement was executed, the date of Definitive Proxy Statement or the dates on which our stockholders vote on the merger. Because the merger consideration exchange ratio will not be adjusted to reflect any changes in the market prices of our common stock, the market value of the RLJ Entertainment common stock issued in the merger and our common stock surrendered in the merger may be higher or lower than the values of these shares on earlier dates. 100% of the merger consideration to be received by our stockholders will be RLJ Entertainment common stock.

 

Following consummation of the Business Combination, the market price of RLJ Entertainment’s securities may be influenced by many factors, some of which are beyond its control, including those described above and the following:

 

·changes in financial estimates by analysts;

 

·announcements by it or its competitors of significant contracts, productions, acquisitions or capital commitments;

 

·fluctuations in its quarterly financial results or the quarterly financial results of companies perceived to be similar to it;

 

·general economic conditions;

 

·changes in market valuations of similar companies;

 

20
 

 

·terrorist acts;

 

·changes in its capital structure, such as future issuances of securities or the incurrence of additional debt;

 

·future sales of its common stock;

 

·investor perception of the filmmaking industry;

 

·regulatory developments in the United States, foreign countries or both;

 

·litigation involving RLJ Entertainment, its subsidiaries or its general industry; and

 

·additions or departures of key personnel.

 

In addition, it is anticipated that the Business Combination may not be completed until a significant period of time has passed after the special meetings. As a result, the market values of our common stock may vary significantly from the date of the special meetings to the date of the completion of the Business Combination. You are urged to obtain up-to-date prices for our common stock. There is no assurance that the Business Combination will be completed, that there will not be a delay in the completion of the Business Combination or that all or any of the anticipated benefits of the Business Combination will be obtained.

 

Obtaining required regulatory approvals may prevent or delay completion of the Business Combination or reduce the anticipated benefits of the Business Combination or may require changes to the structure or terms of the Business Combination.

 

Consummation of the Business Combination is conditioned upon, among other things, the expiration or termination of the waiting period (and any extensions thereof) applicable to the Business Combination under the HSR Act. At any time before or after the Business Combination is consummated, any of the U.S. Department of Justice, which we refer to as the DOJ, the Federal Trade Commission, which we refer to as the FTC, or U.S. state attorneys general could take action under the antitrust laws in opposition to the Business Combination, including seeking to enjoin completion of the Business Combination, condition completion of the Business Combination upon the divestiture of assets of our company, Image, Acorn or their subsidiaries or impose restrictions on RLJ Entertainment’s post-consummation operations. These could negatively affect the results of operations and financial condition of the combined company following completion of the Business Combination. Any such requirements or restrictions may prevent or delay completion of the Business Combination or may reduce the anticipated benefits of the Business Combination, which could also have a material adverse effect on the combined company’s business and cash flows, financial condition and results of operations. Additionally, we have agreed to take certain actions, conditioned on the closing, to the extent necessary to ensure satisfaction, on or prior to the outside date (as it may be extended), of certain conditions to the closing of the Business Combination relating to regulatory approvals. Certain of these actions may be taken after receipt of the Business Combination approval.

 

21
 

 

The loss of Image’s or Acorn’s key personnel could negatively affect the operations and profitability of RLJ Entertainment.

 

Although we contemplate that certain members of Image’s and Acorn’s respective management teams will transition to positions in RLJ Entertainment following the Business Combination, it is possible that members of the management of Image or Acorn will not wish to make such a transition. In addition, while it is anticipated that RLJ Entertainment and certain members of Image’s and Acorn’s senior management will enter into employment agreements, we currently anticipate that such agreements with RLJ Entertainment would be finalized after the consummation of the Business Combination. There can be no assurance that such agreements will be entered into. The loss of Image’s or Acorn’s key personnel could negatively affect the operations and profitability of RLJ Entertainment.

 

Failure to successfully combine and integrate the businesses of our company, Image and Acorn in the expected time frame may adversely affect RLJ Entertainment’s future results.

 

The success of the Business Combination will depend, in part, on RLJ Entertainment’s ability to realize the anticipated benefits from combining the businesses of our company, Image and Acorn as further described in the section of the Definitive Proxy Statement titled “The Business Combination — Recommendation of the RLJ Board; RLJ’s Reasons for the Business Combination” and “The Business Combination — Recommendation of the Image Board; Image’s Reasons for the Business Combination.” To realize these anticipated benefits, the businesses of our company, Image and Acorn must be successfully integrated and combined. Our company, Image and Acorn have been independent companies, and they will continue to be operated as such until the completion of the Business Combination. The management of RLJ Entertainment may face significant challenges in consolidating the functions of Image, Acorn and our company, integrating the technologies, organizations, procedures, policies and operations, as well as addressing the different business cultures at the three companies, and retaining key personnel. If the combined company is not successfully integrated, the anticipated benefits of the Business Combination may not be realized fully or at all or may take longer to realize than expected. The integration may also be complex and time consuming, and require substantial resources and effort. The integration process and other disruptions resulting from the Business Combination may also disrupt each company’s ongoing businesses and/or adversely affect their relationships with employees, customary regulators and others with whom they have business or other dealings.

 

22
 

 

Since Acorn is a private company, RLJ Entertainment may be required to expend substantial sums in order to bring it into compliance with the various reporting requirements applicable to public companies and/or to prepare required financial statements, and such efforts may harm RLJ Entertainment operating results or be unsuccessful altogether.

 

Acorn is not subject to many of the requirements applicable to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which requires that Acorn evaluate and report on its system of internal controls. In addition, RLJ Entertainment will need to evaluate the system of internal controls for Image and integrate the systems of internal control for our company, Image and Acorn. Furthermore, we may not have the ability to conduct a formal evaluation of Image’s and Acorn’s internal controls over financial reporting prior to the consummation of the Business Combination. If RLJ Entertainment’s finance and accounting staff or internal controls over financial reporting are inadequate, it may be required to hire additional staff and incur substantial legal and accounting costs to address such inadequacies. Moreover, RLJ Entertainment cannot be certain that its remedial measures will be effective. Any failure to implement required or improved controls, or difficulties encountered in their implementation, could harm RLJ Entertainment’s operating results or increase its risk of material weaknesses in internal controls.

 

Our company, Image and Acorn will be subject to business uncertainties and contractual restrictions while the Business Combination is pending.

 

Uncertainty about the effect of the Business Combination on employees and customers may have an adverse effect on our company, Image or Acorn and consequently on the combined company. These uncertainties may impair Image’s or Acorn’s ability to retain and motivate key personnel and could cause customers and others that deal with Image or Acorn to defer entering into contracts with Image or Acorn or making other decisions concerning Image or Acorn or seek to change existing business relationships with Image or Acorn. Certain of Image’s and Acorn’s agreements with their customers have provisions that may allow such customers to terminate the agreements if the Business Combination is completed. If key employees depart because of uncertainty about their future roles and the potential complexities of the Business Combination, our, Image’s and Acorn’s business could be harmed. In addition, the merger agreement and the Acorn purchase agreement restrict us from taking certain specified actions until the Business Combination occurs without the consent of the other party. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Business Combination. See the section of the Definitive Proxy Statement titled “The Agreements — Description of the Image Merger Agreement — Additional Agreements” for a description of the restrictive covenants applicable to us.

 

Certain directors and executive officers of our company may have interests in the Business Combination that are different from, or in addition to or in conflict with, our stockholders.

 

Executive officers of our company negotiated the terms of the Business Combination and our board approved the merger agreement and the transactions contemplated thereby and unanimously recommend that our stockholders vote in favor of the proposal to approve and adopt the merger agreement. These directors and executive officers may have interests in the Business Combination that are different from, or in addition to or in conflict with, our stockholders. These interests include the continued employment of certain executive officers of our company by RLJ Entertainment, the continued positions of certain directors of our company as directors of RLJ Entertainment, and the indemnification of former directors and officers of our company by RLJ Entertainment and the surviving corporations. Our stockholders should be aware of these interests when they consider our board of directors’ recommendation that they vote in favor of the approval and adoption of the merger agreement and the consummation of the transactions contemplated thereby. For a discussion of the interests of directors and executive officers in the Business Combination, see the section of the Definitive Proxy Statement titled “The Business Combination — Interests of Image Directors and Officers in the Business Combination” and “The Business Combination — Interests of the Current RLJ Directors and Officers in the Business Combination.”

 

23
 

 

Certain of our current directors and executive officers own shares of our common stock and warrants that may be worthless if the Business Combination is not approved. Such interests may have influenced their decision to approve the Business Combination.

 

Following the consummation of the Business Combination, our current directors and executive officers will beneficially own approximately 3,101,011 shares of RLJ Entertainment common stock (after giving effect to the forfeiture of 792,739 founder’s shares by our sponsor) and will have the right to acquire an additional 5,666,667 shares of RLJ Entertainment common stock through the exercise of warrants (after giving effect to the forfeiture of 1,000,000 sponsor warrants by our sponsor), subject to certain limitations. Such persons are not entitled to receive any of the cash proceeds that may be distributed upon our liquidation with respect to shares they acquired prior to our initial public offering. Therefore, if the Business Combination is not approved and we does not consummate another business combination by November 22, 2012 and is forced to liquidate, such founder’s shares and sponsor warrants held by such persons will be worthless. These financial interests of our current directors and executive officers may have influenced their decision to approve the Business Combination and to continue to pursue the Business Combination. See the section of the Definitive Proxy Statement titled “The Business Combination — Interests of the Current RLJ Directors and Officers in the Business Combination.”

 

The shares of RLJ Entertainment common stock to be received by our stockholders as a result of the Business Combination will have different rights from shares of our common stock.

 

Following completion of the Business Combination, our stockholders will no longer be stockholders of our company but will instead be stockholders of RLJ Entertainment. There will be important differences between the current rights of stockholders of our company and the rights as an RLJ Entertainment stockholder. See the section of the Definitive Proxy Statement titled “Comparison of Stockholder Rights” for a discussion of the different rights associated with RLJ Entertainment common stock.

 

Our stockholders will have a reduced ownership and voting interest after consummation of the Business Combination and will exercise less influence over management.

 

After the completion of the transactions contemplated by the merger agreement, our stockholders will own a smaller percentage of RLJ Entertainment than they currently own of our company. Upon completion of the Business Combination, it is anticipated that our stockholders (including the initial stockholders), Image stockholders and Acorn shareholders will hold approximately 84%, 11% and 5%, respectively, of the shares of common stock of RLJ Entertainment issued and outstanding immediately after the consummation of the Business Combination, assuming that no public stockholders exercise their redemption rights. Consequently, our stockholders, as a group, will have reduced ownership and voting power in the combined company compared to their ownership and voting power in our company.

 

24
 

 

Failure to complete the Business Combination could negatively affect the stock prices, businesses and financial results of our company.

 

If the Business Combination is not completed, the ongoing businesses of our company may be adversely affected and our company will be subject to several risks and consequences, including the following:

 

·our company will be required to pay certain costs relating to the Business Combination, whether or not the Business Combination is completed, such as significant fees and expenses relating to financing arrangements and legal, accounting, financial advisor and printing fees;

 

·our company may be required to pay significant fees and expenses relating to financing arrangements, whether or not the Business Combination is completed, which may include investment banking fees and commissions, commitment fees, early termination or redemption premiums, professional fees and other costs and expenses;

 

·under the merger agreement, our company is subject to certain restrictions on the conduct of its business prior to completing the Business Combination which may adversely affect its ability to execute certain of its business strategies;

 

·under the Acorn purchase agreement, we may be obligated to pay Acorn a $1.0 million termination fee as liquidated damages if the Acorn purchase agreement is terminated (i) because the Acorn acquisition has not closed by November 22, 2012 (and, at the time of such termination, we do not have at least an aggregate of $92.0 million in cash held either inside or outside of the trust account), (ii) by Acorn because of our material breach, (iii) by us because the merger agreement is terminated for any reason, or (iv) by either our company or Acorn because the merger agreement is not approved and adopted by Image’s stockholders; and

 

·matters relating to the Business Combination may require substantial commitments of time and resources by our company, which could otherwise have been devoted to other opportunities that may have been beneficial to us as an independent company.

 

In addition, if the Business Combination is not completed, we may experience negative reactions from the financial markets. Our company also could be subject to litigation related to a failure to complete the mergers or to enforce their respective obligations under the merger agreement. If the transactions contemplated by the merger agreement are not consummated, we cannot assure our stockholders that the risks described will not materially affect the business, financial results and stock prices of our company.

 

25
 

 

Our company and RLJ Entertainment will incur significant transaction and merger-related transition costs in connection with the Business Combination.

 

We expect that we and RLJ Entertainment will incur significant, non-recurring costs in connection with consummating the Business Combination and integrating the operations of our company, Image and Acorn. RLJ Entertainment may incur additional costs to maintain employee morale and to retain key employees. We will also incur significant fees and expenses relating to financing arrangements and legal, accounting and other transaction fees and costs associated with the Business Combination. Some of these costs are payable regardless of whether the Business Combination is completed. Moreover, under specified circumstances, Image may be required to pay to us a termination fee of $1.62 million (depending on the specific circumstances) if the Image merger is not consummated. Image may also be required, under certain circumstances, to pay our out of pocket expenses under the merger agreement. These expenses would likely aggregate substantially more than the termination fee. See the section of the Definitive Proxy Statement titled, “The Agreements — Description of the Image Merger Agreement — Termination.”

 

The unaudited pro forma financial information included in the Definitive Proxy Statement may not be indicative of what RLJ Entertainment’s actual financial position or results of operations would have been.

 

The unaudited pro forma financial information in the Definitive Proxy Statement is presented for illustrative purposes only and is not necessarily indicative of what RLJ Entertainment’s actual financial position or results of operations would have been had the Business Combination been completed on the dates indicated. The unaudited pro forma financial information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to Image’s and Acorn’s net assets. The purchase price allocation reflected in the joint proxy statement/prospectus is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Image and Acorn as of the date of the completion of the Business Combination. In addition, subsequent to the closing date, there may be further refinements of the purchase price allocation as additional information becomes available. Accordingly, the final purchase accounting adjustments may differ materially from the pro forma adjustments reflected in this document. See the section of the Definitive Proxy Statement titled “RLJ, Image and Acorn Unaudited Condensed Combined Pro Forma Financial Information” for more information.

 

An investor will only be able to exercise a warrant if the issuance of RLJ Entertainment common stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.

 

No warrants will be exercisable by a warrantholder and RLJ Entertainment will not be obligated to issue shares of its common stock unless the shares of common stock issuable upon such exercise have been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. At the time that the warrants become exercisable (following completion of the Business Combination), RLJ Entertainment has applied to list them on The NASDAQ Stock Market, which would provide an exemption from registration in every state. Accordingly, RLJ Entertainment believes holders in every state will be able to exercise their warrants as long as its prospectus relating to the shares of common stock issuable upon exercise of the warrants is current. However, there can be no assurance that this will be the case. If a warrantholder is unable to exercise his warrants in a particular state, he may be forced to sell his warrant and therefore lose the benefit of purchasing RLJ Entertainment stock. Furthermore, the price he receives for his warrant may not equal the difference between the exercise price and the stock price.

 

26
 

 

Our working capital will be reduced if our stockholders exercise their right to redeem their shares for cash, which reduced working capital may adversely affect RLJ Entertainment’s business and future operations.

 

Pursuant to our amended and restated articles, our stockholders may demand that we redeem their shares, calculated as of two business days prior to the anticipated consummation of the Business Combination, into a pro rata share of the trust account. Funds from the trust account will be used to pay approximately $3.6 million to the underwriters in our initial public offering for deferred underwriting discounts and commissions and to pay approximately $5.1 million for transaction expenses. If the amount remaining in the trust account after these expenses are paid is insufficient to fund RLJ Entertainment’s working capital requirements, RLJ Entertainment would need to seek to borrow funds necessary to satisfy such requirements. We cannot assure you that such funds would be available to RLJ Entertainment on terms favorable to it or at all. If such funds were not available to RLJ Entertainment, it may adversely affect RLJ Entertainment’s operations and profitability.

 

RLJ Entertainment’s warrants may be exercised in the future, which would increase the number of shares eligible for future resale in the public market and result in dilution to RLJ Entertainment’s stockholders.

 

Outstanding warrants to purchase an aggregate of 20,041,667 shares of RLJ Entertainment common stock (issued in exchange for our warrants issued in our initial public offering and concurrent private placement) and warrants to purchase an aggregate of 1,000,000 shares of RLJ Entertainment common stock (issued as consideration in the Acorn purchase agreement) will become exercisable after the consummation of the Business Combination. These warrants likely will be exercised only if the $12.00 per share exercise price is below the market price of the shares of our common stock. To the extent such warrants are exercised, additional shares of RLJ Entertainment common stock will be issued, which will result in dilution to the holders of common stock of RLJ Entertainment and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of RLJ Entertainment’s common stock.

 

If our stockholders fail to deliver their shares in accordance with the redemption requirements specified in the joint proxy statement/prospectus, they will not be entitled to redeem their shares of common stock of our company for a pro rata portion of the trust account.

 

Our stockholders may demand that we convert their shares into a pro rata portion of the trust account, calculated as of two business days prior to the anticipated consummation of the transactions contemplated by the merger agreement. Our stockholders who seek to exercise this redemption right must deliver their stock (either physically or electronically) to Continental Stock Transfer & Trust Company, our transfer agent, prior to our special meeting. Any stockholder of our company who fails to deliver his or her stock in accordance with the procedures described in the joint proxy statement/prospectus will not be entitled to redeem his or her shares into a pro rata portion of the trust account. See the section of the Definitive Proxy Statement titled “The Business Combination — Redemption Rights of RLJ Stockholders” for the procedures to be followed if you wish to redeem your shares to cash.

 

27
 

The NASDAQ Stock Market may not list RLJ Entertainment’s securities on its exchange, which could limit investors’ ability to make transactions in RLJ Entertainment’s securities and subject RLJ Entertainment to additional trading restrictions.

 

RLJ Entertainment has applied to list its securities on The NASDAQ Stock Market in connection with the Business Combination. RLJ Entertainment will be required to meet The NASDAQ Stock Market initial listing requirements to be listed. RLJ Entertainment may not be able to meet those initial listing requirements, especially in the event NASDAQ stock market staff deem the Business Combination to be a “reverse merger” and therefore impose more stringent listing standards. Even if such application is accepted and RLJ Entertainment’s securities are so listed, RLJ Entertainment may be unable to maintain the listing of its securities in the future.

 

If The NASDAQ Stock Market does not list RLJ Entertainment’s securities for trading on its exchange, RLJ Entertainment could face significant material adverse consequences, including:

 

·a limited availability of market quotations for its securities;

 

·reduced liquidity with respect to its securities;

 

·a determination that its shares of common stock are “penny stock,” which will require brokers trading in its shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the shares of common stock;

 

·a limited amount of news and analyst coverage for Image; and

 

·a decreased ability to issue additional securities or obtain additional financing in the future.

 

28
 

 

The exercise of discretion by our directors and officers in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the merger or waivers of conditions are appropriate and in stockholders’ best interests.

 

In the period leading up to the closing of the Business Combination, events may occur that, pursuant to the merger agreement, Preferred Stock Purchase Agreement or Acorn purchase agreement, would require us to agree to amend one or more of those agreements, as applicable, to consent to certain actions taken by the other parties to such agreements or to waive rights that we are entitled to under such agreements. Such events could arise because of changes in the course of the respective business of the other parties to the Business Combination, a request by another party to undertake actions that would otherwise be prohibited by the terms of the merger agreement, the Preferred Stock Purchase Agreement or the Acorn purchase agreement, or the occurrence of other events that would have a material adverse effect on Image’s business and would entitle us to terminate one or more of such agreements. In any of such circumstances, it would be discretionary on us, acting through its respective board of directors, to grant our consent or waive our rights. The existence of the financial and personal interests of the directors described above may result in a conflict of interest on the part of one or more of the directors between what he or she may believe is best for our company and what he may believe is best for himself in determining whether or not to take the requested action. As of the date of this report, we do not believe there will be any changes or waivers that our directors and officers would be likely to make after stockholder approval of the merger proposal set forth in the Definitive Proxy Statement has been obtained. While certain changes could be made without further stockholder approval, our company will circulate a new or amended joint proxy statement/prospectus and resolicit our stockholders if changes to the terms of the transaction that would have a material adverse impact on our stockholders are required prior to the stockholder vote on the merger proposal set forth in the Definitive Proxy Statement.

 

If the Business Combination is completed, a large portion of the funds in the trust account may be used for the purchase, directly or indirectly, of our common stock. As a consequence, if the Business Combination is completed, such funds will not be available to RLJ Entertainment for working capital and general corporate purposes and the number of beneficial holders of RLJ Entertainment’s securities may be reduced to a number that may preclude the quotation, trading or listing of RLJ Entertainment’s securities other than on the OTCBB.

 

After the payment of expenses associated with the transaction, including investment banking and finder’s fees and deferred underwriting commissions, the balance of funds in the trust account will be available to RLJ Entertainment for working capital and general corporate purposes. However, a portion of the funds in the trust account may be used to acquire our common stock from holders thereof who elect to redeem their shares into cash. As a consequence of such purchases:

 

·the funds in the trust account that are so used will not be available to RLJ Entertainment after the Business Combination and the actual amount of such funds that RLJ Entertainment may retain for its own use will be diminished; and

 

·the public “float” of RLJ Entertainment’s common stock may be reduced and the number of beneficial holders of RLJ Entertainment’s securities may be reduced, which may make it difficult to obtain the quotation, listing or trading of RLJ Entertainment’s securities on The NASDAQ Stock Market or any other national securities exchange.

 

There are significant limitations on our right to make contractual indemnification claims against Image for the breach of any representations and warranties or covenants made by Image in the merger agreement.

 

We do not have a right under the terms of the merger agreement to make contractual indemnification claims after the closing of the Business Combination against Image under any circumstances including for a breach by Image of the representations and warranties made to Image or for a violation by Image of certain covenants and agreements in the merger agreement and related documents. This limitation does not affect any other entitlement, remedy or recourse permitted by law that we may have against Image.

 

29
 

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

ITEM 3. Defaults upon Senior Securities.

 

Not applicable.

 

ITEM 4. Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. Other Information.

 

None.

 

ITEM 6. Exhibits.

 

Exhibit Description
Number  
   
3.1 Amended and Restated Articles of Incorporation (1)
   
3.2 Amended and Restated Bylaws (1)
   
31.1* Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2* Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1* Chief Executive Officer and Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS** XBRL Instance Document
   
101.SCH** XBRL Taxonomy Extension Schema
   
101.CAL** XBRL Taxonomy Extension Calculation Linkbase
   
101.LAB** XBRL Taxonomy Extension Label Linkbase
   
101.PRE** XBRL Taxonomy Extension Presentation Linkbase

 

30
 

 

Exhibit Description
Number  
   
101.DEF** XBRL Taxonomy Extension Definition Document

 

*      Filed Herewith

**    To be filed by amendment.

 

(1)Incorporated by reference to the corresponding exhibit filed with the Registrant’s Current Report on Form 8-K filed with the SEC on February 28, 2011.

 

31
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  RLJ ACQUISITION, INC.
     
August 14, 2012 By:   /s/ H. Van Sinclair
    Name: H. Van Sinclair
    Title: Chief Executive Officer and President
      (principal executive officer)
       
  By:   /s/ Lisa W. Pickrum
    Name: Lisa W. Pickrum
    Title: Chief Financial Officer
      (principal financial and accounting officer)

 

32

 

XNAS:RLJE RLJ Entertainment Inc Quarterly Report 10-Q Filling

RLJ Entertainment Inc XNAS:RLJE Stock - Get Quarterly Report SEC Filing of RLJ Entertainment Inc XNAS:RLJE stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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XNAS:RLJE RLJ Entertainment Inc Quarterly Report 10-Q Filing - 6/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Title |  Date |  Company |  Symbol |  Interest |  Popularity

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