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

 

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

 

For the transition period from ________ to ________.

 

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Nevada		45-4950432
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)
8515 Georgia Avenue, Suite 650 Silver Spring, Maryland		20910
(Address of principal executive offices)		(Zip Code)

 

 

 

 

 

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).
	(a)	Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012.	4
	(b)	Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012.	6
	(c)	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2013 and 2012.	7
	(d)	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012.	8
	(e)	Notes to Consolidated Financial Statements for the Three Months Ended March 31, 2013.	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		23
Item 4.	Controls and Procedures.		24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings.		25
Item 1A.	Risk Factors.		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		25
Item 3.	Defaults Upon Senior Securities.		25
Item 4.	Mine Safety Disclosures.		25
Item 5.	Other Information.		25
Item 6.	Exhibits.		26
SIGNATURES			27

 

 

·

our ability to integrate the businesses of Image Entertainment, Inc. and Acorn Media Group, Inc.;

·

the anticipated benefits of the business combination may not be fully realized or may take longer to realize than expected;

·

the ability of our officers and directors to generate a number of potential investment opportunities;

·

our ability to maintain relationships with customers, employees, suppliers and lessors;

·

the loss of key personnel;

·

delays in the release of new titles or other content;

·

the effects of disruptions in our supply chain;

·

our public securities’ limited liquidity and trading;

·

our ability to continue to meet the NASDAQ Capital Market continuing listing standards; or

·

our financial performance, including our ability to achieve new revenue growth and EBITDA margins or realize synergies.

 

 

 

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

 

		Successor
(In thousands)		March 31, 2013				December 31, 2012
Current assets:
Cash and cash equivalents		$	2,353			$	4,739
Accounts receivable, net of reserve for returns, allowances and provision for doubtful accounts totaling $5,336 as of March 31, 2013 and $11,435 as of December 31, 2012			31,442				24,611
Inventories, net			21,742				23,029
Investment in film and television programs			86,988				89,797
Property, equipment and improvements, net			1,341				1,800
Equity investment in ACL			22,691				25,449
Other intangible assets			22,643				23,883
Goodwill			47,382				47,382
Prepaid expenses and other assets			2,067				1,938
Total assets		$	238,649			$	242,628

 

 

		Successor
(In thousands, except share data)		March 31, 2013				December 31, 2012
Accounts payable and accrued liabilities		$	24,752			$	30,590
Accrued royalties and distribution fees			33,097				32,658
Deferred revenue			4,535				4,339
Revolving credit facility			14,151				7,551
Senior term notes, less debt discount			50,488				51,225
Subordinated notes payable and other debt			23,277				23,547
Deferred tax liability			350				350
Stock warrant liability			4,120				4,324
Total liabilities			154,770				154,584
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 250 million shares authorized, 13,377,546 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively			13				13
Additional paid-in capital			86,207				86,133
Retained earnings (deficit)			(1,815	)			1,743
Accumulated other comprehensive gain (loss)			(526	)			155
Net stockholders' equity			83,879				88,044
Total liabilities and stockholders’ equity		$	238,649			$	242,628

		Successor				Predecessor
(In thousands, except per share data)		2013				2012
NET REVENUES		$	40,306			$	19,585
COST OF SALES			27,736				10,065
Gross profit			12,570				9,520
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling expenses			6,047				3,563
General and administrative expenses			7,101				3,314
Transaction costs			—				1,664
Total selling, general and administrative expenses			13,148				8,541
INCOME (LOSS) FROM OPERATIONS			(578	)			979
OTHER INCOME (EXPENSE):
Interest in ACL’s net income			649				24
Interest expense, net			(2,126	)			(157	)
Other income (expense)			(1,077	)			183
Total other income (expense)			(2,554	)			50
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES			(3,132	)			1,029
PROVISION FOR INCOME TAXES			426				187
NET INCOME (LOSS)			(3,558	)			842
Less net income attributable to non-controlling interests			—				(91	)
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS		$	(3,558	)		$	751
NET INCOME (LOSS) PER COMMON SHARE:
UNRESTRICTED COMMON STOCK:
Basic		$	(0.27	)		$	0.73
Diluted		$	(0.27	)		$	0.73
RESTRICTED COMMON STOCK:
Basic		$	(0.27	)		$	—
Diluted		$	(0.27	)		$	—

 

 

		Successor				Predecessor
(In thousands)		2013				2012
NET INCOME (LOSS):
Net income (loss)		$	(3,558	)		$	842
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation gain (loss)			(681	)			201
TOTAL COMPRENSIVE INCOME (LOSS)			(4,239	)			1,043
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS:
Share of net income			—				(91	)
Share of foreign currency translation loss			—				2
Comprehensive income attributable to noncontrolling interest			—				(89	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(4,239	)		$	954

 

		Successor				Predecessor
(In thousands)		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(3,558	)		$	842
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Interest in ACL net income			(649	)			(24	)
Amortization of film and television programs			7,179				766
Depreciation and other amortization			140				108
Noncash interest expense			584				—
Amortization of intangible assets			1,287				23
Provision for doubtful accounts			16				308
Provision for lower of cost or market inventory			264				—
Noncash foreign currency exchange loss (gain)			1,361				(164	)
Accelerated amortization and fair value write-down of advance royalty and distribution fees			608				430
Change in fair values of stock warrant liability			(204	)			—
Stock-based compensation expense			74				91
Changes in assets and liabilities associated with operating activities:
Accounts receivable			(7,155	)			5,409
Inventories			955				489
Investment in film and television programs			(6,016	)			417
Prepaid expenses and other assets			(206	)			(482	)
Accounts payable, accrued royalties, fees and liabilities			(4,743	)			(6,749	)
Deferred revenue			196				—
Net cash provided by (used in) operating activities			(9,867	)			1,464
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(23	)			(234	)
Acquisition of ACL			—				(21,871	)
Dividends received from ACL			1,811				1,006
Net cash provided by (used in) investing activities		$	1,788			$	(21,099	)

		Successor				Predecessor
(In thousands)		2013				2012
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility		$	8,100			$	1,732
Repayments of borrowings under revolving credit facility			(1,500	)			—
Proceeds from debt			—				18,000
Repayment of debt			(1,000	)			(796	)
Proceeds from issuance of subordinated notes payable and other debt			191				2,700
Dividends paid to noncontrolling interest			—				(265	)
Net cash provided by financing activities			5,791				21,371
EFFECT OF EXCHANGE RATE CHANGES ON CASH			(98	)			(113	)
NET INCREASE (DECREASE) IN CASH:			(2,386	)			1,623
Cash at beginning of period			4,739				1,625
Cash at end of period		$	2,353			$	3,248
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	1,332			$	124
Income taxes		$	218			$	233

Note 1.

Basis of Presentation.

Note 2.

Segment Information.

 

		Successor
		March 31, 2013
(In thousands)		IP Licensing				Wholesale Distribution				Direct-to- Consumer				Total
Net revenues		$	7,613			$	23,834			$	8,859			$	40,306
Operating costs and expenses			(6,482	)			(24,978	)			(9,424	)			(40,884	)
Share in ACL earnings			649				—				—				649
Segment contribution		$	1,780			$	(1,144	)		$	(565	)			71
Transaction costs															—
Interest income (expense), net															(2,126	)
Other income (expenses)															(1,077	)
Income before provision for income taxes														$	(3,132	)

		Predecessor
		March 31, 2012
(In thousands)		IP Licensing				Wholesale Distribution				Direct-to- Consumer				Total
Net revenues		$	—			$	11,722			$	7,863			$	19,585
Operating costs and expenses			—				(9,409	)			(7,533	)			(16,942	)
Share in ACL earnings			24				—				—				24
Segment contribution		$	24			$	2,313			$	330				2,667
Transaction costs															(1,664	)
Interest income (expense), net															(157	)
Other income (expenses)															183
Income before provision for income taxes														$	1,029

		Successor
		As of March 31, 2013
(In thousands)		IP Licensing				Wholesale Distribution				Direct-to- Consumer				Total
Accounts receivable and inventories		$	9,232			$	40,164			$	3,788			$	53,184
Investment in film and television programs			3,239				82,659				1,090				86,988
Goodwill			—				37,966				9,416				47,382
Investment in subsidiaries			22,691				—				—				22,691
Other intangible assets			—				1,585				9,928				11,513
		$	35,162			$	162,374			$	24,222				221,758
Other unallocated assets (primarily cash; prepaid expenses; property, equipment and improvements; and certain other intangibles)															16,891
Total assets														$	238,649

		Successor
		As of December 31, 2012
(In thousands)		IP Licensing				Wholesale Distribution				Direct-to- Consumer				Total
Accounts receivable and inventories		$	—			$	44,110			$	3,530			$	47,640
Investment in film and television programs			9,287				79,387				1,123				89,797
Goodwill			—				37,966				9,416				47,382
Investment in subsidiaries			25,449				—				—				25,449
Other intangible assets			—				1,652				10,828				12,480
		$	34,736			$	163,115			$	24,897				222,748
Other unallocated assets (primarily cash; prepaid expenses; property, equipment and improvements; and certain other intangibles)															19,880
Total assets														$	242,628

 

 

Note 3.

Business Combination.

(in thousands, except per share data)		Three months ended March 31, 2012
Net revenues		$	41,446
Net income (loss)		$	(2,115	)
Net income (loss) per share:
Unrestricted common stock – basic and diluted		$	(0.16	)
Restricted common stock – basic and diluted		$	(0.16	)
Weighted average common shares outstanding:
Unrestricted common stock – basic and diluted			13,340
Restricted common stock – basic and diluted			38

Note 4.

Agatha Christie Limited.

 

		Successor				Predecessor
(In thousands)		2013				2012
Revenues		$	8,520			$	411
Film cost amortization			(6,116	)			—
General, administrative and other expenses			(700	)			(286	)
Income from operations			1,704				125
Net Income		$	1,228			$	95

Note 5.

Inventories.

		Successor
(In thousands)		March 31, 2013				December 31, 2012
Packaged discs		$	16,620			$	17,248
Packaging materials			1,756				2,144
Other merchandise			3,366				3,637
		$	21,742			$	23,029

Note 6.

Investment in Film and Television Programs.

		Successor
(In thousands)		March 31, 2013				December 31, 2012
Acquired Distribution Rights and Produced Content:
Royalty and distribution fee advances		$	76,980			$	75,467
Acquired programming rights			1,650				1,654
Original production costs			5,190				9,287
Production Development Costs			3,168				3,389
		$	86,988			$	89,797

		Successor
(In thousands)		March 31, 2013								December 31, 2012
		Acquired and Produced Content				Production Development Costs				Acquired and Produced Content				Production Development Costs
Released, net of accumulated amortization		$	74,235			$	2,880			$	71,157			$	3,130
Completed and not released			9,469				272				6,145				253
In production			116				16				9,106				6
		$	83,820			$	3,168			$	86,408			$	3,389

Note 7.

Debt.

(In thousands)		March 31, 2013
Term Loan - A		$	23,750
Term Loan - B			14,250
Term Loan - C			15,181
Principal balance outstanding			53,181
Less: debt discount			(2,693	)
		$	50,488

(In thousands)
2013		$	3,000
2014			4,000
2015			4,000
2016			4,000
2017			15,875
Thereafter			22,306
		$	53,181

 

 

Note 8.

Stock Warrants.

(In thousands, except per share data)		Shares				Exercise Price			Remaining Life
Registered warrants			12,525
Sponsor warrants			6,667
Unregistered warrants			1,850
			21,042			$	12.00		4.5 years

Note 9.

Fair Value Measurements.

(In thousands)		Level 1				Level 2				Level 3				Total
Warrant liability – March 31, 2013		$	(2,630	)		$	—			$	(1,490	)		$	(4,120	)

(In thousands)		Level 1				Level 2				Level 3				Total
Warrant liability – December 31, 2012		$	(2,755	)		$	—			$	(1,569	)		$	(4,324	)
Change in fair value of warrant liability			125				—				79				204
Warrant liability – March 31, 2013		$	(2,630	)		$	—			$	(1,490	)		$	(4,120	)

 

 

(In thousands)		Level 1				Level 2				Level 3				Total				Loss
Investment in film and television		$	—			$	—			$	1,221			$	1,221			$	608

(In thousands)		Level 1				Level 2				Level 3				Total
Interest rate derivative – December 31, 2011		$	—			$	(36	)		$	—			$	(36	)
Change in fair value of interest rate derivative							(4	)							(4	)
Interest rate derivative – March 31, 2012		$	—			$	(40	)		$	—			$	(40	)

(In thousands)		Level 1				Level 2				Level 3				Total				Loss
Investment in film and television		$	—			$	—			$	268			$	268			$	430

Note 10.

Net Income (Loss) per Common Share Data.

		Successor				Predecessor
(In thousands, except per share data)		2013				2012
Numerator – basic and diluted:
Net income (loss)		$	(3,558	)		$	842
Less net income attributable to non-controlling interest			—				(91	)
Net income (loss) applicable to common shareholders			(3,558	)			751
Less net loss applicable to restricted common shareholders			10				—
Net income (loss) applicable to unrestricted common shareholders		$	(3,548	)		$	751
Unrestricted common shareholders - net income (loss) per share:
Net income (loss) – numerator		$	(3,548	)		$	751
Weighted-average common shares outstanding – basic denominator			13,340				1,023
Effect of dilutive securities			—				8
Weighted-average common shares outstanding – diluted denominator			13,340				1,031
Net income (loss) per common share – unrestricted:
Basic		$	(0.27	)		$	0.73
Diluted		$	(0.27	)		$	0.73
Restricted common shareholders – net loss per share:
Net loss – numerator		$	(10	)		$	—
Weighted-average common shares outstanding – basic and diluted denominator			38				—
Net loss per common share – restricted:
Basic and diluted		$	(0.27	)		$	—

 

 

Note 11.

Commitments and Contingencies.

Note 12.

Related Party Transactions.

Note 13.

Subsequent Events.

 

 

 

Item 2.

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

 

 

 

		Three Months Ended
(in thousands)		March 31, 2013				March 31, 2012				% Change
		(Successor)				(Predecessor)
Noncash interest expense		$	584			$	—				100
Interest expense, net of interest income			1,542				157				882
Interest expense, net		$	2,126			$	157				1254
As a percentage of net  revenues			5.3	%			1.0	%			4.3	%