RLJ Entertainment (RLJE) 10-K/A 2014 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K/A

(Amendment No. 1)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the Fiscal Year Ended December 31, 2014

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 001-35675

RLJ ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Nevada	45-4950432
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification Number)

8515 Georgia Avenue, Suite 650, Silver Spring, Maryland, 20910

(Address of principal executive offices, including zip code)

(301) 608-2115

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:	Name of Each Exchange on Which Registered:
Common Stock, par value $0.001	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

Warrants to purchase Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES ☐ NO ☑

Indicate by check mark if the registrant is not required to file report pursuant to Section 13 or Section 15(d) of the Act.  YES ☐ NO ☑

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.  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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES ☑ NO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☑

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  ☐ Smaller reporting company  ☑

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐ NO ☑

The aggregate market value of the voting stock held by non-affiliates computed on June 30, 2014, based on the sales price of $4.80 per share:  Common Stock - $34,262,448.  All directors and executive officers have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant; however, this determination does not constitute an admission of affiliate status for any of these shareholders.

The number of shares outstanding of the registrant’s common stock as of April 30, 2015:  12,895,772

DOCUMENTS INCORPORATED BY REFERENCE

None.

RLJ ENTERTAINMENT, INC.

Form 10-K/A Annual Report (Amendment No. 1)

For The Fiscal Year Ended December 31, 2014

TABLE OF CONTENTS

PART II			4
	ITEM 8.	Financial Statements and Supplementary Data	4
PART III			47
	ITEM 10.	Directors, Executive Officers and Corporate Governance	47
	ITEM 11.	Executive Compensation	52
	ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
	ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	59
	ITEM 14.	Principal Accountant Fees and Services	61
PART IV			62
	ITEM 15.	Exhibits and Financial Statement Schedules	62
SIGNATURES			66
CERTIFICATIONS

Explanatory Note

RLJ Entertainment, Inc. (or RLJE, the Company, we, us, or our) is filing this Amendment No. 1 (or Amendment) on Form 10-K/A to amend its Annual Report on Form 10‑K for the fiscal year ended December 31, 2014, as filed with the Securities and Exchange Commission (or SEC) on May 8, 2015 (or the 2014 Form 10-K), for purposes of including the information required by Part III that was to be incorporated by reference to its definitive proxy statement relating to its 2014 Annual Meeting of Stockholders and to include a corrected Report of Independent Registered Public Accounting Firm, which was inadvertently filed unsigned.  This Amendment does not reflect a change in our results of operations or financial position as reported in the 2014 Form 10-K.

This Amendment does not reflect events occurring after the 2014 Form 10-K or modify or update the disclosure contained therein in any way other than as required to reflect the amendment discussed above. This Amendment consists only solely of the preceding cover page, this explanatory note, Item 8, Part III information, Item 15, the signature page, the exhibit index, the consent of KPMG LLP filed as Exhibit 23.1, the consent of BDO USA LLP filed as Exhibit 23.2 and the officer certifications filed as Exhibits 31.1, 31.2 and 32.1.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	Page
Reports of Independent Registered Public Accounting Firms	5
Consolidated Balance Sheets as of December 31, 2014 and 2013	7
Consolidated Statements of Operations for the years ended December 31, 2014 and 2013	8
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014 and 2013	9
Consolidated Statements of Equity for the years ended December 31, 2014 and 2013	10
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013	11
Notes to Consolidated Financial Statements	12

4

RLJ ENTERTAINMENT, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

RLJ Entertainment, Inc.:

We have audited the accompanying consolidated balance sheet of RLJ Entertainment, Inc. and subsidiaries as of December 31, 2014, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for the year ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RLJ Entertainment, Inc. and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

	/s/ KPMG LLP
McLean, Virginia
May 8, 2015

5

RLJ ENTERTAINMENT, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

RLJ Entertainment, Inc.

Silver Spring, Maryland

We have audited the accompanying consolidated balance sheets of RLJ Entertainment, Inc. as of December 31, 2013 and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RLJ Entertainment, Inc. at December 31, 2013, and the results of its operations and its cash flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

BDO USA, LLP

Los Angeles, California

March 19, 2014

6

RLJ ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2014 and 2013

(In thousands, except share data)	December 31,
	2014			2013
ASSETS
Cash	$	6,662		$	7,674
Accounts receivable, net		17,389			20,324
Inventories		13,029			15,589
Investments in content, net		67,525			81,641
Prepaid expenses and other assets		2,633			2,527
Property, equipment and improvements, net		2,372			1,759
Equity investment in affiliates		22,281			25,233
Other intangible assets		15,272			19,651
Goodwill		44,891			45,872
Total assets	$	192,054		$	220,270
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	$	24,582		$	32,331
Accrued royalties and distribution fees		42,493			42,115
Deferred revenue		5,006			4,402
Debt, net of discount		80,913			76,264
Production loan		—			1,294
Deferred tax liability		2,002			1,814
Stock warrant liability		601			4,123
Total liabilities		155,597			162,343
Equity:
Common stock, $0.001 par value, 250 million shares authorized, 13,724,756 shares issued and 13,335,258 shares outstanding at December 31, 2014 and 13,700,862  shares issued and outstanding at December 31, 2013		14			13
Additional paid-in capital		87,706			86,938
Accumulated deficit		(50,534	)		(29,334	)
Accumulated other comprehensive income (loss)		(729	)		310
Treasury shares, at cost, 389,498 shares at December 31, 2014 and zero at December 31, 2013		—			—
Total equity		36,457			57,927
Total liabilities and equity	$	192,054		$	220,270

See accompanying notes to consolidated financial statements.

7

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2014 and 2013

	Years Ended December 31,
(In thousands, except per share data)	2014			2013
Revenues	$	137,689		$	164,830
Cost of sales		101,454			132,631
Gross profit		36,235			32,199
Selling expenses		24,510			26,830
General and administrative expenses		19,681			22,810
Depreciation and amortization		5,694			6,174
Goodwill impairment		981			—
Total operating expenses		50,866			55,814
LOSS FROM OPERATIONS		(14,631	)		(23,615	)
Equity earnings of affiliates		2,580			3,296
Interest expense, net		(9,459	)		(8,279	)
Change in fair value of stock warrants		3,522			201
Loss on extinguishment of debt		(1,457	)		—
Other expense		(1,356	)		(479	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(20,801	)		(28,876	)
Provision for income taxes		(399	)		(2,201	)
NET LOSS	$	(21,200	)	$	(31,077	)
Net loss per common share:
Basic and diluted	$	(1.69	)	$	(2.50	)
Weighted average shares outstanding:
Basic and diluted		12,532			12,447

See accompanying notes to consolidated financial statements.

8

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years ended December 31, 2014 and 2013

	Years Ended December 31,
(In thousands)	2014			2013
Net loss	$	(21,200	)	$	(31,077	)
Other comprehensive income (loss):
Foreign currency translation gain (loss)		(1,039	)		155
Total comprehensive loss	$	(22,239	)	$	(30,922	)

See accompanying notes to consolidated financial statements.

9

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

Years ended December 31, 2014 and 2013

	Common Stock														Treasury Stock
(In thousands)	Shares			Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Shares			At Cost		Total Equity
Balance at January 1, 2013		13,378		$	13	$	86,133		$	1,743		$	155			—		$	—	$	88,044
Issuance of restricted common stock for services		323			—		—			—			—			—			—		—
Stock-based compensation		—			—		805			—			—			—			—		805
Foreign currency translation		—			—		—			—			155			—			—		155
Net loss		—			—		—			(31,077	)		—			—			—		(31,077	)
Balance at December 31, 2013		13,701			13		86,938			(29,334	)		310			—			—		57,927
Issuance of restricted common stock for services		190			1		(1	)		—			—			(166	)		—		—
Forfeiture of restricted common stock		(97	)		—		—			—			—			97			—		—
Forfeiture of founder shares		(459	)		—		—			—			—			459			—		—
Stock-based compensation		—			—		769			—			—			—			—		769
Foreign currency translation		—			—		—			—			(1,039	)		—			—		(1,039	)
Net loss		—			—		—			(21,200	)		—			—			—		(21,200	)
Balance at December 31, 2014		13,335		$	14	$	87,706		$	(50,534	)	$	(729	)		390		$	—	$	36,457

See accompanying notes to consolidated financial statements.

10

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2014 and 2013

(In thousands)	Years Ended December 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(21,200	)	$	(31,077	)
Adjustments to reconcile net loss to net cash:
Equity earnings in affiliates		(2,580	)		(3,296	)
Amortization of content, including impairments		58,807			75,345
Depreciation and amortization		5,694			6,174
Goodwill impairment		981			—
Deferred tax provision		188			1,464
Foreign currency exchange loss		1,149			484
Fair value adjustment of stock warrant liability		(3,522	)		(201	)
Non-cash interest expense		2,314			1,526
Loss on extinguishment of debt		1,457			—
Stock-based compensation expense		769			805
Changes in assets and liabilities:
Accounts receivable, net		2,661			4,854
Inventories		2,476			7,462
Investments in content, net		(44,611	)		(50,239	)
Prepaid expenses and other assets		833			(258	)
Accounts payable and accrued liabilities		(7,768	)		(6,526	)
Deferred revenue		737			33
Net cash provided by (used in) operating activities		(1,615	)		6,550
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,655	)		(1,005	)
Dividends received from affiliate		4,040			4,005
Net cash provided by investing activities		2,385			3,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility		—			10,398
Repayments of borrowings under revolving credit facility		(14,949	)		(3,000	)
Proceeds from production loan		9,865			1,414
Repayment of production loan		(11,155	)		—
Proceeds from senior debt, net of discount		65,110			—
Deferred financing costs, senior debt		(1,309	)		—
Repayment of senior debt		(48,893	)		(14,756	)
Cash paid to extinguish debt		(30	)		—
Net cash used in financing activities		(1,361	)		(5,944	)
Effect of exchange rate changes on cash		(421	)		(671	)
NET INCREASE (DECREASE) IN CASH:		(1,012	)		2,935
Cash at beginning of year		7,674			4,739
Cash at end of year	$	6,662		$	7,674

See accompanying notes to consolidated financial statements.

11

NOTE 1. DESCRIPTION OF BUSINESS

Description of Business and Basis of Presentation

RLJ Entertainment, Inc. (or RLJE) is a global entertainment company with a direct presence in North America, the United Kingdom (or U.K.) and Australia and sublicense and distribution relationships covering Europe, Asia and Latin America.  RLJE was incorporated in Nevada in April 2012. On October 3, 2012, we completed the business combination of RLJE, Image Entertainment, Inc. (or Image) and Acorn Media Group, Inc. (or Acorn Media), which is referred to herein as the “Business Combination.”  Acorn Media includes its subsidiaries RLJE International Ltd (or RLJE U.K.), RLJ Entertainment Australia Pty Ltd. (or RLJE Australia) and RLJ Entertainment Ltd (or RLJE Ltd.).  In February 2012, Acorn Media acquired a 64% ownership of Agatha Christie Limited (or ACL).  References to Image include its wholly-owned subsidiary Image/Madacy Home Entertainment, LLC.  “We,” “our” or “us” refers to RLJE and its subsidiaries unless otherwise noted.  Our principal executive offices are located in Silver Spring, Maryland, with additional locations in Woodland Hills, California, and Stillwater, Minnesota, and international locations in London, England and Sydney, Australia.

We acquire content rights in various categories including, British mysteries and dramas, urban programming, and full-length independent motion pictures.  We acquire this content in two ways:

§ Through long-term exclusive licensing agreements where we secure multiple rights to third-party programs, and;

§ Through development, production, and ownership of original drama television programming through our wholly-owned subsidiary, RLJE Ltd., and our majority-owned subsidiary, ACL, as well as fitness programs through our Acacia brand.

We exploit our products through a multi-channel strategy encompassing (1) the licensing of original drama and mystery content managed and developed through our wholly-owned subsidiary, RLJE Ltd., and our majority-owned subsidiary, ACL, (IP Licensing segment) as well as our fitness offerings; (2) wholesale exploitation through partners covering broadcast/cable, digital, online, and brick and mortar outlets (Wholesale segment); and (3) direct relations with consumers via proprietary e-commerce, catalog, and subscription-based video on demand (or SVOD) channels (Direct-to-Consumer segment).

Our wholesale partners are broadcasters, digital outlets and major retailers in the United States of America (or U.S.), Canada, U.K. and Australia, including, among others, Amazon, Netflix, Walmart, Target, Costco, Barnes & Noble, iTunes, BET, Showtime, PBS, DirecTV, and Hulu.

Our Direct-to-Consumer segment includes the sale of video content and complementary merchandise directly to consumers through proprietary e-commerce websites, and catalogs and the continued roll-out of our proprietary subscription-based SVOD channels, such as Acorn TV, Acacia TV and UMC (Urban Movie Channel), the latter of which was launched in November 2014.

RLJE’s management views the operations of the Company based on these three distinctive reporting segments: (1) Intellectual Property (or IP) Licensing; (2) Wholesale; and (3) Direct-to-Consumer.  Operations and net assets that are not associated with any of these stated segments are reported as “Corporate” when disclosing and discussing segment information.  The IP Licensing segment includes intellectual property rights that we own or create and then sublicense for exploitation worldwide.  Our Wholesale and Direct-to-Consumer segments consist of the acquisition, content enhancement and worldwide exploitation of exclusive content in various formats, including broadcast (including cable and satellite), DVD, Blu-ray, digital, video-on-demand (or VOD), SVOD, downloading and sublicensing.  The Wholesale segment exploits content through third-party vendors, while the Direct-to-Consumer segment exploits the same content and complementary merchandise directly to consumers through our proprietary e-commerce websites, mail-order catalogs and digitally streaming channels.

12

Basis of Presentation

The accompanying audited consolidated financial statements and related footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (or U.S. GAAP) and with the Securities and Exchange Commission’s (or SEC) instructions for the Form 10-K.  The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts within our consolidated financial statements.  Although we believe that these estimates to be reasonably accurate, actual amounts may differ.

Reclassifications and Adjustments

Certain amounts reported previously in our consolidated financial statements have been reclassified to be comparable with the classifications used for our 2014 consolidated financial statements.  We reclassified certain expenses that had been reported in previous periods within our Wholesale segment to Corporate.  Also, in 2014, we began reporting the change in the fair value of our stock warrants as a separate line item within our statement of operations.

During the fourth quarter of 2014, we reviewed our estimates for accruals of price adjustments that we provide to our customers.  Specifically, we analyzed the cost of sales impact of these accruals, which we previously did not consider or recognize for financial statement reporting purposes at the time of accrual.  While the cost of sales impact is immaterial, we are adjusting our 2013 consolidated financial statements (See Note 9, Goodwill and Other Intangible Assets).

Earnings Per Share Presentation

During the first quarter of 2014, we changed our presentation of our earnings per share (or EPS) by excluding our restricted common stock from the calculation, and as a result, we removed our two-class method presentation of EPS per Accounting Standards Codification (or ASC) 260, Earnings Per Share.  This change was determined because our restricted common stock is not obligated to fund our reported net losses.  We also removed 898,438 founder shares from unrestricted common stock for the year ended December 31, 2013, as these shares could be forfeited in future periods (see Note 12, Equity).  For the year ended December 31, 2013, the unrestricted weighted average shares outstanding was reduced by 898,438 founder shares and the loss per share for unrestricted common stock increased to $(2.50) per share from $(2.30) per share.  We have assessed this change in presentation for materiality and determined this change is not material to our consolidated financial statements.

Principles of Consolidation

The operations of ACL are entirely managed by RLJE, subject to oversight by ACL’s Board of Directors. The investment in ACL is accounted for using the equity method of accounting given the voting control of the Board of Directors by the minority shareholder. We have included our share of ACL’s operating results, using the equity method of accounting, in our consolidated financial statements.

Our consolidated financial statements include the accounts of all majority-owned subsidiary companies, except for ACL. Investment in ACL is carried as a separate asset on the Consolidated Balance Sheet at cost adjusted for our share of the equity in undistributed earnings. Except for dividends and changes in ownership interest, changes in equity in undistributed earnings of ACL are included in “Other income (expense)” in the Consolidated Statements of Operations. All intercompany transactions and balances have been eliminated.

Liquidity

For the years ended December 31, 2014 and 2013, we recognized a net loss of $21.2 million and $31.1 million, respectively, and we used $1.6 million of cash in operating activities during 2014.   At December 31, 2014, our cash balance was $6.7 million.  At December 31, 2014, we had $80.9 million of term debt outstanding (see Note 10, Debt).  As of March 31, 2015, our cash balance had declined and we were not in compliance with our minimum cash balance requirement of $3.5 million within our Credit Agreement.  This default was waived by our lenders on April 15, 2015 (See Note 23, Subsequent Events).  We continue to experience liquidity constraints and we are dependent upon growth in sales and margins to meet our liquidity needs and our debt covenants for the next twelve months.  On April 15, 2015, we amended our Credit Facility to increase the likelihood that we will meet our future covenant requirements and amended our subordinated notes to reduce the applicable interest rate for two years.  We also improved our liquidity by selling on April 15, 2015 15,000 shares of Bridge Preferred Stock for $15.0 million.  The proceeds received were used to make an accelerated principal payment of $10.0 million under our Credit Agreement, pay fees and expense incurred of approximately $1.0 million, and approximately $4.0 million is available for working capital needs.  We are also in discussions with other potential investors to sell additional shares of preferred stock (See Note 23, Subsequent Events).  There can be no assurances that we will be successful in raising additional capital, realize revenue and margin growth or meeting our future covenant requirements within our Credit Agreement.    We believe that our current financial position combined with our forecasted operational results will be sufficient to meet our commitments.

13

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements.  The significant areas requiring the use of management estimates are related to provisions for lower-of-cost or market inventory write-downs, accounts receivable allowances and provision for doubtful accounts and sales returns reserves, valuation of deferred taxes, valuation of warrants, goodwill impairments, and ultimate projected revenues of our film library, which impact amortization of investments in content and related impairment assessments.  Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ materially from those estimates.

Revenues and Receivables

Revenue Recognition

Revenue is recognized upon meeting the recognition requirements of the Financial Accounting Standards Board Accounting Standards Codification (or ASC) 926, Entertainment—Films (or ASC 926) and ASC 605, Revenue Recognition.  We generate our revenue primarily from the exploitation of acquired or produced content rights through various distribution channels.  The content is monetized in DVD format to wholesale, licensed to broadcasters including cable companies and digital platforms like Amazon and Netflix, and exploited through other windows including:  video-on-demand, direct-to-consumer, catalogs and subscription streaming channels.  Revenue is presented net of sales returns, rebates, unit price adjustments, sales return reserve, sales discounts and market development fund reserve.

Revenues from home video exploitation are recognized net of an allowance for estimated returns, as well as related costs, in the period in which the product is available for sale by our customers (at the point that title and risk of loss transfer to the customer, which is generally upon receipt by the customer and in the case of new releases, after “street date” restrictions lapse).  Rental revenues under revenue sharing arrangements are recognized when we are entitled to receipts and such receipts are determinable.  Revenues from domestic and international broadcast licensing and home video sublicensing, as well as associated costs, are recognized when the programming is available to the licensee and all other recognition requirements are met such as the broadcaster is free to air the programming.  Fees received in advance of availability, usually in the case of advances received from international home video sub-licensees and for broadcast programming, are deferred until earned and all revenue recognition requirements have been satisfied.  Provisions for sales returns and uncollectible accounts receivable are provided at the time of sale.

Revenues from our catalog sales are recognized net of an allowance for estimated returns once payment has been received from the customer and the item ordered has been shipped.  Revenues from our proprietary, subscription-based, streaming channels are recognized on a straight-line basis over the subscription period once the subscription has been activated.

14

Allowances for Sales Returns

For each reporting period, we evaluate product sales and accounts receivable to estimate their effect on revenues due to product returns, sales allowances and other credits given, and delinquent accounts.  Our estimates of product sales that will be returned and the amount of receivables that will ultimately be collected require the exercise of judgment and affect reported revenues and net earnings.  In determining the estimate of product sales that will be returned, we analyze historical returns (quantity of returns and time to receive returned product), historical pricing and other credit data, current economic trends, and changes in customer demand and acceptance of our products, including reorder activity.  Based on this information, we reserve a percentage of each dollar of product sales where the customer has the right to return such product and receive a credit.  Actual returns could differ from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.  Estimates of future sales returns and other credits are subject to substantial uncertainty.  Factors that could negatively impact actual returns include retailer financial difficulties, the perception of comparatively poor retail performance in one or several retailer locations, limited retail shelf space at various times of the year, inadequate advertising or promotions, retail prices being too high for the perceived quality of the content or other comparable content, the near-term release of similar titles, and poor responses to package designs.  Underestimation of product sales returns and other credits would result in an overstatement of current revenues and lower revenues in future periods.  Conversely, overestimation of product sales returns would result in an understatement of current revenues and higher revenues in future periods.

Allowances Received From Vendors

In accordance with ASC 605-50, Revenue Recognition—Customer Payments and Incentives, we classify consideration received as a reduction in cost of sales in the accompanying statements of operations unless the consideration represents reimbursement of a specific, identifiable cost incurred by us in selling the vendor’s product.

Shipping Revenues and Expenses

In accordance with ASC 605-45, Revenue Recognition—Principal Agent Considerations, we classify amounts billed to customers for shipping fees as revenues, and classify costs related to shipping as cost of sales in the accompanying consolidated statements of operations.

Market Development Funds

In accordance with ASC 605-50, Revenue Recognition—Customer Payment and Incentives, market development funds, including funds for specific product positioning, taken as a deduction from payment for purchases by customers are classified as a reduction to revenues.

Investments in Content

Investments in content include the unamortized costs of completed films and television programs that were acquired or produced.  Within the carrying balance of investments in content are development and production costs for films and television programs which are acquired or produced.

Acquired Distribution Rights and Produced Content

Royalty and Distribution Fee Advances – Royalty and distribution fee advances represent fixed minimum payments made to program suppliers for exclusive content distribution rights.  A program supplier’s share of exclusive program distribution revenues is retained by us until the share equals the advance(s) paid to the program supplier plus recoupable costs.  Thereafter, any excess is paid to the program supplier.  In the event of an excess, we also record, as cost of sales, an amount equal to the program supplier’s share of the net distribution revenues.

Original Production Costs – For films and television programs produced by RLJE, original production costs include all direct production and financing costs, as well as production overhead.

Unamortized content investments are charged to cost of sales as revenues are earned in the same ratio that current period revenue for a title or group of titles bears to the estimated remaining unrecognized ultimate revenue for that title.

15

Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release, or for episodic television series a period not to exceed 10 years from the date of delivery of the first episode or, if still in production, five years from the date of delivery of the most recent episode, if later.

Investments in content are stated at the lower of amortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair value of a film or television program is less than its unamortized cost. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film or television program.  Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates.

Content programs in progress include the accumulated costs of productions, which have not yet been completed, and advances on content not yet received from program suppliers. We begin to amortize these investments once the content has been released.

Production Development Costs

The costs to produce licensed content for domestic and international exploitation include the cost of converting film prints or tapes into the optical disc format.  Depending on the platform for which the content is being exploited, costs may include menu design, authoring, compression, subtitling, closed captioning, service charges related to disc manufacturing, ancillary material production, product packaging design and related services.  These costs are capitalized as incurred. A percentage of the capitalized production costs are amortized to expense based upon:  (i) a projected revenue stream resulting from distribution of new and previously released content related to such production costs; and (ii) management’s estimate of the ultimate net realizable value of the production costs.  Estimates of future revenues are reviewed periodically and amortization of production costs is adjusted accordingly.  If estimated future revenues are not sufficient to recover the unamortized balance of production costs, such costs are reduced to their estimated fair value.

Inventories

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are recorded as obsolescence reserve.  Inventories consist primarily of packaged goods for sale, which are stated at the lower-of-average-cost or market, as well as componentry.

Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of acquisition costs over the tangible and identifiable intangible assets acquired and liabilities assumed in a business acquisition.  Goodwill is recorded at our reporting units, which are consolidated into our reporting segments.  Goodwill is not amortized but is reviewed for impairment annually on October 1^st of each year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value.  The impairment test follows a two-step approach.  The first step determines if the goodwill is potentially impaired, and the second step measures the amount of the impairment loss, if necessary.  Under the first step, goodwill is considered potentially impaired if there are subjective characteristics that suggest that goodwill is impaired or quantitatively when the fair value of the reporting unit is less than the reporting unit’s carry amount, including goodwill.  Under the second step, the impairment loss is then measured as the excess of recorded goodwill over the fair value of the goodwill, as calculated.  Determining the fair value requires various assumptions and estimates, which include consideration of the future, projected operating results and cash flows. Such projections could be different than actual results. Should actual results be significantly less than estimates, the value of our goodwill could be impaired in future periods.

16

Other Intangible Assets

Other intangible assets are reported at their estimated fair value when acquired less accumulated amortization.  The majority of our intangible assets were recognized as a result of the Business Combination.  As such, the fair values of our intangibles were recorded in 2012 when applying purchase accounting.  Additions since the 2012 Business Combination are limited to website expenditures. Similar to how we account for internal-use software development, costs that are incurred to develop and implement our websites are capitalized in accordance with ASC 350-50, Website Development Costs.  Website operating costs are expensed as incurred.  Costs incurred for upgrades and enhancements that provide additional functionality are capitalized.

Amortization expense on our other intangible assets is generally computed by applying the straight-line method, or based on estimated forecasted future revenues as stated below, over the estimated useful lives of trade names (15 years), website (3 years), supplier contracts (7 years), customer relationships (five years), options on future content (7 years) and leases (2 years).  The recorded value of our customer relationships is amortized on an accelerated basis over five years, with approximately 60% being amortized over the first two years (through 2014), 20% during the third year and the balance ratably over the remaining useful life.  The recorded value of our options on future content is amortized based on forecasted future revenues, whereby approximately 50% is being amortized over the first two years (through 2014), 25% during the third year and the balance in decreasing amounts over the remaining four years.

Additional amortization expense is provided on an accelerated basis when the useful life of an intangible asset is determined to be less than originally expected.  Other intangible assets are reviewed for impairment when an event or circumstance indicates the fair value is lower than the current carrying value.

For all periods presented, we did not recognize any impairment on our other intangible assets.

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets (see Note 11, Stock Warrants).  All of the warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  Because of this provision, all warrants are accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity’s Own Equity.  The changes in the fair value of the warrants are recorded as a component of other income (expense).

Income Taxes

We account for income taxes pursuant to the provisions of ASC 740, Income Taxes (or ASC 740), whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and the future tax benefits derived from operating loss and tax credit carryforwards.  We provide a valuation allowance on our deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. We have a valuation allowance against 99% and 100% of our net deferred tax assets at December 31, 2014 and 2013, respectively.

ASC 740 requires that we recognize in the consolidated financial statements the effect of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position.  The first step is to determine whether or not a tax benefit should be recognized.  A tax benefit will be recognized if the weight of available evidence indicates that the tax position is more likely than not to be sustained upon examination by the relevant tax authorities.  The recognition and measurement of benefits related to our tax positions requires significant judgment as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities.  Differences between actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known.  For tax liabilities, we recognize accrued interest related to uncertain tax positions as a component of income tax expense, and penalties, if incurred, are recognized as a component of operating expense.

Our foreign subsidiaries are subject to income taxes in their respective countries, as well as U.S. Federal and state income taxes. The income tax payments they make outside the U.S. give rise to foreign tax credits that we may use to offset taxable income in the United States.

17

Foreign Currency Translation

The consolidated financial statements are presented in our company’s functional and reporting currency, which is the U.S. dollar. For the foreign subsidiaries whose functional currency is other than the U.S. dollar (the British Pound Sterling or GBP for RLJE U.K. and RLJE Ltd.; and Australian dollar for RLJE Australia), balance sheet accounts, other than equity accounts, are translated into U.S. dollars at exchange rates in effect at the end of the period and income statement accounts are translated at average monthly exchange rates. Equity accounts are translated at historical rates. Translation gains and losses are included as a separate component of equity. Gains and losses from foreign currency denominated transactions are included in the statement of operations as a component of other income (expense).

Fair Value of Financial Instruments

The carrying amount of our financial instruments, which principally include cash, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The carrying amount of our debt and notes payable approximates fair value as the debt bears market interest rates of interest.  Our estimate of fair value is based on the recent refinancing of our notes.  We consider this assessment of fair value to be a Level 3 assessment.

ASC 820, Fair Value Measurements and Disclosures (or ASC 820), defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our recurring fair value measurements of financial assets and liabilities and our nonrecurring fair value measurements of assets and liabilities are disclosed in Note 14, Fair Value Measurements.

Concentrations of Credit Risk

Financial instruments which potentially subject RLJE to concentrations of credit risk consist primarily of deposit accounts and trade accounts receivable. RLJE maintains bank accounts at financial institutions, which at times may exceed amounts insured by the Federal Deposit Insurance Corporation (or FDIC) and Securities Investor Protection Corporation (or SIPC). We place our cash with several financial institutions which are reputable and therefore bear minimal credit risk. RLJE has never experienced any losses related to these balances.

With respect to trade receivables, we perform ongoing credit evaluations of our customers’ financial conditions and limit the amount of credit extended when deemed necessary but generally require no collateral.

Major Customers and Distribution Facilitators

We have a high concentration of net revenues from relatively few customers, the loss of which may adversely affect our liquidity, business, results of operations, and financial condition.  During 2014, our net revenues from Amazon accounted for 19.0% of our net revenues.  Our top five customers accounted for approximately 46.2% of our net revenues for the same period.  During 2013, Amazon and Entertainment One Films Canada accounted for approximately 13.6% and 10.3%, respectively, of our net revenues.  Our top five customers accounted for approximately 42.1% of our net revenues for 2013.

18

We may be unable to maintain favorable relationships with our retailers and distribution facilitators such as, Sony Pictures Home Entertainment (or SPHE) and Sony DADC UK Limited.  Further, our retailers and distribution facilitators may be adversely affected by economic conditions.  If we lose any of our top customers, or if any of these customers reduces or cancels a significant order, it could have a material adverse effect on our liquidity, business, results of operations, and financial condition.

Our high concentration of sales to relatively few customers (and use of a third-party to manage collection of substantially all packaged goods receivables) may result in significant uncollectible accounts receivable exposure, which may adversely affect our liquidity, business, results of operations, and financial condition.  As of December 31, 2014, SPHE and Netflix accounted for approximately 44.0% and 21.4%, respectively, of our gross accounts receivable.  At December 31, 2013, SPHE and Netflix accounted for approximately 43.8% and 17.3%, respectively, or our gross accounts receivable.

Property, Equipment and Improvements

Property, equipment and improvements are stated at cost less accumulated depreciation and amortization.  Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are expensed as incurred.  Internal-use software development costs are capitalized if the costs were incurred while in the application development stage, or if the costs were for upgrades and enhancements that provide additional functionality.  Training and data-conversion costs are expensed as incurred.  We cease capitalizing software costs and start depreciating the software once the project is substantially complete and ready for its intended use.

Depreciation and amortization are computed by applying the straight-line method over the estimated useful lives of the furniture, fixtures and equipment (3-7 years), and software (3 years).  Leasehold improvements are amortized over the shorter of the useful life (10 years) of the improvement or the life of the related leases.

Impairment of Long-Lived Assets

We review long-lived and specific, definite-lived, identifiable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  An impairment loss of the excess of the carrying value over fair value would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.  We have no intangible assets with indefinite useful lives.

Leases

We lease all of the office space utilized for our operations.  All of our leases are operating leases in nature.  A majority of our leases have fixed incremental increases over the lease terms, which are recognized on a straight-line basis over the term of the lease.

Equity Method Investments

We use the equity method of accounting for investments in companies in which we do not have voting control but where we do have the ability to exert significant influence over operating decisions of the companies.  Our equity method investments are periodically reviewed to determine whether there has been a loss in value that is other than a temporary decline.

Debt Discounts

The difference between the principal amount of our debt and the amount recorded as the liability represents a debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected term of the debt.

19

Advertising Costs

Our advertising expense consists of expenditures related to advertising in trade and consumer publications, product brochures and catalogs, booklets for sales promotion, radio advertising and other promotional costs.  In accordance with ASC 720-35, Other Expenses—Advertising Costs, and ASC 340-20, Other Assets and Deferred Costs—Capitalized Advertising Costs, we expense advertising costs in the period in which the advertisement first takes place.  Product brochures and catalogs and various other promotional costs are capitalized and amortized over the expected period of future benefit, but generally not exceeding six months.  Advertising and promotion expense are included as a component of selling expenses.  For the years ended December 31, 2014 and 2013, advertising expense was $3.3 million and $3.4 million, respectively.

Stock Options and Restricted Stock Awards

We expense our stock-based awards in accordance with ASC 718, Compensation—Stock Compensation (or ASC 718).  ASC 718 establishes standards with respect to the accounting for transactions in which an entity exchanges its equity instruments for goods or services, or incurs liabilities in exchange for goods or services, that are based on the fair value of the entity’s equity instruments, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  ASC 718 requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions) and recognize the cost over the period during which an employee is required to provide service in exchange for the award.  Expense recognized is reduced by estimated forfeitures.

Earnings/Loss per Share

Basic earnings/loss per share is computed using the weighted-average number of common shares outstanding during the period.  Diluted earnings per share are computed using the combination of dilutive common share equivalents and the weighted-average shares outstanding during the period.  For the periods reporting a net loss, diluted loss per share is equivalent to basic loss per share, as inclusion of common share equivalents would be anti-dilutive.

Recently Issued Accounting Standards

On May 28, 2014, the Financial Accounting Standards Board issued accounting standard update (or ASU) No. 2014-09, Revenue from Contracts with Customers (or ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for RLJE on January 1, 2017. Early application is not permitted. The standard permits the use of one of three transition methods. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We are also assessing the transition methods available to implement this new accounting standard.  This update could impact the timing and amounts of revenue recognized within our consolidated financial statements.

On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (or ASU 2014-09), which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.  Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.We will adopt this ASU beginning with annual period ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016.  Upon adoption, we will begin evaluating going concern under this guidance.

20

NOTE 3. SEGMENT INFORMATION

In accordance with the requirements of the ASC 280 “Segment Reporting,” selected financial information regarding our reportable business segments, IP Licensing, Wholesale, and Direct-to-Consumer, is presented below.  Our reportable segments are determined based on the distinct nature of their operations, and each segment is a strategic business unit that is managed separately and either exploits our content over a different customer base or acquires content differently.  Our IP Licensing segment includes intellectual property (or content) owned or created by us, other than certain fitness related content, that is licensed for exploitation worldwide. The IP Licensing segment includes our investment in ACL. Our Wholesale segment consists of the acquisition, content enhancement and worldwide exploitation of exclusive content in various formats, including DVD, Blu-ray, digital, broadcast (including cable and satellite), VOD, streaming video, downloading and sublicensing. Our Direct-to-Consumer segment consists of our mail-order catalog and e-commerce businesses and our proprietary digital streaming channels.

Management currently evaluates segment performance based primarily on revenue, and operating income (loss), including earnings from ACL. Operating costs and expenses allocated below to Corporate include only those expenses incurred by us at the parent corporate level, which are not allocated to our reporting segments, and include costs associated with RLJE’s corporate functions such as finance and accounting, human resources, legal and information technology departments.  Interest expense, change in the fair value of stock warrants, loss on extinguishment of debt, other income (expense) and benefit (provision) for income tax are evaluated by management on a consolidated basis and are not allocated to our reportable segments.

The following tables summarize the segment contribution for the years ended December 31, 2014 and 2013:

(In thousands)	Year Ended December 31, 2014
	IP Licensing			Wholesale			Direct-to- Consumer			Corporate			Total
Revenue	$	8,752		$	91,379		$	37,558		$	—		$	137,689
Operating costs and expenses		(6,662	)		(85,595	)		(41,413	)		(11,975	)		(145,645	)
Depreciation and amortization		(115	)		(1,684	)		(3,415	)		(480	)		(5,694	)
Goodwill impairment		—			—			(981	)		—			(981	)
Share in ACL earnings		2,580			—			—			—			2,580
Segment contribution	$	4,555		$	4,100		$	(8,251	)	$	(12,455	)	$	(12,051	)

(In thousands)	Year Ended December 31, 2013
	IP Licensing			Wholesale			Direct-to- Consumer			Corporate			Total
Revenue	$	8,019		$	115,397		$	41,414		$	—		$	164,830
Operating costs and expenses		(7,967	)		(118,455	)		(44,762	)		(11,087	)		(182,271	)
Depreciation and amortization		(89	)		(3,115	)		(2,931	)		(39	)		(6,174	)
Share in ACL earnings		3,296			—			—			—			3,296
Segment contribution	$	3,259		$	(6,173	)	$	(6,279	)	$	(11,126	)	$	(20,319	)

Operating costs and expenses exclude costs related to depreciation and amortization, as well as goodwill impairments, which are separately presented in the tables above.  Included in our Wholesale segment contribution for the year ended December 31, 2014 is a loss of $3.1 million incurred during the sell-off period under a terminated feature film content output deal that was recognized in the first quarter of 2014.

During the year ended December 31, 2013, we recognized additional operating costs and expenses of approximately $11.5 million, which was primarily recognized within our Wholesale segment as follows:  $4.6 million when management entered into an early termination of a feature film content output deal, increased reserves for inventory and content impairments in the aggregate of approximately $3.4 million, primarily attributable to costs associated with transitioning of the Image/Madacy product line, increased integration costs from a distributor when we combined our Image and Acorn operations of $1.1 million, and $2.4 million associated with entering into certain severance agreements.

21

A reconciliation of total segment contribution to income (loss) before provision for income taxes is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Total segment loss	$	(12,051	)	$	(20,319	)
Interest expense, net		(9,459	)		(8,279	)
Change in fair value of stock warrants		3,522			201
Loss on extinguishment of debt		(1,457	)		—
Other expense		(1,356	)		(479	)
Loss before provision for income taxes	$	(20,801	)	$	(28,876	)

Total revenue by geographical location is as follows:

(In thousands)	Years Ended December 31,
	2014		2013
United States	$	112,325	$	138,964
United Kingdom		23,501		24,103
Other		1,863		1,763
Net Revenues	$	137,689	$	164,830

Revenues are attributed to geographical locations based on where our customers reside.

Total assets for each segment primarily include accounts receivable, inventory, and investments in content. The Corporate segment primarily includes assets not fully allocated to a segment including consolidated cash accounts, certain prepaid assets and fixed assets used across all segments.

Total assets by segment are as follows:

(In thousands)	December 31,
	2014		2013
IP Licensing	$	30,197	$	36,127
Wholesale		140,935		160,968
Direct-to-Consumer		12,049		15,964
Corporate		8,873		7,211
	$	192,054	$	220,270

During the year ended December 31. 2014, we had capital expenditures of $2.0 million, which includes $300,000 that was accrued for in accounts payable.  The capital expenditures by segment during 2014 were $437,000, $716,000, $437,000 and $365,000 for the IP Licensing, Wholesale, Direct-to-Consumer and Corporate segments, respectively.

22

Long-lived assets by geographical location are as follows:

(In thousands)	December 31,
	2014		2013
United States	$	111,445	$	127,260
United Kingdom		39,400		45,310
Other		1,496		1,586
Total long-lived assets	$	152,341	$	174,156

Long-lived assets include goodwill, other intangibles assets, equity investment in ACL, investments in content, and property, equipment and improvements.

NOTE 4. EQUITY EARNINGS IN AFFILIATE

In February 2012, Acorn Media acquired a 64% interest in ACL for total purchase consideration of £13.7 million or approximately $21.9 million excluding direct transaction costs.  The acquisition gave Acorn Media a majority ownership of ACL’s extensive works including more than 80 novels and short story collections, 19 plays, and a film library of over 100 made-for-television films.

We account for our investment in ACL using the equity method of accounting because (1) Acorn Media is only entitled to appoint one-half of ACL’s board members and (2) in the event the board is deadlocked, the chairman of the board, who is appointed by the directors elected by the minority shareholders, casts a deciding vote.

As of the Business Combination, our 64% share of the difference between ACL’s fair value and the amount of underlying equity in ACL’s net assets was approximately $18.7 million.  This basis-difference is primarily attributable to the fair value of ACL’s copyrights, which expire in 2046, and is being amortized through 2046 using the straight-line method.  Basis-difference amortization is recorded against our share of ACL’s net income in our consolidated statements of operations, however this amortization is not included within ACL’s financial statements.

23

A summary of the ACL investment account is as follows:

(In thousands)
Investment balance at December 31, 2012	$	25,449
Share of income		3,834
Dividends received		(4,005	)
Basis-difference amortization		(538	)
Translation adjustment		493
Investment balance at December 31, 2013		25,233
Share of income		3,169
Dividends received		(4,040	)
Basis-difference amortization		(589	)
Translation adjustment		(1,492	)
Investment balance at December 31, 2014	$	22,281

The following summarized financial information is derived from financial statements of ACL as of December 31, 2014 and 2013 (balance sheets), and for the years ended December 31, 2014 and 2013 (income statements):

(In thousands)	December 31,
	2014			2013
Cash	$	4,107		$	3,683
Film costs		14,728			9,835
Other assets		10,322			8,294
Production obligation payable		(3,007	)		—
Deferred revenues		(15,527	)		(8,895	)
Other liabilities		(2,147	)		(2,396	)
Equity	$	8,476		$	10,521

	Years Ended December 31,
(In thousands)	2014			2013
Revenues	$	13,460		$	36,976
Film cost amortization		(3,349	)		(25,558	)
General, administrative and other expenses		(3,542	)		(3,307	)
Income from operations		6,569			8,111
Net income	$	4,939		$	5,985

Balance sheet amounts have been translated from the GBP to U.S. dollar using the December 31, 2014 and 2013 exchange rates.  Income statement amounts have been translated from the GBP to U.S. dollar using the average exchange rate for each of the years presented.

24

NOTE 5. ACCOUNTS RECEIVABLE

Accounts receivable are primarily derived from:  (1) the sale of physical content (DVDs) to retailers and wholesale distributors who ship to mass retail, (2) direct-to-consumer, e-commerce, catalog and download-to-own sales and (3) video content we license to broadcast, cable/satellite providers and digital subscription platforms like Netflix and Amazon.  Our accounts receivable typically trends with retail seasonality.

(In thousands)	December 31,
	2014			2013
Wholesale	$	23,922		$	30,966
IP Licensing		608			—
Direct-to-Consumer		762			67
Accounts receivable before allowances and reserves		25,292			31,033
Less:  reserve for returns		(7,870	)		(10,690	)
Less:  allowance for doubtful accounts		(33	)		(19	)
Accounts receivable, net	$	17,389		$	20,324

Wholesale receivables are primarily billed and collected by our U.S. distribution facilitation partner, SPHE.  Each quarter, our distribution partners preliminarily settle our wholesale receivables assuming a timing lag on collections and an average-return rate.  When actual returns differ from the amounts previously assumed, adjustments are made that give rise to payables and receivables between us and our distribution partners.  Amounts vary and tend to be seasonal following our sales activity.  As of December 31, 2014, we owed our distribution partners $3.1 million for receivables settled as of year-end; and as of December 31, 2013, our distribution partners owed us $700,000 for receivables settled as of year-end.  The wholesale receivables are reported net of amounts owed to the distribution partner as amounts are offset against each other when settling.

Our Direct-to-Consumer receivable represents amounts due to us from our merchant bank related to our credit card transactions processed as of year-end.

NOTE 6. INVENTORIES

Inventories are summarized as follows:

(In thousands)	December 31,
	2014		2013
Packaged discs	$	9,580	$	11,340
Packaging materials		1,309		1,873
Other merchandise (1)		2,140		2,376
Inventories	$	13,029	$	15,589

⁽¹⁾ Other merchandise consists of third-party products, primarily gifts, jewelry, and home accents.

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are booked as obsolescence reserve.  Our obsolescence reserve was $11.1 million and $6.5 million as of December 31, 2014 and 2013, respectively.

During the years ended December 31, 2014 and 2013, we incurred impairment charges associated with our inventories due to adjustments for lower of cost or market valuation, shrinkage, and excess and obsolescence of $2.4 million and $6.5 million, respectively.  During the second quarter of 2013, we recorded an inventory impairment charge of $3.3 million resulting from the early termination arrangement with a content supplier. The impairment charge reflected the shortened sell-off period ending March 2014.

25

NOTE 7. PROPERTY, EQUIPMENT AND IMPROVEMENTS

Property, equipment and improvements are summarized as follows:

	December 31,
(In thousands)	2014			2013
Furniture, fixtures and equipment	$	1,799		$	1,226
Software		1,477			1,174
Leasehold improvements		610			533
Property, equipment and improvements		3,886			2,933
Less:  accumulated depreciation and amortization		(1,514	)		(1,174	)
Property, equipment and improvements, net	$	2,372		$	1,759

Depreciation expense for the years ended December 31, 2014 and 2013 was $878,000, and $869,000, respectively.  We capitalized $181,000 of internal-use software development costs for the year ended December 31, 2013.  We did not capitalize any internal-use software development costs for the year ended December 31, 2014.

During the periods ended December 31, 2014 and 2013, there was no impairment to property, equipment and improvements.

NOTE 8. INVESTMENTS IN CONTENT

Investments in content are as follows:

	December 31,
(In thousands)	2014		2013
Released	$	57,766	$	66,527
Completed, not released		7,205		10,387
In-production		2,554		4,727
Investments in content, net	$	67,525	$	81,641

Investments in content are stated at the lower of unamortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis when an event or change in circumstances indicates that the fair value of content is less than its unamortized cost.  Impairment charges for the years ended December 31, 2014 and 2013 were $4.8 million and $6.4 million, respectively.  Impairments are included in cost of sales.  As a result of the early termination with a content supplier during the quarter ended June 30, 2013, we incurred during 2013 accelerated amortization and an impairment charge totaling $1.5 million reflecting the shortened content distribution arrangement.

In determining the fair value of content (Note 14, Fair Value Measurements), we employ a discounted cash flows (or DCF) methodology.  Key inputs employed in the DCF methodology include estimates of ultimate revenue and costs, as well as a discount rate.  The discount rate utilized in the DCF analysis is based on a market participant's weighted average cost of capital plus a risk premium representing the risk associated with producing a particular type of content.

26

Our estimated future amortization for investments in content is as follows:

(In thousands)
Period	Estimated Amortization		Percentage
1 Year	$	18,046		31.2	%
2 - 3 Years		22,102		38.3	%
4 - 5 Years		10,814		18.7	%
Thereafter		6,804		11.8	%
	$	57,766		100.0	%

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill by segment is as follows:

 (In thousands)

	Wholesale			Direct-to- Consumer			Total
Balance as of January 1, 2013
Goodwill	$	37,966		$	9,416		$	47,382
Adjustment		(1,194	)		—			(1,194	)
Final purchase price allocation and adjustments		6,264			(6,580	)		(316	)
Balance as of December 31, 2013
Goodwill		43,036			2,836			45,872
Impairment loss during year		—			(981	)		(981	)
Balance as of December 31, 2014
Goodwill		43,036			2,836			45,872
Accumulated impairment losses		—			(981	)		(981	)
	$	43,036		$	1,855		$	44,891

Of the goodwill recognized, approximately $21.4 million will be amortized over 15 years for tax purposes giving rise to a future tax deduction.

During the fourth quarter of 2014, we reviewed our estimates for accruals of price adjustments that we provide to our customers.  Specifically, we analyzed the cost of sales impact of these accruals, which we previously did not consider or recognize for financial statement reporting purposes at the time of accrual.  The impact to the previously reported net loss, total comprehensive loss and cash flows for 2013 was insignificant, and as such, we only adjusted $1.2 million between goodwill and accrued royalties and distribution fees within our 2013 consolidated balance sheet.  This adjustment had the effect of reducing both previously reported amounts.

27

Goodwill was tested for impairment for the periods presented and an impairment loss of $981,000 was recognized during 2014 within our Direct-to-Consumer segment.  No impairments were recognized during 2013.

During the fourth quarter of 2014, the stock price of our publicly traded common stock decreased by 48% and our Direct-to-Consumer segment recognized lower revenue during the quarter compared to prior year's fourth quarter.  Given the magnitude of these decreases, we considered these to be triggering events and hired a valuation firm to fair value our reporting units that held the majority of our goodwill.  The valuation firm fair valued our reporting units using both the market approach (by using comparable businesses) and the income approach. Significant inputs were the selection of comparable companies, our five-year forecast and a risk-appropriate discount rate of 18%.  The results of the valuations were that only our Direct-to-Consumer segment in the UK had a carrying book value in excess of its fair value.  Management assessed the amount of implied goodwill within this reporting unit and concluded that its goodwill was fully impaired.  The goodwill that remains in our Direct-to-Consumer segment is associated with our proprietary SVOD channels.

Other Intangibles

A summary of our intangibles and accumulated amortization are as follows:

	December 31, 2014
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(1,642	)	$	9,308
Customer relationships		9,290		(6,039	)		3,251
Websites		3,331		(2,211	)		1,120
Supplier contracts		1,720		(609	)		1,111
Option for future content		900		(418	)		482
Leases		400		(400	)		—
	$	26,591	$	(11,319	)	$	15,272

	December 31, 2013
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(913	)	$	10,037
Customer relationships		9,290		(3,484	)		5,806
Websites		2,962		(1,386	)		1,576
Supplier contracts		1,720		(338	)		1,382
Option for future content		900		(78	)		822
Leases		400		(372	)		28
	$	26,222	$	(6,571	)	$	19,651

Amortization expense for the years ended December 31, 2014 and 2013 was $4.8 million and $5.3 million, respectively.  Costs incurred to develop, upgrade or enhance functionality of websites are capitalized while website operating costs are expensed as incurred.  During the periods ended December 31, 2014 and 2013, we capitalized $437,000 and $173,000 of costs related to our websites, respectively.

28

As of December 31, 2014, the remaining amortization by year for intangible assets is as follows:

(In thousands)
Year Ended December 31,
	Amount
2015	$	3,654
2016		2,185
2017		1,849
2018		1,013
2019		913
Thereafter		5,658
	$	15,272

NOTE 10. DEBT

Debt as of December 31, 2014 consists of the following:

(In thousands)	Maturity Date	Interest Rate			December 31, 2014
Senior secured term notes	September 11, 2019	LIBOR + 9.9% - 10.64%			$	69,388
Less: debt discount						(4,509	)
Total senior-term notes, net of discount						64,879
Subordinated notes payable to prior Image shareholders	October 3, 2018		12	%		16,034
Debt					$	80,913

29

Debt as of December 31, 2013 consists of the following:

(In thousands)	Maturity Date	Interest Rate			December 31, 2013
Revolving credit facility	October 3, 2017	Prime + 5% or LIBOR + 6%			$	14,949
Senior secured term notes:
Term loan – A	October 3, 2017	Prime or LIBOR + 4.5% - 5.5%				20,476
Term loan – B	April 3, 2018	Prime or LIBOR + 6.25% - 7.25%				12,287
Term loan – C	April 3, 2018	Prime or LIBOR + 9.25% - 10.25%				15,517
Principal balance outstanding						48,280
Less: debt discount						(2,007	)
Total senior term notes						46,273
Subordinated notes payable prior Image shareholders	October 3, 2018		12	%		15,042
Debt, net of discount						76,264
Subordinated production loan - Foyle's War	November 8, 2014	LIBOR + 2.15%				1,294
Debt					$	77,558

On September 11, 2014, we refinanced our secured debt into a new credit agreement with new lenders.

Future minimum principal payments as of December 31, 2014 are as follows:

(In thousands)	Senior Notes		Subordinated Notes		Total
2015	$	2,450	$	—	$	2,450
2016		2,975		—		2,975
2017		4,375		—		4,375
2018		59,588		16,034		75,622
	$	69,388	$	16,034	$	85,422

Currently, the subordinated notes mature in 2018 and the senior notes mature in 2019; however, if we do not subsequently extend the subordinated debt maturity beyond 2019, then the new senior notes' maturity would accelerate in conjunction with the repayment of the subordinated notes in 2018.  The above table reflects the assumption that no extension of the subordinated notes occurs.  The senior notes' minimum principal payments in 2018 would be $5.3 million if the senior notes' maturity is not accelerated.

30

New Credit Agreement

On April 15, 2015, we amended our Credit Agreement (as defined below).  The amended terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

On September 11, 2014, we entered into a $70.0 million Credit and Guaranty Agreement (the "Credit Agreement") with a syndicate of lenders led by McLarty Capital Partners, as administrative agent. The Credit Agreement consists of a term loan totaling $70.0 million with a maturity of five years, at an interest rate equal to (a) LIBOR plus 10.64% for so long as the unpaid principal amount of the Credit Agreement is greater than $65.0 million, and (b) LIBOR plus 9.9% thereafter.  LIBOR has a floor of 0.25%.  Principal payment obligations as a percentage of the amount initially borrowed are 3.5% per annum paid quarterly for the first two years, 5.0% for the third year and 7.5% for the remaining term with any unpaid principal balance due at maturity.  The obligations under the Credit Agreement are secured by a lien on substantially all of our consolidated assets pursuant to the Pledge and Security Agreement, dated as of September 11, 2014.

Under the Credit Agreement, interest and principal is payable quarterly with principal payments beginning on December 31, 2014. Beginning in 2016, we are obligated to make certain accelerated principal payments annually which are contingent upon: (1) the occurrence of consolidated excess cash flows, as defined in the Credit Agreement, and (2) only to the extent at which such excess cash flows are above our minimum cash threshold of $12.0 million.  We are permitted to make additional voluntary principal payments under the Credit Agreement, but prepayments are subject to an applicable prepayment premium of:  (a) 5% if prepaid during the first year, (b) 3% if prepaid during the second year, and (c) 1.5% if prepaid during the third year.  The first $5.0 million of voluntary prepayment is not subject to any prepayment premium.

We incurred $4.9 million in original issuance discounts and other related fees paid to lenders under the Credit Agreement.  We also incurred $1.3 million in fees for legal and other professional services.  Repayment of our previous credit facility included principal and accrued interest of $56.1 million ($15.0 million for our revolving credit facility and $41.1 million for our term loans and accrued interest).

The Credit Agreement contains certain financial and non-financial covenants beginning on December 31, 2014.  Financial covenants are assessed quarterly and are based on Adjusted EBITDA, as defined in the Credit Agreement.  Financial covenants vary each quarter and generally become more restrictive over time.  Financial covenants include the following:

	December 31, 2014	2015	2016	Thereafter
Leverage Ratios:
Senior debt-to-Adjusted EBITDA	4.64 : 1.00	Ranges from 4.87 : 1.00 to 4.03 : 1.00	Ranges from 3.86 : 1:00 to 2:67 : 1.00	2.67 : 1.00
Total debt-to-Adjusted EBITDA	5.71 : 1.00	Ranges from 6.09 : 1.00 to 5.06 : 1.00	Ranges from 4.82 : 1:00 to 3.44 : 1.00	3.44 : 1.00
Fixed charge coverage ratio	1.10 : 1.00	Ranges from 1.07 : 1.00 to 1.20 : 1.00	Ranges from 1.24 : 1.00 to 1.59 : 1.00	1.59 : 1.00

We are also obligated to maintain a minimum valuation ratio computed on the outstanding principal balance of our senior debt compared to the sum of our valuations of our content library and our investment in ACL.  To the extent the valuation ratio exceeds the allowed threshold, we are obligated to make an additional principal payment such that the threshold would not be exceeded after giving effect of this payment.  The valuation threshold is 83% as long as the unpaid principal balance exceeds $65.0 million and 75% thereafter.

31

The Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other contracts (including, for example, business arrangements with Sony Pictures Home Entertainment and other material contracts) and indebtedness and events constituting a change of control or a material adverse effect in any of our results of operations or conditions (financial or otherwise).  The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the Credit Agreement.

The Credit Agreement imposes restrictions on such items as encumbrances and liens, payments of dividends, other indebtedness, stock repurchases, capital expenditures and entering into new lease obligations.  Additional covenants restrict our ability to make certain investments, such as loans and equity investments, or investments in content that are not in the ordinary course of business.  Pursuant to the new Credit Agreement, we must maintain at all times a cash balance of $3.5 million.  As of December 31, 2014, we were in compliance with our Credit Agreement.

When repaying the previous credit facility, we recognized a $1.5 million loss from the early extinguishment of debt, which is reported separately within our statement of operations.  This loss primarily represented the unamortized debt discount and deferred financing costs at the time of repayment of our prior credit facility.

Subordinated Notes Payable and Other Debt

On April 15, 2015, we amended our subordinated promissory notes that were issued to the selling preferred stockholders of Image.  The amended terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

In October 2012, we issued unsecured subordinated promissory notes in the aggregate principal amount of $14.8 million to the selling preferred stockholders of Image.  The subordinated notes mature on the earlier of October 3, 2018 or six months after the latest stated maturity of the senior debt issued pursuant to the Credit Agreement.  The unsecured subordinated notes bear an interest rate of 12% per an annum, of which 5.4% is payable in cash annually and at our discretion the balance is either paid through the issuance of shares of our common stock valued at their then-current market price, or accrues and is added to the principal, which is payable upon maturity.  During the second quarter of 2014, interest was due of $1.8 million of which $992,000 was added to the principal balance of these notes and the remainder was paid to the debt holders.  At December 31, 2014, our principal balance due pursuant to these notes was $16.0 million.

In October 2013, we began our production of the next season of the franchise series of Foyle's War.  Acorn Productions Limited and Acorn Global Enterprises Limited, both wholly-owned subsidiaries of RLJE Ltd., entered into a cash advance facility (the FW9 Facility) with Coutts and Co., a U.K. based lender, for purposes of producing three ninety-minute television programs entitled "Foyle's War Series 9." The facility carried interest at a rate of LIBOR plus 2.15%.  Interest and repayment of advances received were due on or before November 8, 2014.  This facility was substantially secured by (i) executed license agreements whereby we have pre-sold certain broadcast and distribution rights and (ii) U.K. tax credits based on anticipated qualifying production expenditures.  The assets and intellectual property are collateral of the Credit Agreement now that the loan is fully paid and settled.  At December 31, 2014, this production loan was fully repaid.

32

NOTE 11. STOCK WARRANTS

RLJE had the following warrants outstanding:

	December 31, 2014
(In thousands, except per share data)	Shares		Exercise Price		Remaining Life
Registered warrants		15,375	$	12.00	2.75 years
Sponsor warrants		3,817	$	12.00	2.75 years
Unregistered warrants		1,850	$	12.00	2.75 years
		21,042

At December 31, 2013 the same amount of shares at the same exercise price were outstanding with a remaining life of 3.75 years.  The warrants have a term of five years beginning October 3, 2012, and provide the warrant holder the right to acquire a share of our common stock for $12.00 per share. The warrants are redeemable by us for $0.01 per warrant share if our common stock trades at $17.50 or more per share for 20 out of 30 trading days. The warrants contain standard anti-dilution provisions.

The warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  The reduction in exercise price depends upon the amount of other consideration, if any, received by the warrant holders in the reorganization and how many years after the Business Combination reorganization is consummated.  Generally, the reduction in exercise price would be between $6.00 and $9.00 assuming no additional consideration was received.  Because of this provision, all warrants are being accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity's Own Equity.

The fair value of the warrants as of December 31, 2014 and 2013 was $601,000 and $4.1 million, respectively.  The valuation of the warrants is a Level 3 measurement.  The registered warrants had been traded on the over-the-counter market and previously were reported as a Level 1 measurement, but due to the lack of trading activity since the first quarter of 2014, the warrant valuation for registered warrants was transferred to Level 3 and valued in the same manner of the Sponsor and unregistered warrants.  Because RLJE has agreed not to exercise its redemption right pertaining to certain warrants held by RLJ SPAC Acquisition LLC (or the Sponsor) and because the unregistered warrants generally have a discounted fair value as compared to the registered warrants, the valuation of the sponsor warrants and the unregistered warrants has always been a Level 3 measurement.  The decrease in the fair value of the warrants for the years ended December 31, 2014 and 2013 was $3.5 million and $201,000, respectfully.

NOTE 12. EQUITY

Common and Preferred Shares

Our articles of incorporation authorize us to issue up to 250 million shares of common stock and one million shares of preferred stock, par value $0.001 per share.  As of December 31, 2014, there were 13,724,756 shares issued and 13,335,258 shares outstanding.  At December 31, 2013, there were 13,700,862 shares of common stock issued and outstanding.  There were no shares of preferred stock issued or outstanding at December 31, 2014 and 2013.  As of December 31, 2014, the rights and preferences of the preferred stock have not yet been designated.

On April 15, 2015, we issued 15,000 shares of Bridge Preferred Stock.  The terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

33

On October 3, 2012, in connection with the consummation of the Business Combination, RLJE and certain Image and Acorn Media selling shareholders entered into an amended and restated registration rights agreement (the "Registration Rights Agreement"), in which RLJE agreed to use its best efforts to register certain of its securities held by the stockholders who are a party to the Registration Rights Agreement under the Securities Act of 1933, as amended (the "Securities Act").  Such stockholders are entitled to make up to three demands, excluding short form registration demands, that RLJE register certain of its securities held by them for sale under the Securities Act.  In addition, such stockholders have the right to include their securities in other registration statements filed by RLJE.  At December 31, 2014, no demand had been received.

Included in our common shares outstanding at December 31, 2013 were 898,438 shares held by the Sponsor as part of the initial public offering of RLJE.  These shares were subject to forfeiture over a two-year period if certain stock price targets were not achieved.  As of December 31, 2014, 458,952 common shares have been returned to the Company and the remaining shares were returned in January 2015.

Treasury Shares

As shares are forfeited, they become treasury shares.  Forfeiture of shares occurs when directors or employees resign or stop working for the Company prior to achieving vesting conditions for certain stock-based compensation awards, when performance conditions are not met regardless of continued employment or service or when Sponsor shares are returned to the Company as discussed above.  Treasury shares are available to RLJE for future grants or issuances of shares as elected by the Company.  At December 31, 2014, we had 389,498 of treasury shares outstanding.  At December 31, 2013, we did not have any treasury shares.

NOTE 13. STOCK-BASED COMPENSATION

Equity Compensation Plan

As of December 31, 2014 and 2013, we had one equity compensation plan.  The 2012 Incentive Compensation Plan of RLJ Entertainment, Inc. (the "Incentive Plan") was approved by the shareholders of RLJ Acquisition, Image and Acorn Media on September 20, 2012.  The Incentive Plan is administered by the compensation committee of our Board of Directors, and allows the compensation committee to award up to a maximum of 1,244,153 shares under the Incentive Plan.  The compensation committee may award options, stock appreciation rights, restricted stock awards, restricted stock unit awards, bonus stock and awards in lieu of obligations, dividend equivalents, performance awards, and other stock-based awards (as those terms are defined in the Incentive Plan). No person may be granted (i) Options or Stock Appreciation Rights with respect to more than 750,000 shares or (ii) Restricted Stock, Restricted Stock Units, Performance Shares, and/or Other Stock Based Awards with respect to more than 750,000 shares. In addition, no person may be granted awards worth more than $1,000,000 of grant date fair value with respect to any 12-month Performance Period (as that term is defined in the Incentive Plan) under the Incentive Plan, or $2,000,000 with respect to any Performance Period that is more than 12 months.  The maximum term allowed for an option is 10 years and a stock award shall either vest or be forfeited not more than 10 years from the date of grant.

At December 31, 2014 and 2013, there were 787,668 and 883,259 shares, respectively, available for future grants under the Incentive Plan.

Restricted Stock-Based Compensation Grants

Compensation expense relating to the restricted stock awards for the years ended December 31, 2014 and 2013 was $769,000 and $805,000, respectively.  Unrecognized stock-based compensation expense relating to these restricted stock awards of approximately $504,000 at December 31, 2014 is expected to be expensed ratably over the remaining vesting period through June 2016. The weighted average remaining vesting period for non-vested shares is nine months.  Compensation expense related to restricted stock awards is included in general and administrative expenses.

34

During the year ended December 31, 2014, 190,280 shares of restricted common stock were granted, 182,206 shares were vested and 93,742 shares were forfeited.   Of the 190,280 shares granted, 164,780 shares were granted to executive officers and directors and 25,500 shares were granted to other members of management.  Of the shares forfeited, 65,297 shares of restricted stock were forfeited based upon the failure to achieve the required performance conditions and the remainder of the forfeitures were due to employee resignations.  The shares granted in 2014 were fair valued on the date of grant with a range of $3.49 - $5.00 per share, for a total value of approximately $766,000.  These restricted shares will vest and be expensed over a three-year period for executive management and other management while restricted shares granted to directors vest and are expensed over a one-year period as a component of general and administrative expenses.  The vesting of restricted shares is subject to the achievement of certain service criteria, qualitative performance criteria, or both.  The amount of expense recognized to date has been reduced by estimated forfeitures related to certain performance targets that are not likely to be achieved.  The restricted stock may be subject to further forfeitures if the employee or director terminates his or her service during the vesting period or future performance measures are not achieved.

Restricted stock award activity under the Incentive Plan for the year ended December 31, 2014, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares					Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
Non-vested shares at January 1, 2014		188		$	5.38		135		$	5.15
Granted		130			3.76		60			4.60
Vested		(127	)		5.51		(56	)		4.60
Forfeited		(12	)		5.01		(83	)		5.16
Non-vested shares at December 31, 2014		179		$	4.13		56		$	5.09

During the year ended December 31, 2013, 323,316 shares of restricted common stock were granted.  Of the 323,316 shares granted, 233,707 shares were granted to executive officers and directors and 89,609 shares were granted to other members of management. The shares were fair valued on the date of grant with a range of $3.72 - $5.97 per share, for a total value of approximately $1.7 million. These restricted shares will vest and be expensed over a three-year period for executive management and other management while restricted shares granted to directors vest and are expensed over a one-year period as a component of general and administrative expenses.  The vesting of restricted shares is subject to the achievement of certain service criteria, qualitative performance criteria, or both.

35

Restricted stock award activity under the Incentive Plan for the year ended December 31, 2013, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares					Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted- Average Grant Date Fair Value		Shares		Weighted- Average Grant Date Fair Value
Non-vested shares at January 1, 2013		38		$	7.98		—	$	—
Granted		188			5.38		135		5.15
Vested		(38	)		7.98		—		—
Forfeited		—			—		—		—
Non-vested shares at December 31, 2013		188		$	5.38		135	$	5.15

All restricted stock amounts will participate in dividends, if declared, prior to their vesting date.

NOTE 14. FAIR VALUE MEASUREMENTS

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets.  Of these warrants, 15,375,000 are warrant shares that are registered and traded on the over-the-counter market.  Since the first quarter of 2014, there has been a lack of a trade activity for the registered warrants, and as such, when assessing their fair value we transferred them from Level 1 to Level 3 within the fair-value hierarchy.  At December 31, 2013, when the registered warrants were reported as a Level 1 valuation, we used the closing market price of our market-traded warrants to determine the fair value of these registered warrants.

As of December 31, 2014, we determined the fair value of the registered warrants using a Monte Carlo simulation model.  Inputs to the model are stock volatility, contractual warrant terms (which are remaining life of the warrant, the redemption feature, the exercise price, and assumptions for the reduction in exercise price if we were to reorganize as a private company), the risk-free interest rate, and a discount for the lack of marketability (DLOM) pertaining to the underlying common stock as the shares acquirable are not registered.  We use the closing market price of our common stock to compute stock volatility.  The DLOM is determined using the Finnerty Average-Strike Put Option Marketability Discount Model (Finnerty Model), which takes into consideration the discount period, stock dividend rates, and stock volatility.  This DLOM ranged between 9.1% and 11.24% during 2014.  Assumptions regarding adjustments to the exercise price are based on management's best estimates of the likelihood of reorganizing as a private company and the amount of the resulting exercise-price adjustment.

The remaining warrants, consisting of Sponsor Warrants of 3,816,667 and unregistered warrants of 1,850,000 are classified as Level 3 within the fair-value hierarchy.  Sponsor Warrants differ from the registered warrants as we have agreed not to exercise our redemption provision as long as the Sponsor continues to hold the warrants.  We determined the fair value of these warrants using a Monte Carlo simulation model and using the same assumptions used for the registered warrants, except we did not include the redemption feature.

Unregistered warrants differ from the registered warrants in that they have not been registered.  We determined the fair value of these warrants by taking the fair value of a registered warrant and discounting it using the Finnerty Model for the lack of marketability as these warrants are not registered.   Prior to June 30, 2014, we determined this DLOM using the estimated fair value of a protective put relative to the fair value of a registered share of common stock.  This DLOM ranged between 17.8% and 34.0% during 2014, and 27.0% and 29.0% during 2013.

36

The following tables represent the valuation of our warrant liability within the fair-value hierarchy:

(In thousands)	December 31, 2014
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	601	$	601

(In thousands)	December 31, 2013
	Level 1		Level 2		Level 3		Total
Warrant liability	$	2,630	$	—	$	1,493	$	4,123

The following tables include a roll-forward of the warrant liability activity classified within Level 1 and Level 3 of the fair-value hierarchy:

(In thousands)	Year Ended December 31, 2014
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123
Change in fair-value hierarchy		(2,755	)		—		2,755			—
Change in fair value of warrant liability		125			—		(3,647	)		(3,522	)
Warrant liability at December 31, 2014	$	—		$	—	$	601		$	601

(In thousands)	Year Ended December 31, 2013
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2012	$	2,755		$	—	$	1,569		$	4,324
Change in fair value of warrant liability		(125	)		—		(76	)		(201	)
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123

37

Investments in Content

When events and circumstances indicate that investments in content are impaired, we determine the fair value of the investment; and if the fair value is less than the carrying amount, we recognize additional amortization expense equal to the excess.  Our nonrecurring fair value measurement information of assets and liabilities is classified in the tables below:

(In thousands)	Year Ended December 31, 2014
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	21,804	$	21,804	$	4,817

(In thousands)	Year Ended December 31, 2013
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	5,693	$	5,693	$	6,419

During the years ended December 31, 2014 and 2013, the investments in content were impaired by $4.8 million and $6.4 million, respectively.  In determining the fair value of our investments in content, we employ a DCF methodology.  Key inputs employed in the DCF methodology include estimates of a film's ultimate revenue and costs as well as a discount rate.  The discount rate utilized in the DCF analysis is based on our weighted average cost of capital plus a risk premium representing the risk associated with producing a particular film or television program.  As the primary determination of fair value is determined using a DCF model, the resulting fair value is considered a Level 3 measurement.

NOTE 15. NET INCOME (LOSS) PER COMMON SHARE DATA

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per common share for the years ended December 31, 2014 and 2013:

(In thousands, except per share data)	Years Ended December 31,
	2014			2013
Basic and diluted:
Net loss	$	(21,200	)	$	(31,077	)
Denominator - basic and diluted:
Weighted-average common shares outstanding – basic		12,532			12,447
Effect of dilutive securities		—			—
Weighted-average common shares outstanding – diluted		12,532			12,447
Net loss per common share:
Basic and diluted	$	(1.69	)	$	(2.50	)

38

We have outstanding warrants to acquire 21,041,667 shares of common stock that are not included in the computation of diluted net loss per common share as the effect would be anti-dilutive because their exercise price of $12 per share exceeds the fair value of our common stock.  For the years ended December 31, 2014 and 2013, we have weighted average outstanding shares of approximately 613,000 and 898,000, respectively, which are held by founding shareholders that are forfeitable (See Note 12, Equity), that are not included in the computation of basic or diluted net loss per share as the effect would be anti-dilutive.  For the years ended December 31, 2014 and 2013, we have weighted average outstanding shares of approximately 923,000 and 1,084,000 shares, respectively of restricted common stock, that are not included in the computation of basic and diluted net loss per share as the effect would be anti-dilutive.

NOTE 16. INCOME TAXES

RLJE files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. Our subsidiaries in the United Kingdom and Australia continue to file income tax returns in their foreign jurisdictions.

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We must assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that it is more likely than not that such deferred tax assets will not be realized, we must establish a valuation allowance.

As of December 31, 2014, we have a valuation allowance against 99% of our deferred tax assets, which are composed primarily of net operating loss (or NOL) carryforwards that were either acquired in the Business Combination or generated in 2013 and 2014.  Even though we have reserved all of these net deferred tax assets for book purposes, we would still be able to utilize them to reduce future income taxes payable should we have future taxable earnings.  To the extent our deferred tax assets relate to NOL carryforwards, the ability to use such NOLs against future earnings will be subject to applicable carryforward periods.  As of December 31, 2014, we had NOL carryforwards for Federal and state tax purposes of approximately $67.9 million and approximately $60.7 million, respectively, which are available to offset taxable income through 2034.  Our NOL carryforwards begin to expire in 2017.  NOL carryforwards that were acquired in the Business Combination reflect our assessment of an annual limitation on the utilization of these carryforwards due to ownership change limitations as required by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state limitations.

Income tax expense is summarized below:

(In thousands)	Years Ended December 31,
	2014			2013
Current
Federal	$	—		$	—
State		66			72
Foreign		145			665
		211			737
Deferred
Federal		(302	)		580
State		22			94
Foreign		468			790
		188			1,464
Total Tax Expense	$	399		$	2,201

39

Income before provision for income taxes is as follows:(In thousands)	Years Ended December 31,
	2014			2013
Domestic	$	(22,711	)	$	(33,778	)
Foreign		1,910			4,902
	$	(20,801	)	$	(28,876	)

The tax effects of temporary differences that give rise to a significant portion of the net deferred tax assets and liabilities at are presented below:

	Years Ended December 31,
(In thousands)	2014						2013
	U.S. Federal and State			Foreign			U.S. Federal and State			Foreign
Deferred tax assets:
Provision for lower of cost or market inventory write-downs	$	4,232		$	—		$	5,174		$	—
Net operating loss carryforwards		25,173			416			18,359			—
Allowance for sales returns		1,208			—			1,166			—
Allowance for doubtful accounts receivable		12			—			—			—
Marketing discounts and price protection reserves		2,559			—			1,559			—
Accrued compensation and benefits		173			—			298			—
Tax credits carryforwards		4,156			—			1,980			—
Other		371			13			353			—
Deferred tax assets		37,884			429			28,889			—
Less valuation allowance		(35,837	)		(416	)		(27,047	)		—
Deferred tax assets		2,047			13			1,842			—
Deferred tax liabilities:
Intangible assets		—			—			(1,409	)		—
Warrant liability		(1,625	)		—			(308	)		—
Goodwill amortization		(833	)		—			(674	)		—
Equity income in ACL		—			(1,604	)		—			(1,140	)
Other		—			—			(125	)		—
Deferred tax liabilities		(2,458	)		(1,604	)		(2,516	)		(1,140	)
Net deferred tax assets and liabilities	$	(411	)	$	(1,591	)	$	(674	)	$	(1,140	)

40

A reconciliation of income tax benefit based on the federal statutory rate to actual income tax expense (benefit) is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Expected income tax benefit - 34%	$	(7,072	)	$	(9,818	)
Income not subject to income tax		—			(1,499	)
State income taxes, net of federal benefit		66			73
Non-deductible expenses		93			85
Change in valuation allowance		9,206			13,406
Change in prior year deferred tax allowance		(671	)		—
Foreign income taxes		145			—
Foreign tax credit		(1,132	)		—
Other		(236	)		(46	)
Total tax expense	$	399		$	2,201

Our significant tax returns are filed in the following jurisdictions:  United States, United Kingdom and in the following states:  Maryland, California and Illinois.  The tax years for 2009 through 2014 remain open to examination.  We are not currently under examination by any of the jurisdictions where we file significant tax returns.  We believe that our tax filing positions and deductions will be sustained if audited and we do not anticipate any adjustments that would result in a material adverse effect on our financial condition, results of operations, or cash flow.  Therefore, no reserves for uncertain tax positions have been recorded.

NOTE 17. STATEMENTS OF CASH FLOWS

Supplemental Disclosures

	2014		2013
Cash paid during the period for:
Interest	$	7,016	$	4,765
Income taxes	$	499	$	2,565

During 2014 we incurred capital expenditures of $2.0 million of which $300,000 was accrued for and included within accounts payable and accrued liabilities as of year end.

NOTE 18. CUSTOMER RELATIONSHIP

During the year ended December 31, 2013, we terminated our business relationship with an inventory fulfillment partner and recorded a sales return of approximately $2.9 million, which negatively impacted our gross margin by approximately $1.3 million.  Additionally, we agreed to terms to early terminate a content output agreement with a content supplier effective December 31, 2013, exclusive of a 90-day sell off period. The result of the termination was a non-cash charge of approximately $4.6 million, which includes $603,000 of accumulated amortization, recorded in the second quarter of 2013, related to its unamortized content assets and inventories on the Company's balance sheet.

41

NOTE 19. SEVERANCE

During the year ended December 31, 2013, we incurred severance charges of $2.4 million as part of the implemented reorganization from the formation of RLJE with former employees.  During the year ended December 31, 2014, we recognized additional severance charges of $548,000.  The severance charges were recorded as a component of general and administrative expense.

NOTE 20. EMPLOYEE BENEFITS

Effective October 3, 2012, we established the RLJ Entertainment 401(k) Plan, a defined contribution 401(k) plan for the benefit of employees meeting certain eligibility requirements.  Under the plan, participants may contribute a portion of their earnings on a pre-tax basis.  Employee contributions are forwarded to the plan administrator and invested in various funds at the discretion of the employee.  RLJE matches a portion of those contributions based upon the employee's compensation status in accordance with the U.S. Internal Revenue Code.  Our U.S. sponsor plan contributes up to four percent depending on the employee's contribution beginning one month after the date of hire.  Our U.K. and Australia subsidiaries sponsor plans contribute between three to seven percent and nine percent, respectively, to employees beginning after a probationary period of three months to one year.

During the years ended December 31, 2014 and 2013, we incurred compensation expenses of $539,000 and $560,000, respectively, related to these plans.

NOTE 21. COMMITMENTS AND CONTINGENCIES

Operating Leases

RLJE's principal executive office is located in Silver Spring, Maryland.  We also maintain offices in Woodland Hills, California; Stillwater, Minnesota; London, England and Sydney, Australia with varying terms and expiration dates.  All locations are leased.  A summary of our locations is as follows:

Location	Primary Purpose	Lease Expiration	Reporting Segment (1)
Silver Spring, MD	Executive Office/Administrative/Sales/ Content Acquisition	November 15, 2020	Corporate
Woodland Hills, CA	Administrative/Sales/Content Acquisition	June 30, 2021	Wholesale
Stillwater, MN	Sales and Administration for Direct-to-Consumer	April 30, 2022	Direct-to-Consumer
London, England	Content Development and Production/Sales/ Administration for the U.K., including ACL	July 1, 2018	IP Licensing/Wholesale/ Direct-to-Consumer
Sydney, Australia	Sales/Administration	March 1, 2017	Wholesale

⁽¹⁾ The segment descriptions above reflect the location's primary activity.

42

Future minimum annual rental payments by year under operating leases at December 31, 2014, are approximately as follows:

(In thousands)
Year Ended December 31,	Lease Commitment
2015	$	1,164
2016		1,166
2017		1,191
2018		1,056
2019		878
Thereafter		1,181
	$	6,636

Rent expense was $2.0 million and 1.4 million, for the years ended December 31, 2014 and 2013, respectively.

Employment Agreements

At December 31, 2014, our future contractual obligations under four employment agreements are summarized below.  Included in the amounts below are any minimum bonus or agreed-upon amounts to be paid within the employment contracts over the next five years as long as the employee continues to be an employee in good standing and meets the performance criteria within the individual employment agreements.  One of the four employment agreements does not have an expiration date and is included in each of the five years presented below.

(In thousands)
Year Ended December 31,	Employment Contracts
2015	$	1,683
2016		983
2017		750
2018		750
2019		750
	$	4,916

Future Royalty Obligations

At December 31, 2014, our future obligations for royalty advances, minimum royalty guarantees and exclusive distribution fee guarantees under the terms of our existing licenses and exclusive distribution agreements that have an off balance sheet commitment total $7.1 million.  These commitments will be recognized in 2015 within our consolidated financial statements upon the earlier of payment or upon delivery of content by the content supplier.

Legal Proceedings

In the normal course of business, we are subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations relating to content ownership and copyright matters.  While it is not possible to predict the outcome of these matters, it is the opinion of management, based on consultations with legal counsel, that the ultimate disposition of known proceedings will not have a material adverse impact on our financial position, results of operations or liquidity.

43

NOTE 22. RELATED PARTY TRANSACTIONS

Equity Investments in Affiliates

All of ACL's staff is employed by RLJE Ltd.  ACL was charged overhead and personnel costs for the years ended December 31, 2014 and 2013, of approximately $2.3 million and $2.1 million, respectively.

ACL paid dividends to RLJE Ltd. of $4.0 million and $4.0 million during the years ended December 31, 2014 and 2013, respectively.  Dividends received were recorded as a reduction to the ACL investment account.

Foreign Currency

We recognize foreign currency gains and losses, as a component of other expense, on amounts lent by Acorn Media to RLJE Ltd. and RLJE Australia.  As of December 31, 2014, Acorn Media had lent its U.K. subsidiaries approximately $15.5 million and its Australian subsidiary approximately $3.6 million.   Amounts lent will be repaid in U.S. dollars based on available cash. Movement in exchange rates between the U.S. dollar and the functional currencies (which are the British Pound Sterling and the Australian dollar) of those subsidiaries that were lent the monies will result in foreign currency gains and losses.  During the years ended December 31, 2014 and 2013, we recognized a loss of $1.1 million and $484,000, respectively.

The RLJ Companies, LLC

On June 27, 2013, The RLJ Companies, LLC (whose sole manager and voting member is the chairman of our board of directors) purchased from one of our vendors $3.5 million of contract obligations that we owed to the vendor.  These obligation were payable by us to the vendor through September 5, 2013.  Pursuant to the purchase, The RLJ Companies, LLC has become the account creditor with respect to these accounts.  These accounts have not been otherwise modified.  These purchased liabilities are included in accrued royalties and distribution fees in the accompanying consolidated balance sheets for 2014 and 2013.

RLJ SPAC Acquisition, LLC

Our chairman of our board of directors (Mr. Robert L. Johnson) through his company, RLJ SPAC Acquisition, LLC, has entered into a plan to purchase up to $2.0 million of our outstanding common stock from time to time over a 24-month period beginning June 19, 2013. Any purchases under the plan will be at the discretion of Lazard Capital Markets LLC in the open market or in privately negotiated transactions in compliance with applicable laws and regulations.

All $2.0 million of Common Stock may not be purchased during the 24-month period.  The Plan may be terminated by Mr. Johnson at any time.

During 2014 and 2013, RLJ SPAC Acquisition LLC purchased 128,665 and 232,531 shares, respectively.

NOTE 23. SUBSEQUENT EVENTS

On April 15, 2015, we sold to a company owned by Robert L. Johnson, the Company's chairman, 15,000 shares of Bridge Preferred Stock for $15.0 million in cash.  The rights of the Bridge Preferred Stock include a preference on any dividends paid, limited voting rights related to any amendment to the Bridge Preferred Stock, a liquidation preference of $1,000 per share, negative covenants with respect to certain events and a redemption right at 130% of the liquidation preference upon certain defaults or a change in control.

The Company used $10.0 million of the net proceeds from this sale to make a partial payment on its Credit Agreement and approximately $1.0 million for prepayment penalties, legal fees and expenses associated with the transaction.  The balance of the net proceeds is intended to be used for working capital purposes.

44

In connection with the sale of the Bridge Preferred Stock, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with  Mr. Johnson's company.  Pursuant to the terms of the Purchase Agreement, if convertible preferred stock is issued to a third party within 60 days after the sale to Mr. Johnson's company of the Bridge Preferred Stock, concurrently with the closing on the sale of convertible preferred stock to such third party, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock and would receive the same rights and benefits as the other investors in the convertible preferred stock, including the issuance of warrants. If convertible preferred stock is not issued to a third party within 60 days after the sale to Mr. Johnson's company of the Bridge Preferred Stock, promptly following such date, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock pursuant to the terms of the last convertible preferred stock term sheet offered by the Company to a third party and would receive the same rights and benefits as set forth in such last term sheet, including the issuance of warrants. The conversion of such convertible preferred stock into, and the exercise of such warrants for, shares of the Company's common stock would be subject to the approval of the stockholders of the Company.

The Company is currently seeking to complete a private placement of between $15 million and $30 million of preferred stock convertible into the Company's common stock to selected institutional investors (including the contemplated exchange with Mr. Johnson's company). Such convertible preferred stock  will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.  In connection with this placement, the Company has received a non-binding term sheet from a third party to purchase for cash $4,000,000 in liquidation value of convertible preferred stock and warrants to purchase common stock. The non-binding term sheet contemplates that the convertible preferred stock would:

Bear an 8% annual dividend, payable in kind for the first two years and thereafter payable quarterly in cash or freely-trading common stock, at the Company's option. If common stock were used for the payment, it would be valued at 80% of the market price.

Be convertible into common stock at an initial conversion price of $1.00 per share, subject to anti-dilution adjustment.

Be subject to mandatory redemption on the fifth anniversary of the issuance date. The Company would be able to redeem with either cash or freely-tradable common stock. If common stock is used for the redemption, it would be valued at 80% of the market price.

The term sheet further contemplates the issuance of warrants to purchase an aggregate number of shares of common stock equal to 30% of the number of shares into which the convertible preferred stock is convertible on the date of issuance thereof. The Warrants would have a five year term and would have an exercise price of $1.50 per share, subject to anti-dilution adjustment. Investors in the convertible preferred stock also would receive certain other customary rights, including registration rights and anti-dilution protection.

The conversion of the convertible preferred stock into, and the exercise of the warrants for, shares of the Company's common stock would be subject to the approval of the stockholders of the Company. The Company would hold a special meeting seeking stockholders approval no later than July 31, 2015. Prior to the closing on the issuance of the convertible preferred stock, the Company would be required to obtain proxies from directors, executive officers and greater than 5% stockholders holding at least 50% of the outstanding shares to vote in favor of the issuance of the convertible preferred stock and the warrants.

There is no assurance that the transaction set forth in the term sheet will be completed, that the terms of the actual issuance will not materially vary from the terms set forth in the term sheet or that the Company will be successful in obtaining other investors in the convertible preferred stock.

Debt Amendments

Concurrently with the sale of the Bridge Preferred Stock, the Company also entered into (a) an amendment (the "Senior Credit Facility Amendment") to the Credit Agreement between the Company and its lenders, and (b) an amendment (the "Note Amendment") with the holders of certain subordinated notes (the "Subordinated Note Holders").

45

The principal terms of the Credit Agreement Amendment are as follows:

(a) a waiver of certain Defaults (as defined in the Credit Agreement) and Events of Default (as defined in the Credit Agreement) caused by, or that would be caused by the breach of certain financial covenants under the senior Credit Agreement;

(b) amendments of the Credit Agreement (i) modifying the interest rate to equal LIBOR plus 10.64%, (ii) modifying certain financial statement and other reporting and lender communication requirements, (iii) changing the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) threshold to 0.73:1.00 for the quarter ending March 31, 2015, and 0.63:1.00 for the quarter ending June 30, 2015, (iv) changing the Senior Leverage Ratio (as defined in the Credit Agreement) limit to 7.50:1.00 for the quarter ending March 31, 2015, and 6.92:1.00 for the quarter ending June 30, 2015, (v) changing the Total Leverage Ratio (as defined in the Credit Agreement) limit to 9:00:1:00 for the quarter ending March 31, 2015, and 8.95:1.00 for the quarter ending June 30, 2015, and (vi) changing the Minimum Cash Balance (as defined in the Credit Agreement) that the Company is required to maintain to $1 million; and

(c) the consent of the lenders to the issuance of the Bridge Preferred Stock and the convertible preferred stock, which is anticipated to be issued in exchange for the Bridge Preferred Stock, as well as the use of the proceeds from the issuance of the Bridge Preferred Stock and the convertible preferred stock (i) to pay $10 million of the amounts outstanding pursuant to the Credit Agreement, (ii) to pay certain fees and costs associated with the issuance of the Bridge Preferred Stock and the convertible preferred stock, and (iii) for working capital purposes.

The principal terms of the Note Amendment are as follows:

(a) an agreement by the Subordinated Note Holders to convert 50% of the outstanding balance under the subordinated notes into the convertible preferred stock with rights and preferences equal to those of the Bridge Preferred Stock;

(b) amendments to the subordinated notes (i) changing the interest rate payable from 12% to 1.5% per annum for the 24-month period commencing on January 1, 2015, and then 12% per annum thereafter; and (ii) specifying that 45% of the interest due will be payable in cash and the remainder of the accrued interest will be payable in the form of additional subordinated notes; and

(c) a waiver of any existing defaults and events of default.

46

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board Composition

As of April 30, 2015, our board of directors (or Board) was comprised of nine members as set forth in the table below.  Each director elected holds office for a three-year term, until a successor is duly elected and qualified or until his earlier death, resignation or removal from office.

Name	Director Since	Age	Principal Occupation and Business Experience During Past Five Years and Other Directorships
Robert L. Johnson	2012	69	Mr. Johnson was appointed as the Company's chairman in October 2012. From November 2010 to October 2012, Mr. Johnson served as the chairman of the board of RLJ Acquisition, Inc., a special purpose acquisition company that created the Company. Mr. Johnson founded The RLJ Companies, an innovative business network that owns or holds interests in a diverse portfolio of companies in businesses operating in hotel real estate investment; private equity; financial services; asset management; automobile dealerships; sports and entertainment; and video lottery terminal (or VLT) gaming, and has served as its chairman since February 2003. Prior to forming The RLJ Companies, Mr. Johnson was founder and chief executive officer of Black Entertainment Television (or BET), which was acquired by Viacom Inc. in 2001. He continued to serve as chief executive officer of BET until February 2006. In July 2007, Mr. Johnson was named by USA Today as one of the "25 most influential business leaders of the past 25 years." Mr. Johnson currently serves on the boards of directors of RLJ Lodging Trust (NYSE: RLJ), KB Home (NYSE: KBH), Lowe's Companies, Inc. (NYSE: LOW), Strayer Education, Inc. (NASDAQ: STRA) and Retirement Clearinghouse, LLC. He previously served as a director of Hilton Hotels Corporation, US Airways Group, Inc., General Mills, Inc. and IMG Worldwide, Inc., and a member of the board of trustees at The Johns Hopkins University. We believe that Mr. Johnson's professional background, his prior executive leadership positions at various companies, and current and past board positions, make him well qualified as a Chairman of the Company's board of directors.
Miguel Penella	2012	46	Mr. Penella was appointed as the Company's Chief Executive Officer on January 18, 2013.  From October 2012 until January 18, 2013, Mr. Penella served as Chief Operating Officer. Mr. Penella has served as a director of the Company since October 2012. From April 2007 to October 2012, Mr. Penella served as chief executive officer of Acorn Media Group, Inc., which was acquired by the Company in October 2012, where he oversaw operations and was the driving force behind the worldwide expansion of both the Acorn and Acacia brands, including the acquisition of 64% of Agatha Christie Limited and the launch of Acorn TV, the Company's first proprietary subscription VOD channel. From 2004 to April of 2007, Mr. Penella was president of Acorn's direct-to-consumer operations offering DVDs and other high quality products through catalogs and online marketing vehicles. Under his leadership, Acorn's direct-to-consumer operations grew from $8 million to $40 million in sales. Mr. Penella came to Acorn from Time-Life where he rose in the ranks from circulation director of the catalog department to director of catalogs for the music division and then to vice president of customer marketing in 2001. Previously, he worked in catalog management for the National Direct Marketing Corporation and the National Wildlife Federation. We believe that Mr. Penella's professional background, his position in the Company and his prior senior leadership positions at various companies make him well qualified as a member of the Company's board of directors.

47

Name	Director Since	Age	Principal Occupation and Business Experience During Past Five Years and Other Directorships
Peter Edwards	2012	62	Mr. Edwards was appointed as the Company's non-executive vice chairman in October 2012. Prior to October 2012, Mr. Edwards served as founder and chairman of Acorn Media Group, Inc., since its inception in 1984. Mr. Edwards has a broad background in communications. Before founding Acorn, his work in emerging communications technologies included consulting for cable companies such as Cablevision and Viacom during the major-city cable television franchising competitions of the 1980s. He also served as a consultant to the City of Reading, Pennsylvania, home of the world's oldest two-way cable system. Also active in video production, he worked for the Washington bureau of NBC News and independently on a range of documentaries and music videos. We believe that Mr. Edwards professional background, including his vast experience in communications and video productions, make him well qualified as the Vice Chairman of the Company's board of directors.
H. Van Sinclair	2012	62	Mr. Sinclair has served as a member of the Company's board of directors since April 2012 and was the Chief Executive Officer and President of RLJ Acquisition, Inc. from April 2012 until immediately prior to the consummation of the Business Combination in October 2012.  Mr. Sinclair was also a member of RLJ Acquisition, Inc.'s board of directors from November 2010 until immediately prior to the consummation of the business combination.  Since February 2003, Mr. Sinclair has served as president and chief executive officer of The RLJ Companies. From January 2006 to May 2011, Mr. Sinclair also served as Vice President of Legal and Business Affairs for RLJ Urban Lodging Funds, a private equity fund concentrating on limited and focused service hotels in the United States and for RLJ Development, The RLJ Companies' hotel and hospitality company.  Prior to joining The RLJ Companies, Mr. Sinclair spent 28 years, from October 1978 to February 2003, with the law firm of Arent Fox, LLP. Mr. Sinclair remains of counsel to Arent Fox. Mr. Sinclair is a member of the Board of Directors of Vringo, Inc. (NASDAQ: VRNG) where he is chairman of the Audit Committee.  We believe that Mr. Sinclair's professional background, his prior senior leadership positions at various companies, and extensive legal experience, make him well qualified as a member of the Company's board of directors.
Tyrone Brown	2012	72	Mr. Brown has served as a member of the Company's board of directors since October 2012. Mr. Brown is a self-employed attorney. Since January 2014, Mr. Brown has served as Consulting Counsel at Wiley Rein, a Washington, DC law firm where he consults with the firm's clients on media and telecommunications matters.  Mr. Brown was an initial investor and director in the successful re-launch after bankruptcy of IRIDIUM, the global mobile satellite system, serving as IRIDIUM's vice chairman from January 2002 until a successful public offering in October 2009. Previously, he was the co-founder of District Cablevision, the DC cable television system, where he was president and a director from 1986 to February 1992. Mr. Brown also served as a director and principal outside counsel of Black Entertainment Television (or BET) until its successful public offering in 1991, and vice president and general counsel of Post-Newsweek Stations, the broadcast station subsidiary of the Washington Post Company, from 1971 to 1974. In addition to his entrepreneurial and business activities, Mr. Brown has practiced communications law at a number of major DC law firms and served as a law clerk for the late Chief Justice of the Supreme Court Earl Warren, as an aide to Senator Edmund Muskie and as an FCC Commissioner under the Carter Administration. We believe that Mr. Brown's professional background in the media sector, his prior senior leadership positions at various companies, and extensive legal experience, make him well qualified as a member of the Company's board of directors.
Morris Goldfarb	2012	64	Mr. Goldfarb has served as a member of the Company's board of directors since April 2012. Mr. Goldfarb previously served as a director of RLJ Acquisition, Inc., from February 2011 until October 2012. He serves as Chairman of the Board, Chief Executive Officer and President of G-III Apparel Group, Ltd., a designer, manufacturer, importer and marketer of apparel, swimwear, footwear, handbags and luggage. Mr. Goldfarb has served as an executive officer and director of G-III and its predecessors since its formation in 1974.  Mr. Goldfarb serves as director of Oppenheimer Holdings Inc.  Mr. Goldfarb served as a director of Christopher & Banks Corp. from January 2011 until June 2013, Black Ridge Oil & Gas Inc. from November 2010 until October 2012, and Lakes Entertainment, Inc. from June 1998 until March 2010. We believe that Mr. Goldfarb's professional background, his senior leadership position at G-III Apparel Group, Ltd., and current and past board positions, make him well qualified as a member of our board of directors.

48

Name	Director Since	Age	Principal Occupation and Business Experience During Past Five Years and Other Directorships
Andor (Andy) M. Laszlo	2012	48	Mr. Laszlo has served as a member of the Company's board of directors since October 2012. Mr. Laszlo joined Sun Trust Robinson Humphrey in January 2014 where he serves as Managing Director and Head of Technology, Media & Communications Equity Origination. Mr. Laszlo served as a Managing Director at Lazard Capital Markets LLC (or LCM) from June 2010 to December 2013, where he served as Head of Corporate Underwriting and Head of Business Development.  Prior to joining LCM, Mr. Laszlo served as a Senior Advisor to Sports Properties Acquisition Corp., a special purpose acquisition company focused on the sports, leisure and entertainment sectors, from November 2007 to April 2010. Between 1997 and 2007, Mr. Laszlo held various senior equity capital markets positions at both Lehman Brothers and Bank of America Securities.  Mr. Laszlo was the Head of Media & Telecom equity capital markets for Bank of America Securities based in New York, NY.  Prior to that, Mr. Laszlo was Head of Equity Syndicate and Head of Media & Telecom Equity Capital Markets at Lehman Brothers International (Europe), during which time he was based in London, England.  In between his tenure at Lehman Brothers and Bank of America, Mr. Laszlo spent approximately one year as the Chief Operating Officer and Head of Business Development at Eagle Rock Capital Management, LLC, a New York-based multi-strategy hedge fund.  Mr. Laszlo has been involved in transactions totaling more than $20 billion of equity issuance over the course of his career. Mr. Laszlo serves on the Advisory Board of Falconhead Capital Management, a private equity firm based in New York City.  He also serves on the board of directors of Rita's Franchise Company, a leading franchise company focused on frozen treats.  Previously, Mr. Laszlo served on the board of directors of Radar Detection Holdings Corp. (or Escort Radar), a leading designer, manufacturer and distributor of highway radar and laser detectors.  Mr. Laszlo began his career as an attorney with Philadelphia, Pennsylvania-based Rawle & Henderson, the nation's oldest law firm.  We believe that Mr. Laszlo's professional background, including his extensive financial advisory and financing experience, make him well qualified to serve as a member of the Company's board of directors.
Lisa Wardell	2012	45	Ms. Wardell has served as a member of the Company's board of directors since October 2012. Ms. Wardell has served as executive vice president and chief operating officer of The RLJ Companies since August 2004. Ms. Wardell also previously served as the chief financial officer and secretary of RLJ Acquisition, Inc., from December 2010 until October 2012. Prior to joining The RLJ Companies, Ms. Wardell was a senior associate at Katalyst Venture Partners, a private equity firm, from September 2000 to January 2003. She serves as a member of the board of directors and the audit committee chair of DeVry, Inc. (NYSE: DV), a provider of educational services since November 2008, and a member of the Christopher & Banks Corporation (NYSE: CBK) board and the audit committee chair since 2011. Ms. Wardell currently also serves on the board of directors of Retirement Clearinghouse, LLC, and the RML Automotive, LLC.  We believe that Ms. Wardell's professional background, her leadership position at The RLJ Companies and her current and past board positions, make her well qualified to serve as a member of the Company's board of directors.
Scott Royster	2014	50	Mr. Royster has served as a member of the Company's board of directors since January 2014.  Mr. Royster is an entrepreneur and has co-founded two companies in the education sector – Latimer Education, Inc. (or Latimer) and Maarifa Edu Holdings Limited (or Maarifa).  Since September 2009 he has served as Chairman of Latimer and, since August 2014, as Chief Executive Officer of Maarifa.  Latimer, based in Washington, DC, is an education company serving the higher education needs of African-Americans in the USA, and Maarifa is an education company that acquires and operates private universities in Africa and is based in Nairobi, Kenya.  From November 2008 until the formation of Latimer, Mr. Royster was engaged in planning for the formation of Latimer and acted as a consultant to several companies. Mr. Royster served as Executive Vice President of Business Development and Chief Financial Officer of DigitalBridge Communications, an early-stage wireless technology company, from January 2008 to November 2008. From 2006 to 2008, Mr. Royster was a member of the board of directors for HRH, Inc. (NYSE: HRH), an insurance brokerage firm.  Between June 1996 to December 2007, Mr. Royster served as Executive Vice President and Chief Financial Officer of Radio One, Inc. (NASDAQ: ROIA and ROIAK), an owner/operator of major market radio stations and other media assets. We believe that Mr. Royster's general business and media background, including his financial experience, make him well qualified to serve as a member of the Company's board of directors.

49

Executive Officers

The following table sets forth the name, age and position of each of our executive officers as of April 30, 2015.

Name	Age	Position
Executive Officers
Miguel Penella	46	Chief Executive Officer
Andrew Wilson	46	Chief Financial Officer

Biographical information for Mr. Penella is set forth above under "Board Composition."

Mr. Wilson was appointed as the Company's Chief Financial Officer in May 2013.  Mr. Wilson was a private investor from January 2013 to May 2013. He served in executive positions with Discovery Communications, LLC, a media company with cable and free to air networks, from 2002 to December 2012.  He was CFO - Digital Distribution, Digital Media, Commerce & Education from March 2009 to December 2012 while also holding the role of SVP, Global Corporate Controller for the entire company from October 2009 to December 2012.  Mr. Wilson's prior roles included Senior Vice President and CFO - Commerce & Education from October 2007 to February 2009, Vice President and Controller - International Networks Division from December 2003 to October 2007 and was Vice President and Divisional Controller - Consumer Products Division from March 2002 to December 2003. Prior to joining Discovery Communications, he was Director, Corporate Accounting and Reporting for Host Marriott Corporation (now called Host Hotels) from 1997 to 2002. Previously Mr. Wilson held management positions with Crown Books, a bookstore retailer, and Price Waterhouse LLP.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act requires RLJE's directors, executive officers and the beneficial holders of more than 10% of a registered class of RLJE's equity securities to file initial reports of ownership and changes in ownership of Common Stock and other equity securities of RLJE with the Securities and Exchange Commission (or SEC).  Based solely on a review of copies of reports filed with the SEC and written representations by certain officers and directors, we believe that all of our officers, directors and stockholders subject to the reporting requirements of Section 16(a) filed all of their reports related to non-exempt transactions on a timely basis during the fiscal year ended December 31, 2014.  We also believe these persons filed all of their reports related to exempt transactions on a timely basis during the fiscal year ended December 31, 2014.

Code of Ethics and Governance Guidelines

We have a Code of Ethics and Business Conduct Policy that applies to all of our employees, including our principal executive officer and principal financial and accounting officer, and to our directors.  We have posted the Code of Ethics and Business Conduct Policy under the menu "Investors – Corporate Governance" on our website at www.rljentertainment.com.  If we waive any material portion of our Code of Ethics and Business Conduct Policy that applies to our principal executive officer or principal financial and accounting officer or amend the Code of Ethics and Business Conduct Policy (other than technical, administrative or other non-substantive amendments), we will disclose that fact on our website at www.rljentertainment.com within four business days.

Board Independence.

A discussion regarding Board independence is included in Item 13 below.

50

Committees of the Board

Audit Committee. The Company has an Audit Committee, and the committee held seven meetings during 2014. Our Audit Committee is comprised of Messrs. Edwards, Royster, and Laszlo (Chairman), with Mr. Sinclair as an observer. Effective January 22, 2014, Mr. Royster was added to the Audit Committee, and effective February 25, 2014, Mr. Goldfarb was removed from the Audit Committee. The Board has determined that Messers. Edwards, Royster, and Laszlo are independent as that term is used in NASDAQ Marketplace Rule 5605 and in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 and that Mr. Royster is an "audit committee financial expert," as that term is defined in Item 407(d)(5)(ii) of Regulation S-K.

Compensation Committee. The Company has a Compensation Committee, and the committee held two meetings during 2014.  Our Compensation Committee is comprised of Messrs. Brown (Chairman), Goldfarb, and Sinclair. The Board has determined that Messrs. Brown, Goldfarb, and Sinclair are independent as that term is used in NASDAQ Marketplace Rule 5605.

Nominations and Governance Committee.  The Company has a Nominations and Governance Committee, and the committee held one meeting during 2014.  Our Nominations and Governance Committee is comprised of Messrs. Edwards and Goldfarb and Ms. Wardell (Chairman).  Effective February 25, 2014, Mr. Goldfarb was appointed to the Nominations and Governance Committee in lieu of Mr. Sinclair.  The Board has determined that Messrs. Edwards and Goldfarb and Ms. Wardell are independent as that term is used in NASDAQ Marketplace Rule 5605.

51

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table for Fiscal Year 2014

The following table sets forth the compensation of those persons who served as our principal executive officer, principal financial officer and our other executive officers (collectively, the Named Executive Officers) for the fiscal year ended on December 31, 2014.

Name & Principal Position	Fiscal Year	Salary ($)		Bonus ($)		Stock Awards ($)(1)		Option Awards ($)		All Other Compensation ($)(2)		Total ($)
Miguel Penella,	2014	$	500,000		––	$	216,200		––	$	10,400	$	726,600
Chief Executive Officer	2013		472,756		––		691,420		––		10,200		1,174,376
Andrew Wilson,	2014		360,000		––		34,270		––		4,800		399,070
Chief Financial Officer	2013(3)		215,538		––		195,787		––		5,400		416,725

(1) Fiscal year 2014 includes restricted stock grants of 47,000 shares for Mr. Penella and 12,000 shares for Mr. Wilson, each vesting over approximately 13 months with the majority of shares subject to certain performance criteria.  The amounts shown represent the total grant date fair value of the grants computed in accordance with FASB ASC Topic 718.  During 2014, the performance criteria of closing the bank refinancing was met and 35,800 shares vested for Mr. Penella and 7,800 shares vested for Mr. Wilson.  The remaining time-based shares are expected to vest in 2015.

Fiscal year 2013 includes restricted stock grants of 128,756 shares for Mr. Penella and 52,631 shares for Mr. Wilson, each vesting over three years with 50% of the shares subject to certain performance criteria.  The amounts shown represent the total grant date fair value of the grants computed in accordance with FASB ASC Topic 718.  At the time of grant, it was not possible to predict with certainty the extent to which the performance criteria would be achieved or the extent to which the grants would ultimately be realized by the holders.  Subsequent to December 31, 2013, 25% of these shares granted to Mr. Penella and Mr. Wilson were forfeited based upon the failure to achieve the 2013 performance criteria.  During 2014, 25% of these shares vested on the first time-based vest dates.

(2) Fiscal year 2014 includes:

(i) For Mr. Penella, Company 401(k) match of $10,400.

(ii) For Mr. Wilson, Company 401(k) match of $4,800.

Fiscal year 2013 includes:

(i) For Mr. Penella, Company 401(k) match of $10,200.

(ii) For Mr. Wilson, Company 401(k) match of $5,400.

(3) Mr. Wilson was employed for part of 2013, beginning May 28, 2013.

Employment Agreements

We have entered into employment agreements with Messrs. Penella and Wilson.

Agreement with Mr. Penella

The agreement with Mr. Penella was effective as of July 18, 2013.  Certain terms of the agreement are summarized below.

Term.  Mr. Penella's agreement provides that he will serve the Company as an employee under the terms of the agreement until terminated.

52

Base Compensation.  The agreement provides for minimum annual base salary of $500,000, subject to any increase as determined by the Board.

Cash Bonus Opportunity.  Mr. Penella has an opportunity to earn an annual bonus, based on achieving certain corporate performance levels to be established by the Board. The annual bonus is set by the Board of Directors annually by March 31, and the annual bonus amount, subject to achieving the applicable performance levels, will not be less than $250,000. The annual bonus is subject to the Company achieving 97% of the earnings before income tax, depreciation, amortization, cash investment in content, interest expense, transaction and severance costs, warrants and stock-based compensation (or Adjusted EBITDA) or revenue targets proposed by management and approved and adopted by the Board, in its sole discretion.

Stock Grant.  Mr. Penella was awarded 128,756 shares of restricted stock, with 64,378 shares vesting on March 1, 2014, 32,189 shares vesting on January 1, 2015 and 32,189 shares vesting on January 1, 2016. One-half of the shares which otherwise vest on each of these dates are subject to an additional condition of the Company achieving 97% of the Adjusted EBITDA or revenue targets proposed by management and approved and adopted by the Board, in its sole discretion, for 2013, 2014 and 2015.  If these targets are not satisfied for the particular year, one-half of the shares that would otherwise vest will be forfeited.

Benefits.  Mr. Penella is entitled to certain insurance, fringe and leave benefits generally available to senior executives of the Company. The agreement requires Mr. Penella to protect the confidentiality of the Company's confidential information.  It further provides that for one year after termination he will not engage in any business which is substantially similar to the Company's business and that for two years after termination he will not seek to solicit or hire the Company's employees.

Severance Benefits.  The Company may terminate Mr. Penella's employment for cause, without cause or upon death or disability, and Mr. Penella may terminate his employment for good reason or without cause.  If Mr. Penella's employment is terminated by the Company without cause (other than upon death or disability) or Mr. Penella terminate his employment for good reason, he would be entitled to receive, for 12 months following termination (the "severance period"), his base salary as in effect immediately prior to termination and a pro rata annual bonus based upon the Company's performance for the year in which termination occurs, if 97% of the performance target levels are met.  In addition, his benefits would continue for the severance period. Under the agreement, "cause" includes (a) material dishonesty, theft, misrepresentation, deceit or fraud, (b) negligence or insubordination (subject to certain rights of cure), (c) conviction for, or plea of nolo contendere to, a charge or commission of a felony or (d) material breach of the confidentiality, non-competition or non-solicitation provisions of the agreement (subject to certain rights of cure) and "good reason" includes (a) material diminution of Mr. Penella's duties or responsibilities, (subject in either case to certain rights of cure), (b) a material breach by the Company of the agreement (subject to certain rights of cure) and (c) requiring Mr. Penella to relocate to an office on a regular basis that is more than 50 miles from the Company's current principal executive offices.

Agreement with Mr. Wilson

The agreement with Mr. Wilson was effective as of June 10, 2013.  Certain terms of the agreement are summarized below.

Term.  Mr. Wilson's agreements provides for a term of three years beginning on June 10, 2013, and subject to advance-notice termination provisions, shall automatically terminate unless renewed or extended pursuant to a separate written agreement executed by both parties.

Base Compensation.  The agreement provides for minimum annual base salary of $360,000, subject to any increase as determined by the Compensation Committee.

Cash Bonus Opportunity.  The agreement provides that Mr. Wilson has an opportunity to earn a bonus with respect to 2013, 2014 and 2015, based on achieving certain corporate and/or individual performance goals to be established by the Compensation Committee.  The annual bonus is set annually by March 31, and the annual bonus amount, subject to achieving the applicable performance levels, will not be less than $110,000.

53

Stock Grant.  Mr. Wilson was awarded 52,631 shares of restricted stock, vesting over a three-year period, with 23,316 shares vesting on the first anniversary of the agreement, 14,658 shares vesting on the second anniversary of the agreement and 14,657 shares vesting on the third anniversary of the agreement.  One-half of the shares which otherwise vest on each of the anniversaries is subject to an additional condition that the Company achieve certain Adjusted EBITDA or other financial targets established by management and approved by the Compensation Committee for the preceding fiscal year in which the shares would otherwise vest.  If these targets are not satisfied for the particular fiscal year, one-half of the shares that would otherwise vest will be forfeited.

Benefits.  Mr. Wilson is entitled to certain insurance, fringe and leave benefits generally available to senior executives of the Company. The agreement requires Mr. Wilson to protect the confidentiality of the Company's confidential information, and it further provides that for two years after termination he will not seek to solicit or hire the Company's employees.

Severance Benefits.  The Company may terminate Mr. Wilson's employment for cause, without cause or upon death or disability.  If Mr. Wilson's employment is terminated by the Company without cause (other than upon death or disability), he would be entitled to receive, for the lesser of six months or the remaining term under the agreement (the "severance period"), his base salary as in effect immediately prior to termination and a pro rata annual bonus based upon the Company's performance for the year in which termination occurs.  In addition, his benefits would continue for the severance period. Under the agreement, "cause" includes (a) dishonesty, theft, misrepresentation, deceit or fraud, (b) negligence, incompetence or insubordination (subject to certain rights of cure), (c) conviction for, or plea of nolo contendere to, a charge or commission of a felony, (d) breach of a material provision of the Company's employee handbook or (e) breach of the confidentiality or non-solicitation provisions of the agreement (subject to certain rights of cure).

Outstanding Equity Awards at Fiscal Year End 2014

The following table includes all outstanding equity awards at December 31, 2014.

Name

Option Awards

Stock Awards

Number of securities underlying unexercised options (#) exercisable

Number of securities underlying exercised options (#) unexercisable

Equity incentive plan awards: Number of securities underlying unexercised unearned options

Option exercise price ($)

Option exercise date

Number of shares or units of stock that have not vested (#)

Market value of shares or units of stock that have not vested ($)

Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)

Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(1)

Miguel Penella

––

––

––

––

––

––

––

75,578

$

150,400

Andrew Wilson

––

––

––

––

––

––

––

33,515

$

66,695

⁽¹⁾ The value of unearned shares is based upon the closing stock price at December 31, 2014 of $1.99 per share.

54

Director Compensation

The non-executive members of our board of directors, Peter Edwards, H. Van Sinclair, Tyrone Brown, Morris Goldfarb, Andor (Andy) M. Laszlo, Lisa Wardell and Scott Royster, receive an annual retainer of $50,000, paid quarterly.  In addition, the non-executive directors are reimbursed for reasonable travel expenses to attend Board or committee meetings.  Executive directors receive no additional compensation for their service as directors.

For fiscal year 2014, each of our non-executive directors was each granted a restricted stock award, valued at $50,000, for 14,306 shares of Common Stock, based upon the five-day trailing average closing stock price of $3.495.  The restricted stock awards were granted under our 2012 Incentive Compensation Plan on August 14, 2014 and vest 100% on the earlier of the one-year anniversary of the date of grant or the date of the Annual Meeting of Shareholders, provided the recipient continues to serve as a director.

Director Compensation Table for Fiscal Year 2014

The following table sets forth information regarding the compensation earned by our non-executive directors in fiscal year 2014:

Name	Fees Earned or Paid in Cash ($)(1)		Stock Awards ($)(2)		Option Awards ($)		All Other Compensation ($)		Total ($)
Tyrone Brown	$	50,000	$	49,928	$	––	$	––	$	99,928
Peter Edwards		50,000		49,928		––		––		99,928
Morris Goldfarb		50,000		49,928		––		––		99,928
Robert L. Johnson		249,999		––		––		––		249,999
Andor (Andy) M. Laszlo		50,000		49,928		––		––		99,928
Scott Royster(3)		50,000		78,117		––		––		128,117
H. Van Sinclair		50,000		49,928		––		––		99,928
Lisa Wardell		50,000		49,928		––		––		99,928

(1) For independent directors, represents retainer fee paid quarterly.  For Mr. Johnson, represents compensation for non-executive chairman services.

(2) Amount represents the grant date fair value for restricted stock awards granted during fiscal year 2014.  The per share grant date fair value of each of the restricted stock awards for 14,306 shares was $3.49.  As of fiscal year end 2014, these shares had not vested.

(3) Includes an additional restricted stock award granted when Mr. Royster joined the board of directors on January 22, 2014 for 5,638 shares, prorated for his services through the annual meeting of stockholders held in August 2014 when the shares vested.  The per-share, grant-date fair value of this award was $4.9999.

55

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of April 30, 2015, with respect to the beneficial ownership of shares of our Common Stock owned by (i) each person, who, to our knowledge based on Schedules 13D or 13G or other reports filed with the SEC, is the beneficial owner of more than 5% of our outstanding Common Stock, (ii) each person who is a director, (iii) each Named Executive Officer, and (iv) all of our directors and executive officers as a group.

Name of Beneficial Owner	Shares of Common Stock Beneficially Owned(1)		Percent of Common Stock(2)
RLJ SPAC Acquisition, LLC(3)		6,483,158		38.79	%
Robert L. Johnson (3)		6,483,158		38.79	%
Wexford Spectrum Investors (4)		2,773,523		19.51	%
JH Evergreen Management, LLC (5)		2,168,390		16.64	%
Peter Edwards (6)		1,329,337		9.84	%
Drawbridge Special Opportunities Fund LP (7)		1,000,000		7.20	%
Adage Capital Partners, L.P.(8)		859,750		6.20	%
Morris Goldfarb (9)		288,765		2.09	%
Miguel Penella (10)		199,612		1.54	%
H. Van Sinclair (11)		64,540		*
Andrew S. Wilson (12)		44,307		*
Lisa Wardell (11)		45,216		*
Tyrone Brown (11)		29,289		*
Andor (Andy) M. Laszlo (11)		31,289		*
Scott Royster (11)		19,944		*
All directors and executive officers as a group (10 persons)		8,535,457		46.35	%

*Less than 1%

Notes to Beneficial Ownership Table:

(1) Beneficial ownership is determined in accordance with SEC rules.  For the number of shares beneficially owned by those listed above, we rely on information confirmed by each beneficial owner.  Except as indicated by footnote below, each person named reportedly has sole voting and investment powers with respect to the Common Stock beneficially owned by that person, subject to applicable community property and similar laws.  Except as indicated by footnote below, each owner's mailing address is c/o RLJ Entertainment, Inc., 8515 Georgia Avenue, Suite 650, Silver Spring, Maryland 20910.

(2) On April 30, 2015, there were 12,895,772 shares of our Common Stock outstanding.  Common Stock not outstanding but which underlies options and warrants vested or exercisable as of, or vesting or exercisable within, 60 days after April 30, 2015, is deemed to be outstanding for the purpose of computing the percentage of the Common Stock beneficially owned by each named person or entity (and the directors and executive officers as a group), but is not deemed to be outstanding for any other purpose.

(3) The RLJ Companies, LLC is the sole manager and is the sole voting member of RLJ SPAC Acquisition, LLC.  Robert L. Johnson is the sole manager and the sole voting member of The RLJ Companies, LLC (collectively RLJ).  Mr. Johnson disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.  Includes 2,666,491 shares of the Common Stock and warrants to purchase 3,816,667 shares of the Common Stock.  The mailing address for RLJ is 3 Bethesda Metro Center, Suite 1000, Bethesda, Maryland 20814.  Excludes 15,000 shares of nonconvertible bridge preferred stock acquired on April 15, 2015.  Pursuant to the terms of the purchase agreement for the bridge preferred stock, if convertible preferred stock is issued to a third party within 60 days after the sale of the bridge preferred stock, concurrently with the closing on the sale of convertible preferred stock to such third party, Mr. Johnson is required to exchange his shares of bridge preferred stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for the bridge preferred stock and would receive the same rights and benefits as the other investors in the convertible preferred stock, including the issuance of warrants. If convertible preferred stock is not issued to a third party within 60 days after the sale of the bridge preferred stock, promptly following such date, Mr. Johnson would be required to exchange his shares of bridge preferred stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by Mr. Johnson pursuant to the terms of the last convertible preferred stock term sheet offered by the Company to a third party and would receive the same rights and benefits as set forth in such last term sheet, including the issuance of warrants. The conversion of such convertible preferred stock into, and the exercise of such warrants for, shares of the Company's common stock would be subject to the approval of the stockholders of the Company.

56

(4) Information presented regarding Wexford Spectrum Investors LLC (or WSI) is based solely on the information provided in the Form 4 filed on January 8, 2015, Schedule 13G/A filed on January 16, 2015, Schedule 13G/A filed on February 14, 2014, Form 3 filed on February 25, 2013, Schedule 13G/A filed on February 11, 2013, and Schedule 13G initially filed on October 12, 2012.  Wexford Capital LP (or Wexford Capital) may, by reason of its status as manager of WSI, be deemed to own beneficially the securities of which WSI possesses beneficial ownership. Wexford GP LLC (or Wexford GP) may, as the General Partner of Wexford Capital, be deemed to own beneficially the securities of which WSI possesses beneficial ownership. Each of Charles E. Davidson (or Davidson) and Joseph M. Jacobs (or Jacobs) may, by reason of his status as a controlling person of Wexford GP, be deemed to own beneficially the securities of which WSI possesses beneficial ownership. Each of Wexford Capital, Wexford GP, Davidson and Jacobs shares the power to vote and to dispose of the securities beneficially owned by WSI. Each of Wexford Capital, Wexford GP, Davidson and Jacobs disclaims beneficial ownership of the securities owned by WSI and this report shall not be deemed as an admission that they are the beneficial owners of such securities except, in the case of Davidson and Jacobs, to the extent of their respective interests in each member of WSI.  The mailing address for WSI and the other affiliate filers is 411 West Putnam Avenue, Suite 125, Greenwich, Connecticut 06830.

(5) Information presented regarding JH Evergreen Management, LLC (or JH Evergreen Management) is based solely on the Schedule 13G/A filed on February 13, 2015 and Schedule 13G initially filed on October 15, 2012.  The reporting persons include (i) JH Evergreen Management, a Delaware limited liability company; (ii) JH Partners Evergreen Fund, L.P., a Delaware limited partnership (or JH Evergreen); (iii) JH Investment Partners III, LP, A Delaware limited partnership (or JHIP III); (iv) JH Investment Partners GP Fund III, LLC, a Delaware limited liability company (or JHIP GP III); (v) Forrestal, LLC, a Delaware limited liability company (or Forrestal); and (vi) John C. Hansen.  The mailing address of JH Evergreen Management and the other affiliated filers is 451 Jackson Street, San Francisco, California 94111-1615.  Mr. Hansen disclaimed beneficial ownership of such shares except to the extent of his pecuniary interest therein.

(6) Includes 14,306 shares of the Common Stock subject to restricted stock awards held by Mr. Edwards, 707,506 shares of the Common Stock and warrants to purchase 607,525 shares of the Common Stock.

(7) Information presented regarding Drawbridge Special Opportunities Fund LP is based solely on the Schedule 13G filed on October 15, 2012 filed on behalf of (i) Drawbridge Special Opportunities Fund LP, a Delaware limited partnership, directly owns warrants to acquire shares of the Common stock as described herein; (ii) Drawbridge Special Opportunities GP LLC, a Delaware limited liability company, is the general partner of Drawbridge Special Opportunities Fund LP; (iii) Fortress Principal Investment Holdings IV LLC, a Delaware limited liability company, is the managing member of Drawbridge Special Opportunities GP LLC; (iv) Drawbridge Special Opportunities Advisors LLC, a Delaware limited liability company, is the investment manager of Drawbridge Special Opportunities Fund LP; (v) FIG LLC, a Delaware limited liability company, is the holder of all of the issued and outstanding interests of Drawbridge Special Opportunities Advisors LLC; (vi) Fortress Operating Entity I LP, a Delaware limited partnership, is the holder of all of the issued and outstanding interests of FIG LLC and Fortress Principal Investment Holdings IV LLC; (vii) FIG Corp., a Delaware corporation, is the general partner of Fortress Operating Entity I LP; and (viii) Fortress Investment Group LLC, a Delaware limited liability company, is the holder of all of the issued and outstanding shares of FIG Corp. The mailing address of Drawbridge Special Opportunities Fund LP and the other affiliated filers is c/o Fortress Investment Group LLC, 1345 Avenue of the Americas, 46th Floor, New York, New York 10105, Attention: Chief Compliance Officer.

(8) Information presented regarding Adage Capital Partners, L.P. is based solely on the Schedule 13G filed on February 17, 2015 filed on behalf of (i) Adage Capital Partners L.P., a Delaware limited partnership (or ACP) directly owns Common Stock; (ii) Adage Capital Partners GP, L.L.C., a Delaware limited liability company (or ACPGP), as general partner of ACP; (iii) Adage Capital Advisors, L.L.C., a Delaware limited liability company (or ACA), as managing member of ACPGP, general partner of ACP; (iv) Robert Atchinson, as managing member of ACA, managing member of ACPGP, general partner of ACP; and (v) Phillip Gross, as managing member of ACA, managing member of ACPGP, general partner of ACP.  The mailing address for ACP and the other affiliated filers is 200 Clarendon Street, 52^nd Floor, Boston, Massachusetts 02116.

(9) Includes 188,765 shares of the Common Stock, of which 14,306 shares of the Common Stock subject to restricted stock awards, and warrants to purchase 100,000 shares of the Common Stock.

57

(10) Includes 165,986 shares of the Common Stock, of which 48,283 are subject to restricted stock awards, and warrants to purchase 33,626 shares of the Common Stock.

(11) Includes 14,306 shares of the Common Stock subject to restricted stock awards.

(12) Includes 29,315 shares of the Common Stock subject to restricted stock awards.

58

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2014 with respect to our equity compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated by (i) all compensation plans previously approved by our security holders, and (ii) all compensation plans not previously approved by our security holders:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities referenced in the first column) (1)
Equity compensation plans approved by security holders		––	$	––		787,668
Equity compensation plans not approved by security holders:		––		––		––
Total		––	$	––		787,668

(1) Represents shares available for grant in the future under our 2012 Incentive Compensation Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Our policy on related-person transactions is included in our revised Code of Ethics and Business Conduct Policy, which has been reviewed and approved by the Board effective as of October 3, 2012.  Our policy states that each executive officer, director or nominee for director will disclose to the Audit Committee of the Board the following information regarding a related-person transaction for review, approval or ratification by the Audit Committee:  (i) the name of the related-person (as defined by Item 404(a) of Regulation S-K under the Securities Exchange Act), and if he or she is an immediate family member of an executive officer, director or nominee for director, the nature of such relationship; (ii) the related-person's interest in the transaction; (iii) the approximate dollar value of the amount involved in the transaction; (iv) the approximate dollar value of the amount of the related-person's interest in the transaction; and (v) in the case of indebtedness, the largest total amount of principal outstanding since the beginning of our last fiscal year, the amount of principal outstanding as of the latest practicable date, the amount of principal paid since the beginning of our last fiscal year, and the rate or amount of interest payable on the indebtedness.

The Audit Committee's decision whether or not to approve or ratify the related-person transaction is made in light of its determination as to whether consummation of the transaction is believed by the Audit Committee to not be or have been contrary to our best interests.  The Audit Committee may take into account the effect of a director's related-person transaction on such person's status as an independent member of our Board and eligibility to serve on Board committees under SEC and stock exchange rules, as applicable.

On October 3, 2012, in connection with the consummation of the Business Combination, the Company, RLJ Acquisition, Inc., JH Partners Evergreen Fund, L.P. (or JH Evergreen), JH Investment Partners III, LP (or JHIP III), JH Investment Partners GP Fund III, LLC (or JHIP GP III, and collectively the JH Parties), Drawbridge Special Opportunities Fund, LP, Miguel Penella, certain shareholders of Acorn, Peter Edwards as the Acorn Representative, RLJ SPAC Acquisition, LLC, William S. Cohen, Morris Goldfarb, and, as amended to add Wexford Spectrum Investors LLC, entered into an amended and restated registration rights agreement (the Registration Rights Agreement), pursuant to which the Company has agreed to register certain of its securities held by the stockholders who are a party to the Registration Rights Agreement under the Securities Act of 1933, as amended (the Securities Act). Such stockholders are entitled under such agreement to make up to three demands, excluding short form registration demands, that the Company register certain of its securities held by them for sale under the Securities Act. In addition, such stockholders have the right to include their securities in other registration statements filed by the Company.

59

Upon consummation of the Business Combination, we issued unsecured subordinated promissory notes in the aggregate principal amount of $14.8 million to the selling preferred stockholders of Image, which included the JH Parties, and Messrs. Green, Avagliano and Hyde, who were former executive officers of the Company.  The unsecured subordinated notes bear interest at 12% per annum, of which 5.4% is payable in cash annually, and at our discretion the balance is either paid through the issuance of shares of our Common Stock valued at their then-current market price, or accrues and is added to principal, which is payable upon maturity. The subordinated notes mature on October 3, 2018 or six months after the latest stated maturity of the senior debt issued pursuant to the Credit Facility.  In May 2014, $1,805,000 interest was due on the promissory notes, of which $992,000 was added to principal and the balance was paid in cash. At December 31, 2014, our principal balance due pursuant to these notes was $16.0 million.

On April 15, 2015, the unsecured promissory notes were amended as follows:

(a) an agreement by the Subordinated Note Holders to convert 50% of the outstanding balance under the subordinated notes into the convertible preferred stock with rights and preferences equal to those of the Bridge Preferred Stock;

(b) amendments to the subordinated notes (i) changing the interest rate payable from 12% to 1.5% per annum for the 24-month period commencing on January 1, 2015, and then 12% per annum thereafter; and (ii) specifying that 45% of the interest due will be payable in cash and the remainder of the accrued interest will be payable in the form of additional subordinated notes; and

(c) a waiver of any existing defaults and events of default.

The RLJ Companies, LLC

On June 27, 2013, The RLJ Companies, LLC (whose sole manager and voting member is the Chairman of our board of directors) purchased from one of our vendors $3.5 million of contract obligations that we owed to the vendor.  These obligation were payable by us to the vendor through September 5, 2013.  Pursuant to the purchase, The RLJ Companies, LLC has become the account creditor with respect to these accounts, but the accounts were not otherwise modified, and the vendor continues to be the account creditor with respect to other outstanding accounts payable by us after September 5, 2013.  These purchased liabilities are included in accrued royalties and distribution fees in our consolidated balance sheets.

RLJ SPAC Acquisition, LLC

Mr. Robert L. Johnson through his company, RLJ SPAC Acquisition, LLC, has entered into a plan to purchase up to $2.0 million market value of our outstanding Common Stock from time to time over a 24 month period that began on June 19, 2013. Any purchases under the plan will be at the discretion of Lazard Capital Markets LLC in the open market or in privately negotiated transactions in compliance with applicable laws and regulations.  All $2.0 million of Common Stock may not be purchased during the twenty-four month period.  The Plan may be terminated by Mr. Johnson at any time.  During 2014 and 2013, RLJ SPAC Acquisition LLC purchased 128,665 and 232,531 shares of Common Stock, respectively.

Director Independence

Our Board reviewed the NASDAQ independence standards with regard to our directors, including whether specified transactions or relationships existed during the past three years, between our directors, or certain family members or affiliates of our directors, and RLJE, any of its subsidiaries, certain other affiliates, or our independent registered public accounting firm.  As a result of the review, our Board determined that Messrs. Edwards, Sinclair, Brown, Goldfarb, Laszlo, and Royster and Ms. Wardell are "independent" as that term is used in NASDAQ Marketplace Rule 5605.  We do not know of any family relationships among or between any of our directors, executive officers, or key employees.  With regard to the independence of our directors regarding committee independence, see Board of Directors and Corporate Governance – Committees of the Board above.

60

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table summarizes the aggregate fees billed for professional services provided by KPMG LLP related to the fiscal year ended December 31, 2014 and provided by BDO USA, LLP related to the fiscal years ended December 31, 2014 and 2013.

	2014-KPMG		2013-BDO
Audit Fees	$	450,000	$	577,000
Audit-Related Fees		––		––
Tax Fees		125,000		11,000
All Other Fees		––		––
Total Fees	$	575,000	$	588,000

Audit Fees.  Audit fees consisted of fees billed for professional services rendered for: (i) the audit of our consolidated financial statements; (ii) the review of interim consolidated financial statements for our quarterly filings; and (iii) any services that are normally provided by our principal accountant in connection with statutory and regulatory filings or engagements.
 

Audit-Related Fees.There were no audit-related fees during the fiscal years ended December 31, 2014 and 2013.

Tax Fees.KPMG LLP provided tax advice and compliance services but did not provide tax planning for us in fiscal year ended December 31, 2014.  BDO USA, LLP provided tax advice and compliance services but did not provide tax planning for us in fiscal years ended December 31, 2014 and 2013.

All Other Fees. There were no other fees during the fiscal years ended December 31, 2014 and 2013.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

Our Audit Committee's policy is to pre-approve the audit and non-audit services provided by the independent registered public accounting firm, in order to assure that the provision of such services does not impair the auditor's independence.  As provided in our Audit Committee Charter, our Audit Committee believes that the combination of general pre-approval of certain types of audit services (e.g., quarterly reviews, annual audit and review of certain other documents filed with the SEC) and specific pre-approval of other services results in an effective and efficient procedure to pre-approve services performed by the independent registered public accounting firm.  Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, it will require specific pre-approval by the Audit Committee.  In determining whether to grant general or specific pre-approval, our Audit Committee will consider whether such services are consistent with the applicable rules and regulations on auditor independence.  The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period.  Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. With respect to each proposed pre-approved service, the independent registered public accounting firm is required to provide to the Audit Committee detailed back-up documentation regarding the specific services to be provided.

All of the fees paid to KPMG LLP in fiscal 2014 and BDO USA, LLP in fiscal 2014 and 2013 were pre-approved by the Audit Committee.  Our Audit Committee also considered whether the provision of services other than those described above under the heading of "Audit Fees" were compatible with maintaining the independence of KPMG LLP and BDO USA, LLP.

61

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS

(a)	The following documents are filed as a part of this report:		Page
	1.	Financial Statements.
		Reports of Independent Registered Public Accounting Firms	[5]
		Consolidated Balance Sheets as of December 31, 2014 and 2013	[7]
		Consolidated Statements of Operations for the years ended December 31, 2014 and 2013	[8]
		Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014 and 2013	[9]
		Consolidated Statements of Equity for the years ended December 31, 2014 and 2013	[10]
		Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013	[11]

(b)	Exhibits.
2.1		Agreement and Plan of Merger, dated as of April 1, 2012, by and between RLJ Acquisition, Inc. and Image Entertainment, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
2.2		Stock Purchase Agreement, dated as of April 2, 2012, by and among RLJ Acquisition, Inc., Acorn Media Group, Inc., the Shareholders of Acorn Media Group, Inc. and Peter Edwards, as the Shareholder Representative (incorporated by reference to Exhibit 2.2 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
2.3		Amendment No. 1 to Stock Purchase Agreement, dated as of October 3, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., Acorn Media Group, Inc., the shareholders of Acorn Media Group, Inc. listed on attached Exhibit A, and Peter Edwards, as the Shareholder Representative (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
3.1		Amended and Restated Articles of Incorporation of RLJ Entertainment, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
3.2		Form of Bylaws of RLJ Entertainment, Inc. (incorporated by reference to Exhibit 3.2 to Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
4.1		Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
4.2		Specimen Warrant certificate (incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
4.3		Amended and Restated Warrant Agreement, dated as of February 1, 2015, by and between RLJ Entertainment, Inc., Computershare Inc. and Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K (File No. 001-35675) filed on May 8, 2015).
10.1		Preferred Stock Purchase Agreement, dated as of April 1, 2012, by and between RLJ Acquisition, Inc. and the holders of the Series B Preferred Stock of Image Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).

62

10.2	Amendment No. 1 to Preferred Stock Purchase Agreement, dated as of October 3, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., and the holders of the Preferred Stock of Image Entertainment, Inc. listed on Schedule A to the Preferred Stock Purchase Agreement, dated as of April 2, 2012, by and between RLJ Acquisition, Inc. and the holders of Series B Preferred Stock of Image Entertainment, Inc. (incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.3	Joinder Agreement, dated as of April 10, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., Image Entertainment, Inc., Acorn Media Group, Inc., and Peter Edwards as the Shareholder Representative (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
10.4	RLE Entertainment, Inc. 2012 Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
10.5	Credit Agreement, dated as of October 3, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., RLJ Merger Sub I, Inc., RLJ Merger Sub II, Inc., Acorn Media Group, Inc., and Image Entertainment, Inc., as the Borrowers, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and SunTrust Bank, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.6	First Amendment to and Waiver Under Credit Agreement, dated as of June 28, 2013, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., for itself and as successor by merger with RLJ Merger Sub I, Inc., Acorn Media Group, Inc., Image Entertainment, Inc., for itself and as successor by merger with RLJ Merger Sub II, Inc., each of the Persons party to the Credit Agreement as Guarantors, the Lenders party hereto, and SunTrust Bank, as the Administrative Agent (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.7	Second Amendment to and Waiver Under Credit Agreement, dated as of November 6, 2013, by and among RLJ Entertainment, Inc. RLJ Acquisition, Inc. for itself and as successor by merger with RLJ Merger Sub I, Inc., Acorn Media Group, Inc. Image Entertainment, Inc., for itself and as successor by merger with RLJ Merger Sub II, Inc., each of the Persons party to the Credit Agreement as Guarantors, the Lenders party hereto, and SunTrust Bank, as the Administrative Agent (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K (File No. 001-35675) filed on March 19, 2014).
10.8	Third Amendment to and Waiver Under Credit Agreement, dated as of December 6, 2013, by and among RLJ Entertainment, Inc. RLJ Acquisition, Inc. for itself and as successor by merger with RLJ Merger Sub I, Inc., Acorn Media Group, Inc. Image Entertainment, Inc., for itself and as successor by merger with RLJ Merger Sub II, Inc., each of the Persons party to the Credit Agreement as Guarantors, the Lenders party hereto, and SunTrust Bank, as the Administrative Agent (incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K (File No. 001-35675) filed on March 19, 2014).
10.9	Pledge and Security Agreement, dated as of October 3, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., RLJ Merger Sub I, Inc., RLJ Merger Sub II, Inc., Acorn Media Group, Inc., Image Entertainment, Inc., Image/Madacy Home Entertainment, LLC, and SunTrust Bank , as administrative agent on behalf of the Secured Parties (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.10	Amended and Restated Registration Rights Agreement, dated as of October 3, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., JH Partners, LLC, JH Partners Evergreen Fund, LP, JH Investment Partners III, LP, JH Investment Partners GP Fund III, LLC, the shareholders of Acorn Media Group, Inc., Peter Edwards, as the Acorn Representative, RLJ SPAC Acquisition, LLC, William S. Cohen and Morris Goldfarb (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).

63

10.11	First Amendment to Amended and Restated Registration Rights Agreement, dated as of June 27, 2013, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., RLJ SPAC Acquisition, LLC, JH Partners, LLC, JH Partners Evergreen Fund, L.P., JH Investment Partners III, L.P., JH Investment Partners GP Fund III, LLC, and Wexford Spectrum Investors, LLC (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.12	Form of Indemnity Agreement, by and between RLJ Entertainment and each Indemnitee (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.13	Assignment, Assumption and Amendment Agreement, dated as of October 3, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.14	Form of Unsecured Subordinated Promissory Note (incorporated by reference to Exhibit 10.6 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.15	Consulting Agreement, dated as of September 18, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., and Wexford Spectrum Investors LLC (incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.16†	Separation Agreement, dated as of February 22, 2013, by and between Ted Green, Image Entertainment, Inc. and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on May 15, 2013).
10.17†	Separation Agreement, dated as of May 24, 2013, by and between John Avagliano, Image Entertainment, Inc. and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.18†	Employment Agreement, dated as of June 10, 2013, by and between Drew Wilson and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.19†	Employment Agreement, dated as of July 18, 2013, by and between Miguel Penella and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on November 7, 2013).
10.20†	Separation Agreement, dated as of April 23, 2013, by and between John Hyde, Image Entertainment, Inc. and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.21	Credit and Guaranty Agreement, dated as of September 11, 2014, by and among RLJ Entertainment, Inc., as Parent Borrower, and Subsidiaries of Parent Borrower, as Guarantors, the Lenders party hereto from time to time, McLarty Capital Partners SBIC, L.P., as Administrative Agent, Collateral Agent, Arranger, Bookmanager, and Syndication Agent, and Crystal Financial LLC as Documentation Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-35675) filed on November 7, 2014).
14.1	Code of Ethics (incorporated by reference to Exhibit 14.1 to the Registrant's Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).

64

21.1	Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant's Annual Report on Form 10-K (File No. 001-35675) filed on May 8, 2015).
23.1*	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
23.2*	Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1*	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.
99.1	Agatha Christie Limited Audited Consolidated Financial Statements for the period ended December 31, 2013 and 2012 (incorporated by reference to Exhibit 99.4 to the Registrant's Annual Report on Form 10-K (File No. 001-35675) filed on March 19, 2014).
99.2	Agatha Christie Limited Audited Consolidated Financial Statements for the period ended December 31, 2014 (incorporated by reference to Exhibit 99.2 to the Registrant's Annual Report on Form 10-K (File No. 001-35675) filed on May 8, 2015).
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

† Management contract or compensatory plan or arrangement.

65

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 ENTERTAINMENT, INC.
	A Nevada corporation
Dated:  May 14, 2015	/s/ MIGUEL PENELLA
	MIGUEL PENELLA
	Chief Executive Officer
	(Principal Executive Officer)
Dated:  May 14, 2015	/s/ ANDREW S. WILSON
	ANDREW S. WILSON
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

66