NovelStem International Corp. - Annual Report: 2007 (Form 10-K)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-14332
HOLLYWOOD MEDIA CORP.
(Exact name of registrant issuer as specified in its charter)
| Florida | 65-0385686 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 2255 Glades Road, Suite 221A | ||
| Boca Raton, Florida | 33431 | |
| (Address of principal executive offices) | (Zip Code) |
(561) 998-8000
(Registrant’s telephone number)
Securities registered under Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common stock, par value $.01 per share | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Common stock, par value $.01 per share
(Title of Class)
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K
is not contained therein, and will not be contained, to the best of 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. o
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 o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.).
Yes o No þ
The aggregate market value of the registrant’s common stock, $.01 par value, held by non-affiliates
as of June 30, 2007, computed by reference to the last sale
price of the common stock on June 30, 2007 as reported by
Nasdaq, was $141,801,680, as calculated under the following assumptions. For
purposes of this computation, all executive officers, directors, and beneficial owners of 10% or
more of the registrant’s common stock known to the registrant, have been deemed to be affiliates,
but such calculation should not be deemed to be an admission that such directors, officers or
beneficial owners are, in fact, affiliates of the registrant.
As of
March 13, 2008, there were 31,994,553 shares of the registrant’s common stock, $.01 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Part III of this Form 10-K incorporates by reference certain
information from the registrant’s definitive Proxy Statement for its 2008 Annual Meeting of
Shareholders filed or to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934.
Table of Contents
HOLLYWOOD MEDIA CORP.
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 2007
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 2007
Table of Contents
| Page No. | ||
| iii | ||
| 1 | ||
| 6-15 | ||
| 15 | ||
| 15 | ||
| 15 | ||
| 15-16 | ||
| 17-19 | ||
| 20-22 | ||
| 22-35 | ||
| 35-36 | ||
| 37-83 | ||
| 84 | ||
| 84-88 | ||
| 89 | ||
| 90 | ||
| 90 |
i
Table of Contents
ii
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K or that are otherwise made by us or on our behalf about
our financial condition, results of operations and business constitute “forward-looking
statements,” within the meaning of federal securities laws. Hollywood Media Corp. (“Hollywood
Media”) cautions readers that certain important factors may affect Hollywood Media’s actual
results, levels of activity, performance or achievements and could cause our actual results, levels
of activity, performance or achievements to differ materially from any future results, levels of
activity, performance or achievements anticipated, expressed or implied by any forward-looking
statements that may be deemed to have been made in this Form 10-K or that are otherwise made by or
on behalf of Hollywood Media. For this purpose, any statements contained in this Form 10-K that are
not statements of historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, “forward-looking statements” are typically phrased using words
such as “may,” “will,” “should,” “expect,” “plans,” “believe,” “anticipate,” “intend,” “could,”
“estimate,” “pro forma” or “continue” or the negative variations thereof or similar expressions or
comparable terminology. Factors that may affect Hollywood Media’s results and the market price of
our common stock include, but are not limited to:
| • | our continuing operating losses, | ||
| • | negative cash flows and accumulated deficit, | ||
| • | the need to manage our growth, | ||
| • | our ability to develop and maintain strategic relationships, | ||
| • | our ability to compete with other media and Internet companies and other competitors, | ||
| • | our ability to maintain and obtain sufficient capital to finance our growth and operations, | ||
| • | our ability to realize anticipated revenues and cost efficiencies, | ||
| • | technology risks and risks of doing business over the Internet, | ||
| • | government regulation, | ||
| • | adverse economic factors such as recession, war, terrorism, international incidents or labor strikes and disputes, | ||
| • | our ability to achieve and maintain effective internal controls, | ||
| • | dependence on our founders, and our ability to recruit and retain key personnel, and | ||
| • | the volatility of our stock price. |
Hollywood Media is also subject to other risks detailed herein, including those risk factors
discussed in “Item 1A — Risk Factors” below, as well as those discussed elsewhere in this Form 10-K
or detailed from time to time in Hollywood Media’s filings with the Securities and Exchange
Commission.
Because these forward-looking statements are subject to risks and uncertainties, we caution
you not to place undue reliance on these statements, which speak only as of the date of this Form
10-K. We do not undertake any responsibility to review or confirm analysts’ expectations or
estimates or to release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this Form 10-K. As a result of the
foregoing and other factors, no assurance can be given as to the future results, levels of activity
or achievements and neither we nor any other person assumes responsibility for the accuracy and
completeness of such statements.
iii
Table of Contents
PART I
Item 1. Business.
Hollywood Media is a provider of information, news and other content, and ticketing to
consumers and businesses covering the entertainment, Internet and media industries. We own and
operate a number of business units focused on the entertainment and media industries. Hollywood
Media derives a diverse stream of revenues from this array of business units, including revenue
from Broadway, Off-Broadway and London’s West End ticket sales to both individuals and groups,
advertising, and book development license fees and royalties. Our Broadway Ticketing business
includes Broadway.com, 1-800-Broadway, Theatre Direct and Theatre.com. Hollywood Media’s
businesses also include an intellectual property business, Hollywood.com, the U.K. based
CinemasOnline companies and a minority interest in MovieTickets.com. In addition, Hollywood Media
owns and operates the free “video-on-demand” (“VOD”) cable television network, Hollywood.com
Television.
Major Business Divisions of Hollywood Media. The following summary descriptions of our major
business divisions are followed by more detailed descriptions of such businesses.
Broadway Ticketing Division.
Hollywood Media’s Broadway Ticketing Division is comprised of Broadway.com, 1-800-BROADWAY,
Theatre Direct International (“TDI”) and Theatre.com (collectively called “Broadway Ticketing”).
Broadway tickets are sold online through our Broadway.com website and by telephone through our
1-800-BROADWAY number. The Broadway Ticketing Division is also a live theater ticketing seller
that provides groups and individuals with access to theater tickets and knowledgeable service,
covering shows on Broadway, Off-Broadway and, through a partnership arrangement between Theatre.com
and an unrelated London-based ticket agency, in London’s West End theater district. Broadway.com
features include shows’ opening night video and photo coverage, show reviews, celebrity interviews
and theater columns, as well as show information pages, including casting, synopses and venue
information.
Ad Sales Division.
Hollywood Media’s Ad Sales Division includes Hollywood.com and the U.K. based CinemasOnline
Limited, UK Theatres Online Limited, WWW.CO.UK Limited and Spring Leisure Limited (collectively
known as “CinemasOnline”). Hollywood.com, a premier online entertainment destination, generates
revenue by selling advertising on its website, and commissions received for advertising sold by the
Hollywood.com ad sales team on MovieTickets.com. Hollywood.com features in-depth movie
information, including movie previews, descriptions and reviews, movie showtimes listings,
entertainment news, celebrity fan sites, celebrity photo galleries and an extensive multimedia
library. Hollywood.com’s features also include audio podcasts and blogging. CinemasOnline
maintains websites for cinemas and live theaters in the U.K. in exchange for the right to sell
advertising on such websites. CinemasOnline also provides other marketing services, including
advertising sales on plasma screens placed in various venues throughout the U.K. and Ireland, such
as hotels, car dealerships and cinemas.
Cable TV.
Hollywood Media’s Cable TV Division includes Hollywood.com Television (“HTV”) and Broadway.com
Television (“BTV”) which are free VOD channels that offer interactive entertainment and information
with on-demand video content, previews, reviews, behind the scenes footage, interviews and coverage
of entertainment industry events to cable company subscribers. HTV is carried on certain cable TV
systems including Cablevision Systems, Cox Communications, Comcast, Insight Communications,
Mediacom, Charter and Bresnan. BTV is distributed by Cablevision on its New York area systems.
1
Table of Contents
Intellectual Properties Business.
Our Intellectual Properties Division includes a book development and book licensing business
owned and operated by our 51% owned subsidiary, Tekno Books, which develops and executes book
projects, frequently with best-selling authors. Tekno Books has worked with over 60 New York Times
best-selling authors, including Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan
Kellerman, Dean Koontz, Robert Ludlum, Nora Roberts and Scott Turow. Hollywood Media is also a 50%
partner in NetCo Partners, a partnership that owns Tom Clancy’s NetForce. Hollywood Media also
owns directly additional intellectual property created for it by various best-selling authors such
as Mickey Spillane, Anne McCaffrey and others.
MovieTickets.com, Inc.
MovieTickets.com, Inc. is one of the two leading destinations for the purchase of movie
tickets through the Internet. MovieTickets.com is an online ticketing service owned by a joint
venture formed by Hollywood Media and several major movie exhibitor chains. Hollywood Media
currently owns 26.2% of the equity of MovieTickets.com, Inc.
Other Business and Financial Information. The following portions of this Business section of
this Form 10-K contain more detailed information about our various business units, and “Item 1A –
Risk Factors” below contains discussions of various related risks. Additional financial and other
important information about Hollywood Media and our businesses is also contained elsewhere in this
Form 10-K, including without limitation, the following portions of this Form 10-K: Item 7 –
Management’s Discussion and Analysis of Financial Condition and Results of Operations; and Item 8 –
Financial Statements and Supplementary Data (including the Notes to Consolidated Financial
Statements contained therein).
SEC Reports Available on Internet. Hollywood Media makes available free of charge through its
internet website, www.hollywood.com, its annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably
practicable after such material is electronically filed with the Securities and Exchange Commission
(SEC). Such materials are available on the “investor relations” section of the website under the
caption “Company SEC Filings” (this is a link to the Company’s “Real-Time SEC Filings” as provided
by Nasdaq on Nasdaq’s website at www.nasdaq.com). Hollywood Media is a reporting company under the
Securities Exchange Act of 1934, as amended, and files reports and other information with the SEC.
Our public electronic filings with the SEC (including the above-referenced filings) are available
at the SEC’s internet website (www.sec.gov). Hollywood Media’s Internet website and any other
website mentioned in this Form 10-K, and the information contained or incorporated therein, are not
intended to be incorporated into this Form 10-K.
Broadway Ticketing Division
Broadway Ticketing: Broadway.com, 1-800-BROADWAY, Theatre Direct International (“TDI”), and
Theatre.com (collectively called “Broadway Ticketing”).
Broadway.com and 1-800-BROADWAY. We launched the Broadway.com website on May 1, 2000.
Broadway.com offers the ability to purchase Broadway, off-Broadway and, through a partnership
arrangement between Theatre.com and an unrelated London-based ticket agency, London’s West End
theater tickets online. In addition, the site provides a wide variety of editorial content about
the theater business, feature stories, opening nights, star profiles, photo opportunities, and a
critical roundup of reviews. Our 1-800-BROADWAY toll-free number features the ability to purchase
Broadway, off-Broadway and London’s West End theater tickets over the phone and complements the
online ticketing and information services available through Broadway.com.
2
Table of Contents
TDI. We acquired TDI as of September 15, 2000. Founded in 1991, TDI is a live theater
ticketing wholesaler that provides groups and individuals with access to theater tickets and
knowledgeable service, covering shows on Broadway, off-Broadway and, through a partnership
arrangement between Theatre.com and an unrelated London-based ticket agency, in London’s West End.
TDI sells tickets directly to group buyers including travel agents and tour groups. On February 1,
2007, TDI acquired the ticketing business of New York-based Showtix LLC (“Showtix”), an established
group ticketing sales agency for Broadway and Off-Broadway performances, providing TDI with an
increased customer base and customer services for group ticketing. TDI also manages a marketing
cooperative that represents participating Broadway shows to the travel industry around the world.
Recent Broadway shows marketed by this cooperative include A Chorus Line, A Tale of Two Cities,
Avenue Q, Beauty and the Beast, Chicago, Curtains, Hairspray, Jersey Boys, Rent, Spamalot, Tarzan,
The Color Purple, The Drowsy Chaperone, The Lion King, The Phantom of the Opera, The Pirate Queen
and The Producers. In addition, TDI’s education division, Broadway Classroom, markets group tickets
and educational programs to schools across the country.
The combined Broadway Ticketing business provides theater ticketing and related content for
over 100 venues in multiple markets to consumers and over 20,000 travel agencies, tour operators,
corporations, educational institutions and affiliated websites. Our Broadway Ticketing division
employs a knowledgeable sales force that offers ticket buyers a concierge-style service that
includes show recommendations, hotel packages with luxury hotels and dinner choices at fine
restaurants. We obtain the tickets we sell through our arrangements with theatre box offices and we
maintain our own inventory of tickets for sale.
Theatre.com. We launched our U.K.-based Theatre.com in December 2005 with editorial coverage
of London’s West End theatre and began selling ticketing to major London venues in February 2006,
based upon a similar model to selling tickets on Broadway.com. Beginning in late September 2007,
sales for events in London’s West End are fulfilled through a partnership arrangement between
Theatre.com and an unrelated London-based ticket agency.
Ad Sales Division
Hollywood.com. Hollywood.com is an online entertainment destination and movie information
website. Hollywood.com generates revenue by selling advertising on its website and through
commissions received for advertising sold by the Hollywood.com ad sales team on MovieTickets.com.
Hollywood.com features in-depth movie information, including movie previews, descriptions and
reviews, movie showtimes listings, entertainment news, celebrity fan sites, feature articles about
films, television shows and celebrities, local event coverage and an extensive multimedia library
containing celebrity interviews, premier coverage, film related events, celebrity parties and
behind-the-scenes footage. Hollywood.com’s features also include audio podcasts and blogging.
Some of the advertisers who have advertised on Hollywood.com include Walt Disney Studios, New Line
Cinema, Paramount Studios, Sony Studios, Microsoft, Pepsi, Diet Coke, General Motors, AMEX, HBO,
A&E, US Army, Chase, Honda, Mazda, Fox, Warner Bros., Verizon and Circuit City.
Hollywood.com has further established its presence in the wireless area. Through agreements
with wireless carriers (Cingular, Sprint, and Verizon), Hollywood.com provides a movie and
entertainment destination on a variety of mobile phones.
CinemasOnline. In November 2005, we acquired CinemasOnline, a group of companies based in the
U.K., and we are proceeding with our plans for development and growth of this business.
CinemasOnline’s business involves developing and maintaining websites for cinemas and live theater
venues in the U.K. and Ireland. These services are provided in exchange for CinemasOnline retaining
the right to sell advertising on the websites. CinemasOnline currently operates websites for
approximately 250 cinemas with approximately 850 screens in the U.K. and Ireland. CinemasOnline
also has over 200 agreements with cinemas, live theater and other entertainment venues in the U.K.
to sell advertising on lobby display posters, movie brochure booklets and ticket wallets in these
venues, and agreements with over 110 venues to maintain plasma screens in the venues which display
advertising sold by CinemasOnline, including hotels, car dealerships, cinemas and live theaters.
3
Table of Contents
Cable TV
We launched two interactive digital cable television channels in 2002: “Hollywood.com
Television” (formerly called Totally Hollywood TV) and “Broadway.com Television” (formerly called
Totally Broadway TV), to further leverage our content. Both cable TV channels utilize existing
Hollywood Media content derived from Hollywood Media’s existing business units which provide
relevant video, news and information to the channels. Hollywood.com Television and Broadway.com
Television offer audiences interactive entertainment and information, with on-demand video content
including premieres, previews, reviews, behind-the-scenes footage, interviews and coverage of
celebrity-packed entertainment industry events. Each of these channels is free to subscribers and
are included among the channels provided to digital cable subscribers by the distributing cable TV
system operators in markets which have launched video-on-demand service. Our Cable TV division
derives revenue from advertising sales.
Hollywood.com Television has obtained distribution of its network in many cities across the
United States on various cable TV systems of Comcast Cable, Cablevision Systems, Charter
Communications, Cox Communications, Insight Communications, Mediacom Communications, Bresnan
Communications, Verizon and several smaller cable operators, benefiting from a cable TV industry
roll-out of VOD technology. The distribution of Hollywood.com Television has grown to approximately
21 million VOD-capable homes as of December 31, 2007, from approximately 19 million homes as of
December 31, 2006. Hollywood.com Television completed its first commercial ad campaign in late
2005, and a broader ad sales initiative has commenced. Broadway.com Television is distributed on
systems of Cablevision Systems in the New York market in approximately 2 million VOD-capable homes.
Intellectual Properties Business
Book Development and Book Licensing. Our Intellectual Properties division includes a book
development and book licensing business owned and operated by our 51% owned subsidiary, Tekno
Books, which develops and executes book projects, frequently with best-selling authors. Tekno Books
has worked with more than 60 New York Times best-selling authors, including Isaac Asimov, Tom
Clancy, Tony Hillerman, John Jakes, Jonathan Kellerman, Dean Koontz, Robert Ludlum, Nora Roberts
and Scott Turow, and numerous media celebrities, including Louis Rukeyser and Leonard Nimoy. Our
intellectual properties division has licensed books for publication with more than 80 domestic book
publishers, including Random House (Bertelsmann), Penguin Publishing Group (Pearson), Simon &
Schuster (Viacom), HarperCollins (News Corp.), St. Martin’s Press (Holtzbrink of Germany), Warner
Books (Time Warner), and the publishing division of Barnes & Noble. Tekno Books has also produced
numerous books under license from such entertainment companies as Universal Studios, New Line
Cinema, CBS Television, DC Comics (Time Warner), and MGM Studios. Since 1980, Tekno Books has
developed over 2,080 books that have been published. Another 3,800 foreign, audio, paperback,
electronic, and other editions of these books have been sold to hundreds of publishers around the
world, and published in 33 languages. Tekno’s books have been finalists for, or winners of, more
than 200 awards, including The Edgar Allan Poe Award, The Agatha Christie Award (Mystery), The Hugo
Award (Science Fiction), The Nebula Award (Fantasy), The International Horror Guild Award (Horror)
and The Sapphire Award (Romance). Tekno Books’ current backlog and anticipated books for future
publishing include more than 200 books under contract or in final negotiations, including more than
40 books by New York Times best-selling authors. The Chief Executive Partner of Tekno Books, Dr.
Martin H. Greenberg, is the owner of the remaining 49% interest in Tekno Books.
Intellectual Properties. The Intellectual Properties division also owns directly (separate
from Tekno Books) the exclusive rights to certain intellectual properties that are complete stories
and ideas for stories, created by best-selling authors and media celebrities. Some examples of our
intellectual properties are Neil Gaiman’s Mr. Hero, Neil Gaiman’s Lady Justice, Anne McCaffrey’s
Acorna the Unicorn Girl, Leonard Nimoy’s Primortals, and Mickey Spillane’s Mike Danger. We license
rights to certain of our intellectual properties for use by licensees in developing projects in
various media forms. We generally obtain the exclusive rights to the intellectual properties and
the right to use the creator’s name in the titles of the intellectual properties (e.g.,
4
Table of Contents
Mickey Spillane’s Mike Danger and Leonard Nimoy’s Primortals).
NetCo Partners. In June 1995, Hollywood Media and C.P. Group Inc. (“C.P. Group”), entered into
an agreement to form NetCo Partners. NetCo Partners owns Tom Clancy’s NetForce. Hollywood Media and
C.P. Group are each 50% partners in NetCo Partners. Tom Clancy is a shareholder of C.P. Group. At
the inception of the partnership, C.P. Group contributed to NetCo Partners all rights to Tom
Clancy’s NetForce, and Hollywood Media contributed to NetCo Partners all rights to Tad Williams’
MirrorWorld, Arthur C. Clarke’s Worlds of Alexander, Neil Gaiman’s Lifers, and Anne McCaffrey’s
Saraband. In 1997, NetCo Partners licensed to Putnam Berkley the rights to publish the first six
Tom Clancy’s NetForce books in North America, which books were created and published. This
agreement was subsequently renewed in December 2001 for four more books that were created and
published. NetForce books have so far been published in mass market paperback format. NetCo owns
all rights in all media to the NetForce property including film, television, video and games. The
first book in the series was adapted as a four-hour mini-series on ABC. Through its interest in
NetCo, Hollywood Media receives distributions of its share of proceeds generated from the rights to
the NetForce series.
MovieTickets.com, Inc.
MovieTickets.com, Inc. (“MovieTickets.com”) is one of the two leading website destinations for
the purchase of movie tickets through the Internet; its principal competitor (other than theaters
which conduct their own Internet ticket sales) is Fandango. The MovieTickets.com website allows
users to purchase movie tickets and retrieve them at “will call” windows or kiosks at theaters and,
for theaters with the capability, for users to print tickets out at their home or office.
MovieTickets.com generates revenues from service fees charged to users for the purchase of tickets
and the sale of advertising. MovieTickets.com exhibitors operate theaters located in all of the top
20 markets and approximately 70% of the top 50 markets in the United States and Canada, and
represent approximately 50% of the top 50 and top 100 grossing theaters in North America.
Additionally, MovieTickets.com launched in the United Kingdom in July of 2003. Hollywood Media
launched the MovieTickets.com website in May 2000 with several major theater exhibitors.
MovieTickets.com is owned by a joint venture in which Hollywood Media owns a 26.2% equity
interest. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of
Operation — Equity in Earnings of Unconsolidated Investees” below, and Note 15 of the Notes to
Consolidated Financial Statements in Item 8 of this Form 10-K below, for additional information
about our equity interest in MovieTickets.com. MovieTickets.com entered into an agreement with
Viacom Inc. effective August 2000 whereby Viacom Inc. acquired a 5% interest (now 4.1% after
dilution) in MovieTickets.com for $25 million of advertising and promotion over five years.
MovieTickets.com is promoted through on-screen advertising in most participating exhibitors’
theaters. In March 2001, AOL purchased a non-interest bearing convertible preferred equity voting
interest in MovieTickets.com for $8.5 million in cash, which was convertible into approximately 3%
of the common stock of MovieTickets.com and was converted in April 2005. As a result of this
conversion, Hollywood Media’s ownership of the equity of MovieTickets.com changed from 26.4% to
26.2%. In connection with the 2001 transaction with AOL, MovieTickets.com’s ticket inventory was
promoted throughout America Online’s interactive properties and ticket inventory of AOL’s Moviefone
became available through MovieTickets.com. Through an agreement in August 2004 between
MovieTickets.com and AOL’s Moviefone, MovieTickets.com acquired by assignment and assumed the
ticketing agreements that Moviefone had with its movie theater exhibitors. The Moviefone exhibitor
agreements assumed by MovieTickets.com include agreements with Clearview Cinemas and Landmark
Theaters.
Currently MovieTickets.com directly tickets for 116 exhibitors, including: Academy 8 Theaters
(P & G Theaters), Access Digital Theatres, All Star Entertainment, AMC Theatres, Amherst Cinema Art
Center, Arena Grand Theatre (Columbus Hospitality), Ashbrie Cinemas, Atlantic Theaters (Movies at
Midway), Atlas Cinemas, B&B Theaters, Bank Street Theatre, Bowtie Cinemas, Brooklyn Academy of
Music, Bryn Mawr Movie Theatre Co., Camera Cinemas, Celebrity Theatres, Channelside Cinemas, Cinema
Centers, Cinema Four-Quad (Quad Cinema), Cinemagic Movies, Cinemagic Theatres (MN), Cinemall,
Cineplex Odeon, Classic Cinemas, Clearview Cinemas, Cleveland Cinemas, Consolidated Theatres,
Cornelius Cinemas, Dickinson Theatres, Dipson Theatres, Discovery Theater, Drexel Theatres, Eastern
Shores (O’Neil Theaters NE), Emagine
5
Table of Contents
Entertainment (Cinema Hollywood), Entertainment Retail (Hollywood Hits), Elvis Cinemas,
Eveningstar Cinema, Famous Players, Film Forum, Fine Arts Theatre — Beverly Hills, Fox Bay Cinema
Grill, Foxmoor Movies, Frank Theaters, Funasia Theaters, Galaxy Cinemas (Canada), Galaxy Cinemas
(GA), Galaxy Cinemas (NC), Greater Huntington Theatres, Greenville Cinemas (Camelot Cinemas),
Hallett Cinemas, Harkins Theatres, Harrisonville Cinema, HLB Entertainment (Palace 9, Majestic 10),
Hollywood Cinema 9, Hollywood Premier Cinemas, Howell Theater, IFC Center, Jarvis Conservatory,
Kew Gardens (and Cobble Hill) Krikorian Premiere Theatres, Landmark Theatres (and Ritz Theatres), M
Park 4, Main Street Cinemas, Malco Theatres, Mann Theatres , Marcus Theatres, Marquee Cinemas,
Metropolitan Theatres, Mission Grove Theaters, MJR Theatres, MnM Theatres, Movie Tavern, MovieMax
Theatres, NAOS Entertainment, Narberth Theatre, National Amusements, Nelsonville Movies 10, North
American Cinema, Oasis Cinema, Omniplex Theatre Group, O’Neil Theatres (Louisiana), Pacific
Theatres, Paris Theater, Penn Cinema, Phoenix Theatres (MI), Phoenix Theatres (TN), Pickwick
Theatres, Premiere Cinemas, Quarry Cinemas, Rail Road Square Cinema, Rave Motion Pictures, Reading
Cinemas USA (City Cinemas, Angelika), Regency 8 Cinema, Rio Entertainment, Riviera Cinemas, Roxy
Theatres, Safari Cinema, Sayville Theatre, Scotiabank Theatres, Sea Turtle Cinemas, Showplace
Cinemas Silver Screen Cinemas, Spotlight Theatres, Star Vu Drive-In, Starplex Cinemas, Studio Movie
Grill, Sunrise Cinemas, Tango Theaters, Tower Theaters, Trans-Lux Cinemas, UltraStar Cinemas,
Village Theaters, Warren Theatres, Watson Theatre, Wellfleet Cinemas, and Westates Theatres.
Employees
At February 24, 2008, Hollywood Media employed approximately 168 full-time employees and 16
part-time employees. Of our 168 full-time employees, 93 employees are engaged in our Broadway
Ticketing division, 31 employees are engaged in the development, production and selling and
marketing of Hollywood.com and our other websites, 4 employees are engaged in our intellectual
properties division, 2 employees are engaged in our cable TV business, and 38 are corporate,
technology and administrative employees. None of the employees are represented by a labor union,
nor have we experienced any work stoppages. We consider our relations with our employees to be
good.
Item 1A. Risk Factors.
Risks of Investing in Our Shares
Investments in our capital stock are speculative and involve a high degree of risk. Investors
should carefully consider the following matters, as well as the other information in this Form
10-K. If any of these risks or uncertainties actually occur, our business, results of operations,
financial condition, or prospects could be substantially harmed, which would adversely affect your
investment. Additional risks and uncertainties that we do not presently know or that we currently
deem immaterial may also impair our business, operating results, financial condition, and
prospects.
We have a history of losses and an accumulated deficit. Our operating results could fluctuate
significantly on a quarterly and annual basis.
Hollywood Media has incurred significant losses since it began doing business. For the year
ended December 31, 2007 we had net income of approximately $1.7 million and a loss from continuing
operations of approximately $9.9 million and in the year ended December 31, 2006 we had net income
of approximately $9.5 million and a loss from continuing operations of approximately $9.7 million.
The net income for 2007 was attributable to the sale of the assets of our Showtimes subsidiary to
West World Media on August 24, 2007, as disclosed in prior filings, and the net income for 2006 was
attributable to the sale of our Baseline/StudioSystems business unit to The New York Times Company
on August 25, 2006, as previously disclosed. As of December 31, 2007, we had an accumulated
deficit of approximately $254.8 million. We may incur additional losses while we continue to grow
our businesses. Our future success will depend on the continued growth in our various businesses,
and our ability to generate sufficient ticketing, licensing, syndication and advertising revenues
to cover our costs.
In addition, our operating results may fluctuate significantly in the future as a result of a
variety of factors, including:
6
Table of Contents
| • | seasonal and other variations in the demand for Broadway tickets and resulting variations in our revenue from Broadway ticket sales; | ||
| • | our ability to sell advertisements to be displayed on our websites and on our cable TV networks; | ||
| • | seasonal and other trends in Internet usage and Internet sales and advertising placements; | ||
| • | our ability to enter into or renew strategic relationships and agreements with media organizations, websites and authors; | ||
| • | the amount and timing of our marketing expenditures and other costs relating to the expansion of our operations; | ||
| • | new products, websites or Internet services introduced by us or our competitors; and | ||
| • | technical difficulties, security concerns or system downtime affecting the Internet generally or the operation of our websites in particular. |
As a result, our operating results for any particular period may not accurately predict our
future operating results.
There can be no assurance that any disposition or other strategic transaction will occur or,
if one is undertaken, of its potential terms or timing.
From time to time we explore potential transactions that may help us to realize the full value
of our assets in the interest of our shareholders. Last year, this process was suspended
temporarily, but we have now resumed this process and we are currently working with JPMorgan as our
financial advisor to actively consider opportunities for our businesses, including potential
dispositions or other strategic transactions. There can be no assurance that any transaction will
occur or, if one is undertaken, of its potential terms or timing. For additional information, see
the discussion under “Outlook” in the “Liquidity and Capital Resources” portion of Item 7 of this
Form 10-K Report, “Management’s Discussion and Analysis of Financial Condition and Results of
Operation” below.
We may not be able to compete successfully.
Ticketing Businesses. The market for ticketing services and products is intensely competitive
and rapidly changing. The number of telephone services, online services, wireless services and
websites competing for consumers’ attention and spending has proliferated and we expect that
competition will continue to intensify. We compete, directly and indirectly, for customers,
advertisers, members and content providers with the following categories of companies:
| • | telephone services, wireless services and websites targeted to entertainment enthusiasts, moviegoers, theatergoers and other eventgoers, which feature directories of movies, shows, events, showtimes, theater and event locations and related content, and also allow users to purchase tickets; | ||
| • | traditional ticketing organizations, companies, agents and brokers; | ||
| • | the box office at each of the venues that hold events for which we sell tickets; and | ||
| • | ticket resellers and other participants in the secondary ticketing market |
Internet Businesses. The market for Internet services and products is intensely competitive
and rapidly changing. Competition could result in reduced traffic to our websites, price reductions
for advertising which we offer, a decline in product sales, reduced margins or loss of market
share, any of which could cause a material decrease in our revenues. We compete, directly and
indirectly, for advertisers, viewers, members and content providers with the following categories
of companies:
| • | online services or websites targeted to entertainment enthusiasts, particularly moviegoers and theatergoers, such as IMDb.com; | ||
| • | publishers and distributors of traditional off-line media, such as television, radio and print, including those targeted to movie enthusiasts, many of which have established or may establish websites, such as Eonline.com; |
7
Table of Contents
| • | traditional movie and entertainment organizations including the Walt Disney Company and Warner Bros.; | ||
| • | general purpose consumer online services such as AOL, Yahoo!, and MSN, each of which provides access to movie-related information and services; and | ||
| • | web search and retrieval and other online services, such as Google, Yahoo! and other high-traffic websites. |
We believe that the principal competitive factors in attracting and retaining users are the
depth, breadth and timeliness of content, the ability to offer compelling and entertaining content
and brand recognition. Other important factors in attracting and retaining users include ease of
use, service quality and cost. We believe that the principal competitive factors in attracting and
retaining advertisers include the number of users of our website, the demographics of our users,
the number of pages of our websites viewed or accessed by our users, price and the creative
implementation of advertisement placements and sponsorship promotions. There can be no assurance
that we will be able to compete favorably with respect to these factors.
Based on our review of publicly available documents, we believe some of our existing
competitors in both our ticketing and Internet businesses, as well as potential new competitors,
have longer operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and substantially larger user bases than we do and, therefore,
have significantly greater ability to attract advertisers and users. In addition, many of these
competitors may be able to respond more quickly than us to new or emerging technologies and changes
in Internet user requirements and to devote greater resources than us to the development, promotion
and sale of their services. There can be no assurance that our current or potential competitors
will not develop products and services comparable or superior to those developed by us or adapt
more quickly than us to new technologies, evolving industry trends or changing Internet user
preferences. Increased competition could result in price reductions, reduced margins or loss of
market share, any of which would result in a decrease in our revenues. There can be no assurance
that we will be able to compete successfully against current and future competitors, or that
competitive pressures faced by us would not impair our ability to expand our operations or grow our
revenues.
Intellectual Properties and Book Development and Licensing Businesses. Numerous companies and
individuals are engaged in the book development business. We also compete with a large number of
companies that license characters and properties into film, television, books and merchandise.
Competition in these businesses is largely based on the number and quality of relationships that we
are able to develop with authors and celebrities. There can be no assurance that our current or
future competitors will not be successful in developing relationships with authors and celebrities
with whom we have previously had relationships. Our revenues will decrease if we are unable to
maintain these relationships or develop new relationships.
We may not be able to successfully protect our trademarks and proprietary rights.
Internet Businesses. Our performance and ability to compete are dependent to a significant
degree on our internally developed and licensed content and technology. We rely on a combination of
copyright, trademark and trade secret laws, confidentiality and nondisclosure agreements with our
employees and with third parties and contractual provisions to establish and maintain our
proprietary rights. There can be no assurance that the steps taken by us to protect our proprietary
rights will be adequate, or that third parties will not infringe upon or misappropriate our
copyrights, trademarks, service marks and similar proprietary rights. In addition, effective
copyright and trademark protection may be unenforceable or limited in certain foreign countries. In
the future, litigation may be necessary to enforce and protect our trademarks, service marks, trade
secrets, copyrights and other intellectual property rights. Any such litigation would be costly and
could divert management’s attention from other more productive activities. Adverse determinations
in such litigation could result in the loss of certain of our proprietary rights, subject us to
significant liabilities, require us to seek licenses from third parties, or prevent us from selling
our services.
8
Table of Contents
We own trademark registrations in the United States for many of the trademarks that we use,
including HOLLYWOOD.COM and BROADWAY.COM, and some of our trademarks are registered in select
foreign countries. We have also filed trademark applications in select foreign countries for the
marks HOLLYWOOD MEDIA CORP., HOLLYWOOD.COM, and others. There can be no assurance that we will be
able to secure adequate protection for these names or other trademarks in the United States or in
foreign countries. If we obtain registration of those trademarks, we may not be able to prevent our
competitors from using different trademarks that contain the words “Hollywood” or “Broadway.” Many
countries have a “first-to-file” trademark registration system; and thus we may be prevented from
registering our marks in certain countries if third parties have previously filed applications to
register or have registered the same or similar marks. It is possible that our competitors or
others will adopt product or service names similar to ours, thereby impeding our ability to build
brand identity and possibly leading to customer confusion.
Our inability to protect our HOLLYWOOD.COM and BROADWAY.COM marks and other marks adequately
could impair our ability to maintain and expand such brands and thus impair our ability to generate
revenue from these brands.
Intellectual Properties Business. Hollywood Media has applied for trademark and copyright
protection for its major intellectual property titles. Each of Hollywood Media and NetCo Partners
currently has U.S. registered trademarks as well as pending trademark applications in the U.S.
related to its respective business, and they also have foreign registered trademarks and pending
trademark applications in several foreign jurisdictions. As Hollywood Media’s properties are
developed, Hollywood Media intends to apply for further trademark and copyright protection in the
United States and certain foreign countries.
Copyright protection in the United States on new publications of works for hire extend for a
term of 95 years from the date of initial publication or 120 years from the year of creation,
whichever expires first. Trademark registration in the United States extends for a period of ten
years following the date of registration. To maintain the registration, affidavits must be filed
between the fifth and sixth years following the registration date affirming that the trademark is
still in use in commerce and providing evidence of such use. The trademark registration must be
renewed prior to the expiration of the ten-year period following the date of registration.
Failure to adequately protect these intellectual property rights could result in adverse
consequences for these businesses due to the risks described above.
We may become subject to liability for infringement of third-party intellectual property
rights.
There can be no assurance that third parties will not bring copyright or trademark
infringement claims against us, or claim that our use of certain technology violates a patent. Even
if these claims are not meritorious, they could be costly and could divert management’s attention
from other more productive activities. If it is determined that we have infringed upon or
misappropriated a third party’s proprietary rights, there can be no assurance that any necessary
licenses or rights could be obtained on terms satisfactory to us, if at all. The inability to
obtain any required license on satisfactory terms could force us to incur expenses to change the
way we operate our businesses. If our competitors prepare and file applications that claim
trademarks owned or registered by us, we may oppose these applications and have to participate in
administrative proceedings to determine priority of right in the trademark, which could result in
substantial costs to us, even if the eventual outcome is favorable to us. An adverse outcome could
require us to license disputed rights from third parties or to cease using such trademarks. In
addition, inasmuch as we license a portion of our content from third parties, our exposure to
copyright infringement or right of privacy or publicity actions may increase; because we must rely
upon such third parties for information as to the origin and ownership of such licensed content. We
generally obtain representations as to the origins, ownership and right to use such licensed
content and generally obtain indemnification to cover any breach of any such representations;
however, there can be no assurance that such representations will be accurate or that such
indemnification will provide adequate compensation for any breach of such representation. There can
be no assurance that the outcome of any litigation between such licensors and a third party or
between us and a third party will not lead to royalty obligations for which we are not indemnified
or for which such indemnification is insufficient, or that we will be able to obtain any additional
9
Table of Contents
license on commercially reasonable terms if at all.
We must manage our growth in order to achieve the desired results.
We have significantly expanded our Internet and ticketing operations over a period of years
through our acquisitions of businesses including hollywood.com, Inc., BroadwayTheater.com, Inc.,
Theatre Direct NY, Inc., CinemasOnline and Showtix, and through the launch of Broadway.com,
Theatre.com and MovieTickets.com (Hollywood Media currently owns 26.2% of the equity of
MovieTickets.com, Inc.). We continue to develop our businesses, and we may expand our operations
and market presence by entering into joint ventures, acquisitions, business combinations,
investments, or other strategic alliances. These transactions create risks such as:
| • | problems retaining key technical and managerial personnel; | ||
| • | the availability of financing to make acquisitions; | ||
| • | additional expenses of acquired businesses; and | ||
| • | the inability to maintain relationships with the customers or other business partners of acquired businesses. |
We may not succeed in addressing these risks if we are not able to adequately develop or
increase our management, operational and financial resources and systems. To the extent that we are
unable to identify and successfully integrate future ventures into our operations, our growth
strategy may not be successful and our stock price could decrease.
We are dependent on our ability to develop strategic relationships with media, entertainment
and Internet organizations.
The success of our operations is dependent in part on our ability to enter into and maintain
strategic relationships and agreements with media, entertainment and Internet organizations. There
can be no assurance that we will be able to develop and maintain these strategic relationships and,
if we are unable to do so, our financial conditions and results of operations could be adversely
impacted.
In addition, our intellectual property division is dependent on our ability to identify,
attract and retain best-selling authors and media celebrities who create our intellectual
properties. Our ability to enter into contracts with new authors or renew contracts would be
impaired without the services of Dr. Martin Greenberg. See the risk factor “Our ability to attract
qualified personnel and retain certain key personnel is critical to our business” below.
Our operations could be negatively impacted by systems interruptions.
The hardware and software used in our Internet and ticketing operations, or that of our
affiliates, could be damaged by fire, floods, hurricanes, earthquakes, power loss,
telecommunications failures, break-ins and similar events. Our websites could also be affected by
computer viruses, electronic break-ins or other similar disruptive problems. These system problems
could negatively affect our business. Insurance may not adequately compensate us for any losses
that may occur due to any failures or interruptions in systems. General Internet traffic
interruptions or delays could also harm our business. As with Internet websites in general, our
websites may experience slower response times or decreased traffic for a variety of reasons.
Additionally, online service providers have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures unrelated to our systems.
To the extent our services are disrupted, we could lose users of our websites and our ticketing and
advertising revenues could decline.
We are subject to additional security risks by doing business over the Internet.
A significant obstacle to consumer acceptance of electronic commerce over the Internet has
been the need for secure transmission of confidential information in transaction processing.
Internet usage could decline if any well-publicized compromise of security occurred. We may incur
additional costs to protect against the
10
Table of Contents
threat of security breaches or to alleviate problems caused by these breaches. If a third
person were able to misappropriate our users’ personal information or credit card information, we
could be held liable for failure to adequately protect such information and subject to monetary
damages to the extent our users suffer financial losses or other harm as a result thereof.
We may not be able to adapt as technologies and customer expectations continue to evolve.
To be successful, we must adapt to rapidly changing technologies by continually enhancing our
websites and ticketing services and introducing new services to address our customers’ changing
expectations. We must evaluate and implement new technologies that are available in the marketplace
or risk that our customers will not continue using our services. Examples of technologies that we
continue to implement or evaluate include those related to streaming and downloading of audio and
video content on our websites, delivery of content over wireless devices and the convergence of
cable television, wireless, satellite and Internet services and delivery systems. We could incur
substantial costs if we need to modify our services or infrastructure in order to adapt to changes
affecting providers of content and services through the Internet. Our customer base and thus our
revenues could decrease if we cannot adapt to these changes.
If our suppliers of tickets for Broadway shows did not sell us all the tickets we wish to buy,
our financial results may be adversely affected.
We are one of many licensed ticket resellers that purchase and resell tickets for Broadway
shows. We obtain the tickets we sell through our arrangements with theatre box offices and we
maintain our own inventory of tickets for sale. If the box offices changed their policies or
methods of ticket sales in a manner that resulted in our inability to buy all the tickets that we
wish to buy for resale by our Broadway Ticketing division, then Hollywood Media’s revenues and
financial results may be adversely affected. Some of our ticket suppliers require surety bonds to
be maintained. If we are not able to maintain a sufficient level of bonding, we may be precluded
from purchasing tickets.
Government regulation of the Internet could impact our business.
The application of existing laws and regulations to our business relating to issues such as
user privacy, pricing, taxation, content, sweepstakes, copyrights, trademarks, advertising, and the
characteristics and quality of our products and services can be unclear. We also may be subject to
new laws and regulations related to our business. Although we endeavor to comply with all
applicable laws and regulations and believe that we are in compliance, because of the uncertainty
of existing laws and the possibility that new laws may be adopted, there is a risk that we will not
be in full compliance.
Several federal laws could have an impact on our business. The Digital Millennium Copyright
Act establishes binding rules that clarify and strengthen protection for copyrighted works in
digital form, including works used via the Internet and other computer networks. The Child Online
Protection Act is intended to restrict the distribution of certain materials deemed harmful to
children. The Children’s Online Privacy Protection Act of 1998 protects the privacy of children
using the Internet, by requiring, among other things, (1) that in certain specific instances the
operator of a website must obtain parental consent before collecting, using or disclosing personal
information from children under the age of 13, (2) the operator of a website to make certain
disclosures and notices on the website or online service regarding the collection, use or
disclosure of such personal information, and (3) the operator of a website or online service to
establish and maintain reasonable procedures to protect the confidentiality, security and integrity
of personal information collected from children under the age of 13. Our efforts to comply with
these and other laws subject our business to additional costs, and failure to comply could expose
our business to liability.
11
Table of Contents
We are dependent on Mitchell Rubenstein and Laurie S. Silvers, our founders.
Mitchell Rubenstein, our Chairman of the Board and Chief Executive Officer, and Laurie S.
Silvers, our Vice Chairman, President and Secretary, have been primarily responsible for our
organization and development. The loss of the services of either of these individuals would hurt
our business. If either of these individuals were to leave Hollywood Media unexpectedly, we could
face substantial difficulty in hiring qualified successors and could experience a loss in
productivity while any successor obtains the necessary training and experience. The employment
agreements between Hollywood Media and each of these individuals provide, among other things, that
if we terminate either of their agreements without “cause,” we will have also terminated the
other’s agreement without “cause.”
Our ability to attract qualified personnel and retain certain key personnel is critical to our
business.
Our future operating results depend substantially upon the continued service of our executive
officers and key personnel. Our future operating results will also depend in significant part upon
our ability to attract and retain qualified management, technical, marketing, sales and support
personnel. Competition for qualified personnel in our industry is intense, and we cannot ensure
success in attracting or retaining qualified personnel. In addition, there may be only a limited
number of persons with the requisite skills to serve in these positions. Our business, financial
condition and results of operations could be materially adversely affected by the loss of any of
our key employees, by the failure of any key employee to perform in his or her current position, or
by our inability to attract and retain skilled employees.
Our intellectual property business could be harmed by the loss of the services of Dr. Martin
H. Greenberg, who has been primarily responsible for developing relationships with the best-selling
authors who create our intellectual properties. Dr. Greenberg owns the remaining 49% interest in
Tekno Books through which we operate our intellectual properties division. Many of the authors with
whom we have relationships are bound to multiple book contracts and our ability to renew these
contracts or enter into contracts with new authors would be impaired without the services of Dr.
Greenberg.
We may be liable for the content we make available on the Internet.
There is risk that we could become subject to various types of legal claims relating to the
content we make available on our websites or the downloading and distribution of such content, or
the content we license for books, including claims such as defamation, invasion of privacy and
copyright infringement. Although we carry liability insurance that covers some types of claims to
a limited extent, our insurance may not cover all potential claims of this type or may not be
adequate to cover all costs incurred in defense of potential claims or to indemnify us for all
liability that may be imposed. Any costs or imposition of liability that is not covered by
insurance or in excess of insurance coverage could have a material adverse effect on our business,
results of operations and financial condition.
We have authorized but unissued preferred stock, which could affect rights of holders of
common stock.
Our articles of incorporation authorize the issuance of preferred stock with designations,
rights and preferences determined from time to time by our board of directors. Accordingly, our
board of directors is empowered, without shareholder approval, to issue preferred stock with
dividends, liquidation, conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of common stock. In addition, the preferred stock could be
issued as a method of discouraging a takeover attempt. Although we do not intend to issue any
preferred stock at this time, we may do so in the future. Shares of preferred stock are also
subject to potential issuance under the terms of our shareholders’ rights plan described below.
12
Table of Contents
Our articles of incorporation, bylaws, shareholders’ rights plan and Florida law may
discourage takeover attempts.
Certain provisions of our articles of incorporation, bylaws and our shareholders’ rights plan
may discourage takeover attempts and may make it more difficult to change or remove management. Our
articles of incorporation authorize the issuance of “blank check” preferred stock with
designations, rights and preferences as may be determined from time to time by our Board of
Directors. Our bylaws as amended in 2006 include provisions requiring shareholders to provide
specified advance notice to Hollywood Media of director nominations or proposed business to be
transacted at shareholder meetings, in order for a shareholder to make a director nomination or
propose meeting business. Under our shareholder’s rights plan adopted in 1996 and extended in 2006,
our Board of Directors declared a dividend of one right for each share of common stock. If certain
events, such as a takeover bid not approved by our Board, occur, the rights will then entitle most
holders to purchase at a specified price, shares of a series of our preferred stock with special
voting, dividend and other rights.
In addition, Florida has enacted legislation that may deter or frustrate takeovers of Florida
corporations, such as our company. The Florida “control share acquisitions” statute provides that
shares acquired in a “control share acquisition” (which excludes transactions approved by our board
of directors) will not have voting rights unless the voting rights are approved by a majority of
the corporation’s disinterested shareholders. A “control share acquisition” is an acquisition, in
whatever form, of voting power in any of the following ranges: (a) at least 20% but less than
33-1/3% of all voting power; (b) at least 33-1/3% but less than a majority of all voting power; or
(c) a majority or more of all voting power.
The state of Florida “affiliated transactions” statute requires approval by disinterested
directors or supermajority approval by disinterested shareholders of certain specified transactions
between a public corporation and holders of more than 10% of the outstanding voting shares of the
corporation (or their affiliates).
Our stock price is volatile.
The trading price of our common stock has and may continue to fluctuate significantly. During
the 24 months ended December 31, 2007, the trading price for our common stock on the Nasdaq Stock
Market ranged from $2.24 to $4.75 per share. Our stock price may fluctuate in response to a number
of events and factors, such as our quarterly operating results, announcements of new products or
services, announcements of mergers, acquisitions, strategic alliances, or divestitures and other
factors, including similar announcements by other companies that investors may consider to be
comparable to us. In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility that often has been
unrelated to the operating performance of the companies. These broad market and industry
fluctuations may cause the market price of our stock to decrease, regardless of our operating
performance.
Future sales of our common stock in the public market could adversely affect our stock price
and our ability to raise funds in new stock offerings.
Future sales of substantial amounts of our common stock in the public market, or the
perception that these sales could occur, could adversely affect prevailing market prices of our
common stock and could impair our ability to raise capital through future offerings of equity
securities. We may issue additional shares of common stock in connection with future financings,
acquisitions or other transactions, or pursuant to outstanding stock options, warrants and other
convertible securities, and we plan to issue additional stock options and stock grants from time to
time to our employees and directors. We are generally unable to estimate or predict the amount,
timing or nature of future issuances or public sales of our common stock. Sales of substantial
amounts of our common stock in the public market could cause the market price for our common stock
to decrease. In addition, a decline in the price of our common stock would likely impede our
ability to raise capital through the issuance of additional shares of common stock or other equity
securities.
13
Table of Contents
We may require additional capital to finance our growth or operations and there can be no
assurance that additional financing will be available on favorable terms.
We have required substantial financing to fund our acquisitions, growth and operations since
our inception, and we may require additional financing in the future. Our long-term financial
success depends on our ability to generate sufficient revenue and cash flow to offset operating
expenses. To the extent we do not generate sufficient revenues and cash flow to offset expenses we
will require further financing to fund our ongoing operations. We cannot assure you that any
additional financing will be available or if available, that it will be on favorable terms. The
terms of any financing that we enter into will vary depending on many factors including, among
other things, our then current financial condition, the market price of our common stock, and other
characteristics and terms of our capital structure including outstanding options and warrants. We
may seek to raise additional capital through public or private offerings of equity securities or
debt financings. Our issuance of additional equity securities could cause dilution to holders of
our common stock and may adversely affect the market price of our common stock. The incurrence of
additional debt could increase our interest expense and other debt service obligations and could
result in the imposition of covenants that restrict our operational and financial flexibility. See
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Changes in securities laws and regulations may increase our costs.
The Sarbanes-Oxley Act of 2002 and the SEC rules promulgated thereunder have imposed increased
demands upon and required ongoing changes in some of our operational systems and processes,
corporate governance, and compliance and disclosure processes, and the Nasdaq Stock Market has
implemented changes in its requirements for companies that are Nasdaq-listed. These developments
have resulted in, and future changes in such rules may result in, increases in our expenses for
information systems, auditing and consulting fees, legal compliance and financial reporting costs.
These developments could also make it more difficult for us to attract and retain qualified members
of our board of directors or executive officers.
We have identified a material weakness in our evaluation of internal controls over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002; failure to achieve and maintain
effective internal controls could have a material adverse effect on our business and stock price.
As reported in this Form 10-K under the caption “Item 9A – Controls and Procedures”, Hollywood
Media’s management has identified a material weakness in internal controls and concluded that
Hollywood Media’s internal control over financial reporting and disclosure controls were not
effective. As described in Item 9A of this Form 10-K, we are in the process of remediating this
weakness. Failure to achieve and maintain an effective internal control environment could have a
material adverse effect on our business and stock price.
We are exposed to market risk related to changes in interest rates and fluctuations in foreign
currency exchange rates.
Market risk is the risk of loss arising from adverse changes in our assets or liabilities that
might occur due to changes in market rates and prices, such as interest or foreign currency
exchange rates, as well as other relevant market rate or price changes. We have an investment in a
subsidiary in the United Kingdom that sells our services and pays for products and services in
British pounds. A decrease in the British foreign currency relative to the U.S. dollar could
adversely impact our margins. As the assets, liabilities and transactions of our United Kingdom
subsidiary are denominated in British pounds, the results and financial condition are subject to
translation adjustments upon their conversion into U.S. dollars for our financial reporting
purposes. A large decline in this foreign currency relative to the U.S. dollar might have a
material adverse affect on Hollywood Media’s results of operations or financial condition. For
additional discussion of market risk, see “Item 7A — Quantitative And Qualitative Disclosures
About Market Risk” below.
14
Table of Contents
Other economic factors may adversely affect our future results or the market price of our
stock (such as recession, war, terrorism).
We operate in a rapidly changing economic and technological environment that presents numerous
risks. Many of these risks are beyond our control and are driven by factors that we cannot predict.
Economic recession, war, terrorism, international incidents, labor strikes and disputes, and other
negative economic conditions may cause damage or disruption to our facilities, information systems,
vendors, employees, customers and/or website traffic, which could adversely impact our revenues and
results of operations, and stock price.
Item 1B. Unresolved Staff Comments.
At the time of filing of this Form 10-K, there are no unresolved comments for disclosure under
this Item 1B.
Item 2. Properties.
Hollywood Media leases office space in Florida, New York, Los Angeles, Wisconsin as well as
Lancashire, UK. The general terms of the leases for each of these locations are as follows:
| Current | ||||||||||
| Location | Square Feet | Monthly Rent | Expiration Date | |||||||
Corporate Headquarters,
Hollywood.com and Hollywood.com Television production Boca Raton, FL |
13,131 | $ | 24,619 | November 30, 2012 | ||||||
Theatre Direct,
|
550 | $ | 1,700 | March 31, 2009 | ||||||
Broadway.com and
|
3,230 | $ | 10,000 | March 31, 2009 | ||||||
1-800-BROADWAY
|
3,250 | $ | 8,396 | March 31, 2009 | ||||||
New York, NY
|
21,600 | $ | 59,040 | January 31, 2017 | ||||||
Tekno Books Green Bay, WI |
2,025 463 |
$ $ |
1,446 355 |
Month to Month Month to Month |
||||||
CinemasOnline
|
3,710 | $ | 5,287 | November 20, 2008 | ||||||
Lancashire, UK |
||||||||||
Hollywood.com Los Angeles, CA |
3,258 | $ | 7,819 | August 31, 2012 | ||||||
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Shareholders.
Hollywood Media held its 2007 annual meeting of shareholders on December 18, 2007. The
following matters were submitted to a vote of the holders of Hollywood Media’s common stock, and
were approved by the voting results indicated below.
15
Table of Contents
Vote On Election of Directors
All of the following nominees were elected as directors, with the following voting results:
| Director Nominees | Votes For | Votes Withheld | ||
Mitchell Rubenstein |
22,400,441 | 2,149,770 | ||
Laurie S. Silvers |
22,351,314 | 2,198,897 | ||
Harry T. Hoffman |
22,348,814 | 2,201,397 | ||
Robert E. McAllan |
22,420,479 | 2,129,732 | ||
Deborah J. Simon |
18,299,928 | 6,250,283 | ||
Robert Epstein |
22,735,478 | 1,814,733 |
Vote on Ratification of Public Accounting Firm
The proposal to ratify the selection of Kaufman Rossin & Co. as Hollywood Media’s independent
registered public accounting firm for the year ending December 31, 2007 was approved by the
following voting results:
| Votes | ||||
For |
24,526,350 | |||
Against |
18,576 | |||
Abstain |
5,285 | |||
Broker Non-Votes |
0 | |||
16
Table of Contents
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market for Common Stock
Hollywood Media’s common stock trades on The Nasdaq Stock Market (“Nasdaq”) under the symbol
HOLL. The following table sets forth, for the periods indicated below, the high and low sales
prices for the common stock, as reported by Nasdaq.
| High | Low | |||
2006 |
||||
First Quarter |
$5.13 | $4.14 | ||
Second Quarter |
$4.89 | $3.61 | ||
Third Quarter |
$4.24 | $3.20 | ||
Fourth Quarter |
$4.40 | $3.80 | ||
2007 |
||||
First Quarter |
$4.64 | $3.79 | ||
Second Quarter |
$4.75 | $3.88 | ||
Third Quarter |
$4.37 | $3.16 | ||
Fourth Quarter |
$3.70 | $2.24 |
Holders of Common Stock
As
of March 13, 2008, there were 160 record holders of Hollywood Media’s common stock.
Dividend Policy
Hollywood Media has never paid cash dividends on its common stock and currently intends to
retain any future earnings to finance its operations and the expansion of its business. Therefore,
the payment of any cash dividends on the common stock is unlikely in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the Board of Directors and
will be dependent upon Hollywood Media’s earnings, capital requirements and financial condition and
such other factors deemed relevant by the Board of Directors.
Recent Sales of Unregistered Securities
Hollywood Media previously reported issuances of securities during the year ended December 31,
2007 in transactions that were not registered under the Securities Act of 1933 in the following
reports: Hollywood Media’s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2007 filed on November 9, 2007; Hollywood Media’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2007 filed on August 9, 2007; and Hollywood Media’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2007 filed on May 10, 2007.
Issuer Repurchases of Equity Securities
Hollywood Media reported in its Form 8-K report filed on October 4, 2007, that its Board of
Directors authorized a stock repurchase program under which Hollywood Media Corp. may use up to $10
million of its
17
Table of Contents
cash to repurchase shares of its outstanding common stock. This program was approved by Hollywood
Media’s Board of Directors on September 28, 2007 and was initially announced via press release on
October 1, 2007.
Pursuant to the repurchase program, Hollywood Media is authorized to purchase shares of its
common stock from time to time on the open market or in negotiated transactions. The purchases are
to be funded from available cash and cash equivalents, and the timing and amount of any shares
repurchased will be determined by Hollywood Media’s management based on its evaluation of financial
and market conditions, legal requirements and other factors. The repurchase program has no time
limit and may be suspended for periods or discontinued at any time, and there is no guarantee as to
the number of shares or the amount of cash to be utilized for repurchases. Repurchased shares will
become authorized but unissued shares of Hollywood Media’s common stock.
The following table provides information with respect to common stock purchases by Hollywood
Media during the fourth quarter of 2007. As of the date of this Form 10-K, no purchases have been
made in fiscal year 2008. For additional information relating to the stock repurchase program, see
“Liquidity and Capital Resources” in Item 7 of this Form 10-K Report.
| Maximum | ||||||||||||||||
| Total Number of | Approximate | |||||||||||||||
| Shares Purchased | Dollar Value of Shares | |||||||||||||||
| as Part of Publicly | that May Yet Be | |||||||||||||||
| Total Number of | Average Price | Announced Plans | Purchased Under the | |||||||||||||
| Period | Shares Purchased (1) | Paid Per Share | or Programs (1) | Plans or Programs | ||||||||||||
October 1, 2007 through October 31, 2007 |
— | $ | — | — | $ | — | ||||||||||
November 1, 2007 through November 30, 2007 |
2,003,660 | 2.55 | 2,003,660 | — | ||||||||||||
December 1, 2007 through December 31, 2007 |
— | — | — | — | ||||||||||||
Total |
2,003,660 | $ | 2.55 | 2,003,660 | $ | 4,895,796 | (2) | |||||||||
| (1) | All purchases during the fourth quarter of 2007 were pursuant to the repurchase program described above which was publicly announced on October 1, 2007. | |
| (2) | As of December 31, 2007, calculated by subtracting (i) the total price paid for all shares purchased under the repurchase program through December 31, 2007 ($5,104,204), from (ii) the $10 million potential maximum dollar value of repurchases approved under the life of the plan. |
18
Table of Contents
Performance Graph
The following graph compares, for the five-year period from December 31, 2002 to December 31,
2007, the cumulative total shareholder return on:
| • | Hollywood Media’s common stock; | ||
| • | The NASDAQ Composite Index; and | ||
| • | The Standard & Poor’s Media Industry Index |
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hollywood Media Corp., The NASDAQ Composite Index
And The S & P Media Industry Index
Among Hollywood Media Corp., The NASDAQ Composite Index
And The S & P Media Industry Index
| * | $100 invested on 12/31/02 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. |
19
Table of Contents
Item 6. Selected Financial Data.
The selected financial data in the table below has been derived from the audited Consolidated
Financial Statements of Hollywood Media and should be read in conjunction with the following
statements and the notes thereto included in Item 8 of this Form 10-K report: Consolidated Balance
Sheets as of December 31, 2007 and December 31, 2006; and Consolidated Statements of Operations for
the years ended December 31, 2007, 2006 and 2005. The Consolidated Balance Sheets as of December
31, 2005, 2004 and 2003, and Consolidated Statements of Operations for the years ended December 31,
2004 and 2003 are not included in this report.
Discontinued Operations.
The selected financial data in the table below includes application of accounting principles
to reflect the discontinued operations resulting from the sale of the Showtimes business in 2007
and the sale of the Baseline/StudioSystems business in 2006, which sales are described below.
Sale of Showtimes Business Unit to West World Media LLC
On August 24, 2007, Hollywood Media and its wholly-owned subsidiary Showtimes.com, Inc.
(“Showtimes”) entered into and simultaneously closed on a definitive asset purchase agreement with
Brett West and West World Media, LLC, (“West World Media”), pursuant to which Hollywood Media sold
substantially all of the assets of the Showtimes business to West World Media for a cash purchase
price of $23,000,000 paid to Hollywood Media on the closing date. The Showtimes business included
the CinemaSource, EventSource and ExhibitorAds operations and constituted the remainder of
Hollywood Media’s Data Business Division, which previously included the Baseline/StudioSystems
business unit until it was sold to The New York Times Company (“The New York Times”) on August 25,
2006. West World Media is controlled by Brett West, who founded the Showtimes business in 1995 and
sold the business to Hollywood Media in 1999. Mr. West served as president of Hollywood Media’s
Showtimes business. The purchase price was determined in an arms’ length negotiation between
Hollywood Media and West World Media. Showtimes financial results for all periods presented have
been reclassified from continuing operations and included in discontinued operations. For
additional information about this transaction, see Note 4 “Discontinued Operations” in the Notes to
the Consolidated Financial Statements contained in this Form 10-K Report.
Sale of Baseline/StudioSystems Business Unit to The New York Times Company
On August 25, 2006, Hollywood Media entered into and simultaneously closed on a definitive
stock purchase agreement, pursuant to which The New York Times purchased all of the outstanding
capital stock of Hollywood Media’s wholly-owned subsidiary, Baseline Acquisitions Corp. (“BAC”),
for a cash purchase price of $35,000,000. BAC was the subsidiary of Hollywood Media which owned
Hollywood Media’s Baseline/StudioSystems business unit. Baseline/StudioSystems constituted a
portion of Hollywood Media’s Data Business Division. Baseline/StudioSystems financial results for
all periods presented have been reclassified from continuing operations and included in
discontinued operations. For additional information about this transaction, see Note 4
“Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in this
Form 10-K Report.
20
Table of Contents
| YEARS ENDED DECEMBER 31, | ||||||||||||||||||||
| 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
STATEMENT OF OPERATIONS DATA: |
||||||||||||||||||||
Net revenues |
||||||||||||||||||||
Ticketing |
$ | 111,731,398 | $ | 98,102,961 | $ | 78,890,718 | $ | 59,689,971 | $ | 52,266,539 | ||||||||||
Other |
12,149,825 | 11,314,021 | 6,105,090 | 5,298,223 | 5,651,451 | |||||||||||||||
Total net revenues |
123,881,223 | 109,416,982 | 84,995,808 | 64,988,194 | 57,917,990 | |||||||||||||||
Operating Costs and Expenses |
||||||||||||||||||||
Cost of revenues — ticketing |
93,367,536 | 81,928,952 | 67,515,534 | 51,781,133 | 44,850,254 | |||||||||||||||
Editorial, production, development and
technology (exclusive of depreciation,
and amortization shown separately below) |
6,286,130 | 5,331,498 | 2,991,091 | 2,365,726 | 2,628,808 | |||||||||||||||
Selling, general and administrative |
16,321,373 | 14,884,268 | 10,818,088 | 9,677,373 | 6,881,939 | |||||||||||||||
Payroll & benefits |
16,072,400 | 14,117,379 | 13,586,986 | 10,130,018 | 8,968,640 | |||||||||||||||
Amortization of CBS advertising |
— | — | — | 38,807 | 885,974 | |||||||||||||||
Depreciation and amortization |
1,847,171 | 1,702,427 | 1,269,146 | 1,476,435 | 1,866,519 | |||||||||||||||
Total operating costs and expenses |
133,894,610 | 117,964,524 | 96,180,845 | 75,469,492 | 66,082,134 | |||||||||||||||
Loss from operations |
(10,013,387 | ) | (8,547,542 | ) | (11,185,037 | ) | (10,481,298 | ) | (8,164,144 | ) | ||||||||||
Equity in earnings of unconsolidated investees |
4,747 | 12,227 | 533,228 | 576,317 | 957,681 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest, net |
199,437 | (1,787,735 | ) | (545,597 | ) | (2,580,611 | ) | (1,377,926 | ) | |||||||||||
Change in derivative liability |
— | 640,536 | 87,037 | — | — | |||||||||||||||
Other, net |
(59,572 | ) | 3,910 | 44,862 | 3,667 | (376,258 | ) | |||||||||||||
Loss from continuing operations before minority
interest |
(9,868,775 | ) | (9,678,604 | ) | (11,065,507 | ) | (12,481,925 | ) | (8,960,647 | ) | ||||||||||
Minority interest in (income) losses of subsidiaries |
3,241 | 4,910 | (168,107 | ) | (388,383 | ) | (564,233 | ) | ||||||||||||
Loss from continuing operations |
(9,865,534 | ) | (9,673,694 | ) | (11,233,614 | ) | (12,870,308 | ) | (9,524,880 | ) | ||||||||||
Gain on sale of discontinued operations, net of
income taxes |
10,254,287 | 16,328,241 | — | — | — | |||||||||||||||
Income from discontinued operations |
1,345,856 | 2,867,966 | 2,320,432 | 1,272,509 | 2,083,193 | |||||||||||||||
Income from discontinued operations |
11,600,143 | 19,196,207 | 2,320,432 | 1,272,509 | 2,083,193 | |||||||||||||||
Net income (loss) |
$ | 1,734,609 | $ | 9,522,513 | $ | (8,913,182 | ) | $ | (11,597,799 | ) | $ | (7,441,687 | ) | |||||||
Basic and diluted income (loss) per common share |
||||||||||||||||||||
Continuing operations |
$ | (0.30 | ) | $ | (0.30 | ) | $ | (0.36 | ) | $ | (0.46 | ) | $ | (0.46 | ) | |||||
Discontinued operations |
0.35 | 0.59 | 0.08 | 0.04 | 0.10 | |||||||||||||||
Total basic and diluted net income (loss) per share |
$ | 0.05 | $ | 0.29 | $ | (0.28 | ) | $ | (0.42 | ) | $ | (0.36 | ) | |||||||
Weighted average common and common
equivalent shares outstanding -
basic and diluted |
33,303,886 | 32,761,848 | 31,470,307 | 27,784,850 | 20,829,183 | |||||||||||||||
21
Table of Contents
| AS OF DECEMBER 31, | ||||||||||||||||||||
| 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
CONSOLIDATED BALANCE SHEET DATA: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 26,758,550 | $ | 27,448,649 | $ | 6,926,313 | $ | 6,075,508 | $ | 1,864,648 | ||||||||||
Working capital (deficit) |
20,128,557 | 16,380,362 | (3,396,040 | ) | (1,951,662 | ) | (6,490,321 | ) | ||||||||||||
Total assets |
93,978,836 | 100,009,604 | 83,302,950 | 69,811,599 | 56,881,021 | |||||||||||||||
Capital lease obligations, including current portion |
397,780 | 77,588 | 106,993 | 156,313 | 406,328 | |||||||||||||||
Convertible debentures — net |
— | — | 940,927 | 799,152 | 4,027,629 | |||||||||||||||
Senior Unsecured Notes |
— | 6,375,399 | 5,402,255 | — | — | |||||||||||||||
Total shareholders’ equity |
$ | 55,600,403 | $ | 55,699,417 | $ | 42,399,092 | $ | 47,149,270 | $ | 34,285,699 | ||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.
The following discussion and analysis should be read in conjunction with Hollywood Media’s
Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in
Item 8 of Part II of this report.
Overview
Hollywood Media is a provider of information, news and other content, and ticketing to
consumers and businesses covering the entertainment, Internet and media industries. We own and
operate a number of business units focused on the entertainment and media industries. Hollywood
Media derives a diverse stream of revenues from this array of business units, including revenue
from Broadway, Off-Broadway and London’s West End ticket sales to both individuals and groups,
advertising, and book development license fees and royalties. Our Broadway Ticketing business
includes Broadway.com, 1-800-Broadway, Theatre Direct and Theatre.com. Hollywood Media’s
businesses also include an intellectual property business, Hollywood.com, the U.K.-based
CinemasOnline companies and a minority interest in MovieTickets.com. In addition, Hollywood Media
owns and operates the free VOD cable television network, Hollywood.com Television.
RESULTS OF OPERATIONS
Year ended December 31, 2007 (“fiscal 2007”) as compared to the year ended December 31, 2006
(“fiscal 2006”) and year ended December 31, 2005 (“fiscal 2005”).
Composition of our business segments are as follows:
| • | Broadway Ticketing – sells tickets and related hotel and restaurant packages via Broadway.com, 1-800-BROADWAY and TDI to live theater events on Broadway, Off-Broadway and London’s West End, to individual consumers, groups and domestic and international travel professionals, including travel agencies, tour operators, and educational institutions. Beginning in late September 2007, sales for events in London’s West End are fulfilled through a partnership arrangement between Theatre.com and an unrelated London-based ticket agency. This segment also generates revenue from the sale of sponsorships on Broadway.com. | ||
| • | Ad Sales – sells advertising on Hollywood.com and MovieTickets.com, and includes CinemasOnline which sells advertising on cinema and live theater websites in the U.K. Hollywood.com receives commissions on the ads it sells on MovieTickets.com. | ||
| • | Intellectual Properties – owns or controls the exclusive rights to certain intellectual properties created by best-selling authors and media celebrities, which it licenses for book and other media. This segment includes a 51% interest in Tekno Books, and a book development business, and this segment does not include our 50% interest in NetCo Partners. |
22
Table of Contents
| • | Cable TV – comprised of Hollywood.com Television and Broadway.com Television, free VOD channels that offer interactive entertainment information with on-demand video content to subscribers in certain cable TV systems. | ||
| • | Other – is comprised of payroll and benefits for corporate and administrative personnel as well as other corporate-wide expenses, such as audit fees, proxy costs, insurance, centralized information technology, and includes consulting and other fees and costs relating to compliance with the provisions of the Sarbanes-Oxley Act of 2002 that require Hollywood Media to assess and report on internal control over financial reporting, and related development of controls. |
Results of Discontinued Operations
Sale of Showtimes Business Unit to West World Media
On August 24, 2007, Hollywood Media Corp. entered into and simultaneously closed on a
definitive asset purchase agreement with West World Media and its principal, a former employee,
pursuant to which Hollywood Media sold to West World Media substantially all of the assets of its
Showtimes business for a cash purchase price of $23,000,000, subject to a working capital
post-closing adjustment. The working capital post-closing adjustment was a price reduction of
$114,454, which was paid by Hollywood Media to West World Media in January 2008.
Sale of Baseline/StudioSystems Business Unit to The New York Times Company
On August 25, 2006, Hollywood Media sold the Baseline/StudioSystems business to The New York
Times for a cash purchase price of $35,000,000. As per the purchase agreement, $3,500,000 of the
purchase price was held in escrow for twelve months following the closing to cover potential
indemnification claims, if any, made by The New York Times. During 2007, Hollywood Media received
$2,800,000, representing the full amount of the escrow, net of costs of $700,000 for certain
contractual bonuses due to the former division heads.
Following are components of the net results of discontinued operations for the years ended
December 31, 2007, 2006 and 2005. The results for fiscal 2007 and fiscal 2006 in the table below
include the results of the sold businesses for only the periods up to the date on which the
Showtimes and Baseline/StudioSystems businesses, were sold (August 24, 2007 and August 25, 2006,
respectively), whereas fiscal 2005 includes those businesses’ operations for the entire period.
| 2007 | 2006 | 2005 | ||||||||||
Operating revenue |
$ | 4,322,810 | $ | 10,165,725 | $ | 10,618,631 | ||||||
Gain on sale of discontinued operations net of
income taxes of $569,298 and $524,265
for fiscal 2007 and fiscal 2006, respectively |
10,254,287 | 16,328,241 | — | |||||||||
Income from discontinued operations |
1,345,856 | 2,867,966 | 2,320,432 | |||||||||
Income from discontinued operations |
$ | 11,600,143 | $ | 19,196,207 | $ | 2,320,432 | ||||||
Results of Continuing Operations
The following tables summarize changes in Hollywood Media’s revenue and operating expense from
continuing operations by reportable segment for the years ended December 31, 2007, 2006 and 2005.
For additional financial information regarding Hollywood Media’s reportable segments, see Note 18 –
Segment Reporting in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K
report.
23
Table of Contents
| 2006 to | 2006 to | |||||||||||||||
| Net Revenues | 2007 | 2007 | ||||||||||||||
| Net Revenues Analysis | 2007 | 2006 | Change | Change | ||||||||||||
Broadway Ticketing |
$ | 111,731,398 | $ | 98,102,961 | $ | 13,628,437 | 14% | |||||||||
Ad Sales |
10,891,517 | 9,909,996 | 981,521 | 10% | ||||||||||||
Intellectual Properties |
1,061,118 | 1,229,126 | (168,008 | ) | (14%) | |||||||||||
Cable TV |
197,190 | 174,899 | 22,291 | 13% | ||||||||||||
Other |
— | — | — | — | ||||||||||||
TOTALS |
$ | 123,881,223 | $ | 109,416,982 | $ | 14,464,241 | 13% | |||||||||
| 2005 to | 2005 to | |||||||||||||||
| Net Revenues | 2006 | 2006 | ||||||||||||||
| 2006 | 2005 | Change | Change | |||||||||||||
Broadway Ticketing |
$ | 98,102,961 | $ | 78,890,718 | $ | 19,212,243 | 24% | |||||||||
Ad Sales |
9,909,996 | 4,513,676 | 5,396,320 | 120% | ||||||||||||
Intellectual Properties |
1,229,126 | 1,550,580 | (321,454 | ) | (21%) | |||||||||||
Cable TV |
174,899 | 40,834 | 134,065 | 328% | ||||||||||||
Other |
— | — | — | — | ||||||||||||
TOTALS |
$ | 109,416,982 | $ | 84,995,808 | $ | 24,421,174 | 29% | |||||||||
| 2006 to | 2006 to | |||||||||||||||
| Operating Expenses | 2007 | 2007 | ||||||||||||||
| Operating Expense Analysis | 2007 | 2006 | Change | Change | ||||||||||||
Broadway Ticketing |
$ | 108,380,905 | $ | 94,165,013 | $ | 14,215,892 | 15% | |||||||||
Ad Sales |
13,131,475 | 10,888,395 | 2,243,080 | 21% | ||||||||||||
Intellectual Properties |
1,070,036 | 1,065,173 | 4,863 | 0% | ||||||||||||
Cable TV |
776,403 | 748,353 | 28,050 | 4% | ||||||||||||
Other |
10,535,791 | 11,097,590 | (561,799 | ) | (5%) | |||||||||||
TOTALS |
$ | 133,894,610 | $ | 117,964,524 | $ | 15,930,086 | 14% | |||||||||
| 2005 to | 2005 to | |||||||||||||||
| Operating Expenses | 2006 | 2006 | ||||||||||||||
| 2006 | 2005 | Change | Change | |||||||||||||
Broadway Ticketing |
$ | 94,165,013 | $ | 76,092,532 | $ | 18,072,481 | 24% | |||||||||
Ad Sales |
10,888,395 | 6,362,487 | 4,525,908 | 71% | ||||||||||||
Intellectual Properties |
1,065,173 | 1,170,944 | (105,771 | ) | (9%) | |||||||||||
Cable TV |
748,353 | 720,766 | 27,587 | 4% | ||||||||||||
Other |
11,097,590 | 11,834,116 | (736,526 | ) | (6%) | |||||||||||
TOTALS |
$ | 117,964,524 | $ | 96,180,845 | $ | 21,783,679 | 23% | |||||||||
24
Table of Contents
Comparison of Percentage Changes in Net Revenues and Operating Expenses
| 2006 to 2007 | 2006 to 2007 | 2005 to 2006 | 2005 to 2006 | |||||||||||||
| Revenues | Operating Expenses | Revenues | Operating Expenses | |||||||||||||
Increase (decrease) in -
Broadway Ticketing |
14 | % | 15 | % | 24 | % | 24 | % | ||||||||
Ad Sales |
10 | % | 21 | % | 120 | % | 71 | % | ||||||||
Intellectual Properties |
(14 | %) | 0 | % | (21 | %) | (9 | %) | ||||||||
Cable TV |
13 | % | 4 | % | 328 | % | 4 | % | ||||||||
Other |
— | (5 | %) | — | (6 | %) | ||||||||||
TOTALS |
13 | % | 14 | % | 29 | % | 23 | % | ||||||||
Note Regarding Impact of Broadway Strike
Results of continuing operations for the year ended December 31, 2007 were negatively impacted
by the Broadway stagehand strike that ended on November 28, 2007
and caused 19 days of
cancelled Broadway performances. We received refunds or credits from
the show box offices on virtually all tickets purchased by the
Broadway Ticketing division for cancelled performances. We worked with customers to address orders placed for these
cancelled performances, and refunds or exchanges were provided at the
election of the customer. Any orders not refunded or exchanged
by the end of the year were included in “Customer deposits” in the Consolidated Balance Sheets in
Item 8 of this Form 10-K.
Net Revenues
Total net revenues for fiscal 2007 were $123,881,223 compared to $109,416,982 and $84,995,808
for fiscal 2006 and fiscal 2005, respectively. Revenues increased $14,464,241, or 13%, in fiscal
2007 from fiscal 2006 and increased $24,421,174, or 29%, in fiscal 2006 from fiscal 2005. The
increase in net revenues for fiscal 2007 as compared to fiscal 2006 is primarily the result of
increases in Broadway ticketing revenue of $13,628,437, Ad Sales revenue of $981,521 and Cable TV
revenue of $22,291, offset in part by a decrease in Intellectual Properties revenue of $168,008.
In fiscal 2007 and fiscal 2006, net revenues were derived 90% from Broadway Ticketing, 9% from Ad
Sales and 1% from Intellectual Properties. In fiscal 2005, Broadway Ticketing represented 93% of
all revenues, Ad Sales represented 5% and Intellectual Properties represented 2%.
Broadway Ticketing net revenue for fiscal 2007 was $111,731,398 as compared to $98,102,961 for
fiscal 2006, and $78,890,718 for fiscal 2005. Broadway Ticketing net revenue increased $13,628,437,
or 14%, for fiscal 2007 from fiscal 2006 and increased $19,212,243, or 24%, for fiscal 2006 from
fiscal 2005. The increase in Broadway Ticketing net revenue in fiscal 2007 compared to fiscal 2006
is the result of an increase in sales to consumers, the purchase of the Showtix business in
February 2007, ticket price increases by theaters, increases in service fees on individual ticket
sales and increases in number of tickets sold. The increase in Broadway Ticketing net revenue in
fiscal 2006 compared to fiscal 2005 is the result of an increase in sales to consumers, hotel
package sales and changes in our marketing and advertising strategies. Ticketing revenue is
generated from the sales of live theater tickets for Broadway, off-Broadway and London’s West End
both online via Broadway.com and offline via 1-800-BROADWAY to domestic and international travel
professionals, tourists and New York area theater patrons. Beginning in the fourth quarter of
2007, sales for events in London’s West End are fulfilled through a partnership agreement between
Theatre.com and an unrelated London-based ticket agency. Ticketing revenue is recognized on the
date of performance of the show. Ticket revenue received for performances yet to take place is
recorded as “Deferred revenue” on our consolidated balance sheets.
Ad Sales net revenue was $10,891,517 for fiscal 2007 as compared to $9,909,996 for fiscal 2006
and $4,513,676 for fiscal 2005. Ad Sales net revenue increased $981,521 or 10% for fiscal 2007
from fiscal 2006 and increased $5,396,320, or 120%, for fiscal 2006 from fiscal 2005. The increase
in Ad Sales from fiscal 2006 to fiscal 2007 is primarily due to increased commission revenue due to
higher ad sales on MovieTickets.com, and growth of the plasma sales business in CinemasOnline,
offset in part by a decrease in ad sales on Broadway.com due to changes in its advertising model to
reduce banner ad sales and increase sponsorships from
25
Table of Contents
theater producers. The increase in ad sales revenue from fiscal 2005 to fiscal 2006 was
primarily due to the acquisition of CinemasOnline in November 2005 and growth of ad sales on
Hollywood.com and Broadway.com, as well as increased commission revenue from ad sales on
MovieTickets.com. CinemasOnline contributed $4,158,393 to the increase in revenue from fiscal 2005
to fiscal 2006. Ad Sales revenue is generated from the sale of advertising and sponsorships on
Hollywood.com as well as advertising sales by CinemasOnline. Hollywood Media also earns
commissions on ad sales which Hollywood Media sells for placement on MovieTickets.com.
Intellectual Properties net revenues were $1,061,118 for fiscal 2007, compared to $1,229,126
for fiscal 2006 and $1,550,580 for fiscal 2005. Net revenues generated from Intellectual Properties
decreased $168,008, or 14%, in fiscal 2007 from fiscal 2006 and decreased $321,454, or 21%, in
fiscal 2006 from fiscal 2005. The decrease in revenues from fiscal 2006 to fiscal 2007, as well as
from fiscal 2005 to fiscal 2006 was attributable to the timing of the delivery of manuscripts as
fewer manuscripts were delivered in fiscal 2007 as compared to fiscal 2006 and fiscal 2005 and to
sluggishness in the publishing industry. The Intellectual Properties division generates revenues
from several different activities including book development and licensing, and intellectual
property licensing. Revenues vary quarter to quarter depending on the timing of delivery of
manuscripts to the publishers. Revenues are recognized when the earnings process is complete and
ultimate collection of such revenues is no longer subject to contingencies. This division does not
include NetCo Partners, which is reported separately; see “Equity in Earnings of Unconsolidated
Investees” below.
Equity in Earnings of Unconsolidated Investees
Equity in earnings of unconsolidated investees consists of the following:
| For the years ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
NetCo Partners (a) |
$ | 4,747 | $ | 12,227 | $ | 533,228 | ||||||
MovieTickets.com (b) |
— | — | — | |||||||||
| $ | 4,747 | $ | 12,227 | $ | 533,228 | |||||||
(a) NetCo Partners
NetCo Partners owns Tom Clancy’s NetForce and is primarily engaged in the development and
licensing of Tom Clancy’s NetForce. NetCo Partners recognizes revenues when the earnings process
has been completed based on the terms of the various agreements, generally upon the delivery of the
manuscript to the publisher and at the point where ultimate collection is substantially assured.
When advances are received prior to completion of the earnings process, NetCo Partners defers
recognition of revenue until the earnings process has been completed. Hollywood Media owns 50% of
NetCo Partners and accounts for its investment under the equity method. Hollywood Media’s 50% share
of earnings of NetCo Partners was $4,747 for fiscal 2007 a decrease of 61% or $7,480 as compared to
$12,227 for fiscal 2006. Our 50% share of earnings was $533,228 for fiscal 2005. Revenues decreased
for fiscal 2007 compared to fiscal 2006 and 2005 primarily due to fewer manuscripts delivered.
Revenues vary year to year dependent on the timing of deliveries of manuscripts to the publisher.
Costs related to the acquisition, development and sales of the intellectual properties and their
licensed products are expensed in proportion to the revenues that have been recognized.
(b) MovieTickets.com
Hollywood Media owns 26.2% of the total equity in the MovieTickets.com, Inc. joint venture.
Hollywood Media records its investment in MovieTickets.com under the equity method of accounting,
recognizing its percentage interest in MovieTickets.com’s income or loss as equity in earnings of
unconsolidated investees. Under applicable accounting principles, Hollywood Media has not recorded
income from its investment in MovieTickets.com for fiscal 2007 and fiscal 2006 because accumulated
losses from fiscal 2005 and prior years exceed MovieTickets.com’s accumulated net income in fiscal
2007 and fiscal 2006. The
26
Table of Contents
MovieTickets.com web site generates revenues from service fees charged to users for the
purchase of movie tickets online and the sale of advertising.
MovieTickets.com is a leading destination for the purchase of movie tickets through the
Internet. Hollywood Media launched the MovieTickets.com website in May 2000 with several major
movie theater exhibitors. The MovieTickets.com website allows users to purchase movie tickets and
retrieve them at “will call” windows or kiosks at theaters or the user can print at home for
theatres with that capacity. The website generates revenues from service fees charged to users for
the purchase of tickets and the sale of advertising. Service fees on ticket sales were introduced
in November 2000. MovieTickets.com’s participating exhibitors operate theaters located in all of
the top twenty markets and approximately 70% of the top 50 and top 100 markets in the United States
and Canada and represent approximately 50% of the top 50 and top 100 grossing theaters in North
America. Additionally, MovieTickets.com operates in the United Kingdom. See Item 1 — Business,
and Note 15 to Consolidated Financial Statements for additional information about MovieTickets.com.
Operating Expenses
Cost of Revenues — Ticketing. Cost of revenues — ticketing was $93,367,536 for fiscal 2007
compared to $81,928,952 for fiscal 2006 and $67,515,534 for fiscal 2005. Cost of revenues consists
primarily of the cost of tickets and credit card fees for the Broadway Ticketing segment, partially
offset by rebates received from certain producers based on exceeding certain ticketing sales goals.
As a percentage of ticketing revenues, cost of revenues — ticketing was 84%, 84% and 86% for
fiscal 2007, 2006 and 2005, respectively. The reduction in cost of revenue as percentage of
ticketing revenue in fiscal 2006 as compared to fiscal 2005 was due in large part to a greater
proportion of higher margin consumer ticket sales in 2006 as compared to 2005.
We have increased ticket pricing flexibility following the adoption of legislation in New York
during 2007 that eliminated price caps on service fees on event tickets. We continue adjusting and
evaluating our pricing models on our consumer sales with the goal of expanding margins on tickets.
As a result, our overall margin percentage on consumer ticket sales increased during 2007 as
compared to 2006. The overall Broadway Ticketing segment’s gross margin percentage on ticket sales is
influenced by the mix of consumer ticket sales and group sales, because group sales typically
generate lower margin than consumer sales, and the consumer-to-group ratio varies from period to
period.
Editorial, Production, Development and Technology. Editorial, production, development and
technology costs include payroll and related expenses for the editorial and production staff
responsible for (i) creating content and supporting Ad Sales on Hollywood Media’s websites,
including Hollywood.com and Broadway.com, and (ii) supporting Ad Sales on the MovieTickets.com
website. These expenses also include Internet access and computer related expenses for the support
and delivery of these services, and fees and royalties paid to authors and co-editors for the
Intellectual Properties segment. Editorial, production, development and technology costs for fiscal
2007 were $6,286,130 as compared to $5,331,498 for fiscal 2006 and $2,991,091 for fiscal 2005. As
a percentage of aggregate net revenues from our Ad Sales and Intellectual Properties segments,
these costs were 52%, 47% and 49% for fiscal 2007, 2006 and 2005, respectively. The fiscal 2007
over fiscal 2006 increase in Editorial, Production, Development and Technology as a percentage of
revenue was mainly due to increased investment in the Ad Sales segment in terms of further
development of our web sites and new hires in our production and editorial staff, as well as
increased commission payments in our U.K. subsidiaries. The decrease in fiscal 2006 as compared to
fiscal 2005 in Editorial, Production, Development and Technology costs as a percentage of revenue
is due in part to lower incremental costs associated with the increased revenues in the Ad Sales
segment.
Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses
consist of occupancy costs, professional and consulting service fees, telecommunications costs,
provision for doubtful accounts receivable, general insurance costs, selling and marketing costs
(such as advertising, marketing, promotional, business development, public relations, and
commissions due to advertising agencies, advertising representative firms and other parties). The
SG&A expenses for fiscal 2007 were $16,321,373 compared to
27
Table of Contents
$14,884,268 for fiscal 2006, for an increase of $1,437,105, or 10%, and $10,818,088 for fiscal
2005, for an increase in fiscal 2006 of $4,066,180 or 38% as compared to fiscal 2005. As a
percentage of net revenues, SG&A expenses were 13% for fiscal 2007, 14% for fiscal 2006 and 13% for
fiscal 2005. The increase in SG&A expenses in fiscal 2007 over fiscal 2006 was due in large part to
the following: (i) increased occupancy expense of $821,155, of which approximately $625,390 is
temporary redundant lease expense for our Broadway Ticketing division while we moved our New York
office to new consolidated space nearby, and (ii) an increase of approximately $481,190 in
advertising expenses for our Broadway Ticketing division. The increase in SG&A in fiscal 2006 as
compared to fiscal 2005 (excluding the impact of the CinemasOnline acquisition in November 2005)
was due primarily to an increase of $1,778,000 in advertising expense in the Broadway Ticketing
segment, an increase of $1,295,000 in consulting expense mainly due to our outsourcing of
technology to third party providers in India and to cover our staffing needs at one of our
subsidiaries while we changed our organizational structure, an increase in bad debt expense of
$282,000, and an increase in travel and entertainment of $117,000, offset in part by decreases in
Sarbanes Oxley consulting fees of $513,000 and accounting fees of $146,000. In addition, the
acquisition of CinemasOnline in November 2005 increased SG&A expense in fiscal 2006 by $884,000 as
compared to fiscal 2005.
Payroll and Benefits.
Payroll and benefits expenses consist of payroll and benefits including any other types of
compensation benefits as well as human resources and administrative functions.
Payroll and benefits expenses for fiscal 2007 were $16,072,400 as compared to $14,117,379 for
fiscal 2006, an increase of $1,955,021, or 14%, and $13,586,986 for fiscal 2005. Payroll and
benefits expenses increased $530,393, or 4%, in fiscal 2006 as compared to fiscal 2005. As a
percentage of net revenues, payroll and benefits expenses were approximately 13% in fiscal 2007 and
fiscal 2006 and 16% in fiscal 2005.
The increase in payroll and benefits in fiscal 2007 over fiscal 2006 was due in large part to
the following factors: (i) an increase of approximately $751,000 in expenses relating to the hiring
of additional salespersons for the ad sales division, and the addition of a new President of
Hollywood.com, (ii) approximately $367,000 in additional payroll and benefits expenses resulting
from the acquisition of the Showtix business in February 2007, (iii) an increase of $495,000 in
additional payroll and benefits in our ticketing segment due to the hiring of additional accounting, managerial and other staff, and (iv) an increase in health insurance
expense of approximately $139,000.
The increase in costs from fiscal 2005 to fiscal 2006 relating to payroll and benefits was due
in large part to the following factors: the acquisition of CinemasOnline in the fourth quarter of
2005 which added $746,298 of additional payroll costs to fiscal year 2006; $787,513 in additional
share-based compensation (see “Stock Option Plans; Warrants; and Employee Stock Based Compensation”
in Note 3 of Notes to Consolidated Financial Statements); our growing ticket volume on Broadway.com
in fiscal 2006 required increases in technology and customer service personnel resources. These
increases in expenses were offset in part by decreases in expenses resulting from outsourcing of
information technology services to India.
Depreciation and Amortization.
Depreciation and amortization expense consists of depreciation of property and equipment,
furniture and fixtures, web site development, leasehold improvements, equipment under capital
leases and amortization of intangibles. Depreciation and amortization expense was $1,847,171 for
fiscal 2007 as compared to $1,702,427 for fiscal 2006 and $1,269,146 for fiscal 2005. Depreciation
and amortization increased $144,744 or 9% in fiscal 2007 compared to an increase of $433,281, or
34%, in fiscal 2006. The increase in depreciation and amortization expense from fiscal 2006 to
fiscal 2007 is primarily due to an increase in investments in our Ad Sales segment. The increase
in depreciation and amortization from fiscal 2005 to fiscal 2006 is primarily due to the
amortization of intangibles and a full year of expenses related to the CinemasOnline acquisition in
November 2005.
28
Table of Contents
Interest, net.
Interest, net was income of $199,437 for fiscal 2007 as compared to an expense of $1,787,735
for fiscal 2006 and an expense of $545,597 for fiscal 2005. The decrease of $1,987,172 or 111% in
interest, net in fiscal 2007 as compared to fiscal 2006 was primarily attributable to the payoff of
$7,000,000 principal amount of Senior Unsecured Notes in May 2007, accretion of debt discount and
increased income from interest bearing accounts. The increase of $1,242,138, or 228%, in interest,
net in fiscal 2006 as compared to fiscal 2005 was primarily attributable to the issuance of
$7,000,000 in Senior Unsecured Notes on November 23, 2005, resulting in higher interest expense in
fiscal 2006.
Change in derivative liability.
Change in derivative liability was $0 for fiscal 2007 as compared to a positive amount of
$640,536 for fiscal 2006 and $87,037 for fiscal 2005. The change in derivative liability to zero
in fiscal 2007 from fiscal 2006 was due to a change in accounting principle from the adoption of a
new accounting pronouncement effective as of January 1, 2007, which eliminated the derivative
liability through shareholders’ equity. See Note 11 — Debt in the Notes to Consolidated Financial
Statements in Item 8 of this Form 10-K report. The increase in gain of $553,499 or 636% in change
in derivative liability in fiscal 2006 over fiscal 2005 was due to a decrease in the fair value of
the derivative, resulting from a reduction in the Company’s share price.
Net Income (Loss).
Hollywood Media’s net income for fiscal 2007 was $1,734,609 as compared to a net income for
fiscal 2006 of $9,522,513 and a net loss of $8,913,182 for fiscal 2005. The net income decreased in
fiscal 2007 as compared to fiscal 2006 by $7,778,904, or 82%, primarily due to the gain on sale of
the Showtimes business in 2007 being smaller than the gain on the sale of Baseline/StudioSystems
business in 2006. The net income increased in fiscal 2006 as compared to fiscal 2005 by
$18,435,695, primarily due to the gain on sale of the Baseline/StudioSystems business and growth in
our Broadway Ticketing and Ad Sales segments, offset by decreasing operating income in our
Intellectual Properties segment.
LIQUIDITY AND CAPITAL RESOURCES
Cash Balance at Year End; Sources and Uses of Cash
Hollywood Media’s cash and cash equivalents were $26,758,550 at December 31, 2007 as compared
to $27,448,649 at December 31, 2006. Our net working capital (defined as current assets less
current liabilities) was $20,161,486 at December 31, 2007 as compared to $16,380,362 at December
31, 2006.
Net cash used in operating activities from continuing operations during fiscal 2007 was
$9,606,933, which cash usage was primarily attributable to the loss from continuing operations.
Net cash used in operating activities from continuing operations during 2006 was $6,622,395.
Net cash provided by investing activities from continuing operations during fiscal 2007 was
$18,836,591, which net cash included, among other things, $25,418,361 in cash proceeds from the
sale of assets (including sale of the Showtimes business, discussed below), and cash outlays which
included, among other things, $3,763,247 for capital expenditures (including $2,511,424 for
leasehold improvements for the new Broadway offices in New York City) and $2,690,659 for the
acquisition of the Showtix business. Net cash provided by investing activities from continuing
operations during fiscal 2006 was $23,803,922, which net cash included, among other things,
$25,159,520 in cash proceeds from the sale of assets (including sale of the Baseline/StudioSystems
business, discussed below), and cash outlays of $1,117,060 for capital expenditures.
29
Table of Contents
Net cash used in financing activities from continuing operations during fiscal 2007 was
$11,845,959, which cash usage included, among other things, $7 million for repayment in full of all
outstanding Senior Unsecured Notes (discussed below), and approximately $5.1 million for the
repurchase of common stock of Hollywood Media under the previously announced stock repurchase
program (discussed below). Net cash provided by financing activities from continuing operations
during fiscal 2006 was $341,419.
Sale of Showtimes Business Unit to West World Media LLC
On August 24, 2007, Hollywood Media and its wholly-owned subsidiary Showtimes, entered into
and simultaneously closed on a definitive asset purchase agreement with Brett West and West World
Media, pursuant to which Hollywood Media sold substantially all of the assets of the Showtimes
business to West World Media for a cash purchase price of $23,000,000 paid to Hollywood Media on
the closing date. The Showtimes business included the CinemaSource, EventSource and ExhibitorAds
operations and constituted the remainder of Hollywood Media’s Data Business Division, which
previously included the Baseline/StudioSystems business unit until it was sold to The New York
Times on August 25, 2006. West World Media is controlled by Brett West, who founded the Showtimes
business in 1995 and sold the business to Hollywood Media in 1999. Mr. West served as president of
Hollywood Media’s Showtimes business. The purchase price was determined in an arms’ length
negotiation between Hollywood Media and West World Media. The purchase price decreased due to a
post-closing adjustment of $114,454 paid by Hollywood Media to West World Media in January 2008.
Hollywood Media’s expenditures relating to the sale include approximately $553,000 in estimated
state and federal income taxes and approximately $1.7 million in fees and expenses payable to
Hollywood Media’s financial and legal advisors. For additional information about this transaction,
see Note 4 “Discontinued Operations” in the Notes to the Consolidated Financial Statements
contained in Part II, Item 8, of this Form 10-K Report.
Acquisition of Showtix Business
On February 1, 2007, TDI invested approximately $2.7 million in cash to consummate its
acquisition of the Broadway ticketing business of Showtix. See Note 5 “Acquisitions and Other
Capital Transactions” in the Notes to the Consolidated Financial Statements contained in Part II,
Item 8 of this Form 10-K report.
Sale of Baseline StudioSystems Business Unit to The New York Times Company
On August 25, 2006, Hollywood Media entered into and simultaneously closed on a definitive
stock purchase agreement (the “Purchase Agreement”) with The New York Times, pursuant to which The
New York Times purchased all of the outstanding capital stock of Hollywood Media’s wholly-owned
subsidiary, Baseline Acquisitions Corp. (“BAC”), for a cash purchase price of $35,000,000. BAC was
the subsidiary of Hollywood Media that owned Hollywood Media’s Baseline business unit. Baseline
constituted a portion of Hollywood Media’s Data Business division. This sale to The New York Times
did not include the other components of Hollywood Media’s Data Business division (e.g.,
CinemaSource, EventSource and ExhibitorAds). $3.5 million of the purchase price was held in escrow
for twelve months following the closing to cover potential indemnification claims by The New York
Times under the terms of the Purchase Agreement. As of September 30, 2007, Hollywood Media received
the full amount of the escrow net of $700,000 for payment of previously expensed bonuses due the
former division heads under preexisting agreements. The net amount of $2,800,000 of escrow, and
accumulated interest, was received during the three months ended September 30, 2007. For
additional information about this transaction, see Note 4 “Discontinued Operations” in the Notes to
the Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K Report.
2004 Private Placement
In February 2004, Hollywood Media completed a private placement of common stock, which
included the issuance of 5,773,355 shares of common stock to investors and five-year warrants to
purchase an aggregate of 1,732,006 shares of common stock with an exercise price of $2.84 per
share. Hollywood Media’s net cash proceeds from the private placement were approximately $15.1
million after deduction of expenses in
30
Table of Contents
connection with the transaction. Hollywood Media received $188,803 and $803,664 net of placement
agent commission, from the exercise of a portion of these warrants during fiscal 2006 and fiscal
2005, respectively.
Senior Unsecured Notes Issued in 2005
On November 23, 2005, Hollywood Media issued and sold $7,000,000 aggregate principal amount of
its Senior Unsecured Notes (the “Senior Notes”) for aggregate gross cash proceeds of $7,000,000.
In May 2007, Hollywood Media paid off the Senior Notes in full, including the $7,000,000 in
principal plus accrued interest, in accordance with the terms of the Senior Notes, and there is no
outstanding balance remaining on the Senior Notes. The Senior Notes carried an 8% interest rate and
an initial 12 month term, on which interest was payable in quarterly installments commencing
December 31, 2005. Hollywood Media’s net cash proceeds from the issuance, net of issuance costs,
were $6,595,690. The holders of the Senior Notes also received warrants to purchase 700,000 shares
of Hollywood Media’s common stock at an exercise price of $4.29 per share. In March 2006, Hollywood
Media exercised its option under the terms of the Senior Notes, to extend the maturity date of the
Senior Notes to May 23, 2007 in exchange for the delivery of additional five-year warrants to
purchase an aggregate of 100,000 shares of Hollywood Media’s common stock with exercise price per
share at $4.29. The Senior Notes were not convertible at the option of the holders.
Capital Expenditures
Our capital expenditures during 2007 (excluding discontinued operations) were $3,763,247. We
currently anticipate capital expenditures in 2008 of approximately $1.5 million, including various
systems and equipment upgrades. These anticipated 2008 capital expenditures do not include any
estimates for potential business acquisitions.
Outlook
Our cash and cash equivalents generated from the sales of our Baseline/StudioSystems and
Showtimes businesses in fiscal 2006 and fiscal 2007, respectively, have provided substantial
additional working capital for Hollywood Media, and we have utilized portions of such working
capital for various corporate purposes and business activities including, among other things, the
repayment of debt and the purchase of the Showtix business referenced above, improvements and
investments in various aspects of our Broadway Ticketing and Hollywood.com divisions, and for the
repurchase of shares of Hollywood Media’s common stock pursuant to our previously announced stock
repurchase program (discussed below). Our businesses have required substantial financing, and may
require additional capital to fund our growth plans and for working capital, which capital
requirements we contemplate will be satisfied from our cash and cash equivalents on hand. Based on
our current plans and assumptions for operations and investment and financing activities, we
estimate that our cash and cash equivalents on hand and anticipated cash flow from operations will
be sufficient to meet our working capital and investment requirements at least through December 31,
2008. If our plans change or our assumptions prove to be inaccurate, we may need to seek further
financing or curtail our growth and/or operations. We believe that our long-term financial success
ultimately depends on our ability to generate enough revenue to more than offset operating
expenses.
While we continue to develop our businesses, we have resumed our strategic review process
which may help us realize the full value of our assets in the interest of our shareholders. In
prior years, our strategic review process resulted in the sales of our Baseline/StudioSystems and
Showtimes businesses in 2006 and 2007, respectively. We continue to explore opportunities for
generating returns for Hollywood Media’s shareholders, and such activities currently include
working with JPMorgan as our financial advisor to consider opportunities including potential
dispositions or other strategic transactions. Prior to resuming our strategic review process, we
had, as stated in our press release dated October 1, 2007, temporarily suspended such process when
our Board of Directors approved the stock repurchase program referenced below. We cannot make
assurances as to the timing or occurrence of any future strategic transactions or further stock
repurchases.
31
Table of Contents
Authorization of Stock Repurchase Program
Hollywood Media previously reported in its current report on Form 8-K filed with the SEC on
October 4, 2007, that its Board of Directors authorized a stock repurchase program under which
Hollywood Media may use up to $10 million of its cash to repurchase shares of its outstanding
common stock. See Part II, Item 5, of this Form 10-K report for information about stock
repurchases by Hollywood Media during the fourth quarter of fiscal 2007.
Pursuant to the repurchase program, Hollywood Media is authorized to purchase shares of its
common stock from time to time on the open market or in negotiated transactions. The purchases are
to be funded from available cash and cash equivalents, and the timing and amount of any shares
repurchased will be determined by Hollywood Media’s management based on its evaluation of financial
and market conditions, legal requirements and other factors. The repurchase program has no time
limit and may be suspended for periods or discontinued at any time, and there is no guarantee as to
the number of shares or the amount of cash to be utilized for repurchases. Repurchased shares will
become authorized but unissued shares of Hollywood Media’s common stock.
Contractual Obligations
The following table sets forth information regarding certain types of our contractual
obligations specified below as of December 31, 2007, in accordance with SEC rules requiring this
disclosure.
| Payments Due by Period | ||||||||||||||||||||
| Contractual | Less than | Years | Years | After | ||||||||||||||||
| Obligations | Total | 1 Year | 1-3 | 4-5 | 5 Years | |||||||||||||||
Capital lease obligations (1) |
$ | 474,413 | $ | 186,300 | $ | 283,330 | $ | 4,783 | $ | — | ||||||||||
Operating lease obligations (2) |
9,876,931 | 1,304,161 | 3,619,004 | 2,072,715 | 2,881,051 | |||||||||||||||
Total contractual obligations |
$ | 10,351,344 | $ | 1,490,461 | $ | 3,902,334 | $ | 2,077,498 | $ | 2,881,051 | ||||||||||
| (1) | Capital lease obligations are future lease payments under capital leases inclusive of interest. | |
| (2) | Operating lease obligations include leases pertaining to various leased offices and facilities and those classified as operating leases for financial statement purposes. Certain leases provide for payment of real estate taxes, common area maintenance, insurance, and certain other expenses. Lease terms expire at various dates through the year 2017. Also, certain equipment used in Hollywood Media’s operations is leased under operating leases. |
Off-Balance Sheet Arrangements
At December 31, 2007 and December 31, 2006, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which were established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes of the sort
contemplated by paragraph 4 of Item 303 of SEC Regulation S-K. As such, management believes that
we currently do not have any disclosures to make of the sort contemplated by paragraph 4 of Item
303 regarding “off-balance sheet arrangements.”
Critical Accounting Policies
In response to the SEC’s Release Number 33-8040 “Cautionary Advice Regarding Disclosure About
Critical Accounting Policies” and SEC Release Number 33-8056, “Commission Statement about
Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have
identified the following critical accounting policies that affect the more significant judgments
and estimates used in the preparation of
our consolidated financial statements. The preparation of our consolidated financial statements in
conformity
32
Table of Contents
with accounting principles generally accepted in the United States of America requires
that we make estimates and judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to asset impairment, accruals for
compensation and related benefits, revenue recognition, allowance for doubtful accounts, and
contingencies and litigation. These estimates are based on the information that is currently
available to us and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could vary from those estimates under different assumptions or
conditions. For additional information about our significant accounting policies, including the
critical accounting policies discussed below, see Note 2 — Summary of Significant Accounting
Policies in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.
Allowance for Doubtful Accounts
Hollywood Media maintains an allowance for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments. The Company’s accounting for
doubtful accounts contains uncertainty because management must use judgment to assess the
collectibility of these accounts. When preparing these estimates, management considers a number of
factors, including the aging of a customer’s account, past transactions with customers,
creditworthiness of specific customers, historical trends and other information. The allowance for
doubtful accounts was $1,166,425 and $1,159,503 at December 31, 2007 and 2006, respectively. The
allowance is primarily attributable to receivables due from customers of CinemasOnline. Although
the Company believes its allowance is sufficient, if the financial condition of the Company’s
customers were to unexpectedly deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required that could materially impact the Company’s
consolidated financial statements. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the Company’s customer base
and their dispersion across many different geographic regions.
Ticketing Revenue Recognition
Ticket revenue is derived from the sale of live theater tickets for Broadway, off-Broadway and
London shows to individuals, groups, travel agencies, tour groups and educational organizations.
Proceeds from these sales received in advance of the corresponding performance activity are
included in “Deferred Revenue” in our accompanying consolidated balance sheets, at the time of
receipt, and are recognized as revenue in the period the performance of the show occurs.
Gift certificate revenue is derived from the sale of gift certificates for Broadway,
off-Broadway, London shows and Dinner and Show sales to individuals, groups, travel agencies, tour
groups and corporate programs. Proceeds from these sales are included in “Deferred Revenue” in our
accompanying consolidated balance sheets, at the time of receipt, and if redeemed, are recognized
as revenue in the period in which the performance of the show occurs, or upon expiration of the
unredeemed gift certificate. Gift certificates issued after March 22, 2007 do not expire. Prior
to March 22, 2007, gift certificates were issued with a one-year expiration from the date of
issuance.
Hotel package revenue is derived from the sale of exclusive allocation rooms provided by New
York City hotels to individuals and groups. Proceeds from these sales are recorded on a net basis
and are included in “Customer Deposits” in our accompanying consolidated balance sheets, at the
time of receipt, and are recognized as revenue on the day of departure from the hotel.
Dinner voucher revenue is derived from the sale of dinner vouchers for meals at upscale
restaurants in New York City to individuals and groups. Proceeds from these sales are recorded on
a net basis and are included in “Customer Deposits” in our accompanying consolidated balance
sheets, at the time of receipt, and are recognized as revenue on the date the voucher is presented,
or upon expiration of the voucher.
In July 2000, the Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on EITF
Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” This consensus
provides
33
Table of Contents
guidance concerning under what circumstances a company should report revenue based on (a)
the gross amount billed to a customer because it has earned revenue from the sale of goods or
services or (b) the net amount retained (that is, the amount billed to the customer less the amount
paid to a supplier) because it has earned a commission or fee. Hollywood Media’s existing
accounting policies conform to the EITF consensus. Ticket revenue and cost of revenue-ticketing are
recorded on a gross basis in our accompanying consolidated statements of operations. Hotel
revenues packages and vouchers sold for New York restaurants are reported on a net basis in our
accompanying consolidated statements of operations.
Stock Based Compensation
As permitted under Statement of Financial Accounting Standards No. 148, “Accounting for
Stock-Based Compensation — Transaction and Disclosure — an amendment of FAS 123” (“SFAS No.
148”), which amended Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation (“SFAS No. 123”), we chose to account for our stock plans under the
intrinsic value method as allowed by Accounting Principles Board Opinion No. 25, “Accounting for
Stock Issued to Employees” (“APB No. 25”) and related interpretations through December 31, 2005.
Under APB No. 25, because the exercise price of our employee stock options typically equaled the
market price of the underlying stock on the date of grant, no compensation expense was recorded
upon grant. SFAS No. 148 requires disclosure of the estimated fair value of our employee stock
options granted and pro forma financial information assuming compensation expense was recorded
using these fair values. Determining the fair value of stock options requires the Company to make
assumptions regarding the key variables of a stock option pricing model which includes expected
volatility, estimated life and dividend yield. These estimates are sensitive to changes in several
factors including market conditions.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123R”), which replaces SFAS No. 123 and supercedes APB No. 25. SFAS No. 123R requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the consolidated financial statements based on their fair values and the recording of such expense
in the consolidated statements of operations. In March 2005, the Commission issued Staff Accounting
Bulletin No. 107 (“SAB 107”) which expresses views of the SEC staff regarding the application of
SFAS No. 123R. SAB 107 provides interpretive guidance related to the interaction between SFAS No.
123R and certain SEC rules and regulations, as well as provides the SEC staff’s views regarding the
valuation of share-based payment arrangements for public companies. In April 2005, the Commission
amended compliance dates for SFAS No. 123R to allow companies to implement SFAS No. 123R at the
beginning of their next fiscal year, instead of the next fiscal reporting period that began after
June 15, 2005. The Company was required to adopt the provisions of SFAS No. 123R effective January
1, 2006, at which time the pro forma disclosures previously permitted under SFAS No. 123 are no
longer an alternative to financial statement recognition. The proforma effect of expensing stock
options under a fair value approach using the Black-Scholes pricing model on diluted earnings per
common share for fiscal 2005 is disclosed in Note 3 — Stock Option Plans; Warrants; and Employee
Stock Based Compensation in the Notes to Consolidated Financial Statements in Item 8 of this Form
10-K. The Company has adopted the provisions of the statement as of January 1, 2006. Application
of the standard may have a material impact on the results of operations in future periods.
Impairment of Long-Lived Assets
Effective December 31, 2001, Hollywood Media adopted SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (SFAS No. 144”). SFAS No. 144 superseded SFAS No.
121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of” (“SFAS No. 121”) and the accounting and reporting provisions of Accounting Principles Board
Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions,” (“APB No. 30”) for the disposal of a segment of a business. Consistent with SFAS
No. 121, SFAS No. 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less than the assets’
carrying amount.
34
Table of Contents
We evaluate the recoverability of long-lived assets not held for sale by comparing the
carrying amount of the assets to the estimated undiscounted future cash flows associated with them
annually as of October 1. If and at the time such evaluations indicate that the future undiscounted
cash flows of certain long-lived assets are not sufficient to recover the carrying values of such
assets, the assets are adjusted to their fair values. We estimate fair value based on an analysis
of the net present value of estimated future cash flows. Based on these evaluations, there were no
adjustments to the carrying value of long lived assets during fiscal 2007, 2006, or 2005.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, “Goodwill and
Other Intangible Assets” (“SFAS No. 142”). Under SFAS No. 142, goodwill and intangible assets
acquired after June 30, 2001 are no longer subject to amortization. Goodwill and intangibles with
indefinite lives acquired prior to June 30, 2001 ceased to be amortized beginning January 1, 2002.
In addition, SFAS 142 changed the way we evaluated goodwill and intangibles for impairment.
Beginning January 1, 2002, goodwill and certain intangibles are no longer amortized; however, they
are subject to evaluation for impairment at least annually using a fair value based test. The fair
value based test is a two-step test. The first step involves comparing the fair value of each of
our reporting units to the carrying value of those reporting units. If the carrying value of a
reporting unit exceeds the fair value of the reporting unit, we are required to proceed to the
second step. In the second step, the fair value of the reporting unit would be allocated to the
assets (including unrecognized intangibles) and liabilities of the reporting unit, with any
residual representing the implied fair value of goodwill. An impairment loss would be recognized if
and to the extent that the carrying value of goodwill exceeds the implied value.
As prescribed by SFAS No. 142, we completed the transitional goodwill impairment test by the
second quarter of fiscal 2002 which did not result in an impairment charge. Additionally,
Hollywood Media established October 1, as its annual impairment test date and conducted required
testing on that date during fiscal 2007, 2006 and 2005 and there were no adjustments to the
carrying value of long-lived assets. As of December 31, 2007, we are not aware of any items or
events that would cause us to adjust the recorded value of Hollywood Media’s goodwill for
impairment. Future changes in estimates used to conduct the impairment review, including revenue
projections or market values could cause the analysis to indicate that Hollywood Media’s goodwill
is impaired in subsequent periods and result in a write-off of a portion or all of the goodwill. In
order to evaluate the sensitivity of the fair value calculations of our reporting units on the
impairment calculation, we applied a hypothetical 10% decrease to the fair values of each reporting
unit. This hypothetical decrease did not result in the impairment of goodwill of any reporting
unit.
Inflation and Seasonality
Although we cannot accurately determine the precise effects of inflation, we do not believe
inflation has a material effect on revenue or results of operations. We consider our business to be
somewhat seasonal and expect net revenues to be generally higher during the second and fourth
quarters of each fiscal year for our Tekno Books book licensing business as a result of the general
publishing industry practice of paying royalties semi-annually. The Broadway Ticketing Business is
also influenced by seasonal variations with net revenues generally higher in the second quarter as
a result of increased sales volumes due to the Tony Awards© and in the fourth quarter due to
increased levels during the holiday period. In addition, although not seasonal, our Intellectual
Properties division and NetCo Partners both experience fluctuations in their respective revenue
streams, earnings and cash flow as a result of the amount of time that is expended in the creation
and development of the intellectual properties and their respective licensing agreements. The
recognition of licensing revenue is typically triggered by specific contractual events which occur
at different points in time rather than on a regular periodic basis.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss arising from adverse changes in our assets or liabilities that
might occur due to changes in market rates and prices, such as interest or foreign currency
exchange rates, as well as other relevant market rate or price changes.
35
Table of Contents
Interest rates charged on Hollywood Media’s debt instruments are primarily fixed in nature.
We therefore do not believe that the risk of loss relating to the effect of changes in market
interest rates is material.
We have investments in subsidiaries in the United Kingdom and sell our services into this
foreign market. Our foreign net asset/exposures (defined as assets denominated in foreign currency
less liabilities denominated in foreign currency) for the United Kingdom at December 31, 2007 of
U.S. dollar equivalents was a net liability of $1,420,089.
Our United Kingdom subsidiaries sell services and pay for products and services in British
pounds. A decrease in the British foreign currency relative to the U.S. dollar could adversely
impact our margins. An assumed 10% depreciation of these foreign currencies relative to the U.S.
dollar over the course of fiscal 2007 (i.e., in addition to actual exchange experience) would have
resulted in a translation reduction of our revenue by $892,548 for fiscal 2007.
As the assets, liabilities and transactions of our United Kingdom subsidiaries are denominated
in British pounds, the results and financial condition are subject to translation adjustments upon
their conversion into U.S. dollars for our financial reporting purposes. A 10% decline in this
foreign currency relative to the U.S. dollar over the course of 2007 (i.e., in addition to actual
exchange experience) would have resulted in a translation reduction of our net income of $119,787
for fiscal 2007.
36
Table of Contents
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
| 35 | ||||
| 36 | ||||
| 37 | ||||
| 38 | ||||
| 39 | ||||
| 40 | ||||
37
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Hollywood Media Corp.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Hollywood Media Corp. and
Subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2007. 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 audits.
We conducted our audits 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 audits provide 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 Hollywood Media Corp. and Subsidiaries as of December
31, 2007 and 2006, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 3 to the consolidated financial statements, effective January 1, 2006,
the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (R),
Share-Based Payment.
As discussed in Note 11 to the consolidated financial statements, effective January 1, 2007,
the Company adopted the provisions of Financial Accounting Standards Board Staff
Position EITF 00-19-2, Accounting for Registration Payment Arrangements.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Hollywood Media Corp.’s internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 17, 2008 expressed an adverse opinion on the effectiveness of internal control
over financial reporting because of a material weakness.
KAUFMAN, ROSSIN & CO., P.A.
Miami, Florida
March 17, 2008
38
Table of Contents
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 26,758,550 | $ | 27,448,649 | ||||
Receivables, net |
3,038,711 | 3,345,757 | ||||||
Inventories held for sale |
3,950,578 | 3,374,127 | ||||||
Deferred ticket costs |
16,481,861 | 15,273,324 | ||||||
Prepaid expenses |
2,290,182 | 2,294,730 | ||||||
Other receivables |
3,873,799 | 2,603,416 | ||||||
Other current assets |
629,298 | 3,031,495 | ||||||
Restricted cash |
— | 90,000 | ||||||
Current assets of discontinued operations |
— | 974,026 | ||||||
Total current assets |
57,022,979 | 58,435,524 | ||||||
PROPERTY AND EQUIPMENT, net |
4,890,120 | 1,914,201 | ||||||
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED INVESTEES |
286,985 | 282,714 | ||||||
INTANGIBLE ASSETS, net |
1,477,822 | 1,872,536 | ||||||
GOODWILL |
30,237,137 | 27,832,214 | ||||||
OTHER ASSETS |
63,793 | 110,678 | ||||||
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS |
— | 9,561,737 | ||||||
TOTAL ASSETS |
$ | 93,978,836 | $ | 100,009,604 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable |
$ | 5,655,729 | $ | 3,084,420 | ||||
Accrued expenses and other |
4,808,551 | 6,413,079 | ||||||
Deferred revenue |
24,273,625 | 23,797,907 | ||||||
Customer deposits |
1,928,357 | 1,775,713 | ||||||
Current portion of capital lease obligations |
141,809 | 52,303 | ||||||
Senior unsecured notes, net |
— | 6,375,399 | ||||||
Current portion of notes payable |
53,422 | — | ||||||
Current liabilities of discontinued operations |
— | 556,341 | ||||||
Total current liabilities |
36,861,493 | 42,055,162 | ||||||
DEFERRED REVENUE |
544,491 | 570,218 | ||||||
CAPITAL LEASE OBLIGATIONS, less current portion |
255,971 | 25,285 | ||||||
MINORITY INTEREST |
— | 62,040 | ||||||
OTHER DEFERRED LIABILITY |
622,189 | 3,295 | ||||||
DERIVATIVE LIABILITY |
— | 1,423,464 | ||||||
NOTES PAYABLE, less current portion |
94,289 | — | ||||||
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS |
— | 170,723 | ||||||
COMMITMENTS AND CONTINGENCES |
||||||||
SHAREHOLDERS’ EQUITY |
||||||||
Preferred stock, $.01 par value, 1,000,000 shares authorized; none outstanding |
— | — | ||||||
Common stock, $.01 par value, 100,000,000 shares authorized; 31,897,983 and
33,476,530 shares issued and outstanding at December 31, 2007 and
December 31, 2006, respectively |
318,980 | 334,765 | ||||||
Additional paid-in capital |
310,120,531 | 311,210,796 | ||||||
Accumulated deficit |
(254,839,108 | ) | (255,846,144 | ) | ||||
Total shareholders’ equity |
55,600,403 | 55,699,417 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 93,978,836 | $ | 100,009,604 | ||||
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
are an integral part of these consolidated balance sheets.
39
Table of Contents
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| YEAR ENDED DECEMBER 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
NET REVENUES |
||||||||||||
Ticketing |
$ | 111,731,398 | $ | 98,102,961 | $ | 78,890,718 | ||||||
Other |
12,149,825 | 11,314,021 | 6,105,090 | |||||||||
| 123,881,223 | 109,416,982 | 84,995,808 | ||||||||||
OPERATING COSTS AND EXPENSES |
||||||||||||
Cost of revenues — ticketing |
93,367,536 | 81,928,952 | 67,515,534 | |||||||||
Editorial, production, development and technology (exclusive of
depreciation and amortization shown separately below) |
6,286,130 | 5,331,498 | 2,991,091 | |||||||||
Selling, general and administrative |
16,321,373 | 14,884,268 | 10,818,088 | |||||||||
Payroll and benefits |
16,072,400 | 14,117,379 | 13,586,986 | |||||||||
Depreciation and amortization |
1,847,171 | 1,702,427 | 1,269,146 | |||||||||
Total operating costs and expenses |
133,894,610 | 117,964,524 | 96,180,845 | |||||||||
Loss from operations |
(10,013,387 | ) | (8,547,542 | ) | (11,185,037 | ) | ||||||
EQUITY IN EARNINGS OF UNCONSOLIDATED INVESTEES |
4,747 | 12,227 | 533,228 | |||||||||
OTHER INCOME (EXPENSE): |
||||||||||||
Interest, net |
199,437 | (1,787,735 | ) | (545,597 | ) | |||||||
Change in derivative liability |
— | 640,536 | 87,037 | |||||||||
Other, net |
(59,572 | ) | 3,910 | 44,862 | ||||||||
Loss from continuing operations before minority interest |
(9,868,775 | ) | (9,678,604 | ) | (11,065,507 | ) | ||||||
MINORITY INTEREST IN (INCOME) LOSSES OF SUBSIDIARIES |
3,241 | 4,910 | (168,107 | ) | ||||||||
Loss from continuing operations |
(9,865,534 | ) | (9,673,694 | ) | (11,233,614 | ) | ||||||
Gain on sale of discontinued operations, net of income taxes |
10,254,287 | 16,328,241 | — | |||||||||
Income from discontinued operations |
1,345,856 | 2,867,966 | 2,320,432 | |||||||||
Income from discontinued operations |
11,600,143 | 19,196,207 | 2,320,432 | |||||||||
Net Income (loss) |
$ | 1,734,609 | $ | 9,522,513 | $ | (8,913,182 | ) | |||||
Basic and diluted income (loss) per common share |
||||||||||||
Continuing operations |
$ | (0.30 | ) | $ | (0.30 | ) | $ | (0.36 | ) | |||
Discontinued operations |
0.35 | 0.59 | 0.08 | |||||||||
Total basic and diluted net income (loss) per share |
$ | 0.05 | $ | 0.29 | $ | (0.28 | ) | |||||
Weighted average common and common equivalent shares
outstanding — basic and diluted |
33,303,886 | 32,761,848 | 31,470,307 | |||||||||
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements of operations.
are an integral part of these consolidated statements of operations.
40
Table of Contents
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Common Stock | Additional | Deferred | Accumulated | |||||||||||||||||||||
| Shares | Amount | Paid-in Capital | Compensation | Deficit | Total | |||||||||||||||||||
Balance – December 31, 2004 |
31,283,706 | $ | 312,837 | $ | 305,729,408 | $ | (2,437,500 | ) | $ | (256,455,475 | ) | $ | 47,149,270 | |||||||||||
Issuance of compensatory stock for services
rendered |
22,237 | 222 | 103,738 | — | — | 103,960 | ||||||||||||||||||
Issuance of stock – stock option exercises |
606,714 | 6,067 | 1,320,223 | — | — | 1,326,290 | ||||||||||||||||||
Issuance of stock to employees |
22,655 | 227 | 101,102 | — | — | 101,329 | ||||||||||||||||||
Issuance of stock – interest on convertible
debenture |
13,620 | 136 | 59,863 | — | — | 59,999 | ||||||||||||||||||
Issuance of stock – warrant exercise, net of
placement commissions |
514,574 | 5,146 | 798,518 | — | — | 803,664 | ||||||||||||||||||
Issuance of stock – 401(k) employer match |
39,951 | 400 | 193,362 | — | — | 193,762 | ||||||||||||||||||
Amortization of deferred compensation |
— | — | — | 650,000 | — | 650,000 | ||||||||||||||||||
Acquisition costs paid with common stock |
— | — | 144,000 | — | — | 144,000 | ||||||||||||||||||
Proceeds from issuance of stock to consultants |
200,000 | 2,000 | 778,000 | — | — | 780,000 | ||||||||||||||||||
Net loss |
— | — | — | — | (8,913,182 | ) | (8,913,182 | ) | ||||||||||||||||
Balance – December 31, 2005 |
32,703,457 | 327,035 | 309,228,214 | (1,787,500 | ) | (265,368,657 | ) | 42,399,092 | ||||||||||||||||
Reclassification of deferred compensation |
— | — | (1,787,500 | ) | 1,787,500 | — | — | |||||||||||||||||
Issuance of stock – stock option exercises |
67,125 | 672 | 204,769 | — | — | 205,441 | ||||||||||||||||||
Issuance of stock to employees |
126,914 | 1,269 | 542,802 | — | — | 544,071 | ||||||||||||||||||
Issuance of stock – interest on convertible
debenture |
9,133 | 91 | 38,374 | — | — | 38,465 | ||||||||||||||||||
Issuance of stock – warrant exercise, net of
placement commissions |
69,250 | 692 | 188,111 | — | — | 188,803 | ||||||||||||||||||
Issuance of stock – 401(k) employer match |
44,028 | 440 | 189,320 | — | — | 189,760 | ||||||||||||||||||
Amortization of deferred compensation |
— | — | 650,000 | — | — | 650,000 | ||||||||||||||||||
Issuance of stock for business acquisitions |
23,844 | 238 | 99,762 | — | — | 100,000 | ||||||||||||||||||
Issuance of stock for acquisitions of intangible
assets |
120,279 | 1,203 | 515,297 | — | — | 516,500 | ||||||||||||||||||
Issuance of stock – conversion of convertible
debentures |
312,500 | 3,125 | 996,875 | — | — | 1,000,000 | ||||||||||||||||||
Compensation expense on employee stock options |
— | — | 344,772 | — | — | 344,772 | ||||||||||||||||||
Net income |
— | — | — | — | 9,522,513 | 9,522,513 | ||||||||||||||||||
Balance – December 31, 2006 |
33,476,530 | 334,765 | 311,210,796 | — | (255,846,144 | ) | 55,699,417 | |||||||||||||||||
Effect of adoption of FSP EITF 00-19-2 |
— | — | 2,151,037 | — | (727,573 | ) | 1,423,464 | |||||||||||||||||
Stock repurchase program |
(2,003,660 | ) | (20,037 | ) | (5,084,167 | ) | — | — | (5,104,204 | ) | ||||||||||||||
Issuance of stock – stock option exercises |
69,375 | 694 | 203,130 | — | — | 203,824 | ||||||||||||||||||
Issuance of stock to employees |
145,308 | 1,453 | 570,806 | — | — | 572,259 | ||||||||||||||||||
Issuance of stock – warrant exercise |
149,181 | 1,492 | (1,492 | ) | — | — | — | |||||||||||||||||
Issuance of stock – 401(k) employer match |
59,257 | 593 | 248,283 | — | — | 248,876 | ||||||||||||||||||
Amortization of deferred compensation |
— | — | 650,000 | — | — | 650,000 | ||||||||||||||||||
Issuance of stock for acquisitions of intangible
assets |
1,992 | 20 | 7,980 | — | — | 8,000 | ||||||||||||||||||
Compensation expense on employee stock options |
— | — | 164,158 | — | — | 164,158 | ||||||||||||||||||
Net income |
— | — | — | 1,734,609 | 1,734,609 | |||||||||||||||||||
Balance – December 31, 2007 |
31,897,983 | $ | 318,980 | $ | 310,120,531 | $ | — | $ | (254,839,108 | ) | $ | 55,600,403 | ||||||||||||
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements of shareholders’ equity.
are an integral part of these consolidated statements of shareholders’ equity.
41
Table of Contents
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| YEAR ENDED DECEMBER 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income (loss) |
$ | 1,734,609 | $ | 9,522,513 | $ | (8,913,182 | ) | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||||||
Income from discontinued operations |
(11,600,143 | ) | (19,196,207 | ) | (2,320,432 | ) | ||||||
Depreciation and amortization |
1,847,171 | 1,702,427 | 1,269,146 | |||||||||
Interest paid in stock |
— | 38,465 | 59,999 | |||||||||
Amortization of discount and beneficial conversion feature on convertible debentures |
— | 59,073 | 141,775 | |||||||||
Change in derivative liability |
— | (640,536 | ) | (87,037 | ) | |||||||
Amortization of debt issuance costs |
— | 327,096 | 40,870 | |||||||||
Amortization of discount on senior unsecured notes |
624,601 | 1,259,144 | 267,292 | |||||||||
Amortization of deferred financing costs |
— | 4,535 | 10,885 | |||||||||
Equity in earnings of unconsolidated investees, net of return of invested capital |
(4,271 | ) | 264,193 | (111,398 | ) | |||||||
Stock option expense |
164,158 | 344,772 | — | |||||||||
Compensation expense on employee stock issuances |
— | 102,950 | 101,329 | |||||||||
Amortization of deferred compensation costs |
650,000 | 650,000 | 650,000 | |||||||||
Provision for bad debts |
632,283 | 812,034 | 157,213 | |||||||||
Issuance of compensatory stock for services rendered |
— | — | 103,960 | |||||||||
Minority interest in earnings of subsidiaries, net of distributions to minority owners |
(94,969 | ) | (26,098 | ) | 14,063 | |||||||
Changes in assets and liabilities: |
||||||||||||
Receivables |
(325,237 | ) | (1,062,434 | ) | (280,913 | ) | ||||||
Inventories held for sale |
(576,451 | ) | (1,642,848 | ) | (725,034 | ) | ||||||
Deferred ticket costs |
(1,208,537 | ) | (3,469,325 | ) | (4,343,085 | ) | ||||||
Prepaid expenses |
(154,651 | ) | 791 | (91,454 | ) | |||||||
Other receivables |
(924,522 | ) | (496,313 | ) | (578,443 | ) | ||||||
Other current assets |
(543,764 | ) | (178,373 | ) | (7,187 | ) | ||||||
Other assets |
46,885 | (4,064 | ) | 27,611 | ||||||||
Accounts payable |
1,378,630 | (632,354 | ) | (3,048 | ) | |||||||
Accrued expenses and other |
(2,474,254 | ) | 1,221,186 | 1,044,349 | ||||||||
Deferred revenue |
449,991 | 4,247,408 | 5,889,878 | |||||||||
Customer deposits |
152,644 | 180,933 | 601,144 | |||||||||
Other deferred liability |
618,894 | (11,363 | ) | (8,773 | ) | |||||||
Net cash used in operating activities – continuing operations |
(9,606,933 | ) | (6,622,395 | ) | (7,090,472 | ) | ||||||
Net cash provided by operating activities — discontinued operations |
1,960,297 | 3,897,852 | 3,496,313 | |||||||||
Net cash used in operating activities |
(7,646,636 | ) | (2,724,543 | ) | (3,594,159 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Capital expenditures |
(3,763,247 | ) | (1,117,060 | ) | (882,163 | ) | ||||||
Acquisition of businesses, net of cash acquired |
(2,690,659 | ) | 4,979 | (3,647,437 | ) | |||||||
Proceeds from sale of assets |
25,418,361 | 25,159,520 | — | |||||||||
Acquisition of intangible assets |
(248,270 | ) | (153,517 | ) | — | |||||||
Proceeds from property and equipment sales |
29,432 | — | — | |||||||||
Loss on disposition of assets |
974 | — | — | |||||||||
Restricted cash |
90,000 | (90,000 | ) | — | ||||||||
Net cash provided by (used in) investing activities – continuing operations |
18,836,591 | 23,803,922 | (4,529,600 | ) | ||||||||
Net cash used in investing activities – discontinued operations |
(26,123 | ) | (883,901 | ) | (124,210 | ) | ||||||
Net cash provided by (used in) investing activities |
18,810,468 | 22,920,021 | (4,653,810 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Proceeds received from exercise of stock options |
203,824 | 205,441 | 1,326,290 | |||||||||
Proceeds received from exercise of warrants, net |
— | 188,803 | 803,664 | |||||||||
Payments under capital lease obligations |
(93,290 | ) | (52,825 | ) | (129,064 | ) | ||||||
Proceeds from notes payable |
147,711 | — | — | |||||||||
Issuance (repayment) of senior unsecured notes |
(7,000,000 | ) | — | 6,595,690 | ||||||||
Proceeds from issuance of shares to consultants |
— | — | 780,000 | |||||||||
Stock repurchase program |
(5,104,204 | ) | — | — | ||||||||
Net cash provided by (used in) financing activities – continuing operations |
(11,845,959 | ) | 341,419 | 9,376,580 | ||||||||
Net cash used in financing activities – discontinued operations |
(7,972 | ) | (29,176 | ) | (42,203 | ) | ||||||
Net cash provided by (used in) financing activities |
(11,853,931 | ) | 312,243 | 9,334,377 | ||||||||
Net increase (decrease) in cash and cash equivalents |
(690,099 | ) | 20,507,721 | 1,086,408 | ||||||||
CASH AND CASH EQUIVALENTS, beginning of period |
27,448,649 | 6,940,928 | 5,854,520 | |||||||||
CASH AND CASH EQUIVALENTS, end of period |
$ | 26,758,550 | $ | 27,448,649 | $ | 6,940,928 | ||||||
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES: |
||||||||||||
Interest paid |
$ | 268,628 | $ | 649,467 | $ | 38,989 | ||||||
Taxes paid |
$ | 787,086 | $ | 9,678 | $ | 7,455 | ||||||
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements of cash flows.
are an integral part of these consolidated statements of cash flows.
42
Table of Contents
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(1) BACKGROUND:
Hollywood Media Corp. (“Hollywood Media” or “the Company”) was incorporated in the State of
Florida on January 22, 1993. Hollywood Media is a provider of entertainment-related information,
content and ticketing services to consumers and businesses. Hollywood Media manages a number of
integrated business units focused on Hollywood, Broadway and the entertainment industry. Hollywood
Media derives a diverse stream of revenues from this array of business units including revenue from
retail and wholesale Broadway ticket sales, content licensing fees, advertising, and book
development.
Hollywood Media’s main websites on the World Wide Web (“web”) are Hollywood.com and
Broadway.com. Hollywood.com was acquired in May 1999 and features movie showtime listings, movie
descriptions and reviews, digitized trailers and photos, entertainment news, box office results,
celebrity profiles and biographies, coverage of entertainment awards shows and film festivals and
video coverage of movie premiers. Hollywood Media launched the Broadway.com website on May 1, 2000.
Broadway.com features the ability to purchase Broadway, off-Broadway and London theater tickets
online; theater news; interviews with stage actors and playwrights; opening-night coverage; theater
reviews and video excerpts from selected shows. Hollywood Media generates revenues through the sale
of advertising on these websites and the sale of live theater tickets and hotel and restaurant
packages online.
Theatre Direct NY, Inc. (“TDI”), a wholly-owned subsidiary of Hollywood Media, is a ticketing
wholesaler to groups and individuals with access to theater tickets and knowledgeable service
covering shows on Broadway, off-Broadway and in London’s West End. In addition, TDI is a live
theater marketing and sales agency representing Broadway shows to businesses and groups including
domestic and international travel professionals and traveling consumers. Hollywood Media also sells
Broadway tickets through 1-800-BROADWAY, and on Broadway.com.
Hollywood Media owns the U.K. based companies CinemasOnline Limited, UK Theatres Online
Limited, WWW.CO.UK Limited and Spring Leisure Limited (collectively known as
“CinemasOnline”), which were acquired in November 2005. CinemasOnline, included as part of
Hollywood Media’s Ad Sales Division, maintains websites for cinemas and live theaters in the U.K.
in exchange for the right to sell advertising on such websites. CinemasOnline also provides other
marketing services, including advertising sales on plasma screens placed in various venues
throughout the U.K. and Ireland, such as hotels, car dealerships and cinemas.
The intellectual properties division owns or controls the exclusive rights to certain original
characters and concepts created by best-selling authors and media celebrities, which it licenses
across all media, including books, films and television, multimedia software, and other products.
Hollywood Media acquires the rights to its intellectual properties pursuant to agreements that
grant it exclusive rights in the intellectual property itself as well as the right to use the
creator’s name in the title of the intellectual property. The intellectual properties division also
includes a 51%-owned book development and licensing operation named Tekno Books which focuses on
developing and executing book projects, typically with best-selling authors, which books are then
licensed for publication to book publishers. Tekno Books generates revenues from new book projects
in the form of non-refundable advances paid by publishers and royalties from its library of book
titles.
Hollywood Media is a 50% partner in NetCo Partners. NetCo Partners was formed in June 1995 as
a joint venture between Hollywood Media and C.P. Group, Inc., a company in which best-selling
author Tom Clancy is a shareholder. NetCo Partners is engaged in the development and licensing of
Tom Clancy’s
43
Table of Contents
NetForce. NetCo Partners is not consolidated in these financial statements, and Hollywood
Media records 50% of the earnings in NetCo Partners as equity in earnings of unconsolidated
investees.
Hollywood Media owns 26.2% of the equity of MovieTickets.com Inc., a joint venture, primarily
with AMC Entertainment Inc. (AMC), National Amusements, Inc. (NAI), Viacom Inc. and America Online,
Inc. (AOL). The MovieTickets.com joint venture is not consolidated in the accompanying consolidated
financial statements. The MovieTickets.com website allows users to purchase movie tickets online
and retrieve them at “will call” windows or kiosks at the theaters. MovieTickets.com generates
revenue from the sale of advertising and from service fees charged to users for the purchase of
tickets, which revenues are not included in Hollywood Media’s revenues. Hollywood Media records
revenues for commissions earned on ad sales sold by Hollywood Media on behalf of Movietickets.com
(see Note 20). Hollywood Media records its share of the earnings or loss in MovieTickets.com as
“Equity in Earnings of Unconsolidated Investees” in the accompanying consolidated balance sheets.
Under applicable accounting principles, Hollywood Media has not recorded income from its investment
in MovieTickets.com for 2007 and 2006 because accumulated losses from 2005 and prior years exceed
MovieTickets.com’s accumulated net income in 2007 and 2006.
Hollywood Media has expended significant funds developing its ticketing, ad sales,
intellectual property, e-commerce, and other businesses. The Company had an accumulated deficit
totaling $254.8 million and $255.8 million at December 31, 2007 and 2006, respectively. The success
of Hollywood Media’s operations in future years is dependent on its ability to generate adequate
revenues and cash flows to offset operating expenses. Hollywood Media expects to incur additional
losses while it continues to grow its businesses. There can be no assurances that Hollywood Media
will be able to generate sufficient revenues from these activities to cover its costs and
therefore, Hollywood Media may continue to incur losses and negative cash flows from operations. To
the extent that Hollywood Media does not generate sufficient revenues to offset expenses Hollywood
Media may require further financing beyond cash on hand to fund ongoing operations. Hollywood
Media estimates, based on operating plans and assumptions, that existing cash and cash equivalents
and anticipated cash flows will be sufficient to meet working capital requirements for the year
2008.
In August 2007, Hollywood Media and its wholly-owned subsidiary Showtimes.com, Inc.
(“Showtimes”) entered into and simultaneously closed on a definitive asset purchase agreement with
Brett West and West World Media, LLC (“West World Media”), pursuant to which Hollywood Media sold
substantially all of the assets of the Showtimes business to West World Media for a cash purchase
price of $23,000,000 paid to Hollywood Media on the closing date. The Showtimes business included
the CinemaSource, EventSource and ExhibitorAds operations and constituted the remainder of
Hollywood Media’s Data Business Division, which previously included the Baseline/StudioSystems
business unit until it was sold to The New York Times Company (“The New York Times”) in August
2006. West World Media is controlled by Brett West, who founded the Source business in 1995 and
sold the business to Hollywood Media in 1999. Mr. West served as president of Hollywood Media’s
Source business.
In February 2007, TDI entered into and simultaneously closed on a definitive asset purchase
agreement with Showtix LLC (“Showtix”) and each of its members pursuant to which TDI purchased
substantially all of the assets of Showtix related to its group ticketing sales business. The
aggregate purchase price paid by TDI for the assets of Showtix was $2.7 million in cash. In
addition, Showtix is also entitled to receive up to $370,000 in cash earn-outs based on the gross
profits earned by TDI’s group ticketing business for the 2007, 2008 and 2009 fiscal years. See
Note 5 for additional discussion of this transaction.
In August 2006, Hollywood Media, entered into and simultaneously closed on a definitive stock
purchase agreement with The New York Times, pursuant to which The New York Times purchased all of
the outstanding capital stock of Hollywood Media’s wholly-owned subsidiary, Baseline Acquisitions
Corp. (“BAC”), for a cash purchase price of $35,000,000. BAC was a subsidiary of Hollywood Media
which constituted a portion of Hollywood Media’s Data Business Segment. $3,500,000 of the purchase
price was held in escrow for twelve months following the closing to cover potential indemnification
claims, if any, made by The New York Times. During 2007, Hollywood Media received $2,800,000,
representing the full amount of the escrow net of costs of $700,000 for certain contractual bonuses
due to the former division heads of BAC. See
44
Table of Contents
Note 4 for additional discussion of this transaction.
In November 2005, Hollywood Media completed a $7.0 million issuance of Senior Unsecured Notes,
whereupon the Company received net proceeds of approximately $6.6 million after deducting expenses
incurred in connection with the transaction. This debt was fully repaid during 2007. See Note 11
for discussion of this debt offering and other debt transactions completed during 2005, 2006 and
2007.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
Hollywood Media’s consolidated financial statements include the accounts of Hollywood Media,
its wholly owned subsidiaries, and its 51% owned subsidiary, Tekno Books which is a partnership.
All significant intercompany balances and transactions have been eliminated in consolidation and a
minority interest has been established to reflect the outside ownership of Tekno Books. Hollywood
Media’s 50% and 26.2% ownership interests in NetCo Partners and MovieTickets.com, respectively, are
accounted for under the equity method of accounting.
Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires that the Company make estimates and
judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. These estimates are based on the
information that is currently available and on various other assumptions that the Company believes
to be reasonable under the circumstances. Actual results could vary from those estimates under
different assumptions or conditions. Significant estimates and assumptions embodied in the
accompanying consolidated financial statements, which are evaluated on an ongoing basis, include
the deferred tax asset valuation allowance, the adequacy of reserves for accounts receivables and
inventory, accruals for compensation, contingencies and litigation, investments in less than 50%
owned companies and other long-lived assets as well as Hollywood Media’s ability to realize the
carrying value of goodwill and intangible assets.
Cash and Cash Equivalents
Hollywood Media considers all highly liquid investments with original maturities of three
months or less to be cash and cash equivalents. Interest bearing amounts included in cash and cash
equivalents were $28,656,521 and $27,889,703 at December 31, 2007 and 2006, respectively. The
Company maintains cash balances with financial institutions in excess of federally insured limits.
Receivables
Receivables consist of amounts due from customers who have advertised on Hollywood Media’s and
MovieTickets.com’s websites, purchased live theater tickets, amounts due from box offices for
commission on live theater tickets sold to groups and refunds for performances that did not occur
and amounts due from publishers relating to signed contracts, to the extent that the earnings
process is complete and amounts are realizable.
Allowance for Doubtful Accounts
Hollywood Media maintains an allowance for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments. The Company’s accounting for
doubtful accounts contains uncertainty because management must use judgment to assess the
collectibility of these accounts. When preparing these estimates, management considers a number of
factors, including the age of a customer’s account, past transactions with customers,
creditworthiness of specific customers, historical trends and other information. The allowance for
doubtful accounts was $1,166,425 and $1,159,503 at December 31, 2007 and 2006, respectively. The
allowance is primarily attributable to receivables due from customers of
45
Table of Contents
CinemasOnline. Although the Company believes its allowance is sufficient, if the financial
condition of the Company’s customers were to unexpectedly deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required that could materially
impact the Company’s consolidated financial statements. Concentrations of credit risk with respect
to accounts receivable are limited due to the large number of customers comprising the Company’s
customer base and their dispersion across many different geographical regions. Changes in the
allowance for doubtful accounts consisted of:
| Additions (Deductions) | ||||||||||||||||||||||||||||
| Balance at | Charges to | Charged | Balance at | |||||||||||||||||||||||||
| Beginning | costs and | to other | end of | |||||||||||||||||||||||||
| of period | expenses | accounts | Write-offs | period | ||||||||||||||||||||||||
Allowance for doubtful accounts: |
||||||||||||||||||||||||||||
2007 |
$ | 1,159,503 | $ | 632,283 | $ | 49,804 | (A | ) | $ | (675,165 | ) | (B | ) | $ | 1,166,425 | |||||||||||||
2006 |
$ | 1,750,009 | $ | 812,034 | $ | — | $ | (1,402,540 | ) | (B | ) | $ | 1,159,503 | |||||||||||||||
2005 |
$ | 183,342 | $ | 157,213 | $ | 1,472,524 | (A | ) | $ | (63,070 | ) | (B | ) | $ | 1,750,009 | |||||||||||||
Notes: (A) Collections on accounts previously written off and acquisitions of subsidiaries.
(B) Uncollectible accounts written off.
Inventories Held for Sale and Deferred Ticket Costs
Inventories held for sale consist of Broadway tickets or other live theater tickets available
for sale. Deferred ticket costs consist of tickets sold (subject to the performance occurring) to
groups, individuals, and travel agencies for future performances which have been delivered to the
customer or held by the Company as “will call.” Both are carried at cost using the specific
identification method. Ticket inventory does not include movie tickets.
The portion of receivable and inventory balances that relate to the sales of tickets to
groups, individuals and travel agencies for Broadway and other live theatre shows are, with
isolated exceptions, for shows or performances that take place at venues in New York, New York, a
major metropolitan area reported as subject to the threat of terrorist acts from time to time by
relevant United States Government agencies. Hollywood Media recognizes that the occurrence of such
a terrorist act, a labor strike or dispute, or any other significant civil disturbance in New York
City could lead to closures of available performance venues for which Hollywood Media may not
receive reimbursement of ticket costs and/or payment on outstanding receivables, and could
adversely impact the normal conduct of its operations within New York City for an indefinite period
of time.
Property and Equipment
Property and equipment are carried at cost and are classified in six categories. The
categories and estimated service lives are as follows:
| Furniture and fixtures | 5 years | |
| Equipment and software | 3 to 5 years | |
| Website development | Up to 3 years | |
| Equipment under capital leases | Shorter of term of lease or 3 to 5 years | |
| Leasehold improvements | Shorter of term of lease or 3 years | |
| Internally developed software | 3 years upon implementation |
Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to
operations over their estimated service lives, which range from three to five years, on a
straight-line basis. Leasehold
46
Table of Contents
improvements are amortized over the lesser of the terms of the respective leases or three
years. Maintenance and repairs are charged to expense when incurred.
Website Development Costs and Internally Developed Software
Emerging Issues Task Force 00-2, “Accounting for Website Development Costs” (“EITF 00-2”) is
the authoritative guidance for accounting for website costs. In EITF 00-2, the Task Force reached
a consensus that all costs relating to software used to operate a website should be accounted for
under Statement of Position 98-1“Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use” unless a plan exists or is being developed to market the software
externally. Website development costs capitalized, net of transfers in and out, during the years
ended December 31, 2007, 2006 and 2005 were $114,694, $70 and $290,624, respectively. Website
development costs are amortized using the straight-line method over the lesser of three years or
the useful life of the software.
Certain software development costs for internally developed software have been capitalized in
accordance with the provisions of American Institute of Certified Public Accountants Statement of
Position 98-1, “Accounting for Web Site Development Costs.” These capitalized costs include
purchased software for internal use, consulting services and costs for personnel associated with
programming, coding and testing such software during the application development stage and are
included in “Property and Equipment” in the accompanying consolidated balance sheets. Amortization
of capitalized software costs begins when the software is placed into service and is included in
“depreciation and amortization expense” in the accompanying consolidated statements of operations.
Software development costs are being amortized using the straight-line method over three years.
Internally developed software costs capitalized during the years ended December 31, 2007, 2006 and
2005 were $170,376, $430,660 and $330,479, respectively.
Goodwill and Intangible Assets
Prior to December 31, 2001, goodwill had been amortized on a straight-line basis over its
estimated useful life, which ranged from 10 to 40 years. In July 2001, the Financial Accounting
Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 141, “Business
Combinations” (“SFAS No. 141”) and No. 142, “Goodwill and Other Intangible Assets” (“SFAS No.
142”). Effective January 1, 2002, Hollywood Media adopted SFAS No. 142. Under No. SFAS 142,
goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed for
impairment annually, or more frequently if indicators arise. Separable intangible assets that are
not deemed to have indefinite lives continue to be amortized over their useful lives. Hollywood
Media has selected October 1 as the date upon which it conducts its annual impairment review. The
Company’s annual impairment analysis, which was performed during the fourth quarter, did not result
in an impairment charge for any of the years ended December 31, 2007, 2006 and 2005.
Impairment of Long-Lived Assets
Effective December 31, 2001, Hollywood Media adopted Statement of Financial Accounting
Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No.
144”). SFAS No. 144 superseded Statement of Financial Accounting Standards No. 121, “Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS No.
121”) and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,
“Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” (“APB No.
30”) for the disposal of a segment of a business. Consistent with SFAS No. 121, SFAS No. 144
requires impairment losses to be recorded on long-lived assets used in operations when indicators
of impairment, as defined in SFAS No. 144, are present and the undiscounted cash flows estimated to
be generated by those assets are less than the assets’ carrying amount.
If an indicator of impairment is present, Hollywood Media evaluates the recoverability of
long-lived assets not held for sale by comparing the carrying amount of the assets to the estimated
undiscounted future cash flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient to recover the
carrying values of such assets, the assets are adjusted to
47
Table of Contents
their fair values if fair value is lower than carrying value. Hollywood Media determines fair
value as the net present value of future cash flows. There were no adjustments to the carrying
value of long lived assets for any of the years ended December 31, 2007, 2006, and 2005.
Revenue Recognition
Revenue recognition policies for ticketing, advertising and book packaging and licensing, are
set forth below.
Ticketing. Ticket revenue is derived from the sale of live theater tickets for
Broadway, off-Broadway and London shows to individuals, groups, travel agencies, tour groups and
educational organizations. Proceeds from these sales received in advance of the corresponding
performance activity are included in “Deferred Revenue” in our accompanying consolidated balance
sheets, at the time of receipt, and are recognized as revenue in the period the performance of the
show occurs.
Gift certificate revenue is derived from the sale of gift certificates, for Broadway,
off-Broadway, London shows and Dinner and Show sales to individuals, groups, travel agencies, tour
groups and corporate programs. Proceeds from these sales are included in “Deferred Revenue” in our
accompanying consolidated balance sheets, at the time of receipt, and if redeemed, are recognized
as revenue in the period the performance of the show occurs, or upon expiration of the unredeemed
gift certificate. Gift certificates issued after March 22, 2007 do not expire. Prior to March 22,
2007, gift certificates were issued with a one-year expiration from the date of issuance.
Hotel package revenue is derived from the sale of exclusive allocation rooms provided by New
York City hotels to individuals and groups. Proceeds from these sales are recorded on a net basis
and are included in “Customer Deposits” in our accompanying consolidated balance sheets, at the
time of receipt, and are recognized as revenue on the day of departure from the hotel.
Dinner voucher revenue is derived from the sale of dinner vouchers for meals at upscale
restaurants in New York City to individuals and groups. Proceeds from these sales are recorded on
a net basis and are included in “Customer Deposits” in our accompanying consolidated balance
sheets, at the time of receipt, and are recognized as revenue on the date the voucher is presented,
or upon expiration of the voucher.
In July 2000, the Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on EITF
Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” This consensus
provides guidance concerning under what circumstances a company should report revenue based on (a)
the gross amount billed to a customer because it has earned revenue from the sale of goods or
services or (b) the net amount retained (that is, the amount billed to the customer less the amount
paid to a supplier) because it has earned a commission or fee. Hollywood Media’s existing
accounting policies conform to the EITF consensus. Ticket revenue and cost of revenue-ticketing are
recorded on a gross basis in our accompanying consolidated statements of operations. Hotel
revenues packages and vouchers sold for New York restaurants are reported on a net basis in our
accompanying consolidated statements of operations.
Shipping and Handling. The Company includes shipping and handling revenues and costs
in net revenues and cost of sales, respectively. Shipping and handling revenues amounted to
$341,769, $389,827 and $318,269 for the years ended December 31, 2007, 2006 and 2005, respectively.
Shipping and handling cost of sales amounted to $294,147, $303,785 and $255,412 for the years ended
December 31, 2007, 2006 and 2005, respectively.
Advertising. Advertising revenue is derived from the sale of advertising on Hollywood
Media’s and commissions from sales by Hollywood.com staff of ads on MovieTickets.com’s websites.
Advertising revenue is recognized over the period that the advertisement is displayed, provided
that no significant obligations of Hollywood Media remain and collection is reasonably assured.
Hollywood Media’s obligations typically are based on or include guarantees of a minimum number of
impressions or times that an advertisement is viewed by users of Hollywood Media’s websites. In
these instances, depending on the form of the arrangement, revenue
48
Table of Contents
is recognized either based on the number of impressions delivered to the customer or number of
times an advertisement is viewed by a user, or upon delivery of the required minimum numbers of
impressions or instances that an advertisement is viewed by a user.
Book Packaging and Licenses. Licensing revenues in the form of non-refundable
advances and other guaranteed royalty payments are recognized when the earnings process has been
completed, which is generally upon the delivery of a completed manuscript and acceptance by the
publisher. Non-guaranteed royalties based on sales of licensed products and on sales of books
published directly by Hollywood Media are recognized as revenues when earned based on royalty
statements or other notification of such amounts from the publishers.
Revenue relating to Hollywood Media’s book licensing business is recognized when the earnings
process is complete, typically when a publisher accepts a book for publishing. Advances received
from publishers are recorded as “Deferred Revenue” in the
accompanying consolidated balance sheets until the book is accepted by the publisher. In the book licensing division, expenditures for
co-editors and permission payments are also deferred and recorded as “Prepaid expenses” in the
accompanying consolidated balance sheet until the book is accepted by the publisher, at which time
such costs are expensed.
Barter Transactions
Hollywood Media periodically enters into barter agreements with other Internet and Data
companies to exchange services on each other’s websites. The Company accounts for these
arrangements in accordance with EITF Issue No. 99-17 “Accounting for Advertising Barter
Transactions” which requires gross reporting of barter transactions only where barter transactions
can be supported by an equivalent quantity of similar cash transactions.
Segment Information
Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” establishes standards for reporting of selected information
about operating segments in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas and major
customers, (see Note 18).
Earnings Per Common Share
Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” requires companies
to present basic and diluted earnings per share. Earnings per common share is computed by dividing
net income or loss by the weighted average number of common shares outstanding during the period
presented.
Common shares issuable upon conversion of convertible securities and upon exercise of
outstanding options and warrants of 2,736,428, 5,676,865 and 7,019,214 were excluded from the
calculation of diluted earnings per share for the years ended December 31, 2007, 2006 and 2005,
respectively, because their impact was anti-dilutive to the loss from continuing operations.
Non-vested shares are not included in the basic calculation until vesting occurs. There were
150,000, 350,000 and 550,000 unvested shares as of December 31, 2007, 2006, and 2005, respectively.
Advertising Costs
Hollywood Media expenses the cost of advertising as incurred. Advertising costs for the years
ended December 31, 2007, 2006 and 2005 were $5,425,617, $4,881,880 and $3,217,609, respectively,
and are included in “Selling, general and administrative” expenses in the accompanying consolidated
statements of operations.
401(k) Plan
Hollywood Media maintains a 401(k) Plan (the Plan) covering all employees who meet certain
eligibility requirements. The Plan provides that each participant may contribute up to 15% of his
or her pre-tax gross compensation (not to exceed a statutorily prescribed annual limit). All
amounts contributed by employee
49
Table of Contents
participants in conformity with Plan requirements and earnings on such contributions are fully
vested at all times. With respect to the year ended December 31, 2007, Hollywood Media matched 50%
of the first 8% of the employees’ compensation contributions in common stock with a fair value of
$280,050, for those participants employed in excess of 1,000 hours during the year and employed on
the last day of the year. The match was paid with 96,569 shares of Hollywood Media common stock
issued subsequent to December 31, 2007. The matches paid for the years ended December 31, 2006 and
2005 were 59,257 and 44,028 shares of Hollywood Media common stock, valued at $248,876 and
$189,760, respectively, at a share price of $4.20 and $4.31, respectively. The Plan had
investments in Company stock of 207,966 shares valued at a share price of $2.90 or $603,102 and
207,506 shares valued at a share price of $4.20 or $871,525, as of December 31, 2007 and 2006,
respectively.
Income Taxes
Income taxes are accounted for under the liability method pursuant to Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under SFAS 109, 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. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is recorded to reduce deferred income tax
assets to an amount that is more likely than not to be realized.
On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 provides detailed guidance for the financial statement recognition, measurement and
disclosure of uncertain tax positions recognized in the financial statements in accordance with
SFAS 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective
date to be recognized upon the adoption of FIN 48 and in subsequent periods. The adoption of FIN 48
did not have a material impact on the Company’s results of operations or financial position.
(3) STOCK OPTION PLANS; WARRANTS; AND EMPLOYEE STOCK BASED COMPENSATION:
Shareholder-Approved Plans
Hollywood Media has four shareholder-approved equity compensation plans: the 2004 Stock
Incentive Plan, the 2000 Stock Incentive Plan, the 1993 Stock Option Plan, and the Directors Stock
Option Plan (the “Plans”). In addition to stock options, the 2004 and 2000 Plans permit the
granting of stock awards and other forms of equity compensation for key personnel and directors.
There were an aggregate of 951,370, 909,803 and 1,029,000 shares remaining available for issuance
under Hollywood Media’s equity compensation plans at December 31, 2007, 2006 and 2005,
respectively. The options may be either qualified incentive stock options or nonqualified stock
options. Stock options granted to date generally have had an exercise price per share equal to the
market value per share of the common stock on the date prior to grant and generally expire five
years or ten years from the date of grant. Options awarded to Hollywood Media’s employees
generally become exercisable in annual increments over a four-year period beginning one year from
the grant date, although some are immediately exercisable and some vest based on other terms as
specified in the option grants. Options awarded to directors become exercisable six months after
date of grant. The Plans are registered with the SEC on Form S-8. Shares issued under the Plans
are issued from the Company’s unissued shares authorized under its articles of incorporation.
Warrants
Equity compensation not approved by shareholders consists primarily of warrants or other
equity purchase rights granted to non-employees of Hollywood Media in exchange for services.
Additional information about such equity compensation is included in the paragraphs and tables
below.
50
Table of Contents
1993 Stock Option Plan
Under Hollywood Media’s shareholder-approved 1993 Stock Option Plan, as amended (the “1993
Plan”), 3,000,000 shares of Hollywood Media’s common stock were reserved for issuance upon exercise
of options. The 1993 Plan is designed to serve as an incentive for retaining qualified and
competent consultants and employees. The Stock Option Committee of Hollywood Media’s Board of
Directors (the “Stock Option Committee”) administers and interprets the 1993 Plan and, prior to
July 1, 2003, was authorized to grant options thereunder to all eligible consultants, employees and
officers of Hollywood Media.
The 1993 Plan provided for the granting of both “incentive stock options” (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) and nonqualified stock options.
Options were granted under the 1993 Plan on such terms and at such prices as determined by the
Stock Option Committee. Each option is exercisable after the period or periods specified in the
option agreement, but no option can be exercised until six months after the date of grant, or after
the expiration of 10 years from the date of grant. Options granted under the 1993 Plan are not
transferable other than by will or by the laws of descent and distribution. The 1993 Plan also
authorizes Hollywood Media to make loans to employees to enable them to exercise their options.
Such loans must (i) provide for recourse to the optionee, (ii) bear interest at a rate no less that
the rate of interest payable by Hollywood Media to its principal lender at the time the loan is
made, and (iii) be secured by the shares of common stock purchased. No such loans were made during
the years ended December 31, 2007, 2006 or 2005.
As of December 31, 2007, options to purchase 192,000 shares of common stock were outstanding
under the 1993 Plan and 52,250 options granted under the 1993 Plan were exercised in 2007. The
ability to grant more options under the 1993 Plan expired on July 1, 2003. As such, no further
grants are permitted under 1993 Plan.
2000 Stock Incentive Plan
In December 2000, the Board of Directors and Hollywood Media’s shareholders approved Hollywood
Media’s 2000 Stock Incentive Plan (the “2000 Plan”), and the 2000 Plan was amended during the year
ended December 31, 2003. The purpose of the 2000 Plan is to advance the interests of Hollywood
Media by providing an additional incentive to attract, retain and motivate highly competent persons
as officers and key employees of, and consultants to, Hollywood Media and its subsidiaries and
affiliates and to encourage stock ownership in Hollywood Media by such persons by providing them
opportunities to acquire shares of Hollywood Media’s common stock, or to receive monetary payments
based on the value of such shares pursuant to the benefits described therein. Additionally, the
2000 Plan is intended to assist in further aligning the interests of Hollywood Media’s officers,
key employees and consultants to those of its other stockholders.
Under the 2000 Plan, as amended, 2,765,287 shares of common stock are reserved for issuance
upon exercise of benefits granted under the 2000 Plan. The maximum number of shares of Common
Stock with respect to which benefits may be granted or measured to any individual participant under
the 2000 Plan during the term of the 2000 Plan shall not exceed 1,000,000 subject to certain
potential adjustments as provided in the plan. If any benefit granted pursuant to the 2000 Plan
terminates, expires or is canceled or surrendered, in whole or in part, shares subject to the
unexercised portion may again be issued pursuant to the 2000 Plan. The shares acquired upon
exercise of benefits granted under the 2000 Plan will be authorized and issued shares of common
stock. Hollywood Media’s shareholders do not have any preemptive rights to purchase or subscribe
for the shares reserved for issuance under the 2000 Plan.
The 2000 Plan is administered by the Stock Option Committee, which has the right to determine,
among other things, the persons to whom options, restricted stock, or other benefits are granted,
the number of shares of common stock subject to options and other benefits, the exercise price of
options and the other terms and conditions thereof. The 2000 Plan provides for the issuance of
Incentive Stock Options and Nonqualified Stock Options. In addition, the Benefits under the 2000
Plan may be granted in any one or a combination of Options,
51
Table of Contents
Stock Appreciation Rights, Stock Awards, Performance Awards and Stock Units. Upon receiving grants
of benefits, each holder of benefits must enter into a benefit agreement with Hollywood Media that
contains the appropriate terms and conditions as determined by the Stock Option Committee.
As of December 31, 2007, options to purchase 50,000 shares of common stock were outstanding
under the 2000 Plan. During the year ended December 31, 2007, no options were granted or exercised
under the 2000 Plan.
2004 Stock Incentive Plan
During the year ended December 31, 2004, Hollywood Media’s Board of Directors and shareholders
approved Hollywood Media’s 2004 Stock Incentive Plan (the “2004 Plan”). The purpose of the 2004
Plan is to advance the interests of Hollywood Media by providing an additional incentive to
attract, retain and motivate highly competent persons as officers and key employees of, and
consultants to, Hollywood Media and its subsidiaries and affiliates and to encourage stock
ownership in Hollywood Media by such persons by providing them opportunities to acquire shares of
Hollywood Media’s common stock, or to receive monetary payments based on the value of such shares
pursuant to the benefits described therein. Additionally, the 2004 Plan is intended to assist in
further aligning the interest of Hollywood Media’s officers, key employees and consultants to those
of its other stockholders.
Under the 2004 Plan, 1,500,000 shares of common stock are reserved for issuance upon exercise
of benefits granted under the 2004 Plan. The maximum number of shares of Common stock with respect
to which benefits may be granted or measured to any individual participant under the 2004 Plan
during the term of the 2004 Plan shall not exceed 500,000 subject to certain potential adjustments
as provided in the plan. If any benefit granted pursuant to the 2004 Plan terminates, expires, or
is canceled or surrendered, in whole or in part, shares subject to the unexercised portion may
again be issued pursuant to the 2004 Plan. The shares acquired upon exercise of benefits granted
under the 2004 Plan will be authorized and issued shares of common stock. Hollywood Media’s
shareholders do not have any preemptive rights to purchase or subscribe for the shares reserved for
issuance under the 2004 Plan.
The 2004 Plan is administered by the Stock Option Committee, which has the right to determine,
among other things, the persons to whom options, restricted stock, or other benefits are granted,
the number of shares of common stock subject to options an other benefits, the exercise price of
options and the other terms an conditions thereof. The 2004 Plan provides for the issuance of
Incentive Stock Options and Nonqualified Stock Options. An Incentive Stock Option is an option to
purchase common stock that meets the definition of “incentive stock option” set forth in Section
422 of the Internal Revenue Code of 1986. A Nonqualified Stock Option is an option to purchase
common stock that meets certain requirements in the 2004 Plan but does not meet the definition of
an “incentive stock option” set forth in Section 422 of the Code. In addition, the benefits under
the 2004 Plan may be granted in any one or a combination of options, stock appreciation rights,
stock awards, performance awards and stock units. Upon receiving Grants of benefits, each holder
of benefits must enter into a benefit agreement with Hollywood Media that contains the appropriate
terms and conditions as determined by the Stock Option Committee.
As of December 31, 2007, options to purchase 231,000 shares of common stock were outstanding
under the 2004 Plan. During the year ended December 31, 2007, no options were granted under the
2004 Plan, 15,625 options were exercised, and 145,308 shares were granted under the 2004 Plan.
Directors Stock Option Plan
Hollywood Media has established the shareholder-approved Directors Stock Option Plan for
directors, which provides for automatic grants to each director of options to purchase 15,000
shares of Hollywood Media’s common stock upon election or re-election. A total of 300,000 shares
of common stock have been reserved for issuance upon exercise of options granted under the
Directors Stock Option Plan.
52
Table of Contents
As of December 31, 2007, options to purchase 280,943 shares of common stock were outstanding
under Directors Stock option Plan. During the year ended December 31, 2007, options to purchase
15,000 shares were granted and no options were exercised under the Directors Stock Option Plan.
Shares Available for Future Grant under Stock Plans
At December 31, 2007, options to purchase 4,057 shares were available for future grant under
the Directors Stock option Plan. At December 31, 2007 there were 191,052 shares available for
future grant under the 2000 Plan for options, stock and other awards, and 756,261 shares available
for future grant under the 2004 Plan for options, stock and other awards. No options were
available for future grant under the 1993 Plan.
Accounting for Share-Based Compensation
On January 1, 2006, Hollywood Media adopted Statement of Financial Accounting Standards 123R,
“Share-Based Payments,” (“SFAS No. 123R”) which replaced Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) and superceded
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”(“APB No.
25”). SFAS No. 123R was adopted using the modified prospective transition method, and accordingly,
prior periods have not been restated. The Modified prospective method requires the recognition of
compensation cost for (i) share-based awards granted prior to but not yet vested as of January 1,
2006, based on the fair value calculated on the grant date, and (ii) share-based awards granted
subsequent to January 1, 2006, also based on the fair value calculated on the grant date. Prior to
January 1, 2006, Hollywood Media accounted for employee stock options under the provisions of APB
No. 25. Under Hollywood Media’s plan, stock options are generally issued at the current market
price on the grant date and have no intrinsic value at the grant date. Accordingly, Hollywood
Media generally recorded no compensation expense under APB No. 25.
During the year ended December 31, 2007, Hollywood Media recorded $1,386,417 of stock-based
compensation expense which caused the loss from continuing operations to increase by $814,157 and
basic and diluted loss per share from continuing operations to increase by $0.04 and the gain from
discontinued operations to decrease by $572,260 and basic and diluted income per share from
discontinued operations to decrease by $0.02.
For periods prior to January 1, 2006, Statement of Financial Accounting Standards No. 148
“Accounting for Stock-Based Compensation – Transaction and Disclosure – an amendment of FASB
Statement No. 123” (“SFAS No. 148”) required disclosure of the pro forma amount of net income and
per share amounts including the amount of fair value based compensation expense that would have
been recognized in those periods had compensation expense been recorded. The following table
includes the impact on net loss and per share amounts for the year ended December 31, 2005 had
Hollywood Media recognized fair value compensation costs during such year:
53
Table of Contents
| Year ended | ||||
| December 31, | ||||
| 2005 | ||||
Reported net loss |
$ | (8,913,182 | ) | |
Non-cash compensation expense under intrinsic value method |
— | |||
Stock-based employee compensation expense under the fair
value method |
(2,121,210 | ) | ||
Adjusted net loss |
$ | (11,034,392 | ) | |
Reported basic and diluted net loss per share |
$ | (0.28 | ) | |
Adjusted basic and diluted net loss per share |
$ | (0.35 | ) | |
Weighted average common and common equivalent shares
Outstanding – basic and diluted |
31,470,307 | |||
Table of Stock Option and Warrant Activity
A summary of all stock option and warrant activities for the year ended December 31, 2007:
| Stock Options | Warrants | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Exercise | Exercise | |||||||||||||||
| Shares | Price | Shares | Price | |||||||||||||
Outstanding at December 31, 2006 |
1,145,443 | $ | 4.45 | 2,777,036 | $ | 4.30 | ||||||||||
Granted |
15,000 | 2.50 | — | — | ||||||||||||
Exercised |
(67,875 | ) | 2.97 | (779,551 | ) | 3.48 | ||||||||||
Cancelled |
(238,125 | ) | 4.13 | — | — | |||||||||||
Expired |
(100,500 | ) | 5.20 | (15,000 | ) | 3.95 | ||||||||||
Outstanding at December 31, 2007 |
753,943 | $ | 4.54 | 1,982,485 | $ | 4.36 | ||||||||||
Stock Options
The following table summarizes the activity with respect to the stock options of Hollywood
Media for the year ended December 31, 2007.
| Weighted | ||||||||||||
| Average | ||||||||||||
| Number of | Exercise Price | Exercise Price | ||||||||||
| Shares | Per Share | Per Share | ||||||||||
Outstanding at December 31, 2006 |
1,145,443 | $ | 0.01-$16.50 | $ | 4.45 | |||||||
Granted |
15,000 | $ | 2.50 | 2.50 | ||||||||
Exercised |
(67,875 | ) | $ | 1.02-$4.06 | 2.97 | |||||||
Cancelled |
(238,125 | ) | $ | 3.46-$5.10 | 4.13 | |||||||
Expired |
(100,500 | ) | $ | 0.01-$6.03 | 5.20 | |||||||
Outstanding at December 31, 2007 |
753,943 | $ | 0.88-$16.50 | $ | 4.54 | |||||||
54
Table of Contents
Data on Outstanding Options at December 31, 2007:
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Number of | Weighted | Remaining | ||||||||||||||
| Options | Average Exercise | Contractual | Aggregate | |||||||||||||
| Outstanding | Price Per Share | Term (years) | Intrinsic Value (1) | |||||||||||||
Vested Options |
718,943 | $ | 4.61 | 3.74 | $ | 254,625 | ||||||||||
Non-vested Options |
35,000 | 3.24 | 6.37 | 6,875 | ||||||||||||
Total Outstanding Stock Options |
753,943 | $ | 4.54 | 3.86 | $ | 261,500 | ||||||||||
| (1) | The aggregate intrinsic value is computed based on the closing price of Hollywood Media’s stock on December 31, 2007, which is a price per share of $2.90. |
As
of December 31, 2007, there was $156,246 of unrecognized compensation cost related to
non-vested stock option awards. The cost is expected to be recognized over a weighted-average
period of 1.19 years.
Stock options exercises during the years ended December 31, 2007, 2006 and 2005 resulted in
the receipt of cash proceeds of $203,824, $205,441 and $1,326,290, respectively. The intrinsic
values of the stock options exercised during the years ended 2007, 2006 and 2005 were $74,673,
$76,375 and $1,385,035, respectively. There were no tax benefits realized from stock option
exercises during the years ended December 31, 2007, 2006 and 2005, as a result of the use of
available net operating losses and the related valuation allowance.
The following table summarizes the activity with respect to the non-vested stock options of
Hollywood Media for the year ended December 31, 2007.
| Weighted - | ||||||||
| Average Grant | ||||||||
| Number of | Date Fair Value | |||||||
| Shares | Per Share | |||||||
Non-vested at December 31, 2006 |
105,000 | $ | 2.15 | |||||
Granted |
15,000 | 1.99 | ||||||
Vested |
(23,750 | ) | 1.44 | |||||
Forfeited |
(61,250 | ) | 2.24 | |||||
Non-vested at December 31, 2007 |
35,000 | $ | 1.31 | |||||
The fair value of each option award is estimated as of the date of grant using the
Black-Scholes option valuation model, which uses various assumptions in the calculation of the fair
value. Options to acquire 15,000 and 105,000 shares were granted during the years ended December
31, 2007 and 2006, respectively.
The fair value of each option grant is estimated on the date of the grant using an option
pricing model with the following weighted average assumptions used for grants during the years
ended December 31, 2007, 2006 and 2005:
| 2007 | 2006 | 2005 | ||||||||||
Average risk free interest rate |
4.14 | % | 4.22% | 4.33% | ||||||||
Expected lives of options (years): |
||||||||||||
Two year options |
— | 2 | 2 | |||||||||
Three year options |
— | 3 | 3 | |||||||||
Five and Ten year options |
10 | 5 | 5 | |||||||||
Expected volatility |
72.1 | % | 58.6% - 72.1 | % | 66.9% - 78.2 | % | ||||||
55
Table of Contents
The exercise prices of some options differed from the market price of the stock on the grant
date. The following table summarizes weighted average exercise prices and fair value of options
and warrants granted whose exercise price equals, exceeds or is less than the market price of the
stock on the grant date.
| 2007 | 2006 | 2005 | ||||||||||
Exercise Price Equals Market Price |
||||||||||||
Weighted average exercise price |
$ | 2.50 | $ | 4.18 | $ | 4.32 | ||||||
Weighted average fair value |
$ | 1.99 | $ | 2.88 | $ | 2.75 | ||||||
Exercise Price Exceeds Market Price |
||||||||||||
Weighted average exercise price |
$ | — | $ | — | $ | 4.06 | ||||||
Weighted average fair value |
$ | — | $ | — | $ | 2.52 | ||||||
Exercise Price is Less Than Market Price |
||||||||||||
Weighted average exercise price |
$ | — | $ | — | $ | — | ||||||
Weighted average fair value |
$ | — | $ | — | $ | — | ||||||
The following is a summary of stock options and warrants outstanding and exercisable as of December
31, 2007:
| Options and Warrants Outstanding | Exercisable | |||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||
| Remaining | Exercise | Exercise | ||||||||||||||||||
| Range of | Number of | Contractual | Price | Number of | Price | |||||||||||||||
| Exercise Prices | Shares | Life | Per Share | Shares | Per Share | |||||||||||||||
$.88 — $2.90
|
1,308,485 | 1.54 | $ | 2.65 | 1,290,985 | $ | 2.65 | |||||||||||||
$3.00 — $5.99
|
1,246,943 | 3.45 | 4.31 | 1,229,443 | 4.31 | |||||||||||||||
$8.00 — $14.06
|
36,000 | 2.41 | 9.75 | 36,000 | 9.75 | |||||||||||||||
$14.87 — $17.50
|
45,000 | 1.95 | 16.50 | 45,000 | 16.50 | |||||||||||||||
$19.00 — $21.42
|
100,000 | 1.58 | 21.42 | 100,000 | 21.42 | |||||||||||||||
| 2,736,428 | 2.92 | $ | 4.43 | 2,701,428 | $ | 4.43 | ||||||||||||||
Non-vested Stock Awards
During the year ended December 31, 2004, Hollywood Media issued 400,000 shares to each of the
President and the Chairman of the Board pursuant to employment agreements with an aggregate value
of $2,600,000, the fair market value on the date of issuance, which vest at a rate of 6.25% per
quarter beginning on October 1, 2004. Hollywood Media recorded $650,000, $650,000, and $650,000 as
compensation expense for the years ended December 31, 2007, 2006 and 2005, respectively, under
these non-vested stock awards. At December 31, 2007, 2006 and 2005, unrecognized compensation
expense for the non-vested shares amounted to $487,500, $1,137,500 and $1,787,500. As of December
31, 2007, 2006 and 2005 there were 150,000, 350,000 and 550,000 shares of non-vested common stock,
respectively. During the years ended December 31, 2007, 2006 and 2005, 200,000, 200,000 and
200,000 shares of common stock vested, respectively.
In accordance with SFAS No. 123R, unearned deferred compensation amounts of $1,787,500
previously classified as a contra-equity were eliminated against additional paid-in capital,
commencing January 1, 2006, as the stock is not deemed to be issued until vesting requirements are
satisfied.
56
Table of Contents
(4) DISCONTINUED OPERATIONS
Pursuant to SFAS No. 144, the Company’s consolidated financial statements have been
reclassified for all periods presented to reflect the operations, assets and liabilities of the
discontinued operations.
Showtimes.com, Inc.
On August 24, 2007, Hollywood Media Corp. entered into and simultaneously closed on a
definitive asset purchase agreement with West World Media and its principal, a former employee,
pursuant to which Hollywood Media sold to West World Media substantially all of the assets of its
Showtimes business, for a cash purchase price of $23,000,000, subject to a working capital
post-closing adjustment. The working capital post-closing adjustment was a price reduction of
$114,454, which was paid by Hollywood Media to West World Media in January 2008.
The Showtimes business included the CinemaSource, EventSource and ExhibitorAds operations and
constituted the remainder of Hollywood Media’s Data Business Division, which previously included
the Baseline/StudioSystems business unit until it was sold to The New York Times in August 2006.
West World Media is controlled by Brett West, who founded the Source business in 1995 and sold the
business to Hollywood Media in 1999. Mr. West served as president of Hollywood Media’s Source
business.
The assets and liabilities of Showtimes, Inc. have been classified as current or long term
“Assets of discontinued operations” and current and long term “Liabilities of discontinued
operations” in the accompanying December 31, 2006 consolidated balance sheet and consist of the
following:
| December 31, 2006 | |||||
Current assets |
$ | 974,026 | |||
Property and equipment, net |
138,478 | ||||
Other assets, net |
47,003 | ||||
Goodwill |
9,376,256 | ||||
Total assets of discontinued operations |
$ | 10,535,763 | |||
Current liabilities |
$ | 556,341 | |||
Long-term liabilities |
170,723 | ||||
Total liabilities of discontinued operations |
$ | 727,064 | |||
Baseline Acquisitions Corp.
On August 25, 2006, Hollywood Media sold to the New York Times all of the outstanding capital
stock of its wholly-owned subsidiary, Baseline Acquisitions Corp. (“BAC”), for a cash purchase
price of $35,000,000. As per the purchase agreement, $3,500,000 of the purchase price was held in
escrow for twelve months following the closing to cover potential indemnification claims, if any,
made by the third party. During 2007, Hollywood Media received $2,800,000, representing the full
amount of the escrow net of costs of $700,000 for certain contractual bonuses due to the former
division heads.
BAC was the subsidiary of Hollywood Media which owned (i) Baseline/StudioSystems and (ii) the
Germany-based Screenline Film-und Medieninforamations GmbH (“Screenline”) business of Hollywood
Media. Baseline is a database and research service offering specialized information and online
applications to its subscribing users and licensees, which users and subscribers and licensees
include movie and TV studios and production companies, distributors, producers, screenwriters, news
organizations and websites. Baseline’s film and television database contains motion picture and TV
information, including data about film and television productions and entertainment industry
professionals. Screenline, a German company acquired by Hollywood
57
Table of Contents
Media in June 2006, aggregates weekly box office data for more than 30 international
territories and countries, as well as film synopses, cast and crew lists, release dates and budget
information in English, German and Spanish. Baseline and Screenline constituted a portion of
Hollywood Media’s Data Business Division.
The net income from discontinued operations has been classified in the accompanying
consolidated statements of operations as “Income from discontinued operations.” Summarized results
of discontinued operations which includes both BAC and Showtimes through their respective dates of
disposition, for the years ended December 31, 2007, 2006 and 2005 were as follows:
| 2007 | 2006 | 2005 | ||||||||||
Operating revenue |
$ | 4,322,810 | $ | 10,165,725 | $ | 10,618,631 | ||||||
Gain on sale of discontinued operations net of
income taxes of $569,298 and $524,265
for 2007 and 2006, respectively |
10,254,287 | 16,328,241 | — | |||||||||
Income from discontinued operations |
1,345,856 | 2,867,966 | 2,320,432 | |||||||||
Income from discontinued operations |
$ | 11,600,143 | $ | 19,196,207 | $ | 2,320,432 | ||||||
(5) ACQUISITIONS AND OTHER CAPITAL TRANSACTIONS:
Showtix Acquisition
On February 1, 2007, Hollywood Media’s subsidiary, TDI entered into a definitive asset
purchase agreement with Showtix and each of its members for the acquisition by TDI of substantially
all of the assets of Showtix. Showtix is a full service, licensed group ticketing sales agency
that sells tickets for Broadway and Off-Broadway theatrical performances. The acquisition was
completed and closed on February 1, 2007. The aggregate purchase consideration was $2,695,483,
including $2,600,000 in cash and $95,483 of acquisition costs. In addition, Showtix is also
entitled to receive up to $370,000 in cash earn-outs as defined in the agreement. A reconciliation
of the purchase price is provided below:
Purchase consideration |
$ | 2,695,483 | ||
Cash acquired |
4,824 | |||
Accounts receivable |
368,319 | |||
Prepaid |
11,584 | |||
Total assets |
$ | 384,727 | ||
Current liabilities |
$ | (94,167 | ) | |
Total liabilities |
$ | (94,167 | ) | |
Net Assets |
$ | 290,560 | ||
Excess of the purchase consideration over fair
value of net assets acquired (included in
ticketing segment) |
$ | 2,404,923 | ||
The excess of the purchase consideration over the fair value of net assets has been classified
preliminarily in “Goodwill” in the accompanying consolidated balance sheet as of December 31, 2007.
The allocation of purchase price is pending valuation from a third party expert which is expected
to be finalized during the first quarter of 2008.
58
Table of Contents
The results of operations of the Showtix business have been included in Hollywood Media’s
results of operations since the date of acquisition (February 1, 2007). The following are
Hollywood Media’s pro forma results for the years ended December 31, 2007 and 2006, respectively,
assuming that the acquisition had occurred on the first day of each period presented:
| December 31, 2007 | December 31, 2006 | |||||||
| (unaudited) | (unaudited) | |||||||
Proforma net revenues |
$ | 124,617,528 | $ | 124,231,915 | ||||
Proforma loss from continuing operations |
$ | (9,883,835 | ) | $ | (9,415,183 | ) | ||
Proforma net income |
$ | 1,716,308 | $ | 9,781,024 | ||||
Proforma loss per share from continuing operations |
$ | (0.30 | ) | $ | (0.29 | ) | ||
Proforma net income per share |
$ | 0.05 | $ | 0.30 | ||||
Proforma weighted average common and common
equivalent shares |
33,303,886 | 32,761,848 | ||||||
Screenline Acquisition
On June 13, 2006, Hollywood Media consummated the acquisition of 100% of the outstanding
common stock of the Germany based Screenline, a provider of box office and film data for more than
30 international territories in English, German and Spanish. The acquisition was intended to
complement our Data Business and serve as a platform for expansion of coverage into European and
international film and television industries. The aggregate purchase consideration was $626,294.
A reconciliation of the purchase price is provided below.
Purchase consideration |
$ | 626,294 | ||
Accounts receivable |
$ | 6,068 | ||
Other current assets |
9,258 | |||
Property, plant and equipment, net |
62,923 | |||
Intangibles |
300,000 | |||
Total assets |
$ | 378,249 | ||
Current liabilities |
$ | (10,235 | ) | |
Deferred revenue |
(54,082 | ) | ||
Total liabilities |
$ | (64,317 | ) | |
NET ASSETS |
$ | 313,932 | ||
Excess of the purchase consideration over fair value
of net assets acquired |
$ | 312,362 | ||
The excess of the purchase consideration over the fair value of net assets acquired was
classified in “Goodwill” in the accompanying consolidated balance sheets. The goodwill was
included in the gain on sale of subsidiary as this business was sold with Hollywood Media’s
Baseline StudioSystems business unit on August 25, 2006 (See Note 4). Unaudited proforma
information showing the Company’s consolidated statement of operations is not included herein
because the impact thereof is not considered material.
59
Table of Contents
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK:
The carrying amounts of cash and cash equivalents, receivables and accounts payable,
approximate fair value due to the short maturity of the instruments. The carrying value of notes
payable approximates fair value because the interest rates approximate the market rate.
The Company had $7,000,000 in face amount of Senior Unsecured Notes as of December 31, 2006.
The senior unsecured notes are presented in the accompanying December 31, 2006 consolidated balance
sheet, net of discount. As of December 31, 2006, the approximate fair value was $6,672,983,
determined based on an independent valuation. The Senior Unsecured Notes were paid off in May of
2007.
Financial instruments that potentially subject the Company to significant concentrations of
credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company’s
cash management and investment policies restrict investments to low risk, highly-liquid securities,
and the Company performs periodic evaluations of the credit standing of the financial institutions
with which it deals. The Company generally does not require collateral when granting credit. The
Company performs ongoing credit evaluations and maintains an allowance for doubtful accounts for
accounts which management believes may have become impaired and, to date, losses have not been
significant. See Note 2 for a further discussion on allowance for doubtful accounts.
The Company has three primary suppliers of tickets for the Broadway Ticketing division.
Purchases from these three suppliers comprised more than 86%, 86% and 84% of all purchases made for
the division in each of the years ended December 31, 2007, 2006, and 2005, respectively. Loss of
one or more of these suppliers could have a significant adverse effect on the operations of the
Company.
(7) RECENTLY ISSUED ACCOUNTING STANDARDS:
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No.
141(R)”), which amends SFAS No. 141, and provides revised guidance for recognizing and measuring
identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in
the acquiree. It also provides disclosure requirements to enable users of the financial statements
to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is
effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB 51” (“SFAS No. 160”). SFAS No. 160 establishes
accounting and reporting standards pertaining to ownership interests in subsidiaries held by
parties other than the parent, the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the valuation of any
retained noncontrolling equity investment when a subsidiary is deconsolidated. SFAS No. 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal
years beginning on or after December 15, 2008. Management is currently evaluating the potential
impact of adopting SFAS No. 160 on our consolidated financial position and results of operations.
FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts” (“FIN 39”),
specifies what conditions must be met for an entity to have the right to offset assets and
liabilities in the balance sheet and clarifies when it is appropriate to offset amounts recognized
for forward interest rate swaps, currency swaps, options and other conditional or exchange
contracts. FIN 39 also permits offsetting of fair value amounts recognized for multiple contracts
executed with the same counterparty under a master netting arrangement. On April 30, 2007, the FASB
issued FASB Staff Position FIN No. 39-1, “An Amendment of FIN 39, Offsetting of Amounts Related to
Certain Contracts” (“FSP FIN 39-1”), which amends portions of FIN 39 to make certain terms
consistent with those used in SFAS No. 133. FSP FIN 39-1 also amends FIN 39 to allow for the
offsetting of fair value amounts for the right to reclaim collateral assets or liabilities arising
from the same master netting
60
Table of Contents
arrangement as the derivative instruments. Adoption of FSP FIN 39-1 did not have a material
impact on our consolidated financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 provides entities the
option to measure many financial assets and financial liabilities at fair value that are not
currently required to be measured at fair value. The fair value option is irrevocable and
generally made on an instrument-by-instrument basis, even if the Company has similar instruments
that it elects not to measure based on fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. Management is currently evaluating the potential
impact of SFAS No. 159 on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”),
which defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years
beginning after November 15, 2007. Management is currently evaluating the potential impact SFAS No.
157 will have on our consolidated financial statements.
(8) PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of:
| December 31, | ||||||||
| 2007 | 2006 | |||||||
Furniture and fixtures |
$ | 630,921 | $ | 648,848 | ||||
Equipment and software |
6,939,391 | 5,965,754 | ||||||
Website development |
954,344 | 839,650 | ||||||
Equipment under capital leases |
1,771,604 | 1,456,310 | ||||||
Leasehold improvements |
398,049 | 359,897 | ||||||
Internally developed software project
in progress |
424,947 | 371,960 | ||||||
Leasehold improvements in progress |
2,519,299 | — | ||||||
| 13,638,555 | 9,642,419 | |||||||
Less: Accumulated depreciation and
amortization |
(8,748,435 | ) | (7,728,218 | ) | ||||
| $ | 4,890,120 | $ | 1,914,201 | |||||
Depreciation and amortization expense of property and equipment was $1,193,736, $1,014,461 and
$950,863 for the years ended December 31, 2007, 2006 and 2005, respectively. Included in these
amounts is depreciation and amortization expense for equipment under capital leases of $108,048,
$77,074 and $151,645 for the years ended December 31, 2007, 2006 and 2005, respectively.
(9) GOODWILL AND INTANGIBLE ASSETS:
The following table reflects the changes in the net carrying amount of goodwill relating to
continuing operations by operating segment (see Note 18) for the years ended December 31, 2007 and
2006:
61
Table of Contents
| Balance at | Balance at | Balance at | ||||||||||||||||||
| December 31, | Acquisition | December 31, | Acquisition | December 31, | ||||||||||||||||
| 2007 | and Other | 2006 | and Other | 2005 | ||||||||||||||||
Broadway Ticketing |
$ | 5,928,779 | $ | 2,404,923 | $ | 3,523,856 | $ | — | $ | 3,523,856 | ||||||||||
Ad Sales and Other |
24,060,301 | — | 24,060,301 | (2,341 | ) | 24,062,642 | ||||||||||||||
Intellectual Properties |
248,057 | — | 248,057 | — | 248,057 | |||||||||||||||
Total |
$ | 30,237,137 | $ | 2,404,923 | $ | 27,832,214 | $ | (2,341 | ) | $ | 27,834,555 | |||||||||
The intangible assets of continuing operations consist of the following at December 31, 2007
and 2006:
| Balance at December 31, | ||||||||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||
| Amount | Amortization | Net | Amount | Amortization | Net | |||||||||||||||||||
Patents and trademarks |
$ | 275,824 | $ | (159,855 | ) | $ | 115,969 | $ | 203,368 | $ | (147,867 | ) | $ | 55,501 | ||||||||||
Web addresses |
3,352,182 | (2,875,167 | ) | 477,015 | 3,162,769 | (2,545,408 | ) | 617,361 | ||||||||||||||||
Other |
1,682,094 | (797,256 | ) | 884,838 | 1,682,094 | (482,420 | ) | 1,199,674 | ||||||||||||||||
Total |
$ | 5,310,100 | $ | (3,832,278 | ) | $ | 1,477,822 | $ | 5,048,231 | $ | (3,175,695 | ) | $ | 1,872,536 | ||||||||||
Amortization expense was $653,435, $687,966 and $318,283 for the years ended December 31,
2007, 2006 and 2005, respectively. Amortization expense of the net carrying amount of intangible
assets at December 31, 2007 is as follows:
| Year | Amount | |||
2008 |
$ | 696,873 | ||
2009 |
446,975 | |||
2010 |
326,425 | |||
2011 |
7,549 | |||
Total |
$ | 1,477,822 | ||
Patents and trademarks are being amortized on a straight-line basis over 3 to 17 years. Web
addresses and Other are amortized over 3 to 5 years.
On January 18, 2006, Hollywood Media acquired the assets of eFanGuide, Inc., a provider of
celebrity fan sites on the internet including 120 owned URLs and 5 hosted URLs. The aggregate
purchase price paid by Hollywood Media for the assets of eFanGuide, Inc. was $216,500, which was
paid by the issuance of 50,930 shares of Hollywood Media’s common stock, calculated in accordance
with the terms of the asset purchase agreement by using the average closing price of Hollywood
Media’s common stock on the ten trading days immediately prior to the date of closing. The URLs
were classified as an intangible asset and are being amortized over three years. Amortization
expense relating to these assets of $72,167 and $69,160 was recorded for the years ended December
31, 2007 and 2006, respectively.
On January 31, 2006, Hollywood Media acquired the assets of Prosperity Plus, Inc., a provider
of celebrity fan sites on the internet including 31 owned URLs and 17 hosted URLs. The aggregate
purchase price paid by Hollywood Media for the assets of Prosperity Plus, Inc. was $400,000, of
which $100,000 was paid in cash and $300,000 was paid by the issuance of 69,349 shares of Hollywood
Media’s common stock, calculated in accordance with the terms of the asset purchase agreement by
using the average closing price of Hollywood Media’s common stock on the ten trading days
immediately prior to the date of closing. The URLs were classified as an intangible asset and are
being amortized over three years. Amortization expense relating to
62
Table of Contents
these assets of $133,333 and $122,222 was recorded for the years ended December 31, 2007 and
2006, respectively.
On June 13, 2006, Hollywood Media acquired the stock of Screenline, a German company (Note 5).
The aggregate purchase price paid by Hollywood Media for the stock of Screenline was $600,000, of
which $500,000 was paid in cash and $100,000 was paid by the issuance of 23,844 shares of Hollywood
Media common stock, the value of which was calculated by agreement with the selling stockholder by
using the average closing price of Hollywood Media’s common stock on the ten trading days
immediately prior to the signing date of the stock purchase agreement. Hollywood Media allocated
$300,000 of the purchase price to certain intangibles including, but not limited to, the database
containing international box office data for over 30 countries. The database was classified as an
intangible asset and was being amortized over three years until it was sold with Hollywood Media’s
Baseline/StudioSystems business unit on August 25, 2006. No amortization expense was recorded or
included in either continuing or discontinued operations for the year ended December 31, 2006.
On January 31, 2007 Hollywood Media purchased the domain name www.thatotherblog.com. The
aggregate purchase price was $11,000, of which $3,000 was paid in cash and $8,000 was paid by
issuance of 1,992 shares of Hollywood Media’s common stock, calculated in accordance with the terms
of the asset purchase agreement by using the average closing price of Hollywood Media’s common
stock on the ten trading days immediately prior to the date of closing. The purchase was recorded
as an intangible asset and is being amortized over three years. Amortization expense was $3,371
for the year ended December 31, 2007.
On January 31, 2007 Hollywood Media also purchased the domain names and certain other assets
located at the URLs www.worldofbritney.com and www.webpictures.com for a cash price of $60,000.
The URLs were classified as intangible assets and are being amortized over three years.
Amortization expense of $18,334 was recorded for the year ended December 31, 2007.
During March 2007 Hollywood Media purchased 7 domain names (all containing the name
“Hollywood”) for a cash price of $18,283. The URLs are classified as intangible assets and are
being amortized over three years. Amortization expense of $5,079 was recorded for the year ended
December 31, 2007.
On April 30, 2007 Hollywood Media purchased the domain name located at the URL
www.fantropolis.com for a cash price of $4,000. The URL was classified as an intangible asset and
is being amortized over three years. Amortization expense of $889 was recorded for the year ended
December 31, 2007.
On July 16, 2007 Hollywood Media purchased the www.theatre.co.uk URL for a cash price of
25,000 British pounds (approximately $50,000). The URL was classified as an intangible asset and
is being amortized over three years. Amortization expense for the year ended December 31, 2007 was
$7,869.
On December 5, 2007 Hollywood Media purchased 3 domain names (all containing the name “mobi”)
for a cash price of $31,061. The domains were classified as intangible assets and are being
amortized over three years. Amortization expense was $863 for the year ended December 31, 2007.
On December 17, 2007 Hollywood Media obtained the www.newyorktheater.com URL for a cash price
of $8,600. The URL was classified as an intangible asset and is being amortized over three years.
Amortization expense for the year ended December 31, 2007 was $239.
Hollywood Media is in the process of registering a patent with the United States Patent
Office. The legal expense to register amounted to $72,456 and was recorded as an intangible asset
during the year ended December 31, 2007.
63
Table of Contents
(10) CAPITAL LEASE OBLIGATIONS:
Future minimum lease payments under capital leases, which contain bargain purchase options,
together with the present value of the net minimum lease payments as of December 31, 2007 are as
follows:
| Year | Amount | |||
2008 |
$ | 186,300 | ||
2009 |
183,723 | |||
2010 |
80,225 | |||
2011 |
19,382 | |||
2012 |
4,783 | |||
Minimum lease payments |
474,413 | |||
Less amount representing imputed interest |
(76,633 | ) | ||
Present value of net minimum lease payments |
397,780 | |||
Less: current portion |
(141,809 | ) | ||
| $ | 255,971 | |||
(11) DEBT:
Senior Unsecured Notes
On November 23, 2005, Hollywood Media issued and sold $7,000,000 aggregate principal amount of
its Senior Unsecured Notes (the “Senior Notes”) for aggregate gross cash proceeds of $7,000,000.
The notes carried an 8% interest rate and an initial 12 month term, on which interest was payable
in quarterly installments commencing December 31, 2005. The principal was payable in cash or, at
Hollywood Media’s option, in shares of Hollywood Media’s common stock valued on a per share basis
at a 5% discount from the 20-day volume-weighted average market price per share of the common stock
as of the payment date, subject to certain conditions to such option including but not limited to
the requirement that the shares be registered for resale. Hollywood Media’s proceeds related to the
issuance, net of issuance costs, were $6,595,690. The holders of the Senior Notes also received
warrants (the “Warrants”) to purchase 700,000 shares of Hollywood Media’s common stock at an
exercise price of $4.29 per share. In March 2006, Hollywood Media exercised its option under the
terms of the Senior Notes to extend the maturity date of the Senior Notes to May 23, 2007 in
exchange for the delivery of additional five-year Warrants to purchase an aggregate of 100,000
shares of Hollywood Media’s common stock with an exercise price per share at $4.29. The Senior
Notes were not convertible at the option of the holders.
On May 18, 2007, the $7,000,000 principal amount of the Senior Notes, together with all
accrued and unpaid interest thereon, was paid in full in accordance with the provisions of the
Senior Notes.
Upon issuance, Hollywood Media recognized the value attributable to the 700,000 issued
Warrants in the amount of $1,865,037 as a discount against the Senior Notes. The Company valued
the Warrants using the Black-Scholes pricing model assuming a risk-free rate of 4.45%, an expected
volatility of 69.4% and a five year life; the fair value of the Warrants was determined to be $2.66
per share. Additional discount of $286,000 was recorded in conjunction with the 100,000 extension
Warrants issued in March of 2006. The Company valued the additional Warrants using the
Black-Scholes pricing model assuming a risk-free rate of 4.73%, an expected volatility of 64.2% and
an approximate five year life; the fair value of the Warrants was determined to be $2.86 per share.
The debt discount attributed to the value of the Warrants issued was amortized over the life of
the Senior Notes as interest expense using the effective yield method. The Company amortized the
Senior Notes debt discount attributed to the value of the Warrants of $624,601, $1,259,144 and
$267,292 for the years ended December 31, 2007, 2006 and 2005, respectively. As of December 31,
2006, $624,601 of unamortized discount on the Senior Notes was reducing the face amount of the
Senior Notes, and was being amortized to interest expense over the remaining term of the
outstanding debt.
64
Table of Contents
The fair value of the Warrants was recorded as a derivative liability in 2006 and 2005. The
liability was accounted for as a derivative under the applicable standards due to the registration
rights and potential net cash settlement of amounts due to Warrant holders. In accordance with the
adoption of FASB Staff Position No. EITF 00-19-2 (“FSP EITF 00-19-2”), which changed the accounting
requirements for this type of instrument (effective January 1, 2007), the derivative liability of
$1,423,464 was reclassified to shareholders’ equity increasing additional paid-in-capital by
$2,151,037, representing the original derivative liability, and increasing the accumulated deficit
by $727,573, representing the change in fair value from previous periods.
In addition, $404,310 of issuance costs were being amortized over the life of the original
debt as a deferred debt issuance cost on the straight-line basis which approximates the interest
method. During the years ended December 31, 2006 and 2005, $363,440 and $40,870, respectively, of
debt issuance costs, were amortized as interest expense.
During the years ended December 31, 2007, 2006 and 2005, $220,889, $567,778, $60,667,
respectively, in interest expense in connection with the Senior Unsecured Notes was recorded for
stated interest on the Company’s consolidated statement of operations.
Registration Payment Arrangement
As required by the registration rights agreement entered into in connection with the Warrants,
Hollywood Media filed a registration statement for the resale of the shares of common stock
issuable upon the exercise of the Warrants that was declared effective by the SEC on March 3, 2006,
and must maintain the effectiveness of such registration statement through the earlier of (a) the
fifth anniversary of the effective date or (b) the date on which the holders of Warrant shares are
able to resell such Warrant shares under Rule 144(k) of the Securities Act. If the registration
statement ceases to be effective for any reason for more than 30 trading days during any 12-month
period (the “Grace Period”) in violation of the agreement, and if there are no applicable defenses
or limitations under the agreement or at law or otherwise, Hollywood Media would be required to pay
to the holders of Warrant shares, in addition to any other rights such holders may have, an
aggregate cash amount equal to $25,000 for each of the first three 30-day periods following the
date that the Grace Period is exceeded, increasing to $70,000 for each succeeding 30-day period.
As of December 31, 2007, none of the Warrants have been exercised, no Warrant shares have been
issued, and the registration statement continues to be effective.
In accordance with EITF 00-19-2, Hollywood Media is required to calculate the maximum
potential amount of consideration payable pursuant to registration payment arrangements, even if
the likelihood of payments under such arrangements is remote. EITF 00-19-2 is applicable to
financial statements issued for fiscal years beginning after December 15, 2006 and any interim
periods therein. Assuming for purposes of this calculation that (i) all of the Warrants were
exercised on December 31, 2007, (ii) the Warrant shares issued upon such exercise are available for
resale under Rule 144(k) on December 31, 2009, (iii) the registration statement ceased to be
effective in violation of the agreement on December 31, 2007 and does not become effective again
before December 31, 2009, the remainder of the required registration period, and (iv) that there
are no applicable defenses or limitations under the agreement or at law or otherwise, the maximum
potential amount of consideration payable by Hollywood Media to the holders of Warrant shares would
be $1,475,000. Management does not believe that any significant material payments are likely under
this registration payment arrangement.
(12) OFFERINGS OF SECURITIES:
On January 3, 2005, Hollywood Media issued 20,000 shares of common stock valued at $93,960, as
compensation to a consulting firm for services rendered and to be rendered.
On January 4, 2005, Hollywood Media issued 3,244 shares of common stock valued at $15,123 in
payment of interest on the 6% Senior Convertible Debentures issued
May 22, 2002 (the “Convertible Debentures”) for the period October 1, 2004 through December 31, 2004. The
number of shares issued was calculated using a price of $4.663 per share, which in accordance with
the terms of the Convertible Debentures is the amount equal to 95% of the average of the closing price of
Hollywood Media common stock
65
Table of Contents
for the five consecutive trading days ending on and including the third business day immediately
preceding January 1, 2005.
On January 18, 2005, Hollywood Media issued 1,408 shares of common stock valued at $14
pursuant to the exercise of a director stock option with an exercise price of $0.01 per share.
On February 8, 2005, Hollywood Media issued 10,000 shares of common stock valued at $28,400
pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The warrant was
issued in connection with a private placement completed in 2004.
On February 8, 2005, Hollywood Media issued 39,951 shares of common stock valued at $193,762,
based on the closing share price of $4.85 as of the December 31, 2004 date of grant, for payment of
Hollywood Media’s 401(k) employer match for the calendar year 2004.
On March 3, 2005, Hollywood Media issued 18,750 shares of common stock valued at $53,250
pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The warrant was
issued in connection with a private placement completed in 2004.
On March 21, 2005, Hollywood Media issued 15,000 shares of common stock valued at $63,299
pursuant to the exercise of a stock option with an exercise price of $4.22 per share.
On March 23, 2005, Hollywood Media issued 66,021 shares of common stock valued at $187,500
pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The warrant was
issued in connection with a private placement completed in 2004.
On March 29, 2005, Hollywood Media issued 150,000 shares of common stock valued at $426,000
pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The warrant was
issued in connection with a private placement completed in 2004.
On April 7, 2005, Hollywood Media issued 4,115 shares of common stock valued at $19,752, based
on the closing share price of $4.80 on the April 7, 2005 date of grant, to an employee as
additional compensation.
On April 20, 2005, Hollywood Media issued 3,107 shares of common stock valued at $14,794 in
payment of interest on the Convertible Debentures for the period January 1, 2005 through March 31, 2005. The
number of shares issued was calculated using a price of $4.761 per share, which in accordance with
the terms of the Convertible Debentures is the amount equal to 95% of the average of the closing price of
Hollywood Media common stock for the five consecutive trading days ending on and including the
third business day immediately preceding April 1, 2005.
On April 21, 2005, Hollywood Media issued 15,000 shares of common stock valued at $63,285
pursuant to the exercise of a stock option with an exercise price of $4.22 per share.
On April 26, 2005 Hollywood Media issued 15,000 shares of common stock valued at $63,285
pursuant to the exercise of a stock option with an exercise price of $4.22 per share.
On May 13, 2005, Hollywood Media issued 25,000 shares of common stock valued at $71,000
pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The warrant was
issued in connection with a private placement completed in 2004.
On May 25, 2005, Hollywood Media issued 2,237 shares of common stock valued at $10,000, based
on the closing share price of $4.47 on the May 23, 2005 date of grant, for consulting services.
On May 31, 2005 Hollywood Media issued 5,000 shares of common stock valued at $10,150 pursuant
to the exercise of a director stock option with an exercise price of $2.03 per share.
66
Table of Contents
On June 2, 2005, Hollywood Media issued 25,000 shares of common stock valued at $71,000
pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The warrant was
issued in connection with a private placement completed in 2004.
On June 3, 2005, Hollywood Media issued 219,803 shares of common stock valued at $323,267,
pursuant to a cashless exercise of a warrant issued with an exercise price of $1.70 per share
pursuant to a consulting agreement with an investment banker, which agreement terminated in April
2003. The warrants were valued using the Black-Scholes valuation model and were expensed during
2002 and 2003.
On June 8, 2005, Hollywood Media issued 62,500 shares of common stock valued at $110,000
pursuant to the exercise of a stock option with an exercise price of $1.76 per share.
On June 9, 2005, Hollywood Media issued 350,000 shares of common stock valued at $455,000
pursuant to the exercise of a stock option with an exercise price of $1.30 per share.
On June 13, 2005, Hollywood Media issued 200,000 shares of common stock valued, using a
Black-Scholes model, at $144,000 to an independent third party, pursuant to a consulting agreement
for services rendered in connection with an acquisition.
On July 7, 2005, Hollywood Media issued 18,540 shares of common stock valued at $81,577, based
on the closing share price of $4.45 on the July 1, 2005 date of grant, as additional compensation
to an employee pursuant to an employment agreement.
On July 13, 2005, Hollywood Media issued 3,481 shares of common stock valued at $14,959 in
payment of interest on the Convertible Debentures for the period April 1, 2005 through June 30, 2005. The number
of shares issued was calculated using a price of $4.298 per share, which in accordance with the
terms of the Convertible Debentures is the amount equal to 95% of the average of the closing price of Hollywood
Media common stock for the five consecutive trading days ending on and including the third business
day immediately preceding July 1, 2005.
On July 27, 2005, Hollywood Media issued 1,500 shares of common stock valued at $1,845
pursuant to the exercise of a stock option with an exercise price of $1.23 per share.
On October 10, 2005, Hollywood Media issued 3,788 shares of common stock valued at $15,123 in
payment of interest on the Convertible Debentures for the period July 1, 2005 through September 30, 2005. The
number of shares issued was calculated using a price of $3.992 per share, which in accordance with
the terms of the Convertible Debentures is the amount equal to 95% of the average of the closing price of
Hollywood Media common stock for the five consecutive trading days ending on and including the
third business day immediately preceding October 1, 2005.
On November 17, 2005, Hollywood Media issued 750 shares of common stock valued at $953
pursuant to the exercise of a stock option with an exercise price of $1.27 per share.
On November 18, 2005, Hollywood Media issued 5,000 shares of common stock valued at $16,250
pursuant to the exercise of a stock option with an exercise price of $3.25 per share.
On December 20, 2005, Hollywood Media issued 92,208 shares of common stock valued at $368,832
pursuant to exercises of stock options with an exercise price of $4.00 per share.
On December 22, 2005, Hollywood Media issued 28,348 shares of common stock valued at $113,392
pursuant to exercises of stock options with an exercise price of $4.00 per share.
On December 30, 2005, Hollywood Media issued 15,000 shares of common stock valued at $60,000
pursuant to exercises of stock options with an exercise price of $4.00 per share.
67
Table of Contents
On January 11, 2006, Hollywood Media issued 3,682 shares of common stock in payment of $15,123
of interest on the Convertible Debentures for the period October 1, 2005 through December 31, 2005. The number of
shares issued was calculated using a price of $4.11 per share, which in accordance with the terms
of the Convertible Debentures is the amount equal to 95% of the average of the closing price of Hollywood Media
common stock for the five consecutive trading days ending on and including the third business day
immediately preceding January 1, 2006.
On January 18, 2006, Hollywood Media issued 50,930 shares of common stock valued using the
average closing price on the ten trading days immediately prior to the issuance date, or $4.25 per
share, in payment of the purchase price of $216,500 for the acquisition of eFanGuide, Inc.’s
intangible assets pursuant to the terms of the asset purchase agreement.
On January 18, 2006, Hollywood Media issued 16,114 shares of common stock valued using the
average closing price on the ten trading days immediately prior to the issuance date, or $4.25 per
share, in payment of $68,500 of additional compensation to a non-executive employee pursuant to an
employment agreement.
On January 31, 2006, Hollywood Media issued 69,349 shares of common stock valued using the
average closing price on the ten trading days prior to the issuance date, or $4.33 per share, in
payment of the $300,000 stock component of the purchase price for the acquisition of Prosperity
Plus, Inc.’s intangible assets pursuant to the terms of the asset purchase agreement.
On March 1, 2006, Hollywood Media issued 44,028 shares of common stock valued as of the
December 31, 2005 closing share price of $4.31, or $189,760, for payment of Hollywood Media’s
401(k) employer match for the calendar year 2005.
On March 13, 2006, Hollywood Media issued 6,750 shares of common stock valued at $19,170,
pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The warrant was
issued in connection with a private placement completed in 2004.
On March 29, 2006, Hollywood Media issued 375 shares of common stock valued at $367, pursuant
to the exercise of an employee stock option with an exercise price of $0.98 per share.
On April 4, 2006, Hollywood Media issued 3,397 shares of common stock were issued in payment
of $14,794 of interest on the Convertible Debentures for the period January 1, 2006 through March 31, 2006. The
number of shares issued was calculated using a price of $4.36 per share, which in accordance with
the terms of the Convertible Debentures, is the amount equal to 95% of the average of the closing price of
Hollywood Media common stock on the five consecutive trading days ending on and including the
third business day immediately preceding April 1, 2006.
On April 7, 2006, Hollywood Media issued 17,668 shares of common stock valued at the closing
price of $4.85 per share on March 31, 2006, the trading date prior to the April 1, 2006 date of
grant, in payment of $85,688 of additional compensation to an employee pursuant to a non-executive
employment agreement.
On April 21, 2006, Hollywood Media issued 23,246 shares of common stock valued at $4.79 per
share, which was the average of the closing price of Hollywood Media common stock on the five
consecutive business days ending on and including the third business day immediately preceding the
April 10, 2006 date of grant, in payment of $111,393 of additional compensation to a non-executive
employee pursuant to an employment agreement.
On May 22, 2006, Hollywood Media issued 2,054 shares of common stock were issued in payment of
$8,548 of interest on the Convertible Debentures for the period April 1, 2006 through May 22, 2006, the date that
the Convertible Debenture was converted. The number of shares issued was calculated using a price of $4.16 per
share, which in accordance with the terms of the Convertible Debenture is the amount equal to 95% of the
average of the closing price of
68
Table of Contents
Hollywood Media common stock on the five consecutive trading days ending on and including the third
business day immediately preceding May 23, 2006.
On May 22, 2006, Hollywood Media issued 312,500 shares of common stock valued at $1,000,000
upon the conversion of $1,000,000 principal amount of the Convertible Debentures into shares of Hollywood’s
Media common stock at a conversion price of $3.20 per share pursuant to the terms of the Convertible Debenture.
This last remaining Convertible Debenture was converted on May 22, 2006.
On May 24, 2006, Hollywood Media issued 19,474 shares of common stock valued at $4.40 per
share, which was the closing price of Hollywood Media common stock on the trading date prior to the
May 18, 2006 date of grant, in payment of $85,688 of additional compensation to a non-executive
employee pursuant to an employment agreement.
On June 1, 2006, Hollywood Media issued 2,500 shares of common stock valued at $9,100 pursuant
to the exercise of an employee stock option with an exercise price of $3.64 per share.
On June 1, 2006, Hollywood Media issued 6,250 shares of common stock valued at $22,188
pursuant to the exercise of an employee stock option with an exercise price of $3.55 per share.
On June 15, 2006, Hollywood Media issued 7,500 shares of common stock valued at $30,525
pursuant to the exercise of an employee stock option with an exercise price of $4.07 per share.
On June 15, 2006, Hollywood Media issued 2,000 shares of common stock valued at $8,200
pursuant to the exercise of an employee stock option with an exercise price of $4.10 per share.
On July 17, 2006, Hollywood Media issued 23,508 shares of common stock valued at the closing
price of $3.82 per share on June 30, 2006, the trading date prior to the July 1, 2006 date of
grant, in payment of $89,801 of additional compensation to a non-executive employee pursuant to an
employment agreement.
On July 17, 2006, Hollywood Media issued 9,006 shares of common stock valued at $3.81 per
share, which was the average of the closing price of Hollywood Media common stock on the five
consecutive business days ending on and including the third business day immediately preceding the
July 17, 2006 date of grant, in payment of $34,313 of additional compensation to a non-executive
employee pursuant to an employment agreement.
On July 20, 2006, Hollywood Media issued 4,167 shares of common stock valued at $3.60 per
share, which was the average of the closing price of Hollywood Media common stock on the ten
consecutive business days ending the day immediately preceding the July 19, 2006 date of grant, in
payment of $15,000 of additional compensation to a non-executive employee pursuant to an employment
agreement.
On July 26, 2006, Hollywood Media issued 23,844 shares of common stock valued using the
average closing price on the ten trading days immediately prior to the signing date of the
Screenline stock purchase agreement, or $4.19 per share, in payment of the $100,000 stock component
of the purchase price for the acquisition of the shares of Screenline common stock pursuant to the
terms of the stock purchase agreement.
On September 12, 2006, Hollywood Media issued 37,500 shares of common stock valued at $112,500
pursuant to the exercise of an employee stock option with an exercise price of $3.00 per share.
On September 15, 2006, Hollywood Media issued 62,500 shares of common stock valued at
$177,500, pursuant to the exercise of a warrant with an exercise price of $2.84 per share. The
warrant was issued in connection with a private placement completed in 2004.
On September 20, 2006, Hollywood Media issued 5,000 shares of common stock valued at $3.89 per
share which was the closing share price on the September 20, 2006 date of grant, in payment of
$19,450 of
69
Table of Contents
additional compensation to non-executive employees as compensatory bonuses associated with the
August 25, 2006 sale of BAC.
On October 10, 2006, Hollywood Media issued 8,731 shares of common stock valued at $3.93 per
share, which was the average of the closing price of Hollywood Media common stock on the five
consecutive business days ending on and including the third business day immediately preceding the
October 10, 2006 date of grant, in payment of $34,275 of additional compensation to a non-executive
employee pursuant to an employment agreement.
On November 7, 2006, Hollywood Media issued 1,000 shares of common stock pursuant to the
exercise of an employee stock option with an exercise price of $2.26 per share.
On November 22, 2006, Hollywood Media issued 10,000 shares of common stock pursuant to the
exercise of an employee stock option with an exercise price of $2.03 per share.
On January 4, 2007, Hollywood Media issued 20,101 shares of common stock valued at $4.20 per
share, which was the closing price of Hollywood Media common stock on the trading date prior to the
January 1, 2007 date of grant, in payment of $84,422 of additional compensation to a non-executive
employee pursuant to an employment agreement.
On January 22, 2007, Hollywood Media issued 1,000 shares of common stock valued at $1,490
pursuant to the exercise of an employee stock option with an exercise price of $1.49 per share.
On January 29, 2007, Hollywood Media issued 500 shares of common stock valued at $750 pursuant
to the exercise of an employee stock option with an exercise price of $1.50 per share.
On January 30, 2007, Hollywood Media issued 8,300 shares of common stock valued at $4.13 per
share, which was the average of the closing price of Hollywood Media common stock on the five
consecutive business days ending on and including the third business day immediately preceding the
January 10, 2007 date of grant, in payment of $34,275 of additional compensation to a non-executive
employee pursuant to an employment agreement.
On February 9, 2007, Hollywood Media issued 31,250 shares of common stock valued at $108,125
pursuant to the exercise of an employee stock option with an exercise price of $3.46 per share.
On February 9, 2007, Hollywood Media issued 59,257 shares of common stock valued as of the
December 29, 2006 closing share price of $4.20, or $248,876, for payment of Hollywood Media’s
401(k) employer match for the calendar year 2006.
On February 21, 2007, Hollywood Media issued 1,992 shares of common stock valued as of the
average of the ten days closing prices prior to the issuance date, or $4.02 per share, in payment
of the $8,000 purchase price for the acquisition of intangible assets.
On March 19, 2007, Hollywood Media issued 15,625 shares of common stock valued at $63,438
pursuant to the exercise of an employee stock option with an exercise price of $4.06 per share.
On April 25, 2007, Hollywood Media issued 8,174 shares of common stock pursuant to cashless
net exercises of warrants with an exercise price of $2.84 per share. The warrant was issued in
connection with a private placement completed in 2004.
On May 2, 2007, Hollywood Media issued 5,937 shares of common stock valued at $4.33 per share,
which was the average of the closing price of Hollywood Media common stock on the five consecutive
business days ending on and including the third business day immediately preceding the April 10,
2007 date of grant, in payment of $25,706 of additional compensation to a non-executive employee
pursuant to an employment agreement.
70
Table of Contents
On May 14, 2007, Hollywood Media issued 22,766 shares of common stock pursuant to the cashless
net exercise of a warrant with an exercise price of $3.34 per share. The warrant was issued in
connection with a debt offering completed in 2002.
On May 16, 2007, Hollywood Media issued 67,202 shares of common stock pursuant to the cashless
net exercise of a warrant with an exercise price of $3.34 per share. The warrant was issued in
connection with a debt offering completed in 2002.
On May 17, 2007, Hollywood Media issued 4,698 shares of common stock pursuant to the cashless
net exercise of a warrant with an exercise price of $3.34 per share. The warrant was issued in
connection with a debt offering completed in 2002.
On May 17, 2007, Hollywood Media issued 12,014 shares of common stock pursuant to the cashless
net exercise of a warrant with an exercise price of $4.00 per share. The warrant was issued in
connection with a debt offering completed in 2001.
On May 18, 2007, Hollywood Media issued 11,743 shares of common stock pursuant to the cashless
net exercise of a warrant with an exercise price of $3.34 per share. The warrant was issued in
connection with a debt offering completed in 2002.
On May 21, 2007, Hollywood Media issued 22,584 shares of common stock pursuant to the cashless
net exercise of a warrant with an exercise price of $3.34 per share. The warrant was issued in
connection with a debt offering completed in 2002.
On July 16, 2007, Hollywood Media issued 1,000 shares of common stock valued at $1,021
pursuant to the exercise of an employee stock option with an exercise price of $1.02 per share.
On July 19, 2007, Hollywood Media issued 5,970 shares of common stock valued at $4.31 per
share, which was the average of the closing price of Hollywood Media common stock on the five
consecutive business days ending on and including the third business day immediately preceding the
July 10, 2007 date of grant, in payment of $25,707 of additional compensation to a non-executive
employee pursuant to an employment agreement.
On August 13, 2007, Hollywood Media issued 20,000 shares of common stock valued at $29,000
pursuant to the exercise of an employee stock option with an exercise price of $1.45 per share.
On September 7, 2007, Hollywood Media issued 105,000 shares of the common stock valued at
$3.83 per share, which was the closing share price of Hollywood Media common stock on the August
30, 2007 date of grant, in payment of $402,150 in compensatory bonuses to certain officers of
Hollywood Media associated with the August 24, 2007 sale of the Showtimes business.
(13) STOCK REPURCHASE PROGRAM:
Hollywood Media reported in its Form 8-K report filed on October 4, 2007, that its Board of
Directors authorized a stock repurchase program under which Hollywood Media may use up to $10
million of its cash and cash equivalents to repurchase shares of its outstanding common stock.
Pursuant to the repurchase program, Hollywood Media purchased an aggregate of 2,003,660 shares of
its common stock during the fourth quarter of 2007 for $5,104,204, reflecting an average price of $2.55 per
share.
71
Table of Contents
(14) INCOME TAXES:
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, on January 1, 2007. The adoption had no impact on retained earnings as of January
1, 2007. There are no unrecognized tax benefits in the financial statements as of December 31,
2007 and December 31, 2006.
Hollywood Media is in a cumulative net loss position for both financial and tax reporting
purposes. The primary item giving rise to the Company’s net deferred tax asset is a net operating
loss carryforward of $210,794,597 as a result of losses incurred during the period from inception
(January 22, 1993) to December 31, 2005. However, due to the uncertainty of Hollywood Media’s
ability to generate taxable income in the future, and, to the extent taxable income is generated in
the future, the uncertainty as to Hollywood Media’s ability to utilize its loss carryforwards
subject to the “ownership change” provisions of Section 382 of the U.S. Internal Revenue Code,
Hollywood Media has established a valuation allowance for the full amount of the deferred tax
asset.
The net operating loss carryforwards expire as follows:
| Year | Amount | |||
2018 |
$ | 6,697,452 | ||
2019 |
18,526,989 | |||
2020 |
43,159,623 | |||
2021 |
37,552,359 | |||
2022 |
76,867,212 | |||
2023 |
9,728,058 | |||
2024 |
8,719,119 | |||
2025 |
9,543,785 | |||
| $ | 210,794,597 | |||
The components of Hollywood Media’s deferred tax assets and liabilities consist of the
following at December 31:
| 2007 | 2006 | |||||||
Net difference in tax basis and book basis for certain
assets and liabilities |
$ | 736,690 | $ | (115,200 | ) | |||
Net operating loss and tax credit carryforwards |
80,424,425 | 80,503,436 | ||||||
| 81,161,115 | 80,388,236 | |||||||
Valuation allowance |
(81,161,115 | ) | (80,388,236 | ) | ||||
Net deferred tax asset |
$ | — | $ | — | ||||
The provision for Federal and state income taxes from discontinued operations of $569,298 and
$524,265 for the years ended December 31, 2007 and 2006, respectively, is the result of Federal
alternative minimum taxes and state income and alternative minimum taxes that are currently
payable. The provision for income taxes from continuing operations is different from that which
would be obtained by applying the statutory Federal income tax rate of 35% to loss from continuing
operations as a result of the following:
72
Table of Contents
| For the Year Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
Income tax benefit at Federal statutory tax rate |
$ | (3,452,937 | ) | $ | (3,385,793 | ) | $ | (3,931,765 | ) | |||
State income tax benefit (net of federal benefit) |
(286,100 | ) | (280,537 | ) | (313,418 | ) | ||||||
Change in valuation allowance |
(1,170,750 | ) | (8,864,688 | ) | 3,956,689 | |||||||
Change in valuation allowance resulting from change in
cumulative temporary differences |
1,943,628 | (3,745,518 | ) | — | ||||||||
Change in cumulative temporary differences |
(1,943,628 | ) | 3,745,518 | — | ||||||||
Sale of subsidiaries – basis difference |
— | 4,825,002 | — | |||||||||
Non deductible expenses |
— | — | 25,284 | |||||||||
Income of foreign subsidiaries |
418,802 | — | — | |||||||||
Tax effect of income from discontinued operations |
4,490,986 | 7,706,016 | 263,210 | |||||||||
Other |
108,186 | 231,957 | 611,332 | |||||||||
| $ | — | $ | — | $ | — | |||||||
During 2007 and 2006, the Company reassessed the amounts of certain prior year deferred tax
assets and the corresponding effect of the valuation thereon. As a result of this reassessment,
deferred tax assets and the related valuation allowance were increased in 2007 in the amount of
$1,943,628 and reduced in 2006 in the amount of $3,745,518, resulting in zero net change to net
deferred tax assets.
The Company is currently open to audit under the statute of limitations by the Internal
Revenue Service and certain state income taxing authorities for all years due to the net operating
loss carryovers from those years.
(15) INVESTMENTS IN AND ADVANCES TO EQUITY METHOD UNCONSOLIDATED INVESTEES:
Investments in and advances to equity method unconsolidated investees consist of the
following:
| December 31, | ||||||||
| 2007 | 2006 | |||||||
NetCo Partners (a) |
$ | 291,960 | $ | 287,689 | ||||
MovieTickets.com (b) |
(4,975 | ) | (4,975 | ) | ||||
| $ | 286,985 | $ | 282,714 | |||||
The amounts reflected above comprise Hollywood Media’s total equity in undistributed earnings
(losses) for NetCo Partners and MovieTickets.com for the years ended December 31, 2007 and 2006.
(a) Netco Partners:
In June 1995, Hollywood Media and C.P. Group, Inc. (“C.P. Group”), a company in which Tom
Clancy is a shareholder, entered into an agreement to form NetCo Partners (the “Netco Joint Venture
Agreement”). NetCo Partners is engaged in the development and licensing of Tom Clancy’s NetForce.
Hollywood Media and C.P. Group are each 50% partners in NetCo Partners. C.P. Group contributed
to NetCo Partners all rights to Tom Clancy’s NetForce, and Hollywood Media contributed to NetCo
Partners all rights to Tad Williams’ MirrorWorld, Arthur C. Clarke’s Worlds of Alexander, Neil
Gaiman’s Lifers, and Anne McCaffrey’s Saraband.
Pursuant to the terms of the NetCo Partners Joint Venture Agreement, Hollywood Media is
responsible for developing, producing, manufacturing, advertising, promoting, marketing and
distributing NetCo Partners’ illustrated novels and related products and for advancing all costs
incurred in connection therewith. All amounts advanced by Hollywood Media to fund NetCo Partners’
operations are treated as capital contributions of
73
Table of Contents
Hollywood Media and Hollywood Media is entitled to a return of such capital contributions before
distributions of profits are split equally between Hollywood Media and C.P. Group.
Hollywood Media accounts for its investment in NetCo Partners under the equity method of
accounting, recognizing 50% of NetCo Partners’ income or loss as Equity in Earnings of
Unconsolidated Investees. Since NetCo Partners is a partnership, any income tax payable is passed
through to the partners. The revenues, gross profit and net income of NetCo Partners for the years
ended December 31, 2007, 2006 and 2005 are presented below:
| Year Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
Revenues |
$ | 1,138 | $ | 32,460 | $ | 1,429,783 | ||||||
Gross Profit |
887 | 32,348 | 1,225,703 | |||||||||
Net Income |
9,494 | 24,454 | 1,066,469 | |||||||||
Company’s Share
of Net Income |
$ | 4,747 | $ | 12,227 | $ | 533,228 | ||||||
The current assets and current liabilities of NetCo Partners of December 31, 2007 and 2006,
which are not included in Hollywood Media’s consolidated balance sheets, are presented below:
| As of December 31, | ||||||||
| 2007 | 2006 | |||||||
| (unaudited) | (unaudited) | |||||||
Current Assets |
$ | 353,231 | $ | 339,494 | ||||
Current Liabilities |
$ | 94,213 | $ | 90,503 | ||||
(b) MovieTickets.com Inc.
Hollywood Media entered into a joint venture agreement on February 29, 2000 with the movie
theater chains AMC Entertainment Inc. and National Amusements, Inc. to form MovieTickets.com, Inc.
(“MovieTickets.com”). In August 2000, the joint venture entered into an agreement with Viacom Inc.
to acquire a five percent interest in the joint venture for $25 million of advertising over 5
years. In addition to the Viacom advertising and promotion, MovieTickets.com is promoted through
on-screen advertising on most participating exhibitors’ movie screens. In March 2001, America
Online Inc. (“AOL”) purchased a non-interest bearing convertible preferred voting equity interest
in MovieTickets.com for $8.5 million in cash, convertible into approximately 3% of the common stock
of MovieTickets.com. AOL converted its preferred shares into common stock during the year ended
December 31, 2005.
Hollywood Media owns 26.2% of the equity in MovieTickets.com, Inc.at December 31, 2007 and
shares in 26.2% of the income or losses generated by the joint venture. This investment is
recorded under the equity method of accounting, recognizing 26.2% of ownership of MovieTickets.com
income or loss as “Equity in Earnings of Unconsolidated Investees” in the accompanying consolidated
balance sheets. Under applicable accounting principles, Hollywood Media has not recorded income
from its investment in MovieTickets.com for 2007 and 2006 because accumulated losses from 2005 and
prior years exceeded MovieTickets.com’s accumulated net income in 2007 and 2006.
74
Table of Contents
Hollywood Media performs ad sales, collections, billing, payroll and other related activities
for MovieTickets.com. Hollywood Media pays for ad sales staff and ad serving costs and
MovieTickets.com’s net revenues collected by Hollywood Media (less commissions earned by Hollywood
Media) are delivered to MovieTickets.com (See Note 20).
The revenues, cost and expenses, depreciation and amortization and net loss of
MovieTickets.com for the years ended December 31, 2007, 2006 and 2005, which are not included in
Hollywood Media’s consolidated statements of operations, are presented below:
| Year Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
Revenues |
$ | 13,273,300 | $ | 10,363,932 | $ | 8,944,380 | ||||||
Cost and Expenses |
$ | 9,398,711 | $ | 7,574,303 | $ | 7,737,029 | ||||||
Depreciation and Amortization |
$ | 529,018 | $ | 2,142,410 | $ | 3,290,498 | ||||||
Net Income (Loss) |
$ | 3,653,738 | $ | 781,226 | $ | (2,078,668 | ) | |||||
The cash, accounts receivable and accrued expenses and other liabilities balances of
MovieTickets.com as of December 31, 2007 and 2006, which are not included in Hollywood Media’s
consolidated balance sheets, are presented below:
| As of December 31, | ||||||||
| 2007 | 2006 | |||||||
| (unaudited) | (unaudited) | |||||||
Cash |
$ | 10,008,955 | $ | 6,811,825 | ||||
Accounts Receivable, Net |
$ | 4,285,747 | $ | 3,330,297 | ||||
Accrued Expenses and Current Liabilities |
$ | 3,363,435 | $ | 3,113,738 | ||||
(16) COMMITMENTS AND CONTINGENCIES:
Operating Leases
Hollywood Media conducts its operations in various leased facilities, under leases that are
classified as operating leases for financial statement purposes. Certain leases provide for payment
of real estate taxes, common area maintenance, insurance, and certain other expenses. Lease terms
may include escalating rent provisions and rent holidays which are expensed on a straight-line
basis over the term of the lease, and expire at various dates through the year 2017. Also, certain
equipment used in Hollywood Media’s operations is leased under operating leases. Operating lease
commitments at December 31, 2007 are as follows:
75
Table of Contents
| Year | Amount | |||
2008 |
$ | 1,304,161 | ||
2009 |
1,267,889 | |||
2010 |
1,163,897 | |||
2011 |
1,187,218 | |||
2012 |
1,208,243 | |||
Thereafter |
3,745,522 | |||
Total |
$ | 9,876,931 | ||
The fixed operating lease commitments detailed above assume that Hollywood Media continues the
leases through their initial lease terms. Rent expense, including equipment rentals, was
$1,746,275, $929,898 and $720,040 during the years ended December 31, 2007, 2006 and
2005, respectively, and is included in “Selling, general and administrative” expenses in the accompanying
consolidated statements of operations.
Placement Agent Commissions
Hollywood Media has recorded $7,867 and $33,486 during the years ended December 31, 2006 and
2005, respectively, as a reduction to additional paid-in-capital in the accompanying consolidated
financial statements for placement agent commissions on cash proceeds from warrant exercises in
connection with the 2004 private placement. There were no placement agent commissions on warrant
exercises during the year ended December 31, 2007, as warrant exercises did not result in cash
proceeds to Hollywood Media. Hollywood Media is obligated to pay 4% of all warrant exercise
proceeds associated with the 2004 private placement to the placement agent. In addition, Hollywood
Media is obligated to pay to the placement agent 5% of all warrant exercise proceeds associated
with warrants issued in connection with the issuance of Senior Unsecured Notes in November of 2005
(see Note 11). There have been no warrant exercises associated with the detachable warrants issued
in connection with the Senior Unsecured Notes.
Self-Insurance Accruals
Until June 2007, Hollywood Media maintained self-insured retentions for its health benefits
programs and limited its exposure by maintaining stop-loss and aggregate liability coverage. The
estimate of the Company’s self-insurance liability contains uncertainty since management was
required to use judgment to estimate the ultimate cost that would be incurred to settle reported
claims and unreported claims for incidents incurred but not reported as of each balance sheet date.
When estimating the Company’s self-insurance liability, management considered a number of factors,
which included historical claim experience. The self-insurance program was initiated in June 2004.
Management recorded the potential liability under the stop-loss insurance coverage using incurred
but not reported analyses which included historical claims experience data available under the
current self-insurance plan. The Company had $21,421 and $124,255 accrued for potential claims at
December 31, 2007 and 2006, respectively. The insurance expense under the Hollywood Media group
insurance plan for the years ended December 31, 2007, 2006 and 2005 was $557,703, $441,112 and
$341,070, respectively, and is included in “payroll and benefits” in the accompanying consolidated
statements of operations. In June of 2007, Hollywood Media ceased the self-insurance program in
favor of a more cost efficient third party insured plan. The remaining liability is expected to
cover potential claims incurred but not reported, which may be paid over the remainder of the
coverage tail period.
Litigation
In August 2007, a lawsuit was filed against Hollywood Media alleging, among other related
items, trademark infringement. Hollywood Media has engaged counsel to represent the Company and
discovery has commenced. Hollywood Media denies any wrongdoing, does not believe any monies are
owed and intends to
76
Table of Contents
defend this case vigorously.
In addition to the legal proceeding described above, Hollywood Media is from time to time
party to various legal proceedings, including matters arising in the ordinary course of business.
(17) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
INVESTING ACTIVITIES: |
||||||||||||||||||||||||
Acquisition of assets in acquired companies |
$ | — | $ | (100,000 | ) | (4 | ) | $ | (144,000 | ) | (10 | ) | ||||||||||||
Acquisition of property and equipment under capital leases |
(441,026 | ) | (23,420 | ) | (89,599 | ) | ||||||||||||||||||
Acquisition of intangible asset |
(8,000 | ) | (1 | ) | (516,500 | ) | (5 | ) | — | |||||||||||||||
Total non-cash investing activities |
$ | (449,026 | ) | $ | (639,920 | ) | $ | (233,599 | ) | |||||||||||||||
FINANCING ACTIVITIES: |
||||||||||||||||||||||||
Conversion of convertible debentures to common stock |
$ | — | $ | (1,000,000 | ) | (6 | ) | $ | — | |||||||||||||||
Obligations acquired under capital leases |
441,026 | 23,420 | 89,599 | |||||||||||||||||||||
Acquisition costs paid with stock-based compensation |
— | 100,000 | (4 | ) | 144,000 | (10 | ) | |||||||||||||||||
Common stock issued for compensation to an employee |
— | 102,950 | (7 | ) | 101,329 | (11 | ) | |||||||||||||||||
Common stock issued to consultants in return for services
rendered |
— | — | 103,960 | (12 | ) | |||||||||||||||||||
Common stock issued in lieu of interest payments on
convertible debentures |
— | 38,465 | (8 | ) | 59,999 | (13 | ) | |||||||||||||||||
Common stock issued for contributions to Company 401(k)
Plan |
248,876 | (2 | ) | 189,760 | (9 | ) | 193,762 | (14 | ) | |||||||||||||||
Common stock issued for assets |
— | 516,500 | (5 | ) | — | |||||||||||||||||||
Common stock issued for exercise of warrants attached to
Convertible Debentures |
— | 1,000,000 | (6 | ) | — | |||||||||||||||||||
Common stock issued as compensation as part of sale |
402,150 | (3 | ) | — | — | |||||||||||||||||||
Total non-cash financing activities |
$ | 1,092,052 | $ | 971,095 | $ | 692,649 | ||||||||||||||||||
| (1) | On February 21, 2007, Hollywood Media issued 1,992 shares of common stock valued as of the average of the ten days closing prices prior to the issuance date, or $4.02 per share, in payment of the $8,000 purchase price for the acquisition of intangible assets. | |
| (2) | On February 9, 2007, Hollywood Media issued 59,257 shares of common stock valued at $248,876, based on the December 29, 2006 closing share price of $4.20, for payment of Hollywood Media’s 401(k) employer match for calendar year 2006 (see Note 2). | |
| (3) | On September 7, 2007, Hollywood Media issued 105,000 shares of common stock valued at $3.83 per share, which was the closing share price, on the August 30, 2007 date of grant, in payment of $402,150 in compensatory bonuses to certain officers of Hollywood Media associated with the August 24, 2007 sale of the Showtimes business. | |
| (4) | On July 26, 2006, Hollywood Media issued 23,844 shares of common stock valued using the average closing price on the ten trading days immediately prior to the signing date of the Screenline stock purchase agreement, or $4.19 per share, in payment of the $100,000 stock component of the purchase price for the acquisition of the shares of Screenline common stock pursuant to the terms of the stock purchase agreement. | |
| (5) | On January 18, 2006, Hollywood Media issued 50,930 shares of common stock valued using the average closing price on the ten trading days immediately prior to the issuance date, or $4.25 per share, in payment of the purchase price of $216,500 for the acquisition of eFanGuide, Inc.’s intangible assets pursuant to the terms of the asset purchase agreement. On January 31, 2006, Hollywood Media issued 69,349 shares of common stock valued using the average closing price on the ten trading days prior to the issuance date, or $4.33 per share, in payment of the $300,000 stock component of the purchase price for the acquisition of Prosperity Plus, Inc.’s intangible assets pursuant to the terms of the asset purchase agreement. |
77
Table of Contents
| (6) | On May 22, 2006, Hollywood Media issued 312,500 shares of common stock valued at $1,000,000 upon conversion of $1,000,000 principal amount of the Company’s remaining outstanding Convertible Debenture into shares of Hollywood Media’s common stock at a conversion price of $3.20 per share pursuant to the terms of the Convertible Debenture. This last remaining Convertible Debenture was converted on May 22, 2006. | |
| (7) | Hollywood Media issued an aggregate of 25,281 shares of common stock valued at $102,950 to employees for services rendered, as follows: (a) 16,114 shares of common stock valued at $68,500 were issued on January 18, 2006, based on the average of the closing share prices on the ten trading days immediately prior to the issuance date, or $4.25; (b) 4,167 shares of common stock valued at $15,000 were issued on July 20, 2006, based on the average of the closing share prices on the ten trading days immediately prior to the July 19, 2006 date of grant, or $3.60; (c) 5,000 shares of common stock valued at $19,450 were issued on September 20, 2006, based on the closing share price of $3.89 on the trading date prior to the September 20, 2006 date of grant. | |
| (8) | Hollywood Media issued an aggregate of 9,133 shares of common stock valued at $38,465 for interest due to holders of the Convertible Debentures, as follows: (a) 3,682 shares of common stock were issued on January 11, 2006 in payment of $15,123 of interest, based on a $4.11 price per share; (b) 3,397 shares of common stock were issued on April 4, 2006 in payment of $14,794 of interest, based on a $4.36 price per share; and (c) 2,054 shares of common stock were issued on May 22, 2006 in payment of $8,548 of interest, based on a $4.16 price per share. In accordance with the terms of the Convertible Debentures, the price per share in each case was equal to 95% of the average of the closing price of Hollywood Media common stock for the five consecutive trading days ending on and including the third business day immediately preceding the date of grant. | |
| (9) | On March 1, 2006, Hollywood Media issued 44,028 shares of common stock valued at $189,760, based on the December 31, 2005 closing share price of $4.31, for payment of Hollywood Media’s 401(k) employer match for calendar year 2005 (see Note 2). | |
| (10) | Pursuant to a consulting agreement with an independent third party, the third party provided services to the Company relating to the CinemasOnline acquisition in exchange for options to acquire 200,000 shares of the Company’s common stock at $3.90 per share. During 2005, the third party paid $780,000 in cash and exercised its options to acquire the 200,000 shares of the Company’s common stock. The options were valued at $144,000 and were recorded as goodwill relating to the CinemasOnline acquisition. | |
| (11) | Hollywood Media issued an aggregate of 22,655 shares of common stock, valued at $101,329, to employees for services rendered, as follows: (a) 4,115 shares of common stock valued at $19,752 were issued on April 7, 2005, based on the closing share price of $4.80 on the April 7, 2005 date of grant; and (b) 18,540 shares of common stock valued at $81,577 were issued on July 7, 2005, based on the closing share price of $4.45 on the July 1, 2005 date of grant. | |
| (12) | Hollywood Media issued an aggregate of 22,237 shares of common stock valued at $103,960 in connection with utilization of third party services for consulting work, as follows: (a) 20,000 shares of common stock valued at $93,960 were issued on January 3, 2005; and (b) 2,237 shares of common stock valued at $10,000 were issued on May 25, 2005, based on the closing share price of $4.47 on the May 23, 2005 date of grant. | |
| (13) | Hollywood Media issued an aggregate of 13,620 shares of common stock, valued at $59,999, for interest due to holders of the Convertible Debentures, as follows: (a) 3,244 shares of common stock were issued on January 4, 2005 in payment of $15,123 of interest, based on a $4.663 price per share; (b) 3,107 shares of common stock were issued on April 20, 2005 in payment of $14,794 of interest, based on a $4.761 price per share; (c) 3,481 shares of common stock were issued on July 13, 2005 in payment |
78
Table of Contents
| of $14,959 of interest, based on a $4.298 price per share; and (d) 3,788 shares of common stock were issued on October 10, 2005 in payment of $15,123 of interest, based on a $3.992 price per share. In accordance with the terms of the Convertible Debentures, the price per share in each case was equal to 95% of the average of the closing price of Hollywood Media common stock for the five consecutive trading days ending on and including the third business day immediately preceding the date of grant. | ||
| (14) | On February 8, 2005, Hollywood Media issued 39,951 shares of common stock valued at $193,762, based on the December 31, 2004 closing share price of $4.85, for payment of Hollywood Media’s 401(k) employer match for calendar year 2004 (see Note 2). |
(18) SEGMENT REPORTING:
Hollywood Media’s reportable segments are Broadway Ticketing, Ad Sales, Intellectual
Properties, Cable TV and Other. The Broadway Ticketing segment sells tickets and related hotel and
restaurant packages for live theater events on Broadway, Off-Broadway and London’s West End, both
online and offline, to individual consumers, groups and domestic and international travel
professionals, including travel agencies, tour operators and educational institutions. This
segment also generates revenue from the sale of sponsorships on Broadway.com. The Ad Sales segment
sells advertising on Hollywood.com, MovieTickets.com and, through CinemasOnline, cinema and live
theater websites and plasma displays in the U.K. and Ireland. The Intellectual Properties segment
owns or controls the exclusive rights to certain intellectual properties created by best-selling
authors and media celebrities, which it licenses across all media. This segment also includes a 51%
interest in Tekno Books, a book development business. Cable TV comprises Hollywood.com Television
and Broadway.com Television which offer interactive entertainment and information with on-demand
video content to subscribers in certain cable TV systems of the distributing cable operators
including Cablevision Systems, Cox Communications, Comcast, Insight Communications, Charter,
Bresnan and Mediacom. The Other segment is comprised of payroll and benefits for corporate and
administrative personnel as well as other corporate-wide expenses such as audit fees, proxy costs,
insurance, centralized information technology, and includes consulting fees and other fees and
costs relating to compliance with the provisions of the Sarbanes-Oxley Act of 2002 that require
Hollywood Media and its Independent Registered Public Accounting Firm to make an assessment of and
report on internal control over financial reporting.
Management evaluates performance based on a comparison of actual profit or loss from
operations before income taxes, depreciation, amortization, interest and nonrecurring gains and
losses to budgeted amounts. There are no intersegment sales or transfers.
The following table illustrates the financial information regarding Hollywood Media’s
reportable segments. Discontinued operations (see Note 4) were previously included in the Data
Business segment and have been removed from the table below, to illustrate financial information
from continuing operations.
79
Table of Contents
| Year Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
Net Revenues: |
||||||||||||
Broadway Ticketing |
$ | 111,731,398 | $ | 98,102,961 | $ | 78,890,718 | ||||||
Ad Sales |
10,891,517 | 9,909,996 | 4,513,676 | |||||||||
Intellectual Properties |
1,061,118 | 1,229,126 | 1,550,580 | |||||||||
Cable TV |
197,190 | 174,899 | 40,834 | |||||||||
Other |
— | — | — | |||||||||
| $ | 123,881,223 | $ | 109,416,982 | $ | 84,995,808 | |||||||
Operating Income (Loss): |
||||||||||||
Broadway Ticketing |
$ | 3,350,493 | $ | 3,937,948 | $ | 2,798,186 | ||||||
Ad Sales |
(2,239,958 | ) | (978,399 | ) | (1,848,811 | ) | ||||||
Intellectual Properties |
(8,918 | ) | 163,953 | 379,636 | ||||||||
Cable TV |
(579,213 | ) | (573,454 | ) | (679,932 | ) | ||||||
Other |
(10,535,791 | ) | (11,097,590 | ) | (11,834,116 | ) | ||||||
| $ | (10,013,387 | ) | $ | (8,547,542 | ) | $ | (11,185,037 | ) | ||||
Capital Expenditures (a) |
||||||||||||
Broadway Ticketing |
$ | 2,725,762 | $ | 408,474 | $ | 83,373 | ||||||
Ad Sales |
806,378 | 440,776 | 252,803 | |||||||||
Intellectual Properties |
— | — | — | |||||||||
Cable TV |
2,015 | — | 1,948 | |||||||||
Other |
229,092 | 267,810 | 544,039 | |||||||||
| $ | 3,763,247 | $ | 1,117,060 | $ | 882,163 | |||||||
Depreciation and
Amortization Expense: |
||||||||||||
Broadway Ticketing |
$ | 317,576 | $ | 289,857 | $ | 288,690 | ||||||
Ad Sales |
1,049,550 | 917,496 | 490,558 | |||||||||
Intellectual Properties |
— | — | 1,955 | |||||||||
Cable TV |
6,100 | 13,134 | 120,761 | |||||||||
Other |
473,945 | 481,940 | 367,182 | |||||||||
| $ | 1,847,171 | $ | 1,702,427 | $ | 1,269,146 | |||||||
| December 31, | ||||||||
| 2007 | 2006 | |||||||
Segment Assets: |
||||||||
Broadway Ticketing |
$ | 40,144,311 | $ | 31,405,727 | ||||
Ad Sales |
30,194,171 | 30,579,885 | ||||||
Intellectual Properties |
739,078 | 708,988 | ||||||
Cable TV |
35,433 | 159,116 | ||||||
Discontinued Operations |
— | 10,535,763 | ||||||
Other |
22,865,843 | 26,620,125 | ||||||
| $ | 93,978,836 | $ | 100,009,604 | |||||
| (a) | Capital expenditures do not include property and equipment acquired under capital lease obligations or through acquisitions. |
80
Table of Contents
(19) UNAUDITED QUARTERLY FINANCIAL INFORMATION:
For the quarter ended March 31, 2007
| Reported | ||||
Net revenues |
$ | 26,721,636 | ||
Loss from continuing operations |
(3,570,896 | ) | ||
Income from discontinued operations |
510,777 | |||
Net loss |
(3,060,119 | ) | ||
Weighted average shares |
33,257,107 | |||
Loss per share — continuing operations |
$ | (0.11 | ) | |
Income per share — discontinued operations |
$ | 0.02 | ||
Net loss per share (1) |
$ | (0.09 | ) | |
For the quarter ended June 30, 2007
| Reported | ||||
Net revenues |
$ | 37,916,640 | ||
Loss from continuing operations |
(1,980,168 | ) | ||
Income from discontinued operations |
538,161 | |||
Net loss |
(1,442,007 | ) | ||
Weighted average shares |
33,445,413 | |||
Loss per share — continuing operations |
$ | (0.06 | ) | |
Income per share — discontinued operations |
$ | 0.02 | ||
Net loss per share (1) |
$ | (0.04 | ) | |
For the quarter ended September 30, 2007
| Reported | ||||
Net revenues |
$ | 28,207,878 | ||
Loss from continuing operations |
(2,154,081 | ) | ||
Income from discontinued operations |
10,250,023 | |||
Net income |
8,095,942 | |||
Weighted average shares |
33,613,357 | |||
Loss per share — continuing operations |
$ | (0.06 | ) | |
Income per share — discontinued operations |
$ | 0.30 | ||
Net income per share (1) |
$ | 0.24 | ||
For the quarter ended December 31, 2007
| Reported | ||||
Net revenues |
$ | 31,035,069 | ||
Loss from continuing operations |
(2,160,389 | ) | ||
Income from discontinued operations |
301,182 | |||
Net loss |
(1,859,207 | ) | ||
Weighted average shares |
32,900,188 | |||
Loss per share — continuing operations |
$ | (0.07 | ) | |
Income per share — discontinued operations |
$ | 0.00 | ||
Net loss per share (1) |
$ | (0.07 | ) | |
81
Table of Contents
For the quarter ended March 31, 2006
| Reported | ||||
Net revenues |
$ | 21,017,337 | ||
Loss from continuing operations |
(3,592,286 | ) | ||
Income from discontinued operations |
890,114 | |||
Net loss |
(2,702,172 | ) | ||
Weighted average shares |
32,323,946 | |||
Loss per share – continuing operations |
$ | (0.11 | ) | |
Income per share – discontinued operations |
$ | 0.03 | ||
Net loss per share (1) |
$ | (0.08 | ) | |
For the quarter ended June 30, 2006
| Reported | ||||
Net revenues |
$ | 29,978,981 | ||
Loss from continuing operations |
(1,706,547 | ) | ||
Income from discontinued operations |
668,301 | |||
Net loss |
(1,038,246 | ) | ||
Weighted average shares |
32,634,848 | |||
Loss per share – continuing operations |
$ | (0.05 | ) | |
Income per share – discontinued operations |
$ | 0.02 | ||
Net loss per share (1) |
$ | (0.03 | ) | |
For the quarter ended September 30, 2006
| Reported | ||||
Net revenues |
$ | 24,391,653 | ||
Loss from continuing operations |
(2,542,247 | ) | ||
Income from discontinued operations |
17,506,375 | |||
Net income |
14,964,128 | |||
Weighted average shares |
32,958,073 | |||
Loss per share – continuing operations |
$ | (0.08 | ) | |
Income per share – discontinued operations |
$ | 0.53 | ||
Net income per share (1) |
$ | 0.45 | ||
For the quarter ended December 31, 2006
| Reported | ||||
Net revenues |
$ | 34,029,011 | ||
Operating loss from continuing operations |
(1,832,614 | ) | ||
Loss from discontinued operations |
131,417 | |||
Net loss |
(1,701,197 | ) | ||
Weighted average shares |
33,119,624 | |||
Loss per share – continuing operations |
$ | (0.06 | ) | |
Loss per share – discontinued operations |
$ | (0.00 | ) | |
Net loss per share (1) |
$ | (0.06 | ) | |
| (1) | Quarterly earnings per share are calculated on an individual basis and, because of roundings and changes in the weighted average shares outstanding during the year, the summation of each quarter may not equal the amount calculated for the year as a whole. |
82
Table of Contents
(20) RELATED PARTY TRANSACTIONS:
Pursuant to a joint venture agreement, Hollywood Media sells online ads for MovieTickets.com,
a 26.2% owned joint venture (see Note 15). As payment for these services, Hollywood Media records
a commission on ad sales sold on behalf of MovieTickets.com. Hollywood Media performs collections,
billings and payment of payroll and other related activities for MovieTickets.com. Net revenues
(less commissions) are submitted to MovieTickets.com upon receipt by Hollywood Media. Hollywood
Media has recorded receivables of $51,045 and $59,743 at December 31, 2007 and 2006, respectively,
for billings, payroll and other related expenses due from MovieTickets.com and these amounts are
included in “other receivables” in the accompanying consolidated balance sheets. Hollywood Media
has $1,872,039 and $1,568,612 of receivables, offset by payables to MovieTickets.com of $1,254,266
and $1,050,970 at December 31, 2007 and 2006, respectively. These net amounts are included with
“Receivables, net” in the accompanying consolidated balance sheets. The Company also had payables
to MovieTickets.com of $1,133,374 and $502,949 at December 31, 2007 and 2006, respectively, which
are included with “Accounts Payable” in the accompanying consolidated balance sheets. The Company
recorded $3,327,042, $2,562,880 and $1,914,053 as its commission revenue for each of the years
ended December 31, 2007, 2006 and 2005, respectively, and these amounts are included in “Other” in
the Net Revenues section in the accompanying consolidated statements of operations.
83
Table of Contents
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable.
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of Hollywood Media’s
management, including the Chief Executive Officer and the Chief Accounting Officer, on the
effectiveness of Hollywood Media’s disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-K. Based on that
evaluation and the material weakness described below, Hollywood Media’s management, including the
Chief Executive Officer and Chief Accounting Officer, have concluded that Hollywood Media’s
disclosure controls and procedures were not effective, as of December 31, 2007, to ensure that
information required to be disclosed by the Company in reports the Company files or submits under
the Exchange Act is (i) recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and
communicated to Hollywood Media’s management, including the Chief Executive Officer and the Chief
Accounting Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
In the Company’s prior year assessment of internal control over financial reporting as of December
31, 2006, management concluded that certain deficiencies in Hollywood Media’s Broadway Ticketing
business constituted a material weakness in Hollywood Media’s internal control over financial
reporting. During 2007, management implemented a number of remediations to address this material
weakness, including:
| • | Due to the limitations in the licensed ticketing system discussed below, the Company began developing a transaction processing engine (“TPE”) to act as the foundation and middle-ware to the next generation ticketing system. The TPE is being designed to plug-in to a variety of software components, thus allowing the Company to license various product line specific packages, thereby minimizing development time on future product lines. | ||
| • | Developed modifications to the existing ticketing systems to automate certain processes related to the affiliate and groups processes necessary for the support, review and summarization of financial information. | ||
| • | Continued to strengthen the manual processes related to the support, review and summarization of financial information produced from the existing ticketing system. |
Other than as described above, there have not been any other changes in the Company’s internal
control over financial reporting during the quarter ended December 31, 2007 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Company is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. Under the supervision and with the participation of management, including our Chief Executive
Officer and Chief Accounting Officer, the Company conducted an evaluation of the effectiveness of
internal control over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
84
Table of Contents
A material weakness in internal control over financial reporting is a control deficiency (within
the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5), or
a combination of control deficiencies, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented or detected. As a
result of the Company’s assessment, management has determined that the following deficiencies in
the Company’s Broadway Ticketing business constitute a material weakness in the Company’s internal
control over financial reporting as of December 31, 2007:
Insufficient internal controls over the Broadway Ticketing Division, including inadequate
systems to allow for timely processing of ticketing, gift certificate, hotel and dinner voucher
revenues; inadequate recording and reporting of ticketing-related financial information; and
insufficient internal controls over cash receipts, purchase and pay, and ticketing inventory.
Based on our evaluation under the framework set forth by COSO in Internal Control — Integrated
Framework, our management concluded that our internal control over financial reporting was not
effective as of December 31, 2007.
Management’s Plan to Address Material Weakness
Management is firmly committed to addressing the material weakness. Accordingly, the following are
the actions that the Company’s management has taken and will continue to take in order to remediate
the material weakness described above:
As previously disclosed, in the third quarter of 2005 the Company’s management licensed a
ticketing software system to replace its existing system. During the implementation phase of the
new ticketing system, the Company identified gaps between the design of the ticketing software and
its functionality with our Broadway Ticketing business model. While the Company is currently
working with the licensor to address the delays in launching the new ticketing system, the Company
has begun development of a transaction processing engine, as mentioned above, to address these
gaps, as well as plug-in to various product line specific packages. Phase One of the TPE
implementation will be to launch the content management system, transaction pages and a new call
center application. Phase Two will require the bridging of various product line specific
applications to the TPE and integration with the Company’s accounting package. Management expects
Phase One to be completed by the end of April 2008 and Phase Two will be a staggered roll-out, by
product line, with release dates beginning in the third quarter of 2008 and continuing into 2009.
In addition, management will be implementing additional control procedures and certain
internally developed software modules during the 2008 fiscal year. This will provide enhanced
internal controls over purchasing and inventory, via systematic purchase order module and assigned
purchasing workflow. In addition to the internally developed software, the Company will continue
to implement business process improvements that will mitigate control gaps that are not addressed
by the new software or the internally developed software. These improvements will focus on the
areas related to the recording and reporting of financial data not adequately addressed through the
new automated modules. The Company’s Operations team is working closely with the Finance team to
ensure all new software implementations have the required controls and functionality to meet both
the business and accounting reporting requirements.
85
Table of Contents
Management believes that the remediations described above, when completed, will mitigate the
material weakness identified by management as a result of its assessment of the effectiveness of
its internal control over financial reporting as of December 31, 2007.
86
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Hollywood Media Corp.
Boca Raton, Florida
We have audited the internal control over financial reporting, of Hollywood Media Corp. and
subsidiaries (the “Company”) as of December 31, 2007, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting 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 effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by or under the
supervision of the company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of
any evaluation of the effectiveness of the internal controls over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely basis. The following material
weakness has been identified and included in management’s assessment:
The Company identified insufficient internal controls within its Broadway Ticketing Division,
including inadequate systems to allow for timely processing of ticketing, gift certificate, hotel
and dinner voucher revenues; inadequate recording and reporting of ticketing-related financial
information; and insufficient internal controls over cash receipts, purchase and pay, and ticketing
inventory.
87
Table of Contents
This material weakness was considered in determining the nature, timing, and extent of audit
tests applied in our audit of the 2007 consolidated financial statements, and this report does not
affect our report dated March 17, 2008 on those consolidated financial statements.
In our opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Hollywood Media Corp. and
Subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of
operations, shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2007, and our report dated March 17, 2008, expressed an unqualified opinion on those
consolidated financial statements.
| KAUFMAN, ROSSIN & CO., P.A. |
Miami, Florida
March 17, 2008
88
Table of Contents
Table of Contents
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information called for by this Item 10 is incorporated by reference from the applicable
portions of Hollywood Media’s Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, including from the following portions: (i) “Election of
Directors,” (ii) “Corporate Governance,” and (iii) “Executive Officers.”
Item 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by reference from the following
section(s) of Hollywood Media’s Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A: “Executive Compensation.”
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information called for by this Item 12 is incorporated by reference from the applicable
portions of Hollywood Media’s Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, including from the following portions: “Security Ownership
of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information called for by this Item 13 is incorporated by reference from the applicable
portions of Hollywood Media’s Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, including from the following portions: (i) “Transactions
with Related Persons,” (ii) “Review, Approval or Ratification of Transactions with Related
Persons,” and (iii) the disclosures in the “Corporate Governance” section regarding director
independence.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information called for by this Item 14 is incorporated by reference from the applicable
portions of Hollywood Media’s Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, including from the following portions: “Independent
Registered Public Accounting Firm’s Fees and Services” and “Audit Committee Pre-Approval Policies
and Procedures.”
90
Table of Contents
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
1. Financial Statements
The following financial statements are included in Part II, Item 8 of this Annual Report on Form
10-K:
| • | Report of Independent Registered Public Accounting Firm | ||
| • | Consolidated Balance Sheets as of December 31, 2007 and December 31, 2006 | ||
| • | Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005 | ||
| • | Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005 | ||
| • | Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005 | ||
| • | Notes to Consolidated Financial Statements |
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not required or are not applicable, or
the required information is provided in the consolidated financial statements or notes thereto
described in Item 15(a)(1) above.
3. Exhibits
The Exhibits listed below are filed as part of this Annual Report on Form 10-K.
| Location of | ||||||
| Exhibit No. | Description | Exhibit | ||||
3.1
|
Third Amended and Restated Articles of Incorporation | (1 | ) | |||
3.2
|
Articles of Amendment to Articles of Incorporation of Hollywood Media Corp. for Designation of Preferences, Rights and Limitations of Series E Junior Preferred Stock | (25 | ) | |||
3.3
|
Amended and Restated Bylaws of Hollywood Media Corp., dated as of September 1, 2006 | (2 | ) | |||
4.1
|
Form of Common Stock Certificate | (3 | ) | |||
4.2
|
Amended and Restated Rights Agreement dated as of August 23, 1996 between Hollywood Media Corp. (f/k/a Big Entertainment, Inc.) and American Stock Transfer & Trust Company, as Rights Agent | (4 | ) | |||
91
Table of Contents
| Location of | ||||||
| Exhibit No. | Description | Exhibit | ||||
4.3
|
Amendment No. 1, dated as of December 9, 2002, to Amended and Restated Rights Amendment dated as of August 23, 1996 between Hollywood Media Corp. and American Stock Transfer & Trust Company. | (5 | ) | |||
4.4
|
Amendment No. 2, dated as of September 1, 2006, to the Amended and Restated Rights Agreement dated as of August 23, 1996, as amended December 9, 2002, between Hollywood Media Corp. and American Stock Transfer & Trust Company | (2 | ) | |||
10.1
|
Compensatory Plans, Contracts and Arrangements | |||||
| (a) Employment Agreement between Hollywood Media Corp. and Mitchell Rubenstein dated as of July 1, 1993 | (3 | ) | ||||
| (b) Extension and Amendment Agreement between Hollywood Media Corp. and Mitchell Rubenstein entered into as of July 1, 1998 | (6 | ) | ||||
| (c) Employment Agreement between Hollywood Media Corp. and Laurie S. Silvers dated as of July 1, 1993 | (3 | ) | ||||
| (d) Extension and Amendment Agreement between Hollywood Media Corp. and Laurie S. Silvers entered into as of July 1, 1998 | (6 | ) | ||||
| (e) 1993 Stock Option Plan, as amended effective October 1, 1999 | (7 | ) | ||||
| (f) Directors Stock Option Plan, as amended effective May 1, 2003 | (16 | ) | ||||
| (g) Form of Indemnification Agreement between Hollywood Media and each of its Directors and Officers | (3 | ) | ||||
| (h) 2000 Stock Incentive Plan, as amended October 30, 2003 | (17 | ) | ||||
| (i) Exchange Agreement dated as of December 14, 2001 between Hollywood Media Corp. and Laurie S. Silvers | (8 | ) | ||||
| (j) Exchange Agreement dated as of December 14, 2001 between Hollywood Media Corp. and Mitchell Rubenstein | (8 | ) | ||||
| (k) Extension and Amendment Agreement dated as of May 31, 2004 between Hollywood Media Corp. and Mitchell Rubenstein | (22 | ) | ||||
| (l) Extension and Amendment Agreement dated as of May 31, 2004 between Hollywood Media Corp. and Laurie S. Silvers | (22 | ) | ||||
| (m) Extension and Amendment Agreement dated as of July 1, 2003 between Hollywood Media Corp. and Mitchell Rubenstein | (22 | ) | ||||
| (n) Extension and Amendment Agreement dated as of July 1, 2003 between Hollywood Media Corp. and Laurie S. Silvers | (22 | ) | ||||
| (o) Hollywood Media Corp. 401(k) Retirement Savings Plan, dated as of September 16, 2004 (the “Plan”); Amendment to the Plan, dated as of September 16, 2004; related Volume Submitter (Cross-Tested Defined Contribution Plan and Trust); EGTRRA Amendment to the Plan and Post-EGTRRA Amendment to the Plan, dated as of September 16, 2004 | (23 | ) | ||||
| (p) 2004 Stock Incentive Plan | (24 | ) | ||||
| (q) Amendment Agreement, dated as of November 15, 2004, to Employment Agreement between Hollywood Media Corp. and Mitchell Rubenstein. | (25 | ) | ||||
| (r) Amendment Agreement, dated as of November 15, 2004, to Employment Agreement between Hollywood Media Corp. and Laurie S. Silvers. | (25 | ) | ||||
| (s) Amended and Restated Employment Agreement, dated August 9, 2006, by and between Hollywood Media Corp. and Scott Gomez. | (27 | ) | ||||
| (t) Amended and Restated Employment Agreement, dated November 8, 2006, by and between Theatre Direct NY, Inc., Broadway.com, Inc., Hollywood Media Corp. and Mr. Matthew Kupchin. | (33 | ) | ||||
| (u) Amendment to Hollywood Media Corp. 401(k) Retirement Savings Plan, Dated June 16, 2005. | (28 | ) | ||||
| (v) Employment Agreement dated as of July 1, 2005, by and between Hollywood Media Corp. and Nicholas Hall. | (28 | ) | ||||
92
Table of Contents
| Location of | ||||||
| Exhibit No. | Description | Exhibit | ||||
| (w) Employment Agreement dated as of August 8, 2005, by and among Baseline, Inc., StudioSystems Inc., Hollywood Media Corp. and Rafi Gordon | (28 | ) | ||||
| (x) Employment Agreement, dated as of August 8, 2005, by and among Baseline, Inc., StudioSystems Inc., Hollywood Media Corp. and Alex Amin. | (28 | ) | ||||
| (y) Employment Agreement dated January 18, 2006, by and among Hollywood Fan Sites, Inc. and Mr. Rajiv Doshi. | (32 | ) | ||||
| (z) Employment Agreement, dated as of March 30, 2006, by and among Hollywood Media Corp., Showtimes.com, Inc. and Mr. Brett West. | (34 | ) | ||||
| (aa) Employment Agreement, dated June 7, 2006, by and between Screenline Film-und Medieninformations GmbH and Mrs. Paula Kathryn Maracin-Krieg. | (35 | ) | ||||
| (bb) Employment Agreement, dated July 16, 2007, buy and between Hollywood.com, Inc. and Mr. Kevin Davis | (38 | ) | ||||
| (cc) Termination of Employment Agreement, dated as of August 24, 2007, by and Among Showtimes.com, Inc., Brett West and Hollywood Media Corp. | (39 | ) | ||||
10.2
|
Common Stock Investment Agreement dated as of August 22, 2000 among Hollywood Media, Elliott Associates, L.P. and Westgate International, L.P. | (9 | ) | |||
10.3
|
Registration Rights Agreement dated August 22, 2000 among Hollywood Media, Elliott Associates, L.P. and Westgate International, L.P. | (9 | ) | |||
10.4
|
Common Stock Adjustment Warrant dated August 22, 2000 between Hollywood Media and Elliott Associates, L.P. | (9 | ) | |||
10.5
|
Common Stock Adjustment Warrant dated August 22, 2000 between Hollywood Media and Westgate International, L.P. | (9 | ) | |||
10.6
|
Common Stock Purchase Warrant dated August 22, 2000 between Hollywood Media and Elliott Associates, L.P. | (9 | ) | |||
10.7
|
Common Stock Purchase Warrant dated August 22, 2000 between Hollywood Media and Westgate International, L.P. | (9 | ) | |||
10.8
|
Purchase Agreement effective as of September 29, 2000 among Hollywood.com, Inc. and the Purchasers named therein | (10 | ) | |||
10.9
|
Services Agreement dated as of February 9, 2001 between Hollywood Media Corp., and Lakeside Ventures, LLC | (11 | ) | |||
10.10
|
Securities Purchase Agreement dated as of April 25, 2001 between Hollywood Media Corp., Societe Generale and Velocity Investment Partners, Ltd. | (11 | ) | |||
10.11
|
Registration Rights Agreement dated as of April 25, 2001 between Hollywood Media Corp., Societe Generale and Velocity Investment Partners, Ltd. | (11 | ) | |||
10.12
|
“A” Warrant issued to Societe Generale | (11 | ) | |||
10.13
|
“B” Warrant issued to Societe Generale | (11 | ) | |||
10.14
|
Investment and Subscription Agreement made and entered into as of September 17, 2001, between Hollywood Media Corp. and Zeke, L.P., a Delaware limited partnership. | (12 | ) | |||
93
Table of Contents
| Location of | ||||||
| Exhibit No. | Description | Exhibit | ||||
10.15
|
Purchase Agreement made as of October 12, 2001, between Broadway.com, Inc., Robert DeVivio and Peter Falconello | (12 | ) | |||
10.16
|
Transfer and Shareholders Agreement dated January 14, 2002 by and among Baseline Acquisitions Corp., Baseline, Inc., Hollywood Media Corp. and Fountainhead Media Services, Inc. | (13 | ) | |||
10.17
|
Management Services Agreement as of January 14, 2002 between Hollywood Services, Inc. and Baseline, Inc. | (13 | ) | |||
10.18
|
Exchange Agreement dated August 28, 2002, among Hollywood Media Corp., Hollywood.com, Inc., Broadway.com, Inc. and Viacom Inc. | (14 | ) | |||
10.19
|
Securities Purchase Agreement for 6% Senior Convertible Debentures, dated as of May 22, 2002, among Hollywood Media Corp., Federated Kaufman Fund, Portside Growth & Opportunity Fund Ltd., Leonardo, L.P., Carpe Diem Long Short Fund, LLC and Mitchell Rubenstein | (15 | ) | |||
10.20
|
6% Senior Convertible Debenture Due May 2005 issued by Hollywood Media Corp. as of May 22, 2002 | (15 | ) | |||
10.21
|
Registration Rights Agreement, dated as of May 22, 2002, among Hollywood Media Corp., Federated Kaufman Fund, Portside Growth & Opportunity Fund Ltd., Leonardo, L.P., Carpe Diem Long Short Fund, LLC and Mitchell Rubenstein | (15 | ) | |||
10.22
|
Warrant issued by Hollywood Media Corp. to purchasers of 6% Senior Convertible Debentures, dated as of May 22, 2002 | (15 | ) | |||
10.23
|
Amended and Restated Partnership Agreement dated as of November 21, 2002 between Hollywood Media Corp. and Dr. Martin H. Greenberg | (18 | ) | |||
10.24
|
Indemnification Agreement for Surety Bonds dated as of May 7, 2003, by and between Hollywood Media Corp., and Mitchell Rubenstein and Laurie Silvers. | (19 | ) | |||
10.25
|
Securities Purchase Agreement dated as of February 9, 2004, among Hollywood Media Corp. and the investors signatory thereto | (20 | ) | |||
10.26
|
Registration Rights Agreement dated as of February 9, 2004, among Hollywood Media Corp. and the investors signatory thereto | (20 | ) | |||
10.27
|
Form of Warrant issued to purchasers pursuant to Securities Purchase Agreement dated February 9, 2004. | (20 | ) | |||
10.28
|
Warrant issued to placement agent in connection with Securities Purchase Agreement dated February 9, 2004. | (20 | ) | |||
10.29
|
Agreement dated as of January 7, 2004 between Fountainhead Media Services, Inc. and Hollywood Media Corp., providing for the satisfaction of Fountainhead’s promissory note to Hollywood Media in exchange for Fountainhead’s shares of common stock of Baseline Acquisitions Corp. | (21 | ) | |||
94
Table of Contents
| Location of | ||||||
| Exhibit No. | Description | Exhibit | ||||
10.30
|
Agreement and Plan of Merger dated as of June 14, 2004, by and among Studio Systems, Inc., Hollywood Media Corp., SSI Acquisition Sub, Inc. and SSI Investments LLC | (22 | ) | |||
10.31
|
Asset Purchase Agreement dated as of June 15, 2004, by and between Merchant Internet Group, Inc., Showtimes.Com, Inc., and Hollywood Media Corp. | (22 | ) | |||
10.32
|
Amendment to Debenture Agreement, dated as of September 29, 2004, by and between Hollywood Media Corp. and Portside Growth & Opportunity Fund Ltd. | (25 | ) | |||
10.33
|
Amended and Restated 6% Senior Convertible Debenture Due May 22, 2006 issued by Hollywood Media Corp. to Portside Growth & Opportunity Fund Ltd., dated October 15, 2004. | (25 | ) | |||
10.34
|
Warrant No. W-A-5 dated as of August 31, 2004 issued to CD Investment Partners, Ltd. in replacement of Warrant No. W-A-4. | (25 | ) | |||
10.35
|
Agreement to Convert Debenture, dated as of August 30, 2004, by and between Hollywood Media Corp. and Leonardo, L.P. | (25 | ) | |||
10.36
|
Conversion Notice, dated September 28, 2004, for 6% Senior Convertible Debenture due May 22, 2005 held by Leonardo, L.P. | (25 | ) | |||
10.37
|
Agreement to Convert Debenture, dated as of August 31, 2004, by and between Hollywood Media Corp. and CD Investment Partners, Ltd. | (25 | ) | |||
10.38
|
Conversion Notice, dated September 30, 2004, for 6% Senior Convertible Debenture due May 22, 2005 held by CD Investment Partners, Ltd. | (25 | ) | |||
10.39
|
Conversion Notice, dated August 20, 2004, for 6% Senior Convertible Debenture due May 22, 2005 held by Federated Kaufmann Fund | (25 | ) | |||
10.40
|
Conversion Notice, dated August 20, 2004, for 6% Senior Convertible Debenture due May 22, 2005 held by Mitchell Rubenstein and Laurie Silvers | (25 | ) | |||
10.41
|
Financial commitment letter dated March 28, 2005 made by Mitchell Rubenstein and Laurie Silvers in favor of Hollywood Media Corp. | (26 | ) | |||
10.42
|
Letter agreement dated August 5, 2005 extending term of Financial Commitment Letter dated March 28, 2005 made by Mitchell Rubenstein and Laurie Silvers in Favor of Hollywood Media Corp. | (28 | ) | |||
10.44
|
Agreement for the Sale and Purchase of UK Theatres Online Limited and other Companies, dated November 22, 2005, by and among Cinemasource UK Limited, Jeffrey Spector and the other shareholders party thereto. | (29 | ) | |||
10.45
|
Agreement for the Sale and Purchase of Cinemasonline Limited, dated November 22, 2005, by and between Mitchell Clifford Cartwright and Cinemasource UK Limited. | (29 | ) | |||
10.46
|
Note Purchase Agreement, dated as of November 22, 2005, by and among Hollywood Media and each of the Purchasers, including the forms of Notes and Warrants issued to the Purchasers and the form of registration rights agreement. | (29 | ) | |||
95
Table of Contents
| Location of | ||||||
| Exhibit No. | Description | Exhibit | ||||
10.47
|
Registration Rights Agreement dated November 23, 2005 by and among Hollywood Media Corp. and the investors signatory thereto. | (30 | ) | |||
10.48
|
Letter agreements dated March 15, 2006, by and between Hollywood Media Corp. and each of the holders of its 8% Senior Unsecured Notes dated November 23, 2005. | (31 | ) | |||
10.49
|
Form of Common Stock Purchase Warrants dated March 15, 2006, issued to the Holders of Hollywood Media Corp.’s 8% Senior Unsecured Notes dated November 23, 2005. | (31 | ) | |||
10.50
|
Asset Purchase Agreement, dated January 18, 2006, by and among Hollywood Media Corp., Hollywood Fan Sites, Inc., eFanGuide, Inc. and each of the Shareholders of eFanGuide, Inc. | (32 | ) | |||
10.51
|
Asset Purchase Agreement, dated January 31, 2006, by and among Hollywood Media Corp., Hollywood Fan Sites, Inc., Prosperity Plus, Inc. and the sole shareholder of Prosperity Plus, Inc. | (32 | ) | |||
10.52
|
Sale and Purchase Agreement, dated June 7, 2006, regarding the purchase of all Shares in Screenline Film-und Medieninformations GmbH by Hollywood Media Corp. | (35 | ) | |||
10.53
|
Stock Purchase Agreement, dated as of August 25, 2006, by and between The New York Times Company and Hollywood Media Corp. | (36 | ) | |||
10.54
|
Asset Purchase Agreement, dated as of February 1, 2007, by and among Theatre Direct NY, Inc., Showtix LLC and each of the members of Showtix LLC. | (37 | ) | |||
10.55
|
Asset Purchase Agreement, dated as of August 24, 2007, by and among Hollywood Media Corp., Showtimes.com, Inc. Brett West and West World Media, LLC. | (39 | ) | |||
21
|
Subsidiaries of Hollywood Media | (40 | ) | |||
23.1
|
Consent of Kaufman, Rossin & Co., P.A. Independent Registered Public Accounting Firm | * | ||||
31.1
|
Certification of Chief Executive Officer (Section 302) | * | ||||
31.2
|
Certification of Vice President of Finance and Accounting (Principal financial and accounting officer) (Section 302) | * | ||||
32.1
|
Certification of Chief Executive Officer (Section 906) | * | ||||
32.2
|
Certification of Vice President of Finance and Accounting (Principal financial and accounting officer) (Section 906) | * | ||||
96
Table of Contents
| * | Filed as an exhibit to this Form 10-K | |
| (1) | Incorporated by reference from the exhibit filed with Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 2000. | |
| (2) | Incorporated by reference from the exhibit filed with Hollywood Media’s Current Report on Form 8-K filed on September 5, 2006. | |
| (3) | Incorporated by reference from the exhibit filed with Hollywood Media’s Registration Statement on Form SB-2 (No. 33-69294). | |
| (4) | Incorporated by reference from exhibit 1 to Hollywood Media’s Current Report on Form 8-K filed on October 20, 1999. | |
| (5) | Incorporated by reference from the exhibit to Hollywood Media’s Current Report on Form 8-K filed on December 10, 2002. | |
| (6) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998. | |
| (7) | Incorporated by reference from the exhibit filed with Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 1999. | |
| (8) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. | |
| (9) | Incorporated by reference from the exhibits to Hollywood Media’s Current Report on Form 8-K filed on August 29, 2000. | |
| (10) | Incorporated by reference from the exhibits to Hollywood Media’s Current Report on Form 8-K filed on October 5, 2000. | |
| (11) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q/A for quarter ended March 31, 2001. | |
| (12) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. | |
| (13) | Incorporated by reference from the exhibit filed with Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 2001. | |
| (14) | Incorporated by reference from the exhibit to Hollywood Media’s Current Report on Form 8-K filed on August 28, 2002 | |
| (15) | Incorporated by reference from the exhibit to Hollywood Media’s Current Report on Form 8-K filed on May 23, 2002 | |
| (16) | Incorporated by reference from Appendix B to Hollywood Media’s Proxy Statement filed on November 13, 2003 for its 2003 Annual Meeting of Shareholders. | |
| (17) | Incorporated by reference from Appendix C to Hollywood Media’s Proxy Statement filed on November 13, 2003 for its 2003 Annual Meeting of Shareholders. | |
| (18) | Incorporated by reference from the exhibit filed with Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 2002. | |
| (19) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. | |
| (20) | Incorporated by reference from the exhibits to Hollywood Media’s Current Report on Form 8-K filed on February 17, 2004. | |
| (21) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. | |
| (22) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. |
97
Table of Contents
| (23) | Incorporated by reference from the exhibits to Hollywood Media’s Current Report on Form 8-K filed on September 17, 2004. | |
| (24) | Incorporated by reference from Appendix B to Hollywood Media’s Proxy Statement filed on November 4, 2004 for its 2004 Annual Meeting of Shareholders. | |
| (25) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| (26) | Incorporated by reference from the exhibit filed with Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 2002. | |
| (27) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. | |
| (28) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. | |
| (29) | Incorporated by reference from the exhibits filed with Hollywood Media’s Current Report on Form 8-K filed on November 28, 2005. | |
| (30) | Incorporated by reference from the exhibit filed with Hollywood Media’s Registration Statement on Form S-3 (No. 333-130903). | |
| (31) | Incorporated by reference from the exhibits filed with Hollywood Media’s Current Report on Form 8-K filed on March 16, 2006. | |
| (32) | Incorporated by reference from the exhibits filed with Hollywood Media’s Current Report on Form 8-K filed on February 6, 2006. | |
| (33) | Incorporated by reference from the exhibit filed with Hollywood Media’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. | |
| (34) | Incorporated by reference from the exhibit filed with Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| (35) | Incorporated by reference from the exhibit filed with Hollywood Media’s Current Report on Form 8-K filed on June 13, 2006. | |
| (36) | Incorporated by reference from the exhibit filed with Hollywood Media’s Current Report on Form 8-K filed on August 28, 2006. | |
| (37) | Incorporated by reference from the exhibit filed with Hollywood Media’s Current Report on Form 8-K filed on February 6, 2007. | |
| (38) | Incorporated by reference from the exhibit filed with Hollywood Media Corp.’s Form 8-K filed on July 19, 2007. | |
| (39) | Incorporated by reference from the exhibit filed with Hollywood Media Corp.’s Form 8-K filed on August 30, 2007. | |
| (40) | Incorporated by reference from the exhibit filed with Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 2006. |
98
Table of Contents
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.
| HOLLYWOOD MEDIA CORP. |
||||
| Date: March 17, 2008 | By: | /s/ Mitchell Rubenstein | ||
| Mitchell Rubenstein, Chairman of the Board | ||||
| and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 17, 2008
|
/s/ Mitchell Rubenstein | |||
| Mitchell Rubenstein, Chairman of the Board | ||||
| and Chief Executive Officer (Principal executive officer) | ||||
Date: March 17, 2008
|
/s/ Laurie S. Silvers | |||
| Laurie S. Silvers, Vice Chairman of the Board, | ||||
| President and Secretary | ||||
Date: March 17, 2008
|
/s/ Scott Gomez | |||
| Scott Gomez, Chief Accounting Officer (Principal | ||||
| financial and accounting officer) | ||||
Date: March 17, 2008
|
/s/ Harry T. Hoffman | |||
| Harry T. Hoffman, Director | ||||
Date: March 17, 2008
|
/s/ Robert E. McAllan | |||
| Robert E. McAllan, Director | ||||
Date: March 17, 2008
|
/s/ Robert D. Epstein | |||
| Robert D. Epstein, Director | ||||
| Deborah J. Simon, Director |
99