NovelStem International Corp. - Quarter Report: 2008 September (Form 10-Q)

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2008

o		TRANSITION REPORT UNDER 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 as specified in its charter)


Florida (State or other jurisdiction of incorporation or organization)		65-0385686 (I.R.S. Employer Identification No.)


Boca Raton, Florida (Address of principal executive offices)		33431 (zip code)

(561) 998-8000
(Registrant’s telephone number)

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 x No o

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


Large accelerated filer o		Accelerated filer x		Non-accelerated filer 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 x

As of November 6, 2008, there were 31,614,274 shares of the registrant’s common stock, $.01 par value, outstanding.

HOLLYWOOD MEDIA CORP.

Table of Contents


		Page(s)
PART I	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Condensed Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007		3

	Condensed Consolidated Statements of Operations (unaudited) for the Nine and Three Months ended September 30, 2008 and 2007 .		4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 2008 and 2007		5

	Notes to Condensed Consolidated Financial Statements (unaudited)		6-20

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		20-34

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		35

ITEM 4.	CONTROLS AND PROCEDURES		35

PART II	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		36

ITEM 1A.	RISK FACTORS		36

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		36

ITEM 6.	EXHIBITS		37
EX-31.1
EX-31.2
EX-32.1
EX-32.2

[2]

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,
	2008			2007
	(unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	14,279,571		$	26,758,550
Receivables, net		1,505,820			2,033,702
Inventories held for sale		7,810,684			3,950,578
Deferred ticket costs		12,910,215			16,481,861
Prepaid expenses		1,531,855			2,167,109
Other receivables		1,524,644			3,877,167
Other current assets		217,682			629,298
Restricted cash		2,600,000			—
Current assets of discontinued operations		—			1,124,714

Total current assets		42,380,471			57,022,979

PROPERTY AND EQUIPMENT, net		4,505,758			4,486,620
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED INVESTEES		285,353			286,985
INTANGIBLE ASSETS, net		1,104,227			1,071,658
GOODWILL		28,915,993			29,343,440
OTHER ASSETS		44,710			54,993
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS		—			1,712,161

TOTAL ASSETS	$	77,236,512		$	93,978,836


LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	1,375,013		$	3,380,403
Accrued expenses and other		3,918,585			4,403,088
Deferred revenue		19,231,341			24,235,125
Customer deposits		1,460,651			1,928,357
Current portion of capital lease obligations		160,696			141,809
Current portion of notes payable		54,161			53,422
Related party payable		3,079,119			—
Current liabilities of discontinued operations		—			2,719,289

Total current liabilities		29,279,566			36,861,493

DEFERRED REVENUE		513,213			544,491
CAPITAL LEASE OBLIGATIONS, less current portion		158,831			255,971
OTHER DEFERRED LIABILITY		875,695			616,413
NOTES PAYABLE, less current portion		59,054			94,289
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS		—			5,776

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; 32,095,552 and 31,897,983 shares issued and outstanding at September 30, 2008 and
December 31, 2007, respectively		320,956			318,980
Additional paid-in capital		311,101,304			310,120,531
Accumulated deficit		(265,072,107	)		(254,839,108	)

Total shareholders’ equity		46,350,153			55,600,403

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	77,236,512		$	93,978,836

The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.

[3]

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


	Nine Months Ended September 30,						Three Months Ended September 30,
	2008			2007			2008			2007
NET REVENUES
Ticketing	$	83,044,397		$	83,930,445		$	23,981,802		$	25,079,163
Other		4,995,369			4,639,588			1,540,980			1,678,807

		88,039,766			88,570,033			25,522,782			26,757,970


OPERATING COSTS AND EXPENSES
Cost of revenues — ticketing		69,416,062			71,098,696			19,633,194			20,585,142
Editorial, production, development and technology (exclusive of depreciation and amortization shown separately below)		2,685,058			2,584,715			783,695			915,921
Selling, general and administrative (exclusive of depreciation and amortization shown separately below)		10,098,009			10,348,169			3,143,408			3,410,662
Payroll and benefits		10,249,690			10,157,783			3,475,737			3,444,605
Depreciation and amortization		1,451,359			1,014,422			466,093			358,641


Total operating costs and expenses		93,900,178			95,203,785			27,502,127			28,714,971


Loss from operations		(5,860,412	)		(6,633,752	)		(1,979,345	)		(1,957,001	)

EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED INVESTEES		1,312,622			2,061			(4,891	)		1,186

OTHER INCOME (EXPENSE)
Interest, net		392,104			(87,458	)		91,771			232,163
Other, net		(40,273	)		62,033			(6,691	)		21,076


Loss from continuing operations before minority interest		(4,195,959	)		(6,657,116	)		(1,899,156	)		(1,702,576	)

MINORITY INTEREST IN INCOME OF SUBSIDIARIES		(97,573	)		(21,488	)		(31,751	)		(21,106	)


Loss from continuing operations		(4,293,532	)		(6,678,604	)		(1,930,907	)		(1,723,682	)

Gain (loss) on sale of discontinued operations, net of income taxes		(4,303,717	)		9,953,105			(4,303,717	)		9,953,105
Income (loss) from discontinued operations		(1,635,750	)		319,315			(114,975	)		(133,481	)

Income (loss) from discontinued operations		(5,939,467	)		10,272,420			(4,418,692	)		9,819,624


Net Income (Loss)	$	(10,232,999	)	$	3,593,816		$	(6,349,599	)	$	8,095,942


Basic and diluted income (loss) per common share
Continuing operations	$	(0.13	)	$	(0.20	)	$	(0.06	)	$	(0.05	)
Discontinued operations		(0.19	)		0.31			(0.14	)		0.29

Total basic and diluted net income (loss) per share	$	(0.32	)	$	0.11		$	(0.20	)	$	0.24


Weighted average common and common equivalent shares outstanding — basic and diluted		31,971,997			33,439,931			32,095,554			33,613,357

The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements of operations.

[4]

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)


	Nine Months Ended September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(10,232,999	)	$	3,593,816
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Income (loss) from discontinued operations		5,939,467			(10,272,420	)
Depreciation and amortization		1,451,359			1,014,422
Amortization of discount on senior unsecured notes		—			624,601
401(k) stock match		148,637			166,126
Equity in earnings of unconsolidated investees, net of return of invested capital		1,632			(1,585	)
Stock option expense		87,870			127,047
Compensation expense on employee stock issuances		—			170,110
Amortization of deferred compensation costs		487,500			487,500
Provision for bad debts		299,053			383,779
Minority interest in earnings of subsidiaries, net of distributions to minority owners		97,573			(48,189	)

Changes in assets and liabilities:
Receivables		228,829			(332,594	)
Inventories held for sale		(3,860,106	)		(3,404,053	)
Deferred ticket costs		3,571,646			(1,649,310	)
Prepaid expenses		635,254			251,380
Other receivables		2,377,262			554,548
Other current assets		411,616			(11,774	)
Other assets		10,283			(11,500	)
Accounts payable		(2,161,965	)		1,058,537
Accrued expenses and other		211,833			(2,338,390	)
Deferred revenue		(5,035,062	)		925,916
Customer deposits		(467,706	)		(454,707	)
Other deferred liability		259,282			424,450

Net cash used in operating activities — continuing operations		(5,538,742	)		(8,742,290	)
Net cash (used in) provided by operating activities — discontinued operations		(2,717,075	)		1,929,215

Net cash used in operating activities		(8,255,817	)		(6,813,075	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,090,268	)		(1,745,879	)
Acquisition of businesses, net of cash acquired		(43,313	)		(2,690,659	)
Proceeds from sale of assets		169,387			25,460,809
Acquisition of intangible assets		(17,000	)		(50,871	)
Proceeds from property and equipment sales		48,565			10,010
Loss on disposition of assets		—			950
Restricted cash		—			90,000

Net cash (used in) provided by investing activities — continuing operations		(932,629	)		21,074,360
Net cash used in investing activities — discontinued operations		(3,274,868	)		(396,041	)

Net cash (used in) provided by investing activities		(4,207,497	)		20,678,319

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from exercise of stock options		122,900			203,824
Payments under capital lease obligations		(108,498	)		(56,935	)
Payment of notes payable		(34,496	)		60,495
Warrants issued for consulting services		4,429			—
Extinguishment of senior unsecured notes		—			(7,000,000	)

Net cash used in financing activities — continuing operations		(15,665	)		(6,792,616	)
Net cash used in financing activities — discontinued operations		—			(7,972	)

Net cash used in financing activities		(15,665	)		(6,800,588	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(12,478,979	)		7,064,656

CASH AND CASH EQUIVALENTS, beginning of period		26,758,550			27,448,649


CASH AND CASH EQUIVALENTS, end of period	$	14,279,571		$	34,513,305


SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid	$	50,545		$	247,510

Taxes paid	$	462,079		$	758,359

The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements of cash flows.

[5]

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) BASIS OF PRESENTATION AND CONSOLIDATION:

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared by Hollywood Media Corp. (“Hollywood Media” or “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to applicable rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. The financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to present fairly Hollywood Media’s condensed consolidated financial position and results of operations. The results of operations for the nine and three months ended September 30, 2008 are not necessarily indicative of the results of operations or cash flows, which may result for the remainder of 2008. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Hollywood Media’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

Hollywood Media’s condensed 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.

Loss Per Common Share

Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” (“SFAS No. 128”), issued by the Financial Accounting Standards Board (“FASB”) requires companies to present basic and diluted earnings per share (“EPS”). Loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period presented.

[6]

The weighted average number of common shares issuable upon conversion of convertible securities and upon exercise of outstanding options and warrants totaled 2,625,428 shares for the nine and three months ended September 30, 2008 and 2,851,928 shares for the nine and three months ended September 30, 2007, and such shares were excluded from the calculation of diluted loss per share for the nine and three months ended September 30, 2008 and 2007, because their impact was anti-dilutive to the loss per share from continuing operations. Unvested shares are not included in the basic calculation until vesting occurs. There were no unvested shares as of September 30, 2008. There were 200,000 unvested shares as of September 30, 2007.

Inventories Held for Sale and Deferred Ticket Costs

Inventories held for sale consist primarily 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 theater shows are, with isolated exceptions, for shows or performances that take place at venues in New York, New York, a major metropolitan area reported by relevant United States Government agencies as subject to the threat of terrorist acts from time to time. Hollywood Media recognizes that the occurrence of such a terrorist act, a labor strike or dispute, or any other significant civil disturbance occurring 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.

Receivables

Receivables consist of amounts due from (a) customers who purchased live theater tickets, (b) box offices for commission on live theater tickets sold to groups and refunds for performances that did not occur, (c) publishers relating to signed contracts, to the extent that the earnings process is complete and amounts are realizable and (d) advertising customers in the U.K. and Ireland relating to our plasma TV business and advertising on posters, brochures and theater websites.

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 estimated collectability 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 $912,243 and $1,146,536 at September 30, 2008 and December 31, 2007, respectively. The allowance is primarily attributable to receivables due from customers of the U.K. based companies CinemasOnline Limited, UK Theatres Online Limited, WWW.CO.UK Limited and Spring Leisure Limited (collectively known as “CinemasOnline”) and Theatre Direct NY, Inc. 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 condensed 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 wide geographic dispersion.

[7]

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 of the show are included in “Deferred Revenue” in our accompanying condensed 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 (i) gift certificates for Broadway, off-Broadway and London shows and (ii) dinner and show sales to individuals, groups, travel agencies, tour groups and corporate programs. Proceeds from these sales are included in our accompanying condensed 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 on or after March 22, 2007 do not expire. Prior to March 22, 2007, gift certificates expired one year after 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 included in “Customer Deposits” in our accompanying condensed 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 restaurants in New York City to individuals and groups. Proceeds from these sales are included in “Customer Deposits” in our accompanying condensed 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. The Company is the primary obligor and as a general rule will follow the applicable box office’s return policy. However, for customer service purposes the Company will make exceptions under certain circumstances, if a customer is dissatisfied or could not attend a performance and the theatre does not issue a refund. In addition, customers can purchase insurance and return the tickets to the Company up to three days prior to the performance date. Ticket revenue and cost of revenue-ticketing are recorded on a gross basis in our accompanying condensed consolidated statements of operations. Hotel revenues packages and vouchers sold for New York restaurants are reported on a net basis and are included in “Ticketing Revenues” in our accompanying condensed consolidated statements of operations.

[8]

Segment Information

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”) issued by the FASB 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. Disclosure regarding Hollywood Media’s business segments is contained in Note 7 in accordance with the requirements of SFAS No. 131.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “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 a business combination. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008 and is to be applied prospectively. Management will adopt SFAS No. 141 (R) for businesses acquired subsequent to December 31, 2008, if any.

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 will adopt SFAS No. 160 commencing January 1, 2009.

On February 6, 2008, the FASB finalized FASB Staff Position (“FSP”) “Effective Date of FASB Statement No. 157” (“FSP 157-2”) which deferred the effective date of SFAS No. 157 “Fair Value Measurements” until years beginning after November 15, 2008 for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The deferral applies to the annual assessment of fair value performed for goodwill and indefinite-lived intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets”, long-lived assets measured at fair value for an impairment assessment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, asset retirement obligations accounted for under SFAS No. 143, “Accounting for Asset Retirement Obligations” and liabilities for exit or disposal activities initially measured at fair value under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. Management is currently evaluating the impact of adopting the items deferred by FSP 157-2.

[9]

In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), “Business Combinations,” and other U.S. GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and early adoption is prohibited. Accordingly, this FSP becomes effective for the Company on January 1, 2009. Management does not expect the adoption of FSP 142-3 to have a material impact on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with U.S. GAAP. The previous U.S. GAAP hierarchy existed within the American Institute of Certified Public Accountants’ statements on auditing standards, which are directed to the auditor rather than the reporting entity. SFAS No. 162 moves the U.S. GAAP hierarchy to the accounting literature, thereby directing it to reporting entities, which are responsible for selecting accounting principles for financial statements that are presented in conformity with U.S. GAAP. The Company will adopt SFAS No. 162 when it becomes effective which is 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” Management does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2008, the FASB issued EITF 03-6-1 “Determining Whether Instruments Granted in Share-Based Transactions are Participating Securities”, effective for financial statements issued for fiscal years beginning after December 15, 2008. Under this EITF, the FASB addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, thereby impacting the calculation of earnings per share. If it is determined that the share-based payment is a participating security, a two-class method of calculating EPS may be required. Management does not expect the adoption of this EITF to have a material impact on its earnings per share.

(3) DISCONTINUED OPERATIONS:

Showtimes.com, Inc.

On August 24, 2007, Hollywood Media 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.

[10]

Hollywood.com and Totally Hollywood TV

On August 21, 2008, Hollywood Media entered into a purchase agreement (the “Purchase Agreement”) with R&S Investments, LLC (“Purchaser”) for the sale of Hollywood Media’s subsidiaries Hollywood.com, Inc. and Totally Hollywood TV, LLC (collectively, the “Hollywood.com Business”). The Purchaser is owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media’s President and Vice-Chairperson of the Board. Pursuant to the Purchase Agreement, Hollywood Media sold the Hollywood.com Business to Purchaser for a potential purchase price of $10.0 million, which includes $1.0 million in cash which was paid to Hollywood Media at closing and potential earn-out payments totaling $9.0 million.

The earn-out payments will equal the greater of 10 percent of gross revenue or 90 percent of EBITDA (as defined in the Purchase Agreement) for the Hollywood.com Business until the earn-out is fully paid. The Company considers the $9.0 million in potential earn-out payments to be contingent consideration. Thus, the Company will not record a receivable and any corresponding gain until the contingencies have been met. The Company will estimate an appropriate reserve for at-risk amounts, if necessary, at the time that any accounts receivable is recorded. If a subsequent change of control of the Hollywood.com Business, or a portion thereof, occurs before the earn-out is fully paid, the remaining portion of the earn-out would be paid immediately upon such an event, up to the amount of the consideration received less related expenses. If the aggregate proceeds received in such a change of control are less than the remaining balance of the earn-out, then the surviving entity which owns the Hollywood.com Business will be obligated to pay the difference in accordance with the same earn-out terms. If the Hollywood.com Business, or a portion thereof, is resold within three years, Hollywood Media will also receive 5 percent of any sale proceeds above $10.0 million. In connection with the sale, Hollywood Media has established an escrow account to fund negative EBITDA (as defined in the Purchase Agreement) of the acquired business as necessary, up to a total of $2.6 million. At the end of the two-year escrow period, August 20, 2010, any balance in the escrow account will be distributed to Hollywood Media. In addition, Hollywood Media paid $400,000 to the Purchaser for working capital adjustments at closing. As of September 30, 2008, the $2.6 million and the $400,000 were included in “Gain (loss) on sale of discontinued operations” in our accompanying condensed consolidated statements of operations. Pursuant to Staff Accounting Bulletin (“SAB”) Topic 5-E, the Company must consider if it has transferred risks of ownership, which the Company has considered and concluded that the risks of ownership have been transferred. The allocation of the purchase price is pending valuation from third party experts which is expected to be finalized during 2008.

Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the Company’s condensed consolidated financial statements have been reclassified for all periods presented to reflect the operations, assets and liabilities of the Hollywood.com Business discontinued operations. The Company believes the sale of Hollywood.com qualifies for discontinued operations treatment under SFAS No. 144. The assets and liabilities of such operations 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, 2007 condensed consolidated balance sheet, consisting of the following:

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	December 31, 2007
	(unaudited)
Current assets	$	1,124,714
Property and equipment, net		403,500
Other assets		8,800
Intangibles		406,164
Goodwill		893,697


Total assets of discontinued operations	$	2,836,875


Current liabilities	$	2,719,289
Long-term liabilities		5,776


Total liabilities of discontinued operations	$	2,725,065

Results from Discontinued Operations

The net income (loss) from discontinued operations includes the gain from the sale of Showtimes.com, loss on sale of the Hollywood.com Business, the operating income from Showtimes.com and the operating loss from the Hollywood.com Business which have been classified in the accompanying condensed consolidated statements of operations as “Income (loss) from discontinued operations.” Summarized results of discontinued operations for the nine and three months ended September 30, 2008 and 2007 were as follows:


	Nine Months Ended			Nine Months Ended		Three Months Ended			Three Months Ended
	September 30,			September 30,		September 30,			September 30,
	2008			2007		2008			2007
	(unaudited)			(unaudited)		(unaudited)			(unaudited)
Operating revenue	$	3,948,495		$	8,598,931	$	1,055,240		$	2,484,702


Income (loss) from discontinued operations	$	(1,635,750	)	$	319,315	$	(114,975	)	$	(133,481	)
Gain (loss) on sale of discontinued operations, net of income taxes of $0 for the nine and three months ended September 30, 2008 and $839,061 for the nine and three months ended September 30, 2007, respectively		(4,303,717	)		9,953,105		(4,303,717	)		9,953,105


Income (loss) from discontinued operations, net of income taxes	$	(5,939,467	)	$	10,272,420	$	(4,418,692	)	$	9,819,624

(4) ACQUISITIONS AND OTHER CAPITAL TRANSACTIONS:

Showtix Acquisition

On February 1, 2007, Hollywood Media through its wholly-owned subsidiary Theatre Direct NY, Inc. (“Theatre Direct”) entered into a definitive asset purchase agreement with Showtix LLC (“Showtix”) and each of its members for the acquisition by Theatre Direct of substantially all of the assets of Showtix. Showtix was a full service, licensed group ticketing sales agency that sells tickets for Broadway and Off-Broadway theatrical performances. The

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acquisition was completed and closed on February 1, 2007. The acquisition allows Theatre Direct to increase its presence in the Broadway ticketing industry. The aggregate purchase consideration was $2,738,796, including $2,600,000 in cash and $138,796 of acquisition costs. In addition, Showtix is also entitled to receive up to $370,000 in potential periodic cash earn-outs as defined in the agreement. During the first quarter of 2008, Hollywood Media paid Showtix $43,313 pursuant to the first annual earnout then due. During the first quarter of 2008, Hollywood Media completed its evaluation of the acquired assets and liabilities which resulted in the recording of certain intangible assets (customer lists and non-competition agreements), which are being amortized over 6 years and 5 years, respectively. The fair market value of these intangible assets on the date of acquisition was $470,760 and the reconciliation of the purchase price has been adjusted to reflect this value. A reconciliation of the purchase price is provided below:


Purchase consideration	$	2,738,796


Cash acquired		4,824
Accounts receivable		368,319
Prepaid		11,584
Intangibles		470,760


Total assets	$	855,487


Current liabilities	$	(94,167	)


Total liabilities	$	(94,167	)


Net Assets	$	761,320


Excess of the purchase consideration over fair value of net assets acquired (included in Broadway Ticketing segment)	$	1,977,476

The excess of the purchase consideration over the fair value of net assets has been classified as “Goodwill” in the accompanying condensed consolidated balance sheets.

The results of operations of Showtix have been included in Hollywood Media’s consolidated results of operations since the date of acquisition (February 1, 2007). The following are Hollywood Media’s pro forma results for the nine months ended September 30, 2007.

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	Nine Months Ended
	September 30, 2007
	(unaudited)
Proforma net revenues	$	89,306,338

Proforma net (loss) gain	$	3,575,515

Proforma net income per share	$	0.11

Proforma weighted average common and common equivalent shares		33,439,931

(5) 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% annual 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. An 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. Such amortization expense amounted to $624,601 and $0 for the nine and three months ended September 30, 2007, respectively.

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Registration Payment Arrangement

As required by the registration rights agreement entered into in connection with the above mentioned 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 September 30, 2008, 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 September 30, 2008, (ii) the Warrant shares issued upon such exercise are available for resale under Rule 144(k) on September 30, 2009, (iii) the registration statement ceased to be effective in violation of the agreement on September 30, 2008 and does not become effective again before September 30, 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 $635,000. Management does not believe that any significant material payments are likely under this registration payment arrangement.

(6) COMMON STOCK:

During the Nine Months Ended September 30, 2008:

	•		On February 8, 2008, Hollywood Media issued 96,569 shares of common stock valued at the December 31, 2007 closing share price of $2.90, or $280,050, for payment of Hollywood Media’s 401(k) employer match for the calendar year 2007.

	•		On April 28, 2008, Hollywood Media issued 20,000 shares of common stock valued at $17,600 pursuant to the exercise by the Chief Accounting Officer of Hollywood Media of an employee stock option with an exercise price of $0.88 per share.

	•		On June 24, 2008, Hollywood Media issued 81,000 shares of common stock valued at $105,300, pursuant to the exercise by the Chief Executive Officer of Hollywood Media of an employee stock option with an exercise price of $1.30 per share.

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During the Nine Months Ended September 30, 2007:

	•		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.

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	•		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.

	•		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 $25,706 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 common stock valued at $3.83 per share, which was the closing price of Hollywood Media common stock on August 30, 2007 the date of grant, in payment of $402,150 in compensatory bonuses to certain officers associated with the August 24, 2007 sale of the Source business.

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(7) SEGMENT REPORTING:

Hollywood Media’s reportable segments are Broadway Ticketing, Ad Sales, Intellectual Properties, 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 through CinemasOnline on cinema and theater websites and plasma TV displays in the U.K. and Ireland and holds Hollywood Media’s investment in MovieTickets.com. 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. 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 provides summary financial information, for continuing operations only, regarding Hollywood Media’s reportable segments:


	Nine months ended September 30,						Three months ended September 30,
	(unaudited)						(unaudited)
	2008			2007			2008			2007
Net Revenues:
Broadway Ticketing	$	83,044,397		$	83,930,445		$	23,981,802		$	25,079,163
Ad Sales		3,959,304			3,842,545			1,246,955			1,360,457
Intellectual Properties		1,036,065			797,043			294,025			318,350
Other		—			—			—			—

	$	88,039,766		$	88,570,033		$	25,522,782		$	26,757,970


Operating Income (Loss):
Broadway Ticketing	$	2,338,563		$	1,808,754		$	858,702		$	857,000
Ad Sales		(317,053	)		(415,739	)		(86,482	)		(210,599	)
Intellectual Properties		211,100			41,351			67,879			41,472
Other		(8,093,022	)		(8,068,118	)		(2,819,444	)		(2,644,874	)

	$	(5,860,412	)	$	(6,633,752	)	$	(1,979,345	)	$	(1,957,001	)

Capital Expenditures:
Broadway Ticketing	$	656,857		$	1,313,097		$	150,562		$	1,156,196
Ad Sales		194,140			260,187			47,670			63,798
Intellectual Properties		897			—			897			—
Other		238,374			172,595			202,051			56,214

	$	1,090,268		$	1,745,879		$	401,180		$	1,276,208


Depreciation and Amortization Expense:
Broadway Ticketing	$	657,295		$	266,151		$	197,775		$	96,747
Ad Sales		463,879			394,549			152,222			140,168
Intellectual Properties		75			—			75			—
Other		330,110			353,722			116,021			121,726

	$	1,451,359		$	1,014,422		$	466,093		$	358,641

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	September 30,		December 31,
	2008		2007
	(unaudited)
Segment Assets:
Broadway Ticketing	$	35,234,069	$	40,149,871
Ad Sales		26,408,676		24,728,230
Intellectual Properties		858,479		739,078
Other		14,735,288		28,361,657

	$	77,236,512	$	93,978,836

(8) CERTAIN COMMITMENTS AND CONTINGENCIES:

Litigation

Hollywood Media is from time to time party to various legal proceedings, including matters arising in the ordinary course of business.

(9) 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 because accumulated losses from prior years exceed MovieTickets.com’s accumulated net income. The MovieTickets.com web site generates revenues from service fees charged to users for the purchase of movie tickets online and the sale of advertising. A dividend of $1,311,100 is included in “Equity in Earnings of Unconsolidated Investees” in our accompanying condensed consolidated statement of operations, which was received by Hollywood Media in July of 2008.

(10) RELATED PARTY TRANSACTIONS:

Hollywood Media entered into a purchase agreement with an entity owned by Hollywood Media’s Chief Executive Officer and President for the sale of the Hollywood .com Business. For additional information about this transaction, see Note 3 “Discontinued Operations” in these Notes to the Condensed Consolidated Financial Statements. Pursuant to this purchase agreement, Hollywood Media entered into a Transition Services Agreement (“TSA”) with the Hollywood.com Business to provide certain temporary administrative services, which Hollywood Media did solely to provide for an orderly transition of administrative services. Hollywood Media is reimbursed by the Hollywood.com Business for out of pocket costs and incremental expenses incurred in providing services under the TSA. In addition, Hollywood Media continues to process cash receipts for outstanding receivables where vendors have not yet changed the remittance name.

As of September 30, 2008, the Company accrued the amount of $3,079,119, which is included in “Related party payable” in our accompanying condensed consolidated balance sheets. The related party accrual included $479,119 owed to the purchaser for collections received by Hollywood Media on behalf of the Hollywood.com Business, netted by monies due Hollywood Media for services under the TSA, and $2,600,000 for estimated losses to be funded by Hollywood Media pursuant to the purchase agreement. The funding of losses pursuant to the purchase agreement is capped at $2,600,000, which was placed in an escrow account by Hollywood Media at closing and is included in “Restricted cash” in our accompanying condensed consolidated balance sheets.

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(11) RECLASSIFICATION:

Certain expenses previously included in and “Editorial, production, development and technology” in the Company’s condensed consolidated statements of operations were reclassified to “Cost of revenues — ticketing” commencing with the second quarter of 2008.

(12) SUBSEQUENT EVENTS:

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 $10.0 million of its cash and cash equivalents to repurchase shares of its outstanding common stock. Pursuant to the repurchase program, Hollywood Media purchased 481,278 shares of its common stock in a privately negotiated transaction in October 2008 for $649,725, or an average price of $1.35 per share.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Item 2 or elsewhere in this Form 10-Q, 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-Q or that are otherwise made by or on behalf of Hollywood Media. 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, including but not limited to relationships with exhibitors and live theater venues,

	•		our ability to compete with other online ticketing services 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,

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	•		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 or detailed in our Annual Report on Form 10-K for the year ended December 31, 2007 and in other filings made by Hollywood Media 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-Q. 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-Q, except as required by law. 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.

Overview

Hollywood Media is comprised of various businesses focusing primarily on online ticket sales, deriving revenue primarily from Broadway, Off-Broadway and London’s West End ticket sales to individuals and groups, as well as 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, the U.K. based CinemasOnline companies and a minority interest in MovieTickets.com.

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. Broadway Ticketing is 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 a London-based ticket agency, in London’s West End theatre 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 is comprised of the U.K. based CinemasOnline Limited, UK Theatres Online Limited, WWW.CO.UK Limited and Spring Leisure Limited (collectively known as “CinemasOnline”) and holds Hollywood Media’s investment in MovieTickets.com. CinemasOnline maintains websites for cinemas and 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 TV screens placed in various venues throughout the U.K. and Ireland, such as cinemas, hotels and car dealerships. 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.

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Intellectual Properties Division.

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.

Results of Operations

The following discussion and analysis should be read in conjunction with Hollywood Media’s Unaudited Condensed Consolidated Financial Statements and the notes thereto included in Item 1 of Part I of this report.

The following table summarizes Hollywood Media’s revenues, operating expenses and operating income (loss) from continuing operations by reportable segment for the nine months ended September 30, 2008 (“Y3-08”) and 2007 (“Y3-07”), and the three months ended September 30, 2008 (“Q3-08”) and 2007 (“Q3-07”), respectively:


						Intellectual
	Broadway					Properties
	Ticketing		Ad Sales			(a)		Other			Total
Y3-08 (unaudited)

Net Revenues	$	83,044,397	$	3,959,304		$	1,036,065	$	—		$	88,039,766
Operating Expenses		80,705,834		4,276,357			824,965		8,093,022			93,900,178

Operating Income (Loss)	$	2,338,563	$	(317,053	)	$	211,100	$	(8,093,022	)	$	(5,860,412	)


% of Total Net Revenue		94%		5%			1%		—			100%

Y3-07 (unaudited)

Net Revenues	$	83,930,445	$	3,842,545		$	797,043	$	—		$	88,570,033
Operating Expenses		82,121,691		4,258,284			755,692		8,068,118			95,203,785

Operating Income (Loss)	$	1,808,754	$	(415,739	)	$	41,351	$	(8,068,118	)	$	(6,633,752	)


% of Total Net Revenue		95%		4%			1%		—			100%

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						Intellectual
	Broadway					Properties
	Ticketing		Ad Sales			(a)		Other			Total
Q3-08 (unaudited)

Net Revenues	$	23,981,802	$	1,246,955		$	294,025	$	—		$	25,522,782
Operating Expenses		23,123,100		1,333,437			226,146		2,819,444			27,502,127

Operating Income (Loss)	$	858,702	$	(86,482	)	$	67,879	$	(2,819,444	)	$	(1,979,345	)


% of Total Net Revenue		94%		5%			1%		—			100%

Q3-07 (unaudited)

Net Revenues	$	25,079,163	$	1,360,457		$	318,350	$	—		$	26,757,970
Operating Expenses		24,222,163		1,571,056			276,878		2,644,874			28,714,971

Operating Income (Loss)	$	857,000	$	(210,599	)	$	41,472	$	(2,644,874	)	$	(1,957,001	)


% of Total Net Revenue		94%		5%			1%		—			100%


a.		Does not include Hollywood Media’s 50% interest in NetCo Partners which is accounted for under the equity method of accounting and Hollywood Media’s share of the income (loss) is reported as Equity in Earnings of Unconsolidated Investees (discussed below).

Composition of our segments is 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 a London-based ticket agency. This segment also generates revenue from the sale of sponsorships and ad sales on Broadway.com.

	•		Ad Sales — includes CinemasOnline, which sells advertising on cinema and theater websites in the U.K. and plasma TV displays throughout the U.K. and Ireland and holds Hollywood Media’s investment in 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 books 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.

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•

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

Showtimes.com, Inc.

Hollywood.com and Totally Hollywood TV

On August 21, 2008, Hollywood Media entered into a purchase agreement with R&S Investments, LLC (“Purchaser”) for the sale of Hollywood Media’s subsidiaries Hollywood.com, Inc. and Totally Hollywood TV, LLC (collectively, the “Hollywood.com Business”). The Purchaser is owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media’s President and Vice-Chairperson of the Board. Pursuant to the purchase agreement, Hollywood Media sold the Hollywood.com Business for a potential purchase price of $10.0 million, which includes $1.0 million in cash that was paid to Hollywood Media at closing and potential earn-out payments totaling $9.0 million. For additional information about this transaction, see Note 3 “Discontinued Operations” in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1, of this Form 10-Q Report.

The Hollywood.com Business includes the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service, and constituted a portion of Hollywood Media’s Ad Sales Division and all of the Cable TV Division. The sale of the Hollywood.com Business did not include the other components of Hollywood Media’s Ad Sales Division, which are CinemasOnline and Hollywood Media’s investment in MovieTickets.com.

Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company’s condensed consolidated financial statements have been reclassified for all periods presented to reflect the operations, assets and liabilities of the Hollywood.com Business discontinued operations.

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The net income (loss) from discontinued operations which includes the gain from the sale of Showtimes.com, the loss from the sale of the Hollywood.com Business, operating income from Showtimes.com and the operating loss from the Hollywood.com Business which have been classified in the accompanying condensed consolidated statements of operations as “Income (loss) from discontinued operations.” Summarized results of discontinued operations for the nine and three months ended September 30, 2008 and 2007 were as follows:


	Nine Months Ended			Nine Months Ended		Three Months Ended			Three Months Ended
	September 30,			September 30,		September 30,			September 30,
	2008			2007		2008			2007
	(unaudited)			(unaudited)		(unaudited)			(unaudited)

Operating revenue	$	3,948,495		$	8,598,931	$	1,055,240		$	2,484,702


Income (loss) from discontinued operations	$	(1,635,750	)	$	319,315	$	(114,975	)	$	(133,481	)
Gain (loss) on sale of discontinued operations, net of income taxes of $0 for the nine and three months ended September 30, 2008 and $839,061 for the nine and three months ended September 30, 2007, respectively		(4,303,717	)		9,953,105		(4,303,717	)		9,953,105


Income (loss) from discontinued operations, net of income taxes	$	(5,939,467	)	$	10,272,420	$	(4,418,692	)	$	9,819,624

NET REVENUES

Total net revenues were $88,039,766 for Y3-08 as compared to $88,570,033 for Y3-07, a decrease of $530,267 or 1%, and $25,522,782 for Q3-08 as compared to $26,757,970 for Q3-07, a decrease of $1,235,188 or 5%. The decrease in net revenue from Y3-07 to Y3-08 was primarily due to a change in sales strategy at Theatre.com, as discussed below, in our Broadway Ticketing division, offset by an increase in our Intellectual Properties division. The decrease in revenue in Q3-08 as compared to Q3-07 is primarily due to the change in our sales strategy at Theatre.com. In Q3-08 and Q3-07 net revenues were derived 94% from Broadway Ticketing, 5% from Ad Sales and 1% from Intellectual Properties.

Broadway Ticketing net revenues were $83,044,397 and $83,930,445 for Y3-08 and Y3-07, respectively, a decrease of $886,048 or 1%, and $23,981,802 and $25,079,163 for Q3-08 and Q3-07, respectively, a decrease of $1,097,361 or 4%. The decrease in Broadway Ticketing net revenues in Y3-08 from Y3-07 was primarily attributable to the following: a decrease in revenue of $3,730,767 attributable to (i) a decrease in revenue of $3,270,500 from Theatre.com, and (ii) a decrease in revenues of $460,267 due to a decrease in sales of hotel packages, offset in part by an increase in revenue of $3,075,144 attributable to (i) an increase in revenue from ticket buyers of $2,608,484, which includes: ticket price increases by theaters of $2,986,934 and increases in services fees of $1,858,544, partially offset by decreases in individual ticket sales of $1,914,186, decreases in sales of cancellation insurance of $285,521 and decreases in delivery revenue of $37,286 and (ii) an increase in sponsorship sales of $466,660.

The decrease in Broadway Ticketing net revenues in Q3-08 from Q3-07 was primarily attributable to the following: (a) a decrease in revenue of $1,077,920 attributable to (i) a decrease in revenue of $761,913 from Theatre.com and (ii) a decrease in revenues of $267,407 due to a decrease in sales of hotel packages.

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Ad Sales division net revenues by our CinemasOnline business were $3,959,304 for Y3-08 as compared to $3,842,545 for Y3-07, an increase of $116,759 or 3%, and such net revenues were $1,246,955 for Q3-08 as compared to $1,360,457 for Q3-07, a decrease of $113,502 or 8%. The increase in Ad Sales revenues in Y3-08 over Y3-07 is attributable primarily to increases in advertising sales on our plasma TV business in the U.K. and Ireland of $571,745, offset by a decrease in revenue generated by advertising sales in the U.K. and Ireland on posters, brochures, and websites for theaters or $454,986. The decrease from Q3-07 to Q3-08 relates to a decrease in advertising sales in the U.K. and Ireland on posters, brochures, and websites for theaters of $207,727, offset by an increase in revenue generated from advertising sales on plasma TV screens in the U.K. and Ireland of $94,225.

Net revenues from our Intellectual Properties division were $1,036,065 for Y3-08 as compared to $797,043 for Y3-07, an increase of $239,022 or 30%, and such net revenues were $294,025 for Q3-08 as compared to $318,350 for Q3-07, a decrease of $24,325 or 8%. 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 the delivery of the 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. The Intellectual Properties division revenues do not include our 50% interest in NetCo Partners, which is accounted for under the equity method of accounting and under which Hollywood Media’s share of the income is reported as Equity in Earnings of Unconsolidated Investees (discussed below).

EQUITY IN EARNINGS OF UNCONSOLIDATED INVESTEES

Equity in earnings of unconsolidated investees consisted of the following:


	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	(unaudited)				(unaudited)
	2008		2007		2008			2007
NetCo Partners (a)	$	1,522	$	2,061	$	(4,891	)	$	1,186
MovieTickets.com (b)		1,311,100		—		—			—

	$	1,312,622	$	2,061	$	(4,891	)	$	1,186

(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 of accounting. Hollywood Media’s 50% share of earnings by NetCo Partners was a net gain of $1,522 for Y3-08 compared to $2,061 for Y3-07, a decrease of $539. Hollywood Media’s 50% share of earnings was a loss of $4,891 for Q3-08, as compared to a gain of $1,186 for Q3-07 a decrease of $6,077. NetCo Partners recognized $3,045 in income during Y3-08 and $9,780 in losses for Q3-08.

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(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 Q3-08 and Q3-07 because accumulated losses from prior years exceed MovieTickets.com’s accumulated net income. The MovieTickets.com web site generates revenues from service fees charged to users for the purchase of movie tickets online and the sale of advertising. The results above include $1,311,100 in dividends received by Hollywood Media in July 2008.

OPERATING EXPENSES

Cost of revenues — ticketing. Cost of revenues — ticketing was $69,416,062 for Y3-08 compared to $71,098,696 in Y3-07 for a decrease of $1,682,634 or 2%. Cost of revenues — ticketing for Q3-08 was $19,633,194 compared to $20,585,142 in Q3-07 for a decrease of $951,948 or 5%. Cost of revenue 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 revenue, cost of revenues — ticketing was 84% and 85% for Y3-08 and Y3-07, respectively, and 82% for Q3-08 and Q3-07.

The decrease in Cost of revenues — ticketing in Y3-08 from Y3-07 was primarily attributable to the following: (a) a decrease in costs of revenue of $2,866,068 attributable to a decrease in ticket sales from Theatre.com, offset in part by (b) an increase in cost of revenues of $1,335,005 attributable to ticket price increases by theaters of $2,444,341 partially offset by a decrease in cost of revenues of $1,109,336 attributable to a lower quantity of ticket sales.

Editorial, Production, Development and Technology. Editorial, production, development and technology costs include commissions, royalties, media buying, production services and internet access for the UK based CinemasOnline companies and fees and royalties paid to authors and co-editors for the Intellectual Properties segment. Editorial, production, development and technology costs for Y3-08 were $2,685,058 as compared to $2,584,715 for Y3-07 and $783,695 for Q3-08 as compared to $915,921 for Q3-07. Editorial, production, development and technology costs increased $100,343 or 4% from Y3-07 to Y3-08 and decreased $132,226 or 14% from Q3-07 to Q3-08. As a percentage of aggregate net revenues from our Ad Sales and Intellectual Properties segments, these costs were 54% and 56% for Y3-08 and Y3-07, respectively, and 51% and 55% for Q3-08 and Q3-07, respectively. The Y3-08 over Y3-07 increase in Editorial, Production, Development and Technology costs was mainly due to an approximate $66,000 net increase in payments to writer/co-editors along with an approximately $38,000 increase in costs in the Ad Sales segment. This increase in the Ad Sales segment was

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primarily due to an approximately $146,000 increase in commissions and royalties offset by an approximately $61,000 decrease in media buying and a $40,000 decrease in production services. The Q3-08 over Q3-07 decrease in Editorial, Production, Development and Technology costs was due to an approximate $51,000 net decrease in payments to writer/co-editors along with an approximately $78,000 decrease in costs in the Ad Sales segment. This decrease in the Ad Sales segment was primarily due to an approximately $45,000 decrease in media buying, an approximately $23,000 decrease in production services and an approximately $29,000 decrease in commissions offset by an approximately $25,000 increase in royalties.

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 and 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). SG&A expenses for Y3-08 were $10,098,009 compared to $10,348,169 for Y3-07, a decrease of $250,160 or 2%. SG&A expenses for Q3-08 were $3,143,408 compared to $3,410,662 in Q3-07, a decrease of $267,254 or 8%. As a percentage of net revenue, SG&A expenses were 11% in Y3-08 and 12% in Y3-07, and were 12% for Q3-08 as compared to 13% for Q3-07. The decrease in SG&A expenses in Y3-08 as compared to Y3-07 was due primarily to the following: (i) decreased marketing expense in our ticketing segment of approximately $580,000, (ii) decreased bad debt expense in our ticketing and ad sales segments of approximately $86,000, (iii) decreased occupancy expense of approximately $78,000 due primarily to the closure of our London office as part of the change in the business model for Theatre.com discussed above. The decreases were offset by increases in professional fees of approximately $402,000, as well as minor increases in charitable contributions, repairs and maintenance and consulting expenses. The decrease in SG&A expenses in Q3-08 as compared to Q3-07 was due in large part to the following: (i) decreased marketing expense in our ticketing segment of approximately $260,000, (ii) increased bad debt expense in our ticketing and ad sales segments of approximately $126,000, (iii) decreased occupancy expense in our ticketing segment, as well as our corporate office, of approximately $81,000, and (iv) decreased travel expense of approximately $54,000. These decreases were offset by increased consulting, accounting, repairs and maintenance and charitable contribution expenses totaling approximately $223,000.

Payroll and Benefits.

Payroll and benefits expenses include payroll and benefits and other types of compensation expense as well as human resources and administrative functions.

Payroll and benefits expenses for Y3-08 were $10,249,690 compared to $10,157,783 for Y3-07, an increase of $91,907 or 1%. Payroll and benefits expenses for Q3-08 were $3,475,737 compared to $3,444,605 for Q3-07, an increase of $31,132 or 1%. As a percentage of net revenues, payroll and benefits expenses were approximately 12% and 11% for Y3-08 and Y3-07, respectively, and 14% and 13% for Q3-08 and Q3-07, respectively.

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The increase in payroll and benefits costs in Y3-08 as compared to Y3-07 was primarily due to severance payments made following the divestment of the Hollywood.com Business of approximately $354,000, offset by reduction in costs from in the U.K. based ad sales business and the corporate office of $92,691 and $256,992, respectively. The decrease from Q3-07 to Q3-08 was primarily due to a reduction in costs in from in the U.K. based ad sales business and the corporate office of $137,777 and $248,166, respectively, offset by severance payments made following the divestment of the Hollywood.com Business of approximately $354,000.

Depreciation and amortization.

Depreciation and amortization expense consists of depreciation of property and equipment, furniture and fixtures, web site development, leasehold improvements, and equipment under capital leases and amortization of intangible assets. Depreciation and amortization expense was $1,451,359 for Y3-08 as compared to $1,014,422 for Y3-07, an increase of $436,937 or 43%. Depreciation and amortization expense was $466,093 for Q3-08 as compared to $358,641 for Q3-07, an increase of $107,452 or 30%. The increases in Y3-08 and Q3-08 as compared to Y3-07 and Q3-07 are due to investments in computer equipment and new office space in New York City for our Broadway Ticketing segment, as well as amortization on intangible assets purchased as part of the acquisition of Showtix.

Interest, net.

Interest, net was $392,104 of income for Y3-08 as compared to 87,458 of expense for Y3-07 and income of $91,771 for Q3-08 as compared to income of $232,163 for Q3-07. The increase in Interest, net for Y3-08 as compared to Y3-07 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 decrease in interest income from Q3-07 to Q3-08 related to decreased interest bearing cash and cash equivalent balances during the respective quarters.

LIQUIDITY AND CAPITAL RESOURCES

Hollywood Media’s cash and cash equivalents were $14,279,571 at September 30, 2008 as compared to $26,758,550 at December 31, 2007. Our net working capital of our continuing operations (defined as current assets less current liabilities) was $13,100,905 at September 30, 2008 as compared to $21,756,061 at December 31, 2007.

Net cash used in operating activities from continuing operations during Y3-08 was $5,538,742, which cash usage was primarily attributable to the loss from continuing operations and a $3,860,106 increase in ticket inventories purchased for future Broadway show performances. Net cash used in operating activities from continuing operations during Y3-07 was $8,742,290.

Net cash used in investing activities from continuing operations during Y3-08 was $932,629, which net cash outlays were primarily attributable to capital expenditures. Net cash provided by investing activities from continuing operations during Y3-07 was $21,074,360.

Net cash used in financing activities from continuing operations during Y3-08 was $15,665, which cash usage included proceeds received from the exercise of stock options, partially offset by payments under capital lease obligations and outstanding notes payable. Net cash used in financing activities from continuing operations during Y3-07 was $6,792,616.

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Sale of Hollywood.com Business Unit to R&S Investments LLC

On August 21, 2008, Hollywood Media entered into and simultaneously closed on a definitive purchase agreement with R&S Investments, LLC, pursuant to which R&S Investments acquired the Hollywood.com Business for a potential purchase price of $10.0 million, which includes $1.0 million in cash that was paid to Hollywood Media at closing and potential earn-out payments of up to $9.0 million. The Hollywood.com Business includes the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service. R&S Investments is owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media’s President and Vice-Chairperson of the Board. The purchase price was determined by an arms-length negotiation between a Special Committee of independent and disinterested directors of Hollywood Media on the one hand and R&S Investments on the other hand.

Beginning in September 2009, R&S Investments will be required to make periodic earn-out payments equal to the greater of (i) 10 percent of gross revenue and (ii) 90 percent of EBITDA (as defined in the purchase agreement) for the Hollywood.com Business until the full earn-out is paid. If a change of control of Hollywood.com occurs before the earn-out is fully paid, the remaining portion of the earn-out would be payable immediately upon such a change of control, up to the amount of consideration received by R&S Investments less related expenses. If the consideration in such a change of control is less than the remaining balance of the earn-out, then the subsequent buyer will be obligated to pay the difference in accordance with the same earn-out terms. In addition, if Hollywood.com is resold within three years, Hollywood Media will also receive five percent of any proceeds above $10.0 million. Pursuant to the Purchase Agreement, Hollywood Media was required to place $2.6 million into an escrow account to fund any negative EBITDA (as defined) of the Hollywood.com Business through August 21, 2010.

For additional information about this transaction, see Note 3 “Discontinued Operations” in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1, of this Form 10-Q Report.

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 working capital 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 3 “Discontinued Operations” in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1, of this Form 10-Q Report.

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Acquisition of Showtix Business

On February 1, 2007, the Broadway Ticketing Division invested approximately $2.7 million in cash to consummate the acquisition of the Broadway ticketing business of Showtix. For additional information about this transaction, see Note 4 “Acquisitions and Other Capital Transactions” in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1, of this Form 10-Q Report.

Capital Expenditures

Hollywood Media’s capital expenditures during Y3-08 were approximately $1.1 million. We currently anticipate additional capital expenditures during 2008 of approximately $0.5 million including but not limited to expenditures for computer equipment, servers and costs associated with web site development from Broadway.com and Theatre.com. These anticipated 2008 capital expenditures exclude amounts related to business acquisitions, if any.

Outlook

Hollywood Media expects to have continuing losses in the near term. Notwithstanding these losses, as described further below we expect that Hollywood Media will be able to satisfy its near term liquidity obligations. Other than the normal seasonal variance described under “Inflation and Seasonality” below, we do not expect that there will be a significant variance in Hollywood Media’s earnings or its cash flows near term and accordingly do not expect its trend of losses to accelerate.

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 Ad Sales 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 September 30, 2009. 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.

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Known material trends, uncertainties and other factors that have had or are reasonably likely to have a material impact on Hollywood Media’s revenues, earnings and liquidity include the following:

	•		the U.S. economic downturn, which can adversely affect business and personal discretionary spending for entertainment-related items such as theater tickets, and has resulted in a reduction in tickets sold and in net revenue;

	•		increases in Broadway ticket prices, which can positively affect Hollywood Media’s revenues as the ticket service fees we earn are based on a percentage of ticket prices, but which can also result in a lower volume of tickets being sold and could adversely affect Hollywood Media’s revenues and, accordingly, its earnings and cash flow; and

•

New York State’s 2007 repeal of caps on ticket service fees, which has enabled Hollywood Media to increase profits given the greater flexibility to charge higher service fees on tickets for high demand shows.

We note that entertainment-related expenditures are particularly sensitive to business and personal discretionary spending levels, which tend to decline during general economic downturns. We also note, however, that certain factors may help mitigate a decline in the domestic market for Broadway tickets during current economic difficulties, primarily the pricing flexibility resulting from New York State’s repeal of caps on ticket service fees referenced above. While we expect the above factor to help offset the effects of a sluggish economy on Hollywood Media in the short term, a severe and protracted downturn in the U.S. economy could have a significant negative impact on its business.

While we continue to develop our businesses, we are also exploring market opportunities which could have a material impact on Hollywood Media’s revenues, earnings and liquidity, including expansion into discount ticketing markets. Such expansion would allow the Company to sell tickets at variable price points, which the Company expects would attract a greater variety of customers. There is no assurance, however, the Company will ultimately pursue these opportunities or if it does, that they will be successful.

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 $10,000,000 of its cash to repurchase shares of its outstanding common stock. As reported in Hollywood Media’s Form 10-K report for the 2007 fiscal year, the stock repurchases by Hollywood Media during the fourth quarter of fiscal 2007 resulted in the repurchase of an aggregate of 2,003,660 shares of common stock for an aggregate purchase price of $5,104,204, reflecting an average price paid per share of $2.55. Hollywood Media did not repurchase any shares during the third quarter of 2008. Stock repurchases by Hollywood Media during the fourth quarter of 2008 to date have resulted in the repurchase in a privately negotiated transaction of 481,278 shares of common stock at $1.35 per share, for an aggregate purchase price of $649,725. For additional information about Hollywood Media’s stock repurchase program, see Part II, Item 2, of this Form 10-Q report.

Off-Balance Sheet Arrangements

At September 30, 2008 and December 31, 2007, 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.”

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Critical Accounting Estimates

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 financial statements in conformity 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 of the notes to the condensed consolidated financial statements included in this Form 10-Q, and Note 2 to the Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2007.

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 estimated collectability 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 $912,243 and $1,146,536 at September 30, 2008 and December 31, 2007, 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 geographical regions.

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Impairment of Long-Lived Assets

Impairment of Goodwill

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 and there were no adjustments to the carrying value of long-lived assets. As of September 31, 2008 and 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. The goodwill recorded in the consolidated balance sheets as of September 30, 2008 and December 31, 2007 was $28.9 million and $29.3 million, respectively. At September 30, 2008 and December 31, 2007 goodwill represented 37% and 31%, respectively, of total assets. 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 affected 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 sales 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.

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ITEM 3.		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.

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 an investment in a subsidiary in the United Kingdom and sell our services into this foreign market. Our foreign exposures, defined as assets denominated in foreign currency less liabilities denominated in foreign currency, for the United Kingdom at September 30, 2008 and December 31, 2007 of U.S. dollar equivalents was $559,607 and $1,420,089, respectively.

Our United Kingdom subsidiary sells 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. An assumed 10% decrease in the value of the British pound relative to the U.S. dollar (i.e., in addition to actual exchange experience) would have resulted in a translation reduction of our revenue by $124,343 for the quarter ended September 30, 2008.

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 10% decrease in the British pound relative to the U.S. dollar (i.e., in addition to actual exchange experience) would have resulted in a translation loss of $55,961 for the quarter ended September 30, 2008. However, a larger decline in the British foreign currency could have a larger and possibly material affect.


ITEM 4.		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, of 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-Q report. 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 September 30, 2008, to ensure that information required to be disclosed by Hollywood Media in reports that it 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.

As previously reported in Hollywood Media’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 17, 2008, management assessed the effectiveness of Hollywood Media’s internal control over financial reporting as of December 31, 2007 and included its Report on Internal Control Over Financial Reporting in such Form 10-K. The Report on Internal Control over Financial Reporting concluded that certain deficiencies in Hollywood Media’s Broadway Ticketing business, which are more fully described in such Form 10-K, constituted a material weakness in Hollywood Media’s internal control over financial reporting. A material weakness in internal control over financial reporting is a control deficiency (within the meaning of the Public Company Accounting Oversight Board 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 of September 30, 2008, Hollywood Media had not remediated this material weakness.

Changes in Internal Control over Financial Reporting

There have been no changes in Hollywood Media’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the period covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, Hollywood Media’s internal control over financial reporting.

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PART II — OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Management has not identified any material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

Hollywood Media did not issue any securities during the quarter ended September 30, 2008, in transactions that were not registered under the Securities Act of 1933.

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 $10,000,000 of its 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 third quarter of 2008. For additional information relating to the stock repurchase program, see “Liquidity and Capital Resources — Authorization of Stock Repurchase Program” in Part 1, Item 2 of this Form 10-Q 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		Paid Per Share		or Programs		Plans or Programs
July 1, 2008 through July 30, 2008		—	$	—		—	$	—

August 1, 2008 through August 31, 2008		—		—		—		—

September 1, 2008 through September 30, 2008		—		—		—		—

Total		—	$	—		—	$	4,895,796	(1)


(1)		As of September 30, 2008, calculated by subtracting (i) the total price paid for all shares purchased under the repurchase program from inception through September 30, 2008 of $5,104,204, from (ii) the $10,000,000 potential maximum dollar value of repurchases approved under the life of the plan.

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ITEM 6.		EXHIBITS


Exhibit		Description	Location
	10.1	Purchase Agreement dated as of August 21, 2008, between Hollywood Media Corp. and R&S Investments, LLC.		(1	)

	10.2	Transition Services Agreement dated as of August 21, 2008 between Hollywood Media Corp., Hollywood.com, LLC and Totally Hollywood TV, LLC.		(1	)

	10.3	Extension and Amendment Agreement dated as of August 21, 2008, between Hollywood Media Corp. and Mitchell Rubenstein.		(1	)

	10.4	Extension and Amendment Agreement dated as of August 21, 2008, between Hollywood Media Corp. and Laurie S. Silvers.		(1	)

	31.1	Certification of Chief Executive Officer. (Section 302)		(*	)

	31.2	Certification of Chief Accounting Officer (Principal financial and accounting officer). (Section 302)		(*	)

	32.1	Certification of Chief Executive Officer. (Section 906)		(*	)

	32.2	Certification of Chief Accounting Officer (Principal financial and accounting officer). (Section 906)		(*	)


*		Filed as an exhibit to this Form 10-Q

(1)		Incorporated by reference from the exhibit filed with Hollywood Media Corp.’s Form 8-K filed on August 27, 2008.

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SIGNATURES

Pursuant to the requirements 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: November 10, 2008	By:	/s/ Mitchell Rubenstein
		Mitchell Rubenstein, Chief Executive
		Officer (Principal executive officer)



Date: November 10, 2008	By:	/s/ Scott Gomez
		Scott Gomez, Chief Accounting Officer
		(Principal accounting officer)

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