NovelStem International Corp. - Annual Report: 2011 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2011

For the transition period from ___________ to _________________

Commission File No. 1-14332

HOLLYWOOD MEDIA CORP.

(Exact name of registrant issuer as specified in its charter)

Securities registered under Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes     ¨  No    x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes     ¨  No    x

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    ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes     x  No    ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).

Yes     ¨  No    x

The aggregate market value of the registrant’s common stock, $.01 par value per share, held by non-affiliates as of June 30, 2011, computed by reference to the last sale price of the common stock on June 30, 2011 as reported by the NASDAQ Global Market based on published financial sources, was $16,599,083, as calculated under the following assumptions. For purposes of this computation, all executive officers, directors, and holders of 10% or more of the registrant’s common stock known to the registrant, have been deemed to be affiliates, but such calculation should not be deemed to be an admission that such directors, officers or beneficial holders are, in fact, affiliates of the registrant.

As of March 31, 2012, there were 23,179,066 shares of the registrant’s common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: In accordance with general instruction G(3) to Form 10-K, certain information required by Part III of this Form 10-K incorporated into Part III of this Annual Report on Form 10-K by reference to the registrant’s definitive Proxy Statement for its annual meeting of shareholders to be held in 2012 and filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

HOLLYWOOD MEDIA CORP.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED

DECEMBER 31, 2011

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K or that are otherwise made by us or on our behalf about our financial condition, results of operations and business constitute “forward-looking statements,” within the meaning of federal securities laws. Hollywood Media Corp. (“Hollywood Media”) cautions readers that certain important factors may affect Hollywood Media’s actual results, levels of activity, performance or achievements and could cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements anticipated, expressed or implied by any forward-looking statements that may be deemed to have been made in this Annual Report on Form 10-K 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:

Hollywood Media is also subject to other risks detailed herein, including those risk factors discussed in “Item 1A - Risk Factors” below, as well as those discussed elsewhere in this Annual Report on Form 10-K or detailed from time to time in Hollywood Media’s filings with the Securities and Exchange Commission.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other factors, including unknown or unpredictable ones, also could have material adverse effects on our future results.

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 Annual Report on Form 10-K. We do not undertake any responsibility to review or confirm analysts’ expectations or estimates or to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this Annual Report on Form 10-K, 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.

PART I

Item 1.   Business.

Until December 15, 2010, Hollywood Media Corp. (“Hollywood Media,” the “Company,” “we,” “our,” or “us”) was 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 was comprised of Broadway.com, 1-800-BROADWAY, Theatre Direct and Theatre.com. On December 15, 2010, as contemplated by the Stock Purchase Agreement, dated as of December 22, 2009, entered into between Hollywood Media and Key Brand (as amended, the “Purchase Agreement”) we completed the sale of our Broadway Ticketing Division (the “Broadway Sale”), through the sale of all of the outstanding capital stock of Theatre Direct NY, Inc. (“Theatre Direct”) to Key Brand Entertainment Inc. (“Key Brand”).

Following the Broadway Sale, we currently have the following businesses and interests: (i) our Ad Sales Division (including CinemasOnline (as defined below) and our 26.2% equity interest in MovieTickets.com, Inc. (“MovieTickets.com”) (ii) our Intellectual Properties Division (consisting of our wholly-owned subsidiary, Tekno Books, and a 50% interest in NetCo Partners), (iii) our Other Division consists of our 21.74% equity interest in Project Hollywood LLC (“Project Hollywood”), (iv) an earn-out from the sale of the Hollywood.com business, (v) a Warrant issued by Theatre Direct in connection with the Broadway Sale, and (vi) the right to receive payments from Key Brand under the Credit Agreement (defined below) and an earn-out as discussed below in connection with the Broadway Sale.

Sale of our Broadway Ticketing Division.

In connection with the Broadway Sale:

In connection with the Credit Agreement, Hollywood Media and Key Brand entered into a Subordination and Intercreditor Agreement, dated December 15, 2010 (the “Intercreditor Agreement”), with JP Morgan Chase Bank, N.A., as administrative agent for the senior lenders of Key Brand, which defines the rights and obligations of the senior secured lenders and Hollywood Media as subordinated creditor including, without limitation, the rights of payment and the subordination of the security interests of Hollywood Media.

Hollywood Media also agreed to provide certain transition services to Key Brand and Theatre Direct following the closing of the Broadway Sale for a six-month period which ended June 15, 2011. These services were insignificant and did not constitute continuing involvement in Theatre Direct.

Tender Offer. On February 25, 2011, Hollywood Media completed its tender offer and purchased 8 million shares of its common stock at a price of $2.05 per share (less any applicable withholding taxes and without interest). For additional information see Liquidity and Capital Resources in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Major Business Divisions of Hollywood Media. The following summary descriptions of our continuing operations major business divisions are followed by more detailed descriptions of such businesses.

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. The Ad Sales segment sells contracted advertising space on lobby display posters in cinemas and movie brochure booklets distributed in independent cinemas and theatre ticket wallets in the United Kingdom and Ireland. There is also a limited focus on advertising sales on plasma screens located in a small number of cinemas and live theatre venues. MovieTickets.com 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

See Part I, Item 3 of this Annual Report on Form 10-K for a discussion of the current lawsuit involving Hollywood Media and Movietickets.com

Intellectual Properties Division.

Our Intellectual Properties Division includes a book development and book licensing business owned and operated by our wholly-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 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.

Other

Project Hollywood, through a wholly-owned subsidiary, owns all of the membership interests of Baseline LLC. Baseline LLC owns the equity interests in Baseline StudioSystems, a database and research service provider offering specialized information to its subscribing users, which subscribers include movie and TV studios and production companies, distributors, producers, screenwriters, and news organizations. Baseline StudioSystem's film and television database contains motion picture and TV information, including comprehensive data about film and television productions and entertainment industry professionals.

On October 7, 2011, Project Hollywood LLC, a newly formed limited liability company owned by Baseline Holdings LLC (which is owned by Mitchell Rubenstein, the Chairman and Chief Executive Officer of the registrant, Hollywood Media Corp. (“Hollywood Media”), and Laurie Silvers, the Vice-Chairman, President and Secretary of Hollywood Media) acquired from The New York Times Company all of the membership interests of Baseline LLC. Baseline LLC owns Baseline StudioSystems, a leading provider of movie and TV data services for the entertainment and motion picture industries and a licensor of information to Internet and digital media companies. Mr. Rubenstein and Ms. Silvers individually contributed $4.5 million in cash to Baseline Holdings LLC which in turn contributed it to Project Hollywood LLC to fund the acquisition.

Hollywood Media previously owned the Baseline StudioSystems business and sold it on August 25, 2006 to The New York Times Company. The opportunity to purchase the Baseline StudioSystems business was presented to Mr. Rubenstein and Ms, Silvers in their individual capacity, and they presented to Hollywood Media’s independent directors the opportunity for Hollywood Media. Rather than acquire 100% of the Baseline StudioSystems business, and taking into account, among other factors and considerations, Hollywood Media’s then available cash, Hollywood Media’s independent directors decided unanimously for Hollywood Media to make a minority investment in Project Hollywood LLC alongside Mr. Rubenstein and Ms. Silvers with the relative ownership interest of Project Hollywood LLC interests determined based on the proportionate amount each invested.

On October 27, 2011, following Project Hollywood LLC’s acquisition of all of the membership interests of Baseline LLC, Hollywood Media (following the unanimous approval of its independent directors) acquired a 21.74% ownership interest in Project Hollywood LLC for an investment of $1.25 million, which was based on the same per membership unit price paid by Baseline Holdings for its 78.26% ownership interest in Project Hollywood LLC. The funds contributed were used to acquire Baseline LLC and for working capital and other capital needs of the Baseline StudioSystems business. The Baseline StudioSystems business has no debt other than normal accounts payable and deferred revenue.

Pursuant to the Project Hollywood Limited Liability Company Agreement (the “Project Hollywood Agreement”), Baseline Holdings or its designee will be the managing member as long as Baseline Holdings or any of its permitted transferees, as defined in the Project Hollywood Agreement, has an ownership interest in Project Hollywood. The managing member of Project Hollywood has full authority, power and discretion to manage and control Project Hollywood’s business and to determine the timing and amounts of distributions.

The Project Hollywood Agreement provides that (i) distributions of available cash will be made in accordance with the members’ percentage interests, (ii) Hollywood Media’s ownership interest in Project Hollywood is subject to a right of first refusal in favor of Project Hollywood and Baseline Holdings in the event Hollywood Media desires to transfer such ownership interest, (iii) if Baseline Holdings and/or its permitted transferees who together own at least a majority of Project Hollywood agree to sell its ownership interest in Project Hollywood or vote in favor of a merger or consolidation or a sale of all or substantially all of Project Hollywood’s assets, Hollywood Media is required to consent to the transaction, waive any appraisal rights, and agree to sell its ownership interest in Project Hollywood on the same terms and conditions as other members; and (iv) if Baseline Holdings desires to sell its ownership interest in Project Hollywood, Hollywood Media would be able to participate in such sale by selling a proportionate amount of its interest in Project Hollywood.

Hollywood Media currently owns 21.74% of the equity of Project Hollywood. Project Hollywood entered into two agreements with the two former senior executives of Baseline StudioSystems (who have no relationship with Hollywood Media) to manage the business on a day-to-day basis, as of December 1, 2011. Under those agreements, the managers will each receive 7.5% of Project Hollywood LLC’s membership units subject to a three year vesting schedule (at a rate of 2.5% per annum) and the obtaining of certain performance-based EBITDA hurdles each year.  Under that vesting schedule (and if vesting occurs), Hollywood Media’s ownership in Project Hollywood will be reduced to 20.65% at June 30, 2012, 19.57% at June 30, 2013 and 18.48% at June 30, 2014. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation - Equity in Earnings of Unconsolidated Investees” below, and Note 15 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K below, for additional information about our equity interest in Project Hollywood.

Other Business and Financial Information.

The following portions of this Business section of this Annual Report on Form 10-K contain more detailed information about our various business units, and “Item 1A – Risk Factors” below contains discussions of various related risks. Additional financial and other important information about Hollywood Media and our businesses is also contained elsewhere in this Annual Report on Form 10-K, including without limitation, the following portions of this Annual Report on Form 10-K: Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and Item 8 – Financial Statements and Supplementary Data (including the Notes to Consolidated Financial Statements contained therein).

SEC Reports Available on Internet.

Hollywood Media makes available free of charge through its internet website, www.hollywoodmedia.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”). Such materials are available on the website under the caption “Company SEC Filings” (this is a link to the Company’s “Real-Time SEC Filings” as provided by NASDAQ on NASDAQ’s website at www.nasdaq.com). Hollywood Media is a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and files reports and other information with the SEC. Our public electronic filings with the SEC (including the above-referenced filings) are available at the SEC’s internet website (www.sec.gov). Hollywood Media’s Internet website and any other website mentioned in this Annual Report on Form 10-K, and the information contained or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K.

Percentage of Total Net Revenues of Continuing Operations

Ad Sales Division

CinemasOnline. CinemasOnline sells contracted advertising space on lobby display posters in cinemas and movie brochure booklets distributed in independent cinemas and theatre ticket wallets in the United Kingdom and Ireland. There is also a limited focus on advertising sales on plasma screens located in a small number of cinemas and live theatre venues.

MovieTickets.com. Hollywood Media launched the MovieTickets.com website in May 2000 with several major theater exhibitors. MovieTickets.com is one of the two leading website destinations for the purchase of movie tickets through the Internet. The MovieTickets.com website allows users to purchase movie tickets and retrieve them at “will call” windows or kiosks at theaters and, for theaters with the capability, for users to print tickets out at their home or office. MovieTickets.com generates revenues primarily from service fees charged to users for the purchase of tickets, the sale of advertising, and the sale of research data.

MovieTickets.com is owned by a joint venture in which Hollywood Media owns a 26.2% equity interest. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation - Equity in Earnings of Unconsolidated Investees” below, and Note 14 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K below, for additional information about our equity interest in MovieTickets.com. MovieTickets.com entered into an agreement with Viacom Inc. effective August 2000 whereby Viacom Inc. acquired a 5% interest (now 4.1% after dilution) in MovieTickets.com for $25.0 million of advertising and promotion over five years. MovieTickets.com is promoted through on-screen advertising in most participating exhibitors’ theaters. In March 2001, America Online Inc. (“AOL”) purchased a non-interest bearing convertible preferred equity voting interest in MovieTickets.com for $8.5 million in cash, which was convertible into approximately 3% of the common stock of MovieTickets.com and which was converted in April 2005. The AOL interest is currently held by Time Warner Inc. In connection with the 2001 transaction with AOL, MovieTickets.com’s ticket inventory was promoted throughout AOL’s interactive properties and ticket inventory, including Moviefone. Through an agreement in August 2004 between MovieTickets.com and Moviefone, MovieTickets.com acquired by assignment and assumed the ticketing agreements that Moviefone had with its movie theater exhibitors. The Moviefone exhibitor agreements assumed by MovieTickets.com include agreements with Clearview Cinemas and Landmark Theaters.

Currently, MovieTickets.com sells tickets for over 250 movie theater chains.

Intellectual Properties Business

Book Development and Book Licensing. Our Intellectual Properties division includes a book development and book licensing business owned and operated by our wholly-owned subsidiary, Tekno Books, which develops and executes book projects, frequently with best-selling authors. Tekno Books has worked with more than 60 New York Times best-selling authors, including Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan Kellerman, Dean Koontz, Robert Ludlum, Nora Roberts and Scott Turow, and numerous media celebrities, including Louis Rukeyser and Leonard Nimoy. Our intellectual properties division has licensed books for publication with more than 80 domestic book publishers, including Random House (Bertelsmann), Penguin Publishing Group (Pearson), Simon & Schuster (Viacom), HarperCollins (News Corp.), St. Martin’s Press (Holtzbrink of Germany), Warner Books (Time Warner), and the publishing division of Barnes & Noble. Tekno Books has also produced numerous books under license from such entertainment companies as Universal Studios, CBS Television, DC Comics (Time Warner), and MGM Studios. Since 1980, Tekno Books has developed over 2,080 books that have been published. Another 3,800 foreign, audio, paperback, electronic, and other editions of these books have been sold to hundreds of publishers around the world, and published in 33 languages. Tekno’s books have been finalists for, or winners of, more than 200 awards, including The Edgar Allan Poe Award, The Agatha Christie Award (Mystery), The Hugo Award (Science Fiction), The Nebula Award (Fantasy), The International Horror Guild Award (Horror) and The Sapphire Award (Romance).

Intellectual Properties. The Intellectual Properties division also owns directly (separate from Tekno Books) the exclusive rights to certain intellectual properties that are complete stories and ideas for stories, created by best-selling authors and media celebrities. Some examples of our intellectual properties are Neil Gaiman’s Mr. Hero, Neil Gaiman’s Lady Justice, Anne McCaffrey’s Acorna the Unicorn Girl, Leonard Nimoy’s Primortals, and Mickey Spillane’s Mike Danger. We have the right to license rights to certain of our intellectual properties for use by licensees in developing projects in various media forms. We generally obtain the exclusive rights to the intellectual properties and the right to use the creator’s name in the titles of the intellectual properties (e.g., Mickey Spillane’s Mike Danger and Leonard Nimoy’s Primortals).

Tekno Books

Effective as of December 30, 2011 in connection with the settlement of a dispute involving life insurance proceeds from the death of Tekno Books’ Chief Executive Partner, Dr. Martin H. Greenberg, as described below, the Estate of Martin H. Greenberg (“the Estate”) transferred all of its partnership and ownership interest in Tekno Books to Hollywood Media for no additional consideration pursuant to an Assignment of General Partnership Interest. Before such transfer, Hollywood Media owned 51% of Tekno Books. Following such transfer, Hollywood Media owned 100% of Tekno Books.

Mitchell Rubenstein was appointed Chief Executive Partner of Tekno Books (which was 51% owned by Hollywood Media) on July 21, 2011 due to the death on June 25, 2011 of Dr. Greenberg.  In July 2011, Hollywood Media and Tekno Books each received a $750,000 payment from a key-man life insurance policy resulting from Dr. Greenberg’s death. 

There was a dispute with the Estate as to whether the $750,000 distributed to Tekno Books should instead have been paid to Hollywood Media.  Hollywood Media believed that pursuant to the amended and restated partnership agreement of Tekno Books, the entire $1.5 million in policy proceeds were due to Hollywood Media.   There was no dispute as to the $750,000 payment on the policy which was made to Hollywood Media in July 2011. 

On February 8, 2012, Hollywood Media resolved its dispute with the Estate over the life insurance policy payments that were received as a result of Dr. Martin Greenberg’s death. As a result of such resolution, effective as of December 30, 2011, the Estate and Rosalind M. Greenberg (Dr. Greenberg’s widow) waived any right, entitlement or claim they may have to a $1.5 million key-man life insurance policy payment, Tekno Books and Hollywood Media waived any right, entitlement or claim they may have to a $500,000 life insurance policy payment received by Rosalind M. Greenberg, and the Estate transferred all of its partnership and ownership interest in Tekno Books to Hollywood Media for no additional consideration pursuant to an Assignment of General Partnership Interest. Following such transfer, Hollywood Media owned 100% of Tekno Book and recorded the $367,500 reserve in “Other Income” in the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

NetCo Partners. In June 1995, Hollywood Media and C.P. Group Inc. (“C.P. Group”), entered into an agreement to form NetCo Partners. NetCo Partners owns NetForce. Hollywood Media and C.P. Group are each 50% partners in NetCo Partners. Tom Clancy is a shareholder of C.P. Group. At the inception of the partnership, C.P. Group contributed to NetCo Partners all rights to NetForce, and Hollywood Media contributed to NetCo Partners all rights to Tad Williams’ MirrorWorld, Arthur C. Clarke’s Worlds of Alexander, Neil Gaiman’s Lifers, and Anne McCaffrey’s Saraband. In 1997, NetCo Partners licensed to Putnam Berkley the rights to publish the first six NetForce books in North America, which books were created and published. This agreement was subsequently renewed in December 2001 for four more books that were created and published. NetForce books have so far been published in mass market paperback format. NetCo owns all rights in all media to the NetForce property including film, television, and video games. The first book in the series was adapted as a four-hour mini-series on ABC. Through its interest in NetCo, Hollywood Media receives distributions of its share of proceeds generated from the rights to the NetForce series.

Hollywood Media is a corporation that was incorporated in the State of Florida on January 22, 1993. Our principal executive office is located at 2255 Glades Road, Suite 221-A, Boca Raton, Florida 33431, and the telephone number at our principal executive office is (561) 998-8000.

Employees

Prior to the Broadway Sale on December 15, 2010, Hollywood Media employed 120 full time employees. Hollywood Media reduced its workforce on June 15, 2011 upon completion of the Company’s obligations under the Transition Services Agreement with the buyer of the Broadway Ticketing Business. At December 31, 2011, Hollywood Media employed approximately 24 full-time employees and no part-time employees for its continuing operations. Of our 24 full-time employees, 10 employees are engaged in our Ad Sales division, 2 employees (who are overseen by Mitchell Rubenstein, the Chief Executive Partner of Tekno Books and CEO of the Company) are engaged in our Intellectual Properties division and 12 are corporate, technology and administrative employees. None of the employees are represented by a labor union, nor have we experienced any work stoppages. We consider our relations with our employees to be in good standing.

Item 1A. Risk Factors.

Risks of Investing in Our Shares

Investments in our common stock are speculative and involve a high degree of risk. Investors should carefully consider the following matters, as well as the other information in this Annual Report on Form 10-K. If any of these risks or uncertainties actually occur, our business, results of operations, financial condition, or prospects could be substantially harmed, which would adversely affect your investment. Additional risks and uncertainties may also impair our business, operating results, financial condition, and prospects.

We have a history of losses in our continuing operations.

We had a loss from continuing operations of approximately $7.3 million in 2011, $7.1 million in 2010, and $10.9 million in 2009. We may incur additional losses in the future.

Because Theatre Direct represented a substantial portion of our business, following the Broadway Sale our business is substantially different.

Theatre Direct, which owned our Broadway Ticketing Business, represented a substantial portion of our business until its sale in December 2010 (the “Broadway Sale”). As a result, our operating results for any particular period may not accurately predict our future operating results. Summarized results of our discontinued operations, which include the Broadway Ticketing Business, for 2009, 2010 and 2011 are set forth in the notes to our financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Our results of operation and financial condition may be materially adversely effected if (i) our ability to receive the earn-out payments from the sale of the Hollywood.com business is inhibited in any way, (ii) our ability to receive any dividends and any other distributions from MovieTickets.com or Project Hollywood is inhibited in any way, (iii) our ability to receive the payments under the Credit Agreement or the earn-outs in connection with the Broadway Sale is inhibited in any way, (iv) our ability to exercise or put the Warrant issued to us in connection with the Broadway Sale is inhibited in any way, or (v) our Ad Sales Division continues to operate at a loss.

We may not receive the payments due under the Credit Agreement in the Broadway Sale transaction.

Pursuant to the Intercreditor Agreement, Key Brand’s obligations under the Credit Agreement are subordinated to up to $15 million of certain senior indebtedness of Key Brand and our ability to exercise remedies upon a default under the Credit Agreement are subject to certain limitations. There can be no assurance that Hollywood Media will receive all of the payments due under the Credit Agreement. The financial condition and performance of Key Brand and/or its subsidiaries and the ability of Key Brand and/or its subsidiaries to satisfy the covenants and obligations in the Credit Agreement (or any other applicable financing agreements) could adversely affect Key Brand’s ability to satisfy its obligations under the Credit Agreement.

Payments that we receive under the Credit Agreement may be reduced if certain adverse ticketing regulations are enacted.

From time to time, state and federal governments consider enacting restrictions or limitations on the amount of service fees that may be charged on the resale of tickets for events. For example, before 2007, the State of New York capped the amount of the service fees that could be charged on the resale of tickets at 20% to 45% of the face value of the ticket, depending on the size of the venue. In 2007, the State of New York repealed the cap on service fees for the resale of tickets. At this time it is unclear what, if any, future ticketing regulations may be enacted by states or the federal government.

Pursuant to the terms of the Purchase Agreement and the Credit Agreement, upon any adverse change in state or federal ticketing regulations that takes effect before December 15, 2012 that restricts or limits the amount of service fees that may be charged on the resale of tickets, the principal amount of the Credit Agreement will be reduced by the amount of any such reduction in value up to a maximum of $5 million, and such amount shall be added pro-rata to the remaining earn-out amounts payable to Hollywood Media pursuant to the Purchase Agreement, provided that, there will be no reduction in the amounts due under the Credit Agreement if the entire earn-out has already been earned at the time of any such adverse change.

We may not receive earn-out payments.

If Theatre Direct and its subsidiaries achieve revenues greater than or equal to $125 million in any full fiscal year of Theatre Direct ending during the period from the closing date of the Broadway Sale until the end of the tenth full fiscal year of Theatre Direct which occurs after the closing date of the Broadway Sale, then the purchaser, Key Brand, will be obligated to pay us $7 million (plus the applicable portion of any adjustments under the Credit Agreement relating to the enactment of adverse ticketing regulations). If Theatre Direct and its subsidiaries achieve revenues greater than or equal to $150 million in any full fiscal year of Theatre Direct ending during the period from the closing date of the Broadway Sale until the end of the tenth full fiscal year of Theatre Direct which occurs after the closing date of the Broadway Sale, then Key Brand will be obligated to pay us an additional amount equal to $7 million (plus the applicable portion of any adjustments under the Credit Agreement relating to the enactment of adverse ticketing regulations). R&S Investments, LLC, an entity owned by Mr. Rubenstein and Ms. Silvers, is obligated to pay us up to an additional $7.2 million in potential earn-out payments as of December 31, 2011 pursuant to our sale to it of the Hollywood.com Business. There can be no assurance that we will receive all of these earn-out payments.

Key Brand’s financial performance and condition will impact Key Brand’s ability to satisfy its obligations under the Credit Agreement, pay the earn-out pursuant to the Purchase Agreement, and satisfy its other obligations under the Purchase Agreement.

Key Brand’s financial performance and condition will impact the purchaser’s, Key Brand’s, ability to finance and grow its business, which would impact its ability to (i) satisfy its obligations under the Credit Agreement, (ii) pay the earn-out pursuant to the Purchase Agreement, and (iii) satisfy its other obligations under the Purchase Agreement. There can be no assurances that Key Brand will satisfy any or all of these obligations.

The Purchase Agreement in the Broadway Sale transaction may expose us to contingent liabilities.

Under the Purchase Agreement in the Broadway Sale transaction, we have agreed to indemnify the purchaser, Key Brand for a breach or violation of any representation, warranty or covenant made by us in the Purchase Agreement, for certain broker commissions due in connection with the Broadway Sale, and for certain tax matters, subject to certain limitations. Significant indemnification claims by Key Brand could have a material adverse effect on our financial condition.

We are unable to compete with Theatre Direct for 7 years from the date of closing of the transactions contemplated by the Purchase Agreement.

We have agreed that Hollywood Media will not, and will cause its affiliates (as defined in the Purchase Agreement) not to, directly or indirectly, own, manage, engage in, operate, control, work for or participate in the ownership, management, operation or control of, any business, whether in corporate, proprietorship or partnership form or otherwise, engaged in the sales of tickets to live musical, live theatrical or other live entertainment performances in the City of New York, New York or that otherwise competes with the business of Theatre Direct and its subsidiaries as it exists as of the closing date, subject to certain exceptions, including that there are no restrictions on the sale of advertisements (including online advertising). Accordingly, subject to these exceptions, the non-competition agreement restricts our ability to engage in any business which competes with Theatre Direct for 7 years from the date of closing of the transactions contemplated by the Purchase Agreement.

For as long as we remain a public company, we will continue to incur the expenses of complying with public company reporting requirements.

Our reporting obligations as a U.S. public company were not affected as a result of completing the Broadway Sale. For as long as we remain a public company, we have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act, which includes the filing with the SEC of periodic reports, proxy statements and other documents relating to our business, financial conditions and other matters, even though compliance with such reporting requirements is economically burdensome.

Following the Broadway Sale, we may be deemed an Investment Company and subjected to related restrictions under the Investment Company Act of 1940.

The regulatory scope of the Investment Company Act of 1940, as amended (the "Investment Company Act"), which was enacted principally for the purpose of regulating vehicles for pooled investments in securities, extends generally to companies engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. The Investment Company Act may, however, also be deemed to be applicable to a company that does not intend to be characterized as an investment company but that, nevertheless, engages in activities that may be deemed to be within the definitional scope of certain provisions of the Investment Company Act. We believe that our anticipated principal activities following the Broadway Sale, which include operating the Ad Sales Division and the Intellectual Properties Division, in which we now own 100%, will not subject us to regulation under the Investment Company Act. Nevertheless, there can be no assurance that we will not be deemed to be an investment company. If we are deemed to be an investment company, we may become subject to certain restrictions relating to our activities, including restrictions on the nature of our investments and the issuance of securities. In addition, the Investment Company Act imposes certain requirements on companies deemed to be within its regulatory scope, including registration as an investment company, adoption of a specific form of corporate structure and compliance with certain reporting, record keeping, voting, proxy, disclosure and other rules and regulations. In the event of the characterization of Hollywood Media as an investment company, our inability to satisfy such regulatory requirements, whether on a timely basis or at all, would, under certain circumstances, have a material adverse effect on Hollywood Media.

Because our business is smaller following the Broadway Sale, there is a possibility that our common stock may be delisted from the NASDAQ Global Market if we fail to satisfy the continued listing standards of that market.

Our business is now smaller as a result of the Broadway Sale, and therefore we may fail to satisfy the continued listing standards of the NASDAQ Global Market. In the event that we are unable to satisfy the continued listing standards of the NASDAQ Global Market, our common stock may be delisted from that market. In order to continue to be listed on the NASDAQ Global Market, we must meet the bid price and total shareholders requirements as set forth in NASDAQ Listing Rule 5450(a) and at least one of the three standards in NASDAQ Listing Rule 5450(b). Pursuant to NASDAQ Listing Rule 5450(a), the bid price of our common stock cannot fall below $1.00 per share for 30 consecutive business days and we must have at least 400 total shareholders (including both holders of beneficial interest and holders of record). We believe that if we continue to qualify for listing on the NASDAQ Global Market, we will satisfy the Equity Standard under NASDAQ Listing Rule 5450(b), which requires (i) stockholders’ equity of at least $10 million, (ii) at least 750,000 publicly held shares (total shares outstanding, less any shares held directly or indirectly by officers, directors or any person who is the beneficial owner of more than 10% of the total shares outstanding of the company), (iii) market value of publicly held shares of at least $5 million, and (iv) at least two registered and active market makers.

If we are delisted from the NASDAQ Global Market, we may apply to transfer our common stock listing to the NASDAQ Capital Market. However, our application may not be granted if we do not satisfy the applicable listing requirements for the NASDAQ Capital Market at the time of the application. Even if we successfully transfer our common stock listing to the NASDAQ Capital Market, but are unable to satisfy the minimum bid price requirement of $1.00 per share or any of the other continued listing standards of the NASDAQ Capital Market, our common stock could be delisted from the NASDAQ Capital Market. If our common stock were delisted from the NASDAQ Stock Market, we may apply to transfer our common stock listing to the NYSE Amex (formerly the American Stock Exchange). However, our application may not be granted if we do not satisfy the applicable listing requirements for NYSE Amex at the time of the application. If our common stock were to be delisted from the NASDAQ Global Market and we could not satisfy the listing standards of the NASDAQ Capital Market or the NYSE Amex, trading of our common stock most likely would be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. Such trading could reduce the market liquidity of our common stock. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock.

If our common stock is delisted from the NASDAQ Global Market and we could not satisfy the listing standards of the NASDAQ Capital Market or the NYSE Amex and the trading price remains below $5.00 per share, trading in our common stock might also become subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a “penny stock” (generally, any equity security not listed on a national securities exchange or quoted on the NASDAQ Stock Market that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of shareholders to borrow against or “margin” low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual shareholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock.

There can be no assurance that any disposition or other strategic transaction will occur or, if one is undertaken, of its potential terms or timing.

From time to time we explore potential transactions that may help us to realize the full value of our assets in the interest of our shareholders. There can be no assurance that any transaction will occur or, if one is undertaken, of its potential terms or timing. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” below.

We may not be able to compete successfully in the book development business.

Numerous companies and individuals are engaged in the book development business. We also compete with a large number of companies that license characters and properties into film, television, books and merchandise. Competition in these businesses is largely based on the number and quality of relationships that we are able to develop with authors and celebrities. There can be no assurance that our current or future competitors will not be successful in developing relationships with authors and celebrities with whom we have previously had relationships. Our revenues will decrease if we are unable to maintain these relationships or develop new relationships.

We may not be able to successfully protect our trademarks and proprietary rights.

General. We own trademark registrations in the United States for many of the trademarks that we use and some of our trademarks are registered in select foreign countries. We have also filed trademark applications in select foreign countries for the mark HOLLYWOOD MEDIA CORP. and others. There can be no assurance that we will be able to secure adequate protection for these names or other trademarks in the United States or in foreign countries. Many countries have a “first-to-file” trademark registration system; and thus we may be prevented from registering our marks in certain countries if third parties have previously filed applications to register or have registered the same or similar marks. It is possible that our competitors or others will adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion.

Intellectual Properties Business. Hollywood Media has applied for trademark and copyright protection for its major intellectual property titles. Each of Hollywood Media and NetCo Partners currently has U.S. registered trademarks as well as pending trademark applications in the U.S. related to its respective business, and they also have foreign registered trademarks and pending trademark applications in several foreign jurisdictions. As Hollywood Media’s properties are developed, Hollywood Media intends to apply for further trademark and copyright protection in the United States and certain foreign countries.

Copyright protection in the United States on new publications of works for hire extend for a term of 95 years from the date of initial publication or 120 years from the year of creation, whichever expires first. Trademark registration in the United States extends for a period of ten years following the date of registration. To maintain the registration, affidavits must be filed between the fifth and sixth years following the registration date affirming that the trademark is still in use in commerce and providing evidence of such use. The trademark registration must be renewed prior to the expiration of the ten-year period following the date of registration.

Failure to adequately protect these intellectual property rights could result in adverse consequences for these businesses due to the risks described above.

We may become subject to liability for infringement of third-party intellectual property rights.

There can be no assurance that third parties will not bring copyright or trademark infringement claims against us, or claim that our use of certain technology violates a patent. Even if these claims are not meritorious, they could be costly and could divert management’s attention from other more productive activities. If it is determined that we have infringed upon or misappropriated a third party’s proprietary rights, there can be no assurance that any necessary licenses or rights could be obtained on terms satisfactory to us, if at all. The inability to obtain any required license on satisfactory terms could force us to incur expenses to change the way we operate our businesses. If our competitors prepare and file applications that claim trademarks owned or registered by us, we may oppose these applications and have to participate in administrative proceedings to determine priority of right in the trademark, which could result in substantial costs to us, even if the eventual outcome is favorable to us. An adverse outcome could require us to license disputed rights from third parties or to cease using such trademarks. In addition, inasmuch as we license a portion of our content from third parties, our exposure to copyright infringement or right of privacy or publicity actions may increase; because we must rely upon such third parties for information as to the origin and ownership of such licensed content. We generally obtain representations as to the origins, ownership and right to use such licensed content and generally obtain indemnification to cover any breach of any such representations; however, there can be no assurance that such representations will be accurate or that such indemnification will provide adequate compensation for any breach of such representation. There can be no assurance that the outcome of any litigation between such licensors and a third party or between us and a third party will not lead to royalty obligations for which we are not indemnified or for which such indemnification is insufficient, or that we will be able to obtain any additional license on commercially reasonable terms if at all.

We are dependent on developing and maintaining strategic relationships.

The success of our operations is dependent in part on MovieTickets.com’s ability to enter into and maintain strategic relationships and agreements with exhibitors, Tekno Books’ ability to develop and execute book projects with authors and Project Hollywood’s ability to enter into and renew its contracts with film studios, production companies and media companies. There can be no assurance such relationships with exhibitors, authors, studios and others will be developed and maintained or renewed and, if unable to do so, our financial condition and results of operations could be adversely impacted.

Our operations could be negatively impacted by systems interruptions.

The hardware and software used in the MovieTickets.com and Project Hollywood businesses could be damaged by fire, floods, hurricanes, earthquakes, power loss, telecommunications failures, break-ins and similar events. Our websites could also be affected by computer viruses, electronic break-ins or other similar disruptive problems. These system problems could negatively affect us. General Internet traffic interruptions or delays could also harm the MovieTickets.com business. To the extent MovieTickets.com’s services are disrupted, MovieTickets.com could lose users of its website. To the extent Baseline StudioSystems services are disrupted, it could lose subscribers to its services or incur damages to its customers.

Government regulation could impact our business.

The application of existing laws and regulations to the MovieTickets.com business relating to issues such as user privacy, pricing, taxation, content, sweepstakes, copyrights, trademarks, advertising, and the characteristics and quality of our products and services can be unclear.

Several federal laws could have an impact on the MovieTickets.com business. The Digital Millennium Copyright Act establishes binding rules that clarify and strengthen protection for copyrighted works in digital form, including works used via the Internet and other computer networks. The Child Online Protection Act is intended to restrict the distribution of certain materials deemed harmful to children. The Children’s Online Privacy Protection Act of 1998 protects the privacy of children using the Internet, by requiring, among other things, (1) that in certain specific instances the operator of a website must obtain parental consent before collecting, using or disclosing personal information from children under the age of 13, (2) the operator of a website to make certain disclosures and notices on the website or online service regarding the collection, use or disclosure of such personal information, and (3) the operator of a website or online service to establish and maintain reasonable procedures to protect the confidentiality, security and integrity of personal information collected from children under the age of 13.

We are dependent on Mitchell Rubenstein and Laurie S. Silvers, our founders.

Mitchell Rubenstein, our Chairman of the Board and Chief Executive Officer, and Laurie S. Silvers, our Vice Chairman, President and Secretary, have been primarily responsible for our organization and development. The loss of the services of either of these individuals would hurt our business. If either of these individuals were to leave Hollywood Media unexpectedly, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. The employment agreements between Hollywood Media and each of these individuals provide, among other things, that if we terminate either of these individuals without “cause” or either of these individuals resign for “good reason”, the other individual will have the right to resign for “good reason”.

The death of the Tekno Books Chief Executive Partner, Dr. Greenberg in June 2011 could have an adverse effect on the ability of Tekno Books to maintain its relationships with authors and publishers.

Tekno Books had been dependent on Dr. Martin Greenberg, the former Chief Executive Partner of Tekno Books, for the continued development and maintenance of strategic business relationships, including many of its relationships with authors and publishers.  The death of Dr. Greenberg in June 2011 could have an adverse effect on the ability to develop and maintain these relationships.

We have authorized but unissued preferred stock, which could affect rights of holders of common stock.

Our articles of incorporation authorize the issuance of preferred stock with designations, rights and preferences determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without shareholder approval, to issue preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of common stock. In addition, the preferred stock could be issued as a method of discouraging a takeover attempt. Although we do not intend to issue any preferred stock at this time, we may do so in the future. Shares of preferred stock are also subject to potential issuance under the terms of our shareholders' rights plan described below.

Our articles of incorporation, bylaws, shareholders’ rights plan and Florida law may discourage takeover attempts.

Certain provisions of our articles of incorporation, bylaws and our shareholders’ rights plan may discourage takeover attempts and may make it more difficult to change or remove management. Our articles of incorporation authorize the issuance of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our Board of Directors. Our bylaws include provisions requiring shareholders to provide specified advance notice to Hollywood Media of director nominations or proposed business to be transacted at shareholder meetings, in order for a shareholder to make a director nomination or propose meeting business. If certain events, such as a takeover bid not approved by our Board, occur, our shareholder’s rights plan will then entitle certain holders of our common stock to purchase at a specified price, shares of a series of our preferred stock with special voting, dividend and other rights.

In addition, Florida’s “control share acquisitions” statute provides that shares acquired in a “control share acquisition” (which excludes transactions approved by our board of directors) will not have voting rights unless the voting rights are approved by a majority of the corporation’s disinterested shareholders. A “control share acquisition” is an acquisition, in whatever form, of voting power in any of the following ranges: (a) at least 20% but less than 33-1/3% of all voting power; (b) at least 33-1/3% but less than a majority of all voting power; or (c) a majority or more of all voting power.

Florida’s “affiliated transactions” statute requires approval by disinterested directors or supermajority approval by disinterested shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates).

Our stock price is volatile.

The trading price of our common stock has and may continue to fluctuate significantly. During the 24 months ended December 31, 2011, the trading price for our common stock on the NASDAQ Global Market ranged from $1.02 to $1.97 per share. Our stock price may fluctuate in response to a number of events and factors, such as our quarterly operating results, announcements of new products or services, announcements of mergers, acquisitions, strategic alliances, or divestitures and other factors, including similar announcements by other companies that investors may consider to be comparable to us. In addition, the stock market in general has experienced extreme volatility that often has been unrelated to the operating performance of the companies. These broad market and industry fluctuations may cause the market price of our stock to decrease, regardless of our operating performance.

Future sales of our common stock in the public market could adversely affect our stock price and our ability to raise funds in new stock offerings.

Future sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect prevailing market prices of our common stock and could impair our ability to raise capital through future offerings of equity securities. We may issue additional shares of common stock in connection with future financings, acquisitions or other transactions, or pursuant to outstanding stock options, warrants and other convertible securities, and we plan to issue additional stock options and stock grants from time to time to our employees and directors. We are generally unable to estimate or predict the amount, timing or nature of future issuances or public sales of our common stock. Sales of substantial amounts of our common stock in the public market could cause the market price for our common stock to decrease. In addition, a decline in the price of our common stock would likely impede our ability to raise capital through the issuance of additional shares of common stock or other equity securities.

We may require additional capital to finance our operations and there can be no assurance that additional financing will be available on favorable terms.

We may require additional financing in the future. Our long-term financial success depends on our ability to generate sufficient revenue and cash flow to offset operating expenses. To the extent we do not generate sufficient revenues and cash flow to offset expenses we will require further financing to fund our ongoing operations. We cannot assure you that any additional financing will be available or, if available, that it will be on favorable terms. The terms of any financing that we enter into will vary depending on many factors including, among other things, our then current financial condition, the market price of our common stock, and other characteristics and terms of our capital structure including outstanding options and warrants. We may seek to raise additional capital through public or private offerings of equity securities or debt financings. Our issuance of additional equity securities could cause dilution to holders of our common stock and may adversely affect the market price of our common stock. The incurrence of debt would increase our interest expense and other debt service obligations and could result in the imposition of covenants that restrict our operational and financial flexibility. See Part II, Item 7 of this Annual Report on Form 10-K– Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Changes in securities laws and regulations may increase our costs.

The Sarbanes-Oxley Act of 2002 and the SEC rules promulgated thereunder have imposed increased demands upon, and required ongoing changes in some of our operational systems and processes, corporate governance, and compliance and disclosure processes, and the NASDAQ Stock Market has implemented changes in its requirements for companies that are NASDAQ-listed. These developments have resulted in, and future changes in such rules may result in, increases in our expenses for information systems, auditing and consulting fees, legal compliance and financial reporting costs. These developments could also make it more difficult for us to attract and retain qualified members of our board of directors or executive officers.

As a result of our evaluation of internal controls, we have identified material weaknesses in our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002; failure to achieve and maintain effective internal controls could have a material adverse effect on our business and stock price.

As reported in Part II, Item 9A of this Annual Report on Form 10-K under the caption “Item 9A – Controls and Procedures”, Hollywood Media’s management has identified material weaknesses in internal controls and concluded that Hollywood Media’s internal control over financial reporting and disclosure controls were not effective. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price.

We are exposed to market risk related to changes in interest rates and fluctuations in foreign currency exchange rates.

Market risk is the risk of loss arising from adverse changes in our assets or liabilities that might occur due to changes in market rates and prices, such as interest or foreign currency exchange rates, as well as other relevant market rate or price changes. We have an investment in a subsidiary in the United Kingdom that sells our services and pays for products and services in British pounds. A decrease in the British foreign currency relative to the U.S. dollar could adversely impact our margins. As the assets, liabilities and transactions of our United Kingdom subsidiaries are denominated in British pounds, the results and financial condition are subject to translation adjustments upon their conversion into U.S. dollars for our financial reporting purposes. A large decline in this foreign currency relative to the U.S. dollar might have a material adverse affect on Hollywood Media’s results of operations or financial condition.

Other economic factors may adversely affect our future results or the market price of our stock (such as recession, war, terrorism).

We operate in a rapidly changing economic and technological environment that presents numerous risks. Many of these risks are beyond our control and are driven by factors that we cannot predict. Economic recession, war, terrorism, international incidents, labor strikes and disputes, and other negative economic conditions may cause damage or disruption to our facilities, information systems, vendors, employees, customers and/or website traffic, which could adversely impact our revenues and results of operations, and stock price.

Item 1B.    Unresolved Staff Comments.

At the time of filing of this Annual Report on Form 10-K, there are no unresolved comments for disclosure under this Item 1B.

Item 2.   Properties.

Hollywood Media leases office space in Florida, Wisconsin and Lancashire, UK. The general terms of the leases for each of these locations are as follows:

Item 3.   Legal Proceedings.

On October 27, 2011, the Company, together with National Amusements Inc. and the MovieTickets.com Joint Venture, filed a lawsuit against AMC Entertainment Inc. (“AMC”) and MovieTickets.com Inc. (as nominal defendant) (Case No. 50 2011 CA 016684) in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida relating to MovieTickets.com.  On February 8, 2012, MovieTickets.com, Inc. joined the lawsuit against AMC and an amended complaint was filed. MovieTickets.com is an online movie ticketing service in which Hollywood Media, National Amusements, Inc. and AMC each own a 26.2% equity interest.      

The amended complaint alleges that AMC has breached and continues to breach the MovieTickets.com Joint Venture Agreement, which obligates AMC to exclusively provide its ticket inventory to MovieTickets.com, and has breached its contractual and common law duties of good faith, fair dealing, and loyalty with respect to the MovieTickets.com Joint Venture and its joint venturers, Hollywood Media and National Amusements, Inc., as a result of various actions by AMC. The amended complaint contends that when AMC’s demands for greater control and a larger share of MovieTickets.com were not met, AMC breached and continues to breach the MovieTickets.com Joint Venture Agreement, which obligates AMC to exclusively provide its ticket inventory to MovieTickets.com. The amended complaint further specifies breaches by AMC of its contractual and common law duties of good faith, fair dealing, and loyalty and violations of Florida’s Deceptive and Unfair Trade Practices Act. Among other things, the plaintiffs allege in the amended complaint that AMC used its inside position with MovieTickets.com and access to MovieTickets.com’s proprietary information in order to advance AMC’s own goals in contravention of its duty of loyalty to the joint venture and to the detriment of MovieTickets.com.

Hollywood Media and the other plaintiffs have asked for a jury trial and are seeking unspecified consequential damages and have reserved the right to seek punitive damages.  Hollywood Media and the other plaintiffs also are seeking a declaratory judgment that AMC is obligated to make available on MovieTickets.com’s website AMC’s ticket inventory for sale on an exclusive basis and to honor its contractual and common law fiduciary duties of good faith and loyalty to the MovieTickets.com Joint Venture and its joint venturers, Hollywood Media and National Amusements, Inc.

Item 4.   Mine Safety Disclosures.

None

PART II

Item 5.  Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Common Stock

Hollywood Media’s common stock trades on The NASDAQ Global Market under the symbol HOLL. The following table sets forth, for each of the periods indicated, the high and low sales prices per share of Hollywood Media’s common stock as reported by the NASDAQ Global Market based on published financial sources.

Holders of Common Stock

As of March 8, 2012, there were 106 record holders of Hollywood Media’s common stock.

Dividend Policy

Hollywood Media has never paid cash dividends on its common stock and currently intends to retain any future earnings to finance its operations and the expansion of its business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon Hollywood Media’s earnings, capital requirements and financial condition and such other factors deemed relevant by the Board of Directors.

On February 25, 2011, Hollywood Media completed its tender offer and purchased 8 million shares of its common stock at a price of $2.05 per share (less any applicable withholding taxes and without interest).  For additional information see Liquidity and Capital Resources in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recent Sales of Unregistered Securities

Hollywood Media did not issue any securities during the year ended December 31, 2011, 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 may use up to $10 million 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.

During the fourth quarter of 2011, no shares of Hollywood Media’s common stock were purchased under the repurchase program. As of December 31, 2011, the maximum approximate dollar value of shares that may have been purchased under the Repurchase Program was $2,697,843 (calculated by subtracting (i) the total paid for all shares purchased under the Repurchase Program from inception through December 31, 2011 or $7,302,157 from (ii) the $10,000,000 potential maximum dollar value of repurchases approved under the life of the Repurchase Program). For additional information relating to the stock repurchase program, see “Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K.

Securities Authorized for Issuance Under Equity Compensation Plans.

For information regarding the securities authorized for issuance under our equity compensation plans, please see Item 12 of Part III of this annual Report on Form 10-K.

Performance Graph

Not applicable.

Item 6.   Selected Financial Data.

The selected financial data in the table below has been derived from the audited Consolidated Financial Statements of Hollywood Media and should be read in conjunction with the following statements and the notes thereto included in Item 8 of this Annual Report on Form 10-K: consolidated balance sheets as of December 31, 2011 and December 31, 2010; and consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009. The consolidated balance sheets as of December 31, 2009, 2008 and 2007, and consolidated statements of operations for the years ended December 31, 2008 and 2007 are not included in Item 8 of this Annual Report on Form 10-K.

Discontinued Operations.

The selected financial data in the table below includes application of accounting principles to reflect the discontinued operations resulting from the sale of the Broadway Ticketing Business in fiscal 2010, the Hollywood.com Business in fiscal 2008, and the Showtimes business unit in fiscal 2007. Those sales are described below.

Sale of Broadway Ticketing Division to Key Brand Entertainment, Inc.

On December 15, 2010, Hollywood Media Corp. completed the sale of its Broadway Ticketing Division through the sale of all of the outstanding capital stock of Theatre Direct NY Inc. to Key Brand Entertainment Inc., as contemplated by the Stock Purchase Agreement, dated as of December 22, 2009, entered into between Hollywood Media and Key Brand. There are no material relationships among Hollywood Media and Key Brand or any of their respective affiliates other than in respect of the Purchase Agreement and the related ancillary agreements.

Pursuant to the Purchase Agreement, at the closing of the Broadway Sale (i) Hollywood Media received $20.5 million in cash, (ii) Key Brand, Theatre Direct and Hollywood Media entered into a Second Lien, Security and Pledge Agreement, dated as of December 15, 2010, pursuant to which Key Brand is obligated to pay Hollywood Media $8.5 million at an interest rate of 12% per annum, which obligation matures on December 15, 2015 and is secured on a second lien basis by all stock and assets of Theatre Direct and its subsidiaries (the “Loan”), (iii) Theatre Direct issued Hollywood Media a warrant to purchase 5% of the outstanding shares of common stock of Theatre Direct as of the closing date on a fully diluted basis at an exercise price of $.01 per share (the “Warrant”) and (iv) Key Brand assumed $1.6 million of liabilities associated with employment agreements with certain employees of Theatre Direct. In addition, Hollywood Media is entitled to receive earn-out payments of up to $14.0 million contingent upon Theatre Direct and its subsidiaries achieving certain revenue targets during the period from the closing date through the end of the 10^th full fiscal year of Theatre Direct following the closing date as set forth in the Purchase Agreement. Hollywood Media will record a gain on the loan and earn-out upon collection of consideration. The Warrant will be marked to market each reporting period to reflect changes in fair value.

After the closing date of the sale of Theatre Direct pursuant to the Purchase Agreement, Hollywood Media delivered on March 14, 2011 to Key Brand a closing statement setting forth Hollywood Media’s calculation of Theatre Direct’s working capital as of the closing date determined in the manner described in the Purchase Agreement. Pursuant to the closing statement, Hollywood Media accrued $3.7 million as a working capital adjustment as of December 31, 2010 under the agreement, of which $0.5 million was related to estimated working capital delivered at closing. The accrual is included in “Accrued expenses and other” in our accompanying consolidated balance sheets.

In connection with the Credit Agreement, Hollywood Media and Key Brand entered into that certain Subordination and Intercreditor Agreement, dated December 15, 2010 (The “Intercreditor Agreement”), with JP Morgan “Chase Bank, N.A., as administrative agent for the senior secured lenders of Key Brand, which defines the rights and obligations of the senior secured lenders and Hollywood Media as subordinated lender, including, without limitation, the rights of payment and the subordination of the security interests of Hollywood Media.

Hollywood Media agreed to provide certain transition services to Key Brand and Theatre Direct for a six-month period which ended on June 15, 2011 following the closing of the Broadway Sale. For additional information about this transaction, see Note 5 “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K. Broadway Ticketing Business financial results for all periods presented prior to December 14, 2010 have been reclassified from continuing operations and included in discontinued operations. For additional information about this transaction, see Note 5 “Discontinued Operations” on the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

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

On August 21, 2008, Hollywood Media entered into a purchase agreement (the “Purchase Agreement”) with R&S Investments, LLC (“Purchaser”) for the sale of the Hollywood.com Business. The Purchaser is owned by Mr. Rubenstein and Ms. Silvers. 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. During 2011, 2010 and 2009, Hollywood Media recorded $0.7 million each year in earn-out income under this agreement. As of the filing of this Annual Report on Form 10-K, the earn-out receivable was collected in full in accordance with the payment terms. As of December 31, 2011, there remains $7.2 million in potential earn-out payments pursuant to this agreement. The Hollywood.com Business included the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service. Hollywood.com Business financial results for all periods presented prior to August 21, 2008 have been reclassified from continuing operations and included in discontinued operations. For additional information about this transaction, see Note 5 “Discontinued Operations” on the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

Sale of Showtimes Business Unit to West World Media LLC

On August 24, 2007, Hollywood Media and its wholly-owned subsidiary Showtimes.com, Inc. (“Showtimes”) entered into and simultaneously closed on a definitive asset purchase agreement with Brett West and West World Media, LLC, (“West World Media”), pursuant to which Hollywood Media sold substantially all of the assets of the Showtimes business to West World Media for a cash purchase price of $23.0 million 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. Showtimes financial results for all periods presented prior to August 24, 2007 have been reclassified from continuing operations and included in discontinued operations.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion and analysis should be read in conjunction with Hollywood Media’s Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in Item 8 of Part II of this report.

Overview

Until December 15, 2010, Hollywood Media was 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 was comprised of Broadway.com, 1-800-BROADWAY, Theatre Direct and Theatre.com. On December 15, 2010, we completed the Broadway Sale through the sale of all of the outstanding capital stock of Theatre Direct to Key Brand, as contemplated by the Purchase Agreement. Following this sale, our business segments for our continuing operations are as follows:

Year ended December 31, 2011 (“fiscal 2011”) as compared to the year ended December 31, 2010 (“fiscal 2010”) and year ended December 31, 2009 (“fiscal 2009”).

The results of continuing operations include application of accounting principles to reflect the discontinued operations resulting from the sale of the Broadway Ticketing Business in fiscal 2010, and the Hollywood.com Business in fiscal 2008. Those sales are described below.

Sale of Broadway Ticketing Business Unit to Key Brand Entertainment, Inc.

On December 15, 2010, Hollywood Media completed the Broadway Sale through the sale of all of the outstanding capital stock of Theatre Direct to Key Brand as contemplated by the Purchase Agreement. There are no material relationships among Hollywood Media and Key Brand or any of their respective affiliates other than in respect of the Purchase Agreement and the related ancillary agreements.

Pursuant to the Purchase Agreement, at the closing of the Broadway Sale (i) Hollywood Media received $20.5 million in cash (including $0.5 million pursuant to the estimated working capital adjustment described in the Purchase Agreement), (ii) Key Brand, Theatre Direct and Hollywood Media entered into the Credit Agreement, pursuant to which Key Brand is obligated to pay Hollywood Media $8.5 million at an interest rate of 12% per annum, which obligation matures on December 15, 2015 and is secured on a second lien basis by all stock and assets of Theatre Direct and its subsidiaries, (iii) Theatre Direct issued Hollywood Media a warrant to purchase 5% of the outstanding shares of common stock of Theatre Direct as of the closing date on a fully diluted basis at an exercise price of $.01 per share, and (iv) Key Brand assumed $1.6 million of liabilities associated with employment agreements with certain employees of Theatre Direct. In addition, Hollywood Media is entitled to receive earn-out payments of up to $14.0 million contingent upon Theatre Direct and its subsidiaries achieving certain revenue targets during the period from the closing date through the end of the 10^th full fiscal year of Theatre Direct following the closing date as set forth in the Purchase Agreement. As collectability of the Loan, Earn-outs and Warrant is not reasonably assured, they are not included in the gain from the Broadway Sale.

After the closing date of the sale of Theatre Direct pursuant to the Purchase Agreement, Hollywood Media delivered on March 14, 2011 to Key Brand a closing statement setting forth Hollywood Media’s calculation of Theatre Direct’s working capital as of the closing date determined in the manner described in the Purchase Agreement. Pursuant to the closing statement, Hollywood Media accrued $3.7 million as a working capital adjustment as of December 31, 2010 under the agreement. The accrual included an adjustment of $0.5 million for the estimated working capital delivered at closing by Key Brand. The accrual is included in “Accrued expenses and other” in our accompanying consolidated balance sheets.

For additional information about this transaction, see Note 5 “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.

Sale of Hollywood.com Business 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, of which $1.8 million has been paid as of December 31, 2011. Hollywood Media recognized $0.7 million in earn-out income under this agreement in fiscal 2011. Hollywood Media recognized $0.7 million in earn-out income under this agreement in each of fiscal 2010 and fiscal 2009, which is included in “Gain (loss) from discontinued operations, net of income taxes” in our consolidated statements of operations in Part II, Item 8 of this Form 10-K report. As of December 31, 2011 and 2010, $7.2 million and $7.8 million, respectively, remained as potential earn-out payments since $1.8 million was paid in earn-out payments through December 31, 2011 pursuant to this agreement. The Hollywood.com Business included 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 Mr. Rubenstein and Ms. Silvers. 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.

Commencing October 1, 2009, R&S Investments became contractually obligated to make periodic earn-out payments equal to the greater of (i) 10 percent of collected 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 surviving entity which owns the Hollywood.com Business will be obligated to pay the difference in accordance with the same earn-out terms. Pursuant to the purchase agreement, Hollywood Media was required to place $2.6 million into an escrow account to fund any negative EBITDA of the Hollywood.com Business through August 21, 2010. There was $2.6 million disbursed to the Hollywood.com Business in fiscal 2009, representing the entire balance of the escrow. In addition, as of December 31, 2011 and 2010, Hollywood Media recorded $0.4 million and a $0.2 million related party receivable for earn-out earned and expense reimbursement by R&S Investments, respectively. As of the filing of this Annual Report on Form 10-K, the receivable and expense reimbursement were being collected in accordance with the payment terms.

For additional information about this transaction, see Note 5 “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K Report.

Results of Continuing Operations

The following tables summarize changes in Hollywood Media’s revenue and operating expense from continuing operations by reportable segment for the years ended December 31, 2011, 2010 and 2009. For additional financial information regarding Hollywood Media’s reportable segments, see Note 18 – Segment Reporting in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Note Regarding Known Material Trends, Uncertainties and Opportunities Impacting Hollywood Media

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

The United States and global economic downturn, which could adversely affect business and personal discretionary spending is an uncertainty along with other factors that can have or are reasonably likely to have a material impact on Hollywood Media’s revenues, earnings and liquidity.

Net Revenues

Total net revenues for fiscal 2011 were $3.8 million compared to $4.0 million and $4.5 million for fiscal 2010 and fiscal 2009 respectively. Revenues decreased $0.2 million, or 5% in fiscal 2011 from fiscal 2010 and decreased $0.5 million, or 11% in fiscal 2010 from fiscal 2009. The decrease in net revenues for fiscal 2010 as compared to fiscal 2009 is primarily the result of decreases in Ad Sales revenue of $0.3 million and a decrease in Intellectual Property revenue of $0.2 million. The decrease in net revenues for fiscal 2011 as compared to fiscal 2010 is primarily the result of a decrease in Ad Sales revenue of $0.4 million partially offset by an increase in Intellectual Properties revenue of $0.2 million. In fiscal 2011, net revenues were derived 71% from Ad Sales and 29% from Intellectual Properties. In fiscal 2010, net revenues were derived 78% from Ad Sales and 22% from Intellectual Properties. In fiscal 2009, net revenues were derived 75% from Ad Sales and 25% from Intellectual Properties.

Ad sales net revenues were $2.7 million for fiscal 2011 as compared to $3.1 million for fiscal 2010 and $3.4 million for fiscal 2009.  Ad sales net revenues decreased $0.4 million or 13% for fiscal 2011 from fiscal 2010 and decreased $0.3 million or 9% for fiscal 2010 from fiscal 2009.  The decrease in Ad Sales revenue from fiscal 2010 to 2011 is attributable to a decrease in U.K. advertising sales of $0.3 million, which includes a decrease in plasma advertising revenue of $0.2 million and a decrease of $0.2 million in brochure and web advertising. The decrease in Ad sales revenues from fiscal 2009 to 2010 is attributable to a decrease in UK advertising sales of $0.3 million, which includes: a decrease in plasma advertising revenue of $0.5 million, offset by an increase of $0.2 million in brochure and web advertising revenues. The decrease is primarily attributable to the adverse economic conditions in the U.K.

Intellectual Properties net revenues were $1.1 million for fiscal 2011 as compared to $0.9 million for fiscal 2010 and $1.1 million for fiscal 2009. Net revenues generated from Intellectual Properties increased $0.2 million or 22% in fiscal 2011 from fiscal 2010 and net revenues generated from Intellectual Properties decreased $0.2 million or 18% in fiscal 2010 from fiscal 2009. The increase in revenues in fiscal 2011 as compared to fiscal 2010 as well as the decrease in revenues in fiscal 2010 as compared to fiscal 2009 were attributable to the timing of the delivery of manuscripts. The Intellectual Properties division generates revenues from several different activities including book development and licensing, and intellectual property licensing. Revenues vary quarter to quarter depending on the timing of delivery of manuscripts to the publishers. Revenues are recognized when the earnings process is complete and the ultimate collection of such revenues is no longer subject to contingencies. This division does not include NetCo Partners, which is reported separately; see “Equity in Earnings of Unconsolidated Investees” below.

Equity in Earnings of Unconsolidated Investees

Equity in earnings (losses) of unconsolidated investees consists of the following:

NetCo Partners owns NetForce and is primarily engaged in the development and licensing of NetForce. NetCo Partners recognizes revenues when the earnings process has been completed based on the terms of the various agreements, generally upon the delivery of the manuscript to the publisher and at the point where ultimate collection is substantially assured. When advances are received prior to completion of the earnings process, NetCo Partners defers recognition of revenue until the earnings process has been completed. Hollywood Media owns 50% of NetCo Partners and accounts for its investment under the equity method. Hollywood Media’s 50% share of income of NetCo Partners was de minimus for fiscal 2011 and 2010. Hollywood Media’s 50% share of income of Netco Partners for fiscal 2010 was a de minimus increase compared to the minimal loss for fiscal 2009. The increase in fiscal 2010 as compared to fiscal 2009 was primarily recoveries in fiscal 2010 of accounts receivable losses in fiscal 2009. There was minimal activity and no income was recognized in fiscal 2009.

(b) MovieTickets.com

Hollywood Media owns 26.2% of the total equity in the MovieTickets.com 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 recorded $0.4 million and $0.7 million in income from its investment in MovieTickets.com for fiscal 2011 and 2010, respectively. Hollywood Media recorded $0.1 million in income from its investment in MovieTickets.com for fiscal 2009, because accumulated net income in fiscal 2009 exceeded MovieTickets.com’s accumulated net losses for fiscal 2008 and prior to 2008. During 2011 the Company determined that $4.8 million of the goodwill associated with MovieTickets.com should be written down and accordingly, recorded an impairment loss of $4.8 million. See Note 15 to Consolidated Financial Statements for additional information about the impairment loss of $4.8 million. During the second quarter of 2009, the Company determined that $5.0 million of the goodwill associated with MovieTickets.com should be written down and accordingly, recorded an impairment loss of $5.0 million. The MovieTickets.com web site generates revenues primarily from service fees charged to users for the purchase of movie tickets online, the sale of advertising and research. On July 18, 2011, MovieTickets.com declared a dividend of $4,000,000. Hollywood Media received its 26.2% pro-rata share of such dividend, amounting to $1,048,875 on July 19, 2011, which reduced the Company’s investment in MovieTickets.com as the dividend did not exceed the amount of the Company’s investment. There were no dividends declared or received during fiscal 2010 compared to $1.9 million in dividends received in fiscal 2009.

MovieTickets.com is a leading destination for the purchase of movie tickets through the Internet. Hollywood Media launched the MovieTickets.com website in May 2000 with several major movie theater exhibitors. The MovieTickets.com website allows users to purchase movie tickets and retrieve them at “will call” windows or kiosks at theaters or the user can print at home for theatres with that capacity. The website generates revenues primarily from service fees charged to users for the purchase of tickets, the sale of advertising and the sale of research data. Service fees on ticket sales were introduced in November 2000. See Item 1 – Business, and Note 15 to Consolidated Financial Statements for additional information about MovieTickets.com.

(c) Project Hollywood LLC

On October 27, 2011, Hollywood Media acquired 21.74% of the total equity in Project Hollywood, which owns Baseline StudioSystems. Hollywood Media records its investment in Project Hollywood under the equity method of accounting, recognizing its percentage interest in Project Hollywood’s income or loss as equity in earnings of unconsolidated investees. Under applicable accounting principles, Hollywood Media recorded $0.1 million in income from its investment in Project Hollywood for fiscal 2011.

Project Hollywood owns all of the membership interests of Baseline LLC. Baseline LLC owned all of the equity interests in Baseline StudioSystems, a database and research service provider offering specialized information to its subscribing users, which subscribers include movie and TV studios and production companies, distributors, producers, screenwriters, and news organizations. Baseline StudioSystems’ film and television database contains motion picture and TV information dating back nearly 100 years, including comprehensive data about film and television productions and entertainment industry professionals.

Operating Expenses

Editorial, Production, Development and Technology. Editorial, production, development and technology costs include commissions, royalties, media buying, production services and internet access for CinemasOnline and fees and royalties paid to authors and co-editors for the Intellectual Properties segment. Editorial, production, development and technology costs for fiscal 2011 were $2.4 million as compared to $2.6 million for fiscal 2010 and $2.6 million for fiscal 2009. Editorial, production, development and technology costs decreased $0.2 million or 8% from fiscal 2010 to fiscal 2011 and remained the same from fiscal 2009 to fiscal 2010. As a percentage of aggregate net revenues from our Ad Sales and Intellectual Properties segments, these costs were 63% for fiscal 2011, 66% for fiscal 2010 and 57% for fiscal 2009.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist of occupancy costs, professional and consulting service fees, telecommunications costs, provision for doubtful accounts receivable, general insurance costs, selling and marketing costs (such as advertising, marketing, promotional, business development, public relations, and commissions due to advertising agencies, advertising  representative firms and other parties).  The SG&A expenses for fiscal 2011 were $3.4 million compared to $3.7 million for fiscal 2010, a decrease of $0.3 million or 8% and $4.3 million for fiscal 2009, a decrease of $0.6 million or 14%.  As a percentage of net revenues, SG&A expenses were 89% for fiscal 2011, 92% for fiscal 2010 and 96% for fiscal 2009.

The decrease in SG&A expenses in fiscal 2011 as compared to 2010 was primarily due primarily to decreases in the following categories: $0.3 million in accounting fees, $0.2 million in bad debt expense, $0.2 million in occupancy and $0.1 million in internet connectivity. These decreases were offset by a combined $0.5 million increase in legal and consulting fees.

The decrease in SG&A expenses in fiscal 2010 as compared to 2009 was primarily due to decreases in the following categories: $0.3 million in legal expenses and $0.1 million in each of the following categories, bad debt expense, accounting fees, Board of Director’s fees and consulting fees relating to Sarbanes Oxley compliance. These decreases were offset by a $0.1 million increase in contributions and sponsorship payments.

Payroll and Benefits.

Payroll and benefits expenses consist of payroll and benefits including any other types of compensation benefits as well as human resources and administrative functions.

Payroll and benefits expenses for fiscal 2011 were $3.9 million as compared to $4.8 million for 2010, a decrease of $0.9 million or 19%. Payroll and benefits expenses decreased $0.1 million, or 2%, in fiscal 2010 as compared to fiscal 2009. As a percentage of net revenues, payroll and benefits expenses were approximately 103% in fiscal 2011, 120% in fiscal 2010 and 108% in fiscal 2009.

The decrease in payroll and benefits in fiscal 2011 as compared to fiscal 2010 was primarily due to the following: a decrease in payroll of the accounting department of $0.3 million, a decrease of $0.2 million in payroll in the legal department and a decrease of $0.1 million in payroll in the management information systems department, partially offset by a net increase of $0.2 million in other executive compensation. Hollywood Media agreed to provide certain transition services to Key Brand and Theatre Direct relating to the Broadway Ticketing Business following the closing of the Broadway Sale for a six-month period which ended on June 15, 2011, at which time Hollywood Media reduced its work force. Pursuant to that agreement, Key Brand reimbursed Hollywood Media in fiscal 2011 for some of its accounting and information technology payroll and related expenses.

The decrease in payroll and benefits in fiscal 2010 as compared to fiscal 2009 was primarily due to a decrease in the Intellectual Property Business payroll.

Depreciation and Amortization.

Depreciation and amortization expense consists of depreciation of property and equipment, furniture and fixtures, web site development, leasehold improvements, equipment under capital leases and amortization of intangibles. Depreciation and amortization expense was $0.2 million for fiscal 2011 as compared to $0.5 million for fiscal 2010 and $0.7 million for fiscal 2009. Depreciation and amortization decreased $0.3 million or 60% in fiscal 2011 from fiscal 2010 and decreased $0.2 million or 29% in fiscal 2010 from fiscal 2009. The decrease in depreciation and amortization expense from fiscal 2010 to fiscal 2011 is due to reduced leasehold improvements amortization because of a change in location of the corporate office to a less expensive rental space and the balance is due to fixed assets becoming fully depreciated during or prior to Q1-11.  The decrease in depreciation and amortization expense from fiscal 2009 to fiscal 2010 is due to assets becoming fully depreciated during or prior to fiscal 2010.

Interest, net.

Interest, net was $1.0 million income for fiscal 2011 as compared to $0.1 million income for fiscal 2010 and a de minimus income for fiscal 2009. The increase of $0.9 million or 900% in interest, net in fiscal 2011 as compared to fiscal 2010 as well as the increase of $0.1 million or 100% in interest, net in fiscal 2010 was primarily attributable to the interest paid on the $8.5 million Note Receivable due to Hollywood Media from Key Brand Entertainment Inc., the purchaser of the Broadway Ticketing Division. The note has an interest rate of 12% per annum and matures on December 15, 2015. For additional information, see Note 5 “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.

Other, net.

Other, net was $2.0 million for fiscal 2011 as compared to $6,311 for fiscal 2010.  The increase of $2.0 million in other, net in fiscal 2011 as compared to fiscal 2010 was primarily attributable to $1.5 million in proceeds from key-man life insurance resulting from Dr. Greenberg’s death as well as the change in the fair value of derivative liabilities of $0.6 million. 

Income taxes, net of refunds.

Income taxes, net of refunds was an expense of $0.1 million for fiscal 2011 as compared to $0.3 million for fiscal 2010 and $0.1 million of income for fiscal 2009. The expense for fiscal 2011 was primarily due to the sale of the Broadway Ticketing Business resulting from alternative minimum tax on the income from such sale. The expense for fiscal 2010 was primarily due to a reserve recorded against deferred tax assets in the Ad Sales segment since there is uncertainty about the Company’s ability to realize this asset in the near future, due to continuing losses in that segment.

Net Income (Loss).

Hollywood Media’s net loss for fiscal 2011 was $6.9 million as compared to a net income for fiscal 2010 of $4.9 million and a net loss for fiscal 2009 of $5.6 million. The net loss for fiscal 2011 was primarily due to a non-cash goodwill impairment charge of $4.8 million, offset by the $1.5 million in proceeds received from the key-man life insurance resulting from Dr. Greenberg’s death. The net income for fiscal 2010 was primarily due to the gain on the sale of the Broadway Ticketing Business. The net loss for fiscal 2009 was primarily due to a $5.0 million impairment loss recorded in our Ad Sales segment in the second quarter of 2009.

LIQUIDITY AND CAPITAL RESOURCES

Cash Balance at Year End; Sources and Uses of Cash

Hollywood Media’s cash and cash equivalents were $3.7 million at December 31, 2011 as compared to $29.4 million at December 31, 2010. Our net working capital (defined as current assets less current liabilities) was $3.0 million at December 31, 2011 and $22.0 million at December 31, 2010.

Net cash used in operating activities from continuing operations during fiscal 2011 was $2.6 million, a decrease of 60% compared to net cash used in operating activities from continuing operations during 2010 of $6.5 million. Cash usage was primarily attributable to the loss from continuing operations and the need for staffing during the Broadway Ticketing post-sale transition period. Net cash used in operating activities from continuing operations during fiscal 2010 was $6.5 million, a change of 8% compared to net cash used in operating activities from continuing operations during 2009 of $6.0 million. Cash usage was primarily attributable to the loss from continuing operations.

Net cash used in investing activities from continuing operations during fiscal 2011 was $6.6 million, primarily used to pay Key Brand a working capital adjustment of $3.7 million in connection with the sale of the Broadway Ticketing Business, a payment of $1.7 million in payroll related bonuses which became due as a result of the Broadway Sale in fiscal 2010 pursuant to employment agreements and a $1.3 million payment for the acquisition of 21.74% of the equity of Project Hollywood. Net cash provided by investing activities from continuing operations during fiscal 2010 was $17.6 million, which included $17.1 million in cash received from the sale of the Broadway Ticketing division and $0.6 million from earn-outs received from the Hollywood.com Business sale, offset by $0.1 million in capital expenditures. Net cash provided by investing activities from continuing operations during fiscal 2009 was $0.4 million, which net cash was primarily from the earn-outs received in 2009 due to the sale of Hollywood.com Business in August 2008.

Net cash used in financing activities from continuing operations during fiscal 2011 was $16.5 million, which cash usage was primarily for the purchase of common stock tendered in Hollywood Media’s tender offer. See Note 5, “Purchase of Common Stock Tendered” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K. Net cash used in financing activities from continuing operations during fiscal 2010 was $0.1 million, which cash usage included payments under capital lease obligations and outstanding note payable. Net cash used in financing activities from continuing operations during fiscal 2009 was $0.2 million, which cash usage included payments under capital lease obligations, outstanding notes payable and payments for repurchase of common stock.

In connection with the Broadway Sale:

In connection with the Credit Agreement, Hollywood Media and Key Brand entered into the Intercreditor Agreement with JP Morgan Chase Bank, N.A., as administrative agent for the senior lenders of Key Brand, which defines the rights and obligations of the senior secured lenders and Hollywood Media as subordinated lender, including, without limitation, the rights of payment and the subordination of the security interests of Hollywood Media.

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 included $1.0 million in cash that was paid to Hollywood Media at closing and potential earn-out payments to Hollywood Media of up to $9.0 million. Since August 21, 2008, $1.8 million in earn-out payments were paid to Hollywood Media through December 31, 2011 and, therefore, there remains, as of December 31, 2011, $7.2 million in potential earn-out payments. Hollywood Media has received the earn-out monies in accordance with the payment terms.

Commencing October 1, 2009, R&S Investments is contractually obligated to make periodic earn-out payments equal to the greater of (i) 10 percent of collected 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 surviving entity which owns the Hollywood.com Business will be obligated to pay the difference in accordance with the same earn-out terms. Pursuant to the purchase agreement, Hollywood Media was required to place $2.6 million into an escrow account to fund any negative EBITDA of the Hollywood.com Business through August 21, 2010. There was $2.6 million disbursed to the Hollywood.com Business in fiscal 2009, representing the entire balance of the escrow. As of December 31, 2011, Hollywood Media recorded a $0.4 million related party receivable for earn-out earned and expense reimbursement by R&S Investments.

Purchase of Common Stock Tendered

On February 25, 2011, Hollywood Media announced the final results of a tender offer to purchase up to 8 million shares of its common stock at a price of $2.05 per share (less any applicable withholding taxes and without interest) which expired on February 18, 2011. Hollywood Media accepted 8 million shares for purchase for a total cost of approximately $16.4 million. The number of shares properly tendered and not withdrawn was 24,157,429. Accordingly, payment was made for approximately 33% of the tendered shares, and the rest of the tendered shares were withdrawn from the tender offer. Immediately following the purchase of the tendered shares, Hollywood Media had approximately 23,179,066 shares outstanding.

Capital Expenditures

Our capital expenditures during each of 2011 and 2010 were $97,433 and $141,672, respectively. We currently anticipate capital expenditures in 2012 of approximately $100,000, including various systems and equipment upgrades.

Authorization of Stock Repurchase Program

Hollywood Media previously reported in its current report on Form 8-K filed with the SEC on October 4, 2007, that its Board of Directors authorized a stock repurchase program under which Hollywood Media may use up to $10 million of its cash to repurchase shares of its outstanding common stock. During the fourth quarter of 2011, no shares of Hollywood Media’s common stock were purchased under the repurchase program.

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.

Off-Balance Sheet Arrangements

As of December 31, 2011 and December 31, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes of the sort contemplated by paragraph 4 of Item 303 of SEC Regulation S-K. As such, management believes that we currently do not have any disclosures to make of the sort contemplated by paragraph 4 of Item 303 regarding “off-balance sheet arrangements.”

Critical Accounting 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 consolidated 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 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Derivative Instruments

The Company records derivative instruments at fair value in our accompanying consolidated balance sheet with charges in the fair values of those instruments reported in earnings in our consolidated results of operations. The Company does not hold any derivative instruments that reduce risk associated with hedging exposure, accordingly the Company has not designated any of its derivatives liability financial instruments as hedge instruments.  

Allowance

Hollywood Media maintains an allowance for doubtful accounts and a reserve on notes receivable for estimated losses resulting from the inability of its customers or debtors to make required payments. The Company’s accounting for doubtful accounts and reserve on notes receivable contains uncertainty because management must use judgment to assess the 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 and debtors, creditworthiness of specific customers and debtors, historical trends and other information. The allowance for doubtful accounts was $0.2 million and $0.3 million at December 31, 2011 and 2010, respectively. The allowance is primarily attributable to receivables due from customers of CinemasOnline. Although the Company believes its allowance is sufficient, if the financial condition of the Company’s customers were to unexpectedly deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required that could materially impact the Company’s consolidated financial statements. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s customer base and their dispersion across many different geographic regions.

Impairment of Goodwill

Under FASB Accounting Standard Codification Topic No. 350, “Intangibles – Goodwill and Other” (ASC 350), 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.

In September 2011, the FASB issued ASU No. 2011-08, “Testing for Goodwill Impairment (Topic 350),” (“ASU 2011-08”). ASU 2011-08 allows entities to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting period is less than its carrying amount, the quantitative two-step goodwill impairment test is required. An entity has the unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011 and its early adoption by the Company during the quarter ended September 30, 2011 did not have a material effect on the Company’s consolidated financial statements.

As prescribed by ASC 350, 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 2010 and 2009.  During the second quarter of 2009 the Company determined that $5.0 million of the goodwill associated with its MovieTickets.com business should be written down based on discounted cash flow being below carrying value and accordingly recorded an impairment loss of $5.0 million. For additional information see Note 15 – Investments in and Advances to Equity Method Unconsolidated Investees in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

During the three months ended September 30, 2011, the Company determined that approximately $4.8 million of the goodwill associated with its Ad Sales division should be written down after it was determined that the future cash flow of these assets is likely impaired, and the risk associated with previously expected cash flows has increase and accordingly recorded a total impairment loss of $4.8 million for the year ended December 31, 2011.  At December 31, 2011 the Company is not aware of any additional items or events that would cause us to adjust the recorded value of Hollywood Media’s goodwill for impairment further.  Future changes in estimates used to conduct the impairment review, including revenue projections or comparable market data and transactions 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 decrease to the fair values of each reporting unit.  The Company believes that the fair value of its remaining reporting unit that contains goodwill at December 31, 2011 and December 31, 2010 met or exceeded the book value of that reporting unit.

The Company believes that the disparity between the book value of its assets as compared to the market capitalization of its business is in large part a consequence of market conditions, including perceived risks in the debt markets, the Company’s industry and the broader economy. While the Company believes that some of these risks are unique to specific companies, some represent global industry risks. The Company believes that there is no fundamental change in our underlying business model or prospects for our Company.   The Company has evaluated the impairment of its goodwill, giving consideration to these risks, and their impact upon the respective reporting units’ fair values, and has reported impairments where it deems appropriate. The Company believes that the fair value of its remaining reporting unit that contains goodwill at December 31, 2011 and 2010 exceeded the book value of those units.

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. In addition, although not seasonal, our Intellectual Properties division and NetCo Partners both experience fluctuations in their respective revenue streams, earnings and cash flow as a result of the amount of time that is expended in the creation and development of the intellectual properties and their respective licensing agreements. The recognition of licensing revenue is typically triggered by specific contractual events which occur at different points in time rather than on a regular periodic basis.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Hollywood Media Corp.

Boca Raton, Florida

We have audited the accompanying consolidated balance sheets of Hollywood Media Corp. and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hollywood Media Corp. and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

Miami, Florida

April 16, 2012

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes to consolidated financial statements

are an integral part of these consolidated balance sheets.

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes to consolidated financial statements

are an integral part of these consolidated statements of operations.

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements of shareholders’ equity.

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010 AND 2009

Hollywood Media Corp. (“Hollywood Media” or “the Company”) was incorporated in the State of Florida on January 22, 1993. Hollywood Media is comprised of various businesses focusing primarily on advertising, book development license fees and royalties.

Hollywood Media owns the U.K. based companies CinemasOnline Limited, UK Theatres Online Limited, WWW.CO.UK Limited and Spring Leisure Limited (collectively known as “CinemasOnline”), which were acquired in November 2005. CinemasOnline, included as part of Hollywood Media’s Ad Sales Segment, sells contracted advertising space on lobby display posters in cinemas and movie brochure booklets distributed in independent cinemas and theatre ticket wallets in the United Kingdom and Ireland. There is also a limited focus on advertising sales on plasma screens located in a small number of cinemas and live theatre venues.

The intellectual properties segment owns or controls the exclusive rights to certain original characters and concepts created by best-selling authors and media celebrities, which it licenses across all media, including books, films and television, multimedia software, and other products. Hollywood Media acquires the rights to its intellectual properties pursuant to agreements that grant it exclusive rights in the intellectual property itself as well as the right to use the creator’s name in the title of the intellectual property. The intellectual properties division also includes a wholly-owned book development and licensing operation named Tekno Books which focuses on developing and executing book projects, typically with best-selling authors, which books are then licensed for publication to book publishers. Tekno Books generates revenues from new book projects in the form of non-refundable advances paid by publishers and royalties from its library of book titles.

Hollywood Media is a 50% partner in NetCo Partners. NetCo Partners was formed in June 1995 as a joint venture between Hollywood Media and C.P. Group, Inc. NetCo Partners is engaged in the development and licensing of NetForce. NetCo Partners is not consolidated in these financial statements, and Hollywood Media records 50% of the earnings in NetCo Partners as “equity in earnings of unconsolidated investees” in the accompanying consolidated financial statements.

Hollywood Media owns 26.2% of the equity of MovieTickets.com Inc. (“MovieTickets.com”), a joint venture, primarily with AMC Entertainment Inc., National Amusements, Inc. and Viacom Inc. The MovieTickets.com joint venture is not consolidated in the accompanying consolidated financial statements. The MovieTickets.com website allows users to purchase movie tickets online and retrieve them at “will call” windows or kiosks at the theaters. MovieTickets.com generates revenue from the sale of advertising and from service fees charged to users for the purchase of tickets and from the sale of research data, which revenues are not included in Hollywood Media’s revenues. Hollywood Media records its share of the earnings or loss in MovieTickets.com as “Equity in Earnings of Unconsolidated Investees” in the accompanying consolidated financial statements.

On October 27, 2011, Hollywood Media acquired 21.74% of Project Hollywood LLC, a newly formed limited liability company owned by Baseline Holdings LLC (“Baseline Holdings”).  Baseline Holdings is owned by Mitchell Rubenstein and Laurie Silvers.  Prior to the acquisition, on October 7, 2011, Project Hollywood LLC had acquired all of the membership interests of Baseline LLC from The New York Times Company.  Project Hollywood LLC is not consolidated in these financial statements, and Hollywood Media records 21.74% of the earnings of Project Hollywood LLC as “equity in earnings of unconsolidated investees” in the accompanying consolidated financial statements.

The Company had an accumulated deficit totaling $279.3 million and $272.4 million at December 31, 2011 and 2010, respectively. The success of Hollywood Media’s operations in future years is dependent on its ability to generate adequate revenues and cash flows to offset operating expenses. Hollywood Media expects to incur additional losses. There can be no assurances that Hollywood Media will be able to generate sufficient revenues from these activities to cover its costs and therefore, Hollywood Media may continue to incur losses and negative cash flows from operations. To the extent that Hollywood Media does not generate sufficient revenues to offset expenses Hollywood Media may require further financing beyond cash on hand to fund ongoing operations. Hollywood Media estimates, based on operating plans and assumptions, that existing cash and cash equivalents and anticipated cash flows will be sufficient to meet working capital requirements for the year 2012.

On February 25, 2011, Hollywood Media announced the final results of a tender offer to purchase up to 8 million shares of its common stock at a price of $2.05 per share (less any applicable withholding taxes and without interest) which expired on February 18, 2011. Hollywood Media accepted 8 million shares for purchase for a total cost of approximately $16,400,000. The number of shares properly tendered and not withdrawn was 24,157,429. Accordingly, payment was made for approximately 33% of the tendered shares, and the rest of the tendered shares were withdrawn from the tender offer. Immediately following the purchase of the tendered shares, Hollywood Media had 23,179,066 shares outstanding.

Principles of Consolidation

Hollywood Media’s consolidated financial statements include the accounts of Hollywood Media and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Hollywood Media’s 50%, 26.2% and 21.74% ownership interests in NetCo Partners, MovieTickets.com and Project Hollywood LLC, respectively, are accounted for under the equity method of accounting.

Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires that the Company make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on the information that is currently available and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions. Significant estimates and assumptions embodied in the accompanying consolidated financial statements, which are evaluated on an ongoing basis, include the deferred tax asset valuation allowance, the adequacy of reserves for accounts receivables and accruals for compensation, contingencies and litigation, as well as Hollywood Media’s ability to realize the carrying value of goodwill, intangible assets, investments in less than 50% owned companies and other long-lived assets.

Cash and Cash Equivalents

Hollywood Media considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Interest bearing amounts included in cash and cash equivalents were $3,110,540 and $26,667,785 at December 31, 2011 and 2010, respectively. The Company maintains cash balances with financial institutions in excess of federally insured limits.

Receivables

Receivables consist of unsecured amounts due from customers who have advertised on plasma TV displays, posters, brochures and websites in the Company’s UK business and amounts due from publishers relating to signed contracts, to the extent that the earnings process is complete and amounts are realizable.

Allowance for Doubtful Accounts

Hollywood Media maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company’s accounting for doubtful accounts contains uncertainty because management must use judgment to estimate the collectibility of these accounts. When preparing these estimates, management considers a number of factors, including the age of a customer’s account, past transactions with customers, creditworthiness of specific customers, historical trends and other information. The allowance for doubtful accounts was $240,048 and $308,713 at December 31, 2011 and 2010, 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 within the U.K. Changes in the allowance for doubtful accounts consisted of: