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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
COMMISSION FILE NO. 0-22908
HOLLYWOOD MEDIA CORP.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0385686
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 GLADES ROAD, SUITE 221A
BOCA RATON, FLORIDA 33431
(Address of principal executive offices) (zip code)
(561) 998-8000
(Registrant's telephone number)
Indicate by check 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 is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of May 13, 2003, the number of shares outstanding of the issuer's
common stock, $.01 par value, was 20,924,045.
HOLLYWOOD MEDIA CORP.
TABLE OF CONTENTS
PAGE(S)
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PART I FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2003
(unaudited) and December 31, 2002 ...................................... 2
Consolidated Statements of Operations for the Three
Months ended March 31, 2003 and 2002 (unaudited) ....................... 3
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2003 and 2002 (unaudited) ....................... 4
Consolidated Statement of Shareholders' Equity for the Three
Months ended March 31, 2003.............................................. 5
Notes to Consolidated Financial Statements (unaudited) ................. 6-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................... 18-34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................................ 35
ITEM 4. CONTROLS AND PROCEDURES ................................................ 35
PART II OTHER INFORMATION
- ------- -----------------
ITEM 1. LEGAL PROCEEDINGS ...................................................... 36
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .............................. 37
ITEM 5. OTHER INFORMATION ...................................................... 37-38
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ....................................... 39
Signatures .................................................................... 40
- 1 -
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,236,331 $ 2,342,238
Receivables, net 1,492,170 1,845,063
Inventories, net 8,639,970 7,144,311
Prepaid expenses 1,097,306 1,026,454
Other receivables 747,103 510,532
Other current assets 48,332 247,532
Deferred advertising - CBS 734,757 924,780
------------- -------------
Total current assets 13,995,969 14,040,910
PROPERTY AND EQUIPMENT, net 3,239,010 3,563,569
INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTEES 236,130 610,172
IDENTIFIABLE INTANGIBLE ASSETS, net 2,165,852 2,342,807
GOODWILL, net 40,773,968 40,773,968
OTHER ASSETS 597,163 737,231
------------- -------------
TOTAL ASSETS $ 61,008,092 $ 62,068,657
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,052,558 $ 1,354,663
Accrued expenses and other 2,954,069 3,854,881
Notes payable 250,000 250,000
Accrued exit and retail closure costs 27,500 27,500
Deferred revenue 10,314,976 8,890,002
Current portion of capital lease obligations 279,327 340,083
------------- -------------
Total current liabilities 15,878,430 14,717,129
CAPITAL LEASE OBLIGATIONS, less current portion 198,928 238,546
DEFERRED REVENUE 327,089 214,626
MINORITY INTEREST 61,844 --
OTHER DEFERRED LIABILITY 2,398,239 2,381,863
CONVERTIBLE DEBENTURES, NET 3,402,653 3,223,988
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 539,127 shares authorized; none outstanding -- --
Common stock, $.01 par value, 100,000,000 shares authorized; 20,513,708
and 20,253,863 shares issued and outstanding at March 31, 2003 and
December 31, 2002, respectively 205,137 202,539
Additional paid-in capital 277,596,611 277,261,293
Accumulated deficit (239,060,839) (236,171,327)
------------- -------------
Total shareholders' equity 38,740,909 41,292,505
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 61,008,092 $ 62,068,657
============= =============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets
- 2 -
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
2003 2002
------------ ------------
NET REVENUES 14,562,815 $ 12,705,442
COST OF REVENUES 10,568,545 8,236,161
------------ ------------
Gross margin 3,994,270 4,469,281
------------ ------------
OPERATING EXPENSES:
General and administrative 1,891,232 1,889,920
Selling and marketing 277,396 925,932
Salaries and benefits 3,279,628 3,563,120
Amortization of CBS advertising 190,023 4,577,598
Depreciation and amortization 639,876 905,055
------------ ------------
Total operating expenses 6,278,155 11,861,625
------------ ------------
Operating loss (2,283,885) (7,392,344)
EQUITY IN EARNINGS - INVESTMENTS 4,405 216,383
OTHER INCOME (EXPENSE):
Interest expense (342,661) (179,685)
Interest income 2,293 3,022
Other, net (49,091) 20,846
------------ ------------
Loss before minority interest (2,668,939) (7,331,778)
MINORITY INTEREST (220,573) (204,000)
------------ ------------
NET LOSS $ (2,889,512) $ (7,535,778)
============ ============
Basic and diluted net loss per common share $ (0.14) $ (0.27)
============ ============
Weighted average shares outstanding 20,398,291 28,116,685
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
- 3 -
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,889,512) $(7,535,778)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 639,876 905,055
Interest- non-cash 258,161 143,609
Equity in earnings of investments, net of return of invested capital 374,042 486,052
Issuance of compensatory stock, stock options and warrants for services rendered 258,421 370,323
Amortization of deferred compensation costs -- 570,147
Amortization of deferred financing costs 32,425 --
Provision for bad debts 101,846 92,742
Amortization of CBS advertising 190,023 4,577,598
Minority interest 220,573 204,000
Return of capital from Tekno Books to minority partner (80,019) (268,949)
Changes in assets and liabilities:
Receivables 251,044 (527,325)
Prepaid expenses (70,852) (84,632)
Inventories (1,495,659) (1,842,715)
Other current assets (37,371) (7,053)
Other assets 28,933 (35,878)
Accounts payable 697,895 369,357
Deferred revenue 1,537,437 2,134,110
Other accrued expenses (806,324) (37,345)
----------- -----------
Net cash used in operating activities (789,061) (486,682)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (138,362) (390,323)
----------- -----------
Net cash used in investing activities (138,362) (390,323)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholder/officer loan -- 1,000,000
Payments of shareholder/officer loan -- (450,000)
Payments under note payable -- (100,000)
Net advances from factor (78,110) (45,068)
Payments to repurchase common stock -- --
Payments under capital lease obligations (100,374) (171,442)
----------- -----------
Net cash (used) provided in financing activities (178,484) 233,490
----------- -----------
Net decrease in cash and cash equivalents (1,105,907) (643,515)
CASH AND CASH EQUIVALENTS, beginning of period 2,342,238 1,980,966
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,236,331 $ 1,337,451
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 40,045 $ 32,409
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets
- 4 -
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Common Stock Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
------------- ------------- ------------- ------------- -------------
Balance - December 31, 2002 20,253,863 $ 202,539 $ 277,261,293 $(236,171,327) $ 41,292,505
Isssuance of stock options and warrants for services -- -- 99,637 -- 99,637
Common stock adjustment 3,000 30 2,970 -- 3,000
Issuance of stock - 401 (k) employer match 155,783 1,558 154,226 -- 155,784
Interest payment to convertible debenture holders 101,062 1,010 78,485 -- 79,495
Net loss -- -- -- (2,889,512) (2,889,512)
------------- ------------- ------------- ------------- -------------
Balance - March 31, 2003 20,513,708 $ 205,137 $ 277,596,611 $(239,060,839) $ 38,740,909
============= ============= ============= ============= =============
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
- 5 -
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared by Hollywood Media Corp. ("Hollywood
Media") in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant
to those rules and regulations. However, management believes that the
disclosures contained herein are adequate to make the information presented not
misleading. The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly Hollywood Media's financial position and results of
operations. The results of operations and cash flows for the three months ended
March 31, 2003 are not necessarily indicative of the results of operations or
cash flows which may result for the remainder of 2003. The accompanying
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
Hollywood Media's Annual Report on Form 10-K for the year ended December 31,
2002, as filed with the Securities and Exchange Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Per Share Amounts
Basic loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. There
were 4,752,842 and 4,412,495 options and warrants to purchase common shares
outstanding at March 31, 2003 and 2002, respectively, that could potentially
dilute earnings per share in the future. In addition, the convertible debentures
(Note 4) are convertible into 1,647,399 shares of common stock at a conversion
price of $3.46 per share. The common shares underlying the options, warrants and
convertible debentures have been excluded from the weighted average number of
common shares outstanding for the three months ended March 31, 2003. Such
options, warrants and convertible debentures were not included in the
computation of diluted net loss per share because to do so would have been
antidilutive for all periods presented.
Accounting Estimates
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Significant estimates and assumptions embodied in the accompanying
unaudited financial statements include the adequacy of reserves for accounts
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receivables and 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.
Receivables
Receivables consist of amounts due from (i) customers who have
advertised on Hollywood Media's web sites, (ii) customers who have licensed data
from Hollywood Media's syndication businesses, (iii) customers who have
purchased live theater tickets, and (iv) publishers relating to signed
contracts, to the extent that the earnings process is complete and amounts are
realizable. Receivables are net of an allowance for doubtful accounts of
$235,171 and $307,398 at March 31, 2003 and December 31, 2002, respectively.
During 2001, Hollywood Media entered into an agreement with a third
party whereby a certain portion of its accounts receivable was monetized.
Hollywood Media receives an initial advance of 85% of the invoice amount, with
the remaining 15%, less fees, transferred to Hollywood Media upon payment by the
customer to the third party. At March 31, 2003 and December 31, 2002, included
in "accrued expenses and other" in the accompanying balance sheets is a
liability of $259,368 and $337,478, respectively, which was recorded for
advances that had been paid to Hollywood Media but remain payable by Hollywood
Media's customers to the third party.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement
143, "Accounting for Asset Retirement Obligations." This statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The more significant of these changes includes measuring all future obligations
at fair value and discounting obligations to reflect today's dollars. This
statement requires a cumulative effect approach to recognizing transition
amounts for existing retirement obligations. The Company adopted the new
standard on January 1, 2003. The adoption of SFAS 143 did not have a material
impact on its consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No.144), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the accounting and
reporting provisions of Accounting Principles Board (APB) Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" (APB No. 30). The Company adopted SFAS No. 144 on
December 31, 2002. The adoption did not have a material impact on the Company's
financial position or results of operations for the periods presented.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 rescinds SFAS No. 4 which required all
gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result of SFAS No. 145, the criteria in APB No. 30 will now be used to classify
- 7 -
those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer
necessary because SFAS No. 4 has been rescinded. The provisions of SFAS No. 145
shall be applied effective fiscal years beginning after May 15, 2002, with early
application encouraged. The Company adopted SFAS No. 145 on December 31, 2002.
The adoption did not have a material impact on the Company's financial position
or results of operations for the periods presented.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS No. 146), which requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred rather than when a commitment to an
exit plan is made. It is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company adopted SFAS No. 146 on December 31, 2002. The adoption did not have a
material impact on the Company's financial position or results of operations for
the periods presented.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123" (SFAS No. 148). This Statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The statement is effective for fiscal years ending
after December 15, 2002. Pursuant to the provisions of SFAS No. 148, the Company
has added the required disclosures to the "Stock-Based Compensation" subsection
in the "Critical Accounting Policies" section below.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51 (FIN No. 46)."
FIN No. 46 requires a company to make certain disclosures about variable
interest entities (VIEs) with which it has involvement, if it is reasonably
possible that it will consolidate or disclose information about the VIE when FIN
No. 46 becomes effective. The disclosure requirements are effective to all
financial statements issued after January 31, 2003. The Company has no VIEs so
no additional disclosures have been provided.
In May 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. Statement 149 clarifies under what circumstances a contract with
an initial net investment meets the characteristic of a derivative as discussed
in Statement 133. In addition, it clarifies when a derivative contains a
financing component that warrants special reporting in the statement of cash
flows. Statement 149 amends certain other existing pronouncements. Those changes
are designed to result in more consistent reporting of contracts that are
derivatives in their entirety or that contain embedded derivatives that warrant
separate accounting. Statement 149 is effective for contracts entered into or
modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003.
In August 2002, the FASB Emerging Issue Task Force issued EITF Issue
No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a
Vendor" (EITF 02-16), which addresses the accounting by a vendor for
consideration given to a customer, including both a reseller of the vendor's
- 8 -
products and an entity that purchases the vendor's products from a reseller.
Hollywood Media early adopted EITF Issue No. 02-16 on December 31, 2002. The
impact on reported results of operations was a reduction in net revenues and a
corresponding decrease in cost of sales resulting in no impact on operating
results.
(3) ACQUISITIONS AND OTHER CAPITAL TRANSACTIONS:
On January 14, 2002, Fountainhead Media Services ("FMS"), FilmTracker's
parent company, acquired a 20% equity interest in our subsidiary that owns
Baseline, Inc. ("Baseline"), a wholly owned subsidiary of Hollywood Media, for
$4 million. Consideration consisted of a $2 million promissory note payable to
Hollywood Media in installments over a five-year period with a final payment of
approximately $1.2 million, and the contribution of the FilmTracker database,
intellectual property rights, and all existing contracts with a stated value of
$2 million. The promissory note is secured by the 20% equity interest in
Baseline held by FMS. FMS will have the right to convert its 20% equity interest
in Baseline into common stock of Hollywood Media at any time during the two-year
period following the payment in full of the promissory note based upon a
multiple of Baseline's EBITDA (earnings before interest, taxes, depreciation and
amortization) for the year preceding the conversion. For purposes of any such
conversion, Hollywood Media's stock will be valued at the greater of (i) $7.50
per share, and (ii) the average closing price of the stock on the Nasdaq Stock
Market for the 15 trading days preceding the notice of conversion. Hollywood
Media will also have the right to cause the conversion of the equity interest in
Baseline to Hollywood Media common stock at any time after the earlier of the
payment in full of the promissory note and January 14, 2006. For accounting
purposes this transaction is treated as an acquisition of the FilmTracker assets
in exchange for:
o an issuance of a five year option on Baseline stock with a $2
million exercise price and
o the issuance of a put and call option on Hollywood Media
common stock.
Pursuant to an appraisal by a third party completed in the third
quarter of 2002, the value of the option in Baseline stock and the put and call
options in Hollywood Media was determined to be $2,254,070 and was assigned to
the FilmTracker assets. The purchase price of $2,254,070 was allocated as
follows: 1) $1,072,000 to fixed assets (equipment, software, etc.) and 2)
$1,182,070 to intangible assets (amortization period 5 years).
(4) DEBT:
In connection with the Theatre Direct NY, Inc. ("TDI") acquisition on
September 15, 2000, Hollywood Media signed two promissory notes payable to the
former owner. The first is an interest bearing note payable with a face value of
$500,000, principal payable monthly. The note bears interest at Citibank, N.A.
prime plus 1% per annum (4.25% at March 31, 2003). The second promissory note is
a one year non-interest bearing note with a face value of $250,000. The
outstanding balance due under the notes payable at March 31, 2003 is $250,000.
An agreement was reached on March 31, 2002 between Hollywood Media and the
former owner of TDI that the remaining notes payable balance, plus interest,
would be paid either in cash or in restricted common stock of Hollywood Media.
In the event that Hollywood Media requires additional funding,
Hollywood Media's Chairman of the Board and Chief Executive Officer and
Hollywood Media's Vice Chairman and President, have indicated their intention to
provide Hollywood Media, if required, with an amount not to exceed $5 million
through May 21, 2003, and from that date through January 1, 2004 such commitment
is reduced to an amount not to exceed $3.5 million, if needed to enable
- 9 -
Hollywood Media to meet its working capital requirements; provided, however,
that the commitment will be reduced dollar for dollar to the extent Hollywood
Media generates cash from financings, operational cash flow or a sale of a
division or subsidiary of Hollywood Media Corp. The proceeds received from the
issuance of the Senior Convertible Debentures in May 2002 did not reduce the
amount of the commitment. This commitment terminates January 1, 2004. Advances
bear interest at the JP Morgan prime rate. There was no outstanding balance
under this commitment at March 31, 2003.
On May 22, 2002, Hollywood Media issued an aggregate of $5.7 million in
principal amount of 6% Senior Convertible Debentures due May 22, 2005 (the
"Debentures") to a group of four institutional investors, including existing
shareholders of Hollywood Media. Mitchell Rubenstein, the Chairman of the Board
and Chief Executive Officer, and Laurie S. Silvers, the Vice Chairman and
President of Hollywood Media, participated in the financing with a $500,000 cash
investment upon the same terms as the other investors. The Debentures are
convertible at the option of the investors at any time through May 22, 2005 into
shares of Hollywood Media common stock, par value $0.01 per share, at a
conversion price of $3.46 per share. In addition, Hollywood Media can elect at
its option to convert up to 50% of the convertible debentures if the debentures
are still outstanding at maturity, subject to certain conditions. Prior to
conversion, the Debentures bear interest at 6% per annum, payable quarterly in
common stock or cash at the option of Hollywood Media. The investors also
received fully vested detachable warrants to acquire at any time through May 22,
2007 an aggregate of 576,590 shares of common stock at exercise prices ranging
from $3.78 to $3.91 per share. If on May 22, 2003, an investor holds at least
seventy-five percent of such investor's shares of common stock issued or
issuable to such investor under the Debentures, then the exercise price of the
warrants held by such investor will decrease to $3.46 per share which equals the
conversion price of the debenture. The Debentures and Warrants contain
anti-dilution provisions as more fully described in the agreements. In addition,
the investors will have the right to purchase an aggregate of $1 million in
principal amount of additional Debentures on the same terms at any time through
May 22, 2003. A total of $389,095 in debt issuance costs were incurred for the
convertible debentures, including $161,695 in fees paid to a placement agent
(including $130,000 in cash and a warrant valued at $31,695, with substantially
the same terms as the warrants issued to the debenture holders.) During the
first quarter of 2003, $32,425 was recognized as interest expense from the
amortization of the debt issuance costs.
The warrants granted to these investors were recorded at their relative
fair value of $1,608,422 using Black Scholes option valuation model. The
assumptions used to calculate the value of the warrants using Black Scholes are
as follows: a volatility of 83.7%, a 5 year expected life, exercise prices of
$3.91 and $3.78 per share, a stock price of $3.27 per share and a risk free
interest rate of 4%. The value of the beneficial conversion feature of the
Debenture was $1,295,416. The value of the warrants and the beneficial
conversion feature of the Debenture were recorded as a discount to the
convertible debenture and included in additional paid-in capital. The value of
the warrants and the beneficial conversion feature will be amortized to interest
expense over 3 years, using the effective interest method. During the quarter
ended March 31, 2003, Hollywood Media recorded $179,596 as interest expense for
the accretion of the discount on the convertible debentures.
In 1999, Hollywood Media loaned approximately $1.7 million to the
former owner ("borrower") of CinemaSource
- 10 -
(currently an employee of CinemaSource) so that he could pay a portion of the
taxes due resulting from the sale of CinemaSource to Hollywood Media. Hollywood
Media was obligated to make this loan as part of the original purchase agreement
to acquire CinemaSource. Hollywood Media sold the note to an independent third
party in 2000 and guaranteed payment of the note. The outstanding balance of the
loan at March 31, 2003 was approximately $462,000. As of March 31, 2003, the
Company accrued in "accrued expenses and other," $462,269 for the face value of
the promissory note. In April 2003, Hollywood Media entered into an agreement
with the holder of the note to satisfy Hollywood Media's obligations under its
guaranty of the note. Pursuant to such agreement, Hollywood Media agreed to pay
the holder an aggregate of $462,269, payable in eight consecutive monthly
installments of $50,000 commencing in May 2003, plus a final payment of $62,269.
(5) GOODWILL AND OTHER INTANGIBLE ASSETS:
Effective January 1, 2002, Hollywood Media adopted SFAS No. 142. As
prescribed by SFAS No. 142, the Company completed the transitional goodwill
impairment test by the second quarter of 2002. As result of this test, no
impairment charge was taken as the fair value of the reporting units exceeded
the carrying amount. As of March 31, 2003, there are no indicators that an
impairment has occurred.
(6) COMMON STOCK:
On March 4, 2003, Hollywood Media issued 155,783 shares of common stock
valued at $155,783 for payment of Hollywood Media's 401(k) employer match for
calendar year 2002.
On January 3, 2003, Hollywood Media issued 101,062 shares of common
stock valued at $79,495 to the holders of the convertible debentures for
interest due for the period October 1, 2002 to January 1, 2003.
On March 31, 2003, Hollywood Media booked an adjustment of 3,000 shares
in a reconciliation of the balance sheet to the stock transfer agent's records.
The adjustment did not have a material impact on the financial position or
results of operations.
During the three months ended March 31, 2003, Hollywood Media issued
97,500 warrants to independent third parties for services rendered. These
warrants were issued with a performance based vesting requirement. As a result,
no compensation expense was recorded as of March 31, 2003 due to the low
probability of the vesting event occurring.
(7) STOCK-BASED COMPENSATION:
The Company accounts for its stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The following table illustrates the
effect on net income (loss) and net income (loss) per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," to
stock-based employee compensation:
- 11 -
Quarter ended March 31,
----------------------------
2003 2002
------------ ------------
Reported net loss $ (2,889,512) $ (7,535,778)
Non-cash compensation expense under intrinsic value method -- --
Stock-based employee compensation expense under the fair
value method (585,188) (1,011,481)
------------ ------------
Adjusted net loss $ (3,474,700) $ (8,547,259)
============ ============
Reported net loss per share $ (.14) $ (.27)
============ ============
Adjusted net loss per share $ (.17) $ (.30)
============ ============
Number of ordinary shares used in computation
basic and diluted 20,398,291 28,116,685
============ ============
The fair value of each option grant was determined using the
Black-Scholes option-pricing model. The Black-Scholes model was not developed
for use in valuing employee stock options, but was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, it requires the use of subjective
assumptions including expectations of future dividends and stock price
volatility. Such assumptions are only used for making the required fair value
estimate and should not be considered as indicators of future dividend policy or
stock price appreciation. Because changes in the subjective assumptions can
materially affect the fair value estimate and because employee stock options
have characteristics significantly different from those of traded options, the
use of the Black-Scholes option-pricing model may not provide a reliable
estimate of the fair value of employee stock options.
(8) INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTEES:
Investments in and advances to equity method investees consist of the
following:
MARCH 31, DECEMBER 31,
2003 2002
--------- ---------
NetCo Partners (a) $ 241,105 $ 615,147
MovieTickets.com (b) (4,975) (4,975)
--------- ---------
$ 236,130 $ 610,172
========= =========
(A) NETCO PARTNERS
Hollywood Media owns a 50% interest in a joint venture called NetCo
Partners. NetCo Partners is engaged in the development and licensing of Tom
Clancy's Net Force. This investment is recorded under the equity method of
accounting, recognizing 50% of NetCo Partners' income or loss as Equity in
Earnings - Investments. The revenues, gross profit and net income of NetCo
Partners for the three months ended March 31, 2003 and 2002 are presented below:
- 12 -
THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
-------- --------
Revenues $ 26,703 $764,405
Gross Profit 9,161 578,321
Net Income 8,809 574,148
Hollywood Media's
share of net income 4,405 287,074
Hollywood Media and C.P. Group are each 50% partners in NetCo Partners.
Pursuant to the terms of the NetCo Partners Joint Venture Agreement, Hollywood
Media is responsible for developing, producing, manufacturing, advertising,
promoting, marketing and distributing NetCo Partners' illustrated novels and
related products and for advancing all costs incurred in connection therewith.
All amounts advanced by Hollywood Media to fund NetCo Partners' operations are
treated as capital contributions of Hollywood Media and Hollywood Media is
entitled to a return of such capital contributions before distributions of cash
flow are split equally between Hollywood Media and C.P. Group.
NetCo Partners has signed several significant licensing agreements for
Tom Clancy's NetForce. These agreements include book licensing agreements for
North American rights to a series of adult and young adult books, audio book
agreements and licensing agreements with various foreign publishers for rights
to publish Tom Clancy's NetForce books in different languages. These contracts
typically provide for payment of non-refundable advances to NetCo Partners upon
achievement of specific milestones, and for additional royalties based on sales
of the various products at levels in excess of the levels implicit in the
non-refundable advances. NetCo Partners recognizes revenue pursuant to these
contracts when the earnings process has been completed based on performance of
all services and delivery of completed manuscripts.
As of March 31, 2003, NetCo Partners had $1,259,396 of accounts
receivable in comparison to $2,450,397 at December 31, 2002 and deferred
revenues, consisting of cash advances received but not yet recognized as
revenue, amounted to $1,203,052 as of March 31, 2003, compared to $1,510,936 at
December 31, 2002. These accounts receivable and deferred revenue balances are
not included in Hollywood Media's consolidated balance sheets.
As of March 31, 2003, Hollywood Media has received cumulative profit
distributions from NetCo Partners since its formation totaling $8,830,805, in
addition to reimbursement of substantially all amounts advanced by Hollywood
Media to fund the operations of NetCo Partners.
(B) MOVIETICKETS.COM
Hollywood Media entered into a joint venture agreement on February 29,
2000 with the movie theater chains AMC Entertainment Inc. ("AMC") and National
Amusements, Inc. to form MovieTickets.com, Inc. ("MovieTickets.com"). In August
2000, the joint venture entered into an agreement with Viacom Inc. to acquire a
five percent interest in the joint venture for $25 million of advertising over 5
years. In addition to the Viacom advertising and promotion, MovieTickets.com is
- 13 -
promoted through on-screen advertising on each participating exhibitor's movie
screens. In March 2001, America Online Inc. ("AOL") purchased a non-interest
bearing convertible preferred equity interest in MovieTickets.com for $8.5
million in cash, which can be converted into approximately 3% of the common
stock of MovieTickets.com, Inc. In connection with this transaction,
MovieTickets.com's ticket inventory is promoted through AOL's interactive
properties and ticket inventory of AOL's Moviefone is available through
MovieTickets.com.
Hollywood Media owns 26.4% of the equity in MovieTickets.com, Inc. at
March 31, 2003. Excluding AOL's convertible preferred equity interest, Hollywood
Media shares in 27.1% of the income or losses generated by the joint venture.
This investment is recorded under the equity method of accounting, recognizing
27.1% of MovieTickets.com income or loss as Equity in Earnings - Investments.
Since the investment has been reduced to near zero, Hollywood Media is currently
not providing for additional losses generated by MovieTickets.com as Hollywood
Media has not committed to fund future losses, if any, generated by
MovieTickets.com. Hollywood Media recorded income (losses) of $0 and $(70,691)
for the three months ended March 31, 2003 and 2002, respectively in its
investment in MovieTickets.com.
(9) BARTER TRANSACTION:
Hollywood Media recorded barter revenue and expense under an agreement
with the National Association of Theater Owners ("NATO"), which agreement was
acquired through the acquisition of hollywood.com, Inc. in 1999. In connection
with the NATO contract, Hollywood Media also acquired rights and obligations
under ancillary agreements with individual theaters that participate in the NATO
organization. Pursuant to these agreements, Hollywood Media collected and
compiled movie showtimes data for NATO member theaters and hosted web sites for
certain theaters so as to display the movie showtimes and other information
about the theater. In addition, Hollywood Media provided ongoing web site
maintenance services for several of the theaters including providing promotional
materials, movie and theater information, advertising and editorial content. In
exchange, the theaters were obligated to promote the Hollywood.com web site to
movie audiences by airing movie trailers about Hollywood.com. Hollywood Media
recorded revenue and expense from these activities measured at the fair value of
the services exchanged in accordance with Accounting Principles Board Opinion
("APB") No. 29, "Accounting for Nonmonetary Transations." The NATO contract
ended during 2003. Barter revenue recorded under the NATO agreement for the
three months ended March 31, 2003 and 2002, was $0 and $745,438, respectively.
(10) SEGMENT REPORTING:
Hollywood Media's reportable segments are Broadway Ticketing, Data
Business, Internet Ad Sales and Other, and Intellectual Properties. The Broadway
Ticketing segment sells tickets to live theater events for Broadway,
Off-Broadway and London, online and offline, and to domestic and international
travel professionals including travel agencies and tour operators, educational
institutions and consumers. The Data Business segment licenses entertainment
content and data and includes CinemaSource (which licenses movie showtimes and
other movie content), EventSource (which licenses local listings of events
around the country to media, wireless and Internet companies), AdSource (which
creates exhibitor paid directory ads for insertion in newspapers around the
country) and Baseline (a flat fee and pay-per-use subscription web site geared
towards professionals in the feature film and television industry). The Internet
Ad Sales and Other segment sells advertising on Hollywood.com and Broadway.com
and offers independent films to subscribers over the Internet. The Intellectual
- 14 -
Properties segment owns or controls the exclusive rights to certain intellectual
properties created by best-selling authors and media celebrities, which it
licenses across all media. This segment also includes a 51% interest in Tekno
Books, a book development business.
Management evaluates performance based on a comparison of actual profit or loss
from operations before income taxes, depreciation, interest, and nonrecurring
gains and losses to budgeted amounts. There are no material intersegment sales
or transfers.
The following table illustrates the financial information regarding
Hollywood Media's reportable segments.
THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
------------ ------------
NET REVENUES:
Broadway Ticketing $ 11,545,377 $ 8,834,844
Data Business 1,749,114 1,424,601
Internet Ad Sales and Other (a) 492,452 1,497,346
Intellectual Properties 775,872 948,651
------------ ------------
$ 14,562,815 $ 12,705,442
============ ============
GROSS MARGIN:
Broadway Ticketing $ 1,397,749 $ 1,145,777
Data Business 1,663,552 1,377,486
Internet Ad Sales and Other (a) 436,357 1,396,513
Intellectual Properties 496,612 549,505
------------ ------------
$ 3,994,270 $ 4,469,281
============ ============
OPERATING INCOME (LOSS):
Broadway Ticketing $ (117,308) $ 81,833
Data Business (b) 204,213 (194,360)
Internet Ad Sales and Other (c) (803,953) (5,328,367)
Intellectual Properties 428,231 459,501
Other (Corporate and other) (1,995,068) (2,410,951)
------------ ------------
$ (2,283,885) $ (7,392,344)
============ ============
- 15 -
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
SEGMENT ASSETS:
Broadway Ticketing $10,695,030 $ 9,499,232
Data Business 2,796,474 3,050,030
Internet Ad Sales and Other 2,919,151 3,599,136
Intellectual Properties 983,905 720,819
Corporate and other 43,613,532 45,199,440
----------- -----------
$61,008,092 $62,068,657
=========== ===========
(a) Includes non-cash barter revenue of $0 and $757,869 for the three
months ended March 31, 2003 and 2002, respectively.
(b) Includes $261,399 in expenses in the three months ended March 31, 2002
relating to the closure of the New York Baseline office. The Baseline
operations were moved to the new Baseline office in California and
consolidated with FilmTracker.
(c) Includes $190,023 and $4,577,598 in amortization of CBS advertising for
the three months ended March 31, 2003 and 2002, respectively used to
promote Hollywood.com and Broadway.com.
(11) COMMITMENTS AND CONTINGENCIES:
Water Garden Company LLC, as Plaintiff, v. Hollywood Media Corp., a
Florida corporation; hollywood.com, Inc., a California corporation (and
subsidiary of Hollywood Media Corp.); and The Tribune Company (as successor in
interest to the Times Mirror Company), as Defendants; filed July 16, 2001 in the
Superior Court of the State of California for the County of Los Angeles. Water
Garden Company LLC filed suit against Hollywood Media, its subsidiary,
hollywood.com, Inc., and The Tribune Company ("Tribune"), among others, claiming
damages as a result of alleged defaults by hollywood.com, Inc. under a lease for
office space entered into by hollywood.com, Inc., as lessee, and Water Garden
Company LLC, as lessor. The stated lease term is from January 1999 through
December 2003. Tribune guaranteed hollywood.com, Inc.'s lease obligations.
Hollywood Media has certain contractual indemnification obligations to Tribune
relating to Tribune's guaranty of the lease. The claims against Hollywood Media,
but not hollywood.com, Inc., have been dismissed.
As previously reported in Hollywood Media's 2002 Form 10-K, on March
25, 2003, the court in this action (the "Water Garden Lawsuit") issued its
Ruling on Motion for Summary Judgment and Summary Adjudication, in which it
granted, before trial, the motion of plaintiff for summary judgment against
defendants hollywood.com, Inc. and Tribune. This Ruling resulted in the court's
entry of a money judgment in the Water Garden Lawsuit on April 29, 2003 against
hollywood.com, Inc. and Tribune, jointly and severally, of $988,549, plus
reasonable attorneys' fees and costs of suit in an amount to be subsequently
determined. Interest would accrue on the judgment at the rate of ten percent per
annum until paid.
- 16 -
On May 7, 2003, hollywood.com Inc. and Tribune filed a Notice of Appeal
with the court in the Water Garden Lawsuit, and also filed a Notice of Filing
Undertaking for Stay of Enforcement of Judgment Pursuant to Appeal in order to
stay enforcement of the judgment pending resolution of the appeal (this filing
included an appeal bond obtained by Tribune (the "Appeal Bond") issued by a
surety company in the amount of $1,482,823, which is the amount of the bond
required by law to stay enforcement of the judgment). Based on the advice of our
outside legal counsel, we believe that hollywood.com, Inc. has meritorious
grounds for appeal, and a reasonable possibility exists of the appellate court
reversing the trial court's summary judgment ruling. However, it is not possible
at this time to estimate the probability of a favorable or unfavorable outcome
of such an appeal, and accordingly we cannot and do not provide any such
evaluation. If the appeal is successful, it is probable that the matter would
then be remanded to the trial court for trial.
In April 2003, Tribune and Hollywood Media agreed that Tribune would
obtain the Appeal Bond in exchange for specified advance payments by Hollywood
Media to Tribune as collateral to secure Hollywood Media's indemnification
obligation to Tribune described above. The advance payments consist of a
$100,000 payment made upon commencement of the agreement on April 7, 2003 and
monthly payments of $75,000 (or $100,000, for the last six months of 2003). The
agreement allows Tribune the right to demand additional collateral, the form of
which, cash or shares of Hollywood Media's common stock, to be determined by
Hollywood Media in its discretion, in the approximate amount of the initial
judgment. Hollywood Media's obligation to make payments to Tribune under such
agreement is limited to the amount of the initial judgment plus costs and/or
attorney's fees that may be awarded and accrued interest. The advance payments
and, if applicable, any other security, are to be returned to Hollywood Media if
the appeal is successful (which would result in the bond no longer being
required) or to the extent the payments ultimately exceed Hollywood Media's
indemnification obligation to Tribune. Such payments made to Tribune may be used
by Hollywood Media, in its discretion, to pay the judgment or a settlement in
the Water Garden Lawsuit.
The judgment in the Water Garden Lawsuit is for rent accrued under the
lease through February 13, 2003 however, the facial termination date of the
lease is December 31, 2003. Accordingly, it is probable that the plaintiff in
the Water Garden Lawsuit will file one or more subsequent actions against
hollywood.com, Inc. and Tribune claiming additional amounts representing rent
allegedly accruing after such date through December 31, 2003, together with
litigation costs and attorneys fees.
Hollywood Media believes that hollywood.com, Inc. has valid grounds for
appeal and defenses to the plaintiff's claims. Recognizing that the ultimate
outcome of this case is uncertain, Hollywood Media has accrued on its books, as
of March 31, 2003, an amount which it believes is adequate to account for
potential liability for this matter, and we will continue to evaluate the matter
as the litigation process proceeds.
In addition to the legal proceedings described above, Hollywood Media
is a party to various other legal proceedings including matters arising in the
ordinary course of business. Hollywood Media does not expect such other legal
proceedings to have a material adverse impact on Hollywood Media's financial
condition or results of operations, however, there can be no assurance that such
other matters, if determined adversely, will not have a material adverse effect.
- 17 -
(12) RECLASSIFICATION:
Certain amounts in the 2002 financial statements have been reclassified
to conform with the 2003 classification.
(13) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
For The Three Months Ended March 31, 2003:
o 155,783 shares of Hollywood Media common stock valued at
$155,783 were issued as payment of Hollywood Media's 401(k)
employer match for calendar year 2002.
o Hollywood Media issued 101,062 shares of common stock, valued
at $79,495 for interest due to the holders of the convertible
debentures.
o Options and warrants valued at $99,637, under Black Scholes,
were granted for services rendered.
For The Three Months Ended March 31, 2002:
o Capital lease transactions totaled $13,607
o 54,392 shares of Hollywood Media common stock, valued at
$293,095, were issued under the Hollywood Media 2000 Stock
Incentive Plan.
o Hollywood Media issued 1,163 shares of common stock, valued at
$6,390, to satisfy an outstanding obligation.
o 20,777 shares of Hollywood Media common stock, valued at
$136,920 were issued as payment of Hollywood Media's 401(k)
employer match for calendar year 2001.
o Hollywood Media issued 43,044 shares of common stock, valued
at $187,217, for the extension of a promissory note guaranteed
by Hollywood Media.
o 34,644 shares of Hollywood Media were issued for the net
exercise of stock options and warrants during the first
quarter of 2002.
o Options and warrants valued at $77,228, under Black Scholes,
were granted for services rendered.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Item 2 or elsewhere in this Form 10-Q or
that are otherwise made by us or on our behalf about our financial condition,
results of operations and business constitute "forward-looking statements,"
- 18 -
within the meaning of federal securities laws. Hollywood Media Corp. ("Hollywood
Media") cautions readers that certain important factors may affect Hollywood
Media's actual results, levels of activity, performance or achievements and
could cause our actual results, levels of activity, performance or achievements
to differ materially from any future results, levels of activity, performance or
achievements anticipated, expressed or implied by any forward-looking statements
that may be deemed to have been made in this Form 10-Q or that are otherwise
made by or on behalf of Hollywood Media. For this purpose, any statements
contained in this Form 10-Q that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, "forward-looking statements" are typically phrased using words such
as "may," "will," "should," "expect," "plans," "believe," "anticipate,"
"intend," "could," "estimate," "pro forma" or "continue" or the negative
variations thereof or similar expressions or comparable terminology. Factors
that may affect Hollywood Media's results and the market price of our common
stock include, but are not limited to:
o our continuing operating losses,
o negative cash flows from operations and accumulated deficit,
o our limited operating history,
o the need for additional capital to finance our operations,
o the need to manage our growth and integrate new businesses
into Hollywood Media,
o our ability to develop strategic relationships,
o our ability to compete with other companies,
o technology risks,
o future government regulation,
o dependence on our founders, and
o the volatility of our stock price.
Hollywood Media is also subject to other risks detailed herein or
detailed in our Annual Report on Form 10-K for the year ended December 31, 2002
and in other filings made by Hollywood Media with the Securities and Exchange
Commission.
Because these forward-looking statements are subject to risks and
uncertainties, we caution you not to place undue reliance on these statements,
which speak only as of the date of this Form 10-Q. We do not undertake any
responsibility to review or confirm analysts' expectations or estimates or to
release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this Form 10-Q. 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 us nor any other
person assumes responsibility for the accuracy and completeness of such
statements.
OVERVIEW
Hollywood Media is a leading provider of news, information, data and
other content, and ticketing to consumers and businesses covering the
entertainment and media industries. We manage a number of business units focused
on the entertainment industry. Hollywood Media derives a diverse stream of
revenues from this array of business units, including revenue from individual
and group Broadway ticket sales, data syndication, subscription fees, content
licensing fees, advertising, and book development.
- 19 -
DATA SYNDICATION DIVISIONS
Hollywood Media's Data Business is a provider of integrated database
information and complementary data services to the entertainment and media
industries. The Data Business consists of two divisions, The Source Business and
Baseline/FilmTracker.
The Source Business is comprised of three related lines of business:
CinemaSource, EventSource and AdSource.
CinemaSource. CinemaSource is the largest supplier of movie showtimes
as measured by market share in the United States and Canada, and compiles movie
showtimes data for over 33,000 movie screens. Since its start in 1995,
CinemaSource has substantially increased its operations and currently provides
movie showtime listings to more than 200 newspapers, wireless companies,
Internet sites, and other media outlets, including newspapers such as The New
York Times and The Washington Post, wireless companies including Sprint PCS,
AT&T Wireless, Cingular Wireless, Verizon and Vindigo, Internet companies
including AOL's Moviefone and Digital City, MSN, Yahoo! and Lycos, and other
media outlets. CinemaSource also syndicates entertainment news, movie reviews,
and celebrity biographies. CinemaSource's data is displayed by its customers in
local newspapers, on websites and through cell phone services, to provide
moviegoers with information for finding and choosing movies, theaters and
showtimes. CinemaSource collects a majority of these movie listings through
electronic mediums such as email and FTP files, and collects additional listings
through traditional mediums such as faxes and phone calls. Through annual and
multi-year contracts, CinemaSource generates recurring revenue from licensing
fees paid by its customers.
EventSource. We launched the EventSource business in 1999 as an
expansion of the operations of CinemaSource. EventSource compiles and syndicates
detailed information on community events in cities around the country, including
concerts and live music, sporting events, festivals, fairs and shows, touring
companies, community playhouses and dinner theaters throughout North America and
in London's West End. The EventSource database contains detailed information for
over 12,000 venues, and the EventSource services are monitored by individual
city editors specializing in their respective markets. Hollywood Media believes
that EventSource is the largest (based on market share), and the only national,
compiler and syndicator of detailed information on community and cultural events
in North America. EventSource's unique and diversified information is a content
source for AOL's Digital City, as to which EventSource entered into an agreement
in April 2000 to provide event listings for 200 cities nationwide. In addition
to Digital City, other EventSource customers include The New York Times,
Vindigo, Earthlink and VoltDelta. Through annual and multi-year contracts,
EventSource generates recurring revenues from licensing fees.
AdSource. We launched AdSource during the first quarter of 2002 as yet
another expansion of the CinemaSource operations. AdSource leverages the movie
theater showtimes from the CinemaSource data collection systems and our
relationship with various movie exhibitors, to provide our movie-exhibitor
customers with directory advertising for insertion in newspapers around the
country. Our customers include AMC Theatres, a major theater chain that has
expanded use of AdSource nationally. The types of ads created by AdSource
include the large weekly movie ads typically carried in newspapers, which
highlight a particular movie theater where the film is playing and the start
- 20 -
times. Through a web-based data system, AdSource is able to create ads using
showtimes data from the CinemaSource database, resulting in exhibitor ads that
Hollywood Media believes are generally superior in quality and accuracy in
comparison to ads developed by its competitor. These advertisements are
delivered to the newspapers in one of several formats, ready for publication.
Baseline/FilmTracker. Baseline is a comprehensive entertainment
database, research service, and application service provider offering
information to movie studios, production companies, movie and TV distributors,
entertainment agents, managers, producers, screenwriters, news organizations,
and financial analysts covering the entertainment industry. Baseline's film and
television database contains over 14,000 celebrity biographies, credits for over
125,000 released feature films, television series, miniseries, TV movies and
specials dating back nearly 100 years, over 15,000 film and television projects
in every stage of development and production, over 1,900 movie reviews, box
office grosses dating back nearly 20 years, over 17,000 company rosters and
representation/contact information for over 19,000 entertainment professionals.
Baseline provides applications that allow entertainment professionals to
streamline workflow, increase efficiency, and expand market awareness. Baseline
offers its data and application modules on an annual subscription basis,
syndicates data to a number of leading information aggregators and publications,
and also provides data on a pay per use basis. Baseline's 3,000+ customers
include four major movie studios, numerous production companies, law firms,
investment banks, news agencies, advertising agencies, consulting firms and
other professionals in the entertainment industry. Baseline's customer base
includes Bloomberg, Daily Variety, People Magazine, Lexis-Nexis, NBC, HBO, ABC,
Paramount Pictures, DreamWorks SKG, Fox Studios, Universal Studios, E!
Entertainment Television and the Directors Guild of America. The current
Baseline/FilmTracker service resulted from our January 2002 acquisition of
FilmTracker from Fountainhead Media Services ("Fountainhead"), a provider of
information services in the feature film and television industries. Our
previously existing Baseline service was integrated with FilmTracker in the
first quarter of 2002, resulting in a combined service that incorporates
Baseline's data into FilmTracker's content management system and interface.
Since the integration with FilmTracker in the first quarter of 2002, the
combined unit has signed multi-year licensing contracts with four major film
studios. Pursuant to such acquisition, Fountainhead acquired 20% of the capital
stock of our subsidiary that owns Baseline, in return for combining FilmTracker
with Baseline and Fountainhead's $2 million promissory note payable to Hollywood
Media. See Note 3 -- Acquisitions and Other Capital Transactions, of the Notes
to Hollywood Media's Financial Statements in Item 1 of this Form 10-Q, for
additional information about the transaction pursuant to which FilmTracker was
acquired.
BROADWAY TICKETING DIVISION
Broadway Ticketing: Theatre Direct International ("TDI"); Broadway.com
and 1-800-BROADWAY (collectively called "Broadway Ticketing").
TDI. We acquired TDI as of September 15, 2000. Founded in 1990, TDI is
a live theater ticketing wholesaler that provides groups and individuals with
access to theater tickets and knowledgeable service, covering shows on Broadway,
long running shows off-Broadway, shows in London's West End theatre district and
shows in Toronto. TDI sells tickets directly to group buyers including travel
agents and tour groups. TDI also manages a marketing cooperative that markets
numerous Broadway shows to the travel industry around the world. Recent Broadway
shows marketed by this cooperative include Aida, Beauty and the Beast, Cabaret,
Chicago, 42nd Street, Harlem Song, Into the Woods, Les Miserables, Mamma Mia!,
- 21 -
Oklahoma, Rent, The Graduate, The Lion King, The Phantom of the Opera,
Thoroughly Modern Millie, Urinetown and Metamorphoses. In addition, TDI's
education division, Broadway Classroom, markets group tickets to schools across
the country.
Broadway.com and 1-800-BROADWAY. We launched the Broadway.com website
on May 1, 2000. Broadway.com features the ability to purchase Broadway,
off-Broadway and London's West End theater tickets online. Our 1-800-BROADWAY
number, which we acquired in October 2001, is marketed in tandem by us with
Broadway.com. TDI's offline ticketing service complements the online ticketing
services available on our Broadway.com unit and our ticket sales through our
1-800-BROADWAY number.
The combined businesses, Broadway Ticketing, provide live theater
ticketing and related content for over 200 venues in multiple markets to a
customer base consisting of individual consumers, as well as over 40,000 travel
agencies, tour operators, corporations and educational institutions, in addition
to numerous newspapers and web sites. As a result of the consolidation of these
businesses, we believe that Broadway Ticketing is the leading wholesaler of
Broadway tickets, based on ticket sales. Broadway Ticketing offers its customers
access to virtually all the Broadway theatres. We work with the theatre box
offices to obtain tickets and we maintain ticket inventory. Broadway Ticketing
is often able to obtain better seats than its competitors due to its high
volume, advance group purchases, and related inventory practices. To assist
customers with the important decision of purchasing Broadway show tickets,
Broadway Ticketing employs a theatre-knowledgeable sales force that can describe
the shows and make recommendations as well as explain the seat locations of a
variety of theatres. We believe that our knowledgeable sales force provides
Broadway Ticketing with a marketing advantage over such competitors.
INTERNET DIVISIONS
Hollywood.com. Hollywood.com is a premier online entertainment
destination and movie industry information and services website. Hollywood.com
generates revenue by selling advertising on its website. Hollywood.com features
in-depth movie information, including movie descriptions and reviews, movie
showtimes listings, entertainment news and an extensive multimedia library
containing hundreds of hours of celebrity interviews, premier coverage and
behind the scenes footage as well as independent films. Hollywood.com provides
premier content and online ticketing services for movies creating a "one-stop
destination" for movie information. Some of the largest advertisers who have
advertised on Hollywood.com include Disney Studios, New Line Cinema, Sony
Studios, General Motors, Universal Studios, Visa, Colgate, HBO, A&E, British
Airways, MGM, US Army, AT&T, Chase, Ford, Kodak, Fox and Warner Bros.
As a result of its relationship with Hollywood Media's Data Business
(CinemaSource and Baseline), Hollywood.com has access to a constantly updated
database of information related to movies and entertainment. We believe these
sources of content provide Hollywood.com with a competitive advantage over other
entertainment-related websites that incur significant costs to create content of
comparable quality and scope.
Hollywood.com has further established its presence in the wireless
arena. Through relationships with major carriers (AT&T, Cingular, Sprint, and
Verizon), Hollywood.com provides a movie and entertainment destination on a
variety of mobile phones.
Broadway.com. We launched Broadway.com on May 1, 2000. Broadway.com
features: the ability to purchase Broadway, off-Broadway and London's West End
theater tickets online; theater showtimes; the latest theater news; interviews
with stage actors and playwrights; opening-night coverage; original theater
- 22 -
reviews; and video excerpts from selected shows. Broadway.com also offers
current box office results, show synopses, cast and crew credits and
biographies, digitized show previews, digitized showtunes, and an in-depth Tony
Awards(R) area. Broadway.com generates revenue from the sale of both tickets and
advertising, with its principal business purpose being to generate ticket sales.
Cable Network Initiatives. To further leverage our base of proprietary
content, Hollywood Media launched two interactive digital cable television
channels in 2002: "Totally Hollywood TV" and "Totally Broadway TV." Both cable
channels utilize existing Hollywood Media content and are designed for
distribution on digital tiers of cable TV systems. The cable TV channels
complement Hollywood Media's existing business units. Totally Broadway TV and
Totally Hollywood TV offer audiences interactive entertainment and information,
with on-demand video content including premiers, movie previews, reviews,
behind-the-scenes footage, interviews and more, as well as up-to-date showtimes
for the latest movies and current Broadway shows. Both networks use Hollywood
Media's content, news and information covering the entertainment industry, and
were available initially to Cablevision System Corporation's iO: Interactive
Optimum(SM) subscribers in the Long Island, Warwick Valley, New York, and Morris
County, New Jersey, markets. During the fourth quarter of 2002, Hollywood Media
Corp. extended its cable television initiative to a second major cable operator,
Cox Communications. Cox added Totally Hollywood TV to its video-on-demand
service in the San Diego, California market. Subscribers to Cox Cable San
Diego's digital TV service are now able to view, on Totally Hollywood TV movie
previews and related content for the newest movies in theaters.
INTELLECTUAL PROPERTIES BUSINESS
Book Development and Book Licensing. Our Intellectual Properties
division includes a book development and book licensing business owned and
operated by our 51% owned subsidiary, Tekno Books, which develops and executes
book projects, typically 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, and has also worked with numerous media celebrities,
including Louis Rukeyser and Leonard Nimoy. Our intellectual properties division
has licensed books for publication with more than 100 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 (AOL Time Warner) and the publishing division of
Barnes & Noble. Tekno Books has also produced numerous books under license from
such entertainment companies as Universal Studios, New Line Cinema, CBS
Television, DC Comics (AOL Time Warner), and MGM Studios. Since 1980, Tekno
Books has developed over 1,440 books that have been published. Another 2,950
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, over 100
awards, including the The Edgar Allan Poe Award, The Agatha Christie Award
(Mystery), The Hugo Award (Science Fiction), The Nebula Award (Fantasy), The
International Horror Guild Award (Horror) and The Sapphire Award (Romance).
Tekno Books' current backlog and anticipated books for future publishing include
more than 270 books under contract or in final negotiations, including at over
70 books by New York Times best-selling authors. We are expanding into one of
the largest areas of publishing, which is romance fiction, and one of the
fastest growing areas of publishing, which is the Christian book market. In
January 2003, Tekno Books was engaged to create two new spin-off series based on
the best-selling Left Behind series. The Chief Executive Officer and founder of
Tekno Books, Dr. Martin H. Greenberg, is also a director of Hollywood Media and
owner of the remaining 49% interest in Tekno Books.
- 23 -
Intellectual Properties. Our Intellectual Properties division also owns
the exclusive rights to 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 Anne McCaffrey's Acorna the Unicorn
Girl, Leonard Nimoy's Primortals, and Mickey Spillane's Mike Danger. We license
rights to 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).
NetCo Partners. In June 1995, Hollywood Media and C.P. Group Inc.
("C.P. Group"), entered into an agreement to form NetCo Partners. NetCo Partners
owns Tom Clancy's NetForce. Hollywood Media and C.P. Group are each 50% partners
in NetCo Partners. Tom Clancy is a shareholder of C.P. Group. At the inception
of the partnership, C.P. Group contributed to NetCo Partners all rights to Tom
Clancy's NetForce, and Hollywood Media contributed to NetCo Partners all rights
to Tad Williams' MirrorWorld, Arthur C. Clarke's Worlds of Alexander, Neil
Gaiman's Lifers, and Anne McCaffrey's Saraband. In 1997, NetCo Partners licensed
to Putnam Berkley the rights to publish the first six Tom Clancy's NetForce
books in North America for advance payments of $14 million. This agreement was
subsequently renewed in December 2001 for four more books with guaranteed
advances for North American book rights of $2 million per book for the first two
books with the amount of the advance payable as to the next two books to be
negotiated at a later date. Each of the published titles has been on The New
York Times Bestseller list. The first book in the series was adapted as a 4-hour
mini-series on ABC. NetForce books have so far been published in mass market
paperback format with the potential to produce forthcoming books in the higher
priced hard cover format. NetCo owns all rights in all media to the NetForce
property including film, television, video and games. NetCo licenses NetForce
book rights to publishers in various foreign countries. Through its interest in
NetCo Partners, Hollywood Media receives distributions of its share of proceeds
generated from the rights to the NetForce series.
For additional information about Netco Partners, see Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Equity in Earnings of Investments, and Note 8 -- Investments In And Advances To
Equity Method Investees, of the Notes to Hollywood Media's Financial Statements
in Item 1 of this Form 10-Q.
MOVIETICKETS.COM
MovieTickets.com is one of the three leading destinations for the
purchase of movie tickets through the Internet; our two competitors (other than
some theatres that may conduct their own internet ticket sales) are Fandango and
AOL Moviefone. Hollywood Media launched the MovieTickets.com web site in May
2000 with several major theatre exhibitors. Hollywood Media currently owns 26.4%
of the equity of MovieTickets.com, Inc. See Management's Discussion and Analysis
of Financial Condition and Results of Operations - Equity in Earnings of
Investments, for additional information about our equity interest in
MovieTickets.com, Inc. MovieTickets.com, Inc. entered into an agreement with
Viacom Inc. effective August 2000 whereby Viacom Inc. acquired a five percent
interest in MovieTickets.com, Inc. for $25 million of advertising and promotion
over five years. In addition to the Viacom advertising and promotion,
MovieTickets.com is promoted through on-screen advertising in most participating
exhibitors' movie screens. In March 2001, AOL purchased a non-interest bearing
convertible preferred equity interest in MovieTickets.com, Inc. for $8.5 million
- 24 -
in cash, which can be converted into approximately 3% of the common stock of
MovieTickets.com, Inc. In connection with that transaction, MovieTickets.com's
ticket inventory is promoted throughout America Online's interactive properties
and ticket inventory of AOL's Moviefone is available through MovieTickets.com.
MovieTickets.com has been selected by MSN Network, Yahoo!, Lycos Entertainment
and several other premier online destinations, as the exclusive provider for
online movie ticketing services. MovieTickets.com continues to experience strong
growth in ticket sales, with nearly 1.3 million tickets sold in the first
quarter 2003, an increase of 26% over its ticket sales in the first quarter
2002.
MovieTickets.com, Inc.'s current participating exhibitors include AMC
Entertainment Inc., National Amusements, Inc., Famous Players Inc., the former
Hoyts Cinemas acquired by Regal Entertainment Group, Marcus Theaters,
Consolidated Theaters, Crown Theatres, Cinema World and Rave Motion Pictures.
Colorado Cinemas, Krikorian Premiere Theatres, Metropolitan Theatres, Ritz
Theatres, and Warren Theatres are in the process of being launched on
MovieTickets.com. MovieTickets.com exhibitors operate theaters located in all of
the top 20 markets and approximately 70% of the top 50 markets in the United
States and Canada and represent approximately 50% of the top 100 grossing
theaters in North America. The MovieTickets.com web site allows users to
purchase movie tickets and retrieve them at "will call" windows or kiosks at
theaters. The web site also features bar coded tickets that can be printed at
home and presented directly to the ticket taker at participating theaters. The
web site contains movie content from Hollywood Media's various divisions for all
current and future release movies, movie reviews and synopses, digitized movie
trailers and photos, and box office results. The web site generates revenues
from service fees charged to users for the purchase of tickets and the sale of
advertising which includes ads on the "print-at-home" ticket.
RESULTS OF OPERATIONS
The following table summarizes Hollywood Media's revenues, cost of
revenues and gross margin by reportable segment for the three months ended March
31, 2003 ("Q1-03") and 2002 ("Q1-02") respectively:
BROADWAY INTERNET AD INTELLECTUAL
TICKETING DATA BUSINESS SALES AND OTHER PROPERTIES (a) TOTAL (a)
--------- ------------- --------------- ------------- -----------
Q1-03
- -----
Net Revenues $11,545,377 $ 1,749,114 $ 492,452 $ 775,872 $14,562,815
Cost of Revenues 10,147,628 85,562 56,095 279,260 10,568,545
----------- ----------- ----------- ----------- -----------
Gross Margin $ 1,397,749 $ 1,663,552 $ 436,357 $ 496,612 $ 3,994,270
=========== =========== =========== =========== ===========
Q1-02
- -----
Net Revenues (b) $ 8,834,844 $ 1,424,601 $ 1,497,346 $ 948,651 $12,705,442
Cost of Revenues 7,689,067 47,115 100,833 399,146 8,236,161
----------- ----------- ----------- ----------- -----------
Gross Margin $ 1,145,777 $ 1,377,486 $ 1,396,513 $ 549,505 $ 4,469,281
=========== =========== =========== =========== ===========
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_____________
(a) Does not include Hollywood Media's 50% interest in NetCo Partners which is
accounted for under the equity method of accounting and Hollywood Media's share
of the income (loss) is reported as equity in earnings of investments.
(b) Q1-02 Net Revenues include barter revenue of $757,869.
COMPOSITION OF OUR SEGMENTS IS AS FOLLOWS:
o BROADWAY TICKETING - Includes our TDI ticketing business as well as our
Broadway.com online ticketing operations and ticket sales through
1-800-BROADWAY.
o DATA BUSINESS - Includes our CinemaSource, EventSource, AdSource, and
Baseline/FilmTracker operations.
o INTERNET AD SALES AND OTHER - Includes advertising sold on the web
sites Hollywood.com and Broadway.com, the AlwaysI subscription service
which offers films to subscribers over the Internet and barter revenues
derived from the collection and compilation of movie showtimes data and
the hosting of web sites for movie theaters in exchange for advertising
services from the theaters.
o INTELLECTUAL PROPERTIES - Includes our book development and book
licensing operation through our 51% owned subsidiary Tekno Books. This
segment does not include our 50% interest in NetCo Partners.
NET REVENUES
Total net revenues were $14,562,815 for Q1-03 as compared to
$12,705,442 for Q1-02, an increase of $1,857,373 or 14.6%. The increase in
revenue was primarily due to an increase in Broadway Ticketing and Data Business
revenues, which was partially offset by a decrease in Intellectual Property
revenue and Internet Ad Sales and Other revenue which was caused in part by a
reduction of barter revenue to zero in Q1-03. Non-cash barter revenue was $ 0
and $757,869 for Q1-03 and Q1-02, respectively. Barter revenue as a percentage
of total net revenue was 0% and 6% for Q1-03 and Q1-02, respectively. In Q1-03
net revenues were derived 79.3% from Broadway Ticketing, 12.0% from Data
Business, 3.4% from Internet Ad Sales and Other and 5.3% from Intellectual
Properties. Excluding barter revenue, total net revenues were $14,562,815 for
Q1-03 as compared to $11,947,573 for Q1-02, an increase of $2,615,242 or 21.9%.
Broadway Ticketing revenues were $11,545,377 and $8,834,844 for Q1-03
and Q1-02, respectively, an increase of $2,710,533 or 30.7%. Broadway Ticketing
revenues increased due to increased sales to individuals and groups. Broadway
Ticketing revenue is generated from the sale of live theater tickets for
Broadway, off-Broadway and London through Broadway.com and the 1-800-BROADWAY
telephone number, and to domestic and international travel professionals,
traveling consumers, business organizations, schools and New York area theater
patrons. Broadway Ticketing revenue is recognized on the date of performance of
the show.
Data Business revenues (which includes our Source businesses,
CinemaSource, EventSource, AdSource and Baseline/FilmTracker) were $1,749,114
for Q1-03 as compared to $1,424,601 for Q1-02, an increase of $324,513 or 22.8%.
Our Source business increased approximately $162,907 in Q1-03 as compared to
Q1-02 and our Baseline business increased approximately $161,606 in Q1-03 as
- 26 -
compared to Q1-02. Revenue for CinemaSource and EventSource is generated by the
licensing of movie, event and theater showtimes and other information to other
media outlets and Internet companies including newspapers such as the New York
Times and The Washington Post, Internet companies including AOL's Digital City,
Lycos, and Yahoo! and wireless providers such as AT&T Wireless, Sprint PCS and
Verizon. Revenue for AdSource is generated by creating exhibitor paid directory
ads for insertion in newspapers around the country. Baseline is a film and
television database, licensing its data to businesses and professionals in the
entertainment industry and generates revenues from the syndication of its data
as well as subscription revenue.
The composition of Internet Ad Sales and Other revenues was as follows:
Three Months Ended
March 31,
---------------------------
2003 2002
---------- ----------
Revenue - Non-barter $ 492,452 $ 739,477
Revenue - NATO barter -- 745,438
Revenue - Barter -- 12,431
---------- ----------
$ 492,452 $1,497,346
========== ==========
Internet Ad Sales and Other revenue was $492,452 for Q1-03 as compared
to $1,497,346 for Q1-02, a decrease of $1,004,894 or 67.1%. The decrease in
revenues was in part attributable to a decrease to zero in revenue recorded from
barter transactions. Excluding barter revenue, revenue decreased $247,025 or
33.4%. The number of unique visitors to Hollywood.com was approximately 7.9
million for Q1-03 as compared to 9.4 million for Q1-02, a decrease of 16%, as
reported by comScore Media Metrix, which management attributes mainly to fewer
movie releases during February and March of 2003. Internet Ad Sales and Other
revenue is generated from the sale of sponsorships and banner advertisements on
Hollywood.com and Broadway.com. Included in Internet Ad Sales and Other revenue
were non-cash barter revenues of $0 and $757,869 for Q1-03 and Q1-02,
respectively. As a percentage of Internet Ad Sales and Other revenue, barter
revenues comprised 0% and 50.6% for Q1-03 and Q1-02, respectively. Hollywood
Media records two types of barter revenue related to Internet advertising as
more fully described below.
Hollywood Media recorded barter revenue and an equal amount of expense
earned under an agreement with NATO, which agreement Hollywood Media acquired
through its acquisition of hollywood.com, Inc. on May 20, 1999. This income is
included in Internet Ad Sales and Other revenue. As of March 31, 2003, this
contract is no longer in effect and thus Hollywood Media recorded $0 in
promotional non-cash revenue and non-cash expense for Q1-03 in comparison to
$745,438 in Q1-02.
Revenues from our Intellectual Properties division were $775,872 for
Q1-03 as compared to $948,651 for Q1-02, a decrease of $172,779 or 18.2%. The
decrease in revenues was attributable to the timing of the delivery of
manuscripts resulting in fewer manuscripts delivered in Q1-03 as compared to
Q1-02. The Intellectual Properties division generates revenues from several
different activities including book development and licensing and intellectual
property licensing. Revenues vary quarter to quarter dependent on the timing of
the delivery of the manuscripts to the publishers. Revenues are recognized when
- 27 -
the earnings process is complete and ultimate collection of such revenues is no
longer subject to contingencies. The Intellectual Properties division revenues
do not include our 50% interest in NetCo Partners, which is accounted for under
the equity method of accounting and under which, Hollywood Media's share of the
income (loss) is reported as equity in earnings of investments.
COST OF REVENUES
Cost of revenues was $10,568,545 for Q1-03 as compared to $8,236,161
for Q1-02, an increase of $2,332,384 or 28.3%. As a percentage of net revenues,
cost of revenues was 72.6% and 64.8% for Q1-03 and Q1-02, respectively. The
increase in the cost of revenues is primarily the result of an increase in
Broadway ticketing revenues. The Broadway Ticketing segment accounted for
approximately 96% of the cost of revenues for Q1-03, compared to 93.3% in Q1-02,
reflecting the greater proportion of revenue attributable to Broadway Ticketing.
Cost of revenue consists primarily of the cost of tickets and credit card fees
for the Broadway ticketing segment; commissions due to advertising agencies,
advertising rep firms and other third parties for revenue generated from the
data business and Internet ad sales and other segments; and fees and royalties
paid to authors and co-editors for the intellectual properties segment.
GROSS MARGIN
Gross margin was $3,994,270 for Q1-03 as compared to $4,469,281 for
Q1-02, a decrease of $475,011 or 10.6%. Gross margin decreased predominately
because of the decrease in barter revenue from $757,869 in Q1-02 to $0 in Q1-03.
Excluding barter revenue in Q1-02, gross margin increased $282,858 or 7.6% in
Q1-03 compared to Q1-02. As a percentage of net revenue, gross margin in Q1-03
was 27.4% as compared to 35.2% in Q1-02 due in part to an increased percentage
of revenues from the relatively lower margin Broadway Ticketing segment.
Excluding barter revenue, the gross margin percentage of net revenue for
Q1-03 was 27.4% compared to 31.1% for Q1-02.
EQUITY IN EARNINGS OF INVESTMENTS
Equity in earnings of investments consisted of the following:
Three Months Ended March 31,
---------------------------
2003 2002
--------- ---------
NetCo Partners (a) $ 4,405 $ 287,074
MovieTickets.com (b) -- (70,691)
--------- ---------
$ 4,405 $ 216,383
========= =========
(a) NetCo Partners
NetCo Partners owns Tom Clancy's NetForce and is primarily engaged in
the development and licensing of Tom Clancy's NetForce. NetCo Partners
recognizes revenues when the earnings process has been completed based on the
terms of the various agreements, generally upon the delivery of the manuscript
to the publisher and at the point where ultimate collection is substantially
assured. When advances are received prior to completion of the earnings process,
NetCo Partners defers recognition of revenue until the earnings process has been
- 28 -
completed. Hollywood Media owns 50% of NetCo Partners and accounts for its
investment under the equity method of accounting. Hollywood Media's 50% share of
earnings was $4,405 for Q1-03 as compared to $287,074 for Q1-02. Revenues vary
quarter to quarter dependent on timing of deliveries of various manuscripts to
the publisher although, notwithstanding the timing of manuscript deliveries,
typically, one NetForce book is published each year in North America.
(b) MovieTickets.com
Hollywood Media owns 26.4% of the total equity in MovieTickets.com,
Inc. joint venture at March 31, 2003. Hollywood Media records its investment in
MovieTickets.com, Inc. under the equity method of accounting, recognizing its
percentage of ownership of MovieTickets.com income or loss as equity in earnings
of investments. Excluding AOL's three percent convertible preferred equity
interest, Hollywood Media shares in 27.1% of the losses or income generated by
the joint venture. We recorded income (losses) of $0 and $(70,691) in Q1-03 and
Q1-02, respectively in our investment in MovieTickets.com. Since the investment
has been reduced to near zero, Hollywood Media is currently not providing for
additional losses, if any, generated by MovieTickets.com as Hollywood Media had
not guaranteed to fund future losses, if any, generated by MovieTickets.com. The
web site generates revenues from service fees charged to users for the purchase
of tickets and the sale of advertising.
OPERATING EXPENSES
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $1,312 or 0.1% to $1,891,232 for Q1-03 from $1,889,920 for
Q1-02. General and administrative expenses consist of occupancy costs,
production costs, human resources and administrative expenses, professional and
consulting fees, telecommunication costs, provision for doubtful accounts
receivable and business insurance costs. As a percentage of revenue, general and
administrative expenses decreased to 13.0% for Q1-03 from 14.9% for Q1-02.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses
decreased $648,536 to $277,396 for Q1-03 from $925,932 for Q1-02. The decrease
is attributable primarily to the decrease in barter transactions. Selling and
marketing expenses includes advertising, marketing, promotional, business
development and public relations expenses. As a percentage of revenue, selling
and marketing expenses decreased to 1.9% for Q1-03 from 7.3% for Q1-02. Included
in selling and marketing expenses were non-cash barter transactions of $0 and
$757,869 for Q1-03 and Q1-02, respectively. Barter transactions accounted for
approximately 0% and 81.8% of selling and marketing expense in Q1-03 and Q1-02,
respectively.
SALARIES AND BENEFITS. Salaries and benefits decreased $283,492 or 8.0%
to $3,279,628 for Q1-03 from $3,563,120 for Q1-02. This decrease is primarily
attributable to the decrease in amortization of deferred compensation of
approximately $570,147 which occurred in Q1-02 offset in part by various expense
increases including additional payroll costs in our Broadway Ticketing division
for extra labor needed to handle refunds as a result of the closure of most
Broadway shows due to the musicians' strike during March 2003. As a percentage
of revenue, salaries and benefits decreased to 22.5% for Q1-03 from 28.0% for
Q1-02.
- 29 -
AMORTIZATION OF CBS ADVERTISING AND IMPAIRMENT LOSS RELATING TO CBS
ADVERTISING. Amortization of CBS advertising related to the agreement with
Viacom was $190,023 and $4,577,598 for Q1-03 and Q1-02, respectively. Under the
agreement we had with Viacom, Hollywood Media issued shares of common stock and
warrants in exchange for cash and CBS's advertising and promotional efforts over
seven years across its full range of media properties. The fair value of the
common stock and warrants issued to Viacom has been recorded in the balance
sheet as deferred advertising and is being amortized as the advertising is used
each related contract year.
On August 28, 2002, an Exchange Agreement ("Exchange Agreement") was
entered into among Hollywood Media, its wholly owned subsidiaries,
hollywood.com, Inc. and Broadway.com, Inc., and Viacom Inc. Pursuant to the
Exchange Agreement, Viacom reconveyed to Hollywood Media an aggregate of
8,614,687 shares of Hollywood Media's common stock, $.01 par value per share,
and warrants held by Viacom to purchase 262,973 shares of Hollywood Media's
common stock were cancelled. The common stock and warrants had a fair value of
$10,656,657 at the time of the Exchange Agreement. Viacom also paid Hollywood
Media $2.0 million in cash and Hollywood Media retained $5.0 million in non-cash
advertising and promotion across CBS properties for use through December 31,
2003. Each of the Advertising and Promotion Agreement and Content License
Agreement, dated as of January 3, 2000, between hollywood.com, Inc. and Viacom,
including hollywood.com, Inc.'s right to air additional advertising and
promotion on CBS properties was terminated. The remaining recorded value of the
terminated advertising and promotion under the Advertising and Promotion
Agreement and Content License Agreement at the time of the Exchange Agreement
was $70,998,003 (representing approximately $49 million in actual advertising).
Hollywood Media recorded a non-cash impairment loss of $58,341,346 in August
2002, the difference between the advertising cancelled and the fair value of the
common stock and warrants returned by Viacom, plus the $2.0 million in cash paid
by Viacom. In addition, during 2001 Viacom had prepaid to Hollywood Media, in
cash for advertising to be delivered in 2002 and 2003. At August 28, 2002, the
value of the deferred advertising revenue remaining on Hollywood Media's balance
sheet was $1,066,666. This balance reduced impairment loss recorded. The
aggregate impairment loss recorded in August 2002 was $57,274,680.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was
$639,876 for Q1-03 and $905,055 for Q1-02, representing a decrease of $265,179
or 29.3%. The decrease was primarily attributable to certain intangible assets
that became fully amortized during 2002.
INTEREST EXPENSE. Interest expense was $342,661 for Q1-03 as compared
to $179,685 for Q1-02, an increase of $162,976. The increase for Q1-03 was
primarily attributable to the amortization of the beneficial conversion feature
related to the convertible debentures of $294,481.
INTEREST INCOME. Interest income was $2,293 for Q1-03 as compared to
$3,022 for Q1-02, a decrease of $729.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had cash and cash equivalents of $1,236,331
compared to cash and cash equivalents of $2,342,238 at December 31, 2002.
Working capital deficit, (defined as current assets less current liabilities) at
March 31, 2003, which included $734,757 in deferred CBS advertising was
- 30 -
$(1,882,461) as compared to working capital deficit of $(676,219) at December
31, 2002. During the three months ended March 31, 2003, net cash used in
operating activities was $789,061, net cash used in investing activities was
$138,362 comprising capital expenditures and net cash used in financing
activities was $178,484. As a result of the above, cash and cash equivalents
decreased by $1,105,907 for the three months ended March 31, 2003. In
comparison, during the three months ended March 31, 2002, net cash used in
operating activities was $486,682, net cash used in investing activities was
$390,323, and $233,490 in cash was provided by financing activities. The
increase in net cash used in operating activities in Q1-03 was caused in part by
the impact of the Broadway musicians' strike on our Broadway Ticketing business
where associated costs lowered gross margins and increased overhead expenses
during the quarter.
On May 22, 2002, Hollywood Media issued an aggregate of $5.7 million in
principal amount of 6% Senior Convertible Debentures due May 22, 2005 (the
"Debentures") to a group of four institutional investors, including existing
shareholders of Hollywood Media. Mitchell Rubenstein, the Chairman of the Board
and Chief Executive Officer, and Laurie S. Silvers, the Vice Chairman and
President, of Hollywood Media participated in the financing with a $500,000 cash
investment upon the same terms as the other investors. The Debentures are
convertible at the option of the investors at any time through May 22, 2005 into
shares of Hollywood Media common stock, par value $0.01 per share, at a
conversion price of $3.46 per share. In addition, Hollywood Media can elect at
its option to convert up to 50% of the convertible debentures if the debentures
are still outstanding at maturity, subject to certain conditions. Prior to
conversion, the Debentures bear interest at 6% per annum, payable quarterly in
common stock or cash at the option of Hollywood Media. The investors also
received fully vested detachable warrants to acquire at any time through May 22,
2007 an aggregate of 576,590 shares of common stock at exercise prices ranging
from $3.78 to $3.91 per share. If on May 22, 2003, an investor holds at least
seventy-five percent of such investor's shares of common stock issued or
issuable to such investor under the Debentures, then the exercise price of the
warrants held by such investor will decrease to $3.46 per share, which equals
the conversion price of the debenture. The Debentures and Warrants contain
anti-dilution provisions as more fully described in the agreements. In addition,
the investors will have the right to purchase an aggregate of $1 million in
principal amount of additional Debentures on the same terms at any time through
May 22, 2003. A total of $389,095 in fees were incurred for the convertible
debentures, including $161,695 in fees paid to a placement agent (including
$130,000 in cash and a warrant valued at $31,695, with substantially the same
terms as the warrants issued to the debenture holders.)
In 2001, Hollywood Media entered into an agreement with a third party
whereby we monetized a certain portion of our accounts receivable. Hollywood
Media receives an initial advance of 85% of the invoice amount, with the
remaining 15%, less fees, transferred to Hollywood Media upon payment by the
customer to the third party. At March 31, 2003 and December 31, 2002, a
liability of $259,368 and $337,478, respectively, was recorded for advances that
had been paid to Hollywood Media but remain payable by Hollywood Media's
customers to the third party.
In the event that Hollywood Media requires additional funding and
cannot secure additional funding, Hollywood Media's Chairman of the Board and
Chief Executive Officer and Hollywood Media's Vice Chairman and President, have
indicated their intention to provide to Hollywood Media, if required, with an
amount not to exceed $5 million through May 21, 2003, and from that date through
January 1, 2004 such commitment is reduced to an amount not to exceed $3.5
million, in order to enable Hollywood Media to meet its working capital
- 31 -
requirements; provided, however, that the commitment will be reduced dollar for
dollar to the extent Hollywood Media generates cash from financings, operational
cash flow or a sale of a division or subsidiary of Hollywood Media Corp. There
was no outstanding balance under this commitment at March 31, 2003.
CRITICAL ACCOUNTING POLICIES
In response to the Security and Exchange Commission (SEC) 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
the consolidated financial statements. The preparation of the consolidated
financial statements in conformity with accounting principles generally accepted
in the United States 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 will 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 a summary of all our significant accounting policies, including
the critical accounting policies discussed below, see Note 1 to the accompanying
consolidated financial statements.
Ticketing Revenue Recognition
Ticket revenue is derived from the sale of live theater tickets for
Broadway, off-Broadway and London shows to individuals, groups, travel agencies,
tour groups and educational facilities. Revenue recognition is deferred on
ticket sales until performance has taken place. Ticket revenue and cost of
revenue are recorded on a gross basis.
In August 2002, the FASB Emerging Issue Task Force issued EITF Issue
No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a
Vendor" (EITF 02-16), which addresses the accounting by a vendor for
consideration given to a customer, including both a reseller of the vendor's
products and an entity that purchases the vendor's products from a reseller.
Hollywood Media adopted early EITF Issue No. 02-16 on December 31, 2002 for its
ticketing business. The impact on reported results of operations was a reduction
in net revenues and a corresponding decrease in cost of sales resulting in no
change in financial position.
Advertising Costs
Hollywood Media expenses the cost of advertising as incurred or when
such advertising initially takes place. In the first quarter of 2000, Hollywood
Media issued common stock and warrants to CBS with a fair value of approximately
$137 million in exchange for approximately $105 million of advertising on CBS
properties to be received over a period of seven years. Hollywood Media was
entitled to utilize a specified portion of this advertising each contract year.
The deferred advertising is carried on Hollywood Media's balance sheet as a
deferred asset and is being amortized over the contract period as the
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advertising is utilized. Advertising expense recorded related to CBS advertising
for the three months ended March 31, 2003 and 2002 was $190,023 and $4,577,598
respectively, and is separately reported in the accompanying consolidated
statements of operations under the caption "Amortization of CBS advertising."
On August 28, 2002, Hollywood Media entered into an Exchange Agreement
with Viacom which terminated various agreements with CBS. Refer to "Amortization
of CBS Advertising and Impairment Loss Relating to CBS Advertising" above.
Barter Transactions
Hollywood Media recorded barter revenue and expense under its contract
with NATO described under "Net Revenue" above. In connection with the NATO
contract, Hollywood Media also acquired rights and obligations under ancillary
agreements with individual theaters that participate in the NATO organization.
Pursuant to these agreements, Hollywood Media collected and compiled movie
showtimes data for NATO member theaters and hosted web sites for certain
theaters so as to display the movie showtimes and other information about the
theater. In addition, Hollywood Media provided ongoing web site maintenance
services for certain theaters including providing promotional materials, movie
and theater information, advertising and editorial content. In exchange, the
theaters were to promote the Hollywood.com web site to movie audiences by airing
movie trailers about Hollywood.com. Hollywood Media recorded revenue and expense
from these activities measured at the fair value of the services exchanged in
accordance with Accounting Principles Board Opinion ("APB") No. 29, "Accounting
for Nonmonetary Transactions." In Q1-03 and Q1-02 we recorded $0 and $745,438
respectively, in revenue and expense under the NATO contract. Additionally in
Q1-03 and Q1-02 we recorded $0 and $12,431, respectively in other non-cash
Internet barter transactions. The NATO contract is no longer in effect.
Stock Based Compensation
As permitted under Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transaction and Disclosure - an
amendment of FAS 123" ("SFAS No. 148"), which amended Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation ("SFAS
No. 123"), we have chosen to account for our Stock Plan under the intrinsic
value method as allowed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and related
interpretations. Under APB No. 25, because the exercise price of our employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recorded. FSAS No. 148 requires disclosure of
the estimated fair value of our employee stock options granted and pro forma
financial information assuming compensation expense was recorded using these
fair values.
Impairment of Long-Lived Assets
Effective December 31, 2001, Hollywood Media adopted Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144"). SFAS No. 144 superseded
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121") and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," ("APB No. 30") for
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the disposal of a segment of a business. Consistent with SFAS No. 121, SFAS No.
144 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
We evaluate the recoverability of long-lived assets not held for sale
by comparing the carrying amount of the assets to the estimated undiscounted
future cash flows associated with them. At the time such evaluations indicate
that the future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying values of such assets, the assets are
adjusted to their fair values. We determined fair value as the net present value
of future cash flows. Based on these evaluations, there were no adjustments to
the carrying value of long lived assets in Q1-03.
In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and
intangible assets acquired after June 30, 2001 were no longer subject to
amortization. Goodwill and intangibles with indefinite lives acquired prior to
June 30, 2001 ceased to be amortized beginning January 1, 2002. In addition,
SFAS 142 changed the way we evaluated goodwill and intangibles for impairment.
Beginning January 1, 2002, goodwill and certain intangibles are no longer
amortized; however, they are subject to evaluation for impairment at least
annually using a fair value based test. The fair value based test is a two-step
test. The first step involved 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 exceeded the implied value.
We completed step one of the test for each of our reporting units using
an outside appraisal firm. For all of our reporting units, no impairment existed
as the fair value of those reporting units were determined to be in excess of
their carrying values as of January 1, 2002. We performed an additional
impairment test on Hollywood.com as of December 31, 2002 using an outside
appraisal firm, which we found no impairment to exist. Effective January 1,
2002, we ceased to amortize approximately $40.7 million of goodwill. We believe
the provisions of SFAS 142 did not materially impact the results of operations.
INFLATION AND SEASONALITY
Although Hollywood Media cannot accurately determine the precise
effects of inflation, it does not believe inflation has a material effect on
sales or results of operations. Hollywood Media considers its business to be
somewhat seasonal and expects net revenues to be generally higher during the
second and fourth quarters of each fiscal year for its Tekno Books book
licensing business as a result of the general publishing industry practice of
paying royalties semi-annually. The ticketing business is also effected by
seasonal variations with net revenues generally higher in the second quarter as
a result of increased sales volumes due to the Tony Awards(C) and in the fourth
quarter due to increased levels during the holiday period. In addition, although
not seasonal, Hollywood Media's intellectual properties division and NetCo
Partners both experience fluctuations in their respective revenue streams,
earnings and cash flow as a result of the amount of time that is expended in the
creation and development of the intellectual properties and their respective
licensing agreements. The recognition of licensing revenue is typically
triggered by specific contractual events which occur at different points in time
rather than on a regular periodic basis.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in our
assets or liabilities that might occur due to changes in market rates and
prices, such as interest or foreign currency exchange rates, as well as other
relevant market rate or price changes.
Interest rates charged on Hollywood Media's debt instruments are
primarily fixed in nature. We therefore do not believe that the risk of loss
relating to the effect of changes in market interest rates is material.
We purchase and sell tickets to live theater shows in London's West
End. We minimize our exposure to adverse changes in currency exchange rates by
taking steps to reduce the time lag between the purchase and payment of tickets
for the London shows and the collection of related sales proceeds. We further
reduce our exposure by setting favorable currency conversion rates in our
foreign ticket pricing. We do not believe the risk of loss relating to adverse
changes in currency conversion rates to be material.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Form 10-Q, an evaluation
was performed under the supervision and with the participation of Hollywood
Media's management, including the Chief Executive Officer and the Chief
Operating Officer (principal financial and accounting officer), of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, Hollywood Media's management, including
the Chief Executive Officer and the Chief Operating Officer (principal financial
and accounting officer), concluded that our disclosure controls and procedures
were effective. There have been no significant changes in Hollywood Media's
internal controls and procedures or in other factors that could significantly
affect internal controls subsequent to such evaluation.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Water Garden Company LLC, as Plaintiff, v. Hollywood Media Corp., a
Florida corporation; hollywood.com, Inc., a California corporation (and
subsidiary of Hollywood Media Corp.); and The Tribune Company (as successor in
interest to the Times Mirror Company), as Defendants; filed July 16, 2001 in the
Superior Court of the State of California for the County of Los Angeles. Water
Garden Company LLC filed suit against Hollywood Media, its subsidiary,
hollywood.com, Inc., and The Tribune Company ("Tribune"), among others, claiming
damages as a result of alleged defaults by hollywood.com, Inc. under a lease for
office space entered into by hollywood.com, Inc., as lessee, and Water Garden
Company LLC, as lessor. The stated lease term is from January 1999 through
December 2003. Tribune guaranteed hollywood.com, Inc.'s lease obligations.
Hollywood Media has certain contractual indemnification obligations to Tribune
relating to Tribune's guaranty of the lease. The claims against Hollywood Media,
but not hollywood.com, Inc., have been dismissed.
As previously reported in Hollywood Media's 2002 Form 10-K, on March
25, 2003, the court in this action (the "Water Garden Lawsuit") issued its
Ruling on Motion for Summary Judgment and Summary Adjudication, in which it
granted, before trial, the motion of plaintiff for summary judgment against
defendants hollywood.com, Inc. and Tribune. This Ruling resulted in the court's
entry of a money judgment in the Water Garden Lawsuit on April 29, 2003 against
hollywood.com, Inc. and Tribune, jointly and severally, of $988,549, plus
reasonable attorneys' fees and costs of suit in an amount to be subsequently
determined. Interest would accrue on the judgment at the rate of ten percent per
annum until paid.
On May 7, 2003, hollywood.com Inc. and Tribune filed a Notice of Appeal
with the court in the Water Garden Lawsuit, and also filed a Notice of Filing
Undertaking for Stay of Enforcement of Judgment Pursuant to Appeal in order to
stay enforcement of the judgment pending resolution of the appeal (this filing
included an appeal bond obtained by Tribune (the "Appeal Bond") issued by a
surety company in the amount of $1,482,823, which is the amount of the bond
required by law to stay enforcement of the judgment). Based on the advice of our
outside legal counsel, we believe that hollywood.com, Inc. has meritorious
grounds for appeal, and a reasonable possibility exists of the appellate court
reversing the trial court's summary judgment ruling. However, it is not possible
at this time to estimate the probability of a favorable or unfavorable outcome
of such an appeal, and accordingly we cannot and do not provide any such
evaluation. If the appeal is successful, it is probable that the matter would
then be remanded to the trial court for trial.
In April 2003, Tribune and Hollywood Media agreed that Tribune would
obtain the Appeal Bond in exchange for specified advance payments by Hollywood
Media to Tribune as collateral to secure Hollywood Media's indemnification
obligation to Tribune described above. The advance payments consist of a
$100,000 payment made upon commencement of the agreement on April 7, 2003,
monthly payments of $75,000 (or $100,000, for the last six months of 2003). The
agreement allows Tribune the right to demand additional collateral, the form of
which, cash or shares of Hollywood Media's common stock, to be determined by
Hollywood Media in its discretion, in the approximate amount of the initial
judgment. Hollywood Media's obligation to make payments to Tribune under such
agreement is limited to the amount of the initial judgment plus costs and/or
attorney's fees that may be awarded and accrued interest. The advance payments
and, if applicable, any other security, are to be returned to Hollywood Media if
the appeal is successful (which would result in the bond no longer being
required) or to the extent the payments ultimately exceed Hollywood Media's
indemnification obligation to Tribune. Such payments made to Tribune may be used
by Hollywood Media, in its discretion, to pay the judgment or a settlement in
the Water Garden Lawsuit.
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The judgment in the Water Garden Lawsuit is for rent accrued under the
lease through February 13, 2003, however, the facial termination date of the
lease is December 31, 2003. Accordingly, it is probable that the plaintiff in
the Water Garden Lawsuit will file one or more subsequent actions against
hollywood.com, Inc. and Tribune claiming additional amounts representing rent
allegedly accruing after such date through December 31, 2003, together with
litigation costs and attorneys fees.
Hollywood Media believes that hollywood.com, Inc. has valid grounds for
appeal and defenses to the plaintiff's claims. Recognizing that the ultimate
outcome of this case is uncertain, Hollywood Media has accrued on its books, as
of March 31, 2003, an amount which it believes is adequate to account for
potential liability for this matter, and we will continue to evaluate the matter
as the litigation process proceeds.
In addition to the legal proceedings described above, Hollywood Media
is a party to various other legal proceedings including matters arising in the
ordinary course of business. Hollywood Media does not expect such other legal
proceedings to have a material adverse impact on Hollywood Media's financial
condition or results of operations, however, there can be no assurance that such
other matters, if determined adversely, will not have a material adverse effect.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following securities were issued by Hollywood Media during the
quarter ended March 31, 2003, in transactions that were not registered under the
Securities Act of 1933.
On January 3, 2003, Hollywood Media issued an aggregate of 101,062
shares of common stock valued at $79,495 to holders of its Convertible
Debentures pursuant to the terms thereof, in payment for interest due for the
quarterly period ended January 1, 2003.
The securities described above were issued without registration under
the Securities Act of 1933 by reason of the exemption from registration afforded
by the provisions of Section 4 (2) thereof and/or Regulation D thereunder, each
recipient of securities having delivered appropriate investment representations
to Hollywood Media with respect thereto.
ITEM 5. OTHER INFORMATION
HOLLYWOOD MEDIA RECEIVES NOTICE FROM NASDAQ
Hollywood Media has received a letter from The Nasdaq Stock Market,
Inc., notifying Hollywood Media that that during the preceding 30 consecutive
trading days, the bid price of Hollywood Media's common stock had closed below
the minimum bid price of $1.00 per share as required by the Nasdaq National
Market under Nasdaq Marketplace Rule 4450(a) (5). The letter stated that
Hollywood Media has 180 days, or until September 29, 2003, to regain compliance
with the rule (to regain compliance, the bid price of Hollywood Media's common
stock must close at $1.00 per share or more for a minimum of 10 consecutive
trading days, and under certain circumstances Nasdaq may require more than 10
trading days, but generally not more than 20 days). Nasdaq has proposed rule
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changes which are pending but not yet in effect, that could allow Hollywood
Media, if it meets certain Nasdaq National Market listing requirements, a second
180-day period to meet the minimum bid price requirement and maintain its
National Market listing, however, there can be no assurance that these rule
changes will occur as proposed or at all. The letter also stated that, if
Hollywood Media is not in compliance by September 29, 2003 (subject to possible
extension for 180 additional days if the proposed rule change described above is
approved), Nasdaq would then notify Hollywood Media that its securities will be
delisted from the Nasdaq National Market and that, if such event occurs,
Hollywood Media may appeal Nasdaq's delisting decision to a Nasdaq Listing
Qualifications Panel, and Hollywood Media could also apply to transfer the
listing of its common stock to the Nasdaq SmallCap Market pursuant to Nasdaq
Marketplace Rule 4450(i). If Hollywood Media were to transfer to the Nasdaq
SmallCap Market, current Nasdaq rules provide that Hollywood Media would have
two additional grace periods following transfer to the SmallCap market to
satisfy the minimum $1.00 per share bid price requirement; one period for 180
days followed by another for 90 days, if other SmallCap listing requirements
continue to be satisfied. Nasdaq has proposed Nasdaq SmallCap rule changes which
are pending but not yet in effect, that would extend the final 90-day grace
period referenced above by 90 days to 180 days, which would permit a longer
compliance period for Hollywood Media if it were to transfer to the Nasdaq
SmallCap Market, however, there can be no assurance that these rule changes will
occur as proposed or at all.
If Hollywood Media is not in compliance with the minimum bid price
requirement by September 29, 2003 (subject to possible extension for 180
additional days if the proposed rule change described above is approved) and
receives a delisting notice from Nasdaq, then Hollywood Media may apply to
transfer its common stock listing to the Nasdaq SmallCap Market and may appeal
such delisting determination. Although Hollywood Media currently anticipates
that it would qualify for transfer to the SmallCap market at such time, there
can be no assurance that such transfer to the SmallCap Market or that such an
appeal would be successful.
If a delisting from the Nasdaq National Market were to occur, shares of
Hollywood Media's common stock might become listed for trading on the Nasdaq
SmallCap Market as discussed above. If not, then Hollywood Media's shares might
be traded through other over-the-counter market services such as the OTC
Bulletin Board (or the BBX market, which may replace the OTC Bulletin Board), or
the "pink sheets" service maintained by Pink Sheets LLC. Such alternative
trading markets are generally considered less efficient than the Nasdaq National
Market. Consequently, purchases and sales of Hollywood Media's common stock
could become more difficult due to lower trading volumes, transactions could be
delayed, and securities analysts' and news media coverage of Hollywood Media may
be reduced. These factors could result in lower prices and larger spreads in the
bid and ask prices for shares of Hollywood Media's common stock.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
INCORPORATED BY
EXHIBIT DESCRIPTION REFERENCE FROM
99.1 Certification of Chief Executive Officer. (*)
99.2 Certification of Chief Operating Officer
(Principal financial and accounting officer). (*)
__________________
* Filed as an exhibit to this Form 10-Q
(b) REPORTS ON FORM 8-K:
Hollywood Media filed one report on Form 8-K during the
quarter ended March 31, 2003, on February 10, 2003. Item 5 of the
report disclosed that, on February 10, 2003, Hollywood Media announced
that it has been working with an investment banking firm in exploring
strategic opportunities available to enhance value for shareholders,
including the possible sale of one or more of Hollywood Media's
divisions. The included press release indicated that there can be no
assurance that any transaction will occur as a result of this process.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOLLYWOOD MEDIA CORP.
Date: May ___, 2003 By: /s/ Mitchell Rubenstein
--------------------------------------------
Mitchell Rubenstein, Chief Executive Officer
(Principal executive officer)
Date: May ___, 2003 By: /s/ Nicholas G. Hall
--------------------------------------------
Nicholas G. Hall, Chief Operating Officer
(Principal accounting officer)
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CERTIFICATIONS
I, Mitchell Rubenstein, as Chief Executive Officer of Hollywood Media Corp.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hollywood Media
Corp. (the registrant);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May ___, 2003 By: /s/ Mitchell Rubenstein
--------------------------------------------
Mitchell Rubenstein, Chief Executive Officer
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CERTIFICATIONS
I, Nicholas G. Hall, as Chief Operating Officer of Hollywood Media Corp.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hollywood Media
Corp. (the registrant);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May ___, 2003 By: /s/ Nicholas G. Hall
-----------------------------------------
Nicholas G. Hall, Chief Operating Officer
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