Attached files

file filename
EX-32.2 - HOLLYWOOD MEDIA CORPv177838_ex32-2.htm
EX-32.1 - HOLLYWOOD MEDIA CORPv177838_ex32-1.htm
EX-31.2 - HOLLYWOOD MEDIA CORPv177838_ex31-2.htm
EX-31.1 - HOLLYWOOD MEDIA CORPv177838_ex31-1.htm
EX-23.1 - HOLLYWOOD MEDIA CORPv177838_ex23-1.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission File No.      1-14332

HOLLYWOOD MEDIA CORP.
(Exact name of registrant issuer as specified in its charter)

Florida
 
65-0385686
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
2255 Glades Road, Suite 221A
   
Boca Raton, Florida
 
33431
(Address of principal executive offices)
 
(Zip Code)

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

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

Title of each class
Name of each exchange on which registered
Common stock, par value $.01 per share
NASDAQ Global Market

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

Common stock, par value $.01 per share
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No ¨

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

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

Large accelerated filer ¨
Accelerated filer ¨
   
Non-accelerated filer  x (Do not check if a smaller reporting company)
Smaller reporting company ¨

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

Yes ¨ No x

The aggregate market value of the registrant’s common stock, $.01 par value, held by non-affiliates as of June 30, 2009, computed by reference to the last sale price of the common stock on June 30, 2009 as reported by Nasdaq, was $35,386,885, as calculated under the following assumptions.  For purposes of this computation, all executive officers, directors, and beneficial owners of 10% or more of the registrant’s common stock known to the registrant, have been deemed to be affiliates, but such calculation should not be deemed to be an admission that such directors, officers or beneficial owners are, in fact, affiliates of the registrant.

As of March 15, 2010, there were 31,179,066 shares of the registrant’s common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2008 Annual Meeting of Shareholders filed or to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.
 


 
 

 

HOLLYWOOD MEDIA CORP.
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 2009

Table of Contents
 
   
Page No.
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
iii
     
PART I
     
Item 1.
Business
1-6
     
Item 1A.
Risk Factors
6-13
     
Item 1B.
Unresolved Staff Comments
14
     
Item 2.
Properties
14
     
Item 3.
Legal Proceedings
14
     
Item 4.
Submission of Matters to a Vote of Shareholders
14-15
     
PART II
     
Item 5.
Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
16-18
     
Item 6.
Selected Financial Data
19-22
     
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
22-35
     
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
35-36
     
Item 8.
Financial Statements and Supplementary Data
37-75
     
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
76
     
Item 9A.
Controls and Procedures
76-77
     
Item 9B.
Other Information
77
     
PART III
     
Item 10.
Directors, Executive Officers and Corporate Governance
78
     
Item 11.
Executive Compensation
78
 
i

 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
78
     
Item 13.
Certain Relationships and Related Transactions, and Director Independence
78
     
Item 14.
Principal Accounting Fees and Services
78
     
PART IV
     
Item 15.
Exhibits, Financial Statement Schedules
79-82

 
ii

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-K or that are otherwise made by us or on our behalf about our financial condition, results of operations and business constitute “forward-looking statements,” within the meaning of federal securities laws. Hollywood Media Corp. (“Hollywood Media”) cautions readers that certain important factors may affect Hollywood Media’s actual results, levels of activity, performance or achievements and could cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements anticipated, expressed or implied by any forward-looking statements that may be deemed to have been made in this Form 10-K or that are otherwise made by or on behalf of Hollywood Media. 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. The forward-looking statements contained herein include statements about the proposed sale of the Broadway Ticketing Division that was announced by Hollywood Media on December 22, 2009.  Factors that may affect Hollywood Media’s results and the market price of our common stock include, but are not limited to:

 
·
our continuing operating losses,
 
 
·
negative cash flows and accumulated deficit,
 
 
·
the need to manage our growth,
 
 
·
our ability to develop and maintain strategic relationships, including but not limited to relationships with live theater venues,
 
 
·
our ability to compete with other online ticketing services and other competitors,
 
 
·
our ability to maintain and obtain sufficient capital to finance our growth and operations,
 
 
·
our ability to realize anticipated revenues and cost efficiencies,
 
 
·
technology risks and risks of doing business over the Internet,
 
 
·
government regulation,
 
 
·
adverse economic factors such as recession, war, terrorism, international incidents or labor strikes and disputes,
 
 
·
our ability to achieve and maintain effective internal controls,
 
 
·
dependence on our founders, and our ability to recruit and retain key personnel,
 
 
·
the unpredictability of our stock price,
 
 
·
the occurrence of any event, change or other circumstance that could give rise to the termination of the purchase agreement related to the sale of the Broadway Ticketing Division,
 
 
·
the inability to complete the sale of the Broadway Ticketing Division due to the failure to satisfy the conditions to the completion of the sale of the Broadway Ticketing Division, including the receipt of shareholder approval and the absence of legal restraints from governmental entities,
 
 
·
the failure of the sale of the Broadway Ticketing Division to close for any other reason, and
 
 
·
the possible effect of the announcement of the sale of the Broadway Ticketing Division on our customer and supplier relationships, operating results, and business generally.
 
iii


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

Because these forward-looking statements are subject to risks and uncertainties, we caution you not to place undue reliance on these statements, which speak only as of the date of this Form 10-K. We do not undertake any responsibility to review or confirm analysts’ expectations or estimates or to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this Form 10-K, except as required by law. As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity or achievements and neither we nor any other person assumes responsibility for the accuracy and completeness of such statements.

 
iv

 

PART I

Item 1. 
Business.

Hollywood Media is comprised of various businesses focusing primarily on online ticket sales, deriving revenue primarily from Broadway, Off-Broadway and London’s West End ticket sales to individuals and groups, as well as advertising and book development license fees and royalties. Our Broadway Ticketing business includes Broadway.com, 1-800-BROADWAY, Theatre Direct and Theatre.com. Hollywood Media’s businesses also include an intellectual property business, the U.K. based CinemasOnline companies and a minority interest in MovieTickets.com.

Proposed Sale of the Broadway Ticketing Division.

On December 22, 2009, Hollywood Media entered into a stock purchase agreement (the “Purchase Agreement”) with Key Brand Entertainment Inc., a Delaware corporation (“Key Brand”), pursuant to which Key Brand will purchase Hollywood Media’s Broadway Ticketing Division (the “Broadway Sale”) through the purchase of all of the outstanding capital stock of Theatre Direct NY, Inc., a Delaware corporation and a wholly-owned subsidiary of Hollywood Media, from Hollywood Media.

If the Broadway Sale is completed pursuant to the Purchase Agreement, (i) Hollywood Media will receive $20 million in cash (subject to customary adjustments described in the Purchase Agreement), (ii) Key Brand will issue Hollywood Media a five year second lien secured promissory note in the initial principal amount of $8.5 million at an interest rate of 12% per annum (the “Promissory Note”), (iii) Theatre Direct will issue Hollywood Media a warrant to purchase 5% of the outstanding shares of common stock of Theatre Direct as of the closing date on a fully diluted basis at an exercise price of $.01 per share (the “Warrant”), (iv) Hollywood Media will receive an earnout from Key Brand of up to $14 million contingent upon reaching certain revenue targets, and (v) Key Brand will assume $1.6 million of liabilities associated with employment agreements with certain employees of Theatre Direct.

The closing of the transactions contemplated by the Purchase Agreement is conditioned upon Hollywood Media’s receipt of the approval of its shareholders as well as the satisfaction or waiver of certain other closing conditions set forth in the Purchase Agreement.  Hollywood Media filed a proxy statement with the SEC relating to the transactions contemplated by the Purchase Agreement in January 2010 and currently expects to hold a special meeting of Hollywood Media’s shareholders to approve the transactions contemplated by the Purchase Agreement.  If Hollywood Media’s shareholders approve the transactions contemplated by the Purchase Agreement and other conditions contained in the Purchase Agreement are satisfied or waived, Hollywood Media currently expects that the transactions contemplated by the Purchase Agreement would close within 30 days of the date such transactions are approved by Hollywood Media’s shareholders.

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

Broadway Ticketing Division.

Hollywood Media’s Broadway Ticketing Division is comprised of Broadway.com, 1-800-BROADWAY, Theatre Direct (“TDI”) and Theatre.com (collectively called “Broadway Ticketing”). Broadway tickets are sold online through our Broadway.com website and by telephone through our 1-800-BROADWAY number.  Broadway Ticketing is also a live theater ticketing seller that provides groups and individuals with access to theater tickets and knowledgeable service, covering shows on Broadway, Off-Broadway and, through a partnership arrangement between Theatre.com and an unrelated London-based ticket agency, in London’s West End theater district. Broadway.com features include shows’ opening night video and photo coverage, show reviews, celebrity interviews and theater columns, as well as show information pages, including casting, synopses and venue information.
 
1

 
Ad Sales Division.

Hollywood Media’s Ad Sales Division is comprised of the U.K. based CinemasOnline Limited, UK Theatres Online Limited, WWW.CO.UK Limited and Spring Leisure Limited (collectively known as “CinemasOnline”) and holds Hollywood Media’s investment in MovieTickets.com, Inc. (“MovieTickets.com”).
CinemasOnline maintains plasma television screens in hotels, car dealerships, cinemas and live theaters in the U.K. and Ireland in exchange for the right to sell advertising displayed on such plasma screens. CinemasOnline also provides other marketing services, including advertising sales on lobby display posters, movie brochure booklets and ticket wallets distributed in cinemas, live theater and other entertainment venues in the U.K. and developing and maintaining websites for cinemas and live theater venues in the U.K. and Ireland in exchange for the right to sell advertising on such websites.  MovieTickets.com is one of the two leading destinations for the purchase of movie tickets through the Internet. MovieTickets.com is an online ticketing service owned by a joint venture formed by Hollywood Media and several major movie exhibitor chains. Hollywood Media currently owns 26.2% of the equity of MovieTickets.com.

Intellectual Properties Division.

Our Intellectual Properties Division includes a book development and book licensing business owned and operated by our 51% owned subsidiary, Tekno Books, which develops and executes book projects, frequently with best-selling authors. Tekno Books has worked with over 60 New York Times best-selling authors, including Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan Kellerman, Dean Koontz, Robert Ludlum, Nora Roberts and Scott Turow.  Hollywood Media is also a 50% partner in NetCo Partners, a partnership that owns NetForce.  Hollywood Media also owns directly additional intellectual property created for it by various best-selling authors such as Mickey Spillane, Anne McCaffrey and others.

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

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

Percentage of Total Net Revenues

   
2009
   
2008
   
2007
 
Broadway Ticketing
    96 %     95 %     95 %
Ad Sales
    3 %     4 %     4 %
Intellectual Properties
    1 %     1 %     1 %
TOTALS
    100 %     100 %     100 %
 
2

 
Broadway Ticketing Division

Broadway.com and 1-800-BROADWAY.  We launched the Broadway.com website on May 1, 2000. Broadway.com offers the ability to purchase Broadway, off-Broadway and, through a partnership arrangement between Theatre.com and an unrelated  London-based ticket agency, London’s West End theater tickets online. In addition, the site provides a wide variety of editorial content about the theater business, feature stories, opening nights, star profiles, photo opportunities, and a critical roundup of reviews.  Our 1-800-BROADWAY toll-free number features the ability to purchase Broadway, off-Broadway and London’s West End theater tickets over the phone and complements the online ticketing and information services available through Broadway.com.  Broadway.com also generates revenue from the sale of sponsorships and advertisements on the Broadway.com website.

TDI.  We acquired TDI as of September 15, 2000. Founded in 1991, TDI is a live theater ticketing wholesaler that provides groups and individuals with access to theater tickets and knowledgeable service, covering shows on Broadway, off-Broadway and, through a partnership arrangement between Theatre.com and an unrelated London-based ticket agency, in London’s West End.  TDI sells tickets directly to group buyers including travel agents and tour groups.  On February 1, 2007, TDI acquired the ticketing business of Showtix LLC (“Showtix”), an established group ticketing sales agency for Broadway and Off-Broadway performances, providing TDI with an increased customer base and customer services for group ticketing.  TDI also manages a marketing cooperative that represents participating Broadway shows to the travel industry around the world. Recent Broadway shows marketed by this cooperative include Billy Elliott, Chicago, Jersey Boys, Shrek the Musical, The Lion King, The Little Mermaid and The Phantom of the Opera.  In addition, TDI’s education division, Broadway Classroom, markets group tickets and educational programs to schools across the country.

The combined Broadway Ticketing business provides theater ticketing and related content for over 100 venues in multiple markets to consumers and over 20,000 travel agencies, tour operators, corporations, educational institutions and affiliated websites.  Our Broadway Ticketing division employs a knowledgeable sales force that offers ticket buyers a concierge-style service that includes show recommendations, hotel packages with luxury hotels and dinner choices at fine restaurants. We obtain the tickets we sell through our arrangements with theatre box offices and we maintain our own inventory of tickets for sale.

Theatre.com. We launched our U.K.-based Theatre.com website in December 2005 with editorial coverage of London’s West End theatre and began selling ticketing to major London venues in February 2006, based upon a similar model to selling tickets on Broadway.com. Beginning in late September 2007, sales for events in London’s West End are fulfilled through a partnership arrangement between Theatre.com and an unrelated London-based ticket agency.

Ad Sales Division

CinemasOnline. In November 2005, we acquired CinemasOnline, a group of companies based in the U.K.  CinemasOnline’s business involves maintaining plasma television screens in certain venues in the U.K. and Ireland, including hotels, car dealerships, cinemas and live theaters.  These services are provided in exchange for CinemasOnline retaining the right to sell advertising to be displayed on such plasma screens.  CinemasOnline currently has agreements with approximately 170 venues for the display of approximately 200 plasma screens in the U.K. and Ireland.  CinemasOnline also has over [200] agreements with cinemas, live theater and other entertainment venues in the U.K. to sell advertising on lobby display posters, movie brochure booklets and ticket wallets in these venues, and agreements with approximately 165 cinemas and live theater venues in the U.K. and Ireland to develop and maintain websites for such venues in exchange for the right to sell advertising on such websites.

MovieTickets.com.   Hollywood Media launched the MovieTickets.com website in May 2000 with several major theater exhibitors. MovieTickets.com is one of the two leading website destinations for the purchase of movie tickets through the Internet. The MovieTickets.com website allows users to purchase movie tickets and retrieve them at “will call” windows or kiosks at theaters and, for theaters with the capability, for users to print tickets out at their home or office. MovieTickets.com generates revenues from service fees charged to users for the purchase of tickets, the sale of advertising and the sale of research data. MovieTickets.com exhibitors operate theaters located in all of the top 20 markets and approximately 70% of the top 50 markets in the United States and Canada, and represent approximately 50% of the top 50 and top 100 grossing theaters in North America.  Additionally, MovieTickets.com launched MovieTickets.co.uk in the United Kingdom in July of 2003.
 
3


MovieTickets.com is owned by a joint venture in which Hollywood Media owns a 26.2% equity interest.  See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation - Equity in Earnings of Unconsolidated Investees” below, and Note 15 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K below, for additional information about our equity interest in MovieTickets.com. MovieTickets.com entered into an agreement with Viacom Inc. effective August 2000 whereby Viacom Inc. acquired a 5% interest (now 4.1% after dilution) in MovieTickets.com for $25.0 million of advertising and promotion over five years.  MovieTickets.com is promoted through on-screen advertising in most participating exhibitors’ theaters. In March 2001, America Online Inc. (“AOL”) purchased a non-interest bearing convertible preferred equity voting interest in MovieTickets.com for $8.5 million in cash, which was convertible into approximately 3% of the common stock of MovieTickets.com and was converted in April 2005.  The AOL interest is held by Time Warner Inc.   As a result of this conversion, Hollywood Media’s ownership of the equity of MovieTickets.com changed from 26.4% to 26.2%. In connection with the 2001 transaction with AOL, MovieTickets.com’s ticket inventory was promoted throughout AOL’s interactive properties and ticket inventory. Through an agreement in August 2004 between MovieTickets.com and Moviefone, MovieTickets.com acquired by assignment and assumed the ticketing agreements that Moviefone had with its movie theater exhibitors.  The Moviefone exhibitor agreements assumed by MovieTickets.com include agreements with Clearview Cinemas and Landmark Theaters.

Currently, MovieTickets.com tickets for approximately 180 exhibitors, including:  Abingdon Cinemall, Academy 8 Theaters (P & G Theaters), Access Digital Theatres, Alco Theaters, All Star Entertainment, Allred 5 Theater, Ambler Theater, AMC Theatres, Aperture Cinema, Arena Grand Theatre (Columbus Hospitality), Ashbrie Cinemas, Atlantic Theaters (Movies at Midway), Atlas Cinemas, Aviemore Cinema (UK), Avon Theater, Ayrsley Grand Cinemas 14, B&B Theatres, Bank Street Theater, Bowtie Cinemas, Brooklyn Academy of Music, Bryn Mawr Movie Theatre Co., Camera Cinemas, Carolina Cinemas, Celebrity Theatres, Channelside Cinemas, Cinéma Beloeil (Canada), Cinema Centers, Cinema Four-Quad (Quad Cinema), Cinemagic Movies, Cinemagic Theatres (MN), Cineplex Odeon, Cinemax Bantry (Ireland), Classic Cinemas, Classic Listowel (Ireland), Clearview Cinemas, Cleveland Cinemas, Continental Cinemas, Cornelius Cinemas (Act V Theatres), Dickinson Theatres, Dipson Theatres, Drexel Theatres, Eastern Shores (O’Neil Theaters NE), Eastpoint Movies 10, Elvis Cinema, Emagine Entertainment (Cinema Hollywood), Empire Theatres (Canada), Entertainment Retail (Hollywood Hits), EPIC Cinemas, Eveningstar Cinema, Fabian 8 Cinema, Famous Players, Film Forum, Fine Arts Theatre – Beverly Hills, Flagship Cinemas, Fox Bay Cinema Grill, Foxmoor Movies, Frank Theatres, Funasia Theaters, Galaxy Cinemas (Canada), Galaxy Cinemas (GA), Galaxy Cinemas (NC), Gateway Theater, Greenville Cinemas (Camelot Cinemas), Hawthorne Theater, Harkins Theatres, Harrisonville Cinema, HLB Entertainment (Palace 9, Majestic 10), Hollywood Cinemas (UK), Hollywood Cinemas (UK) – Lowestoft, Hollywood Cinema 9, Hollywood Premier Cinemas, IFC Center, Island Cinemas, Jane Pickens Theater and Event Center, Jarvis Conservatory, Kew Gardens (and Cobble Hill), K&G Theaters (Bloomfield 8), Kinema in the Woods (UK), Krikorian Premiere Theatres, Lafitte Cinema 4, Landmark Theatres, Lee Neighborhood Theatres, Liebe Entertainment Group, Lighthouse (UK) – Wolverhampton, Live Chicago Music, M Park 4 Multiplex Cinema, Marketplace Cinema, Mary Riepma Ross Media Arts Center, Maplewood Theatre, Maiden Alley Cinema, Main Street Cinemas, Main Street Theaters, Mall of America 14, Majestic Crest Theatre, Malco Theatres, Mann Theatres, Marcus Theatres, Marquee Cinemas, Mega Movies at the Brunswick Square Mall, Metropolitan Theatres, Mission Grove Theaters, Missouri Cinema 6, MJR Theatres, MnM Theatres, Morley Theatre, Moore Family Theaters, Movie Tavern, MovieMax Theatres, Movie World Cinemas, Muvico Theaters, My Town Cinemas, NCG Cinemas, NAOS Entertainment, Narberth Theatre, National Amusements, Nelsonville Movies 10, North American Cinema, Oasis Cinema, Omniplex Theatre Group, O’Neil Theatres (Louisiana), O’Neil Cinemas (New England), Pacific Theatres, Paris Theater, Pavilion Cinema (UK), Penistone Paramount (UK), Penn Cinema, Phoenix Theatres (MI), Phoenix Theatres (TN), Pickwick Theatres, Plaza Cinema Café, Premiere Cinemas, Prytania Theatre, Quarry Cinemas, Rail Road Square Cinema, Rave Motion Pictures, Regal Theater Stowmarket (UK), Regency 8 Cinema, Republic Theater Group, Rex Cinema Wareham (UK), Rheem Theater, Rio Entertainment, Riviera Cinemas, Roxy Theatres, Royal Cinema, Safari Cinema, Santikos Theatres, Sarasota Film Society, Sayville Theatre, Schulman Partners (Colleyville Cinema Grill, City Lights Cinema), Scotiabank Theatres, Sea Turtle Cinemas, ShowBiz Cinemas, Showplace Cinemas, Silver Screen Cinemas, Silver Screen Partners (Rosebud Cinema Drafthouse, The Times Cinema), Southern Theatres, Southeast Cinemas, Speciality Cinema & Grill (Bermuda), Spotlight Theatres, Starplex Cinemas, Startime Entertainment, Star Cinema 6, Stone Theaters, Studio Movie Grill, Sunrise Cinemas, Syracuse Stadium 6, Tango Theaters, The Cinemas (Aruba), The Movies Curacao (Curacao), Terrace Theaters, Tower Theaters, Trans-Lux Cinemas, Tri City Theatre, United Entertainment Corp., UltraStar Cinemas, Village Theaters, Virginia Motion Pictures, Warren Theatres, Watson Theatre, Wellfleet Cinemas and Westates Theatres.
 
4


Intellectual Properties Business

Book Development and Book Licensing. Our Intellectual Properties division includes a book development and book licensing business owned and operated by our 51% owned subsidiary, Tekno Books, which develops and executes book projects, frequently with best-selling authors. Tekno Books has worked with more than 60 New York Times best-selling authors, including Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan Kellerman, Dean Koontz, Robert Ludlum, Nora Roberts and Scott Turow, and numerous media celebrities, including Louis Rukeyser and Leonard Nimoy. Our intellectual properties division has licensed books for publication with more than 80 domestic book publishers, including Random House (Bertelsmann), Penguin Publishing Group (Pearson), Simon & Schuster (Viacom), HarperCollins (News Corp.), St. Martin’s Press (Holtzbrink of Germany), Warner Books (Time Warner), and the publishing division of Barnes & Noble. Tekno Books has also produced numerous books under license from such entertainment companies as Universal Studios, CBS Television, DC Comics (Time Warner), and MGM Studios. Since 1980, Tekno Books has developed over 2,080 books that have been published. Another 3,800 foreign, audio, paperback, electronic, and other editions of these books have been sold to hundreds of publishers around the world, and published in 33 languages. Tekno’s books have been finalists for, or winners of, more than 200 awards, including The Edgar Allan Poe Award, The Agatha Christie Award (Mystery), The Hugo Award (Science Fiction), The Nebula Award (Fantasy), The International Horror Guild Award (Horror) and The Sapphire Award (Romance). Tekno Books’ current backlog and anticipated books for future publishing include more than 200 books under contract or in final negotiations, including more than 40 books by New York Times best-selling authors. The Chief Executive Partner of Tekno Books, Dr. Martin H. Greenberg, is the owner of the remaining 49% interest in Tekno Books.

Intellectual Properties. The Intellectual Properties division also owns directly (separate from Tekno Books) the exclusive rights to certain intellectual properties that are complete stories and ideas for stories, created by best-selling authors and media celebrities. Some examples of our intellectual properties are Neil Gaiman’s Mr. Hero, Neil Gaiman’s Lady Justice, Anne McCaffrey’s Acorna the Unicorn Girl, Leonard Nimoy’s Primortals, and Mickey Spillane’s Mike Danger. We license rights to certain of our intellectual properties for use by licensees in developing projects in various media forms. We generally obtain the exclusive rights to the intellectual properties and the right to use the creator’s name in the titles of the intellectual properties (e.g., 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 NetForce. Hollywood Media and C.P. Group are each 50% partners in NetCo Partners. Tom Clancy is a shareholder of C.P. Group. At the inception of the partnership, C.P. Group contributed to NetCo Partners all rights to NetForce, and Hollywood Media contributed to NetCo Partners all rights to Tad Williams’ MirrorWorld, Arthur C. Clarke’s Worlds of Alexander, Neil Gaiman’s Lifers, and Anne McCaffrey’s Saraband. In 1997, NetCo Partners licensed to Putnam Berkley the rights to publish the first six NetForce books in North America, which books were created and published.  This agreement was subsequently renewed in December 2001 for four more books that were created and published.  NetForce books have so far been published in mass market paperback format. NetCo owns all rights in all media to the NetForce property including film, television, video and games. The first book in the series was adapted as a four-hour mini-series on ABC.  Through its interest in NetCo, Hollywood Media receives distributions of its share of proceeds generated from the rights to the NetForce series.
 
5


Employees
 
At February 23, 2010, Hollywood Media employed approximately 118 full-time employees and 4 part-time employees for its continuing operations, compared to 128 full-time employees and 2 part-time employees employed by Hollywood Media’s continuing operations on February 26, 2009.  Of our 118 full-time employees, 82 employees are engaged in our Broadway Ticketing division, 12 employees are engaged in our Ad Sales division, 4 employees are engaged in our Intellectual Properties division and 20 are corporate, technology and administrative employees. None of the employees are represented by a labor union, nor have we experienced any work stoppages. We consider our relations with our employees to be good.
 
Item 1A.  Risk Factors.

Risks of Investing in Our Shares

Investments in our capital stock are speculative and involve a high degree of risk.  Investors should carefully consider the following matters, as well as the other information in this Form 10-K. If any of these risks or uncertainties actually occur, our business, results of operations, financial condition, or prospects could be substantially harmed, which would adversely affect your investment. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business, operating results, financial condition, and prospects.  Unless stated otherwise, the following risk factors do not take into account or give any effect to the impact of the proposed sale of the Broadway Ticketing Division.

We have a history of losses and an accumulated deficit. Our operating results could fluctuate significantly on a quarterly and annual basis.

Hollywood Media has incurred significant losses since it began doing business. For the year ended December 31, 2009 we had a net loss of approximately $5.6 million and a loss from continuing operations of approximately $6.2 million and in the year ended December 31, 2008 we had net loss of approximately $16.9 million net of a loss from continuing operations of approximately $10.5 million.   The net loss for 2009 was primarily attributable to a $5.0 million impairment loss recorded in the second quarter of 2009.  The net loss for 2008 was attributable to a loss on the sale of Hollywood Media’s subsidiaries Hollywood.com, Inc. and Totally Hollywood TV, LLC (collectively, the “Hollywood.com Business”) to R&S Investments on August 21, 2008, as disclosed in prior filings, along with operating losses.  As of December 31, 2009, we had an accumulated deficit of approximately $277.3 million. We may incur additional losses while we continue to grow our businesses. Our future success will depend on the continued growth in our various businesses, and our ability to generate sufficient ticketing, licensing and advertising revenues to cover our costs.

In addition, our operating results may fluctuate significantly in the future as a result of a variety of factors, including:

 
·
seasonal, economic and other variations in the demand for Broadway tickets and resulting variations in our revenue from Broadway ticket sales;
 
·
our ability to enter into or renew strategic relationships and agreements with live theater venues and authors;
 
·
the amount and timing of our marketing expenditures and other costs relating to the expansion of our operations;
 
·
new products, websites or services introduced by us or our competitors; and
 
·
technical difficulties, security concerns or system downtime affecting the Internet generally or the operation of our websites in particular.
 
6

 
As a result, our operating results for any particular period may not accurately predict our future operating results.

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

From time to time we explore potential transactions that may help us to realize the full value of our assets in the interest of our shareholders, including the proposed sale of the Broadway Ticketing Division, other potential dispositions or other strategic transactions. There can be no assurance that any transaction will occur or, if one is undertaken, of its potential terms or timing.  For additional information, see the discussion under “Outlook” in the “Liquidity and Capital Resources” portion of Item 7 of this Form 10-K Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” below.

We may not be able to compete successfully.

Ticketing Businesses. The market for ticketing services and products is intensely competitive and rapidly changing. The number of telephone services, online services, wireless services and websites competing for consumers’ attention and spending has proliferated and we expect that competition will continue to intensify. We compete, directly and indirectly, for customers, advertisers, members and content providers with the following categories of companies:

 
·
websites, telephone services and wireless services targeted to entertainment enthusiasts, moviegoers, theatergoers and other eventgoers, which feature directories of movies, shows, events, showtimes, theater and event locations and related content, and also allow users to purchase tickets;
 
·
traditional ticketing organizations, companies, agents and brokers;
 
·
the box office at each of the venues that hold events for which we sell tickets; and
 
·
ticket resellers and other participants in the secondary ticketing market.

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

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

Internet Businesses.  Our performance and ability to compete are dependent to a significant degree on our internally developed and licensed technology. We rely on a combination of copyright, trademark and trade secret laws, confidentiality and nondisclosure agreements with our employees and with third parties and contractual provisions to establish and maintain our proprietary rights. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate, or that third parties will not infringe upon or misappropriate our copyrights, trademarks, service marks and similar proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or limited in certain foreign countries. In the future, litigation may be necessary to enforce and protect our trademarks, service marks, trade secrets, copyrights and other intellectual property rights. Any such litigation would be costly and could divert management’s attention from other more productive activities. Adverse determinations in such litigation could result in the loss of certain of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties, or prevent us from selling our services.
 
7


We own trademark registrations in the United States for many of the trademarks that we use, including BROADWAY.COM, and some of our trademarks are registered in select foreign countries. We have also filed trademark applications in select foreign countries for the mark HOLLYWOOD MEDIA CORP. and others. There can be no assurance that we will be able to secure adequate protection for these names or other trademarks in the United States or in foreign countries. If we obtain registration of those trademarks, we may not be able to prevent our competitors from using different trademarks that contain the word “Broadway.” Many countries have a “first-to-file” trademark registration system; and thus we may be prevented from registering our marks in certain countries if third parties have previously filed applications to register or have registered the same or similar marks. It is possible that our competitors or others will adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion.

Our inability to protect our BROADWAY.COM mark and other marks adequately could impair our ability to maintain and expand such brands and thus impair our ability to generate revenue from these brands.

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

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

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

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

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

8


We are dependent on our ability to develop strategic relationships with live theater venues, exhibitors and authors.

The success of our operations is dependent in part on our ability to enter into and maintain strategic relationships and agreements with live theater venues and, through MovieTickets.com, exhibitors.  There can be no assurance that we will be able to develop and maintain these strategic relationships and, if we are unable to do so, our financial condition and results of operations could be adversely impacted.

In addition, our Intellectual Property division is dependent on our ability to identify, attract and retain best-selling authors and media celebrities who create our intellectual properties.  Our ability to enter into contracts with new authors or renew contracts would be impaired without the services of Dr. Martin Greenberg.  See the risk factor “Our ability to attract qualified personnel and retain certain key personnel is critical to our business” below.

Our operations could be negatively impacted by systems interruptions.

The hardware and software used in our ticketing operations, or that of our affiliates, could be damaged by fire, floods, hurricanes, earthquakes, power loss, telecommunications failures, break-ins and similar events. Our websites could also be affected by computer viruses, electronic break-ins or other similar disruptive problems. These system problems could negatively affect our business. Insurance may not adequately compensate us for any losses that may occur due to any failures or interruptions in systems. General Internet traffic interruptions or delays could also harm our business. As with Internet websites in general, our websites may experience slower response times or decreased traffic for a variety of reasons. Additionally, online service providers have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. To the extent our services are disrupted, we could lose users of our websites and our ticketing revenues could decline.

We are subject to additional security risks by doing business over the Internet.

A significant obstacle to consumer acceptance of electronic commerce over the Internet has been the need for secure transmission of confidential information in transaction processing. Internet usage could decline if any well-publicized compromise of security occurred. We may incur additional costs to protect against the threat of security breaches or to alleviate problems caused by these breaches. If a third person were able to misappropriate our users’ personal information or credit card information, we could be held liable for failure to adequately protect such information and subject to monetary damages to the extent our users suffer financial losses or other harm as a result thereof.

We may not be able to adapt as technologies and customer expectations continue to evolve.

To be successful, we must adapt to rapidly changing technologies by continually enhancing our websites and ticketing services and introducing new services to address our customers’ changing expectations. We must evaluate and implement new technologies that are available in the marketplace or risk that our customers will not continue using our services.  We could incur substantial costs if we need to modify our services or infrastructure in order to adapt to changes affecting providers of content and services through the Internet. Our customer base and thus our revenues could decrease if we cannot adapt to these changes.

If our suppliers of tickets for Broadway shows did not sell us all the tickets we wish to buy, our financial results may be adversely affected.

We are one of many licensed ticket resellers that purchase and resell tickets for Broadway shows. We obtain the tickets we sell through our arrangements with theater box offices and we maintain our own inventory of tickets for sale.  If the box offices changed their policies or methods of ticket sales in a manner that resulted in our inability to buy all the tickets that we wish to buy for resale by our Broadway Ticketing division, then Hollywood Media’s revenues and financial results may be adversely affected. Some of our ticket suppliers require surety bonds to be maintained. If we are not able to maintain a sufficient level of bonding, we may be precluded from purchasing tickets.
 
9


Government regulation could impact our business.

The application of existing laws and regulations to our business relating to issues such as user privacy, pricing, taxation, content, sweepstakes, copyrights, trademarks, advertising, and the characteristics and quality of our products and services can be unclear. We also may be subject to new laws and regulations related to our business. Although we endeavor to comply with all applicable laws and regulations and believe that we are in compliance, because of the uncertainty of existing laws and the possibility that new laws may be adopted, there is a risk that we will not be in full compliance.

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

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

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

Our ability to attract qualified personnel and retain certain key personnel is critical to our business.

Our future operating results depend substantially upon the continued service of our executive officers and key personnel. Our future operating results will also depend in significant part upon our ability to attract and retain qualified management, technical, marketing, sales and support personnel. Competition for qualified personnel in our industry is intense, and we cannot ensure success in attracting or retaining qualified personnel.  In addition, there may be only a limited number of persons with the requisite skills to serve in these positions. Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees.

Our intellectual property business could be harmed by the loss of the services of Dr. Martin H. Greenberg, who has been primarily responsible for developing relationships with the best-selling authors who create our intellectual properties. Dr. Greenberg owns the remaining 49% interest in Tekno Books through which we operate our intellectual properties division. Many of the authors with whom we have relationships are bound to multiple book contracts and our ability to renew these contracts or enter into contracts with new authors would be impaired without the services of Dr. Greenberg.
 
10


We may be liable for the content we make available on the Internet.

There is risk that we could become subject to various types of legal claims relating to the content we make available on our websites or the downloading and distribution of such content, or the content we license for books, including claims such as defamation, invasion of privacy and copyright infringement.  Although we carry liability insurance that covers some types of claims to a limited extent, our insurance may not cover all potential claims of this type or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed. Any costs or imposition of liability that is not covered by insurance or in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition.

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

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

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

Certain provisions of our articles of incorporation, bylaws and our shareholders’ rights plan may discourage takeover attempts and may make it more difficult to change or remove management. Our articles of incorporation authorize the issuance of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our Board of Directors.  Our bylaws as amended in 2006 include provisions requiring shareholders to provide specified advance notice to Hollywood Media of director nominations or proposed business to be transacted at shareholder meetings, in order for a shareholder to make a director nomination or propose meeting business. Under our shareholder’s rights plan adopted in 1996 and extended in 2006, our Board of Directors declared a dividend of one right for each share of common stock. If certain events, such as a takeover bid not approved by our Board, occur, the rights will then entitle most holders to purchase at a specified price, shares of a series of our preferred stock with special voting, dividend and other rights.

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

The State of Florida “affiliated transactions” statute requires approval by disinterested directors or supermajority approval by disinterested shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates).
 
11


Our stock price is volatile.

The trading price of our common stock has and may continue to fluctuate significantly. During the 24 months ended December 31, 2009, the trading price for our common stock on the Nasdaq Stock Market ranged from $0.56 to $3.07 per share. Our stock price may fluctuate in response to a number of events and factors, such as our quarterly operating results, announcements of new products or services, announcements of mergers, acquisitions, strategic alliances, or divestitures and other factors, including similar announcements by other companies that investors may consider to be comparable to us. In addition, the stock market in general, and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of the companies. These broad market and industry fluctuations may cause the market price of our stock to decrease, regardless of our operating performance.

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

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

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

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

Changes in securities laws and regulations may increase our costs.

The Sarbanes-Oxley Act of 2002 and the SEC rules promulgated thereunder have imposed increased demands upon and required ongoing changes in some of our operational systems and processes, corporate governance, and compliance and disclosure processes, and the Nasdaq Stock Market has implemented changes in its requirements for companies that are Nasdaq-listed. These developments have resulted in, and future changes in such rules may result in, increases in our expenses for information systems, auditing and consulting fees, legal compliance and financial reporting costs. These developments could also make it more difficult for us to attract and retain qualified members of our board of directors or executive officers.
 
12


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

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

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

Market risk is the risk of loss arising from adverse changes in our assets or liabilities that might occur due to changes in market rates and prices, such as interest or foreign currency exchange rates, as well as other relevant market rate or price changes.  We have an investment in a subsidiary in the United Kingdom that sells our services and pays for products and services in British pounds. A decrease in the British foreign currency relative to the U.S. dollar could adversely impact our margins. As the assets, liabilities and transactions of our United Kingdom subsidiaries are denominated in British pounds, the results and financial condition are subject to translation adjustments upon their conversion into U.S. dollars for our financial reporting purposes. A large decline in this foreign currency relative to the U.S. dollar might have a material adverse affect on Hollywood Media’s results of operations or financial condition.  For additional discussion of market risk, see “Item 7A — Quantitative and Qualitative Disclosures About Market Risk” below.

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

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

 
13

 

Item 1B.  Unresolved Staff Comments.

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

Item  2.   Properties.

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

           
Current
     
Location
   
Square Feet
   
Monthly Rent
   
Expiration Date
                   
Corporate Headquarters,
      13,130     $ 26,129    
November 30, 2012
Boca Raton, FL
                     
                       
Theatre Direct,
      21,600     $ 62,029    
February 28, 2017
Broadway.com and
                     
1-800-BROADWAY
                     
New York, NY
                     
                       
Tekno Books
      2,025     $ 1,446    
Month to Month
Green Bay, WI
      463     $ 355    
Month to Month
                       
CinemasOnline
      3,710     $ 4,409    
Month to Month
Lancashire, UK
                     
 
Item 3.   Legal Proceedings.

None.

Item 4.   Submission of Matters to a Vote of Shareholders.

Hollywood Media held its 2009 annual meeting of shareholders on December 21, 2009.  The following matters were submitted to a vote of the holders of Hollywood Media’s common stock, and were approved by the voting results indicated below.

Vote On Election of Directors

All of the following nominees were elected as directors, with the following voting results:

Director Nominees
  
Votes For
  
Votes Withheld
          
Mitchell Rubenstein
 
23,176,787
 
466,152
Laurie S. Silvers
 
23,176,372
 
466,567
Harry T. Hoffman
 
20,932,726
 
2,710,213
Robert D. Epstein
 
21,376,302
 
2,266,637
Spencer Waxman
 
23,176,787
 
466,152
Stephen Gans
 
23,206,889
 
436,050
 
14

 
Vote on Ratification of Public Accounting Firm

The proposal to ratify the selection of Kaufman, Rossin & Co. as Hollywood Media’s independent registered public accounting firm for the year ending December 31, 2009 was approved by the following voting results:

   
Votes
     
For
 
23,596,618
Against
 
22,371
Abstain
 
23,950
Broker Non-Votes
 
-

 
15

 

PART II

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

Market for Common Stock

Hollywood Media’s common stock trades on The Nasdaq Stock Market (“Nasdaq”) under the symbol HOLL.  The following table sets forth, for the periods indicated below, the high and low sales prices for the common stock, as reported by Nasdaq.

   
High
   
Low
 
             
2008
           
             
First Quarter                                                                               
  $ 3.07     $ 2.29  
Second Quarter                                                                               
  $ 2.70     $ 2.28  
Third Quarter                                                                               
  $ 2.81     $ 1.72  
Fourth Quarter                                                                               
  $ 2.34     $ 0.80  
                 
2009
               
                 
First Quarter                                                                               
  $ 1.14     $ 0.56  
Second Quarter                                                                               
  $ 1.70     $ 0.75  
Third Quarter                                                                               
  $ 1.76     $ 1.38  
Fourth Quarter                                                                               
  $ 1.75     $ 1.03  

Holders of Common Stock

As of March 15, 2010, there were 144 record holders of Hollywood Media’s common stock.

Dividend Policy

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

Recent Sales of Unregistered Securities
 
Hollywood Media did not issue any securities during the year ended December 31, 2009, in transactions that were not registered under the Securities Act of 1933.

Issuer Repurchases of Equity Securities

Hollywood Media reported in its Form 8-K report filed on October 4, 2007, that its Board of Directors authorized a stock repurchase program under which Hollywood Media may use up to $10 million of its cash to repurchase shares of its outstanding common stock. This program was approved by Hollywood Media’s Board of Directors on September 28, 2007 and was initially announced via press release on October 1, 2007.
 
16


Pursuant to the repurchase program, Hollywood Media is authorized to purchase shares of its common stock from time to time on the open market or in negotiated transactions. The purchases are to be funded from available cash and cash equivalents, and the timing and amount of any shares repurchased will be determined by Hollywood Media’s management based on its evaluation of financial and market conditions, legal requirements and other factors. The repurchase program has no time limit and may be suspended for periods or discontinued at any time, and there is no guarantee as to the number of shares or the amount of cash to be utilized for repurchases. Repurchased shares will become authorized but unissued shares of Hollywood Media’s common stock.

The following table provides information with respect to common stock purchases by Hollywood Media during the fourth quarter of 2009. For additional information relating to the stock repurchase program, see “Liquidity and Capital Resources” in Item 7 of this Form 10-K Report.

                     
Maximum
 
                
Total Number of
   
Approximate
 
                
Shares Purchased
   
Dollar Value of Shares
 
                
as Part of Publicly
   
that May Yet Be
 
    
Total Number of
   
Average Price
   
Announced Plans
   
Purchased Under the
 
Period
 
Shares Purchased
   
Paid Per Share
   
or Programs
   
Plans or Programs
 
                          
October 1, 2009 through October 31, 2009
    -     $ -       -     $ -  
                                 
November 1, 2009 through November 30, 2009
    -       -       -       -  
                                 
December 1, 2009 through December 31, 2009
    -       -       -       -  
                                 
Total
    -     $ -       -     $ 2,697,843
(1)
 

 
(1) 
As of December 31, 2009, calculated by subtracting (i) the total price paid for all shares purchased under the repurchase program through December 31, 2009 ($7,302,157), from (ii) the $10 million potential maximum dollar value of repurchases approved under the life of the plan.

17


Performance Graph

The following graph compares, for the five-year period from December 31, 2004 to December 31, 2009, the cumulative total shareholder return on:

•   Hollywood Media’s common stock;
•   The NASDAQ Composite Index; and
•   The Standard & Poor’s Media Industry Index


18


Item 6.    Selected Financial Data.

The selected financial data in the table below has been derived from the audited Consolidated Financial Statements of Hollywood Media and should be read in conjunction with the following statements and the notes thereto included in Item 8 of this Form 10-K report:  Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008; and Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007. The Consolidated Balance Sheets as of December 31, 2007, 2006 and 2005, and Consolidated Statements of Operations for the years ended December 31, 2006 and 2005 are not included in this report.

Discontinued Operations.

The selected financial data in the table below includes application of accounting principles to reflect the discontinued operations resulting from the sale of the Hollywood.com Business in fiscal 2008, the Showtimes business unit in fiscal 2007 and the Baseline/Studio Systems business unit in fiscal 2006.  Those sales are described below.

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

On August 21, 2008, Hollywood Media entered into a purchase agreement (the “Purchase Agreement”) with R&S Investments, LLC (“Purchaser”) for the sale of the Hollywood.com Business.  The Purchaser is owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media’s President and Vice-Chairperson of the Board.  Pursuant to the Purchase Agreement, Hollywood Media sold the Hollywood.com Business to Purchaser for a potential purchase price of $10.0 million, which includes $1.0 million in cash which was paid to Hollywood Media at closing and potential earn-out payments totaling $9.0 million. During 2009, Hollywood Media recorded $0.7 million in earn-out income under this agreement.  As of the filing of this Form 10-K, the earn-out receivable was collected in full in accordance with the payment terms.  As of December 31, 2009, there remains $8.3 million in potential earn-out payments pursuant to this agreement.  The Hollywood.com Business included the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service distributed pursuant to annual affiliation agreements with certain cable operators.   Hollywood.com Business financial results for all periods presented have been reclassified from continuing operations and included in discontinued operations.  For additional information about this transaction, see Note 4 “Discontinued Operations” on the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K report.

Sale of Showtimes Business Unit to West World Media LLC

On August 24, 2007, Hollywood Media and its wholly-owned subsidiary Showtimes.com, Inc. (“Showtimes”) entered into and simultaneously closed on a definitive asset purchase agreement with Brett West and West World Media, LLC, (“West World Media”), pursuant to which Hollywood Media sold substantially all of the assets of the Showtimes business to West World Media for a cash purchase price of $23.0 million paid to Hollywood Media on the closing date.  The Showtimes business included the CinemaSource, EventSource and ExhibitorAds operations and constituted the remainder of Hollywood Media’s Data Business Division, which previously included the Baseline/StudioSystems business unit until it was sold to The New York Times Company (“The New York Times”) on August 25, 2006.  West World Media is controlled by Brett West, who founded the Showtimes business in 1995 and sold the business to Hollywood Media in 1999. Mr. West served as president of Hollywood Media’s Showtimes business. The purchase price was determined in an arms’ length negotiation between Hollywood Media and West World Media.  Showtimes financial results for all periods presented have been reclassified from continuing operations and included in discontinued operations.  For additional information about this transaction, see Note 4 “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K Report.

19


Sale of Baseline/StudioSystems Business Unit to The New York Times Company

On August 25, 2006, Hollywood Media entered into and simultaneously closed on a definitive stock purchase agreement, pursuant to which The New York Times purchased all of the outstanding capital stock of Hollywood Media’s wholly-owned subsidiary, Baseline Acquisitions Corp. (“BAC”), for a cash purchase price of $35.0 million. BAC was the subsidiary of Hollywood Media which owned Hollywood Media’s Baseline/StudioSystems business unit. Baseline/StudioSystems constituted a portion of Hollywood Media’s Data Business Division.  Baseline/StudioSystems financial results for all periods presented have been reclassified from continuing operations and included in discontinued operations.  For additional information about this transaction, see Note 4 “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K Report.

 
20

 

   
YEARS ENDED DECEMBER 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
STATEMENT OF OPERATIONS DATA:
                             
                               
Net revenues
                             
Ticketing
  $ 98,860,362     $ 110,918,969     $ 111,792,068     $ 98,661,705     $ 79,189,987  
Other
    4,518,548       6,138,962       6,369,156       5,862,715       2,025,776  
Total net revenues
    103,378,910       117,057,931       118,161,224       104,524,420       81,215,763  
                                         
Operating Costs and Expenses
                                       
Cost of revenues – ticketing
    81,014,536       92,882,066       94,017,924       82,496,590       68,179,732  
Editorial, production, development and technology
    2,569,354       3,323,546       3,590,192       3,165,383       1,022,850  
Selling, general and administrative
    10,827,719       13,932,852       14,269,974       13,354,795       9,472,084  
Payroll & benefits
    10,574,375       13,284,857       13,368,817       12,100,816       11,425,999  
Impairment loss
    -       3,524,697       -       -       -  
Depreciation and amortization
    1,590,598       2,224,831       1,378,492       1,293,797       891,540  
Total operating costs and expenses
    106,576,582       129,172,849       126,625,399       112,411,381       90,992,205  
                                         
Loss from operations
    (3,197,672 )     (12,114,918 )     (8,464,175 )     (7,886,961 )     (9,776,442 )
                                         
EARNINGS (LOSSES) OF UNCONSOLIDATED INVESTEES
                                       
                                         
Equity in earnings of unconsolidated investees
    2,006,498       1,160,623       4,747       12,227       533,228  
Impairment loss
    (5,000,000 )     -       -       -       -  
Total equity in earnings (losses) of  unconsolidated investees
    (2,993,502 )     1,160,623       4,747       12,227       533,228  
OTHER INCOME (EXPENSE)
                                       
Interest, net
    28,922       425,251       199,437       (1,787,735 )     (542,935 )
Change in derivative liability
    -       -       -       640,536       87,037  
Other, net
    (75,146 )     44,958       (50,935 )     9,430       40,803  
                                         
Loss from continuing operations
    (6,237,398 )     (10,484,086 )     (8,310,926 )     (9,012,503 )     (9,658,309 )
                                         
Gain (loss) on sale of discontinued operations, net of income taxes
    614,572       (4,655,122 )     10,254,287       16,328,241       -  
Income (loss) from discontinued operations
    -       (1,635,750 )     (211,993 )     2,201,865       913,234  
                                         
Income (loss) from discontinued operations
    614,572       (6,290,872 )     10,042,294       18,530,106       913,234  
                                         
Net income (loss)
    (5,622,826 )     (16,774,958 )     1,731,368       9,517,603       (8,745,075 )
                                         
NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST
    2,409       (81,365 )     3,241       4,910       (168,107 )
                                         
Net income (loss) attributable to Hollywood Media Corp.
  $ (5,620,417 )   $ ( 16,856,323 )   $ 1,734,609     $ 9,522,513     $ (8,913,182 )
                                         
Basic and diluted income (loss) per common share
                                       
Continuing operations
  $ (0.20 )   $ (0.33 )   $ (0.25 )   $ (0.28 )   $ (0.31 )
Discontinued operations
    0.02       (0.20 )     0.30       0.57       0.03  
Total basic and diluted net income (loss) per share
  $ (0.18 )   $ (0.53 )   $ 0.05     $ 0.29     $ (0.28 )
                                         
Weighted average common and common equivalent shares outstanding – basic and diluted
    30,584,902       31,793,853       33,303,886       32,761,848       31,470,307  

 
21

 

   
AS OF DECEMBER 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
CONSOLIDATED BALANCE SHEET DATA:
                             
Cash and cash equivalents
  $ 11,764,810     $ 12,685,946     $ 26,758,550     $ 27,448,649     $ 6,926,313  
Working capital (deficit)
    8,774,819       8,876,128       20,128,557       16,380,362       (3,396,040 )
Total assets
    57,606,179       66,938,861       93,978,836       100,009,604       83,302,950  
Capital lease obligations, including current portion
    198,891       407,480       397,780       77,588       106,993  
Convertible debentures -  net
    -       -       -       -       940,927  
Senior Unsecured Notes
    -       -       -       6,375,399       5,402,255  
Total shareholders’ equity
  $ 32,490,409     $ 37,758,880     $ 55,567,474     $ 55,761,457     $ 42,487,230  

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

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

Overview

Hollywood Media’s continuing operations are of various businesses focusing primarily on online ticket sales, deriving revenue primarily from Broadway, Off-Broadway and London’s West End ticket sales to individuals and groups, as well as advertising and book development license fees and royalties. Our Broadway Ticketing business includes Broadway.com, 1-800-BROADWAY, Theatre Direct and Theatre.com. Hollywood Media’s businesses also include an intellectual property business, the U.K. based CinemasOnline companies and a minority interest in MovieTickets.com.
 
Proposed Sale of the Broadway Ticketing Division
 
On December 22, 2009, Hollywood Media entered into the Purchase Agreement with Key Brand pursuant to which Key Brand will purchase Hollywood Media’s Broadway Ticketing Division through the purchase of all of the outstanding capital stock of Theatre Direct NY, Inc., a Delaware corporation and a wholly-owned subsidiary of Hollywood Media, from Hollywood Media.  The closing of the Broadway Sale is subject to certain customary closing conditions specified in the Purchase Agreement, including but not limited to the approval of Hollywood Media’s shareholders.

For further information on the sale of the Broadway Ticketing Division, see “Item 1 – Business” above. Unless stated otherwise, all forward-looking information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operation do not take into account or give any effect to the impact of the pending sale of the Broadway Ticketing Division.

RESULTS OF OPERATIONS

Year ended December 31, 2009 (“fiscal 2009”) as compared to the year ended December 31, 2008 (“fiscal 2008”) and year ended December 31, 2007 (“fiscal 2007”).

Composition of our business segments are as follows:

 
·
Broadway Ticketing – sells tickets and related hotel and restaurant packages via Broadway.com, 1-800-BROADWAY and TDI to live theater events on Broadway, Off-Broadway and London’s West End, to individual consumers, groups and domestic and international travel professionals, including travel agencies, tour operators, and educational institutions.   Sales for events in London’s West End are fulfilled through a partnership arrangement between Theatre.com and an unrelated London-based ticket agency.  This segment also generates revenue from the sale of sponsorships and advertisements on Broadway.com.

 
·
Ad Sales – includes CinemasOnline, which sells advertising on plasma TV displays throughout the U.K. and Ireland, on lobby display posters, movie brochure booklets and ticket wallets distributed in cinemas, live theater and other entertainment venues in the U.K. and on cinema and theater websites in the U.K. and Ireland.  This segment also includes Hollywood Media’s investment in MovieTickets.com.

 
22

 

 
·
Intellectual Properties – owns or controls the exclusive rights to certain intellectual properties created by best-selling authors and media celebrities, which it licenses for book and other media.  This segment includes a 51% interest in Tekno Books, and a book development business, and this segment does not include our 50% interest in NetCo Partners.

 
·
Other – is comprised of payroll and benefits for corporate and administrative personnel as well as other corporate-wide expenses, such as legal fees, audit fees, proxy costs, insurance, centralized information technology, and includes consulting and other fees and costs relating to compliance with the provisions of the Sarbanes-Oxley Act of 2002 that require Hollywood Media to assess and report on internal control over financial reporting, and related development of controls.

Results of Discontinued Operations

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

On August 21, 2008, Hollywood Media entered into and simultaneously closed on a definitive purchase agreement with R&S Investments, LLC, pursuant to which R&S Investments acquired the Hollywood.com Business for a potential purchase price of $10.0 million, which includes $1.0 million in cash that was paid to Hollywood Media at closing and potential earn-out payments of up to $9.0 million. During fiscal 2009, Hollywood Media recorded $0.7 million in earn-out income under this agreement.  As of December 31, 2009, $8.3 million remained pursuant to this agreement.  The Hollywood.com Business included the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service distributed pursuant to annual affiliation agreements with certain cable operators. R&S Investments is owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media’s President and Vice-Chairperson of the Board. The purchase price was determined by an arms-length negotiation between a Special Committee of independent and disinterested directors of Hollywood Media on the one hand and R&S Investments on the other hand.

Commencing October 1, 2009, R&S Investments is contractually obligated to make periodic earn-out payments equal to the greater of (i) 10 percent of collected gross revenue and (ii) 90 percent of EBITDA (as defined in the purchase agreement) for the Hollywood.com Business until the full earn-out is paid. If a change of control of Hollywood.com occurs before the earn-out is fully paid, the remaining portion of the earn-out would be payable immediately upon such a change of control, up to the amount of consideration received by R&S Investments less related expenses. If the consideration in such a change of control is less than the remaining balance of the earn-out, then the surviving entity which owns the Hollywood.com Business will be obligated to pay the difference in accordance with the same earn-out terms. In addition, if the Hollywood.com Business is resold prior to August 21, 2011, Hollywood Media will also receive 5 percent of any proceeds above $10.0 million. Pursuant to the purchase agreement, Hollywood Media was required to place $2.6 million into an escrow account to fund any negative EBITDA of the Hollywood.com Business through August 21, 2010. There was $2.6 million disbursed to the Hollywood.com Business through September 30, 2009, representing the entire balance of the escrow.  In addition, as of December 31, 2009, Hollywood Media recorded a $0.2 million related party receivable for earn-out earned and expense reimbursement by R&S Investments.  As of the filing of this 10-K, the receivable and expense reimbursement were collected in full in accordance with the payment terms.

For additional information about this transaction, see Note 4 “Discontinued Operations” in the Notes to the Condensed Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K Report.

Sale of Showtimes Business Unit to West World Media

                 On August 24, 2007, Hollywood Media Corp. entered into and simultaneously closed on a definitive asset purchase agreement with West World Media and its principal, a former employee, pursuant to which Hollywood Media sold to West World Media substantially all of the assets of its Showtimes business for a cash purchase price of $23.0 million subject to a working capital post-closing adjustment.  The working capital post-closing adjustment was a price reduction of $0.1 million, which was paid by Hollywood Media to West World Media in January 2008.

 
23

 

Following are components of the net results of discontinued operations for the years ended December 31, 2009, 2008 and 2007.  The results for fiscal 2009, 2008 and fiscal 2007 in the table below include the results of the sold businesses for only the periods up to the date on which the Hollywood.com Business and the Showtimes business was sold (August 21, 2008 and August 24, 2007, respectively).

   
2009
   
2008
   
2007
 
   
(in millions)
   
(in millions)
   
(in millions)
 
                   
Operating revenue
  $ -     $ 3.9     $ 10.0  
Gain (loss) on sale of discontinued operations net of income taxes of $0.6 million for fiscal 2007
    0.6       (4.7 )     10.2  
Income (loss) from discontinued operations
    -       (1.6 )     (0.2 )
Income (loss) from discontinued operations
  $ 0.6     $ (6.3 )   $ 10.0  

Results of Continuing Operations

The following tables summarize changes in Hollywood Media’s revenue and operating expense from continuing operations by reportable segment for the years ended December 31, 2009, 2008 and 2007.  For additional financial information regarding Hollywood Media’s reportable segments, see Note 18 – Segment Reporting in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K report.

Net Revenues Analysis
 
Net Revenues
   
2008 to
   
2008 to
 
(in millions)
             
2009
   
2009
 
   
2009
   
2008
   
Change ($)
   
Change (%)
 
                         
Broadway Ticketing
  $ 98.9     $ 110.9     $ (12.0 )     (11 )
Ad Sales
    3.4       4.8       ( 1.4 )     (29 )
Intellectual Properties
    1.1       1.4       (0.3 )     (21 )
Other
    -       -       -       -  
                                 
TOTALS
  $ 103.4     $ 117.1     $ (13.7 )     (12 )

   
Net Revenues
   
2007 to
   
2007 to
 
               
2008
   
2008
 
   
2008
   
2007
   
Change ($)
   
Change (%)
 
                         
Broadway Ticketing
  $ 110.9     $ 111.8     $ (0.9 )     (1 )
Ad Sales
    4.8       5.3       (0.5 )     (9 )
Intellectual Properties
    1.4       1.1       0.3       27  
Other
    -       -       -       -  
                                 
TOTALS
  $ 117.1     $ 118.2     $ (1.1 )     ( 1 )

 
24

 

Operating Expense Analysis
 
Operating Expenses
   
2008 to
   
2008 to
 
(in millions)
             
2009
   
2009
 
   
2009
   
2008
   
Change ($)
   
Change (%)
 
                         
Broadway Ticketing
  $ 94.1     $ 108.4     $ (14.3 )     (13 )
Ad Sales
    3.7       8.8       (5.1 )     (58 )
Intellectual Properties
    1.1       1.4       (0.3 )     (21 )
Other
    7.6       10.6       (3.0 )     (28 )
                                 
TOTALS
  $ 106.5     $ 129.2     $ (22.7 )     (18 )

   
Operating Expenses
   
2007 to
   
2007 to
 
               
2008
   
2008
 
   
2008
   
2007
   
Change ($)
   
Change (%)
 
                         
Broadway Ticketing
  $ 108.4     $ 109.1     $ (0.7 )     (1 )
Ad Sales
    8.8       5.9       2.9       49  
Intellectual Properties
    1.4       1.1       0.3       27  
Other
    10.6       10.5       0.1       1  
                                 
TOTALS
  $ 129.2     $ 126.6     $ 2.6       2  

Comparison of Percentage Changes in Net Revenues and Operating Expenses

         
2008 to 2009
         
2007 to 2008
 
   
2008 to 2009
Revenues (%)
   
Operating
Expenses (%)
   
2007 to 2008
Revenues (%)
   
Operating
Expenses (%)
 
Increase (decrease) in -
                       
Broadway Ticketing
    (11 )     (13 )     (1 )     (1 )
Ad Sales
    (29 )     (58 )     (9 )     49  
Intellectual Properties
    (21 )     (21 )     27       27  
Other
    -       (28 )     -       1  
                                 
TOTALS
    (12 )     (18 )     (1 )     2  

Note Regarding Impact of Broadway Strike

Results of continuing operations for the year ended December 31, 2007 were negatively impacted by the Broadway stagehand strike that ended on November 28, 2007 and caused 19 days of cancelled Broadway performances.  We received refunds or credits from the show’s box offices on virtually all tickets purchased by the Broadway Ticketing division for cancelled performances.  We worked with customers to address orders placed for these cancelled performances, and refunds or exchanges were provided at the election of the customer for cancelled performances.  Any orders not refunded or exchanged by the end of fiscal 2007 were included in “Customer deposits” in the Consolidated Balance Sheets in Part II, Item 8 of this Form 10-K.

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

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

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

 
25

 

·
the United States and global economic downturn, which can adversely affect business and personal discretionary spending for entertainment-related items such as theater tickets, and has resulted in a reduction in tickets sold and in net revenue;

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

·
New York State’s repeal of caps on ticket service fees, which has given Hollywood Media greater flexibility to charge increased service fees on tickets for high demand shows, such as Wicked and Jersey Boys.

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

Net Revenues
 
Total net revenues for fiscal 2009 were $103.4 million compared to $117.1 million and $118.2 million for fiscal 2008 and fiscal 2007 respectively. Revenues decreased $13.7 million, or 12%, in fiscal 2009 from fiscal 2008, and decreased $1.1 million or 1% in fiscal 2008 from fiscal 2007. The decrease in net revenues for fiscal 2009 as compared to fiscal 2008 is primarily the result of decreases in Broadway ticketing revenue of $12.0 million and Ad Sales revenue of $1.4 million, and a decrease in Intellectual Properties revenue of $0.3 million.  The decrease in net revenues for fiscal 2008 as compared to fiscal 2007 is primarily the result of decrease in Broadway Ticketing revenue of $0.9 million and Ad Sales revenue of $0.5 million, offset by an increase in Intellectual Properties revenue of $0.3 million.  In fiscal 2009, net revenues were derived 96% from Broadway Ticketing, 3% from Ad Sales and 1% from Intellectual Properties.   In fiscal 2008 and fiscal 2007, net revenues were derived 95% from Broadway Ticketing, 4% from Ad Sales and 1% from Intellectual Properties.

Broadway Ticketing net revenue for fiscal 2009 was $98.9 million as compared to $110.9 million for fiscal 2008, and $111.8 million for fiscal 2007.  Broadway Ticketing net revenue decreased $12.0 million, or 11%, for fiscal 2009 from fiscal 2008 and decreased $0.9 million, or 1%, for fiscal 2008 from fiscal 2007.  The decrease in Broadway Ticketing net revenue in fiscal 2009 compared to fiscal 2008 is primarily attributable to the following: a decrease in quantity of tickets sold of $13.0 million, a decrease in hotel package sales of $0.6 million, a decrease in sales of cancellation insurance of $0.3 million, a decrease in dinner voucher sales of $0.2 million, and a decrease in sponsorship revenue of $0.1 million, partially offset by an increase in service fees on individual ticket sales of $2.2 million.  The decrease in Broadway Ticketing net revenue in fiscal 2008 compared to fiscal 2007 is primarily attributable to a decrease in revenue of $3.6 million from Theatre.com primarily as a result of shifting from Theatre.com handling its own sales to an arrangement with a third party ticket agency in September 2007.  As a result of this arrangement, Theatre.com now recognizes revenue based on net commissions instead of gross ticket price.  Such decreased revenue was offset by an increase in revenues to consumers of $2.3 million, which includes: ticket price increases by theaters of $3.9 million, an increase in service fees on individual ticket sales of $2.0 million, offset by a decrease in revenues of $1.7 million from a decrease in quantity of tickets sold, a decrease in hotel package sales of $0.9 million, decrease in gift certificate revenue of $0.6 million due to a change in expiration policy and a decrease in sales of cancellation insurance of $0.4 million.  The decline in Broadway Ticketing net revenue was further offset by an increase in sponsorship sales of $0.4 million.

 
26

 

Ad Sales net revenue was $3.4 million for fiscal 2009 as compared to $4.8 million for fiscal 2008 and $5.3 million for fiscal 2007.  Ad Sales net revenue decreased $1.4 million or 29% for fiscal 2009 from fiscal 2008 and $0.5 million, or 9%, for fiscal 2008 from fiscal 2007.  The decrease in Ad Sales from fiscal 2008 to fiscal 2009 is attributable to a decrease in UK advertising sales of $1.4 million, which includes: a decrease in brochure and web advertising revenues of $0.3 million and a decrease in plasma revenues of $1.1 million.  The decrease in Ad Sales from fiscal 2007 to fiscal 2008 is directly attributable to a decrease in UK advertising sales of $0.5 million, which includes: decreases in the brochure and web advertising revenues of $1.1 million, offset in part by an increase in growth of the plasma business of $0.6 million.

Intellectual Properties net revenues were $1.1 million for fiscal 2009, compared to $1.4 million for fiscal 2008 and $1.1 million for fiscal 2007. Net revenues generated from Intellectual Properties decreased $0.3 million, or 21% in fiscal 2009 from fiscal 2008 and net revenues generated from Intellectual Properties increased $0.3 million, or 27%, in fiscal 2008 from fiscal 2007. The decrease in revenues in fiscal 2009 as compared to fiscal 2008 as well as the increase in revenues in fiscal 2008 from fiscal 2007 were attributable to the timing of the delivery of manuscripts.  The Intellectual Properties division generates revenues from several different activities including book development and licensing, and intellectual property licensing. Revenues vary quarter to quarter depending on the timing of delivery of manuscripts to the publishers. Revenues are recognized when the earnings process is complete and ultimate collection of such revenues is no longer subject to contingencies.  This division does not include NetCo Partners, which is reported separately; see “Equity in Earnings of Unconsolidated Investees” below.

Equity in Earnings of Unconsolidated Investees

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

   
For the years ended December 31,
 
   
2009
   
2008
   
2007
 
   
(in millions)
   
(in millions)
   
(in millions)
 
                   
NetCo Partners (a)
  $ -     $ (0.1 )   $ -  
MovieTickets.com (b)
    (3.0 )     1.3       -  
    $ (3.0 )   $ 1.2     $ -  

 
(a) NetCo Partners

NetCo Partners owns NetForce and is primarily engaged in the development and licensing of NetForce. NetCo Partners recognizes revenues when the earnings process has been completed based on the terms of the various agreements, generally upon the delivery of the manuscript to the publisher and at the point where ultimate collection is substantially assured. When advances are received prior to completion of the earnings process, NetCo Partners defers recognition of revenue until the earnings process has been completed. Hollywood Media owns 50% of NetCo Partners and accounts for its investment under the equity method. Hollywood Media’s 50% share of loss of NetCo Partners was de minimus for fiscal 2009, a decrease of 100% or $0.1 million compared to fiscal 2008. Our 50% share of earnings was de minimus for fiscal 2007.  The increase in earnings for fiscal 2009 as compared to fiscal 2008 was primarily because there was minimal activity and no income was recognized in fiscal 2009.  The decrease in earnings for fiscal 2008 as compared to fiscal 2007 was primarily because all accounts receivables that were over six months were fully reserved during fiscal 2008.  Revenues vary year to year dependent on the timing of deliveries of manuscripts to the publisher.  Costs related to the acquisition, development and sales of the intellectual properties and their licensed products are expensed in proportion to the revenues that have been recognized.

 
27

 

 
(b) MovieTickets.com

Hollywood Media owns 26.2% of the total equity in the MovieTickets.com joint venture.  Hollywood Media records its investment in MovieTickets.com under the equity method of accounting, recognizing its percentage interest in MovieTickets.com’s income or loss as equity in earnings of unconsolidated investees.  Under applicable accounting principles, Hollywood Media recorded $0.1 million in income from its investment in MovieTickets.com for fiscal 2009, because accumulated net income in fiscal 2009 exceeded MovieTickets.com’s accumulated net losses from fiscal 2008 and prior.  During the second quarter of 2009, the Company determined that $5.0 million of the goodwill associated with MovieTickets.com should be written down and accordingly, recorded an impairment loss of $5.0 million.  In fiscal 2008 and 2007, Hollywood Media did not record any income from its investment in MovieTickets.com because accumulated losses from prior years exceeded MovieTickets.com’s accumulated income.  The MovieTickets.com web site generates revenues from service fees charged to users for the purchase of movie tickets online and the sale of advertising.  The results above include $1.9 million in dividends received by Hollywood Media in 2009 as compared to $1.3 million received in fiscal 2008 and none for fiscal 2007.

MovieTickets.com is a leading destination for the purchase of movie tickets through the Internet. Hollywood Media launched the MovieTickets.com website in May 2000 with several major movie theater exhibitors. The MovieTickets.com website allows users to purchase movie tickets and retrieve them at “will call” windows or kiosks at theaters or the user can print at home for theatres with that capacity.  The website generates revenues from service fees charged to users for the purchase of tickets, the sale of advertising and the sale of research data.  Service fees on ticket sales were introduced in November 2000.  MovieTickets.com’s participating exhibitors operate theaters located in all of the top twenty markets and approximately 70% of the top 50 and top 100 markets in the United States and Canada and represent approximately 50% of the top 50 and top 100 grossing theaters in North America.  Additionally, MovieTickets.com operates in the United Kingdom.  See Item 1 – Business, and Note 15 to Consolidated Financial Statements for additional information about MovieTickets.com.

Operating Expenses

Cost of Revenues - Ticketing.  Cost of revenues – ticketing was $81.0 million for fiscal 2009 compared to $92.9 million for fiscal 2008 and $94.0 million for fiscal 2007.  Cost of revenues consists primarily of the cost of tickets and credit card fees for the Broadway Ticketing segment, partially offset by rebates received from certain producers based on exceeding certain ticketing sales goals and co-op advertising.  Cost of Revenues – Ticketing decreased $11.9 million, or 13%, for fiscal 2009 from fiscal 2008 and decreased $1.1 million, or 1%, for fiscal 2008 from fiscal 2007.   As a percentage of ticketing revenues, cost of revenues - ticketing was 82% in fiscal 2009 and 84% in fiscal 2008 and 2007.

The decrease in Cost of Revenues – Ticketing in fiscal 2009 compared to fiscal 2008 is primarily attributable to the following: a decrease in cost of revenues of $12.7 million attributable to (i) a decrease of $11.4 million attributable to a lower quantity of tickets sold, (ii) a decrease of $0.4 million due to an increase in advertising sales sold to theaters, which are recorded as a reduction to cost of sales, (iii) a decrease of $0.3 million in amounts charged to inventory reserve, (iv) a decrease of $0.3 million in credit card fees, due to lower ticket quantity, (v) a decrease of $0.1 million in editorial salaries and wages, (vi) a decrease of $0.1 million in Broadway classroom and (vii) a decrease of $0.1 million in shipping and postage costs associated with the lower quantity, offset in part by an increase in cost of revenues of $0.8 million attributable to (i) an increase in unsold inventory of $0.6 million, (ii) ticket price increases by theaters of $0.1 million and (iii) an increase in server hosting fees of $0.1 million.

The decrease in Cost of Revenues – Ticketing in fiscal 2008 compared to fiscal 2007 is primarily attributable to the result of a decrease in sales to consumers of $1.0 million, which includes decreases in number of tickets sold from Theatre.com of $3.0 million, primarily as a result of the change to a net revenue share business model described above, and a decrease in number of tickets sold in our domestic Broadway business of $1.2 million, offset by ticket price increases by theaters of $3.1 million.  In addition, the purchase of the Showtix business in February 2007 contributed $1.8 million of cost of revenues – ticketing directly attributable to Showtix.

Editorial, Production, Development and Technology.  Editorial, production, development and technology costs include commissions, royalties, media buying, production services and internet access for CinemasOnline and fees and royalties paid to authors and co-editors for the Intellectual Properties segment.  Editorial, production, development and technology costs for fiscal 2009 were $2.6 million as compared to $3.3 million for fiscal 2008 and $3.6 million for fiscal 2007.  Editorial, production, development and technology costs decreased $0.7 million or 21% from fiscal 2008 to fiscal 2009 and decreased $0.3 million or 8% from fiscal 2007 to fiscal 2008.  As a percentage of aggregate net revenues from our Ad Sales and Intellectual Properties segments, these costs were 57% for fiscal 2009 and 54% and 56% for fiscal 2008 and fiscal 2007, respectively.

 
28

 

The fiscal 2009 decrease from fiscal 2008 was mainly due in part to decreases in (i) commissions paid of $0.4 million, (ii) a decrease in media buying of $0.2 million and (iii) production and royalties of $0.1 million.  The fiscal 2008 decrease from fiscal 2007 was mainly due to a $0.1 million increase in payments to writer/co-editors along with an approximate $0.3 million decrease in the Ad Sales segment.  The decrease in the Ad Sales segment was primarily due to an approximately $0.1 million decrease in each of production services, media buying and commissions.

Selling, General and Administrative.   Selling, general and administrative (“SG&A”) expenses consist of occupancy costs, professional and consulting service fees, telecommunications costs, provision for doubtful accounts receivable, general insurance costs, selling and marketing costs (such as advertising, marketing, promotional, business development, public relations, and commissions due to advertising agencies, advertising  representative firms and other parties).  The SG&A expenses for fiscal 2009 were $10.8 million compared to $13.9 million for fiscal 2008, for a decrease of $3.1 million or 22% and $14.3 million for fiscal 2007, a decrease of $0.4 million or 3% to fiscal 2008.  As a percentage of net revenues, SG&A expenses were 10% for fiscal 2009 and 12% for fiscal 2008 and fiscal 2007, respectively.

             The decrease in SG&A expenses in fiscal 2009 as compared to fiscal 2008 was due to primarily decreases in the following expenses: $0.6 million in occupancy expenses, $0.6 million in legal expenses, $0.2 million in marketing expenses, $0.3 million in travel expenses, $0.3 million in accounting fees, $0.3 million in consulting fees related to operations, $0.2 million in consulting fees relating to Sarbanes Oxley compliance, $0.2 million in telephone expenses and $0.1 million in each of the following categories, recruitment, office supplies, temporary services, moving, insurance, repairs and maintenance  and server security.  These decreases are offset by $0.2 million increase in Board of Directors’ fees associated with a change of compensation structure to cash from warrants along with a $0.1 million increase in bad debt expenses.  The decrease in SG&A expenses in fiscal 2008 as compared to fiscal 2007 was due in large part to decreases in marketing expenses of $0.6 million,  a $0.1 million decrease in travel and occupancy expenses,  a $0.3 million reduction in bad debt expense and a $0.3 million decrease in accounting fees, offset by an increase in consulting fees of $0.3 million and legal fees of $0.6 million.
 
Payroll and Benefits.

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

Payroll and benefits expenses for fiscal 2009 were $10.6 million as compared to $13.3 million for 2008, a decrease of $2.7 million or 20%, and $13.4 million for fiscal 2007.  Payroll and benefits expenses decreased $0.1 million, or 1%, in fiscal 2008 as compared to fiscal 2007. As a percentage of net revenues, payroll and benefits expenses were approximately 10% in fiscal 2009 and 11% in fiscal 2008 and fiscal 2007.

The decrease in payroll and benefits in fiscal 2009 as compared to fiscal 2008 was due to the following: (i) a decrease of $1.1 million in corporate overhead payroll, primarily because of the divestment of the Hollywood.com Business; (ii) a decrease of $1.3 million in the Broadway Ticketing segment due to payroll related reduction and (iii) a $0.3 million reduction in payroll in the Ad Sales segment.  The decrease in payroll and benefits in fiscal 2008 as compared to fiscal 2007 was due to severance payments made following the divestment of the Hollywood.com Business of approximately $0.4 million for Hollywood Media employees at the Corporate headquarters, offset by reduction in costs in the Ad Sales segment of $0.2 million and the corporate office of $0.2 million, respectively.

 
29

 

Depreciation and Amortization.

Depreciation and amortization expense consists of depreciation of property and equipment, furniture and fixtures, web site development, leasehold improvements, equipment under capital leases and amortization of intangibles. Depreciation and amortization expense was $1.6 million for fiscal 2009 as compared to $2.2 million for fiscal 2008 and $1.4 million for fiscal 2007. Depreciation and amortization decreased $0.6 million or 27% in fiscal 2009 from fiscal 2008 and increased $0.8 million or 57% in fiscal 2008 from fiscal 2007.  The decrease in depreciation and amortization expense from fiscal 2008 to fiscal 2009 is due to a decrease in the amortization of intangible assets in Q4-08 due to a write off of certain intangible assets of the CinemasOnline companies, assets becoming fully depreciated during fiscal 2009 and a retirement of leased equipment.  This decrease is offset by an increase in depreciation due to the launching of a new Broadway.com website in September 2009.  The increase in depreciation and amortization expense from fiscal 2007 to fiscal 2008 is primarily due to investments in computer equipment and new office space leasehold improvements in New York City for our Broadway Ticketing segment, as well as a write-off  in amortization of intangible assets due to an external evaluation of the UK Ad Sales segment and also intangible assets purchased as part of the acquisition of Showtix.

Interest, net.

Interest, net was de minimus income for fiscal 2009 as compared to income of $0.4 million for fiscal 2008 and income of $0.2 million for fiscal 2007.  The decrease of $0.4 million or 100%, in interest, net in fiscal 2009 as compared to 2008 was primarily attributable to less income earned from cash on hand.  The increase of $0.2 million, or 100%, in interest, net in fiscal 2008 as compared to fiscal 2007 was primarily attributable to the payoff of $7.0 million principal amount of Senior Unsecured Notes in May 2007, accretion of debit discount, and increased income from interest bearing accounts.

Other, net

           Other, net was an expense of $0.1 million as compared to a de minimus income for fiscal 2008 and a de minimus expense for fiscal 2007.  The expense for fiscal 2009 was primarily due to the write-off of the old Broadway.com website due to the launching of the new Broadway.com website in September 2009.

Net Income (Loss).

Hollywood Media’s net loss for fiscal 2009 was $5.6 million as compared to a net loss for fiscal 2008 of $16.9 million and a net income for fiscal 2007 of $1.7 million. The net loss for fiscal 2009 was primarily due to a $5.0 million impairment loss recorded in the second quarter of 2009.  The net loss increased in fiscal 2008 as compared to the income in fiscal 2007 by $18.6 million, or 1094%, primarily due to the loss on sale of the Hollywood.com Business in 2008 and a non-cash one-time impairment charge of $3.5 million related to our Ad Sales and Intellectual Property Segments, compared to the gain on the sale of the Showtimes business in 2007.

LIQUIDITY AND CAPITAL RESOURCES

Cash Balance at Year End; Sources and Uses of Cash

Hollywood Media’s cash and cash equivalents were $11.8 million at December 31, 2009 as compared to $12.7 million at December 31, 2008.  Our net working capital (defined as current assets less current liabilities) was $8.8 million at December 31, 2009 and 2008.

Net cash provided by operating activities from continuing operations during fiscal 2009 was $0.1 million, a change of 102% compared to net cash used in operating activities from continuing operations during 2008 of $4.5 million.  Cash usage included $1.2 million to secure a bond for Broadway ticketing purchases while cash provided included inventory levels being reduced and accounts payable increasing from fiscal 2008 to fiscal 2009.

 
30

 

Net cash used in investing activities from continuing operations during fiscal 2009 was $0.7 million, which net cash was used primarily for capital expenditures associated with the development of the new Broadway.com website.  Net cash used in investing activities from continuing operations during fiscal 2008 was $1.4 million, which net cash was used to, among other things, make $1.3 million in capital expenditures.  Net cash provided by investing activities from continuing operations during fiscal 2007 was $19.4 million, which net cash included, among other things, $25.4 million in cash proceeds from the sale of assets (including sale of the Showtimes business, discussed below), and cash outlays which included, among other things, $3.4 million for capital expenditures (including $2.5 million for leasehold improvements for the new Broadway offices in New York City) and $2.7 million for the acquisition of the Showtix business.

Net cash used in financing activities from continuing operations during fiscal 2009 was $0.3 million, which cash usage included payments under capital lease obligations, outstanding note payable and payments for repurchase of Company stock.  Net cash used in financing activities from continuing operations during fiscal 2008 was $2.2 million, which cash usage included, among other things, $2.1 million to repurchase common stock.  Net cash used in financing activities from continuing operations during fiscal 2007 was $11.8 million, which cash usage included, among other things, $7.0 million for repayment in full of all outstanding Senior Unsecured Notes (discussed below), and approximately $5.1 million for the repurchase of common stock of Hollywood Media under the previously announced stock repurchase program (discussed below).

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

On August 21, 2008, Hollywood Media entered into and simultaneously closed on a definitive purchase agreement with R&S Investments, LLC, pursuant to which R&S Investments acquired the Hollywood.com Business for a potential purchase price of $10.0 million, which includes $1.0 million in cash that was paid to Hollywood Media at closing and potential earn-out payments of up to $9.0 million. Hollywood Media recorded $0.7 million in earn-out income pursuant to this earn-out arrangement during fiscal 2009.  As of the filing of this Form 10-K, the earn-out receivable was collected in full in accordance with the payment terms.  As of December 31, 2009, there was $8.3 million in potential earn-out payments pursuant to this agreement.  The Hollywood.com Business includes the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service distributed pursuant to annual affiliation agreements with certain cable operators. R&S Investments is owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media’s President and Vice-Chairperson of the Board. The purchase price was determined by an arms-length negotiation between a Special Committee of independent and disinterested directors of Hollywood Media on the one hand and R&S Investments on the other hand.

Commencing October 1, 2009, R&S Investments became contractually obligated to make periodic earn-out payments equal to the greater of (i) 10 percent of gross revenue and (ii) 90 percent of EBITDA (as defined in the purchase agreement) for the Hollywood.com Business until the full earn-out is paid. If a change of control of Hollywood.com occurs before the earn-out is fully paid, the remaining portion of the earn-out would be payable immediately upon such a change of control, up to the amount of consideration received by R&S Investments less related expenses. If the consideration in such a change of control is less than the remaining balance of the earn-out, then the subsequent buyer will be obligated to pay the difference in accordance with the same earn-out terms. In addition, if Hollywood.com is resold within three years, Hollywood Media will also receive 5 percent of any proceeds above $10.0 million. Pursuant to the purchase agreement, Hollywood Media was required to place $2.6 million into an escrow account to fund any negative EBITDA of the Hollywood.com Business through August 21, 2010.  As of December 31, 2009, the entire balance of the escrow account was expended.

For additional information about this transaction, see Note 4 “Discontinued Operations” in the Notes to the Condensed Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K Report.

 
31

 

Sale of Showtimes Business Unit to West World Media LLC

On August 24, 2007, Hollywood Media and its wholly-owned subsidiary Showtimes, entered into and simultaneously closed on a definitive asset purchase agreement with Brett West and West World Media, pursuant to which Hollywood Media sold substantially all of the assets of the Showtimes business to West World Media for a cash purchase price of $23.0 million paid to Hollywood Media on the closing date.  The Showtimes business included the CinemaSource, EventSource and ExhibitorAds operations and constituted the remainder of Hollywood Media’s Data Business Division, which previously included the Baseline/StudioSystems business unit until it was sold to The New York Times on August 25, 2006.  West World Media is controlled by Brett West, who founded the Showtimes business in 1995 and sold the business to Hollywood Media in 1999. Mr. West served as president of Hollywood Media’s Showtimes business. The purchase price was determined in an arms’ length negotiation between Hollywood Media and West World Media.  The purchase price decreased due to a post-closing adjustment of $0.1 million paid by Hollywood Media to West World Media in January 2008.  Hollywood Media’s expenditures relating to the sale include approximately $0.6 million in estimated state and federal income taxes and approximately $1.7 million in fees and expenses payable to Hollywood Media’s financial and legal advisors. For additional information about this transaction, see Note 4 “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8, of this Form 10-K Report.

Acquisition of Showtix Business

On February 1, 2007, TDI paid approximately $2.7 million in cash to consummate its acquisition of the Broadway ticketing business of Showtix.  See Note 5 “Acquisitions and Other Capital Transactions” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Form 10-K report.

Capital Expenditures

Our capital expenditures during 2009 were $1.2 million. We currently anticipate capital expenditures in 2010 of approximately $1.0 million, including various systems and equipment upgrades.  These anticipated 2010 capital expenditures do not include any estimates for potential business acquisitions.

Outlook

Our cash and cash equivalents generated from the sales of our Baseline/StudioSystems and Showtimes businesses in fiscal 2006 and fiscal 2007, respectively, have provided substantial additional working capital for Hollywood Media, and we have utilized portions of such working capital for various corporate purposes and business activities including, among other things, the repayment of debt and the purchase of the Showtix business referenced above, improvements and investments in various aspects of our Broadway Ticketing  division, and for the repurchase of shares of Hollywood Media's common stock pursuant to our previously announced stock repurchase program (discussed below). Our businesses have required substantial financing, and may require additional capital to fund our growth plans and for working capital, which capital requirements we contemplate will be satisfied from our unrestricted cash and cash equivalents on hand. Based on our current plans and assumptions for operations and investment and financing activities, we estimate that our cash and cash equivalents on hand and anticipated cash flow from operations will be sufficient to meet our working capital and investment requirements at least through December 31, 2010.  If our plans change or our assumptions prove to be inaccurate, we may need to seek further financing or curtail our growth and/or operations. We believe that our long-term financial success ultimately depends on our ability to generate enough revenue to more than offset operating expenses.

While we continue to develop our businesses, we have resumed our strategic review process which may help us realize the full value of our assets in the interest of our shareholders. In prior years, our strategic review process resulted in the sales of our Baseline/StudioSystems and Showtimes businesses in fiscal 2006 and 2007, respectively.  We continue to explore opportunities for generating returns for Hollywood Media's shareholders, including the proposed sale of the Broadway Ticketing Division, other potential dispositions or other strategic transactions.  Prior to resuming our strategic review process, we had, as stated in our press release dated October 1, 2007, temporarily suspended such process when our Board of Directors approved the stock repurchase program referenced below.  We cannot make assurances as to the timing or occurrence of any future strategic transactions or further stock repurchases.

 
32

 

Authorization of Stock Repurchase Program

Hollywood Media previously reported in its current report on Form 8-K filed with the SEC on October 4, 2007, that its Board of Directors authorized a stock repurchase program under which Hollywood Media may use up to $10 million of its cash to repurchase shares of its outstanding common stock.  See Part II, Item 5, of this Form 10-K report for information about stock repurchases by Hollywood Media during the fourth quarter of fiscal 2009.

Pursuant to the repurchase program, Hollywood Media is authorized to purchase shares of its common stock from time to time on the open market or in negotiated transactions. The purchases are to be funded from available cash and cash equivalents, and the timing and amount of any shares repurchased will be determined by Hollywood Media’s management based on its evaluation of financial and market conditions, legal requirements and other factors. The repurchase program has no time limit and may be suspended for periods or discontinued at any time, and there is no guarantee as to the number of shares or the amount of cash to be utilized for repurchases. Repurchased shares will become authorized but unissued shares of Hollywood Media’s common stock.

Contractual Obligations
 
The following table sets forth information regarding certain types of our contractual obligations specified below as of December 31, 2009.
 
   
Payments Due by Period
 
                               
         
Less than
   
Years
   
Years
   
After
 
Contractual Obligations
 
Total
   
1 Year
   
1-3
   
4-5
   
5 Years
 
(in millions)
                                 
                                   
Capital lease obligations (1)
  $ 0.2     $ 0.1     $ 0.1     $ -     $ -  
Operating lease obligations (2)
    7.1       1.1       3.1       1.8       1.1  
                                         
Total contractual obligations
  $ 7.3     $ 1.2     $ 3.2     $ 1.8     $ 1.1  
 
(1)
Capital lease obligations are future lease payments under capital leases inclusive of interest.
 
(2)
Operating lease obligations include leases pertaining to various leased offices and facilities and those classified as operating leases for financial statement purposes.  Certain leases provide for payment of real estate taxes, common area maintenance, insurance, and certain other expenses.  Lease terms expire at various dates through the year 2017.  Also, certain equipment used in Hollywood Media’s operations is leased under operating leases.
 
Off-Balance Sheet Arrangements
 
As of December 31, 2009 and December 31, 2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes of the sort contemplated by paragraph 4 of Item 303 of SEC Regulation S-K.  As such, management believes that we currently do not have any disclosures to make of the sort contemplated by paragraph 4 of Item 303 regarding “off-balance sheet arrangements.”

 
33

 

Critical Accounting Estimates

In response to the SEC’s Release Number 33-8040 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” and SEC Release Number 33-8056, “Commission Statement about Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to asset impairment, accruals for compensation and related benefits, revenue recognition, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions. For additional information about our significant accounting policies, including the critical accounting policies discussed below, see Note 2 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

Allowance for Doubtful Accounts

Hollywood Media maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company’s accounting for doubtful accounts contains uncertainty because management must use judgment to assess the collectibility of these accounts. When preparing these estimates, management considers a number of factors, including the aging of a customer’s account, past transactions with customers, creditworthiness of specific customers, historical trends and other information. The allowance for doubtful accounts was $0.5 million and $0.6 million at December 31, 2009 and 2008, respectively.  The allowance is primarily attributable to receivables due from customers of CinemasOnline.  Although the Company believes its allowance is sufficient, if the financial condition of the Company’s customers were to unexpectedly deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required that could materially impact the Company’s consolidated financial statements. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s customer base and their dispersion across many different geographic regions.

Impairment of Goodwill

Under FASB Accounting Standard Codification Topic No. 350, “Intangibles – Goodwill and Other” (ASC 350), beginning January 1, 2002, goodwill and certain intangibles are no longer amortized; however, they are subject to evaluation for impairment at least annually using a fair value based test. The fair value based test is a two-step test. The first step involves comparing the fair value of each of our reporting units to the carrying value of those reporting units. If the carrying value of a reporting unit exceeds the fair value of the reporting unit, we are required to proceed to the second step. In the second step, the fair value of the reporting unit would be allocated to the assets (including unrecognized intangibles) and liabilities of the reporting unit, with any residual representing the implied fair value of goodwill. An impairment loss would be recognized if and to the extent that the carrying value of goodwill exceeds the implied value.

 
34

 

As prescribed by ASC 350, we completed the transitional goodwill impairment test by the second quarter of fiscal 2002 which did not result in an impairment charge.  Additionally, Hollywood Media established October 1, as its annual impairment test date and conducted required testing on that date during fiscal 2009 and 2008.  As part of our fiscal 2008 annual impairment evaluation, the Company determined that the goodwill associated with its CinemasOnline business should be written off, and, accordingly, the Company recorded an impairment loss of $2.8 million.  In addition, the Company recorded $0.7 million in additional impairment to goodwill recorded after our 2001 acquisition of Always Independent Entertainment Corp. and our Intellectual Properties segment.  During the second quarter of 2009 the Company determined that $5.0 million of the goodwill associated with its MovieTickets.com business should be written down based on discounted cash flow being below carrying value and accordingly recorded an impairment loss of $5.0 million.  For additional information see Note 15 – Investments in and Advances to Equity Method Unconsolidated Investees in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.  As December 31, 2009, we are not aware of any additional items or events that would cause us to adjust the recorded value of Hollywood Media’s goodwill for impairment further.  The goodwill recorded in the accompanying Consolidated Balance Sheets as of December 31, 2009 and 2008 was $20.2 million and $25.2 million, respectively.  At December 31, 2009 and December 31, 2008 goodwill represented 35% and 38%, respectively, of total assets.  The Ad Sales reporting unit had $14.6 million of goodwill allocated as of the test date.  The fair value of the Ad Sales reporting unit exceeded the carrying value as of the test date by approximately 20%.  Future changes in estimates used to conduct the impairment review, including revenue projections, market values and low discount rates could cause the analysis to indicate that Hollywood Media’s goodwill is impaired in subsequent periods and result in a write-off of a portion or all of the goodwill. In order to evaluate the sensitivity of the fair value calculations of our reporting units on the impairment calculation, we applied a hypothetical decrease to the fair values of each reporting unit.

During the period from November 21, 2008 to May 21, 2009, the Company’s market capitalization periodically fell below the book value of its equity. The Company believes that the disparity between the book value of its assets as compared to the market capitalization of its business is in large part a consequence of market conditions, including perceived risks in the debt markets, the Company’s industry and the broader economy. While the Company believes that some of these risks are unique to specific companies, some represent global industry risks. The Company believes that there is no fundamental change in our underlying business model or prospects for our Company.   We considered the periodic decline in our market capitalization to be temporary and based on general economic conditions and a decline in general investor confidence throughout the market and not based on any events or conditions specific to us.  The Company has evaluated the impairment of its goodwill, giving consideration to these risks, and their impact upon the respective reporting units’ fair values, and has reported impairments where it deems appropriate. The Company believes that the fair value of its remaining reporting units that contain goodwill at December 31, 2009 and 2008 exceeded the book value of those units.

Inflation and Seasonality

Although we cannot accurately determine the precise effects of inflation, we do not believe inflation has a material effect on revenue or results of operations. We consider our business to be somewhat seasonal and expect net revenues to be generally higher during the second and fourth quarters of each fiscal year for our Tekno Books book licensing business as a result of the general publishing industry practice of paying royalties semi-annually.  The Broadway Ticketing Business is also influenced by seasonal variations with net revenues generally higher in the second quarter as a result of increased sales volumes due to the Tony Awards© and in the fourth quarter due to increased levels during the holiday period. In addition, although not seasonal, our Intellectual Properties division and NetCo Partners both experience fluctuations in their respective revenue streams, earnings and cash flow as a result of the amount of time that is expended in the creation and development of the intellectual properties and their respective licensing agreements. The recognition of licensing revenue is typically triggered by specific contractual events which occur at different points in time rather than on a regular periodic basis.

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

Market risk is the risk of loss arising from adverse changes in our assets or liabilities that might occur due to changes in market rates and prices, such as interest or foreign currency exchange rates, as well as other relevant market rate or price changes.

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.

 
35

 

We have investments in subsidiaries in the United Kingdom and sell our services into this foreign market.  Our foreign net asset/exposures (defined as assets denominated in foreign currency less liabilities denominated in foreign currency) for the United Kingdom at December 31, 2009 of U.S. dollar equivalents was a net liability of $1.6 million and $1.8 million at December 31, 2008.

                Our United Kingdom subsidiaries sell services and pay for products and services in British pounds. A decrease in the British foreign currency relative to the U.S. dollar could adversely impact our margins. An assumed 10% depreciation of these foreign currencies relative to the U.S. dollar over the course of fiscal 2009 and 2008 (i.e., in addition to actual exchange experience) would have resulted in a translation decrease of our revenue by $0.3 million for fiscal 2009 and translation reduction of our revenue by $0.5 million for fiscal 2008.

                As the assets, liabilities and transactions of our United Kingdom subsidiaries are denominated in British pounds, the results and financial condition are subject to translation adjustments upon their conversion into U.S. dollars for our financial reporting purposes. A 10% decline in this foreign currency relative to the U.S. dollar at year-end (i.e., in addition to actual exchange experience) would have resulted in a de minimus decrease in our translation loss for fiscal 2009 and $0.1 million decrease in translation loss for fiscal 2008.

 
36

 
 
Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
   
Report of Independent Registered Public Accounting Firm
38
   
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008
39
   
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007
40
   
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008 and 2007
41
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
42
   
Notes to Consolidated Financial Statements
43-75

 
37

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
 
Hollywood Media Corp.
 
Boca Raton, Florida
 
We have audited the accompanying consolidated balance sheets of Hollywood Media Corp. and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2009.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hollywood Media Corp. and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 
KAUFMAN, ROSSIN & CO., P.A.
 
Miami, Florida
 
March 19, 2010

 
38

 

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
December 31,
   
December 31,
 
   
2009
   
2008
 
ASSETS
           
             
CURRENT ASSETS
           
Cash and cash equivalents
  $ 11,764,810     $ 12,685,946  
Receivables, net
    897,503       1,433,797  
Inventories held for sale
    3,735,691       4,491,841  
Deferred ticket costs
    10,985,160       12,085,237  
Prepaid expenses
    1,896,237       1,418,563  
Other receivables
    1,125,263       1,287,752  
Other current assets
    436,675       99,945  
Related party receivable
    335,245       143,464  
Restricted cash
    1,221,000       2,600,000  
Total current assets
    32,397,584       36,246,545  
                 
PROPERTY AND EQUIPMENT, net
    4,369,085       4,649,202  
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED INVESTEES
    230,097       132,800  
INTANGIBLE ASSETS, net
    390,818       682,896  
GOODWILL
    20,197,513       25,154,292  
OTHER ASSETS
    21,082       73,126  
TOTAL ASSETS
  $ 57,606,179     $ 66,938,861  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 1,632,351     $ 1,329,949  
Accrued expenses and other
    3,074,549       3,708,652  
Deferred revenue
    14,012,178       15,196,455  
Gift certificate liability
    3,794,899       3,434,359  
Customer deposits
    948,273       831,838  
Current portion of capital lease obligations
    123,061       203,579  
Current portion of notes payable
    37,454       43,147  
Related party payable
    -       2,622,438  
Total current liabilities
    23,622,765       27,370,417  
                 
DEFERRED REVENUE
    309,190       401,309  
CAPITAL LEASE OBLIGATIONS, less current portion
    75,830       203,901  
OTHER DEFERRED LIABILITY
    1,105,553       1,168,096  
NOTES PAYABLE, less current portion
    2,432       36,258  
                 
COMMITMENTS AND CONTINGENCES
               
                 
SHAREHOLDERS’ EQUITY
               
Preferred stock, $.01 par value, 1,000,000 shares authorized; none outstanding
    -       -  
Common stock, $.01 par value, 100,000,000 shares authorized; 31,037,656 and 30,883,913 shares issued and outstanding at December 31, 2009 and December 31, 2008, respectively
    310,377       308,839  
Additional paid-in capital
    309,480,331       309,100,760  
Accumulated deficit
    (277,315,848 )     (271,695,431 )
Total Hollywood Media Corp. shareholders’ equity
    32,474,860       37,714,168  
Non-controlling interest
    15,549       44,712  
Total shareholders’ equity
    32,490,409       37,758,880  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 57,606,179     $ 66,938,861  

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

 
39

 

HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

   
YEAR ENDED DECEMBER 31,
 
                   
   
2009
   
2008
   
2007
 
NET REVENUES
                 
Ticketing
  $ 98,860,362     $ 110,918,969     $ 111,792,068  
Other
    4,518,548       6,138,962       6,369,156  
                         
      103,378,910       117,057,931       118,161,224