WEIL, GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
August 24, 2005
TRANSMITTED VIA EDGAR:
- ---------------------
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Michael Moran, Accounting Branch Chief
Re: Hollywood Media Corp.
Form 10-K for the year ended December 31, 2004
Filed March 31, 2005
File No. 1-14332
Ladies and Gentlemen:
We are writing on behalf of our client, Hollywood Media Corp. (the
"Company"), to respond to the comments of the Staff set forth in the letter
dated June 15, 2005 with respect to the above-referenced Form 10-K. For your
convenience, each comment from the comment letter is repeated here, followed by
the Company's response and the paragraph numbering below corresponds to the
numbering in the comment letter.
COVER
- -----
1. OUR RECORDS SHOW YOUR FILE NUMBER IS 1-14332, RATHER THAN FILE
NUMBER 0-22908 THAT APPEARS ON THE COVER PAGES OF YOUR FORMS 10-K, 10-K/A, 10-Q,
NT 10-Q, DEF 14A AND 8-K. PLEASE MAKE THE APPROPRIATE REVISIONS.
We note that the Company's EDGAR filings are indeed filed under the
proper number in the EDGAR database (File Number 1-14332), although we
recognized as you noted that the number on the cover pages (Number
0-22908) is a number that was previously assigned to the Company when
it went public. As per conversations with the EDGAR staff, the Company
has agreed to use File Number 1-14332 on the cover pages of its
filings. Because of the large number of past filings using the old file
number on the cover page, the Company requests that it be permitted to
use the new file number on its future filings and not amend its prior
filings. The Company hereby undertakes to use File Number 1-14332 on
all future filings.
NY2:\1544589\12\X3T912!.DOC\26141.0003
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATION, PAGE 20 NET REVENUES, PAGE 24
- -------------------------------------------
2. WE DO NOT UNDERSTAND WHY YOU HAVE RECORDED $993,917 IN NON-CASH
REVENUES AND EXPENSES IN CONNECTION WITH THE NATO CONTRACT WHICH IS NO LONGER IN
EFFECT. PLEASE TELL US WHEN THE CONTRACT TERMINATED AND THE CIRCUMSTANCES FOR
RECOGNITION OF INCOME AND EXPENSE AFTER THE CONTRACTUAL PERIOD.
As indicated in the Company's Form 10-K, the annual NATO revenue and
expense each amounted to $2,981,750 per year, which equates to a
monthly accrual of $248,479. The contract, as stated on page 24 of the
Company's Form 10-K, expired in April 2002. The $993,917 of non-cash
revenues and expenses recorded in 2002 equates to 4 months at $248,479
per month. No revenue or expense was recorded after the expiration of
the contract.
AUDIT FEES AND OTHER, PAGE 35
- -----------------------------
3. TELL US THE NATURE OF THE INCREASE IN AUDIT, REVIEW AND CONSULTING
FEES IN FISCAL 2004. FEES ASSOCIATED WITH THE AUDIT OR REVIEW OF YOUR FINANCIAL
STATEMENTS SHOULD BE DISCLOSED AS AUDIT FEES WHILE FEES RELATED TO INTERNAL
CONTROL REVIEW AND COMPLIANCE ARE REQUIRED TO BE DISCLOSED AS AUDIT RELATED
FEES. SEE ITEM 9(E)(1) OF SCHEDULE 14A. PLEASE ADVISE OR REVISE YOUR DISCLOSURES
ON PAGES 29 AND 35 OF FORM 10-K AND THE DEFINITIVE SCHEDULE 14A FILED ON APRIL
29, 2005.
The increase in audit fees in fiscal 2004 resulted from our Independent
Registered Public Accounting Firm, Ernst & Young LLP, incurring
substantially more hours in fiscal 2004 than in fiscal 2003 as a result
of the audit of management's assessment of internal control over
financial reporting and the audit of the Company's internal control
over financial reporting in compliance with the Sarbanes-Oxley Act of
2002. In addition, the Ernst & Young billing rate per hour increased in
fiscal 2004 as compared to fiscal 2003.
As per our conversation with the Staff, the fees of the Company's
Independent Registered Public Accounting Firm included under "Audit
Fees" that relate to internal controls are solely for the audit of
management's assessment of internal control over financial reporting
and the audit of the Company's internal control over financial
reporting and other regulatory matters related to compliance with the
Sarbanes-Oxley Act of 2002. No fees of the Company's Independent
Registered Public Accounting Firm relating to internal control reviews
are included under "Audit Fees." Accordingly, the Company believes that
it properly disclosed the fees of its Independent Registered Public
Accounting Firm and, therefore, no amendment to the Company's Form 10-K
or the Definitive Schedule 14A is necessary. The Company believes this
presentation is supported by Release No. 333-8183 (FR-68).
2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, PAGE 42
- -------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PAGE 44
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401(K) PLAN, PAGE 50
- --------------------
4. WE NOTE THAT YOU CONTRIBUTE COMMON SHARES TO YOUR 401(K) SAVINGS
PLAN. PLEASE TELL US WHY YOU HAVE NOT FILED A FORM 11-K FOR YOUR 401(K) SAVINGS
PLAN. SEE REGULATION 15(D) OF THE EXCHANGE ACT.
With respect to the Company's contributions of its common shares to the
Company's 401(k) Retirement Savings Plan, we note that the plan is a
noncontributory plan as further explained below. Participants in the
plan are not permitted to use their discretionary employee
contributions in the plan to invest in the Company's common shares (or
any other securities of the Company). Under the plan, the Company has
the discretion to match employee contributions. If the Company
determines in any particular year to match employee contributions, the
Company has the option, at its discretion, to make the Company's
matching contributions in the form of Company common shares. The plan
does not permit any portion of employee contributions to be used to
purchase Company common shares. In accordance with the Commission's
policies set out in no-action letters, since participants are not
permitted under the plan to invest any portion of their contributions
in Company securities, no plan interests are created which would be
considered securities (due to the exemption under Section 3(a)(2) of
the Securities Act of 1933, as amended) and, accordingly, the plan is
not required to be registered and no Form 11-K for the plan is
required.
5. ACQUISITIONS AND OTHER CAPITAL TRANSACTIONS, PAGE 55
- --------------------------------------------------------
5. PLEASE TELL US THE RESULTS OF YOUR INDEPENDENT VALUATION AND
ALLOCATION OF $4.1 MILLION OF EXCESS PURCHASE PRICE CONSIDERATION TO GOODWILL
AND OTHER DEFINITE LIVED INTANGIBLE ASSETS IN CONNECTION WITH THE ACQUISITION OF
STUDIO SYSTEMS, INC.
The acquisition closed on July 1, 2004. The Company engaged a valuation
firm which completed its work prior to the filing of the Company's Form
10-Q report for the second quarter of 2005. The valuation firm
determined the fair market value of certain identifiable intangible
assets (customer lists, non-competition agreements and trademarks),
which are being amortized over 3 years, as $670,099. Tangible assets
were determined to be valued at an amount approximating their
pre-acquisition book value. The remainder of the purchase price of
$4,051,992 was allocated to goodwill.
9. GOODWILL AND INTANGIBLES, PAGE 59
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6. PLEASE TELL US THE RESULTS OF YOUR ANNUAL GOODWILL IMPAIRMENT
ANALYSIS FOR YOUR INTERNET AD SALES REPORTING SEGMENT. IN YOUR RESPONSE INCLUDE
YOUR CALCULATION OF THE REPORTING UNIT'S ESTIMATED FAIR VALUE, THE METHODOLOGY
USED TO ASSIGN ASSETS AND LIABILITIES TO THE CARRYING VALUE OF THE REPORTING
UNIT AND THE RESULTS WHEN COMPARING THE ESTIMATED FAIR VALUE TO THE CARRYING
VALUE OF THE REPORTING UNIT. TELL US WHY THE BASIS USED TO MEASURE FAIR VALUE IS
THE MOST APPROPRIATE IN ESTIMATING THE REPORTING UNIT'S FAIR VALUE. WE MAY HAVE
FURTHER COMMENTS.
After performance of an independent appraisal of the Internet Ad Sales
Reporting Segment ("IAS"), it was determined that there was no
impairment of goodwill. To determine the value of IAS, the independent
appraiser reviewed three approaches to value, the Market, Asset and
3
Income Approaches. Since IAS is a going concern and is not
asset-intensive, the independent appraiser ultimately did not use the
Asset approach. The calculations for the Market and Income Approaches
are summarized below:
Value Weighting Total
----- --------- -----
MARKET
Value based on Comparable Mergers & $59,735,130 40% $23,894,052
Acquisitions
INCOME
Value based on Discounted Cash Flow $14,151,040 60% $8,490,624
---- -----------
100% $32,384,676
==== ===========
The Independent Appraiser applied weighting of 40% to the Mergers &
Acquisitions and 60% to the Discounted Cash Flow values. The Mergers &
Acquisitions result is an indicator of the values as of the valuation
date (October 1, 2004) being placed on companies in the marketplace
that are similar to IAS and the Discounted Cash Flow directly
correlates to the future cash flows anticipated for IAS. The
independent appraiser placed a higher weighting on the Discounted Cash
Flow value since, in the appraiser's view, an arm's-length buyer would
likely consider the Discounted Cash Flow value with greater weight than
the Mergers & Acquisitions result.
Set out below is an analysis of the fair value of total assets of IAS
compared to the book value of its total assets as of October 1, 2004
(the "Valuation Date"):
Internet Ad Sales Reporting Segment
-----------------------------------
--------------------------------------------------- ---------------------
(millions)
--------------------------------------------------- ---------------------
Total value $ 32.4
--------------------------------------------------- ---------------------
Add: Current liabilities (excluding interest
bearing debt) 1.4
--------------------------------------------------- ---------------------
Fair value of total assets $ 33.8
--------------------------------------------------- ---------------------
Book value of total assets $ 23.4
-------
--------------------------------------------------- ---------------------
Excess of fair value over book value $ 10.4
=======
--------------------------------------------------- ---------------------
Based upon the above analysis, no impairment exists for IAS at the
Valuation Date.
4
11. DEBT, PAGE 60
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CEO COMMITMENTS, PAGE 61
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7. PLEASE TELL US AND DISCLOSE IN FUTURE FILINGS THE AMOUNT, IF ANY, OF
OUTSTANDING OBLIGATIONS UNDER THE COMMITMENT OF THE CEO AND VICE-CHAIRMAN AND
PRESIDENT AS OF YOUR MOST RECENT BALANCE SHEET DATE.
The outstanding loan balance was zero as of December 31, 2004 and March
31, 2005. As requested, the Company will include the outstanding
balance of the commitment as of the most recent balance sheet date in
future filings.
14. OFFERING OF SECURITIES, PAGE 64
- ------------------------------------
8. PLEASE TELL US HOW YOU DETERMINED $2.3 MILLION OF ESTIMATED FAIR
VALUE IN CANCELLED OPTIONS IS EQUAL TO THE FAIR VALUE OF 520,682 SHARES OF
RESTRICTED COMMON STOCK ISSUED ON JANUARY 2, 2002 CONSIDERING THE CLOSING PRICE
OF YOUR COMMON STOCK WAS $6.19 PER SHARE ON THAT DATE.
The $2,280,587 value was determined based on the $4.38 closing market
price per share on the date of the Exchange Agreement, December 14,
2001. In addition, the required Board approval was obtained on the same
date. The accounting justification for using December 14, 2001 as the
measurement date was that as of that date the fair value of the options
had been determined and all items necessary to establish a measurement
date were met in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." In future filings
with this disclosure, the Company will include both the stock issuance
date and the measurement date in order to provide the necessary
computational information, as applicable.
9. PLEASE TELL US HOW YOU ACCOUNTED FOR THE AMENDED EXERCISE PRICE OF
THE SERIES A WARRANT FROM $6.44 PER SHARE TO $5.25 PER SHARE.
No accounting recognition was given to the amended exercise price of
the Series A warrants. The fair value of the Series A warrants issued
to three investors in connection with the Company's May 2001 sales of
common stock, and the subsequent adjustment referred to in the comment,
were not separately accounted for (i.e., their value was included in
additional paid in capital).
10. TELL US HOW YOU ACCOUNTED FOR THE ISSUANCE OF THE COMMON STOCK AND
WARRANTS ON FEBRUARY 13, 2004. IT APPEARS YOUR COMMON STOCK WAS TRADING AT A
VALUE OF $3.21 ON THE DATE OF ISSUANCE.
The common stock and warrants issued on February 13, 2004 were sold
pursuant to a purchase agreement dated February 9, 2004. The purchase
price of the common stock and warrants, and the other terms of the
sale, including the warrant exercise price, were determined pursuant to
arms-length negotiations between the Company and the independent third
party purchasers, and the pricing for the shares, the warrants and the
warrant exercise price were determined consistent with the Nasdaq
"at-market" requirements and calculated based on the average of the
closing bid price reported for the Company's common stock on the Nasdaq
National Market System for the five business days prior to the date of
the purchase agreement (February 9, 2004). The Company received no
other consideration or services for the sale of these securities.
5
In the future, when disclosing securities transaction of this nature,
the Company will include the date of the purchase agreement (i.e., the
measurement date for accounting purposes on which the pricing
calculations are made), as well as the date of the issuance of the
securities.
ITEM 9A. CONTROLS AND PROCEDURES, PAGE 83
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11. REVISE TO PROVIDE THE INFORMATION REQUIRED BY ITEM 304(A)(1)(V) OF
REGULATION S-K, REGARDING ANY REPORTABLE EVENT (I.E. INTERNAL CONTROL WEAKNESS,
ETC.) THE FORMER ACCOUNTANT ADVISED THE COMPANY OF DURING THE TWO MOST RECENT
FISCAL YEARS AND SUBSEQUENT INTERIM PERIOD THROUGH THE DATE OF TERMINATION.
As discussed with the Staff, the information required by S-K Item
304(a)(1)(v) of Regulation S-K was included in the Company's Form 8-Ks
filed on May 10, 2005 and May 20, 2005. Accordingly, the Company
believes that it has already provided the required information.
DESCRIBE IN DETAIL THE NATURE OF EACH MATERIAL WEAKNESS AND THE AMOUNTS
INVOLVED, AS APPLICABLE.
A comprehensive description of the Company's material weaknesses and
the specifics of the deficiencies discovered are included in Item 9A of
the Company's Form 10-K/A filed with the Commission on May 2, 2005.
Please refer to Exhibit 1 attached hereto for a detailed listing of
adjustments and corresponding amounts.
ALSO, TELL US:
O IN WHAT PERIOD EACH MATERIAL WEAKNESS AND ACCOUNTING ERROR OR
MISAPPLICATION OF GAAP OCCURRED;
The Company and its Independent Registered Public Accountant
performed the testing of the internal control processes for 2004
in the fourth quarter of 2004 and the first quarter of 2005 for
purposes of the reports on internal controls required by the
Sarbanes-Oxley Act, and the material weaknesses identified in
such testing were identified as of the end of 2004. The
accounting errors and misapplications of GAAP resulting from the
material weaknesses affected prior periods in two areas: (1)
gross vs. net recording of ad sales sold with agency commissions
and (2) reclassification adjustments associated with the
recording of vendor rebates as a reduction to costs of sales
instead of revenue. The period and effect of these items on
revenue, cost of sales and SG&A has been provided in Exhibit 2
attached hereto.
O THE AMOUNT OF EACH ACCOUNTING ERROR AND MISAPPLICATION OF GAAP;
The accounting errors and misapplications of GAAP for the period,
including all audit adjustments, have been provided in Exhibit 1
attached hereto.
6
O THE REASONS FOR EACH ERROR OR MISAPPLICATION OF ACCOUNTING;
The errors and/or misapplications of accounting were due to the
material weaknesses disclosed in the Company's Form 10-K, as
amended by the Company's Form 10-K/A. Included in Item 9A of the
Company's Form 10-K/A is the most comprehensive description of
the Company's material weaknesses and the specifics of the
deficiencies discovered, including the nature of the control
breakdown (i.e. design deficiency, etc).
O WHETHER OR NOT YOU INTEND TO RESTATE ANY PRIOR PERIOD FOR ANY
ADJUSTMENTS. IF NOT, TELL US WHY NOT; AND
The Company does not intend to restate any prior period for any
adjustments. The Company has performed a quantitative and
qualitative analysis in accordance with the applicable standards
on the determination of materiality. The Company's quantitative
analysis noted that the errors in accounting would not result in
any change to net loss for any prior period. The effects from a
quantitative perspective have been presented in Exhibit 2
(attached) to show the impact on financial statement captions
presented in the Company's Form 10-K, as amended. The Company
then performed a qualitative analysis noting the changes would
have no impact on existing contracts, debentures, or other
matters of this nature. Therefore, the Company determined that
due to the immateriality, from both a quantitative and
qualitative perspective, the Company did not need to restate its
previously issued financial statements.
O IN DETAIL, ALL THE STEPS YOU HAVE TAKEN (OR PLAN TO TAKE) AND
PROCEDURES YOU HAVE IMPLEMENTED (OR PLAN TO IMPLEMENT) TO CORRECT
EACH CONCERN.
The Company's management is in the process of remediating the
weaknesses in the Company's system of internal control over
financial reporting which were identified by management and
described in Item 9A of the Company's Form 10-K/A. The Company's
management believes that the remediations described below, when
completed, will mitigate the material weaknesses identified by
management. The corrective steps that management has already
taken and those that it is in the process of taking are outlined
below the material weakness to which they apply as follows:
1) Entity Level Controls
---------------------
(i) Executive management of the Company has re-emphasized the
importance of internal controls to all of its
management-level employees and has launched a structured
process to address deficiencies and to implement
improvements to internal controls by setting up an internal
compliance team that is remediating the Company's material
weaknesses. The Company also plans to establish an internal
audit department. A Delegation of Authority matrix has been
prepared by executive management, which specifies and
communicates all authorities delegated by the Board of
Directors to the Chief Executive Officer, other officers,
Presidents, Vice Presidents and departmental management. A
further review of the Segregation of Duties matrix is being
performed to ensure adequate segregation of duties and that
process documentation is complete. The Company has added
additional skilled in-house accountants, including the
appointment of a Controller at its Broadway ticketing
division in New York.
7
(ii) Bi-weekly risk assessment meetings began during the fourth
quarter of 2004 and are held with executive officers,
division heads and representatives of the Company's human
resource, information systems, ad sales, business
development and legal departments to identify and discuss
known business or financial risks and to develop timely
responses to such risks. In December 2004, the Company
established a whistleblower hotline for employees to report
concerns regarding any improper matters to the Audit
Committee. The Company has successfully tested the hotline
system. Management has retained personnel with extensive
public company and public accounting experience to review
documents to be filed publicly, assist with the
identification of financial reporting risks, and assist with
financial reporting in response to any changes in the
Company's operations.
(iii) Various policies and procedures to improve controls have
been developed and are being implemented as a result of
management's assessment of internal controls, and are being
incorporated into the training of employees and maintained
in a centralized databank.
(iv) The Company has licensed and is now in the process of
implementing a new general ledger system for the Company and
its subsidiaries. The installation of this system and
training in its use is expected to be completed by October
1, 2005. This general ledger system will automate several
processes that are currently being performed manually by the
Company's accounting staff, including payroll functions,
cash reconciliations, fixed asset management and
intercompany accounting. This system also includes a
purchase order function that will introduce additional
controls over the approval of procurement transactions. In
addition, after extensive review and analysis, the Company's
management has identified a more robust ticketing software
system to replace its existing system and to improve the
accuracy and timeliness of reporting of the financial
statements and information for the Broadway ticketing
division and is in the process of testing, licensing and
installing this new ticketing software system.
(v) As described in paragraph (1)(i) above, additional skilled
accounting personnel have been hired to improve staffing and
monitoring of internal controls. As also described in
paragraph (1)(i) above, the Company is in the process of
establishing an internal audit team assigned to evaluate
internal controls and facilitate remediation of identified
control deficiencies.
2) Financial Statement Close Process
---------------------------------
As noted above in paragraph (1)(iv), the Company has licensed and
is now in the process of installing a new general ledger system,
which will automate several processes that are currently being
performed manually by the Company's accounting staff, including
payroll functions, cash reconciliations, fixed asset management
and intercompany accounting, and will include a purchase order
function that will introduce additional controls over the
8
approval of procurement transactions. Existing closing checklists
and closing calendars are being consolidated to ensure a
comprehensive review process and to facilitate a smooth general
ledger system implementation. Further, the more robust ticketing
software system that will replace the Company's existing system
will improve the accuracy and timeliness of reporting of the
financial information of the Broadway ticketing division. As also
noted above, the Company has added additional skilled
accountants, including a new Controller for its Broadway
ticketing division in New York. This new Controller is
responsible for implementing compensating controls prior to the
launch of the new ticketing system in order to improve financial
reporting in the interim period. The addition of such accounting
personnel, coupled with the new general ledger system and
ticketing software system, is expected to significantly improve
the financial statement close process.
3) Broadway Ticketing Division
---------------------------
In order to correct inadequate controls over the recording,
review and reporting of ticketing-related financial information,
the Company's management has:
(i) Identified and is in the process of testing, licensing and
installing a more robust ticketing software system as noted
in paragraph (1)(iv) above; and
(ii) As noted in paragraphs (1)(i) and (2) above, the Company has
added a new Controller for its Broadway ticketing division
whose responsibility includes implementing compensating
controls prior to the launch of the new ticketing system in
order to improve financial reporting in the interim period.
4) Accounting for Internally Developed Software Costs
--------------------------------------------------
To properly account for internally developed software, the
Company has licensed and is implementing a new project management
software system that will facilitate improved maintenance of
employee time reports and project documentation. This software is
in addition to the general ledger software which also has been
licensed by the Company and is in the process of being installed
and implemented as described in paragraph (1)(iv) above.
5) Accounting for Income Taxes
---------------------------
The Company's accounting department is responsible for compiling
and summarizing financial information for completion of income
tax preparation by a third party accounting firm specializing in
tax matters which has been retained by the Company. The Chief
Accounting Officer of the Company reviews such preparation in
preparing financial statements and related calculations and
disclosures regarding income taxes, including deferred assets and
liabilities.
6) Combination of Significant Deficiencies
---------------------------------------
As noted above, the Company's management believes that the
remediations described above, when completed, will mitigate the
material weaknesses identified by management, including
remediation of the significant deficiencies described in the
Company's Form 10-K/A. In addition to the corrective steps
9
described above, including the installation of a new general
ledger system described above, the Company also notes that it is
re-engineering certain procedures to address these deficiencies,
including re-engineering the accounts payable process to take
advantage of the purchase order functionality of the new general
ledger system, which will result in control improvements in the
purchase and pay process, improved identification of commitments
and contingencies, and improvement in the financial statement
close process. In other procedures, the Company is segregating
the accounting entry routines from the review process and
consolidating month-end checklists to facilitate improved and
independent review of the accounting processes.
PLEASE PROVIDE US WITH A SCHEDULE OF YOUR FISCAL YEAR END FOURTH
QUARTER ADJUSTMENTS TO CLOSE THE BOOKS, OR ADJUSTMENTS RECORDED IN CONNECTION
WITH OR AS A RESULT OF THE AUDIT. CLEARLY EXPLAIN THE REASON FOR EACH
ADJUSTMENT. FOR EACH ADJUSTMENT, SHOW US THE IMPACT ON PRE-TAX NET LOSS.
QUANTIFY THE NET EFFECT OF ALL ADJUSTMENTS ON PRE-TAX NET INCOME (LOSS). ALSO,
TELL US WHY NONE OF THE ADJUSTMENTS RELATE TO PRIOR PERIOD. EXPLAIN IN DETAIL
WHY YOU BELIEVE THE TIMING OF EACH ADJUSTMENT IS APPROPRIATE.
A schedule of the Company's 2004 fiscal year end fourth quarter adjustments
to close the books and adjustments recorded in connection with or as a
result of the audit is attached hereto as Exhibit 1. The Company has
provided descriptions for each adjustment, the impact on pre-tax net loss
and calculated the net effect of all adjustments on pre-tax loss. The only
two areas impacting prior periods are described above in response to the
fourth bullet point of the Staff's Comment No. 11, and as described above
the Company determined that due to the immateriality the Company did not
need to restate its previously issued financial statements. Provided in
Exhibit 2 (attached) is a detailed period analysis that calculates the
effect on financial statement captions and net loss.
PROVIDE US WITH ANY LETTER OR WRITTEN COMMUNICATION TO AND FROM THE
FORMER ACCOUNTANTS REGARDING ANY DISAGREEMENTS OR REPORTABLE EVENTS TO
MANAGEMENT OR THE AUDIT COMMITTEE.
With respect to the request to provide any letter or written communication
to and from the former accountants regarding any disagreements or
reportable events to management or the Audit Committee, as discussed with
the Staff, the Company did not have any disagreements with the former
auditors. Accordingly, there is no written communication regarding
disagreements. The Company reported in its Form 8-K filed on May 10, 2005
that there were no disagreements with the former accountants and filed as
Exhibit 16.1 to the Form 8-K a letter from the former accountants agreeing
with that statement.
With respect to reportable events, as discussed with the Staff, the Company
has disclosed the reportable events in its May 10, 2005 Form 8-K and filed
as Exhibit 16.1 to the Form 8-K a letter from the former accountants
agreeing with the Company's disclosure. In addition, a copy of the former
accountants' report on the Company's internal control over financial
reporting that was addressed to the Company's board of directors and
shareholders is included in Item 9A of the Company's Form 10-K/A.
Accordingly, the Company believes all required information has been
disclosed.
Attached hereto please find the requested acknowledgments of the Company.
10
If the Staff has any additional questions or comments, kindly contact
the undersigned at (212) 310-8482.
Very truly yours,
/s/ David G. Schwartz
cc: Mitchell Rubenstein,
Hollywood Media Corp.
11
Hollywood Media Corp.
2255 Glades Road
Suit 221A
Boca Raton, FL 33431
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Please be advised that Hollywood Media Corp. (the "Company") hereby acknowledges
that (i) the Company is responsible for the adequacy and accuracy of the
disclosure in its filings with the Commission; (ii) the staff comments or
changes to disclosure in response to the staff comments do not foreclose the
Commission from taking any action with respect to the filings with the
Commission; and (iii) the Company may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Dated: August 24, 2005
HOLLYWOOD MEDIA CORP.
By: /s/ Mitchell Rubenstein
---------------------------------------
Name: Mitchell Rubenstein
Title: Chairman and Chief Executive Officer
Exhibit 1
------------------------------------------------------
Debit / (Credit)
------------------------------------------------------
ACCOUNT DESCRIPTION Current Long-term Current
RECORDED ENTRIES assets assets liabilities
1 Inventories 449,779 - 449,779
COS-Tickets - 145,408
Accrued Expenses - 304,371 (304,371)
To accrue weekendings, hotel costs and
restaurant vouchers.
2 Fixed Assets -Software 152,381 - 152,381
Prepaid - Others - 152,381 (152,381)
To reclass deferred project costs
initially booked as prepaid.
3 Revenues 80,741 -
Accounts Receivable 18,421 - 18,421
Depreciation and Amortization Expense 3,083 -
SG&A 49,586
Salaries and benefits 111,050 -
Intangible Asset 408,826 - 408,826
Paid-in Capital 23,779 -
Accumulated Depreciation 26,231 - 26,231
Fixed Assets - 204,414 (204,414)
Goodwill - 479,163 (479,163)
Accrued Expenses - 8,826 (8,826)
Accumulated Amortization - 29,314 (29,314)
To adjust opening balance sheet for SSI, FRM
and GTI acquisitions.
4 Deferred Revenue-Future Performance 34,650 - 34,650
Ticket Sales 34,650
To properly state deferred sellables ( hotel)
5 Deferred Revenue-Future Performance 13,682 - 13,682
Ticket Sales 26,318 -
Customer Deposits/Refunds - 40,000 (40,000)
To adjust for excess service charge
6 Consulting Fees 20,664 -
Paid in Capital - 20,664
To properly recognize expense from
consultant equity award.
7 Hotel/Travel Package Income 21,315 -
Deferred Rev -Hotel Package - 21,315 (21,315)
To adjust hotel packages
8 Inventory-Future Performances 221,925 - 221,925
Accounts Receivable 48,763 - 48,763
Cost of Sales 4,810 -
Accrued A/P - 275,498 (275,498)
To properly state inventory and accrued on
unsold inventory not paid as of yearend
9 Individual Ticket Sales 52,284 -
Gift Certificate Liability - 52,284 (52,284)
To accrue additional gift certificate liability.
10 Other Asset (L/T) 38,750 - 38,750
Prepaid-Creator Advances - 38,750 (38,750)
Deferred Revenue (L/T) 42,032 -
Deferred Revenue - 42,032 (42,032)
To reclass prepaid to L/T
To reclass Deferred Revenue to S/T
11 Wages 53,983 -
Wages - COS 59,501 -
Payroll Taxes 11,349 -
Dep Expense -Web Development - 12,928
Deferred Project Costs - 20,105 (20,105)
Web Development - 104,727 (104,727)
Accum Dep -Web Development 12,927 12,927
To account for internally developed
software costs in accordance with SOP 98-1
12 Taxes & Licenses 4,434 -
Interest Expense 7,936 -
Prepaid -Liability Insurance 3,333 - 3,333
Insurance Prop/Casualty 1,667 -
Insurance Financing Liability - 17,370 (17,370)
To adjust insurance short term borrowing account
13 Accounting Fees 250,000 -
Accrued Professional Fees - 250,000 (250,000)
To accrue additional audit fees
14 Revenues 653,101 -
Cost of Sales - 520,918
Deferred Charge - 58,220 (58,220)
Inventory - 47,482 (47,482)
Accrued Expense -Hairspray - 26,481 (26,481)
To account for COOP rebates and revenue
15 Compensation Expense -SG&A 9,141 -
Paid in Capital - 9,141
To properly recognize expense from
employee equity award.
16 Allowance for Doubtful Accounts 213,317 - 213,317
Bad Debt Expense - 213,317
To adjust AFDA per revised calculation
17 Consulting Fees 100,000 -
Security Deposits - 100,000 (100,000)
To Write-off deposit for potential acquisition.
18 Rent Expense 34,823 -
Deferred Rent Credit - 34,823 (34,823)
To account for rent in accordance with FTB 88-1
19 Ad Revenue Banner 212,087 -
Ad agency Commissions - 212,087
To reverse 15% estimated agency cost gross up
20 Inventory 15,000 - 15,000
Credit Card Fees - 15,000
To adjust deferred credit card fees.
21 SG&A 155,766 -
Accrued Expenses - 155,766 (155,766)
To accrued unrecorded liabilities.
22 Other Assets 123,000 - 123,000
Ppd Acq. Deposits - 123,000 (123,000)
To reclass consulting options granted for
services rendered in conjunction with an
acquisition to L/T
Unrecorded Entries
23 SG&A 47,584 -
Other Receivable 22,738 - 22,738
Accrued Expenses - 70,322 (70,322)
To accrue for unrecorded liabilities and
offsetting liability to Movietickets.com
24 Legal Fees 42,000 -
Other Receivables - 42,000 (42,000)
To W/O Tribune Receivable, which was
subsequently collected.
------------------------------------------------------
431,443 (75,608) (1,250,756)
======================================================
Financial Statement Caption Balance 19,421,378 50,390,221 21,373,040
% of Financial Statement Caption Balance 2.22% -0.15% -5.85%
** TABLE CONTINUED **
2
------------------------------------------------------------------------------
Debit/(Credit)
------------------------------------------------------------------------------
ACCOUNT DESCRIPTION Long-term Shareholders' Net Operating Net
RECORDED ENTRIES liabilities equity Revenues expenses Loss
1 Inventories -
COS-Tickets (145,408) (145,408)
Accrued Expenses -
To accrue weekendings, hotel costs and
restaurant vouchers.
2 Fixed Assets -Software -
Prepaid - Others -
To reclass deferred project costs
initially booked as prepaid.
3 Revenues 80,741 80,741
Accounts Receivable -
Depreciation and Amortization Expense 3,083 3,083
SG&A 49,586 49,586
Salaries and benefits 111,050 111,050
Intangible Asset -
Paid-in Capital 23,779 -
Accumulated Depreciation -
Fixed Assets -
Goodwill -
Accrued Expenses -
Accumulated Amortization -
To adjust opening balance sheet for SSI, FRM
and GTI acquisitions.
4 Deferred Revenue-Future Performance -
Ticket Sales (34,650) (34,650)
To properly state deferred sellables ( hotel)
5 Deferred Revenue-Future Performance -
Ticket Sales 26,318 26,318
Customer Deposits/Refunds -
To adjust for excess service charge
6 Consulting Fees 20,664 20,664
Paid in Capital (20,664) -
To properly recognize expense from
consultant equity award.
7 Hotel/Travel Package Income 21,315 21,315
Deferred Rev -Hotel Package -
To adjust hotel packages
8 Inventory-Future Performances -
Accounts Receivable -
Cost of Sales 4,810 4,810
Accrued A/P -
To properly state inventory and accrued on
unsold inventory not paid as of yearend
9 Individual Ticket Sales 52,284 52,284
Gift Certificate Liability -
To accrue additional gift certificate liability.
10 Other Asset (L/T) -
Prepaid-Creator Advances -
Deferred Revenue (L/T) 42,032 -
Deferred Revenue -
To reclass prepaid to L/T
To reclass Deferred Revenue to S/T
11 Wages 53,983 53,983
Wages - COS 59,501 59,501
Payroll Taxes 11,349 11,349
Dep Expense -Web Development (12,928) (12,928)
Deferred Project Costs -
Web Development -
Accum Dep -Web Development -
To account for internally developed
software costs in accordance with SOP 98-1
12 Taxes & Licenses 4,434 4,434
Interest Expense 7,936 7,936
Prepaid -Liability Insurance -
Insurance Prop/Casualty 1,667 1,667
Insurance Financing Liability -
To adjust insurance short term borrowing account
1
13 Accounting Fees 250,000 250,000
Accrued Professional Fees -
To accrue additional audit fees
14 Revenues 653,101 653,101
Cost of Sales (520,918) (520,918)
Deferred Charge -
Inventory -
Accrued Expense -Hairspray -
To account for COOP rebates and revenue
15 Compensation Expense -SG&A 9,141 9,141
Paid in Capital (9,141) -
To properly recognize expense from
employee equity award.
16 Allowance for Doubtful Accounts -
Bad Debt Expense (213,317) (213,317)
To adjust AFDA per revised calculation
17 Consulting Fees 100,000 100,000
Security Deposits -
To Write-off deposit for potential acquisition.
18 Rent Expense 34,823 34,823
Deferred Rent Credit -
To account for rent in accordance with FTB 88-1
19 Ad Revenue Banner 212,087 212,087
Ad agency Commissions (212,087) (212,087)
To reverse 15% estimated agency cost gross up
20 Inventory -
Credit Card Fees (15,000) (15,000)
To adjust deferred credit card fees.
21 SG&A 155,766 155,766
Accrued Expenses -
To accrued unrecorded liabilities.
22 Other Assets -
Ppd Acq. Deposits -
To reclass consulting options granted for
services rendered in conjunction with an
acquisition to L/T
Unrecorded Entries
23 SG&A 47,584 47,584
Other Receivable -
Accrued Expenses
To accrue for unrecorded liabilities and
offsetting liability to Movietickets.com
24 Legal Fees 42,000 42,000
Other Receivables -
To W/O Tribune Receivable, which was
subsequently collected.
----------------------------------------------------------------------------
42,032 (6,026) 1,011,196 (152,281) 858,915
============================================================================
Financial Statement Caption Balance 1,289,289 47,149,270 72,978,667 82,929,891 11,597,799
% of Financial Statement Caption Balance 3.26% -0.01% 1.39% -0.18% 7.41%
** TABLE COMPLETE **
2
Exhibit 2
Q1-04 Q2-04 Q3-04 Q4-04 Y2-04 Y3-04 Y4-04
--------------------------------------------------------------------------------------------------
Total Revenue - As reported (14,784,720) (19,384,309) (15,102,828) (23,713,691) (34,169,029) (49,271,857) (72,985,548)
Re classifying Adjustments:
---------------------------
Co-op Rebate 193,663 167,928 146,135 (507,726) 361,591 507,726 -
Agency 64,522 48,875 27,689 (141,086) 113,397 141,086 -
Revenue - If restated (14,526,535) (19,167,506) (14,929,004) (24,362,503) (33,694,041) (48,623,045) (72,985,548)
% Impact - period Revenue -1.75% -1.12% -1.15% 2.74% -1.39% -1.32% 0.00%
% Impact - annualized Revenue -0.35% -0.30% -0.24% 0.89% -0.65% -0.89% 0.00%
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--------------------------------------------------------------------------------------------------
Total COS - As reported 11,135,381 15,517,238 11,576,157 18,516,090 26,652,619 38,228,776 56,744,866
Re-classifying Adjustments:
---------------------------
Co-op (193,663) (167,928) (146,135) 507,726 (361,591) (507,726) -
COS - If restated 10,941,718 15,349,310 11,430,022 19,023,816 26,291,028 37,721,050 56,744,866
% Impact - period COS -1.74% -1.08% -1.26% 2.74% -1.36% -1.33% 0.00%
% Impact - annualized COS -0.34% -0.30% -0.26% 0.89% -0.64% -0.89% 0.00%
--------------------------------------------------------------------------------------------------
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Total SG&A - As reported 4,978,313 4,637,130 5,977,935 8,175,626 9,615,443 15,593,378 23,769,004
Re-classifying Adjustments:
---------------------------
Agency (64,522) (48,875) (27,689) 141,086 (113,397) (141,086) -
SG&A - If restated 4,913,791 4,588,255 5,950,246 8,316,712 9,502,046 15,452,292 23,769,004
% Impact - period SG&A -1.30% -1.05% -0.46% 1.73% -1.18% -0.90% 0.00%
% Impact - annualized SG&A -0.27% -0.21% -0.12% 0.59% -0.48% -0.59% 0.00%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Total IAS Revenue - As reported (772,507) (759,469) (514,859) (768,806) (1,531,976) (2,046,835) (2,815,641)
Re-classifying Adjustments:
---------------------------
Agency 64,522 48,875 27,689 (141,086) 113,397 141,086 -
IAS - If restated (707,985) (710,594) (487,170) (909,892) (1,418,579) (1,905,749) (2,815,641)
% Impact - period IAS -8.35% -6.44% -5.38% 18.35% -7.40% -6.89% 0.00%
% Impact - annualized IAS -2.29% -1.74% -0.98% 5.01% -4.03% -5.01% 0.00%
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** TABLE CONTINUED **
Q1-03 Q2-03 Q3-03 Q4-03 Y2-03 Y3-03 Y4-03
--------------------------------------------------------------------------------------------------
Total Revenue - As reported (14,537,686) (17,146,181) (13,925,910) (19,249,185) (31,683,867) (45,609,777) (64,858,962)
Re classifying Adjustments:
---------------------------
Co-op Rebate 176,398 199,938 202,891 218,623 376,336 579,227 797,850
Agency 66,455 49,303 52,270 35,953 115,758 168,028 203,981
Revenue - If restated (14,294,833) (16,896,940) (13,670,749) (18,994,609) (31,191,773) (44,862,522) (63,857,131)
% Impact - period Revenue -1.67% -1.45% -1.83% -1.32% -1.55% -1.64% -1.54%
% Impact - annualized Revenue -0.37% -0.38% -0.39% -0.39% -0.76% -1.15% -1.54%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Total COS - As reported 11,198,457 13,744,810 10,479,340 14,843,699 24,943,267 35,422,607 50,266,306
Re-classifying Adjustments:
---------------------------
Co-op (176,398) (199,938) (202,891) (218,623) (376,336) (579,227) (797,850)
COS - If restated 11,022,059 13,544,872 10,276,449 14,625,076 24,566,931 34,843,380 49,468,456
% Impact - period COS -1.58% -1.45% -1.94% -1.47% -1.51% -1.64% -1.59%
% Impact - annualized COS -0.35% -0.40% -0.40% -0.43% -0.75% -1.15% -1.59%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Total SG&A - As reported 4,709,438 4,357,756 4,794,737 4,844,747 9,067,194 13,861,931 18,706,678
Re-classifying Adjustments:
---------------------------
Agency (66,455) (49,303) (52,270) (35,953) (115,758) (168,028) (203,981)
SG&A - If restated 4,642,983 4,308,453 4,742,467 4,808,794 8,951,436 13,693,903 18,502,697
% Impact - period SG&A -1.41% -1.13% -1.09% -0.74% -1.28% -1.21% -1.09%
% Impact - annualized SG&A -0.36% -0.26% -0.28% -0.19% -0.62% -0.90% -1.09%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Total IAS Revenue - As reported (492,452) (736,686) (694,599) (888,436) (1,229,138) (1,923,737) (2,812,173)
Re-classifying Adjustments:
---------------------------
Agency 66,455 49,303 52,270 35,953 115,758 168,028 203,981
IAS - If restated (425,997) (687,383) (642,329) (852,483) (1,113,380) (1,755,709) (2,608,192)
% Impact - period IAS -13.49% -6.69% -7.53% -4.05% -9.42% -8.73% -7.25%
% Impact - annualized IAS -2.36% -1.75% -1.86% -1.28% -4.11% -5.97% -7.25%
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** TABLE COMPLETE **