U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File No. 0-22908
-------
HOLLYWOOD MEDIA CORP.
(Exact name of registrant as specified in its charter)
Florida 65-0385686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 Glades Road, Suite 237 West
Boca Raton, Florida 33431
(Address of principal executive offices) (zip code)
(561) 998-8000
(Registrant's telephone number)
Hollywood.com, Inc.
(Former Name)
Indicated by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ -----
As of May 10, 2001, the number of shares outstanding of the issuer's
common stock, $.01 par value, was 25,837,619.
HOLLYWOOD MEDIA CORP.
Table of Contents
Page(s)
-------
PART I FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000........................................ 3
Condensed Consolidated Statements of Operations for the Three
Months ended March 31, 2001 and 2000 (unaudited) ........................ 4
Condensed Consolidated Statement of Shareholders' Equity for the
Three Months ended March 31, 2001 (unaudited)............................ 5
Condensed Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2001 and 2000 (unaudited)......................... 6
Notes to Condensed Consolidated Financial Statements (unaudited)......... 7-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................ 15-26
PART II OTHER INFORMATION
- ------- -----------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................................... 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 29
Signature ................................................................................. 31
2
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,599,234 $ 1,911,224
Receivables, net 1,614,000 1,866,565
Inventories 728,125 106,700
Prepaid expenses 469,484 687,028
Other receivables 207,550 366,251
Other current assets 241,743 240,450
Deferred advertising - CBS 18,845,194 19,131,714
------------- -------------
Total current assets 23,705,330 24,309,932
PROPERTY AND EQUIPMENT, net 2,764,512 2,802,840
INVESTMENTS 415,521 805,045
NONCURRENT DEFERRED ADVERTISING - CBS 87,002,721 91,714,019
INTANGIBLE ASSETS, net 3,262,997 3,745,579
GOODWILL, net 43,879,049 45,173,047
OTHER ASSETS 756,354 727,620
------------- -------------
TOTAL ASSETS $ 161,786,484 $ 169,278,082
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,761,660 $ 3,194,105
Other accrued expenses 2,577,351 2,444,113
Notes payable 750,000 750,000
Loan from shareholder/officer 500,000 --
Accrued reserve for closed stores 525,786 798,362
Deferred revenue 1,250,656 1,556,841
Current portion of capital lease obligations 734,033 627,597
------------- -------------
Total current liabilities 9,099,486 9,371,018
------------- -------------
CAPITAL LEASE OBLIGATIONS, less current portion 667,211 721,521
------------- -------------
DEFERRED REVENUE 272,153 331,559
------------- -------------
MINORITY INTEREST 158,315 160,094
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 539,127 shares authorized; none outstanding -- --
Common stock, $.01 par value, 100,000,000 shares authorized; 25,007,982
and 24,730,968 shares issued at March 31, 2001 and
December 31, 2000, respectively. 250,079 247,309
Warrants outstanding 7,273,335 7,007,013
Deferred compensation (51,033) (102,067)
Additional paid-in capital 264,874,901 264,332,941
Accumulated deficit (120,757,963) (112,791,306)
------------- -------------
Total shareholders' equity 151,589,319 158,693,890
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 161,786,484 $ 169,278,082
============= =============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
3
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------------
2001 2000
------------ ------------
NET REVENUES $ 13,352,037 $ 4,077,696
COST OF REVENUES 8,919,185 949,971
------------ ------------
Gross margin 4,432,852 3,127,725
------------ ------------
OPERATING EXPENSES:
General and administrative 1,829,731 2,343,505
Selling and marketing 925,593 2,418,731
Salaries and benefits 3,119,836 2,432,915
Amortization of CBS advertising - non-cash 5,048,292 4,124,197
Amortization of goodwill and intangibles 1,800,180 1,651,934
Depreciation and amortization 349,898 317,455
Reversal for closed stores and lease termination costs, net (272,016) --
------------ ------------
Total operating expenses 12,801,514 13,288,737
------------ ------------
Operating loss (8,368,662) (10,161,012)
EQUITY IN EARNINGS OF INVESTMENTS 447,875 1,105,337
OTHER INCOME (EXPENSE):
Interest, net (5,911) (59,200)
Other, net 4,914 --
------------ ------------
Loss before minority interest (7,921,784) (9,114,875)
MINORITY INTEREST (44,873) (59,151)
------------ ------------
Net loss $ (7,966,657) $ (9,174,026)
============ ============
Basic and diluted net loss per common share $ (0.32) $ (0.42)
============ ============
Weighted average common and common equivalent shares
outstanding - basic and diluted 24,706,527 21,830,827
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
4
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
Common Stock
------------------------------- Warrants Deferred
Shares Amount Outstanding Compensation
------------- ------------- ------------- -------------
Balance - December 31, 2000 24,730,968 $ 247,309 $ 7,007,013 $ (102,067)
Issuance of common stock, stock options and
warrants for services rendered -- -- 266,322 --
Employee stock bonus 4,138 41 -- --
Issuance of common stock - adjustment warrants 125,876 1,259 -- --
Issuance of common stock - services agreement 160,000 1,600 -- --
Amortization of employee stock bonuses -- -- -- 51,034
Shares repurchased and retired (13,000) (130) -- --
Net loss -- -- -- --
------------- ------------- ------------- -------------
Balance - March 31, 2001 25,007,982 $ 250,079 $ 7,273,335 $ (51,033)
============= ============= ============= =============
[RESTUBBED]
Additional
Paid-in Accumulated
Capital Deficit Total
------------- ------------- -------------
Balance - December 31, 2000 $ 264,332,941 $(112,791,306) $ 158,693,890
Issuance of common stock, stock options and
warrants for services rendered (208,240) -- 58,082
Employee stock bonus 14,959 -- 15,000
Issuance of common stock - adjustment warrants (1,259) -- --
Issuance of common stock - services agreement 797,964 -- 799,564
Amortization of employee stock bonuses -- -- 51,034
Shares repurchased and retired (61,464) -- (61,594)
Net loss -- (7,966,657) (7,966,657)
------------- ------------- -------------
Balance - March 31, 2001 $ 264,874,901 $(120,757,963) $ 151,589,319
============= ============= =============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
5
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
-------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,966,657) $ (9,174,026)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,150,078 1,969,389
Equity in earnings of investments, net of return of invested capital 389,524 (638,560)
Issuance of compensatory stock options and warrants for services rendered 73,082 51,028
Amortization of deferred compensation costs 51,034 51,033
Provision for bad debts 34,628 25,514
Provision for inventory obsolescence -- 13,444
Amortization of deferred financing costs -- 2,145
Reversal for closed stores and lease terminations costs (272,576) --
Amortization of CBS advertising - non-cash 5,048,292 4,124,197
Minority interest 44,873 59,151
Changes in assets and liabilities:
Receivables 411,638 (863,542)
Prepaid expenses 217,544 (72,969)
Inventories (621,425) 88,095
Other current assets (1,293) (28,552)
Other assets (28,734) 7,561
Accounts payable 367,119 (1,313,419)
Accrued professional fees (20,082) (15,485)
Deferred revenue (416,065) (69,730)
Other accrued expenses 129,720 253,558
------------ ------------
Net cash used in operating activities (409,300) (5,531,168)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to Beach Wrestling LLC (35,000) --
Investment in url -- (1,000,000)
Capital expenditures (194,006) (424,612)
Return of capital from Tekno Books to minority partner (46,652) (190,282)
------------ ------------
Net cash used in investing activities (275,658) (1,614,894)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholder/officer loan 500,000 --
Net proceeds from issuance of common stock -- 5,303,030
Proceeds from exercise of stock options and warrants -- 6,120,046
Payments to repurchase common stock (61,594) (198,075)
Payments under capital lease obligations (65,438) (124,290)
------------ ------------
Net cash provided by financing activities 372,968 11,100,711
------------ ------------
Net (decrease) increase in cash and cash equivalents (311,990) 3,954,649
CASH AND CASH EQUIVALENTS, beginning of period 1,911,224 2,475,345
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,599,234 $ 6,429,994
============ ============
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 5,193 $ 94,065
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
6
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION:
In the opinion of management, the accompanying condensed consolidated financial
statements have been prepared by Hollywood Media Corp. (the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with accepted accounting principles generally
accepted in the United States have been condensed or omitted pursuant to those
rules and regulations. However, the Company believes that the disclosures
contained herein are adequate to make the information presented not misleading.
The financial statements reflect, in the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations.
The results of operations and cash flows for the three months ended March 31,
2001 are not necessarily indicative of the results of operations or cash flows
which may be recorded for the remainder of 2001.
The accompanying consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
In the event that the Company requires additional funding, the Company's
Chairman of the Board and Chief Executive Officer and the Company's Vice
Chairman and President, have indicated their intention to provide the Company,
if required, with an amount not to exceed $6 million in order to enable the
Company to meet its working capital requirements during 2001; provided, however,
that the commitment will terminate to the extent the Company raises no less than
$6 million from other sources and such additional funding is not expended on
acquisitions. During the first quarter 2001 the Company drew $500,000 of such
funding which was repaid subsequent to March 31, 2001. As a result of the
financing raised by the Company subsequent to March 31, 2001, described in Note
14, the commitment was reduced to $2.25 million.
Accounting Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Significant estimates and assumptions embodied in the accompanying financial
statements include the adequacy of reserves for accounts receivables and closed
stores and the Company's ability to realize the carrying value of goodwill,
intangible assets, investments in less than 50% owned companies and other
long-lived assets, including the remaining carrying value of deferred
advertising received from CBS in 2001 and 2000 in exchange for shares of the
Company's common stock.
7
(2) ACQUISITIONS:
On May 1, 2000, the Company acquired substantially all of the assets of
BroadwayTheater.com, Inc. ("BroadwayTheater.com"), a privately held company, for
$135,000 in cash and 83,214 shares of the Company's common stock valued at
$14.00 per share.
On September 15, 2000, the Company acquired Theatre Direct NY, Inc. ("TDI") from
Cameron Macintosh for 66,291 shares of common stock valued at $505,719 and
assumed $750,000 in promissory notes. In addition, the Company placed 195,874
shares in escrow for a period of twelve months.
In January 2000 the Company acquired the web address Broadway.com for a purchase
price of $1.6 million.
The acquisitions of BroadwayTheater.com and TDI in 2000 were accounted for as a
purchase and, accordingly, their operating results have been included in the
Company's consolidated financial statements since the date of acquisition.
The following are unaudited pro forma combined results of operations of the
Company and TDI for the three months ended March 31, 2000 as if the acquisition
of TDI had occurred on January 1, 2000:
Net Revenues $ 10,396,346
================
Net Loss $ (9,319,162)
================
Pro Forma Diluted Loss Per Share $
(.43)
================
Weighted Average Shares Outstanding 21,897,118
================
These unaudited pro forma combined results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill and the elimination of overhead charges from the
former parent company. They do not purport to be indicative of the results of
operations which actually would have resulted had the acquired company been
under common control prior to the date of the acquisition or which may result in
the future. The pre-acquisition results of operations of BroadwayTheater.com are
not material to the Company's consolidated results of operations and therefore
have been excluded from the pro forma combined results of operations.
(3) DEBT:
In association with the TDI acquisition in September 2000, the Company signed
two promissory notes payable to the former owner. The notes payable have a face
value of $500,000 and $250,000 and are due on July 31, 2001 and September 26,
2001, respectively. The $500,000 note bears interest at Citibank, N.A. prime
plus 1% (8% at March 31, 2001) and the $250,000 note is non-interest bearing.
8
(4) OTHER ACCRUED EXPENSES:
Other Accrued Expenses consist of the following:
March 31, December 31,
2001 2000
---------- ----------
Compensation and benefits $ 515,890 $ 496,032
Insurance 80,209 152,978
Acquisition costs 190,330 190,330
Professional fees 146,100 166,182
Licensing fees 105,825 91,800
Interest 96,944 57,159
Royalties 35,246 39,480
Other 1,406,807 1,250,152
---------- ----------
$2,577,351 $2,444,113
========== ==========
(5) ACCRUED RESERVE FOR CLOSED STORES:
In 1998, the Company aggressively pursued closure of its retail kiosk locations.
In December 1999, the Company decided to exit its brick and mortar retail
operation altogether and closed its remaining kiosks and in-line stores. The
Company recorded provisions in 1998, 1999 and 2000, for the asset impairments,
inventory write-downs, and the estimated cost of early lease terminations. The
balance at March 31, 2001 and December 31, 2000 of $525,786 and $798,362
respectively, consists primarily of estimated liabilities remaining on lease
obligations. During the three months ended March 31, 2001, the Company reduced
such reserve by $272,576 due to favorable settlements and dismissals of matters
related to outstanding lease obligations as a result of exiting the brick and
mortar retail business.
(6) COMMON STOCK:
In February 2001 the Company issued 160,000 shares of common stock valued at
$799,564 in exchange for the payment by a third party of $799,564 of certain
media, goods and services obligations of the Company.
During the three months ended March 31, 2001 the Company issued 125,876 shares
of common stock to investors from the August 2000 private placement pursuant to
the exercise of certain warrants.
Pursuant to the Company's stock repurchase plan, during the three months ended
March 31, 2001 the Company repurchased 13,000 shares of its common stock for an
aggregate consideration of $61,594, or an average purchase price of $4.74 per
share.
9
(7) INVESTMENTS:
Investments consist of the following:
March 31, December 31,
2001 2000
--------- ---------
NetCo Partners (a) $ 859,190 $ 699,331
MovieTickets.com (b) (443,669) 105,714
Beach Wrestling LLC (c) -- --
--------- ---------
$ 415,521 $ 805,045
========= =========
(a) Netco Partners
The Company owns a 50% interest in a joint venture called NetCo Partners. The
Company records its investment under the equity method of accounting,
recognizing 50% of NetCo Partners' income or loss as Equity in Earnings of
Investment. The revenues, gross profit and net income of NetCo Partners for the
three months ended March 31, 2001 and 2000 are presented below:
Three Months Ended March 31,
-------------------------------
2001 2000
---------- ----------
Revenues $1,171,264 $2,617,126
Gross Profit 998,786 2,202,349
Net Income 996,517 2,210,674
Company's Share
of Net Income 498,258 1,105,337
As of March 31, 2001, NetCo Partners has $1,490,997 in accounts receivable.
Management of NetCo Partners believes that these receivables will be collected
in full and no reserves have been established. These accounts receivable are not
included in the Company's consolidated balance sheets.
NetCo Partners' deferred revenues, consisting of cash advances received but not
yet recognized as revenue, amounted to $410,226 as of March 31, 2001. These
deferred revenues are not included in the Company's consolidated balance sheets.
As of March 31, 2001, the Company has received cumulative profit distributions
from NetCo Partners since its formation totaling $6,002,179, in addition to
reimbursement of substantially all amounts advanced by the Company to fund the
operations of NetCo Partners.
(b) MovieTickets.com. Inc.
The Company entered into a joint venture agreement on February 29, 2000 with the
movie theater chains AMC Entertainment Inc. and National Amusements, Inc. to
form MovieTickets.com, Inc. ("MovieTickets.com"), in which each venture partner
10
initially acquired a 33.33% interest in the joint venture. In August 2000, the
joint venture sold a five percent interest in the joint venture to Viacom Inc.
in exchange for $25 million of advertising over 5 years. In March 2001, America
Online, Inc. purchased a 3% preferred equity interest in MovieTickets.com for
$8.5 million in cash. The Company owns 31.67% of the common stock of
MovieTickets.com, Inc. joint venture at March 31, 2001. The Company accounts for
its investment under the equity method of accounting, recognizing 31.67% of
MovieTickets.com income or loss as Equity in Earnings of Investments. During the
three months ended March 31, 2001 and the twelve months ended December 31, 2000,
the Company loaned $100,000 and $499,000 respectively, in cash to
MovieTickets.com. For the three months ended March 31, 2001, the Company
recorded a loss of $50,383 from its investment in MovieTickets.com, and received
a loan repayment from MovieTickets.com of $599,000. In 2000 the Company issued
warrants to acquire 90,573 shares of common stock at an exercise price of
$17.875 per share valued at $1,000,000. The fair value of the warrant was
recorded as goodwill and is being amortized over a period of ten years.
(c) Beach Wrestling LLC.
On November 10, 2000 an indirect wholly-owned subsidiary of the Company entered
into an agreement with Cisnernos Television Group (CTG) and Siegel Partners to
form Beach Wrestling LLC. Each partner owns a one-third ownership interest in
Beach Wrestling LLC. Beach Wrestling LLC was formed to develop, market and
distribute wrestling events via the Internet and television under the "Beach
Wrestling" and "Pro Beach Wrestling" brands. At March 31, 2001, the indirect
wholly owned subsidiary of Company had loaned $102,500 to Beach Wrestling LLC.
These loans are included in accompanying condensed consolidated balance sheet as
other receivables.
(8) LOSS PER COMMON SHARE:
Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Options and
warrants to purchase 4,820,851 and 4,098,510 shares of common stock were not
included in the computation of loss per share for the three months ended March
31, 2001 and 2000 respectively, because the result would have been antidilutive
for all periods presented.
(9) BARTER TRANSACTIONS:
The Company periodically enters into barter arrangements with other Internet
companies to exchange advertising on each other's web sites. In January 2000,
the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards
Board ("FASB") reached consensus on EITF Issue No. 99-17, Accounting for
Advertising Barter Transactions." As permitted under EITF 99-17 the Company
adopted the consensus prospectively for transactions occurring after January 20,
2000. EITF 99-17 allows gross reporting of advertising barter transactions only
where barter transactions can be supported by an equivalent quantity of similar
cash transactions.
The Company recorded $53,130 and $249,830 for the three months ended March 31,
2001 and 2000 respectively, in barter revenue and expense relating to Internet
advertising which accounted for approximately four tenths of one percent (0.4%)
and six percent (6%) of total revenue for the three months ended March 31, 2001
and 2000, respectively.
The Company also records barter revenue and expense under an agreement with the
National Association of Theater Owners ("NATO") which the Company acquired
through its acquisition of hollywood.com in 1999. In
11
connection with the NATO contract, the Company also acquired rights and
obligations under ancillary agreements with individual theaters that participate
in the NATO organization. Pursuant to these agreements, the Company hosts web
sites for each of the theaters. In addition, the Company provides ongoing web
site maintenance services for each of the theaters including providing
promotional materials, movie and theater information, advertising and editorial
content. In exchange, the theaters promote the Hollywood.com web site to movie
audiences by airing movie trailers about Hollywood.com 40 out of 52 weeks per
year, before feature films that play in most NATO-member theaters. The Company
records revenue and expense from these activities measured at the fair value of
the services exchanged. The Company recorded $745,438 for both the three months
ended March 31, 2001 and 2000 in revenue and expense under the NATO contract.
(10) SEGMENT REPORTING:
The Company has six reportable segments: ticketing, business to business (b2b),
Internet ad sales, e-commerce, retail and intellectual properties. The ticketing
segment sells tickets to live theater events for Broadway, off-Broadway and
London on the Internet and to domestic and international travel professionals
including travel agencies and tour operators, educational institutions and
traveling consumers. The business to business segment (b2b) licenses
entertainment content and data and includes the divisions CinemaSource (which
licenses movie showtimes and other movie content), and EventSource (which
licenses local listings of concerts and music related events) to media, wireless
and Internet companies. The Internet ad sales segment sells advertising on the
Hollywood.com and Broadway.com web sites. The intellectual properties segment
owns or controls the exclusive rights to certain intellectual properties created
by best-selling authors and media celebrities, which it licenses across all
media and a 51% interest in Tekno Books, a book development business. The
e-commerce segment, which closed in January 2001, sold entertainment-related
merchandise over the Internet. The retail segment operated retail studio stores
that sold entertainment-related merchandise and was closed in December 1999.
The Company evaluates performance based on a comparison of actual profit or loss
from operations before income taxes, depreciation, interest, and nonrecurring
gains and losses to budgeted amounts.
The Company does not have intersegment sales or transfers. The following table
illustrates the financial information regarding the Company's reportable
segments.
12
The following table presents the financial information regarding the
Company's reportable segments.
Three Months Ended March 31,
---------------------------------
2001 2000
------------ ------------
Net Revenues:
Ticketing $ 9,728,487 $ --
Business to Business 1,666,756 1,002,508
Internet Ad Sales 1,464,902 2,310,355
Intellectual Properties 475,991 463,099
E-Commerce (a) 15,901 301,734
------------ ------------
$ 13,352,037 $ 4,077,696
============ ============
Gross Margin:
Ticketing $ 1,203,549 $ --
Business to Business 1,589,457 942,444
Internet Ad Sales 1,457,873 2,052,280
Intellectual Properties 191,652 80,619
E-Commerce (9,679) 52,382
------------ ------------
$ 4,432,852 $ 3,127,725
============ ============
Operating Income (Loss):
Ticketing $ 74,823 $ --
Business to Business 274,820 54,288
Internet Ad Sales (b) (6,153,128) (7,136,865)
Intellectual Properties 107,966 118,789
E-Commerce 19,549 (641,036)
Retail (c) 269,063 (28,405)
Other (Corporate and other) (2,961,755) (2,527,783)
------------ ------------
$ (8,368,662) $(10,161,012)
============ ============
Capital Expenditures:
Ticketing $ 2,006 $ --
Business to Business 10,614 71,983
Internet Ad Sales 154,190 277,626
Intellectual Properties -- 5,188
Other (Corporate and other) 27,290 69,815
------------ ------------
$ 194,100 $ 424,612
============ ============
Depreciation and
Amortization Expense:
Ticketing $ 14,160 $ --
Business to Business 44,360 24,820
Internet Ad Sales 734,752 645,667
Intellectual Properties 1,575 2,205
E-Commerce 1,551 3,606
Other (Corporate and other) 1,353,680 1,293,091
------------ ------------
$ 2,150,078 $ 1,969,389
============ ============
13
(a) The e-commerce segment was closed in January 2001.
(b) Includes $5,048,292 and $4,124,197 in amortization of non-cash CBS
advertising for the three months ended March 31, 2001 and 2000,
respectively.
(c) The retail segment was closed on December 31, 1999.
(11) COMMITMENTS AND CONTINGENCIES:
The Company is a party to various legal proceedings arising in the ordinary
course of business, none of which are expected to have a material adverse impact
on the Company's financial condition or results of operations.
Steven B. Katinsky v. The Times Mirror Company, Hollywood.com, Inc. and
Hollywood Online Inc. filed on September 8, 2000 in Superior Court of the State
of California for the County of Los Angeles. Claim against Tribune Company
(formerly The Times Mirror Company) and the Company seeking a performance cycle
bonus allegedly owing to the plaintiff by Tribune Company in connection with the
sale of Hollywood Online Inc. from Tribune Company to the Company. The claimant
is seeking monetary damages in excess of $19.8 million for alleged fraud by the
defendants in connection with the sale of Hollywood Online Inc. to the Company.
The lawsuit was dismissed in December 2000 and the parties were ordered to
arbitrate the dispute. The lawsuit is presently in consolidated arbitration with
the Interviews.com v. Hollywood Online, Inc. arbitration referenced below. The
Company is indemnified by Tribune Company for the amount of any such performance
cycle bonus payable to the plaintiff. The Company believes that all claims by
the claimant against the Company are without merit and intends to defend them
vigorously.
Interviews.com v. Hollywood Online, Inc. filed on August 17, 2000 in Superior
Court of the State of California for the County of Los Angeles. The claim was
dismissed in January 2001 and the parties were given the right to arbitrate the
dispute. The lawsuit is presently in consolidated arbitration with the Steven B.
Katinsky v. The Times Mirror Company arbitration referred above. This dispute
involves a claim by Interviews.com that the Company's wholly owned subsidiary,
hollywood.com, Inc. (formerly known as Hollywood Online, Inc.), did not timely
perform its obligations with respect to the transfer of several domain names
under an Assignment Agreement dated December 17, 1997. Interviews.com is owned
and controlled by Steven Katinsky, the claimant in the matter described above.
All matters related to this claim occurred prior to the Company's acquisition of
Hollywood Online, Inc. in May 1999 and all domain names subject to the dispute
have been transferred to the claimant. The domain names transferred were not
being utilized by the Company and were not related to the Company's business.
The claimant is seeking monetary damages in excess of $5 million. The Company
believes that this claim is without merit and intends to defend it vigorously.
(12) RECLASSIFICATION
Certain amounts in the 2000 financial statements have been classified to conform
with the 2001 classification.
14
(13) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
For The Three Months Ended March 31, 2001:
o Capital lease transactions totaled $117,564.
o Warrants to acquire 70,000 shares of common stock at exercise prices of
$3.00 and $4.25 per share and valued at $266,322 were granted to
placement agents for proceeds raised in 2000.
o The Company issued 160,000 shares of common stock valued at $799,564 in
exchange for payment of $799,564 in certain media, goods and services
statements of the Company by a third party.
o The Company issued 4,138 shares of common stock valued at $15,000 as an
incentive stock bonus to an officer.
For the Three Months ended March 31, 2000:
o The Company issued 100,000 shares of common stock, valued at
$1,650,000. This amount was accrued for at December 31, 1999 in accrued
reserve for closed stores.
o Warrants to acquire 90,573 shares of common stock at an exercise price
of $17.875 per share and valued at $1.0 million were issued in
connection with the Company's investment in Movietickets.com, Inc.
o The Company recorded $5,468,501 in deferred advertising in connection
with the exercise of warrants by Viacom.
(14) SUBSEQUENT EVENT:
In May 2001 the Company received $4.25 million in cash from two accredited
investors in exchange for 942,362 shares of the Company's common stock. Also in
May 2001 the Company received $3.0 million in cash from Viacom, Inc. consisting
of a $1.4 million investment in the Company in exchange for 310,425 shares of
the Company's common stock and a $1.6 million prepayment of advertising and
promotion commitments to the Company. See Part II, Item 2.
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains, in addition to historical information,
"forward-looking statements" with respect to Hollywood Media Corp. (the
"Company") which represent the Company's expectations or beliefs, including, but
not limited to, statements concerning industry performance, the Company's
operations, performance, financial condition, growth, acquisition, and
divestiture strategies, margins, and growth in sales of the Company's products.
For this purpose, any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "estimate," or "continue"
or the negative or other variations thereof or comparable terminology are
15
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, certain of which are beyond
the Company's control, and actual results may differ materially depending on a
variety of important factors. Factors that may affect the Company's results
include, but are not limited to, our continuing operating losses and accumulated
deficit, our limited operating history, the need for additional capital to
finance our operations, the need to manage our growth and integrate new
businesses into the Company, our ability to develop strategic relationships, our
ability to compete with other Internet companies, technology risks and the
general risk of doing business over the Internet, future government regulation,
dependence on our founders, the interests of our largest shareholder, Viacom
Inc. (formerly CBS Corporation), and accounting considerations related to our
strategic alliance with Viacom, Inc. The Company is also subject to other risks
detailed herein or detailed in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 and in other filings by the Company with the
Securities and Exchange Commission.
Overview
We are an entertainment-focused media and Internet company that offers
widely recognized brands and a broad collection of entertainment content data
and related information in the industry, which we license to media and other
companies including the New York Times, AOL Time Warner, Yahoo!, Sprint, AT&T
Wireless, Verizon and others. The Company owns an extensive ticketing network
and is engaged in the development and licensing of intellectual properties and
licensing of books. The Company generates revenues through the
business-to-business syndication of entertainment-related content, the sale of
live theater tickets, the sale of advertising and from advances paid by
publishers and royalties received from our library of book titles.
Business to Business Syndication Divisions
CinemaSource. CinemaSource is the largest supplier of movie showtimes
to the Internet and compiles movie showtimes for every movie theater in the
United States and Canada, representing approximately 36,000 movie screens. Since
its start in 1995, CinemaSource has substantially increased its operations and
currently provides movie showtime listings to more than 200 newspapers, wireless
companies, Internet sites, and other media outlets, including newspapers such as
The New York Times and Newsday, Internet companies including AOL's Digital City,
Yahoo!, Lycos, Excite, Ticketmaster and wireless providers such as Sprint PCS,
AT&T Wireless and Verizon.
CinemaSource also syndicates entertainment news, movie reviews, and
celebrity biographies. In addition to charging guaranteed amounts for the data
that it provides to its customers, CinemaSource often shares in the advertising
revenue generated by its customers in connection with the data.
EventSource. We launched the EventSource business in mid-1999 as an
expansion of the operations of CinemaSource. EventSource compiles and syndicates
detailed information on community events in cities around the country, including
concerts and live music, sporting events, festivals, fairs and live theater.
EventSource entered into an agreement with AOL's Digital City in April 2000 to
provide event listings for up to 200 cities nationwide. In addition to Digital
City, other EventSource customers include the web sites of The New York Times
and Knight Ridder.
TheaterSource. We launched the TheaterSource business in mid-2000 as a
further expansion of the operations of EventSource. TheaterSource compiles and
16
syndicates a comprehensive database of theater productions and showtimes,
covering shows on Broadway, off-Broadway, touring companies, community
playhouses, dinner theaters throughout North America and in London's West End
theater district.
ConcertSource. We launched this business in October 2000. ConcertSource
offers extensive local listings of concerts and music-related events from major
arenas to small local jazz clubs, including a complete listing of every
performance from major touring groups to hometown bands. ConcertSouce currently
covers concert and event listings for the top 60 markets in the United States
and plans to expand its coverage to more than 200 markets throughout North
America.
Baseline. We own and operate Baseline, a business which includes a
pay-per-use subscription web site (located at Baseline.hollywood.com) and
various publications including the Motion Picture Finance Investor newsletter,
geared to movie studios, investment banks, news agencies, consulting firms and
other professionals in the entertainment industry. We acquired Baseline from
media analyst Paul Kagan. The Baseline business maintains one of the most
comprehensive movie and television-related databases and has been in operation
for over 15 years. Baseline is a comprehensive database of information on over
67,000 films and television programs, as well as biographies on entertainment
industry professionals. This rich, interactive database is accessible online to
our subscribers and includes credits, synopses, reviews and box office
statistics. Baseline continuously tracks production, distribution, and
exhibition of feature films worldwide, including box office projections,
budgets, and trends. Baseline customers include Bloomberg, Daily Variety, People
Magazine, Lexis-Nexis, 20th Century Fox, DreamWorks, Paramount Pictures, Sony
Pictures, MGM, Warner Bros., E! Entertainment Television, Boston Consulting
Group and Booz, Allen, Hamilton.
Ticketing Divisions
Theatre Direct International and Broadway.com. We acquired Theatre
Direct International (TDI) as of September 15, 2000. Founded in 1990, TDI is a
live theater marketing and sales agency serving over 40,000 domestic and
international travel professionals, traveling consumers and New York-area
theater patrons. TDI is a ticketing wholesaler to the travel industry that
provides groups and individuals with access to theater tickets and knowledgeable
service, covering shows on Broadway, long running shows off-Broadway and shows
in London. TDI sells tickets through an 800 toll-free number, through SABRE (a
travel agent reservation system), via the Broadway.com web site and by fax. As a
marketing agency, TDI represents 12 producers and 17 Broadway shows to the
travel industry around the world. The 17 Broadway shows are Aida, Beauty and the
Beast, Blast, Cabaret, Chicago, Contact, 42nd Street, Jane Eyre, Kiss Me Kate,
Les Miserables, Rent, Riverdance, The Full Monty, The Lion King, The Sound of
Music, The Rocky Horror Show and The Phantom of the Opera. In addition, TDI's
education division, Broadway Classroom, markets group tickets to schools across
the country. TDI's offline ticketing service complements the online ticketing
services available on Broadway.com. The combined companies provide live theater
ticketing and related content for all Broadway shows and most shows running
off-Broadway and in London's West End at over 200 venues in multiple markets to
a customer base consisting of over 40,000 travel agencies, tour operators,
corporations and educational institutions, in addition to numerous newspapers
and web site.
MovieTickets.com. MovieTickets.com Inc., was launched in late May 2000.
At March 31, 2001, each of Hollywood Media Corp., AMC Entertainment, Inc. and
National Amusements, Inc. owns approximately 31.67% of the outstanding common
stock of MovieTickets.com, Inc. The venture entered into an agreement in 2000
with Viacom Inc. whereby Viacom acquired a five percent interest for $25 million
of
17
advertising over five years. MovieTickets.com is promoted through on-screen
advertising in each participating exhibitor's movie screens and through $25
million of Viacom advertising and promotion over the next five years. In March
2001, America Online Inc. purchased a 3% preferred equity interest in
MovieTickets.com for $8.5 million in cash. In connection with that transaction,
MovieTickets.com's ticket inventory will be promoted throughout America Online's
interactive properties and ticket inventory of AOL's Moviefone will be featured
on MovieTickets.com. As a result, MovieTickets.com will feature online ticket
sales for 85% of all Internet-ready movie screens in the country.
MovieTickets.com's current participating exhibitors include AMC
Entertainment Inc., National Amusements, Inc., Famous Players Inc., Hoyts
Cinemas Corporation, Marcus Theaters, Muvico Entertainment and several regional
exhibitors. These exhibitors operate theaters located in all of the top 20
markets and approximately 70% of the top 50 markets in the United States and
Canada and represent approximately 50% of the top 100 grossing theaters in North
America. AMC Entertainment Inc. is the largest movie theater operator in the
United States based on box office sales and Famous Players generates
approximately half of all box office sales in Canada. The MovieTickets.com web
site allows users to purchase movie tickets and retrieve them at "will call"
windows or kiosks at theaters. The web site also features bar coded tickets that
can be printed at home in participating theaters and presented directly to the
ticket taker at the theater. The web site contains movie content from the
Company's various units including Baseline for all current and future release
movies, movie reviews and synopses, digitized movie trailers and photos, and box
office results. The web site generates revenues from service fees charged to
users for the purchase of tickets and the sale of advertising.
Internet Divisions
Hollywood.com. Hollywood.com is a premier entertainment related web
site featuring over one million pages of in-depth movie, television and other
entertainment content, including movie descriptions and reviews, digitized movie
trailers and photos, movie showtimes listings, entertainment news, box office
results, interactive games, movie soundtracks, television listings, concert
information, celebrity profiles and biographies, comprehensive coverage of
entertainment awards shows and film festivals and exclusive video coverage of
movie premieres.
We sell banner advertising and sponsorships on Hollywood.com through
relationships with advertising rep. firms and through an internal sales staff.
Some of our recent advertisers include BMW, General Motors, Universal Studios,
eBay, Proctor & Gamble, Visa, IBM, Diet Coke, New Line Cinema, MGM, US Army,
Sprint, AT&T and Warner Brothers.
We promote the Hollywood.com web site through our strategic
relationships with Viacom Inc. and the National Association of Theatre Owners
("NATO"). Through exclusive contracts with NATO and over 85 of its member
theater exhibitors, we promote the Hollywood.com web site to movie audiences by
airing trailers about Hollywood.com before feature films that play in
participating theaters and by displaying posters and other promotional materials
in those theaters. In exchange, we develop and maintain web sites for many of
the theater exhibitors that feature their movie showtimes.
In January 2000 we entered into a strategic, seven-year relationship
with Viacom Inc. that provides for extensive promotion of the Hollywood.com and
Broadway.com web sites. Viacom has agreed to provide Hollywood.com and
Broadway.com with $105 million of promotion across its full range of CBS media
18
properties, including the CBS television network, CBS owned and operated
television stations, CBS cable networks, Infinity Broadcasting Corporation's
radio stations and outdoor billboards and CBS syndicated television and radio
programs. At March 31, 2001 approximately $80 million in CBS promotion remains
available to us to be used. The promotion provided by Viacom is valued based
upon the average price charged by Viacom for similar promotions during the
applicable time period. To supplement our internal sales efforts, we also have
the right to reallocate a portion of each year's promotional budget and require
Viacom to sell up to $1.5 million of advertising on the Hollywood.com and
Broadway.com web site. Viacom has agreed to include the Hollywood.com web site
in all advertising sale programs and presentations that are appropriate for the
sale of advertising on the web site. We will pay an 8% commission on any
additional advertising revenues generated by Viacom for us in excess of the $1.5
million guaranteed amount selected by us each year.
We have entered into and are pursuing several strategic relationships
geared toward leveraging the Hollywood.com brand internationally. We entered
into an agreement with America Online Latin America, Inc. in late 1999 pursuant
to which we agreed to launch Portuguese and Spanish versions of the
Hollywood.com web site to be promoted on AOL in countries throughout Latin
America. We launched the br.hollywood.com Portuguese-language web site in Brazil
in November 1999 and the mx.hollywood.com and ar.hollywood.com Spanish-language
web site in Mexico and Argentina in May 2000. These web sites are tailored to
the local movie-going audience and feature much of the same content that is on
Hollywood.com, including daily entertainment news, movie descriptions and
reviews, movie previews, movie soundtracks, celebrity profiles and biographies
and interactive games. Each of these web sites are featured and promoted on the
entertainment channels of both AOL Latin America and El Sitio.com, a Latin
American-based Internet portal.
Broadway.com. We launched Broadway.com on May 1, 2000. Broadway.com
features the ability to purchase Broadway, off-Broadway and West End theater
tickets online (See - Ticketing Divisions); theater showtimes for virtually all
professional live theater venues in the U.S. as well as London's West End and
hundreds of college and local live theater venues; the latest theater news;
interviews with stage actors and playwrights; opening-night coverage; original
theater reviews; and video excerpts from selected shows. Broadway.com also
offers current box office results, show synopses, cast and crew credits and
biographies, digitized show previews, digitized showtunes, and an in-depth Tony
Awards(R) area. Broadway.com generates revenue from ticket sales, advertising
sales, and syndication of its content to other media companies.
Intellectual Properties Business
Intellectual Properties. Our intellectual properties division owns the
exclusive rights to intellectual properties, which are complete stories and
ideas for stories, created by best-selling authors and media celebrities. Some
examples of our intellectual properties are Anne McCaffrey's Acorna the Unicorn
Girl, Leonard Nimoy's Primortals, and Mickey Spillane's Mike Danger. We license
rights to our intellectual properties to companies such as book publishers, film
and television studios, multi-media software companies and producers of other
products. These licensees develop books, television series and other products
based on the intellectual properties licensed from us. 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).
19
NetCo Partners. In June 1995, the Company and C.P. Group Inc. ("C.P.
Group"), entered into an agreement to form NetCo Partners. NetCo Partners is
engaged in the development and licensing of Tom Clancy's NetForce.
The Company and C.P. Group are each 50% partners in NetCo Partners. Tom
Clancy is a shareholder of C.P. Group. At the inception of the partnership, C.P.
Group contributed to NetCo Partners all rights to Tom Clancy's NetForce, and the
Company 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. NetCo Partners owns Tom Clancy's NetForce which was
licensed to Putnam Berkley for a series of mass market paperbacks and to ABC
Television for a television mini-series and video distribution in accordance
with the terms of the partnership agreement, and the other properties have
reverted back to the Company.
Book Development and Book Licensing. Our intellectual properties
division also includes a book development and book licensing operation through
our 51% owned subsidiary, Tekno Books, that develops and executes book projects,
typically with best-selling authors. Tekno Books has worked with approximately
50 New York Times best-selling authors, including Tom Clancy, Jonathan
Kellerman, Dean Koontz, Tony Hillerman, Robert Ludlum and Scott Turow, and
numerous media celebrities, including David Copperfield, Louis Rukeyser and
Willard Scott. Our intellectual properties division has licensed books for
publication with more than 60 book publishers, including HarperCollins, Bantam
Doubleday Dell, Random House, Simon & Schuster, Penguin Putnum and Warner Books.
The book development and book licensing division has a library of more than
1,200 books. The Chief Executive Officer of Tekno Books, Dr. Martin H.
Greenberg, is also a director of the Company and owner of the remaining 49%
interest in Tekno Books.
Tekno Books also owns a 50% interest in Mystery Scene Magazine, a trade
journal of the mystery genre of which Dr. Greenberg is co-publisher. During
1995, the Company directly acquired an additional 25% interest in the magazine.
Results of Operations
The following table summarizes the Company's revenues, cost of revenue
and gross margin by division for the three months ended March 31, 2001 ("Q1-01")
and 2000 ("Q1-00"), respectively:
Business to Internet Ad Intellectual
Ticketing Business Sales Properties (a) E-Commerce Total
----------- ----------- ----------- ------------- --------- -----------
March 31, 2001
- --------------
Net Revenues $ 9,728,487 $ 1,666,756 $ 1,464,902 $ 475,991 $ 15,901 $13,352,037
Cost of Revenue 8,524,938 77,299 7,029 284,339 25,580 8,919,185
----------- ----------- ----------- ----------- ----------- -----------
Gross Margin $ 1,203,549 $ 1,589,457 $ 1,457,873 $ 191,652 $ (9,679) $ 4,432,852
=========== =========== =========== =========== =========== ===========
March 31, 2000
- --------------
Net Revenues $ -- $ 1,002,508 $ 2,310,355 $ 463,099 $ 301,734 $ 4,077,696
Cost of Revenue -- 60,064 258,075 382,480 249,352 949,971
----------- ----------- ----------- ----------- ----------- -----------
Gross Margin $ -- $ 942,444 $ 2,052,280 $ 80,619 $ 52,382 $ 3,127,725
=========== =========== =========== =========== =========== ===========
20
(a) This does not include the Company's 50% interest in NetCo Partners
which is accounted for under the equity method of accounting and is reported as
equity in earnings of investments.
Composition of our segments is as follows:
o Ticketing - Includes our TDI ticketing business as well as the online
ticketing operations generated through Broadway.com.
o Business to Business (b2b) - Includes our CinemaSource, EventSource,
TheaterSource, ConcertSource and Baseline syndication operations.
o Internet ad sales - Includes advertising sold on the web sites
Hollywood.com and Broadway.com.
o Intellectual Properties - Includes our book development and book
licensing operation through our 51% owned subsidiary Tekno Books and
our 50.5% interest in Fedora, publisher of Mystery Scene Magazine. Does
not include our 50% interest in NetCo Partners.
o E-Commerce - The Company exited the e-commerce business in January
2001.
NET REVENUES
Total net revenues for Q1-01 and Q1-00 were $13,352,037 and $4,077,696,
respectively an increase of $9,274,341 or 227%. The increase in revenue was
primarily due to revenues resulting from the acquisition of TDI and
BroadwayTheater.com and the launch of EventSource and Broadway.com. The Company
acquired BroadwayTheater.com and TDI (ticketing businesses) in May and September
of 2000, respectively.
Ticketing revenues were $9,728,487 for Q1-01. We acquired BroadwayTheater.com on
May 1, 2000 and TDI on September 15, 2000 therefore there were no ticketing
revenues in Q1-00. We launched the Broadway.com website on May 1, 2000 where
Broadway, off-Broadway and London theater tickets can be purchased. Ticketing
revenue is generated from the sales of live theater tickets for Broadway,
off-Broadway and London both online and offline, to domestic and international
travel professionals, traveling consumers and New York area theater patrons.
Business to business (b2b) revenues were $1,666,756 for Q1-01 as compared to
$1,002,508 for Q1-00, an increase of $664,248 or 66%. This increase is
attributable to a growth in revenues in our CinemaSource division and revenues
from our EventSource division which launched in April 2000 when we entered into
a contract with AOL's Digital City to provide event listings for up to 200
cities nationwide. Revenue is generated by the licensing of movie, event and
theater showtimes and other content information to newspapers, wireless
companies, internet sites and other media outlets such as Yahoo!, Lycos,
Ticketmaster, Verizon, AT&T Wireless, Sprint PCS, The New York Times, Newsday
and AOL Digital City.
Internet ad sales were $1,464,902 for Q1-01 as compared to $2,310,355 for Q1-00
a decrease of $845,453 or 37%. This decrease is attributable to three reasons as
follows: (i) recognition of ad revenue primarily on a net basis in Q1-01
resulting from the agreement with an ad rep agency which permits the agency to
invoice advertisers on the Company's behalf, as compared to revenue recognition
primarily on a gross basis in Q1-00, which accounts for approximately $140,000
of the decline; (ii) a decrease of $197,000 in barter transactions in Q1-01 as
compared to Q1-00 due to a decision by the Company to accept less barter and
(iii) the balance of the decrease is due to a softening in the online
advertising market as a whole. Internet ad sales revenue is predominately
derived from the sale of banner advertisements and sponsorships on Hollywood.com
and Broadway.com web sites.
21
Barter transactions that generate non-cash advertising revenue (included in
Internet ad sales revenues), in which the Company received advertising or other
services in exchange for content advertising on its web site was $53,130 for
Q1-01 and $249,830 for Q1-00, a reduction of $196,700 or 79% and accounted for
four tenths of one percent (0.4)% and six percent (6%) of the Company's total
net revenue for Q1-01 and Q1-01, respectively. The Company records barter
revenue and an equal amount of expense based on the fair value of similar cash
transactions that the Company has entered into. In future periods, management
intends to maximize cash advertising revenue, although the Company will continue
to enter into barter relationships when deemed appropriate as a cashless method
for the Company to market its business.
The Company also records barter revenue and an equal amount of expense earned
under a contract with NATO, which the Company acquired through its acquisition
of Hollywood.com on May 20, 1999. This income is included in Internet ad sales
revenue. Through the NATO contract, the Company promotes its web site to movie
audiences by airing movie trailers about Hollywood.com, 40 out of 52 weeks per
year, before the feature films that play in most NATO-member theaters. In
exchange, the Company provides web site and movie showtimes for the exhibiting
NATO members, promotional materials and movie information and editorial content.
The Company recorded $745,438 in promotional non-cash revenue and non-cash
expense included in selling and marketing expense under the NATO contract for
Q1-01 and Q1-00 respectively. Barter revenue from NATO recorded accounted for 6%
and 18% of the Company's total net revenue for Q1-01 and Q1-00 respectively.
Revenues from the Company's intellectual properties division increased by
$12,892 or 3% from $463,099 for Q1-00 to $475,991 for Q1-01. The increase in
revenues is attributable to a greater number of manuscripts being delivered in
Q1-01 as compared to Q1-00. The intellectual properties division generates
revenues from several different activities including book development and
licensing, intellectual property licensing, and publishing Mystery Scene
magazine. Revenues vary quarter to quarter dependent on the various stages of
the book projects. Revenues are recognized when the earnings process has been
completed based on the terms of the various agreements and when ultimate
collection of such revenues is no longer subject to contingencies.
E-commerce revenue for Q1-01 decreased $285,833 or 95% to $15,901 from $301,734
for Q1-00 as a result of the Company closing its e-commerce business in January
2001.
COST OF REVENUE
Cost of revenue for Q1-01 was $8,919,185 and $949,971 for Q1-00, an increase of
$7,969,214. The increase in the cost of sales is primarily the result of the
acquisition of TDI on September 15, 2000 and BroadwayTheater.com on May 1, 2000,
our ticketing divisions. The ticketing division generates cost of revenues of
approximately 88%. The Company did not own and operate the ticketing divisions
in Q1-00; therefore there were no cost of revenue for these divisions in Q1-00.
The ticketing divisions account for 96% of the cost of revenues for Q1-01.
GROSS MARGIN
Gross margin for Q1-01 was $4,432,852 as compared to $3,127,725 for Q1-00, an
increase of $1,305,127 or 42%. Gross margin increased because of the substantial
increase in revenue from Q1-00 to Q1-01 from the ticketing and business to
business segments. As a percentage of net revenues the gross margin percentage
in Q1-01 was 33% as compared to 77% in Q1-00. The decrease in gross margin
percentage is attributable to our ticketing divisions which we
22
acquired in May and September of 2000 and did not own and operate in Q1-00. The
ticketing segment generates a gross margin percentage of approximately 12%
while our business to business and Internet ad sales segments generate
gross margin percentages of greater than 90%. The addition of ticketing revenue
into our mix of revenue streams has therefore reduced the overall gross margin
percentage.
EQUITY IN EARNINGS OF INVESTMENTS
Equity in net earnings of investments consists of the Company's 50% interest in
NetCo Partners and 31.67% interest in MovieTickets.com., Inc.
Three Months Ended March 31,
--------------------------------
2001 2000
----------- -----------
NetCo Partners (a) $ 498,258 $ 1,105,337
MovieTickets.com (b) (50,383) --
----------- -----------
$ 447,875 $ 1,105,337
=========== ===========
(a) NetCo Partners:
The Company's 50% share in the earnings of NetCo Partners decreased $607,079 or
55% to $498,258 for Q1-01 from $1,105,337 for Q1-00 due primarily to the
delivery of a manuscript to the publisher during Q1-00. During Q1-00 book number
5 in the Net Force Series of novels was delivered to the publisher. During Q1-01
a book was not delivered therefore accounting for the decrease in the Company's
50% share in earnings. NetCo has commenced work on book number 6 and expects to
deliver the manuscript to the publisher during third quarter 2001. Revenue is
recognized on book contracts when the earnings process is complete based on the
terms of the contracts and at a point where ultimate collection is substantially
assured.
(b) MovieTickets.com:
The MovieTickets.com website launched in May 2000, therefore there were no
earnings or losses for Q1-00. The Company owns approximately 31.67% of the
outstanding common stock of MovieTickets.com joint venture and its share of the
loss of MovieTickets.com was $50,383 for Q1-01. The web site generates revenues
from service fees charged to users for the purchase of tickets and the sale of
advertising. Service fees were introduced in November 2000.
23
OPERATING EXPENSES
General and administrative expenses. General and administrative expenses
decreased $513,774 or 22% to $1,829,731 for Q1-01 from $2,343,505 for Q1-00.
This decrease is primarily attributable to cost savings and consolidation
measures implemented company-wide, including closing our Santa Monica, CA office
in January 2001 as well as closing our e-commerce business division in January
2001 and savings in the areas of recruitment, consulting and freelance fees. The
reductions in general and administrative expenses were offset by an increase in
general and administrative expenses in our ticketing businesses as a result of
the acquisitions of the ticketing businesses in May and September of 2000. As a
percentage of revenue, general and administrative expenses decreased to 14% for
Q1-01 from 57% for Q1-00.
Selling and marketing expenses. Selling and marketing expenses decreased
$1,493,138 or 62% to $925,593 for Q1-01 from $2,418,731 for Q1-00. Included in
selling and marketing are non-cash barter transactions of $798,568 and $995,268
for the three months ended March 31, 2001 and 2000, respectively. Barter
transactions accounted for approximately 86% and 41% of selling and marketing
expense for the three months ended March 31, 2001 and 2000, respectively. The
decrease in selling and marketing was primarily due to the reductions of on-line
advertising and media production. As a percentage of revenue, selling and
marketing expenses decreased to 7% for Q1-01 from 59% for Q1-00.
Salaries and benefits. Salaries and benefits increased $686,921 or 28% to
$3,119,836 for Q1-01 from $2,432,915 for Q1-00. This increase is attributable to
payroll associated with our ticketing businesses which the Company did not own
and operate during the first quarter of 2000, the launch of our EventSource
business in April 2000, and an increase in personnel at the corporate offices to
support the growth of the Company, offset by reductions in salaries from
consolidation of technology and production from our Santa Monica, CA location
into our South Florida location and the closing of our e-commerce division. As a
percentage of revenue, salaries and benefits decreased to 23% for Q1-01 from 60%
for Q1-00.
Amortization. Amortization of goodwill and intangibles was $1,800,180 and
$1,651,934 for Q1-01 and Q1-00, respectively. The increase of $148,246 or 9% is
attributable to goodwill amortization from the acquisitions of TDI and
BroadwayTheater.com.
Amortization of CBS advertising relating to the Company's agreement with CBS was
$5,048,292 and $4,124,197 for Q1-01 and Q1-00, respectively. Under the Company's
agreement with CBS, the Company issued shares of common stock and warrants to
purchase common stock in consideration of CBS's advertising and promotional
efforts over seven years across its full range of media properties. The value of
the Common Stock and warrants issued to CBS has been recorded in the balance
sheet as deferred advertising and is being amortized over each related contract
year.
24
Depreciation. Depreciation was $349,898 and $317,455 for Q1-01 and Q1-00,
respectively. The increase of $32,443 or 10% in depreciation expense is
attributable to an increased level of property and equipment from March 31, 2000
to March 31, 2001 of approximately $700,000.
Interest Expense, net. Interest expense, net for Q1-01 was $5,911 compared to
$59,200 for Q1-00 a decrease of $53,289 or 90%. The decrease is attributable to
an increase in interest income earned on a higher average balance of cash and a
decrease in interest paid on the Company's capital lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had cash and cash equivalents of $1,599,234 and
working capital of $14,605,844, compared to cash and cash equivalents of
$1,911,224 and working capital of $14,938,914 at December 31, 2000. Net cash
used in operating activities during the first quarter of 2001 was $409,300,
primarily representing cash used to fund the Company's net loss and an increase
in ticketing inventory for TDI and Broadway.com. Net cash used in investing
activities was $275,658, while $372,968 in cash was provided by financing
activities. As a result of all of the above, cash and cash equivalents decreased
by $311,990 for the three months ended March 31, 2001. In comparison, during the
three months ended March 31, 2000, net cash used in operating activities was
$5,531,168, net cash used in investing activities was $1,614,894, and
$11,100,711 in cash was provided by financing activities. Net cash used in
operating activities improved by $5,121,868 or 93% from $5,531,168 for Q1-00 to
$409,300 for Q1-01.
Pursuant to the Company's stock repurchase plan, during the three months ended
March 31, 2001 the Company repurchased 13,000 shares of its common stock for an
aggregate consideration of $61,594, or an average purchase price of $4.74 per
share.
In May 2001, the Company received $7.25 million in cash consisting of a $4.25
million investment by two accredited investors in exchange for 942,362 shares of
the Company's common stock and $3.0 million by Viacom, Inc. consisting of a $1.4
million investment by Viacom, Inc. in exchange for 310,425 shares of the
Company's common stock and a $1.6 million prepayment of advertising and
promotion commitments.
In the event that the Company requires additional funding and cannot secure
additional funding, the Company's Chairman of the Board and Chief Executive
Officer and the Company's Vice Chairman and President, have indicated their
intention to provide the Company, if required, with an amount not to exceed $6
million in order to enable the Company to meet its working capital requirements
during 2001; provided, however, that the commitment will terminate to the extent
that the Company raises no less than $6 million from other sources and such
additional funding is not expended on acquisitions. During the first quarter
2001 the Company drew $500,000 of such funding, which was repaid subsequent to
March 31, 2001. As a result of the financing in May 2001 described above, the
commitment was reduced to $2.25 million.
INFLATION AND SEASONALITY
Although the Company cannot accurately determine the precise effects of
inflation, it does not believe inflation has a material effect on the Company's
revenues or results of operations. The Company considers its business to be
25
somewhat seasonal and expects net revenues to be generally higher during the
second and fourth quarters of each fiscal year for its Tekno Books book
development and licensing operation as a result of the general publishing
industry practice of paying royalties semi-annually. In addition, although not
seasonal, the Company's intellectual properties division and NetCo Partners both
experience significant fluctuations in their respective revenue streams,
earnings and cash flow as a result of the significant amount of time that is
expended in the creation and development of the intellectual properties and
their respective licensing agreements. While certain of the development costs
are incurred as normal recurring operating expenses, the recognition of
licensing revenue is typically triggered by specific contractual events which
occur at different points in time rather than on an evenly recurring basis. The
Company believes that advertising sales in traditional media, such as television
generally are lower in the first and third quarters of each year, and that
advertising expenditures fluctuate with economic cycles.
26
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In February 2001 the Company issued 160,000 shares of common stock valued at
$799,564 pursuant to the terms of a Services Agreement whereby certain media,
goods and services of the Company equaling $799,564 were paid by the
third party investor.
As of April 25, 2001, the Company raised an aggregate of $7.25 million in cash,
consisting of an aggregate $4.25 million investment by Societe Generale and
Velocity Investment Partners Ltd., and a $3 million investment by Viacom Inc.
consisting of a $1.4 million investment in the Company and a $1.6 million
prepayment of future cash advertising and promotion commitments to the Company,
as further described below.
As of April 25, 2001, the Company agreed to issue an aggregate of 1,252,787
shares of the Company's common stock, $0.01 par value, to the three accredited
investors, Societe Generale, Velocity Investment Partners Ltd. and Viacom Inc.
(Viacom exercised its preemptive rights pursuant to Section 2.4 of that certain
Investor's Rights Agreement dated January 3, 2000 between the Company and Viacom
in connection with this financing) at $4.51 per share (which purchase price per
share represents 105% of the "Market Price" of the Common Stock, which is
defined as the average volume weighted average prices for the 20 business days
prior to the closing date) for a total purchase price of $5.65 million in cash.
The investors also received series A warrants to acquire an aggregate of 614,059
shares of common stock at a price of $6.44 per share (150% of the Market Price
at closing). If on each of January 30, 2002 and April 30, 2002, any investor
holds at least seventy-five percent of any such investor's shares of common
stock issued to it in the transaction, then the exercise price of the series A
warrants will be decreased to $5.37 per share and $4.51 per share, respectively,
on such dates. The Company may issue additional shares of common stock to the
investors from time to time in amounts in proportion to each of their respective
investments on the terms set forth in the series B Warrant in the form attached
hereto as Exhibit 10.5.
In connection with this investment, Viacom also invested an additional one
million six hundred thousand dollars ($1,600,000) in the Company as a prepayment
of future cash advertising and promotion commitments owing under the Advertising
and Promotion Agreement (the "Ad/Promo Agreement") dated as of January 3, 2000,
between the Company and Viacom. Such payment shall reduce the "Annual Additional
Promo Commitment" (as such term is defined in the Ad/Promo Agreement) by
$1,500,000 for calendar year 2002 and by $1,500,000 for calendar year 2003.
27
Each Securities Purchase Agreement, Registration Rights Agreement, and Warrants
entered into by, or issued to, as the case may be, each of Societe Generale,
Velocity Investment Partners Ltd. and Viacom is substantially identical to the
forms of such documents attached hereto as Exhibits and incorporated herein by
reference, except that (a) the forms attached hereto as Exhibits and
incorporated herein by reference, are the forms of documents executed by Societe
Generale, (b) the Warrants issued to Velocity are identical to the forms filed
as Exhibits 10.3 and 10.4 hereto, except that Velocity received 177,524 series A
warrant shares, and (c) Viacom executed similar documents as the Exhibits
attached hereto and incorporated herein by reference, except that (i) the
Company issued to Viacom an aggregate of 310,425 shares of the Company's common
stock, and (ii) Viacom received series A warrants to acquire an aggregate of
162,973 shares of common stock.
The foregoing description does not purport to be complete and is qualified in
its entirety by reference to agreements attached hereto as Exhibits 10.2, 10.3,
10.4 and 10.5, which Exhibits are incorporated herein by reference.
During the quarter ended March 31, 2001, the Company issued stock options and
warrants to purchase an aggregate of 790,599 shares of the Company's common
stock, including 717,000 stock options granted to employees at exercise prices
ranging from $3.875 to $6.50 per share and warrants to purchase a total of
70,000 shares at exercise prices ranging from $3.0 to $4.25 per share. Options
granted to employees are subject to vesting periods ranging from six months to
four years and generally expire five years from the date of issuance.
The securities described above were issued without registration under the
Securities Act of 1933 by reason of the exemption from registration afforded by
the provisions of Section 4(2) thereof, as transactions by an issuer not
involving a public offering, each recipient of securities having delivered
appropriate investment representations to the Company with respect thereto and
having consented to the imposition of restrictive legends upon the certificates
evidencing such securities.
28
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits:
Incorporated by
Exhibit Description Reference From
------- ----------- --------------
3.1 Third Amended and Restated Articles of Incorporation (1)
3.2 Articles of Amendment to Articles of Incorporation of the Company for
Designation of Preferences, Rights and Limitations of 7% Series D
Convertible Preferred Stock (2)
3.3 Articles of Amendment to Articles of Incorporation of the Company for
Designation of Preferences, Rights and Limitations of 7% Series D-2
Convertible Preferred Stock (3)
3.4 Articles of Amendment to Articles of Incorporation of the Company
amending Designation of Preferences, Rights and Limitations of Series A
Variable Rate Convertible Preferred Stock (4)
3.5 Articles of Amendment to Articles of Incorporation of the Company
amending Designation of Preferences, Rights and Limitations of Series B
Variable Rate Convertible Preferred Stock (4)
3.6 Bylaws (5)
4.1 Form of Common Stock Certificate (5)
4.2 Rights Agreement dated as of August 23, 1996 between the Company and
American Stock Transfer & Trust Company, as Rights Agent (6)
10.1 Services Agreement dated as of February 9, 2001 between the Company and *
Lakeside Ventures, LLC
10.2 Securities Purchase Agreement dated as of April 25, 2001 between *
Hollywood Media Corp., Societe Generale and Velocity Investment Partners
Ltd.
10.3 Registration Rights Agreement dated as of April 25, 2001 between *
Hollywood Media Corp., Societe Generale and Velocity Investment Partners
Ltd.
10.4 "A" Warrant issued to Societe Generale *
10.5 "B" Warrant issued to Societe Generale *
* Filed as an exhibit to this Form 10-Q.
29
(1) Incorporated by reference from the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
(2) Incorporated by reference from the exhibit filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998.
(3) Incorporated by reference from the exhibit filed with the Company's
Registration Statement on Form S-3 (No. 333-68209).
(4) Incorporated by reference from exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999.
(5) Incorporated by reference from the exhibit filed with the Company's
Registration Statement on Form SB-2 (No. 33-69294).
(6) Incorporated by reference from exhibit 1 to the Company's Current
Report on Form 8-K filed on October 20, 1999.
(b) Reports on Form 8-K
The Company did not file any Current Report on Form 8-K during the
quarter ended March 31, 2001.
30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOLLYWOOD MEDIA CORP.
Date: May 14, 2001 By: /s/ Mitchell Rubenstein
------------------------------------
Mitchell Rubenstein, Chairman of the
Board and Chief Executive Officer
(Principal executive, financial and
accounting officer)
31