U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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
PART I FINANCIAL INFORMATION
------ ---------------------
Page(s)
-------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000........................... 2
Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 2001 and 2000 (unaudited) ..... 3
Condensed Consolidated Statement of Shareholders' Equity
for the Three Months ended March 31, 2001 (unaudited)....... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2001 and 2000 (unaudited)...... 5
Notes to Condensed Consolidated Financial Statements
(unaudited)................................................. 6-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 19-30
PART II OTHER INFORMATION
------- -----------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 33
Signature ................................................................ 36
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
-------------- -------------
(Unaudited and
Restated)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,599,234 $ 1,911,224
Receivables, net 1,614,000 1,866,565
Inventories, net 7,171,171 106,700
Prepaid expenses 469,484 687,028
Other receivables 207,550 866,251
Other current assets 241,743 240,450
Deferred advertising - CBS 18,845,194 19,131,714
------------- -------------
Total current assets 30,148,376 24,809,932
PROPERTY AND EQUIPMENT, net 2,764,512 2,802,840
INVESTMENTS 415,521 305,045
NONCURRENT DEFERRED ADVERTISING - CBS 87,002,721 91,714,019
INTANGIBLE ASSETS, net 3,262,997 3,745,579
GOODWILL, net 44,586,895 45,173,047
OTHER ASSETS 756,354 727,620
------------- -------------
TOTAL ASSETS $ 168,937,376 $ 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 8,590,235 1,556,841
Current portion of capital lease obligations 734,033 627,597
------------- -------------
Total current liabilities 16,439,065 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 (120,946,650) (112,791,306)
------------- -------------
Total shareholders' equity 151,400,632 158,693,890
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 168,937,376 $ 169,278,082
============= =============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
2
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
-------------------------------
2001 2000
(Restated)
------------ ------------
NET REVENUES $ 10,877,772 $ 4,077,696
COST OF REVENUES 6,633,607 949,971
------------ ------------
Gross margin 4,244,165 3,127,725
------------ ------------
OPERATING EXPENSES:
General and administrative 1,830,291 2,343,505
Selling and marketing 925,593 2,418,731
Salaries and benefits 3,119,836 2,432,915
Amortization of CBS advertising 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 (272,576) --
------------ ------------
Total operating expenses 12,801,514 13,288,737
------------ ------------
Operating loss (8,557,349) (10,161,012)
EQUITY IN EARNINGS - INVESTMENTS 447,875 1,105,337
OTHER INCOME (EXPENSE):
Interest expense (55,636) (96,381)
Interest income 49,725 37,181
Other, net 4,914 --
------------ ------------
Loss before minority interest (8,110,471) (9,114,875)
MINORITY INTEREST (44,873) (59,151)
------------ ------------
Net loss $ (8,155,344) $ (9,174,026)
============ ============
Basic and diluted net loss per common share $ (0.33) $ (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.
3
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited and Restated)
Common Stock Additional
---------------------- Warrants Deferred Paid-in Accumulated
Shares Amount Outstanding Compensation Capital Deficit Total
----------- --------- ----------- ------------ ------------- ------------- ------------
Balance - December 31, 2000 24,730,968 $ 247,309 $ 7,007,013 $ (102,067) $ 264,332,941 $(112,791,306) $ 158,693,890
Issuance of stock options and
warrants for services
rendered -- -- 266,322 -- (208,240) -- 58,082
Employee stock bonus 4,138 41 -- -- 14,959 -- 15,000
Issuance of common stock -
adjustment shares 125,876 1,259 -- -- (1,259) -- --
Issuance of common stock to pay
obligations of Hollywood Media 160,000 1,600 -- -- 797,964 -- 799,564
Amortization of employee stock
bonuses -- -- -- 51,034 -- -- 51,034
Shares repurchased and retired (13,000) (130) -- -- (61,464) -- (61,594)
Net loss (as restated) -- -- -- -- -- (8,155,344) (8,155,344)
----------- --------- ----------- ---------- ------------- ------------- -------------
Balance - March 31, 2001 25,007,982 $ 250,079 $ 7,273,335 $ (51,033) $ 264,874,901 $(120,946,650) $ 151,400,632
=========== ========= =========== ========== ============= ============= =============
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 STATEMENTS OF CASH FLOWS
(Unaudited and Restated)
Three Months Ended March 31,
-------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,155,344) $ (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 (110,476) (638,560)
Issuance of compensatory stock, stock options and warrants for services rendered 73,082 51,028
Amortization of employee stock bonus 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 5,048,292 4,124,197
Minority interest 44,873 59,151
Changes in assets and liabilities:
Receivables 412,638 (863,542)
Prepaid expenses 217,544 (72,969)
Inventories (2,907,003) 88,095
Other current assets (1,293) (28,552)
Other assets (28,734) 7,561
Accounts payable 367,119 (1,313,419)
Deferred revenue 2,058,200 (69,730)
Other accrued expenses 109,638 238,073
------------ ------------
Net cash used in operating activities (908,300) (5,531,168)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to Beach Wrestling, LLC (35,000) --
Loans to MovieTickets.com, net 499,000 --
Purchase of web addresses -- (1,000,000)
Capital expenditures (194,006) (424,612)
Return of capital from Tekno Books to minority partner (46,652) (190,282)
------------ ------------
Net cash provided by (used in) investing activities 223,342 (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 $ 15,851 $ 94,065
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
5
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements have been prepared
by Hollywood Media Corp. ("Hollywood Media" or "we") 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, we believe that the disclosures contained herein are
adequate to make the information presented not misleading.
The financial statements reflect all material adjustments (which include only
normal recurring adjustments) necessary to present fairly Hollywood Media's
financial position and results of operations.
The results of operations and cash flows for the three months ended March 31,
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 audited consolidated financial statements and notes thereto included in
Hollywood Media's Annual Report on Form 10-K/A for the year ended December 31,
2000.
In the event that additional funding is required, the Chairman of the Board and
Chief Executive Officer and the Vice Chairman and President of Hollywood Media,
have indicated their intention to provide to Hollywood Media, if required, with
an amount not to exceed $6 million in order to enable Hollywood Media to meet
its working capital requirements during 2001; provided, however, that the
commitment will terminate to the extent Hollywood Media raises no less than $6
million from other sources and such additional funding is not expended on
acquisitions. During the first quarter 2001 we drew $500,000 of such funding
which was repaid subsequent to March 31, 2001. As a result of the financing
raised by Hollywood Media subsequent to March 31, 2001, described in Note 14,
the commitment was reduced to $2.25 million.
Revenue Recognition
We changed the revenue recognition method for Hollywood Media's ticketing
businesses from revenue recognized when collection was assured and ticket
delivery to the customer had occurred, to the date of performance of the show,
effective January 1, 2001. The accompanying financial statements for the three
months ended March 31, 2001 have been restated. See Note 15.
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
6
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 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 2000 in exchange for shares of Hollywood Media's common stock.
The Company has no items of other comprehensive income or loss. Therefore,
comprehensive loss is the same as net loss for all periods presented.
(2) ACQUISITIONS:
In January 2000, we completed the acquisition of the web address Broadway.com
from Broadway Technologies Group for a purchase price of $1.6 million, paid with
$1.0 million in cash and 35,294 shares of common stock, valued at $17 per share,
the stated value per the purchase agreement.
On May 1, 2000, we 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 Hollywood Media's common stock valued at
$14.00 per share. The asset purchase agreement for BroadwayTheater.com includes
an earn-out provision which obligates Hollywood Media to issue additional shares
of common stock to the seller each year for a three-year period if certain gross
profit targets are achieved. The contingent payment is a fixed number of shares
each year (28,571) if gross profit targets, representing 25% growth over the
prior year, are achieved each year. The earn-out payments will be accounted for
as additional purchase price at the current fair value of the additional
consideration if and when the contingency payments are made. The total amount of
contingent shares are 85,714 at March 31, 2001 and are not issued and have been
excluded from our earnings per share calculation for the three months ended
March 31, 2001.
Effective September 15, 2000, we acquired Theatre Direct NY, Inc. ("TDI") for
66,291 shares of common stock valued at $505,719 or $7.63 per share and $750,000
in promissory notes. In addition, we issued 195,874 shares of common stock as
contingent consideration. These shares were placed in escrow and will be
delivered to the seller if certain conditions are satisfied at the end of the
one year period following the date of acquisition. Most notable is the condition
that certain relationships with certain key suppliers remain in full force and
effect for a period of one year from the date of acquisition. The 195,874
contingent shares have not been reflected in the purchase price and are not
included in the earnings per share calculation during the period.
The acquisitions of BroadwayTheater.com and TDI on May 1, 2000 and September 15,
2000, respectively, were accounted for under the purchase method of accounting
and, accordingly, their operating results have been included in the consolidated
financial statements since the respective dates of acquisition. The excess of
the aggregate purchase price over the fair value of net assets acquired of
approximately $3.3 million is being amortized over a useful life of ten years.
7
The following are unaudited pro forma combined results of operations of
Hollywood Media 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 consolidated results of operations and therefore have been
excluded from the pro forma combined results of operations.
(3) DEBT:
In connection with the TDI acquisition in September 2000, we signed two
promissory notes payable to the former owner. The first is an interest bearing
note payable with a face value of $500,000, principal payable monthly, due on
September 15, 2001. The note bears interest at Citibank, N.A. prime plus 1% per
annum (8% at March 31, 2001). The second promissory note is a one year
non-interest bearing note with a face value of $250,000 due on September 26,
2001. At March 31, 2001, the outstanding balance of notes payable is $750,000.
(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
========== ==========
8
(5) ACCRUED RESERVE FOR CLOSED STORES:
In 1998, we aggressively pursued closure of Hollywood Media's retail kiosk
locations and closed 29 unprofitable or marginally profitable kiosk locations.
In December 1999, we decided to exit the brick and mortar retail business
altogether and closed the remaining kiosks and in-line stores. We recorded
provisions and write-offs in 1998, 1999 and 2000, for the asset impairments,
write-off of leasehold improvements, computer systems, furniture and equipment
and the estimated cost of early lease terminations. The balance of the accrued
reserve for closed stores at March 31, 2001 and December 31, 2000 was $525,786
and $798,362 respectively, consisting primarily of estimated liabilities
remaining on lease obligations resulting from early lease terminations. We
reduced such reserve by $272,576 during the three months ended March 31, 2001
due to favorable settlements and dismissals of matters related to outstanding
lease obligations as a result of exiting the brick and mortar retail business.
The reserve for closed stores is evaluated by management on a quarterly basis.
It is at this time that we re-evaluate reserves which have been established for
continuing contractual lease obligations and estimates of the costs to settle
leases. We compare the updated estimates to existing reserves on a
lease-by-lease basis. During March 2001, we evaluated the reserves and
determined based on settlements made, and the stages of various matters, that
reserves totaling $272,576 were no longer required. Consequently, these reserves
were reversed during the three months ended March 31, 2001.
(6) COMMON STOCK:
In January 2001, we issued 4,138 shares of restricted common stock valued at
$15,000 or $3.625 per share, the closing market price on the date of issuance,
as an incentive bonus to an officer of Hollywood Media in accordance with an
employment agreement.
In February 2001, we issued 160,000 restricted 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 outstanding by Hollywood Media. The common
stock was valued at the fair market value of the outstanding obligations that
were paid by the recipient of the stock.
During the three months ended March 31, 2001, we issued 125,876 shares of common
stock to investors from the August 2000 private placement pursuant to the
exercise of certain adjustment warrants. The fair value of these adjustment
shares on the dates of issuance was $593,127. Hollywood Media is obligated to
issue additional shares to those selling shareholders for no consideration if
the average of the five lowest volume weighted average prices of the common
stock during the final fifteen days of an adjustment period is below $9.63. The
final adjustment period ends September 4, 2001. A total of 204,831 shares have
been issued in April through August of 2001 and the estimated maximum additional
shares to be issued if the weighted average price is $2 is approximately 137,000
shares and if the weighted average price is $5 is approximately 33,000 shares.
The precise number of shares of common stock which were issued were determined
in accordance with a formula set forth in the adjustment warrants.
Hollywood Media granted warrants to placements agents for an August 2000 private
placement to acquire 70,000 shares of common stock at exercise prices of $3.00
and $4.25 per share. The warrants were valued at $266,322 and are included in
additional paid in capital in the accompanying statement of shareholders'
equity.
9
Pursuant to Hollywood Media's stock repurchase plan, during the three months
ended March 31, 2001 we 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.
During the three months ended March 31, 2001, we issued stock options valued at
$58,082 for services rendered. This amount is included in general and
administrative expense in the accompanying consolidated statement of operations.
During the quarter ended March 31, 2001, we issued stock options and warrants to
purchase an aggregate 790,599 shares of our 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 $3.00 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.
(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) (394,286)
Beach Wrestling LLC (c) -- --
---------- ----------
$ 415,521 $ 305,045
========== ==========
(a) Netco Partners
Hollywood Media owns a 50% interest in a joint venture called NetCo Partners.
This investment is recorded under the equity method of accounting, recognizing
50% of NetCo Partners' income or loss as Equity in Earnings-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 Hollywood Media's consolidated balance sheets.
10
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 Hollywood Media's consolidated balance
sheets.
As of March 31, 2001, we received cumulative profit distributions from NetCo
Partners since its formation totaling $6,002,179, in addition to reimbursement
of substantially all amounts advanced by Hollywood Media to fund the operations
of NetCo Partners.
(b) MovieTickets.com. Inc.
Hollywood Media entered into a joint venture agreement on February 29, 2000 with
the movie theater chains AMC Entertainment Inc. ("AMC") and National Amusements,
Inc. to form MovieTickets.com, Inc. ("MovieTickets.com"), in which each venture
partner 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. Hollywood Media owned 31.67% of the
common stock of MovieTickets.com, Inc. at March 31, 2001. We account for this
investment under the equity method of accounting, recognizing 31.67% of
MovieTickets.com income or loss as Equity in Earnings-Investments. During the
three months ended March 31, 2001 and the twelve months ended December 31, 2000,
we loaned $100,000 and $499,000 respectively, in cash to MovieTickets.com. For
the three months ended March 31, 2001, we recorded a loss of $50,383 from our
investment in MovieTickets.com, and received a loan repayment from
MovieTickets.com of $599,000. In 2000, we issued warrants to AMC to acquire
90,573 shares of common stock at an exercise price of $17.875 per share and
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 Hollywood Media
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 Hollywood Media had loaned $102,500 to Beach
Wrestling LLC. These loans are included in the 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.
11
(9) BARTER TRANSACTIONS:
We periodically enter 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 we 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.
Prior to January 20, 2000, Hollywood Media entered into barter arrangements that
were accounted for in accordance with Accounting Principles Board ("APB") 29
"Accounting for Nonmonetary Transactions." APB 29 indicates that accounting for
nonmonetary transactions, such as barter, should be based on the fair value of
the assets transferred unless those fair values are not determinable within
reasonable limits.
We also record barter revenue and expense under an agreement with the National
Association of Theater Owners ("NATO"), which we acquired through our
acquisition of hollywood.com, Inc. in 1999. In connection with the NATO
contract, we also acquired rights and obligations under ancillary agreements
with individual theaters that participate in the NATO organization. Pursuant to
these agreements, we host web sites for each of the theaters to enable them to
display movie showtimes and other information about the theater. In addition, we
provide 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. We
record revenue and expense from these activities measured at the fair value of
the services exchanged in accordance with APB 29. We recorded $745,438 for both
the three months ended March 31, 2001 and 2000 in revenue and expense under the
NATO contract.
Barter transactions by type for the three months ended March 31, 2001 and 2000
are as follows:
Three Months Ended March 31,
-------------------------------
2001 2000
----------- ----------
Barter Advertising $ 53,130 $ 249,830
Barter - NATO 745,438 745,438
----------- ----------
$ 798,568 $ 995,268
=========== ==========
Barter transactions accounted for approximately 55% and 43% of net Internet ad
sales revenues for the three months ended March 31, 2001 and 2000, respectively.
Barter transactions accounted for approximately 7% and 24% of net revenues for
the three months ended March 31, 2001 and 2000, respectively.
12
(10) SEGMENT REPORTING:
Hollywood Media's reportable segments are ticketing, business to business,
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 licenses entertainment
content and data and includes the divisions: Baseline (a pay-per-use
subscription website geared towards professionals in the entertainment industry,
news and financial organizations); 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 and includes non-cash revenue and expense from the NATO
contract as described in Note 9. 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.
This segment also includes 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.
Management evaluates performance based on a comparison of actual profit or loss
from operations before income taxes, depreciation, interest, and nonrecurring
gains and losses to budgeted amounts. There are no intersegment sales or
transfers.
The following table presents the financial information regarding Hollywood
Media's reportable segments.
Three Months Ended March 31,
-------------------------------
2001 2000
------------ ------------
Net Revenues:
Ticketing (a) $ 7,254,222 $ --
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 (c) 15,901 301,734
------------ ------------
$ 10,877,772 $ 4,077,696
============ ============
Gross Margin:
Ticketing (a) $ 1,014,862 $ --
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
------------ ------------
$ 4,244,165 $ 3,127,725
============ ============
13
Operating Income (Loss):
Ticketing (a) $ (113,864) $ --
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 (c) 19,549 (641,036)
Retail (d) 269,063 (28,405)
Other (Corporate and other) (2,961,755) (2,527,783)
------------ ------------
$ (8,557,349) $(10,161,012)
------------ ------------
Capital Expenditures:
Ticketing (a) $ 2,006 $ --
Business to Business 10,614 71,983
Internet Ad Sales 154,190 277,626
Intellectual Properties -- 5,188
Other (Corporate and other) 27,196 69,815
------------ ------------
$ 194,006 $ 424,612
============ ============
Depreciation and
Amortization Expense:
Ticketing (a) $ 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
============ ============
(a) Includes TDI and BroadwayTheater.com, ticketing businesses that were
acquired on September 15, 2000 and May 1, 2000, respectively.
(b) Includes $5,048,292 and $4,124,197 in amortization of CBS advertising for
the three months ended March 31, 2001 and 2000, respectively.
(c) The e-commerce segment was closed in January 2001.
(d) The retail segment was closed in December 1999. The operating income in
2001 results from the reversal of reserves established for closed stores. -
See Note 5.
(11) COMMITMENTS AND CONTINGENCIES:
Hollywood Media is a party to various legal proceedings arising in the ordinary
course of business, including the proceedings described below and litigation
related to three separate leases that were terminated by Hollywood Media upon
the closing of its retail business. We do not expect any of these legal
proceedings to have a material adverse impact on the 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 Hollywood Media seeking a performance
14
cycle bonus allegedly owing to the plaintiff by Tribune Company in connection
with the sale of Hollywood Online Inc. from Tribune Company to Hollywood Media.
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
Hollywood Media. 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. We are indemnified by Tribune Company for the amount of any
such performance cycle bonus payable to the plaintiff. We believe that all
claims by the claimant against Hollywood Media are without merit and we intend
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 Hollywood Media'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 our
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 Hollywood Media and were not related to
Hollywood Media's business. The claimant is seeking monetary damages in excess
of $5 million. We believe that this claim is without merit and we intend to
defend it vigorously.
(12) RECLASSIFICATION
Certain amounts in the 2000 financial statements have been classified to conform
with the 2001 classification.
(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 August of 2000.
o We 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
Hollywood Media by a third party.
o Stock options valued at $58,082 were granted for services rendered.
o We issued 4,138 shares of common stock valued at $15,000 as an incentive
stock bonus to an officer.
15
For the Three Months ended March 31, 2000:
o We 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
our investment in Movietickets.com, Inc.
o We recorded $5,468,501 in deferred advertising in connection with the
exercise of warrants by Viacom.
(14) SUBSEQUENT EVENT:
In May 2001, we received $4.25 million in cash from two accredited investors in
exchange for 942,362 shares of Hollywood Media's common stock. Also in May 2001
we received $3.0 million in cash from Viacom, Inc. consisting of a $1.4 million
investment in Hollywood Media in exchange for 310,425 shares of Hollywood
Media's common stock and a $1.6 million prepayment of advertising and promotion
commitments to Hollywood Media. The purchase price per share was 105% of the
Market Price of the common stock, which was defined as the average volume
weighted average price for 20 business days prior to the closing dates. We
issued series A warrants to these investors to purchase an aggregate of 614,059
shares of common stock at a price of $6.44 per share. These warrants were valued
at $2,869,019 using the Black Scholes Model. If on each of January 30, 2002 and
April 30, 2002, any such investor holds at least seventy-five percent of the
investor's shares of common stock issued to it in the transaction, then the
exercise price of the series A warrants as to such investor will be decreased to
an exercise price of $5.37 per share and $4.51 per share, respectively, on such
dates.
The investors also received Series B adjustment warrants to acquire additional
shares of common stock from time to time in amounts in proportion to each of
their respective investments. The investors will be entitled to receive
additional shares of common stock upon exercise of the Series B adjustment
warrants for no additional consideration if the "market price" of the common
stock as of October 30, 2001, January 30, 2002, April 30, 2002 or July 30, 2002
is less than $5.19 per share. The Series B warrants are exercisable for 15
trading days following the last day of each twenty trading day period beginning
on each of these four dates. The "market price" of the common stock under the
Series B warrants as of any date within each twenty trading day period is
defined as the lowest "average price" of the common stock during each twenty day
period preceding each such date. The "average price" is defined as the average
of the ten lowest closing sale prices of the common stock during each twenty
trading day period. The market price will in no event be less than $2.15. The
number of shares issuable upon exercise of a Series B warrant on the first of
these four exercise dates is equal to (1) $5.19 minus the market price, divided
by (2) the market price, and multiplied by (3) a number of shares specified in
each Series B warrant. The number of shares issuable upon exercise of a Series B
warrant on each of the subsequent three exercise dates is equal to (1) the lower
of $5.19 and the lowest market price as of any prior exercise date minus the
market price, divided by (2) the market price, and multiplied by (3) a number of
shares specified in each Series B warrant. The specified number of shares is
310,425 for Viacom Inc., 465,638 for Societe Generale, and 310,425 for Velocity
Investment Partners Ltd.
16
(15) CHANGE IN METHOD OF REVENUE RECOGNITION FOR TICKETING BUSINESSES:
We acquired the ticketing businesses, BroadwayTheater.com and TDI, in May and
September of 2000, respectively. These businesses generally acquire blocks of
theater tickets for resale to groups and individuals. Since acquisition,
consistent with the revenue recognition methods utilized by both companies prior
to the acquisitions, we have recognized revenue generally at the time when
collection was assured and ticket delivery to the customer had occurred. During
the second quarter of 2001, we concluded that in many instances the earnings
process for the ticketing businesses was not completed until the performance of
the show, as the businesses provide other ancillary services up to the date of
performance. As a result, effective January 1, 2001 we changed the method of
revenue recognition to defer recognition of revenue on ticket sales until the
performance takes place.
Management of Hollywood Media does not believe the effect of the change in
revenue recognition was material to the previously reported consolidated
financial results for the year ended December 31, 2000 (reduction in revenue of
approximately $350,000 or 1.2% and an increase in net loss of $46,000 or .09%)
or financial position at December 31, 2000.
The effect of the change in revenue recognition on the previously reported
consolidated financial results for the three months ended March 31, 2001 is a
reduction in ticketing revenue of $2,474,265 and an increase in net loss of
$188,687.
17
The following table shows the effects of this change on the statements of
operations for three months ended March 31, 2001:
As
Previously As
Reported Restated
------------ ------------
Net revenues $ 13,352,037 $ 10,877,772
Cost of revenues 8,919,185 6,633,607
------------ ------------
Gross margin 4,432,852 4,244,165
------------ ------------
Total operating expenses 12,801,514 12,801,514
Operating loss (8,368,662) (8,557,349)
Net loss $ (7,966,657) $ (8,155,344)
============ ============
Basic and diluted net loss per
common share $ (0.32) $ (0.33)
============ ============
Weighted average common and common
equivalent shares outstanding - basic
and diluted 24,706,527 24,706,527
============ ============
We have made purchase accounting adjustments to our January 1, 2001 Balance
Sheet to reflect the ticket inventory and deferred revenue as if our current
revenue recognition had been followed since the dates of acquisition of our
ticketing business.
18
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. ("Hollywood
Media") which represents Hollywood Media's expectations or beliefs, including,
but not limited to, statements concerning industry performance, operations,
performance, financial condition, growth, acquisition, and divestiture
strategies, margins, and growth in sales of our 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 intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our control, and actual
results may differ materially depending on a variety of important factors.
Factors that may affect Hollywood Media'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, 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. We are also subject to other risks detailed herein or detailed in our
Annual Report on Form 10-K/A for the year ended December 31, 2000 and in other
filings by us 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. We own an extensive ticketing network and are
engaged in the development and licensing of intellectual properties and
licensing of books. We generate 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
as measured by market share 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
19
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
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. Based on its 15-year history, we believe the Baseline
business maintains one of the most comprehensive movie and television-related
databases. 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 Bors.,
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
wholesaler of live theater tickets 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. TDI is part of a
20
marketing co-operative which promotes Broadway shows to the travel industry
around the world through advertising, brochures and trade shows and consists of
12 producers and the following 17 shows: 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 Music Man, 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, 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
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.
21
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
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 sites. 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
22
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).
NetCo Partners. In June 1995, Hollywood Media and C.P. Group Inc.
("C.P. Group"), entered into an agreement to form NetCo Partners. NetCo Partners
is engaged in the development and licensing of Tom Clancy's NetForce.
Hollywood Media and C.P. Group are each 50% partners in NetCo Partners. Tom
Clancy is a shareholder of C.P. Group. At the inception of the partnership, C.P.
Group contributed to NetCo Partners all rights to Tom Clancy's NetForce, and we
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. The other properties have reverted back to
Hollywood Media.
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 Hollywood Media 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, we
directly acquired an additional 25% interest in the magazine.
23
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 $ 7,254,222 $ 1,666,756 $ 1,464,902 $ 475,991 $ 15,901 $ 10,877,772
Cost of Revenues 6,239,360 77,299 7,029 284,339 25,580 6,633,607
------------ ------------ ------------ ------------ ------- ------------
Gross Margin $ 1,014,862 $ 1,589,457 $ 1,457,873 $ 191,652 $ (9,679) $ 4,244,165
============ ============ ============ ============ ============ ============
March 31, 2000
--------------
Net Revenues $ -- $ 1,002,508 $ 2,310,355 $ 463,099 $ 301,734 $ 4,077,696
Cost of Revenues -- 60,064 258,075 382,480 249,352 949,971
------------ ------------ ------------ ------------ ----------- ------------
Gross Margin $ -- $ 942,444 $ 2,052,280 $ 80,619 $ 52,382 $ 3,127,725
============ ============ ============ ============ =========== ============
(a) This does not include our 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. TDI and
BroadwayTheater.com were acquired on September 15, 2000 and May 1, 2000,
respectively.
o Business to Business - Includes our CinemaSource, EventSource,
TheaterSource, ConcertSource and Baseline syndication operations.
o Internet ad sales - Includes advertising sold on our web sites
Hollywood.com and Broadway.com and revenues derived from the collection and
compilation of movie showtimes data and the hosting of web sites for movie
theaters.
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 $10,877,772 and $4,077,696,
respectively an increase of $6,800,076 or 167%. 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. We acquired
BroadwayTheater.com and TDI (ticketing businesses) in May and September of 2000,
respectively. Broadway.com was launched on May 1, 2000 and EventSource launched
in April 2000.
24
Ticketing revenues were $7,254,222 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 web site 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, 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 $196,700
in barter transactions in Q1-01 as compared to Q1-00 due to a decision by
Hollywood Media to accept less barter and (iii) the balance of the decrease is
due to a softening in the online advertising market as a whole. In the latter
part of 2000, Hollywood Media entered into a contract with an ad rep agency
whereby the agency would be the sole seller of our advertising. Under the terms
of the contract, the ad agency was responsible for negotiating arrangements with
customers and placing the ads on our web sites. The ad agency was also
responsible for collections and any credit risk. In accordance with the contract
we received a stated percentage of revenues from each advertising sale. As a
result of these terms, Hollywood Media recorded its revenues on a net basis,
after reduction of commission. Hollywood Media had no agreements of this nature
prior to this, and therefore, revenues generated during Q1-00 were reported
gross. Internet ad sales revenue is predominately derived from the sale of
banner advertisements and sponsorships on the Hollywood.com and Broadway.com web
sites.
Barter transactions that generate non-cash advertising revenue (included in
Internet ad sales revenues), in which we received advertising or other services
in exchange for content advertising on our web site was $53,130 for Q1-01 and
$249,830 for Q1-00, a reduction of $196,700 or 79% and accounted for five tenths
of one percent (0.5%) and six percent (6%) of our total net revenue for Q1-01
and Q1-00, respectively. In future periods, management intends to maximize cash
advertising revenue, although we will continue to enter into barter
relationships when deemed appropriate as a cashless method for us to market our
business.
We also record barter revenue and an equal amount of expense earned under a
contract with NATO, which we acquired through our acquisition of hollywood.com,
Inc. on May 20, 1999. This income is included in Internet ad sales revenue.
Through the NATO contract, we promote our 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, we host web
sites for the theaters to enable them to display movie showtimes and other
information about the theater. In addition, we provide promotional materials and
movie information and editorial content. We recorded $745,438 in promotional
non-cash revenue and non-cash expense included in selling and marketing expense
under the NATO contract in both Q1-01 and Q1-00. Barter revenue from NATO
25
recorded accounted for 7% and 18% of total net revenue for Q1-01 and Q1-00
respectively.
Total barter transactions from which revenue was recorded, accounted for
approximately 55% and 43% of net Internet ad sales revenue for Q1-01 and Q1-00,
respectively. Total barter transactions from which revenue was recorded,
accounted for approximately 7% and 24% of net revenues for Q1-01 and Q1-00,
respectively.
Revenues from our 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 us closing our e-commerce business in January 2001.
CHANGE IN METHOD OF REVENUE RECOGNITION FOR TICKETING BUSINESSES
We acquired our ticketing businesses, BroadwayTheater.com and TDI, in May and
September of 2000, respectively. These businesses generally acquire blocks of
theater tickets for resale to groups and individuals. Since acquisition,
consistent with the revenue recognition methods utilized by both companies prior
to our acquisition, we have recognized revenue generally at the time when
collection was assured and ticket delivery to the customer had occurred. During
the second quarter of 2001, we concluded that in many instances the earnings
process for the ticketing businesses was not completed until the performance of
the show, as the businesses provide other ancillary services up to the date of
performance. As a result, effective January 1, 2001, we changed our method of
revenue recognition to defer recognition of revenue on ticket sales until the
performance takes place.
We believe the effect of the change in revenue recognition was not material to
our previously reported consolidated financial results for the year ended
December 31, 2000 (reduction in revenue of approximately $350,000 or 1.2% and an
increase in net loss of $46,000 or .09%) or financial position at December 31,
2000.
The effect of the change in revenue recognition on our previously reported
consolidated financial results for the three months ended March 31, 2001 is a
reduction in ticketing revenue of $2,474,265 and an increase in net loss of
$188,687.
26
The following table shows the effects of this change on our statements of
operations for three months ended March 31, 2001:
As
Previously As
Reported Restated
------------ ------------
Net revenues $ 13,352,037 $ 10,877,772
Cost of revenues 8,919,185 6,633,607
------------ ------------
Gross margin 4,432,852 4,244,165
------------ ------------
Total operating expenses 12,801,514 12,801,514
------------ ------------
Operating loss
(8,368,662) (8,557,349)
Net loss $ (7,966,657) $ (8,155,344)
============ ============
Basic and diluted net loss per
common share $ (0.32) $ (0.33)
============ ============
Weighted average common and common
equivalent shares outstanding - basic
and diluted 24,706,527 24,706,527
============ ============
We have made purchase accounting adjustments to our January 1, 2001 Balance
Sheet to reflect the ticket inventory and deferred revenue as if our current
revenue recognition had been followed since the dates of acquisition of our
ticketing business.
COST OF REVENUES
Cost of revenues for Q1-01 was $6,633,607 and $949,971 for Q1-00, an increase of
$5,683,636. The increase in the cost of revenues 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 divisions generated cost of revenues of
approximately 86% for Q1-01. We did not own and operate the ticketing divisions
in Q1-00; therefore there were no cost of revenues for these divisions in Q1-00.
The ticketing divisions account for 94% of the total cost of revenues for Q1-01.
GROSS MARGIN
Gross margin for Q1-01 was $4,244,165 as compared to $3,127,725 for Q1-00, an
increase of $1,116,440 or 36%. 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 39% as compared to 77% in Q1-00. The decrease in gross margin
percentage is attributable to our ticketing divisions which we 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 14% while our
business to business and Internet ad sales segments generate gross margin
27
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 our 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:
Our 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 our 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. We own approximately 31.67% of the outstanding
common stock of MovieTickets.com, and recorded our 31.67% share of the loss of
MovieTickets.com of $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.
OPERATING EXPENSES
General and administrative expenses. General and administrative expenses
decreased $513,214 or 22% to $1,830,291 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 17% 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
28
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 9% 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 we 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 29% 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 our agreement with Viacom was
$5,048,292 and $4,124,197 for Q1-01 and Q1-00, respectively. Under the agreement
with Viacom, we 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 Viacom have been recorded in the balance sheet as
deferred advertising and is being amortized over the seven year contract.
Depreciation. Depreciation and amortization was $349,898 and $317,455 for Q1-01
and Q1-00, respectively. The increase of $32,443 or 10% in depreciation and
amortization 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 and Interest Income. Interest expense for Q1-01 was $55,636
compared to $96,381 for Q1-00 a decrease of $40,745 or 42%. The decrease is
attributable to a decrease in interest paid on our capital lease obligations
offset by interest paid on our notes payable. Interest income increased from
$37,181 for Q1-00 to $49,725 for Q1-01, an increase of $12,544 or 34%.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, we had cash and cash equivalents of $1,599,234 and working
capital of $13,709,311, compared to cash and cash equivalents of $1,911,224 and
working capital of $15,438,914 at December 31, 2000. Net cash used in operating
activities during the first quarter of 2001 was $908,300, primarily representing
cash used to fund our net loss, an increase in ticketing inventory and deferred
revenue for TDI and Broadway.com. Net cash provided by investing activities was
$223,342, 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 $4,622,868 or 84% from $5,531,168 for Q1-00 to $908,300 for Q1-01.
29
Pursuant to our stock repurchase plan, during the three months ended March 31,
2001 we 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, we received $7.25 million in cash consisting of a $4.25 million
investment by two accredited investors in exchange for 942,362 shares of our
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 our common stock
and a $1.6 million prepayment of advertising and promotion commitments.
In the event that we require additional funding and cannot secure additional
funding, the Chairman of the Board and Chief Executive Officer and the Vice
Chairman and President of Hollywood Media, have indicated their intention to
provide to Hollywood Media, if required, with an amount not to exceed $6 million
in order to enable us to meet our working capital requirements during 2001;
provided, however, that the commitment will terminate to the extent that we
raise no less than $6 million from other sources and such additional funding is
not expended on acquisitions. During the first quarter 2001 we drew $500,000 of
such funding, which was repaid subsequent to March 31, 2001. As a result of the
financing completed in May 2001 as described above, the commitment was reduced
to $2.25 million.
INFLATION AND SEASONALITY
Although we cannot accurately determine the precise effects of inflation, we do
not believe inflation has a material effect on our revenues or results of
operations. We consider our business to be somewhat seasonal and expect net
revenues to be generally higher during the second and fourth quarters of each
fiscal year for our Tekno Books book development and licensing operation as a
result of the general publishing industry practice of paying royalties
semi-annually. In addition, although not seasonal, our intellectual properties
division and NetCo Partners both experience 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. We believe 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.
30
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In February 2001, we 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 Hollywood Media equaling $799,564 were paid by the third party
investor.
As of April 25, 2001, we 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 Hollywood Media and a $1.6 million
prepayment of future cash advertising and promotion commitments to us, as
further described below.
As of April 25, 2001, we agreed to issue an aggregate of 1,252,787 shares of our
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 Hollywood Media 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. We 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.
The investors also received Series B adjustment warrants to acquire additional
shares of common stock from time to time in amounts in proportion to each of
their respective investments. The investors will be entitled to receive
additional shares of common stock upon exercise of the Series B warrants for no
additional consideration if the "market price" of the common stock upon exercise
of the Series B adjustment warrants for an additional consideration if the
"market price" of the common stock as of October 30, 2001, January 30, 2002,
April 30, 2002 or July 30, 2002 is less than $5.19 per share. The Series B
warrants are exercisable for 15 trading days following the last day of each
twenty trading day period beginning on each of these four dates. The "market
price" of the common stock under the Series B warrants as of any date within
each twenty trading day period is defined as the lowest "average price" of the
common stock during each twenty trading day period preceding each such date. The
"average price" is defined as the average of the ten lowest closing sale prices
of the common stock during each twenty trading day period. The market price will
in no event be less than $2.15. The number of shares issuable upon exercise of a
Series B warrant on the first of these four exercise dates is equal to (1) $5.19
minus the market price, divided by (2) the market price, and multiplied by (3) a
number of shares specified in each Series B warrant. The number of shares
issuable upon exercise of a Series B warrant on each of the subsequent three
exercise dates is equal to (1) the lower of $5.19 and the lowest market price as
of any prior exercise date minus the market price, divided by (2) the market
price, and multiplied by (3) a number of shares specified in each Series B
warrant. The specified number of shares is 310,425 for Viacom Inc., 465,638 for
Societe Generale, and 310,425 for Velocity Investment Partners Ltd.
31
The Series A warrants and Series B adjustment warrants issued to each of Societe
Generale and Velocity Investment Partners Ltd. Prohibit each of them form
beneficially owning more than 4.9% of our common stock at any time. The Series A
warrants and Series B adjustment warrants issued to each of the investors
contain anti-dilution provisions, which, upon certain specified events, such as
certain specified changes in common stock (i.e., dividends or distributions, or
a reclassification, subdivision or combination of Hollywood Media's common
stock), and certain specified issuances of common stock or convertible
securities, require Hollywood Media to adjust the number of shares of common
stock of Hollywood Media issuable upon exercise of such warrants, to prevent
dilution of the number of shares of common stock of Hollywood Media issuable
upon exercise of such warrants.
In connection with this investment, Viacom also invested an additional one
million six hundred thousand dollars ($1,600,000) in Hollywood Media 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 Hollywood Media 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.
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) we issued
to Viacom an aggregate of 310,425 shares of our 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, we issued stock options and warrants to
purchase an aggregate 790,599 shares of our 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 $3.00 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 Hollywood Media with respect thereto
and having consented to the imposition of restrictive legends upon the
certificates evidencing such securities.
32
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
Hollywood Media Corp. 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
Hollywood Media Corp. 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
Hollywood Media Corp. 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
Hollywood Media Corp.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
Hollywood Media Corp. and American Stock Transfer & Trust
Company, as Rights Agent
(6)
10.1 Services Agreement dated as of February 9, 2001 between
Hollywood Media * Corp. 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.
(1) Incorporated by reference from the exhibit filed with the Annual Report
on Form 10-K for the year ended December 31, 2000.
33
(2) Incorporated by reference from the exhibit filed with the Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998.
(3) Incorporated by reference from the exhibit filed with the Registration
Statement on Form S-3 (No. 333-68209).
(4) Incorporated by reference from exhibits filed with the Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1999.
(5) Incorporated by reference from the exhibit filed with the Registration
Statement on Form SB-2 (No. 33-69294).
(6) Incorporated by reference from exhibit 1 to the Current Report on Form
8-K filed on October 20, 1999.
(b) Reports on Form 8-K
We did not file any Current Report on Form 8-K during the quarter ended
March 31, 2001.
34
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: November 2, 2001 By: /s/ Mitchell Rubenstein
---------------------------------------
Mitchell Rubenstein, Chairman of the
Board and Chief Executive Officer
(Principal executive, financial and
accounting officer)
35