U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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
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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 August 7, 2001, the number of shares outstanding of the issuer's
common stock, $.01 par value, was 26,825,372.
HOLLYWOOD MEDIA CORP.
Table of Contents
Page(s)
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PART I FINANCIAL INFORMATION
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 2001
(unaudited) and December 31, 2000......................................... 3
Condensed Consolidated Statements of Operations for the Six
and Three Months ended June 30, 2001 and 2000 (unaudited)................. 4
Condensed Consolidated Statement of Shareholders' Equity for the
Six Months ended June 30, 2001 (unaudited)................................ 5
Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 2001 and 2000 (unaudited)........................... 6
Notes to Condensed Consolidated Financial Statements (unaudited).......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................................ 19
PART II OTHER INFORMATION
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................... 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................ 33
Signature ................................................................................ 35
-2-
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,479,338 $ 1,911,224
Receivables, net 2,124,799 1,866,565
Inventories 5,774,090 106,700
Prepaid expenses 996,070 687,028
Other receivables 498,722 866,251
Other current assets 243,487 240,450
Deferred advertising - CBS 18,845,194 19,131,714
------------- -------------
Total current assets 32,961,700 24,809,932
PROPERTY AND EQUIPMENT, net 2,816,355 2,802,840
INVESTMENTS 74,331 305,045
NONCURRENT DEFERRED ADVERTISING - CBS 82,291,422 91,714,019
INTANGIBLE ASSETS, net 2,780,415 3,745,579
GOODWILL, net 43,434,771 45,173,047
OTHER ASSETS 784,564 727,620
------------- -------------
TOTAL ASSETS $ 165,143,558 $ 169,278,082
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,488,541 $ 3,194,105
Other accrued expenses 3,115,875 2,444,113
Notes payable 483,333 750,000
Loan from shareholder/officer 250,000 --
Accrued reserve for closed stores 348,561 798,362
Deferred revenue 6,821,819 1,556,841
Current portion of capital lease obligations 484,457 627,597
------------- -------------
Total current liabilities 13,992,586 9,371,018
------------- -------------
CAPITAL LEASE OBLIGATIONS, less current portion 346,934 721,521
------------- -------------
DEFERRED REVENUE 1,872,153 331,559
------------- -------------
MINORITY INTEREST -- 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; 26,526,659
and 24,730,968 shares issued at June 30, 2001 and
December 31, 2000, respectively. 265,266 247,309
Warrants outstanding 10,332,834 7,007,013
Deferred compensation -- (102,067)
Additional paid-in capital 267,654,889 264,332,941
Accumulated deficit (129,321,104) (112,791,306)
------------- -------------
Total shareholders' equity 148,931,885 158,693,890
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 165,143,558 $ 169,278,082
============= =============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
-3-
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
NET REVENUES $ 26,357,466 $ 9,983,245 $ 15,479,694 $ 5,905,549
COST OF REVENUES 17,059,184 2,879,710 10,425,577 1,843,092
------------ ------------ ------------ ------------
Gross margin 9,298,282 7,103,535 5,054,117 4,062,457
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 3,715,010 5,211,512 1,885,279 2,954,654
Selling and marketing 2,032,495 5,297,684 1,106,902 2,878,953
Salaries and benefits 6,223,580 5,160,505 3,103,744 2,727,590
Amortization of CBS advertising 9,810,064 9,375,904 4,761,772 5,251,707
Amortization of goodwill and intangibles 3,639,889 3,330,569 1,839,709 1,678,635
Depreciation and amortization 747,560 658,475 397,662 341,020
(Reversal) reserve for closed stores and lease
termination costs (289,801) 9,755 (17,785) 9,755
------------ ------------ ------------ ------------
Total operating expenses 25,878,797 29,044,404 13,077,283 15,842,314
------------ ------------ ------------ ------------
Operating loss (16,580,515) (21,940,869) (8,023,166) (11,779,857)
EQUITY IN EARNINGS - INVESTMENTS 476,634 1,253,959 28,759 148,622
OTHER:
Interest expense (235,075) (188,418) (179,439) (92,037)
Interest income 79,330 72,615 29,605 35,434
Other, net (168,175) 28,407 (173,089) 28,407
------------ ------------ ------------ ------------
Loss before minority interest (16,427,801) (20,774,306) (8,317,330) (11,659,431)
MINORITY INTEREST (101,997) (152,855) (57,124) (93,704)
------------ ------------ ------------ ------------
Net loss $(16,529,798) $(20,927,161) $ (8,374,454) $(11,753,135)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.66) $ (0.93) $ (0.33) $ (0.51)
============ ============ ============ ============
Weighted average common and common equivalent
shares outstanding - basic and diluted 25,226,067 22,544,098 25,739,897 23,257,368
============ ============ ============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
-4-
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)
Common Stock
------------------------------ Warrants Deferred
Shares Amount Outstanding Compensation
------------- ------------- ------------- -------------
Balance - December 31, 2000 24,730,968 $ 247,309 $ 7,007,013 $ (102,067)
Issuance of common stock in private placement 1,252,787 12,528 2,869,019 --
Payment of cash and issuance
of stock for acquisitions 28,572 286 -- --
Issuance of common stock for services rendered 22,469 225 -- --
Issuance of options and warrants for services
rendered -- -- 456,802 --
Issuance of stock to pay capital lease obligation 88,000 880 -- --
Issuance of stock - note extension 15,615 156 -- --
Employee stock bonus 4,138 41 -- --
Issuance of common stock - adjustment shares 270,210 2,702 -- --
Issuance of common stock to pay obligations
of the Company 160,000 1,600 -- --
Amortization of employee stock bonuses -- -- -- 102,067
Shares repurchased and retired (46,100) (461) -- --
Net loss -- -- -- --
------------- ------------- ------------- -------------
Balance - June 30, 2001 26,526,659 $ 265,266 $ 10,332,834 $ --
============= ============= ============= =============
[RESTUBBED]
Additional
Paid-in Accumulated
Capital Deficit Total
------------- ------------- -------------
Balance - December 31, 2000 $ 264,332,941 $(112,791,306) $ 158,693,890
Issuance of common stock in private placement 2,504,802 -- 5,386,349
Payment of cash and issuance
of stock for acquisitions (302,470) -- (302,184)
Issuance of common stock for services rendered 94,819 -- 95,044
Issuance of options and warrants for services
rendered (171,863) -- 284,939
Issuance of stock to pay capital lease obligation 499,840 -- 500,720
Issuance of stock - note extension 87,026 -- 87,182
Employee stock bonus 14,959 -- 15,000
Issuance of common stock - adjustment shares (2,702) -- --
Issuance of common stock to pay obligations
of the Company 797,964 -- 799,564
Amortization of employee stock bonuses -- -- 102,067
Shares repurchased and retired (200,427) -- (200,888)
Net loss -- (16,529,798) (16,529,798)
------------- ------------- -------------
Balance - June 30, 2001 $ 267,654,889 $(129,321,104) $ 148,931,885
============= ============= =============
The accompanying notes to condensed consolidated financial statement
is an integral part of this condensed consolidated statement.
-5-
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(16,529,798) $(20,927,161)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,387,449 3,989,044
Equity in earnings of investments, net of return of invested capital 230,714 (367,747)
Issuance of compensatory stock, stock options and warrants for services rendered 394,983 75,029
Amortization of employee stock bonus 102,067 102,066
Provision for bad debts 143,339 54,502
Provision for inventory obsolescence -- 18,559
Amortization of deferred financing costs -- 4,290
(Reversal) reserve for closed stores and lease terminations costs (289,801) 9,755
Amortization of CBS advertising 9,810,064 9,375,904
Minority interest 101,997 152,855
Changes in assets and liabilities:
Receivables (421,073) (1,371,283)
Prepaid expenses (309,042) 79,935
Inventories (1,509,922) (23,910)
Other current assets (3,037) (25,986)
Other assets (20,079) 27,746
Accounts payable 94,000 45,682
Deferred revenue 1,839,312 88,828
Other accrued expenses 35,974 121,692
------------ ------------
Net cash used in operating activities (1,942,853) (8,570,200)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash received -- (232,376)
Loan to Beach Wrestling, LLC (123,380) --
Purchase of web addresses -- (1,070,000)
Capital expenditures (643,511) (1,178,810)
Loans to MovieTickets.com,net 499,000 (200,000)
Return of capital from Tekno Books to minority partner (298,956) (323,668)
------------ ------------
Net cash used in investing activities (566,847) (3,004,854)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholder/officer loan 250,000 2,050,000
Net proceeds from issuance of common stock 5,386,349 5,303,030
Proceeds from exercise of stock options and warrants -- 6,756,283
Loan to shareholder 43,591 (1,496,041)
Payments to repurchase common stock (200,888) (864,905)
Payments under notes payable (266,667) --
Payments under capital lease obligations (134,571) (263,609)
------------ ------------
Net cash provided by financing activities 5,077,814 11,484,758
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,568,114 (90,296)
CASH AND CASH EQUIVALENTS, beginning of period 1,911,224 2,475,345
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 4,479,338 $ 2,385,049
============ ============
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 108,844 $ 152,843
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
-6-
HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION:
In the opinion of management, the accompanying condensed consolidated financial
statements have been prepared by Hollywood Media Corp. ("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 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, in the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly Hollywood Media's financial position and results of operations.
The results of operations and cash flows for the six months ended June 30, 2001
are not necessarily indicative of the results of operations or cash flows which
may be recorded for the remainder of 2001. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with audited
consolidated financial statements and notes thereto included in the Annual
Report on Form 10-K 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 $2.25 million in order to meet its working capital
requirements during 2001; provided, however, that the commitment will terminate
to the extent that Hollywood Media raises no less than $2.25 million from other
sources and such additional funding is not expended on acquisitions.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
We changed the revenue recognition process for our ticketing businesses from
revenue recognized when collection was assured and at the point of delivery of
the ticket to the customer to the date of performance of the show. See Note 15.
Per Share Amounts
Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. There were
5,482,660 and 3,992,850 options and warrants outstanding at June 30, 2001 and
2000 respectively, that could potentially dilute earnings per share in the
future. Such options and warrants were not included in the computation of
diluted net loss per share because to do so would have been antidilutive for all
periods presented.
Accounting Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
-7-
Significant estimates and assumptions embodied in the accompanying unaudited
condensed financial statements include the adequacy of reserves for accounts
receivables and closed stores and Hollywood Media's ability to realize the
carrying value of goodwill, intangible assets, investments in less than
50%-owned companies and other long-lived assets, including the remaining
carrying value of deferred advertising received from CBS in 2001 and 2000 in
exchange for shares of Hollywood Media.
Receivables
Receivables consist of amounts due from customers from the sale of advertising,
syndicated content, live theater tickets, and amounts due from publishers
relating to signed contracts, to the extent that the earnings process is
complete and amounts are realizable. Receivables are net of allowance for
doubtful accounts of $597,422 and $567,702 at June 30, 2001 and December 31,
2000, respectively.
In July 2001, the Financial Accounting Standard Board released Statement of
Financial Accounting Standards ("SFAS"), Business Combinations, ("SFAS
141"), and SFAS 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. SFAS 141 also requires allocation of purchase
price to certain classes of identifiable intangibles. Under SFAS 142, goodwill
related to acquisitions after June 30, 2001 will not be amortized. In addition,
amortization of goodwill related to businesses acquired prior to June 30, 2001
will cease on January 1, 2002. Hollywood Media's annual goodwill amortization is
approximately $5.3 million. Upon adoption of SFAS 142, we will no longer record
goodwill amortization. However, under SFAS 142 recorded goodwill will be subject
to at least an annual assessment for impairment by applying a fair value based
test. The fair value test will first be applied as of the transition date,
January 1, 2002. SFAS 142 requires continued amortization of identifiable
intangibles over their useful lives, except for intangibles with indeterminate
lives, which will not be amortized. The lives of intangibles will no longer be
subject to the 40 year maximum, which exists under the current rules. We are
currently evaluating the provisions of SFAS 141 and 142 and have not yet
determined the effect of these pronouncements on our financial position and
results of operations.
(3) ACQUISITIONS:
In January 2000, we completed the acquisition of the web address Broadway.com
from Broadway Technologies Group (Seller) 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. The purchase agreement
guaranteed to the seller that the shares of common stock issued to it would be
worth at least $17 per share one year after their issuance. Because the market
value of the common stock was less than $17 per share on the one year
anniversary of issuance, Hollywood Media is obligated to pay $452,187 to the
seller. The balance outstanding for this liability at June 30, 2001 was $339,687
and is included in accrued expenses. In April 2001, we issued to the seller a
warrant to purchase 40,000 shares of common stock at an exercise price of $4.15
per share, with a fair value of $170,593, calculated in accordance with SFAS
123. The value of the warrant was expensed in the accompanying condensed
statement of operations as other expense.
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 common stock valued at $14.00 per share,
the closing market price on the date of issuance. The seller of
BroadwayTheater.com, Inc. has the right to earn up to a maximum of 85,714
additional shares of Hollywood Media's common stock if the business meets
specified gross profit targets during the three years following the closing of
the acquisition. These gross profit targets were satisfied for year one and we
issued 28,572 shares of common stock valued at $5.25 per share, the closing
market price on the date of issuance, and recorded the amount as goodwill.
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, the fair
-8-
market value of the common stock as determined by the purchase agreement 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
twelve-month period following the date of acquisition. Most notable is the
condition that certain relationships 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
calculation of weighted average shares outstanding 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 is being
amortized over a useful life of ten years.
The purchase price of BroadwayTheater.com was allocated to assets and
liabilities as follows:
2000
-----------
Tangible assets $ 35,430
Goodwill 1,506,991
Liabilities assumed (145,049)
-----------
Total purchase price 1,397,372
Less value of common stock issued 1,164,996
-----------
Paid, net of cash acquired $ 232,376
===========
Purchase price paid as follows:
Paid in cash - purchase price, net of cash
Acquired $ 205,376
Acquisition costs 27,000
-----------
$ 232,376
===========
The following are unaudited pro forma combined results of operations of
Hollywood Media and TDI for the six and three months ended June 30, 2000, as if
the acquisition of TDI had occurred on January 1, 2000:
Six Months Three Months
Ended Ended
June 30, 2000 June 30, 2000
------------- ------------
Net Revenues $ 23,798,834 $ 13,402,488
============= ============
Net Loss $ (20,839,599) $(11,520,437)
============= ============
Pro Forma Diluted Loss Per Share $ (.92) $ (.49)
============= ============
Weighted Average Shares Outstanding 22,662,969 23,345,606
============= ============
-9-
These unaudited pro forma combined results have been prepared for
comparative purposes only and include certain adjustments, such as additional
goodwill amortization expense. They do not purport to be indicative of the
results of operations which actually would have resulted had the acquired
companies 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 have therefore been excluded from pro forma combined results of operations.
(4) DEBT:
In connection with the TDI acquisition on September 15, 2000, Hollywood Media
signed two promissory notes payable to the former owner. The first is an
interest bearing note payable with a face value of $500,000, principal payable
monthly, with a final principal payment of $75,000 due on September 15, 2001.
The note bears interest at Citibank, N.A. prime plus 1% per annum (7.75% at June
30, 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 June 30, 2001, the
outstanding balance of notes payable is $483,333.
(5) OTHER ACCRUED EXPENSES:
Other Accrued Expenses consist of the following:
June 30, 2001 December 31, 2000
------------- -----------------
Compensation and benefits $ 834,783 $ 496,032
Insurance 376,464 152,978
Professional fees 143,235 166,182
Licensing fees 47,520 91,800
Interest 129,142 57,159
Royalties 25,786 39,480
Other 1,558,945 1,440,482
---------- ----------
$3,115,875 $2,444,113
========== ==========
(6) ACCRUED RESERVE FOR CLOSED STORES:
In December 1999, Hollywood Media closed its brick and mortar retail operation
in its entirety and closed its remaining kiosks and in-line stores. Hollywood
Media recorded provisions in 1998, 1999 and 2000 for the asset impairments and
the estimated cost of early store lease terminations as a result of exiting the
brick and mortar retail business. The accrued reserve for estimated liabilities
remaining on store lease obligations was $798,362 at December 31, 2000 and
$348,561 at June 30, 2001. The accrued reserve was reduced by $289,801 during
the six months ended June 30, 2001 and $17,785 during the three months ended
June 30, 2001 as the result of favorable settlements related to outstanding
lease obligations. Additionally, cash payments by Hollywood Media of $160,000
were made. The reserve for closed stores is reviewed by management on a
quarterly basis to determine the adequacy of the reserves based on pending
claims, and we anticipate resolution of all matters within the next twelve
months.
-10-
(7) 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 stock bonus to an officer of Hollywood Media in accordance with
an employment agreement.
In February 2001, we issued 160,000 shares of common stock valued at $799,564 in
exchange for the payment by a third party of $799,564 of certain media, goods
and services obligations of Hollywood Media. The shares were valued at the fair
value of the obligations paid.
During the six months ended June 30, 2001, we issued 270,210 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 $1,284,049. 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 60,500 shares have
been issued in July and 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. The shares
issued pursuant to the adjustment warrants were recorded as additional paid-in
capital.
In May 2001, we issued 1,252,787 shares of common stock valued at $4.51 per
share in a private placement to three accredited investors (including Viacom)
for gross proceeds of $5,650,000. We incurred $263,651 in transaction costs
which were charged to additional paid-in-capital. 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
date. 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 in accordance with SFAS 123. 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 on 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 is defined as the average of the ten lowest closing
sale prices of the common stock during the twenty trading days following each of
these four dates, but can be no 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.
In May 2001, we issued 28,572 shares of common stock to the previous owners of
BroadwayTheater.com in accordance with the earn-out provision of the Asset
-11-
Purchase Agreement. Pursuant to this provision the previous owners are entitled
to additional consideration if specified gross profit targets are attained.
These targets were satisfied and we issued 28,572 shares of common stock valued
at $5.25 per share, the closing market price on the date of issuance and
recorded $150,003 as goodwill.
In May 2001, we issued 22,469 shares of common stock valued at $4.23 per share,
the closing market price on the date of issuance, for payment of book packaging
fees to Dr. Martin Greenberg. Dr. Greenberg is a director of Hollywood Media and
CEO of Tekno Books.
In June 2001, we issued 88,000 shares of common stock valued at $5.69 per share,
the closing market price on the date of issuance, as a payment towards
outstanding capital lease obligations related to our former brick and mortar
retail operations, pursuant to the terms of a settlement agreement. The total
settlement was $796,000, payable in common stock with the balance payable in
monthly installments of cash.
We issued a total of 15,615 shares of common stock valued at $87,182 during the
three months ended June 30, 2001 for the extension of the term of a promissory
note that Hollywood Media guaranteed. The borrower on the note, an employee of a
subsidiary of Hollywood Media, is obligated to pay to Hollywood Media an amount
equal to 50% of the value of the shares issued to extend the maturity date of
the note. We recorded $43,591 as interest expense and $43,591 as other
receivables.
Additionally, during the six months ended June 30, 2001, we issued stock options
and warrants valued at $284,939 for services rendered.
Pursuant to Hollywood Media's stock repurchase plan, during the six months ended
June 30, 2001, we repurchased 46,100 shares of its common stock for an aggregate
consideration of $200,888, or an average purchase price of $4.36 per share.
(8) INVESTMENTS:
Investments consist of the following:
June 30, 2001 December 31, 2000
------------- -----------------
NetCo Partners (a) $ 773,784 $ 699,331
MovieTickets.com, Inc. (b) (572,200) (394,286)
Beach Wrestling LLC (c) (127,253) --
--------- ---------
$ 74,331 $ 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 - Investments.
The revenues, gross profit and net income of NetCo Partners for the six and
three months ended June 30, 2001 and 2000 are presented below:
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
2001 2000 2001 2000
--------- --------- ------- -------
Revenues $1,927,191 $3,072,773 $ 754,713 $ 455,647
Gross Profit 1,576,844 2,575,918 578,058 373,569
Net Income 1,565,601 2,593,476 569,085 382,802
Company's Share of
Net income 782,801 1,296,738 284,543 191,401
-12-
As of June 30, 2001, NetCo Partners has $1,167,670 in accounts receivable.
Management of NetCo Partners believes that these receivables will be collected
in full and no reserves have been established. These accounts receivable are not
included in the Company's condensed consolidated balance sheets.
NetCo Partners' deferred revenues, consisting of cash advances received but not
yet recognized as income, amounted to $286,026 as of June 30, 2001. These
deferred revenues are not included in the Company's condensed consolidated
balance sheets.
As of June 30, 2001, we received cumulative profit distributions from NetCo
Partners since its formation totaling $6,377,860, in addition to reimbursement
of substantially all amounts advanced by us 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. 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% (non-dividend) preferred equity interest in
MovieTickets.com for $8.5 million in cash. Hollywood Media owned 31.67% of the
common stock of MovieTickets.com at June 30, 2001. In 2000, Hollywood Media
issued warrants to acquire 90,573 shares of common stock at an exercise price of
$17.875 per share valued at $1,000,000 to AMC Entertainment Inc. The fair value
of the warrant was recorded as goodwill and is being amortized over a period of
ten years. The investment is accounted for 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, which was repaid with interest in
March 2001. For the six and three months ended June 30, 2001, we recorded a loss
of $178,914 and $128,531, respectively, from our investment in MovieTickets.com.
For the six and three months ended June 30, 2000, we recorded a loss of $42,779,
from our investment in MovieTickets.com
(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 having a one-third ownership
percentage. Beach Wrestling LLC was formed to develop, market and distribute
wrestling events via television and the Internet under the "Beach Wrestling"
brand. This investment is recorded under the equity method of accounting,
recognizing one-third of Beach Wrestling LLC's income or loss as Equity in
Earnings - Investments. For the six and three months ended June 30, 2001, we
recorded a loss of $127,253 from our investment in Beach Wrestling LLC. At June
30, 2001, the indirect wholly owned subsidiary of Hollywood Media had loaned
$190,880 to Beach Wrestling LLC. All payments by Hollywood Media's indirect
wholly owned subsidiary to Beach Wrestling LLC are treated as loans and bear
interest at the Bank of America reference rate plus 2% per annum. The loan is
included in the accompanying condensed consolidated balance sheet as other
receivables.
-13-
(9) BARTER TRANSACTIONS:
Barter arrangements are periodically entered into with other 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.
We also record barter revenue and expense under a contract with the National
Association of Theatre Owners ("NATO"). In connection with the NATO contract, we
also acquired rights and obligations under ancillary agreements with individual
theaters that are members of the NATO organization. Pursuant to these
agreements, we provide them with movie showtime information and content, and we
host web sites for each of the theaters. In addition, we provide ongoing web
site maintenance services for each of the theaters including providing
promotional materials, movie and theater information 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. Hollywood Media records
revenue and expense from these activities measured at the fair value of the
services exchanged.
Barter transactions by type for the six and three months ended June 30, 2001 and
2000 are as follows:
Six Months Ended Three Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Barter Advertising $ 77,139 $ 808,776 $ 24,009 $ 558,946
Barter - NATO 1,490,875 1,490,875 745,437 745,437
---------- ---------- ---------- ----------
$1,568,014 $2,299,651 $ 769,446 $1,304,383
========== ========== ========== ==========
Barter transactions accounted for approximately 52% and 47% of net Internet ad
sales revenues for the six months ended June 30, 2001 and 2000, respectively,
and 50% and 51% of net Internet ad sales revenues for the three months ended
June 30, 2001 and 2000, respectively.
Barter transactions accounted for 6% and 5% of net revenues for the six and
three months ended June 30, 2001, respectively. Barter transactions accounted
for 23% and 22% of net revenues for the six and three months ended June 30,
2000, respectively.
(10) REPORTABLE SEGMENT:
Hollywood Media's reportable segments are ticketing, business to business,
Internet ad sales, intellectual properties, e-commerce and retail. 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. The business to business segment includes Baseline (a
pay-per-use subscription web site geared towards professionals in the
entertainment industry), CinemaSource (which licenses movie showtimes and other
-14-
movie content) and EventSource (which licenses local listings of events around
the country) to media, wireless and Internet companies. The Internet ad sales
segment sells advertising on the Hollywood.com and Broadway.com web sites. The
intellectual properties segment owns or controls the exclusive rights to certain
intellectual properties created by best-selling authors and media celebrities,
which it licenses across all media. 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, amortization, interest, and
nonrecurring gains and losses to budgeted amounts. There are no intersegment
sales or transfers.
The following table illustrates the financial information regarding Hollywood
Media's reportable segments.
Six Months Ended June 30, Three Months Ended June 30,
---------------------------------- ----------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Revenues:
Ticketing (a) $ 19,160,425 $ 1,360,850 $ 11,906,203 $ 1,360,850
Business to Business 3,232,269 2,356,349 1,565,513 1,353,841
Internet Ad Sales 2,993,889 4,868,499 1,528,987 2,558,144
Intellectual Properties 955,384 928,134 479,393 465,035
E-Commerce (b) 15,499 446,043 (402) 144,309
Retail (d) -- 23,370 -- 23,370
------------ ------------ ------------ ------------
$ 26,357,466 $ 9,983,245 $ 15,479,694 $ 5,905,549
============ ============ ============ ============
Gross Margin:
Ticketing (a) $ 3,020,586 $ 212,476 $ 2,005,724 $ 212,476
Business to Business 3,080,561 2,217,429 1,491,104 1,274,985
Internet Ad Sales 2,868,480 4,388,861 1,410,607 2,336,580
Intellectual Properties 339,251 273,510 147,599 192,892
E-Commerce (b) (10,596) 11,259 (917) 45,524
Retail (d) -- -- -- --
------------ ------------ ------------ ------------
$ 9,298,282 $ 7,103,535 $ 5,054,117 $ 4,062,457
============ ============ ============ ============
Operating Income (Loss):
Ticketing (a) $ 546,152 $ 125,401 $ 660,016 $ 125,401
Business to Business 373,526 122,306 98,706 75,830
Internet Ad Sales (c) (11,824,464) (15,600,589) (5,671,336) (8,437,024)
Intellectual Properties 139,255 141,072 31,289 130,118
E-Commerce (b) 11,130 (1,384,155) (8,419) (743,119)
Retail (d) 285,940 (42,058) 16,877 (13,653)
Other (Corporate and other) (6,112,054) (5,302,846) (3,150,299) (2,917,410)
------------ ------------ ------------ ------------
$(16,580,515) $(21,940,869) $ (8,023,166) $(11,779,857)
============ ============ ============ ============
Capital Expenditures:
Ticketing (a) $ 35,456 $ -- $ 33,450 $ --
Business to Business 125,875 130,735 115,261 58,752
Internet Ad Sales 401,808 893,850 247,618 626,294
Intellectual Properties -- 5,188 -- --
E-Commerce (b) -- 12,378 -- 2,308
Other (Corporate and other) 80,372 136,659 53,082 66,844
------------ ------------ ------------ ------------
$ 643,511 $ 1,178,810 $ 449,411 $ 754,198
============ ============ ============ ============
Depreciation and
Amortization Expense:
Ticketing (a) $ 29,929 $ -- $ 15,769 $ --
Business to Business 92,322 54,054 47,962 29,234
Internet Ad Sales 1,510,905 1,311,817 776,153 666,150
Intellectual Properties 3,150 3,780 1,575 1,575
E- Commerce (b) 1,551 8,178 -- 4,572
Other (Corporate and other) 2,749,592 2,611,215 1,395,912 1,318,124
------------ ------------ ------------ ------------
$ 4,387,449 $ 3,989,044 $ 2,237,371 $ 2,019,655
============ ============ ============ ============
-15-
(a) TDI and BroadwayTheater.com, our ticketing businesses, were acquired on
September 15, 2000 and May 1, 2000, respectively, and reported amounts
include results from the dates of acquisition.
(b) The e-commerce segment was closed in January 2001.
(c) Includes $9,810,064 and $9,375,904 in amortization of CBS advertising
for the six months ended June 30, 2001 and 2000, respectively, and
$4,761,772 and $5,251,707 for the three months ended June 30, 2001 and
2000, respectively.
(d) The retail segment was closed on December 31, 1999.
(11) COMMITMENTS AND CONTINGENCIES:
Hollywood Media is a party to various legal proceedings arising in the ordinary
course of business, none of which are expected to have a material adverse impact
on the financial condition or results of operations.
Steven B. Katinsky v. The Times Mirror Company, Hollywood.com, Inc. and
Hollywood Online Inc. filed on September 8, 2000 in Superior Court of the State
of California for the County of Los Angeles. Claim against Tribune Company
(formerly The Times Mirror Company) and the Company seeking a performance cycle
bonus allegedly owing to the plaintiff by Tribune Company in connection with the
sale of Hollywood Online Inc. from Tribune Company to the Company. The claimant
is seeking monetary damages in excess of $19.8 million for alleged fraud by the
defendants in connection with the sale of Hollywood Online Inc. to us. 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. Hollywood
Media is 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 us 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 referenced 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 the
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 us and were not related to our 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.
-16-
(12) RECLASSIFICATION:
Certain amounts in the 2000 financial statements have been reclassified to
conform with the 2001 classification.
(13) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
For the Six Months ended June 30, 2001:
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 Capital lease transactions totaled $117,564.
o We issued 88,000 shares of common stock, valued at $500,720, as a payment
towards outstanding capital lease obligations.
o We issued 15,615 shares of common stock, valued at $87,182, for the
extension of a promissory note. We recorded $43,591 as interest expense and
$43,591 as other receivables.
o We issued 28,572 shares of common stock valued at $150,003 under the
terms of an earnout arrangement.
o We issued 270,210 adjustment shares of common stock for no proceeds.
For the Six Months ended June 30, 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 valued at $1.0 million
were issued in connection with the investment in MovieTickets.com, Inc.
o We recorded $5,468,501 in deferred advertising in connection with the
exercise of warrants by CBS.
o Capital lease transactions totaled $30,349.
o A note payable for $1,928,138 was paid by issuing 152,548 shares of common
stock valued at approximately $12.64 per share.
(14) SUBSEQUENT EVENT:
On July 27, 2001, Hollywood Media issued 210,731 shares of its common stock for
an aggregate purchase price of $1,245,000 in accordance with an asset purchase
agreement between Independent Hollywood, Inc. an indirect, wholly owned
subsidiary of Hollywood Media, and Always Independent Entertainment Corp.
("Always I") to acquire the assets and business called "Always I", which offers
films to subscribers over the Internet. Hollywood Media has incorporated the
Always I subscription service as a distinct channel on Hollywood.com. Filmmakers
are charged a fee to place their films on the web site and subscribers are
charged a monthly fee to view the films.
(15) 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, we changed our method of revenue recognition to
defer recognition of revenue on ticket sales until the performance takes place.
-17-
Management of Hollywood Media does not believe the effect of the change in
revenue recognition on our previously reported consolidated financial results
for the year ended December 31, 2000 was material (reduction in revenue of
approximately $350,000 or 1.2% and an increase in net loss of $46,000 or .09%)
to our reported results of operations or financial position.
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.
The following tables show the effects of this change on the statements of
operations for three months ended March 31, 2001:
As Reported As Adjusted
----------- -----------
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
=========== ===========
For the three months ended June 30, 2001, this change results in an increase in
ticketing revenue of $2,220,431 and a decrease in net loss of $100,194 compared
to amounts that would have been reported under our prior revenue recognition
policy. For the six months ended June 30, 2001, this change results in a
decrease in ticketing revenues of $253,834 and an increase in net loss of
$88,493 compared to amounts that would have been reported under our prior
revenue recognition policy.
We have made purchase accounting adjustments to record the proceeds received on
ticket sales prior to performance as deferred revenue and payments made to
purchase tickets for performances that have not taken place as inventory in the
accompanying condensed consolidated balance sheet at June 30, 2001.
-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. which
represent 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. Hollywood
Media is also subject to other risks detailed herein or detailed in the Annual
Report on Form 10-K 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. Hollywood Media owns an extensive ticketing
network and is 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
that it provides to its customers, CinemaSource often shares in the advertising
revenue generated by its customers in connection with the data.
-19-
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. ConcertSource 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 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 that 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 Bros., E! Entertainment Television, Boston Consulting
Group and Booz, Allen, Hamilton.
Ticketing Divisions
Theatre Direct International and Broadway.com. We acquired Theatre
Direct International ("TDI") as of September 15, 2000. Founded in 1990, TDI is a
live theater marketing and sales agency serving over 40,000 domestic and
international travel professionals, traveling consumers and New York-area
theater patrons. TDI is a ticketing wholesaler to the travel industry that
provides groups and individuals with access to theater tickets and knowledgeable
service, covering shows on Broadway, long running shows Off-Broadway and shows
in London and Toronto. TDI sells tickets through an 800 toll-free number, via
the Broadway.com web site and by fax. As a marketing agency, TDI represents 12
producers and 17 Broadway shows to the travel industry around the world. The 17
Broadway shows are Aida, Beauty and the Beast, Blast, Cabaret, Chicago, Contact,
42nd Street, Mamma Mia!, Kiss Me Kate, Les Miserables, Rent, Riverdance, The
-20-
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 was launched in late May 2000. At
June 30, 2001, each of Hollywood Media, AMC Entertainment, Inc. and National
Amusements, Inc. owns approximately 31.67% of the outstanding common stock of
MovieTickets.com. MovieTickets.com entered into an agreement with Viacom Inc.
effective August 2000 whereby Viacom acquired a five percent interest in
MovieTickets.com 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 Viacom advertising and promotion. In March
2001, America Online Inc. ("AOL") purchased a 3% (non-dividend) preferred equity
interest in MovieTickets.com for $8.5 million in cash. In connection with that
transaction, MovieTickets.com's ticket inventory is promoted throughout AOL's
interactive properties and AOL Moviefone's ticket inventory is featured on
MovieTickets.com.
MovieTickets.com's current participating exhibitors include AMC
Entertainment Inc., National Amusements, Inc., Famous Players Inc., Hoyts
Cinemas, 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 and presented directly to the ticket taker at the theater. The web site
contains movie content from Hollywood Media's various divisions for all current
and future release movies, including 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 on both the web site and on the print-at-home ticket.
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. In addition, Hollywood.com features content from the Baseline
database. In July 2001, Alwaysi.com was added as a distinct channel on
Hollywood.com offering films to subscribers.
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,
The Food Network, Ben & Jerry's Ice Cream, Microsoft, People Magazine, Verizon,
Purina, Fox, Proctor & Gamble, Visa, IBM, Diet Coke, New Line Cinema, MGM, US
Army, Sprint, AT&T and Warner Brothers.
-21-
We promote the Hollywood.com web site through our strategic
relationships with Viacom Inc. and NATO. Through exclusive contracts with NATO
and 73 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 provide them with movie
showtime information and content as well as develop and maintain the web sites
for many theater exhibitors.
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. The promotion provided by Viacom is valued based upon the average
price charged by Viacom for similar promotions during the applicable time
period. 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.
Broadway.com. We launched Broadway.com on May 1, 2000. Broadway.com
features the ability to purchase Broadway, Off-Broadway and London's West End
theater tickets online (See - Ticketing Divisions); theater showtimes for
virtually all professional live theater venues in the U.S. as well as London's
West End and hundreds of college and local live theater venues; the latest
theater news; interviews with stage actors and playwrights; opening-night
coverage; original theater reviews; and video excerpts from selected shows.
Broadway.com also offers current box office results, show synopses, cast and
crew credits and biographies, digitized show previews, digitized showtunes, and
an in-depth Tony Awards(R) area. Broadway.com generates revenue from ticket
sales, advertising sales, and syndication of its content to other media
companies.
Intellectual Properties Business
Intellectual Properties. Our intellectual properties division owns the
exclusive rights to intellectual properties, which are complete stories and
ideas for stories, created by best-selling authors and media celebrities. Some
examples of our intellectual properties are Anne McCaffrey's Acorna the Unicorn
Girl, Leonard Nimoy's Primortals, and Mickey Spillane's Mike Danger. We license
rights to our intellectual properties to companies such as book publishers, film
and television studios, multimedia 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, the Company and C.P. Group Inc. ("C.P.
Group"), entered into an agreement to form NetCo Partners. NetCo Partners is
engaged in the development and licensing of Tom Clancy's NetForce. The Company
and C.P. Group are each 50% partners in NetCo Partners. Tom Clancy is a
shareholder of C.P. Group. At the inception of the partnership, C.P. Group
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contributed to NetCo Partners all rights to Tom Clancy's NetForce, and the
Company contributed to NetCo Partners all rights to Tad Williams' MirrorWorld,
Arthur C. Clarke's Worlds of Alexander, Neil Gaiman's Lifers, and Anne
McCaffrey's Saraband. NetCo Partners owns Tom Clancy's NetForce which was
licensed to Putnam Berkley for a series of mass market paperbacks and to ABC
Television for a television mini-series and video distribution in accordance
with the terms of the partnership agreement, and the other properties have
reverted back to the Company.
Book Development and Book Licensing. Our intellectual properties
division also includes a book development and book licensing operation through
our 51% owned subsidiary, Tekno Books, that develops and executes book projects,
typically with best-selling authors. Tekno Books has worked with approximately
50 New York Times best-selling authors, including Tom Clancy, Jonathan
Kellerman, Dean Koontz, Tony Hillerman, Robert Ludlum and Scott Turow, and
numerous media celebrities, including David Copperfield, Louis Rukeyser and
Willard Scott. Our intellectual properties division has licensed books for
publication with more than 60 book publishers, including HarperCollins, Bantam
Doubleday Dell, Random House, Simon & Schuster, Penguin Putnum and Warner Books.
The book development and book licensing division has developed and executed book
projects for approximately 1,200 books. The Chief Executive Officer of Tekno
Books, Dr. Martin H. Greenberg, is also a director of the Company and owner of
the remaining 49% interest in Tekno Books.
Tekno Books also owns a 50% interest in Mystery Scene Magazine, a trade journal
of the mystery genre of which Dr. Greenberg is co-publisher. During 1995, the
Company directly acquired an additional 25% interest in the magazine.
Results of Operations
The following table summarizes Hollywood Media's net revenues, cost of revenues
and gross margin by division for the six months ended June 30, 2001 ("Y2-01")
and 2000 ("Y2-00") and the three months ended June 30, 2001 ("Q2-01") and 2000
("Q2-00"), respectively:
Business to Internet Ad Intellectual E-
Ticketing Business Sales Properties Commerce Retail Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Y2-01
-----
Net Revenues $19,160,425 $ 3,232,269 $ 2,993,889 $ 955,384 $ 15,499 $ -- $26,357,466
Cost of Revenues 16,139,839 151,708 125,409 616,133 26,095 -- 17,059,184
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Margin $ 3,020,586 $ 3,080,561 $ 2,868,480 $ 339,251 $ (10,596) $ -- $ 9,298,282
=========== =========== =========== =========== =========== =========== ===========
Y2-00
-----
Net Revenues $ 1,360,850 $ 2,356,349 $ 4,868,499 $ 928,134 $ 446,043 $ 23,370 $ 9,983,245
Cost of Revenues 1,148,374 138,920 479,638 654,624 434,784 23,370 2,879,710
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Margin $ 212,476 $ 2,217,429 $ 4,388,861 $ 273,510 $ 11,259 $ -- $ 7,103,535
=========== =========== =========== =========== =========== =========== ===========
Q2-01
-----
Net Revenues $11,906,203 $ 1,565,513 $ 1,528,987 $ 479,393 $ (402) $ -- $15,479,694
Cost of Revenues 9,900,479 74,409 118,380 331,794 515 -- 10,425,577
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Margin $ 2,005,724 $ 1,491,104 $ 1,410,607 $ 147,599 $ (917) $ -- $ 5,054,117
=========== =========== =========== =========== =========== =========== ===========
Q2-00
-----
Net Revenues $ 1,360,850 $ 1,353,841 $ 2,558,144 $ 465,035 $ 144,309 $ 23,370 $ 5,905,549
Cost of Revenues 1,148,374 78,856 221,564 272,143 98,785 23,370 1,843,092
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Margin $ 212,476 $ 1,274,985 $ 2,336,580 $ 192,892 $ 45,524 $ -- $ 4,062,457
=========== =========== =========== =========== =========== =========== ===========
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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 therefore the reported numbers presented include ticketing
revenue and expenses from the date of acquisition.
o Business to Business (b2b) - Includes our CinemaSource, EventSource,
TheaterSource, ConcertSource and Baseline syndication operations.
o Internet ad sales - Includes advertising sold on the web sites
Hollywood.com and Broadway.com.
o Intellectual Properties - Includes our book development and book licensing
operation through our 51% owned subsidiary Tekno Books and our 50.5%
interest in Fedora, publisher of Mystery Scene Magazine. Does not include
our 50% interest in NetCo Partners.
o E-Commerce - We exited the e-commerce business in January 2001.
o Retail - We exited the brick and mortar retail business on December 31,
1999.
NET REVENUES
Total net revenues for the six months ended June 30, 2001 and 2000 were
$26,357,466 and $9,983,245, respectively, an increase of $16,374,221 or 164%.
Net revenue for the three months ended June 30, 2001 increased to $15,479,694
from $5,905,549 for the three months ended June 30, 2000, an increase of
$9,574,145 or 162%. The increase in revenue is primarily the result of ticketing
revenue reported resulting from the acquisitions of TDI on September 15, 2000
and BroadwayTheater.com on May 1, 2000 and additional business to business
revenues generated because of the launch of EventSource on April 1, 2000 offset
by a decrease in Internet ad sales of $1,874,610 and $1,029,157 for the six and
three months ended June 30, 2001, respectively.
Ticketing revenue for Y2-01 and Y2-00 was $19,160,425 and $1,360,850,
respectively, an increase of $17,799,575. Ticketing revenue for Q2-01 and Q2-00
was $11,906,203 and $1,360,850, respectively, an increase of $10,545,353.
Hollywood Media acquired TDI on September 15, 2000 and BroadwayTheater.com on
May 1, 2000; therefore reportable revenues are from the dates of acquisition.
Ticketing revenue is generated from the sales of live theater tickets for
Broadway, Off-Broadway, London's West End and Toronto both online and offline,
to domestic and international travel professionals, traveling consumers and New
York area theater patrons. In addition, tickets can be purchased on the
Broadway.com web site.
Revenues from our business to business segment increased $875,920 or 37% from
$2,356,349 for Y2-00 to $3,232,269 for Y2-01 and increased $211,672 or 16% from
$1,353,841 for Q2-00 to $1,565,513 for Q2-01. These increases are attributable
to a growth in revenues in our CinemaSource division and from an increased
customer base and revenues from our EventSource division which launched on April
1, 2000 when we entered into a contract with AOL's Digital City to provide event
listings for up to 200 markets nationwide. Revenue is generated by the licensing
of movie, event and theater showtimes and other information to newspapers such
as The New York Times, Internet companies including AOL's Digital City, Yahoo!,
Excite, Lycos and wireless providers such as Sprint PCS, AT&T Wireless and
Verizon.
Internet ad sales revenue for Y2-01 decreased to $2,993,889 from $4,868,499 for
Y2-00, a decrease of $1,874,610 or 39%; and decreased $1,029,157 or 40% from
$2,558,144 for Q2-00 to $1,528,987 for Q2-01. The decreases in Internet ad sales
revenue is primarily the result of a decrease in barter transactions due to a
decision by Hollywood Media to accept less barter and the softening of the
online advertising market as a whole. Internet ad sales revenue is derived from
the sale of banner advertisements and sponsorships on the Hollywood.com and
Broadway.com web sites.
24
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 or advertising on its websites was $77,139 for Y2-01 and
$808,776 for Y2-00, a decrease of $731,637, or 90%, and accounted for .3% and 8%
of total net revenue for Y2-01 and Y2-00, respectively. Barter revenue for Q2-01
was $24,009 as compared to $558,946 for Q2-00, a decrease of $534,937, or 96%,
and accounted for .2% and 9% of net revenues for Q2-01 and Q2-00, 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.
Hollywood Media also records barter income earned under a contract with NATO.
This income is included in Internet ad sales revenue. Through the NATO contract,
Hollywood Media promotes its web site to movie audiences by airing movie
trailers about Hollywood.com, 40 out of 52 weeks per year, before the feature
films that play in most NATO-member theaters. In exchange, we provide them with
movie showtime information and content, host and maintain the web sites for the
exhibiting NATO members, and provide promotional materials, movie information
and editorial content. Barter income of $1,490,875 was recorded under the NATO
contract for Y2-01 and Y2-00, and accounted for 6% and 15% of total net revenue
for Y2-01 and Y2-00, respectively. In Q2-01 and Q2-00 we recorded $745,437 in
revenue or 5% and 13% of total net revenue, respectively.
Barter transactions accounted for approximately 52% and 47% of net Internet ad
sales revenue for Y2-01 and Y2-00, respectively, and 50% and 51% of net Internet
ad sales for Q2-01 and Q2-00, respectively.
Revenues from our intellectual properties segment increased $27,250 or 3% to
$955,384 for Y2-01 from $928,134 for Y2-00 and increased $14,358 or 3% from
$465,035 for Q2-00 to $479,393 for Q2-01. The increase in revenues is
attributable to a greater number of manuscripts being delivered for Y2-01 and
Q2-01 as compared to Y2-00 and Q2-00. 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 decreased $430,544 or 97% from $446,043 for Y2-00 to $15,499
for Y2-01 as a result of the closure of our e-commerce business in January 2001.
Retail revenues were $23,370 for Y2-00 and Q2-00. The revenue recognized in
Y2-00 and Q2-00 represents proceeds received for the liquidation of inventory
remaining after the closure of all the retail locations in December 1999.
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, we changed our 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 on our previously reported consolidated financial results
for the year ended December 31, 2000 was material (reduction in revenue of
approximately $350,000 or 1.2% and an increase in net loss of $46,000 or .09%)
to our reported results of operations or financial position.
25
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.
The following tables show the effects of this change on the statements of
operations for three months ended March 31, 2001:
As Reported As Adjusted
----------- -----------
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
=========== ===========
For the three months ended June 30, 2001, this change results in an increase in
ticketing revenue of $2,220,431 and a decrease in net loss of $100,194 compared
to amounts that would have been reported under our prior revenue recognition
policy. For the six months ended June 30, 2001, this change results in a
decrease in ticketing revenues of $253,834 and an increase in net loss of
$88,493 compared to amounts that would have been reported under our prior
revenue recognition policy.
We have made purchase accounting adjustments to record the proceeds received on
ticket sales prior to performance as deferred revenue and payments made to
purchase tickets for performances that have not taken place as inventory in the
accompanying condensed consolidated balance sheet at June 30, 2001.
26
COST OF REVENUE
Cost of revenue increased to $17,059,184 for Y2-01 from $2,879,710 for Y2-00 and
increased to $10,425,577 for Q2-01 from $1,843,092 for Q2-00. As a percentage of
net revenues, cost of revenues was 65% for Y2-01 as compared to 29% for Y2-00
and 67% for Q2-01 as compared to 31% for Q2-00. The increase in the cost of
revenues is primarily the result of the addition of ticketing cost to our cost
of revenues because of the acquisitions of TDI on September 15, 2000 and
BroadwayTheater.com on May 1, 2000; therefore ticket cost is included in
reported numbers from the dates of acquisition. The ticketing segment accounts
for 95% of the cost of revenues for Y2-01 and Q2-01. Cost of revenues consists
primarily of the cost of tickets for the ticketing segment; commissions due to
ad agencies, ad rep firms and other third parties for revenue generated from the
business to business and Internet ad sales segments and fees and royalties paid
to authors and co-editors for the intellectual properties segment.
GROSS MARGIN
Gross margin for Y2-01 was $9,298,282 as compared to $7,103,535 for Y2-00 an
increase of $2,194,747 or 31%. Gross margin for Q2-01 was $5,054,117 as compared
to $4,062,457 for Q2-00, an increase of $991,660 or 24%. Gross margins increased
because of the increase in revenue from the ticketing and business to business
segments. As a percentage of net revenues, the gross margin percentage in Y2-01
was 35% as compared to 71% in Y2-00, and 33% for Q2-01 as compared to 69% for
Q2-00. The decrease in gross margin percentage is attributable to our ticketing
segment which was added as a new business segment through the acquisitions of
TDI on September 15, 2000 and BroadwayTheater.com, Inc on May 1, 2000. The
ticketing segment generates gross margin percentages of approximately 16%
while our business to business and Internet ad sales segments generate gross
margin percentages of greater than 90%. The addition of ticketing revenue into
our mix of revenue streams has therefore reduced the overall gross margin
percentage.
EQUITY IN EARNINGS - INVESTMENTS
Equity in net earnings of investments consists of the Company's 50% interest in
NetCo Partners, 31.67% interest in MovieTickets.com and 33.33% interest in Beach
Wrestling LLC.
Six Months Ended June 30 Three Months Ended June 30,
----------------------------- -----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
NetCo Partners (a) $ 782,801 $ 1,296,738 $ 284,543 $ 191,401
MovieTickets.com (b) (178,914) (42,779) (128,531) (42,779)
Beach Wrestling LLC (c) (127,253) -- (127,253) --
----------- ----------- ----------- -----------
$ 476,634 $ 1,253,959 $ 28,759 $ 148,622
=========== =========== =========== ===========
(a) NetCo Partners:
Our 50% share in the earnings of NetCo Partners decreased $513,937 or 40% to
$782,801 for Y2-01 from $1,296,738 for Y2-00 due primarily to the delivery of
the fifth book in the Net Force Series of novels to the publisher during Y2-00.
During Y2-01, a book was not delivered as the sixth book in the Net Force Series
was delivered in the third quarter of 2001. Revenue for Q2-01 was $284,543 as
compared to $191,401 for Q2-00 an increase of $93,142 or 49%. 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.
-27-
(b) MovieTickets.com:
We own approximately 31.67% of the outstanding common stock of MovieTickets.com
Inc. at June 30, 2001. The MovieTickets.com web site launched in May 2000. We
recorded our 31.67% share of losses generated of $178,914 and $42,779 for Y2-01
and Y2-00, respectively, and $128,531 and $42,779 for Q2-01 and Q2-00,
respectively. MovieTickets.com generates revenues from service fees charged to
users for the purchase of tickets and the sale of advertising on its web site
and on print-at-home tickets. Service fees were introduced in November 2000.
(c) Beach Wrestling LLC:
We own 33.33% of Beach Wrestling LLC ("Beach Wrestling") and recorded our share
of losses generated of $127,253 for the six and three months ended June 30,
2001. Beach Wrestling was formed to develop, market and distribute wrestling
events via television and the Internet. Beach Wrestling is currently in the
developmental stage.
OPERATING EXPENSES
General and administrative expenses. General and administrative expenses
decreased $1,496,502 or 29% to $3,715,010 for Y2-01 from $5,211,512 for Y2-00,
and $1,069,375 or 36% to $1,885,279 for Q2-01 from $2,954,654 for Q2-00. These
decreases are primarily attributable to cost savings and consolidation measures
implemented company-wide, including closing our Santa Monica, California 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 of
$2,143,178 and $1,405,508 for Y2-01 and Q2-01, respectively. The reductions in
general and administrative expenses were offset by an increase in general and
administrative expenses of $646,676 and $336,133 for Y2-01 and Q2-01,
respectively, in our ticketing businesses as a result of the acquisitions of the
ticketing businesses in May and September of 2000. As a percentage of revenue,
general and administrative expenses decreased to 14% for Y2-01 from 52% for
Y2-00 and decreased to 12% for Q2-01 from 50% for Q2-00.
Selling and marketing expenses. Selling and marketing expenses decreased
$3,265,189 or 62% to $2,032,495 for Y2-01 from $5,297,684 for Y2-00 and
decreased $1,772,051 or 62% to $1,106,902 for Q2-01 from $2,878,953 for Q2-00.
Included in selling and marketing are non-cash barter transactions of $1,568,014
and $2,299,651 for Y2-01 and Y2-00, respectively, and $769,446 and $1,304,383
for Q2-01 and Q2-00, respectively. Barter transactions accounted for
approximately 77% and 43% of selling and marketing expense for Y2-01 and Y2-00,
respectively, and 70% and 45% for Q2-01 and Q2-00, 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 8% for Y2-01 from 53% for Y2-00 and decreased to 7% for Q2-01 from
49% for Q2-00.
Salaries and benefits. Salaries and benefits increased $1,063,075 or 21% to
$6,223,580 for Y2-01 from $5,160,505 for Y2-00 and increased $376,154 or 14% to
$3,103,744 for Q2-01 from $2,727,590 for Q2-00. This increase is attributable to
payroll costs of $1,152,612 and $584,373 for Y2-01 and Q2-01 respectively,
associated with TDI, which we did not own and operate during Y2-00, launch of
our EventSource business in April 2000, and an increase in personnel at the
corporate offices to support the growth of Hollywood Media, offset by reductions
in salaries from consolidation of technology and production from our Santa
Monica, California location into our South Florida location and the closing of
our e-commerce division. As a percentage of revenue, salaries and benefits
decreased to 24% for Y2-01 from 52% for Y2-00 and decreased to 20% for Q2-01
from 46% to Q2-00.
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Amortization. Amortization of goodwill and intangibles was $3,639,889 and
$3,330,569 for Y2-01 and Y2-00, respectively, an increase of $309,320 or 9%, and
$1,839,709 and $1,678,635 for Q2-01 and Q2-00, respectively, an increase of
$161,074 or 10%. The increases in amortization are primarily attributable to
goodwill amortization related to acquisitions made in 2000.
Amortization of CBS advertising relating to the agreement with Viacom was
$9,810,064 for Y2-01 and $9,375,904 for Y2-00, respectively, and $4,761,772 and
$5,251,707 for Q2-01 and Q2-00 respectively. Under the agreement with Viacom, we
issued shares of Common Stock and warrants in consideration for 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 each related contract year.
Depreciation and amortization. Depreciation and amortization was $747,560 for
Y2-01 and $658,475 for Y2-00, an increase of $89,085 or 14%, and $397,662 for
Q2-01 and $341,020 for Q2-00, an increase of $56,642 or 17%. The increases are
attributable to an increased level of property and equipment from June 30, 2000
to June 30, 2001 of approximately $1.5 million.
Interest Expense. Interest expense for Y2-01 was $235,075 compared to $188,418
for Y2-00 and $179,439 for Q2-01 as compared to $92,037 for Q2-00. The increases
are attributable to an increase in capital lease obligations and $43,591 of
interest incurred relating to the extension of the term of a promissory note
(Note 7).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, Hollywood Media had cash and cash equivalents of $4,479,338
and working capital of $18,969,114 compared to cash and cash equivalents of
$1,911,224 and a working capital of $15,438,914 at December 31, 2000. Net cash
used in operating activities during Y2-01 was $1,942,853 primarily representing
cash used to fund the Company's net loss, excluding non-cash expenses and
amortization of CBS advertising. Net cash used in investing activities was
$566,847, while $5,077,814 in cash was provided by financing activities. As a
result of the above, cash and cash equivalents increased by $2,568,114 for the
six months ended June 30, 2001. During the six months ended June 30, 2000, net
cash used in operating activities was $8,570,200, net cash used in investing
activities was $3,004,854, and $11,484,758 in cash was provided by financing
activities.
Pursuant to Hollywood Media's stock repurchase plan 46,100 shares of its common
stock were repurchased during the six months ended June 30, 2001 for an
aggregate consideration of $200,888 or an average purchase price of $4.36 per
share.
In May 2001, we issued 1,252,787 shares of common stock valued at $4.51 per
share in a private placement to three accredited investors (including Viacom)
for gross proceeds of $5,650,000. We incurred $263,651 in transaction costs
which were charged to additional paid-in-capital. 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
date. 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. If on each of January 30, 2002 and April 30, 2002,
-29-
any investor holds at least seventy-five percent of any 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.
In the event that Hollywood Media requires additional funding, the Chairman of
the Board and Chief Executive Officer and the Vice Chairman and President, have
indicated their intention to provide, if required, an amount not to exceed $2.25
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 that Hollywood Media raises no less than $2.25 million from other
sources and such additional funding is not expended on acquisitions.
INFLATION AND SEASONALITY
Although Hollywood Media cannot accurately determine the precise effects of
inflation, it does not believe inflation has a material effect on its revenues
or results of operations. We consider our businesses to be somewhat seasonal and
expect net revenues to be generally higher during the second and fourth quarters
of each fiscal year for its Tekno Books book development and licensing operation
as a result of the general publishing industry practice of paying royalties
semi-annually. In addition, although not seasonal, 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 fluctuates with economic cycles.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In May 2001, Hollywood Media issued an aggregate of 1,252,787 shares of
common stock to Viacom Inc., Societe Generale and Velocity Investment Partners
Ltd. at a purchase price of $4.51 per share for a total purchase price of $5.65
million in cash. The purchase price per share represents 105% of the "Market
Price" of the common stock, which is defined as the average volume weighted
average price for the 20 business days prior to the closing date. 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 of the investor's shares of common stock
issued to it in the transaction, then the exercise price of the series A
warrants will be decreased to $5.37 per share and $4.51 per share, respectively,
on such dates. The series A warrants are exercisable by the investors during the
five-year period ending on May 1, 2006.
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 on 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 is defined as the
average of the ten lowest closing sale prices of the common stock during the
twenty trading days following each of these four dates, but can be no 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.
The series A warrants and series B adjustment warrants issued to each
of Societe Generale and Velocity Investment Partners Ltd. prohibit each of them
from 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 common
stock), and certain specified issuances of common stock or convertible
securities, require us 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 issuable upon exercise of such warrants.
The foregoing description does not purport to be complete and is
qualified in its entirety by reference to agreements attached as exhibits 10.2,
10.3, 10.4 and 10.5 to our quarterly report for the quarterly period ending
March 31, 2001 filed with the Securities and Exchange Commission, which Exhibits
are incorporated herein by reference to such exhibits in such filing.
During the three months ended June 30, 2001, we issued 144,334 shares
of common stock to investors from the August 2000 private placement pursuant to
the exercise of certain adjustment warrants. 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
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final adjustment period ends September 4, 2001. The precise number of shares of
common stock which were issued were determined in accordance with a formula set
forth in the adjustment warrants.
In May 2001, Hollywood Media issued 28,572 shares of common stock to
the previous owners of BroadwayTheater.com in accordance with the earn-out
provision of the Asset Purchase Agreement. Pursuant to this provision, the
previous owners are entitled to additional consideration if specified gross
profit targets are attained. These targets were satisfied and Hollywood Media
issued 28,572 shares of common stock valued at $5.25 per share, the closing
market price on the date of issuance.
In May 2001 we issued 22,469 shares of common stock valued at $4.23 per
share for payment of book packaging fees to Dr. Martin Greenberg. Dr. Greenberg
is a director of Hollywood Media and CEO of Tekno Books.
In June 2001, we issued 88,000 shares of common stock valued at $5.69
per share, the closing market price on the date of issuance as a payment towards
outstanding capital lease obligations pursuant to the terms of a settlement
agreement.
We issued a total of 15,615 shares of common stock valued at $87,182
during the three months ended June 30, 2001 for the extension of the term of a
promissory note that Hollywood Media guaranteed. The borrower on the note, an
employee of a subsidiary of Hollywood Media, is obligated to pay to Hollywood
Media an amount equal to 50% of the costs incurred for payment of the extension
by Hollywood Media.
During the quarter ended June 30, 2001, we issued stock options and
warrants to purchase an aggregate 705,059 shares of common stock, including
56,000 stock options granted to employees at exercise prices ranging from $4.07
per share to $5.98 per share and warrants to purchase a total of 649,059 shares
at exercise prices ranging from $3.70 per share to $6.44 per share. Options
granted to employees are subject to vesting periods ranging from six months to
four years and generally expire five years from the date of issuance.
The securities described above were issued without registration under
the Securities Act of 1933 by reason of the exemption from registration afforded
by the provisions of Section 4(2) thereof, as transactions by an issuer not
involving a public offering, each recipient of securities having delivered
appropriate investment representations to the Company with respect thereto and
having consented to the imposition of restrictive legends upon the certificates
evidencing such securities.
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Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
Incorporated by
Exhibit Description Reference From
------- ----------- --------------
3.1 Third Amended and Restated Articles of Incorporation (1)
3.2 Articles of Amendment to Articles of Incorporation of the Company for
Designation of Preferences, Rights and Limitations of 7% Series D
Convertible Preferred Stock (2)
3.3 Articles of Amendment to Articles of Incorporation of the Company for
Designation of Preferences, Rights and Limitations of 7% Series D-2
Convertible Preferred Stock (3)
3.4 Articles of Amendment to Articles of Incorporation of the Company
amending Designation of Preferences, Rights and Limitations of Series A
Variable Rate Convertible Preferred Stock (4)
3.5 Articles of Amendment to Articles of Incorporation of the Company
amending Designation of Preferences, Rights and Limitations of Series B
Variable Rate Convertible Preferred Stock (4)
3.6 Bylaws (5)
4.1 Form of Common Stock Certificate (5)
4.2 Rights Agreement dated as of August 23, 1996 between the Company and
American Stock Transfer & Trust Company, as Rights Agent (6)
10.1 Asset Purchase Agreement dated as of July 19, 2001 among the Company, *
Independent Hollywood, Inc. and Always Independent Entertainment
Corp.
* Filed as an exhibit to this Form 10-Q.
(1) Incorporated by reference from the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
(2) Incorporated by reference from the exhibit filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998.
(3) Incorporated by reference from the exhibit filed with the Company's
Registration Statement on Form S-3 (No. 333-68209).
(4) Incorporated by reference from exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999.
(5) Incorporated by reference from the exhibit filed with the Company's
Registration Statement on Form SB-2 (No. 33-69294).
(6) Incorporated by reference from exhibit 1 to the Company's Current
Report on Form 8-K filed on October 20, 1999.
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(a) Reports on Form 8-K
Hollywood Media did not file any Current Report on Form 8-K during the
quarter ended June 30, 2001.
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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: August 15, 2001 By: /s/ Mitchell Rubenstein
------------------------------------
Mitchell Rubenstein, Chairman of the
Board and Chief Executive Officer
(Principal executive, financial and
accounting officer)
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