# NovelStem International Corp.: Form 10-Q for the period ended Jun 30, 2013

- Company: [NovelStem International Corp.](/companies/nstm.md) (CIK 912544)
- Form: 10-Q
- Filed: 2013-08-14
- Accepted by EDGAR: Aug 14, 2013, 07:15 ET
- Period: 2013-06-30
- Accession: 0001144204-13-045387
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/912544/000114420413045387/v352633_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/912544/000114420413045387/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-04-01 to 2013-06-30 | $102.4k | us-gaap:SalesRevenueNet |
| Revenue | 6 months, 2013-01-01 to 2013-06-30 | $183.5k | us-gaap:SalesRevenueNet |
| Selling, general and administrative | 3 months, 2013-04-01 to 2013-06-30 | $755.1k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2013-01-01 to 2013-06-30 | $1.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2013-04-01 to 2013-06-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2013-01-01 to 2013-06-30 | −$2.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-04-01 to 2013-06-30 | $17.9k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2013-01-01 to 2013-06-30 | $40.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-04-01 to 2013-06-30 | −$43.0k | us-gaap:ProfitLoss |
| Net income | 6 months, 2013-01-01 to 2013-06-30 | −$331.7k | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2013-04-01 to 2013-06-30 | −$0.01 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2013-01-01 to 2013-06-30 | −$0.01 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted shares (weighted) | 3 months, 2013-04-01 to 2013-06-30 | 22,648,740 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2013-01-01 to 2013-06-30 | 22,712,110 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2013-01-01 to 2013-06-30 | −$2.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2013-04-01 to 2013-06-30 | $6.4k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 6 months, 2013-01-01 to 2013-06-30 | $47.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2013-04-01 to 2013-06-30 | $16.1k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 6 months, 2013-01-01 to 2013-06-30 | $766.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-06-30 | $9.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-06-30 | $13.0m | us-gaap:AssetsCurrent |
| Total assets | at 2013-06-30 | $25.6m | us-gaap:Assets |
| Current liabilities | at 2013-06-30 | $1.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2013-06-30 | $1.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2013-06-30 | $23.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,077 characters.

### Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q or that are otherwise made by us or on our behalf about our financial condition, results of operations and business constitute “forward-looking statements,” within the meaning of federal securities laws. Hollywood Media Corp. (“Hollywood Media”, “our”, or “Company”) cautions readers that certain important factors may affect Hollywood Media’s actual results, levels of activity, performance or achievements and could cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements anticipated, expressed or implied by any forward-looking statements that may be deemed to have been made in this Quarterly Report on Form 10-Q or that are otherwise made by or on behalf of Hollywood Media. Without limiting the generality of the foregoing, “forward-looking statements” are typically phrased using words such as “may,” “will,” “should,” “expect,” “plans,” “believe,” “anticipate,” “intend,” “could,” “estimate,” “pro forma” or “continue” or the negative variations thereof or similar expressions or comparable terminology. Factors that may affect Hollywood Media’s results and the market price of our common stock include, but are not limited to:

- our operating losses;
- negative cash flows and accumulated deficit;
- our ability to develop and maintain strategic relationships;
- MovieTickets.com Inc.’s ability to compete with the other online movie ticketing service and other competitors and the outcome of, and potential impact of matters relating to, the lawsuit filed by Hollywood Media, National Amusements Inc. and MovieTickets.com, Inc. against AMC Entertainment Inc. relating to MovieTickets.com (for more information about such lawsuit, see Part II, Item 1 (Legal Proceedings) of this Quarterly Report on Form 10-Q and Note 7 “Certain Commitments and Contingencies” in the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q);
- MovieTickets.com Inc.’s ability to compete with the other online movie ticketing service following the departure of AMC Entertainment, Inc., MovieTickets.com Inc.’s largest exhibitor in terms of ticket sales, to MovieTickets.com Inc.’s competitor;
- our ability to maintain and obtain sufficient capital to finance our operations;
- our ability to realize anticipated cost efficiencies;
- government regulation;
- adverse economic factors such as recession, war, terrorism, international incidents or labor strikes and disputes;
- our ability to design, implement and maintain effective internal controls;
- dependence on our founders;
- the unpredictability of our stock price;
- the possibility of our common stock being delisted from the NASDAQ Global Market and not qualifying for trading on another exchange or market (such as the NASDAQ Capital Market, the NYSE MKT or the over-the-counter market); and
- the impact of the death of Tekno Books’ former Chief Executive Partner, Dr. Martin Greenberg, on the ability of Tekno Books to maintain relationships it has with certain authors and publishers.

Hollywood Media is also subject to other risks detailed herein, or detailed in our Annual Report on Form 10-K for the year ended December 31, 2012, and in other filings made by Hollywood Media with the Securities and Exchange Commission.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other factors, including unknown or unpredictable ones, also could have material adverse effects on our future results.

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

Overview

Until December 15, 2010, Hollywood Media was comprised of various businesses focusing primarily on online ticket sales, deriving revenue primarily from Broadway, Off-Broadway and London’s West End ticket sales to individuals and groups, as well as advertising and book development license fees and royalties. Our Broadway Ticketing business was comprised of Broadway.com, 1-800-BROADWAY, Theatre Direct and Theatre.com. On December 15, 2010, we completed the Broadway Sale through the sale of all of the outstanding capital stock of Theatre Direct to Key Brand, as contemplated by the Purchase Agreement. Following this sale, our business segments for our continuing operations are as follows:

- **Ad Sales –** includes Hollywood Media’s 26.2% equity interest in MovieTickets.com. Prior to the sale of Cinemasource UK Limited on May 1, 2012 (which business included UK Theatres Online Limited, Spring Leisure Limited, Cinemasonline Limited and WWW.CO.UK Limited), the Ad Sales segment also sold advertising on plasma TV displays throughout the U.K. and Ireland, on lobby display posters, movie brochure booklets and ticket wallets distributed in cinemas, live theater and other entertainment venues in the U.K. and Ireland. See Note 3, “Discontinued Operations” in the Notes to the unaudited condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q for information on the sale of Cinemasource UK Limited. See Note 7, “Certain Commitments and Contingencies” in the Notes to the unaudited condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q for information on the AMC litigation.
- **Intellectual Properties –** owns or controls the exclusive rights to certain intellectual properties created by best-selling authors and media celebrities, which it seeks to license and develop for books and other media. This segment includes our wholly-owned subsidiary, Tekno Books, and a book development business, and this segment does not include our 50% interest in NetCo Partners, for purposes of this discussion and analysis. We are beginning a reorientation process of this business from print to digital e-book distribution.
- **Other –** is comprised of payroll and benefits for corporate and administrative personnel as well as other corporate-wide expenses, such as legal fees, audit fees, proxy costs, insurance, centralized information technology, and includes consulting and other fees and costs relating to compliance with the provisions of the Sarbanes-Oxley Act of 2002 that require Hollywood Media to assess and report on internal control over financial reporting, and related development of controls. Until August 28, 2012, this segment also included Hollywood Media’s equity interest in Project Hollywood, LLC (“Project Hollywood”) (which was reduced from 21.74% of the total equity in Project Hollywood to 20.65% of the total equity in Project Hollywood at June 30, 2012), which in turn owns Baseline. On August 28, 2012 Hollywood Media assigned to Baseline Holdings all of Hollywood Media’s membership interest in Project Hollywood in exchange for certain consideration. For additional information on the assignment of Hollywood Media’s interest in Project Hollywood and the change in Hollywood Media’s equity interest in Project Hollywood, see Note 9, “Related Party Transactions” in the Notes to the unaudited condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q.

Results of Operations

The following discussion and analysis should be read in conjunction with Hollywood Media’s unaudited condensed consolidated financial statements and the notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

The Ad Sales segment currently consists of the Company’s investment in MovieTickets.com. As the Company accounts for its investment in MovieTickets.com under the equity method of accounting, there are no net revenues, operating income (loss), capital expenditures or depreciation and amortization expense to report for the Ad Sales segment. The following table summarizes Hollywood Media’s revenues, operating expenses and operating income (loss) from continuing operations by reportable segment for the six months ended June 30, 2013 (“Y2-13”) and 2012 (“Y2-12”) and the three months ended June 30, 2013 (“Q2-13”) and 2012 (“Q2-12”), respectively:

*(unaudited)*

| Y2-13 | Intellectual Properties | Other | Total |
| --- | ---: | ---: | ---: |
| Net Revenues | $183,461 | $- | $183,461 |
| Operating Expenses | 315,658 | 2,434,730 | 2,750,388 |
| Operating Loss | $(132,197) | $(2,434,730) | $(2,566,927) |
| **Y2-12** |  |  |  |
| (unaudited) |  |  |  |
| Net Revenues | $333,047 | $- | $333,047 |
| Operating Expenses | 356,428 | 2,453,073 | 2,809,501 |
| Operating Loss | $(23,381) | (2,453,073) | $(2,476,454) |
| **Q2-13** |  |  |  |
| (unaudited) |  |  |  |
| Net Revenues | $102,402 | $- | $102,402 |
| Operating Expenses | 174,838 | 1,124,624 | 1,299,462 |
| Operating Loss | $(72,436) | $(1,124,624) | $(1,197,060) |
| **Q2-12** |  |  |  |
| (unaudited) |  |  |  |
| Net Revenues | $156,213 | $- | $156,213 |
| Operating Expenses | 198,500 | 1,544,736 | 1,743,236 |
| Operating Loss | $(42,287) | (1,544,736) | $(1,587,023) |
| % of Total Net Revenue | 100% | - | 100% |

### Results of Discontinued Operations

### Sale of Cinemasource UK Limited - Share Purchase Agreement

On May 1, 2012, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) with Orchard Advertising Limited (“Buyer”), pursuant to which the Company sold, and Buyer purchased, the entire issued share capital of Cinemasource UK Limited (the “Purchased Shares”) which business was part of the Company’s Ad Sales division and included UK Theatres Online Limited, Spring Leisure Limited, Cinemasonline Limited and WWW.CO.UK Limited.

As of the closing of the transactions contemplated by the Share Purchase Agreement, (1) Jeffrey Spector, a director of Buyer, was also (i) a director of all four subsidiaries of Cinemasource UK Limited (UK Theatres Online Limited, Spring Leisure Limited, Cinemasonline Limited and WWW.CO.UK Limited) and (ii) an employee of one of the subsidiaries of Cinemasource UK Limited (UK Theatres Online) and (2) Janette Erskine, a director of Buyer, was also (i) a director of three subsidiaries of Cinemasource UK Limited (UK Theatres Online Limited, Spring Leisure Limited and Cinemasonline Limited) and (ii) an employee of one of the subsidiaries of Cinemasource UK Limited (UK Theatres Online).

Pursuant to the Share Purchase Agreement, the purchase price for the Purchased Shares is U.S. $250,000, payable in cash in a non-interest bearing loan in twenty equal quarter-annual installments of $12,500 each over a period of five years. Subject to the terms and conditions of the Share Purchase Agreement, the first installment of the purchase price was due and was paid to the Company on July 31, 2012 and subsequent installments of the purchase price are due every three calendar months thereafter. Hollywood Media received such payments in accordance with the payment terms. The Company imputed interest at 16.5% per annum on this non-interest bearing loan resulting in a discounted amount of $168,014 which was included in the total gain on sale attributable to the sale of Cinemasource UK Limited of $649,215 during the six months ended June 30, 2012. The current portion of the discounted amount of the non-interest bearing loan is included in “Notes receivable, current” and the long-term portion of the non-interest bearing loan is included in “Notes receivable, less current portion” in our accompanying unaudited condensed consolidated balance sheets contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The purchase price for the Purchased Shares is collateralized by a lien on the Purchased Shares (and certain dividends, payments or other derivative assets received in respect of the Purchased Shares) pursuant to the terms of the share charge deed, dated as of May 1, 2012, between the Company and Buyer (the “Share Charge Deed”). Except as permitted by the Share Purchase Agreement, the Share Charge Deed also restricts Buyer from (i) permitting any other lien to exist against the Purchased Shares (and certain dividends, payments or other derivative assets received in respect of the Purchased Shares), (ii) selling or transferring the Purchased Shares (and certain dividends, payments or other derivative assets received in respect of the Purchased Shares), and (iii) disposing of the equity of redemption in respect of the Purchased Shares (and certain dividends, payments or other derivative assets received in respect of the Purchased Shares). In the event of (i) a transaction whereby any persons or group of persons acting in concert purchase at least 80% of the Purchased Shares or at least 80% of the issued share capital of each of the subsidiaries of Cinemasource UK Limited or Buyer, or (ii) a transaction whereby any person or group of persons acting in concert purchase the whole or substantially the whole of the business and assets of Cinemasource UK Limited and its subsidiaries (each, an “Exit Event”), then (A) if the proposed purchaser in such Exit Event is a “connected person” to Buyer (as defined in the Share Purchase Agreement) or if the aggregate consideration payable to Buyer, Cinemasource UK Limited and its subsidiaries, and/or the shareholders of Buyer in respect of an Exit Event (the “Subsequent Sale Proceeds”) exceeds the balance of the purchase price remaining to be paid by Buyer to the Company under the Share Purchase Agreement (the “Balance”), then the Balance shall become immediately payable to the Company or (B) if the proposed purchaser is not a “connected person” to Buyer and the Subsequent Sale Proceeds are less than the Balance, then Buyer will pay to the Company the amount of the Subsequent Sale Proceeds in lieu of the Balance, unless the Company demands that the Purchased Shares are transferred back to the Company (and Buyer transfers the Purchased Shares back to the Company) in satisfaction of the Balance.

### Sale of Broadway Ticketing Business Unit to Key Brand Entertainment, Inc.

On December 15, 2010, Hollywood Media completed the sale of its Broadway Ticketing Division (the “Broadway Sale”) through the sale of all of the outstanding capital stock of Theatre Direct NY, Inc. (“Theatre Direct”) to Key Brand Entertainment Inc. (“Key Brand”), as contemplated by the Stock Purchase Agreement, dated as of December 22, 2009, entered into between Hollywood Media and Key Brand (as amended, the “Purchase Agreement”). There are no material relationships among Hollywood Media and Key Brand or any of their respective affiliates other than in respect of the Purchase Agreement and the related ancillary agreements.

Pursuant to the Purchase Agreement, at the closing of the Broadway Sale, (a) Hollywood Media received (i) $20,530,102 in cash (including $530,102 pursuant to the estimated working capital adjustment described in the Purchase Agreement), (ii) a $8,500,000 note from Key Brand pursuant to a Second Lien Credit, Security and Pledge Agreement, dated as of December 15, 2010 (as amended, the “Credit Agreement”), under which Hollywood Media made a $8,500,000 loan to Key Brand (the “Loan”), which Loan accrued interest at a rate of 12% per annum, matured on December 15, 2015 and was secured on a second lien basis by all stock and assets of Theatre Direct and its subsidiaries, and (iii) a warrant to purchase 5% of the outstanding shares of common stock of Theatre Direct as of the closing date on a fully diluted basis at an exercise price of $.01 per share (as amended, the “Warrant”), and (b) Key Brand assumed $1,600,000 of liabilities associated with employment agreements with certain employees of Theatre Direct. In addition, Hollywood Media was entitled to receive earnout payments of up to $14,000,000, in two $7,000,000 tranches, contingent upon Theatre Direct and its subsidiaries achieving certain revenue targets during the period from the closing date through the end of the 10th full fiscal year following the closing date as set forth in the Purchase Agreement.

In connection with the Credit Agreement, Hollywood Media, Key Brand and JPMorgan Chase Bank, N.A., as administrative agent for the senior secured lenders of Key Brand, entered into a Subordination and Intercreditor Agreement, dated December 15, 2010 (the “JPM Intercreditor Agreement”) which defined the rights and obligations of the senior secured lenders and Hollywood Media as subordinated lender, including, without limitation, the rights of payment and the subordination of the security interests of Hollywood Media.

On March 14, 2011, Hollywood Media delivered to Key Brand a closing statement setting forth Hollywood Media’s calculation of Theatre Direct’s working capital as of the closing date of the Broadway Sale determined in the manner described in the Purchase Agreement. Pursuant to such closing statement, Hollywood Media accrued $3,702,620 as a working capital adjustment as of December 31, 2010 under the Purchase Agreement which included $530,102 related to the estimated working capital delivered at closing by Key Brand. The working capital adjustment of $3,734,106 was paid on March 22, 2011.

#### April 2012 Amendments to the Broadway Sale Purchase Agreement, the Credit Agreement and the JPM Intercreditor Agreement

On April 22, 2012, Hollywood Media entered into Amendment No. 4 to the Purchase Agreement (the “Fourth Purchase Agreement Amendment”). Pursuant to the Fourth Purchase Agreement Amendment, Hollywood Media consented to the contribution of the “group sales” business (but not the Broadway.com consumer ticketing business) owned by Key Brand to a newly formed joint venture (the “Group Sales JV”; such contribution, the “Group Sales Contribution”). The balance of the business sold to Key Brand under the terms of the Purchase Agreement, which included Broadway.com, remained at Key Brand and Theatre Direct. As part of the Fourth Purchase Agreement Amendment, Key Brand agreed to pay the first $7,000,000 earnout amount (the “First $7 Million Earnout”) to Hollywood Media on or before October 1, 2012 regardless of the actual revenues of Theatre Direct and its subsidiaries for the fiscal year of Key Brand ending June 30, 2012. The First $7 Million Earnout amount was paid by Key Brand to Hollywood Media on October 1, 2012 and was recorded upon collection of the $7,000,000 received on October 1, 2012. In addition, the revenue calculation for the second $7,000,000 earnout amount (the “Second $7 Million Earnout”) was modified to exclude “group sales” (and the revenues of the new joint venture conducting such business) and the revenue target for the Second $7 Million Earnout was reduced from $150,000,000 to $123,000,000 accordingly. On October 5, 2012, Hollywood Media received written notice from Key Brand that Theatre Direct achieved the revenue target for the Second $7 Million Earnout in Key Brand’s fiscal year ended June 30, 2012. Accordingly, pursuant to the Fourth Purchase Agreement Amendment, the Second $7 Million Earnout was added as of October 5, 2012 to the principal amount of the Loan under the Credit Agreement. As of October 5, 2012, pursuant to the Credit Agreement, interest at a rate of 12% per annum and principal on such Second $7 Million Earnout amount was amortized over the term of the Credit Agreement in equal quarterly installments. As a result of the Second $7 Million Earnout being added to the principal amount of the Loan, the principal amount of the Loan due Hollywood Media by Key Brand was $15,500,000 as of October 5, 2012.

Hollywood Media initially recorded the Second $7 Million Earnout at a fair value of $4,500,000, which reflects a $2,500,000 discount. Hollywood Media has been amortizing the $2,500,000 discount under the effective interest method. Amortization under the effective interest method is included in "Accretion of discount, net of allowance for uncollectability" in the accompanying unaudited condensed consolidated statements of operations contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. For the six months ended June 30, 2013, Hollywood Media received scheduled payments under the Loan in the amount of $2,248,977, which included principal payments of $1,292,308, interest payments of $401,100 on the $7,000,000 portion of the Loan and $555,569 of interest on the $8,500,000 portion of the Loan. The principal payments of $1,292,308, combined with accretion of discount of $666,126, reduced the value of the $7,000,000 portion of the Loan from $4,250,123 at December 31, 2012 to $3,623,941 at June 30, 2013. For the three months ended June 30, 2013, Hollywood Media received a scheduled payment under the Loan in the amount of $1,116,573, which included a principal payment of $646,154, an interest payment of $191,100 on the $7,000,000 portion of the Loan and $279,319 of interest on the $8,500,000 portion of the Loan. The principal payment of $646,154, combined with accretion of discount of $322,800, reduced the value of the $7,000,000 portion of the Loan from $4,250,123 at December 31, 2012 to $3,623,941 at June 30, 2013. Accretion of discount was $584,253 and $317,094 on the $8,500,000 portion of the Loan during the six and three months ended June 30, 2013. On December 31, 2012, Hollywood Media received a scheduled payment under the Loan in the amount of $1,002,128, which included a principal payment of $538,462, an interest payment of $203,000 on the $7,000,000 portion of the Loan and $260,666 of interest on the $8,500,000 portion of the Loan. The principal payment of $538,462, combined with accretion of discount of $288,585, reduced the value of the $7,000,000 portion of the Loan from $4,500,000 to $4,250,123. Accretion of discount, net of the reversal of previously recorded allowance for bad debt, was $1,429,315 on the $8.5 million portion of the Loan during the three months ended December 31, 2012. The uncollected face amount (principal) of the $7,000,000 portion of the Loan was $5,169,231 and $6,461,538 at June 30, 2013 and December 31, 2012, respectively.

On April 22, 2012, Hollywood Media entered into Amendment No. 1 to the Credit Agreement (the “First Credit Agreement Amendment”). Pursuant to the First Credit Agreement Amendment, Hollywood Media consented to certain amendments to the Credit Agreement, including consent to the Group Sales Contribution and to provide for additional reporting requirements. Hollywood Media also agreed to amend the JPM Intercreditor Agreement to provide that, subject to Key Brand’s compliance with the terms and conditions of Key Brand’s senior secured credit agreement, Key Brand would be permitted to make scheduled quarterly installment payments of the $7,000,000 portion of the Loan prior to the maturity of the Credit Agreement, notwithstanding that the obligations under the Credit Agreement were subordinated to $15,000,000 of Key Brand’s obligations under Key Brand’s senior secured credit agreement.

#### December 2012 Amendments to the Credit Agreement and the Warrant and New Intercreditor Agreement

On December 31, 2012, Hollywood Media entered into Amendment No. 2 to the Credit Agreement (the “Second Credit Agreement Amendment”). Pursuant to the Second Credit Agreement Amendment, (i) effective as of December 31, 2012, the interest rate on the Loan was increased from 12% per annum to 13% per annum, (ii) the maturity date of the Loan was shortened from December 15, 2015 to June 30, 2015, (iii) Hollywood Media consented to Key Brand amending and restating Key Brand’s senior secured credit agreement to replace Key Brand’s prior senior lender, JPMorgan Chase Bank, N.A., with Key Brand’s new senior lender, Terido LLP (with the terms and conditions of such senior secured credit agreement remaining substantially the same), (iv) subject to the terms and conditions of the Terido Intercreditor Agreement described below, the net proceeds from any indebtedness incurred by Key Brand that is not otherwise permitted under Key Brand’s amended and restated senior secured credit agreement (other than from the proceeds of a refinancing of such amended and restated senior secured credit agreement) will be used to prepay the Loan, (v) the prior consent of Hollywood Media is required for any amendment to Key Brand’s amended and restated senior secured credit agreement that would be adverse to Hollywood Media in any material respect, and (vi) Key Brand will provide Hollywood Media with additional and more frequent financial reporting. Except as described in this paragraph, the terms and conditions of the Credit Agreement and the Loan remain substantially the same.

In connection with the Second Credit Agreement Amendment and Key Brand’s amended and restated senior secured credit agreement, Hollywood Media and Key Brand entered into that certain Subordination and Intercreditor Agreement, dated December 31, 2012 (the “Terido Intercreditor Agreement ”), with Terido LLP, as administrative agent for the senior secured lenders of Key Brand, which defines the rights and obligations of the senior secured lenders and Hollywood Media as subordinated lender, including, without limitation, the rights of payment and the subordination of the security interests of Hollywood Media. The terms and conditions of the Terido Intercreditor Agreement are substantially similar to the terms and conditions of the prior JPM Intercreditor Agreement.

On December 31, 2012, in connection with the Second Credit Agreement Amendment, the Warrant was amended to (i) shorten the earliest date that Hollywood Media can put the Warrant to Theatre Direct from December 16, 2017 to June 30, 2015, (ii) increase the minimum price that Hollywood Media can put the Warrant to Theatre Direct from $1,000,000 to $3,000,000, and (iii) increase the minimum price that Theatre Direct can redeem the Warrant from Hollywood Media from $1,000,000 to $3,000,000. Except as described in the preceding sentence, the terms and conditions of the Warrant remain substantially the same. The Warrant is marked to market each reporting period to reflect changes in fair value. The fair value of the Warrant was $750,000 and $700,000 at June 30, 2013 and December 31, 2012, respectively.

In connection with the Second Credit Agreement Amendment, the Terido Intercreditor Agreement and the amendment to the Warrant described above, on December 31, 2012 Key Brand paid Hollywood Media an amendment fee of $50,000 and reimbursed Hollywood Media for all out-of-pocket costs and expenses incurred in documenting such agreements.

For additional information about this transaction, see Note 3 “Discontinued Operations” in the Notes to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On August 8, 2013 Key Brand paid Hollywood Media a total of $16,611,738 consisting of $13,861,738 from the prepayment of the Loan and $2,750,000 from the redemption of the Warrant. For additional information about this transaction, see Note 10 “Subsequent Events” in the Notes to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

On August 21, 2008, Hollywood Media entered into a purchase agreement (the “R&S Purchase Agreement”) with R&S Investments, LLC (“R&S Investments”) for the sale of Hollywood Media’s subsidiaries Hollywood.com, Inc. and Totally Hollywood TV, LLC (collectively, the “Hollywood.com Business”). R&S Investments is wholly-owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media’s President, Secretary and Vice-Chairperson of the Board. Pursuant to the R&S Purchase Agreement, Hollywood Media sold the Hollywood.com Business to R&S Investments for a potential purchase price of $10,000,000 cash, which included $1,000,000 that was paid to Hollywood Media at closing and potential earnout payments totaling $9,000,000, of which $1,892,692 had been paid as of August 2012. Hollywood Media recognized $326,758 and $129,241 in earnout gain during the six and three months ended June 30, 2012, respectively, which is included in “Gain on sale of discontinued operations, net of income taxes” in our accompanying unaudited condensed consolidated statements of operations contained in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Hollywood Media does not have a significant continuing involvement in the Hollywood.com Business operations.

On August 28, 2012, (1) Hollywood Media and R&S Investments entered into an Agreement (the “R&S Agreement”) regarding the R&S Purchase Agreement, (2) Hollywood Media, Mr. Rubenstein and Ms. Silvers entered into a letter agreement regarding the R&S Agreement (the “Rubenstein Silvers Letter Agreement”), and (3) R&S Investments provided Hollywood Media with a letter regarding a contingent additional payment (the “R&S Letter”). As described below, the R&S Agreement and the Rubenstein Silvers Letter Agreement and the transactions contemplated by the R&S Agreement and the Rubenstein Silvers Letter Agreement were approved by a Special Committee of Hollywood Media’s Board of Directors comprised solely of independent directors (the “Special Committee”).

Pursuant to the R&S Agreement, in exchange for R&S Investments paying Hollywood Media $2,950,000 in cash (the “Buyout Amount”), which payment has been made to Hollywood Media, R&S Investments fully satisfied all of its obligation to pay the purchase price under Section 3.1 of the R&S Purchase Agreement and any additional consideration or earnout payment under Section 3.3 of the R&S Purchase Agreement, and R&S Investments shall have no further obligations and/or liabilities (and Hollywood Media shall have no further rights and/or remedies) under Article III of the R&S Purchase Agreement or otherwise.

Pursuant to the Rubenstein Silvers Letter Agreement, Mr. Rubenstein agreed that, in connection with the transaction consummated under the R&S Agreement and in addition to the Buyout Amount, the next $280,000 of the MovieTickets.com 5% Interest (as defined in the Amended and Restated Employment Agreement dated as of December 22, 2008, between Hollywood Media and Mr. Rubenstein, as amended (the “Rubenstein Employment Agreement”)) that would be distributed by Hollywood Media to Mr. Rubenstein pursuant to the Rubenstein Employment Agreement will be retained by Hollywood Media (and not paid to Mr. Rubenstein) and is a reduction to “Derivative Liabilities” in the accompanying unaudited condensed consolidated balance sheets contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In addition, pursuant to the Rubenstein Silvers Letter Agreement, Ms. Silvers agreed that, in connection with the transaction consummated under the R&S Agreement and in addition to the Buyout Amount, the next $280,000 of the MovieTickets.com 5% Interest (as defined in the Amended and Restated Employment Agreement dated as of December 22, 2008, between Hollywood Media and Ms. Silvers, as amended (the “Silvers Employment Agreement”)) that would be distributed by Hollywood Media to Ms. Silvers pursuant to the Silvers Employment Agreement will be retained by Hollywood Media (and not paid to Ms. Silvers) and is a reduction to “Derivative Liabilities” in the accompanying unaudited condensed consolidated balance sheets contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Pursuant to the R&S Letter, R&S Investments agreed that in the event of a sale of all the assets of Hollywood.com, LLC to one person or a group of persons not controlled, directly or indirectly, by Mr. Rubenstein and Ms. Silvers or their heirs, personal representatives or affiliates prior to August 31, 2015, R&S Investments shall pay to Hollywood Media $3,500,000 or, if less, the amount received by R&S Investments in connection with such transaction.

The Special Committee unanimously approved the R&S Agreement and the Rubenstein Silvers Letter Agreement and determined that the transactions contemplated by the R&S Agreement and the Rubenstein Silvers Letter Agreement were advisable, fair to and in the best interests of Hollywood Media and its shareholders. In connection with approving the transactions contemplated by the R&S Agreement and the Rubenstein Silvers Letter Agreement, the Special Committee received a fairness opinion from a firm with experience in valuation work, which stated that as of August 28, 2012, based upon and subject to (and in reliance on) the assumptions made, matters considered and limits of such review, in each case as set forth in its opinion, the Buyout Amount which was paid by R&S Investments was fair from a financial point of view to Hollywood Media.

For additional information about this transaction, see Note 3 “Discontinued Operations” in the Notes to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

NET REVENUES

Total net revenues were $183,461 for Y2-13 as compared to $333,047 for Y2-12, a decrease of $149,586 or 45% and $102,402 for Q2-13 as compared to $156,213 for Q2-12, a decrease of $53,811 or 34%. The decrease in net revenue in Y2-13 as compared to Y2-12 and in Q2-13 as compared to Q2-12 is the result of a decrease in Intellectual Property revenue.

The decrease in Intellectual Properties net revenues in Y2-13 as compared to Y2-12 and in Q2-13 as compared to Q2-12 was attributable to the timing of the delivery of manuscripts and a decision to shift strategy from print to primarily digital e-book distribution which is in progress. The Intellectual Properties division generates revenues from several different activities including intellectual property licensing and book development. Revenues vary quarter to quarter depending on the timing of delivery of manuscripts to the publishers and the development of e-books. Revenues are recognized when the earnings process is complete and the ultimate collection of such revenues is no longer subject to contingencies. This division does not include NetCo Partners, which is reported separately; see “Earnings (Losses) of Unconsolidated Investees” below.

### EARNINGS (LOSSES) OF UNCONSOLIDATED INVESTEES

Earnings (losses) of unconsolidated investees consisted of the following:

*(unaudited)*

*(unaudited)*

|  | Six Months Ended June 30, 2013 | 2012 | Three Months Ended June 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| NetCo Partners (a) | $(292) | $(283) | $(140) | $(42) |
| MovieTickets.com (b) | - | (72,115) | - | (121,034) |
| Project Hollywood (c) | - | 90,213 | - | 67,094 |
|  | $(292) | $17,815 | $(140) | $(53,982) |

\[32\]

(a) NetCo Partners

Hollywood Media owns 50% of NetCo Partners as of June 30, 2013 and accounts for its investment under the equity method. NetCo Partners owns *NetForce* and is primarily engaged in the development and licensing of *NetForce*. NetCo Partners recognizes revenues when the earnings process has been completed based on the terms of the various agreements, generally upon the delivery of the manuscript to the publisher and at the point where ultimate collection is substantially assured. When advances are received prior to completion of the earnings process, NetCo Partners defers recognition of revenue until the earnings process has been completed. Hollywood Media’s 50% share of income of NetCo Partners was essentially $0 for Y2-13 and Y2-12 as well as Q2-13 and Q1-12.

(b) MovieTickets.com

Hollywood Media owns 26.2% of the equity in MovieTickets.com, Inc. (“MovieTickets.com”) as of June 30, 2013 and shares in 26.2% of the income or losses generated by the joint venture. This investment is recorded under the equity method of accounting, recognizing 26.2% of ownership of MovieTickets.com income or loss as “Earnings of Unconsolidated Investees” in the accompanying unaudited condensed consolidated statements of operations. Hollywood Media recorded $72,115 and $121,034 in loss from its investment in MovieTickets.com for the six and three months ended June 30, 2012, respectively. Hollywood Media did not record $33,035 of its share of losses from MovieTickets.com for 2012 and $367,717 for the six months ended June 30, 2013 for a total of $400,752, because accumulated dividends and net losses from 2013 and prior years exceed the Company’s investment in MovieTickets.com as of June 30, 2013. The MovieTickets.com web site generates revenues primarily from service fees charged to users for the purchase of movie tickets online, the sale of advertising and research fees. There were no dividends declared or received during the six months ended June 30, 2012 and June 30, 2013, respectively.

(c) Project Hollywood LLC

On August 28, 2012 Hollywood Media assigned to Baseline Holdings all of Hollywood Media’s membership interest in Project Hollywood in exchange for total consideration of $1.8 million. Prior to that assignment, Hollywood Media owned 20.65% of the total equity in Project Hollywood. Hollywood Media’s equity ownership in Project Hollywood was reduced from 21.74% of the total equity in Project Hollywood to 20.65% of the total equity in Project Hollywood at June 30, 2012. Hollywood Media did not own any equity in Project Hollywood as of June 30, 2013. Hollywood Media’s initial interest in Project Hollywood was acquired on October 27, 2011. Hollywood Media recorded its investment in Project Hollywood under the equity method of accounting, recognizing its percentage interest in Project Hollywood’s income or loss as earnings of unconsolidated investees. Under applicable accounting principles, Hollywood Media recorded $90,213 and $67,094 in income from its investment in Project Hollywood for the six and three months ended June 30, 2012, respectively. There were $177,182 and $46,499 of distributions during the six and three months ended June 30, 2012, respectively. For additional information about Hollywood Media’s assignment of its membership interest in Project Hollywood and the change in Hollywood Media’s equity interest in Project Hollywood, see Note 9, “Related Party Transactions” in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q.

### OPERATING EXPENSES

### Editorial, Production, Development and Technology.

Editorial, production, development and technology costs include fees and royalties paid to authors and co-editors for the Intellectual Properties segment. Editorial, production, development and technology costs were $113,322 for Y2-13 as compared to $282,776 for Y2-12, a decrease of $169,454 or 60% and were $55,824 for Q2-13 as compared to $157,672 for Q2-12, a decrease of $101,848 or 65%. The decrease in Y2-13 as compared to Y2-12 and the decrease in Q2-13 as compared to Q2-12 was due primarily to a decrease in payments to writers and co-editors and fewer projects.

### Selling, General and Administrative.

Selling, general and administrative (SG&A) expenses consist of occupancy costs, professional, legal and consulting service fees, telecommunications costs, general insurance costs and selling and marketing costs (such as advertising, marketing, promotional, business development, public relations, and commissions due to other parties). SG&A expenses for Y2-13 were $1,696,191 as compared to $1,200,978 for Y2-12, an increase of $495,213 or 41%. SG&A expenses for Q2-13 were $755,144 compared to $696,132 for Q2-12, an increase of $59,012 or 8%.

The increase in SG&A expense in Y2-13 as compared to Y2-12 was due to an increase in legal fees and related professional fees of $523,000.

### Payroll and Benefits.

Payroll and benefits expenses include payroll and benefits and other types of compensation expense as well as human resources and administrative functions. Payroll and Benefits expenses were $898,787 for Y2-13 compared to $1,250,583 for Y2-12, a decrease of $351,796 or 28%. Payroll and benefits expenses for Q2-13 were $467,541 compared to $851,862 for Q2-12, a decrease of $384,321 or 45%. Included in payroll and benefits in each of Y2-13 and Y2-12 was $215,000 non-cash amortization expense of deferred compensation costs.

The decrease in payroll and benefits expense in Y2-13 as compared to Y2-12 as well as in Q2-13 as compared to Q2-12 was primarily due to a decrease in executive payroll partially offset by an increase in payroll in the Intellectual Properties segment as the Intellectual Properties segment shifts to digital e-book distribution.

### Depreciation and amortization.

Depreciation and amortization expense consists of depreciation of property and equipment, furniture and fixtures, leasehold improvements, and equipment under capital leases and amortization of intangible assets. Depreciation and amortization expense was $42,088 for Y2-13 and $75,164 for Y2-12 and was $20,953 for Q2-13 and $37,570 for Q2-12. The decrease in depreciation and amortization expense of $33,076 or 44% in Y2-13 from Y2-12 and the decrease in depreciation and amortization expense of $16,617 or 44% in Q2-13 from Q2-12 was primarily due to assets becoming fully depreciated.

### Interest, net.

Interest, net was $973,847 of income for Y2-13 as compared to $513,009 of income for Y2-12. Interest, net was $480,547 of income for Q2-13 as compared to $259,972 of income for Q2-12. Interest, net primarily relates to the interest accrued on the Loan due Hollywood Media from Key Brand Entertainment, the purchaser of the Broadway Ticketing Division. On October 5, 2012 the Loan was increased by $7,000,000 for the Second $7 Million Earnout. On December 31, 2012 the interest rate on the Loan was increased to 13% per annum from 12% per annum and the maturity date was moved up to June 30, 2015 from December 15, 2015. For additional information, see Note 3 – “Discontinued Operations” in the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

### Accretion of Discount, net of allowance for uncollectability

Accretion of discount, net was $1,250,373 for Y2-13 and $639,894 for Q2-13. The Accretion of Discount in Y2-13 and Q2-13 was primarily attributable to the accretion of the discount on the Loan from the Broadway Sale.

### LIQUIDITY AND CAPITAL RESOURCES

Hollywood Media’s cash and cash equivalents were $9,669,277 at June 30, 2013 as compared to $11,378,519 at December 31, 2012. Our net working capital (defined as current assets less current liabilities) was $11,355,882 at June 30, 2013 as compared to $12,047,536 at December 31, 2012.

Net cash used in operating activities during Y2-13 was $2,215,186. Net cash used in operating activities during Y2-13 was primarily attributable to the following: (1) $1,250,373 accretion of discount on the Loan from Key Brand (which is a non-cash item), (2) $819,000 in connection with advertising of Hollywood Media’s digital books, (3) $423,613 paid for income taxes, and (4) legal and related professional fees of $887,100. These items were partially offset by (1) cash received from Key Brand which included total interest received of $956,669 under the Loan due Hollywood Media, (2) $215,000 non-cash amortization expense of deferred compensation costs, and (3) $42,088 in depreciation and amortization. By comparison, net cash used in operating activities during Y2-12 was $1,382,146.

As described in Note 3, “Discontinued Operations” in the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, on October 1, 2012, following the end of the third quarter period, Hollywood Media received from Key Brand in connection with the Broadway Sale the First $7 Million Earnout payment in cash. Further, an additional $7,000,000 representing the Second $7 Million Earnout payment was added to the Loan due Hollywood Media by Key Brand under the Credit Agreement as of October 5, 2012, which $7,000,000 is to be amortized with interest at 12% per annum over the period October 5, 2012 through December 15, 2015 in equal quarter-annual installments. As a result of the Second $7 Million Earnout being added to the $8,500,000 principal amount of the Loan, the principal amount of the Loan due Hollywood Media by Key Brand was $15,500,000 as of October 5, 2012. On December 31, 2012, the interest rate on the Loan due Hollywood Media by Key Brand was increased to 13% per annum and the maturity date of the Loan due Hollywood Media by Key Brand was moved up to June 30, 2015 from December 15, 2015. The Loan due Hollywood Media by Key Brand is secured on a second lien basis by all stock and assets of Theatre Direct and its subsidiaries.

Hollywood Media recorded the Second $7 Million Earnout at a fair value of $4,500,000, which reflects a $2,500,000 discount. Hollywood Media has been amortizing the $2,500,000 discount under the effective interest method. Amortization under the effective interest method will be included in "Accretion of discount, net of allowance for uncollectability" in the accompanying unaudited condensed consolidated statements of operations contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. For the six months ended June 30, 2013, Hollywood Media received scheduled payments under the Loan in the amount of $2,248,977, which included principal payments of $1,292,308, interest payments of $401,100 on the $7,000,000 portion of the Loan and $555,569 of interest on the $8,500,000 portion of the Loan. The principal payments of $1,292,308, combined with accretion of discount of $666,126, reduced the value of the $7,000,000 portion of the Loan from $4,250,123 at December 31, 2012 to $3,623,941 at June 30, 2013. The uncollected face amount (principal) of the $7,000,000 portion of the Loan was $5,169,231 and $6,461,538 at June 30, 2013 and December 31, 2012, respectively.

For the three months ended June 30, 2013, Hollywood Media received a scheduled payment under the Loan in the amount of $1,116,573, which included a principal payment of $646,154, an interest payment of $191,100 on the $7,000,000 portion of the Loan and $279,319 of interest on the $8,500,000 portion of the Loan. The principal payment of $646,154, combined with accretion of discount of $322,800, reduced the value of the $7,000,000 portion of the Loan from $3,947,295 at March 31, 2013 to $3,623,941 at June 30, 2013. Accretion of discount, net of the reversal of previously recorded allowance for bad debt, was $584,253 and $317,094 on the $8,500,000 portion of the Loan during the six and three months ended June 30, 2013.

We have received approximately $1,700,000 of principal and interest payments during Y2-13 on the $7,000,000 portion of the Loan (from the Second $7 Million Earnout). In addition, we have received approximately $560,000 of interest payments during Y2-13 on the original $8,500,000 portion of the Loan.

On August 8, 2013 Key Brand paid Hollywood Media a total of $16,611,738 consisting of $13,861,738 from the prepayment of the Loan and $2,750,000 from the redemption of the Warrant. For additional information about this transaction, see Note 10 “Subsequent Events” in the Notes to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Net cash provided by investing activities during Y2-13 was $1,282,608 primarily attributable to cash received on the Loan. By comparison, net cash provided by investing activities during Y2-12 was $119,289 primarily attributable to the Hollywood.com earn-out payments to the Company.

Net cash used in financing activities during Y2-13 was $776,664, which cash was primarily attributable to Hollywood Media’s stock buy-back of 521,500 shares of Hollywood Media’s common stock and payments under capital leases. By comparison, net cash used in financing activities during Y2-12 was $11,734, which cash usage was for payments under capital lease obligations.

### Capital Expenditures

Hollywood Media’s capital expenditures during the six months ended June 30, 2013 were $47,200. We currently anticipate that additional capital expenditures during 2013 will total approximately $30,000 including various system and equipment upgrades.

### Authorization of Stock Repurchase Program

Hollywood Media previously reported in its current report on Form 8-K filed with the SEC on October 4, 2007, that its Board of Directors authorized a stock repurchase program (the “Repurchase Program”) under which Hollywood Media may use up to $10.0 million of its cash to repurchase shares of its outstanding common stock. During the six months ended June 30, 2013, 521,500 shares of Hollywood Media’s common stock were repurchased under the Repurchase Program for a total cost of $766,029.

Pursuant to the Repurchase Program, Hollywood Media is authorized to purchase shares of its common stock from time to time on the open market or in negotiated transactions. The purchases are to be funded from available cash and cash equivalents, and the timing and amount of any shares repurchased will be determined by Hollywood Media’s management based on its evaluation of financial and market conditions, legal requirements and other factors. The Repurchase Program has no time limit and may be suspended for periods or discontinued at any time, and there is no guarantee as to the number of shares or the amount of cash to be utilized for repurchases. Shares repurchased under the Repurchase Program will become authorized but unissued shares of Hollywood Media’s common stock. For additional information regarding the Repurchase Program, see Part II, Item 2 of this Quarterly Report on Form 10-Q.

### Off-Balance Sheet Arrangements

At June 30, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes of the sort contemplated by paragraph (a) (4) of Item 303 of SEC Regulation S-K. As such, management believes that we currently do not have any disclosures to make of the sort contemplated by paragraph (a) (4) of Item 303 of SEC Regulation S-K regarding “off-balance sheet arrangements.”

### Critical Accounting Estimates

We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to asset impairment, accruals for compensation and related benefits, revenue recognition, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

#### Derivative Instruments

The Company records derivative instruments at fair value in our accompanying condensed consolidated balance sheet with changes in the fair values of those instruments reported in earnings in our condensed consolidated results of operations. The Company does not hold any derivative instruments that reduce risk associated with hedging exposure, accordingly the Company has not designated any of its derivatives liability financial instruments as hedging instruments. For additional information about our significant accounting policies, including the critical accounting policies discussed below, see Note 2 – Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and Note 2 to the Consolidated Financial Statements included in Part II, Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2012.

#### Impairment of Goodwill

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

In September 2011, the FASB issued ASU No. 2011-08, “*Testing for Goodwill Impairment (Topic 350),” (“*ASU 2011-08”). ASU 2011-08 allows entities to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. An entity has the unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011 and its early adoption by the Company during the quarter ended September 30, 2011 did not have a material effect on the Company’s consolidated financial statements.

The Company believes that the disparity between the book value of its assets as compared to the market capitalization of its business is in large part a consequence of market conditions, including perceived risks in the debt markets, the Company’s industry and the broader economy. While the Company believes that some of these risks are unique to specific companies, some represent global industry risks. The Company believes that there is no fundamental change in our underlying business model or prospects for our Company. The Company has evaluated the impairment of its goodwill, giving consideration to these risks, and their impact upon the respective reporting units’ fair values, and has reported impairments where it deems appropriate. The Company believes that the fair value of its remaining reporting unit that contains goodwill at June 30, 2013 and December 31, 2012 exceeded the book value of that unit.

### Inflation and Seasonality

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

## Controls and procedures

As filed, 1,737 characters.

### Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of Hollywood Media’s management, including the Chief Executive Officer (principal executive officer) and the Chief Financial Officer and Chief Accounting Officer (principal financial and accounting officer), of the effectiveness of Hollywood Media’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, Hollywood Media’s management, including the Chief Executive Officer and Chief Financial Officer and Chief Accounting Officer, have concluded that Hollywood Media’s disclosure controls and procedures were effective, as of June 30, 2013, to ensure that information required to be disclosed by Hollywood Media in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to Hollywood Media’s management, including the Chief Executive Officer and Chief Financial Officer and Chief Accounting Officer, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There have been no changes in Hollywood Media’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, Hollywood Media’s internal control over financial reporting.

Filed Aug 14, 2013.
Source: SEC EDGAR, the filing index for accession 0001144204-13-045387. Last ingested by Listed: Oct 24, 2026, 15:00 ET. No prices; not investment advice.