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Item 1. Financial Statements

2012-11-19 compared with 2012-08-20 · 1567 added, 787 removed, 674 unchanged (78% of the section changed)

FINANCIAL STATEMENTS

HOLLYWOOD MEDIA CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

CURRENT ASSETS:

17 unchanged sentences

Current portion of capital lease obligations

Current liabilities of discontinued operations

Current liabilities of discontinued

Total current liabilities

4 unchanged sentences

LONG TERM LIABILITIES OF DISCONTINUED OPERATIONS

COMMITMENTS AND CONTINGENCES

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’

Preferred stock, $.01 par value, 1,000,000 shares authorized;

Preferred stock, $.01 par value, 1,000,000 shares

none outstanding

Common stock, $.01 par value, 100,000,000 shares authorized;

23,179,066 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

23,179,066 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

Additional paid-in capital

5 unchanged sentences

The accompanying notes to condensed consolidated

financial statements are an integral part of these condensed consolidated balance sheets.

financial statements

are an integral part of these condensed

consolidated balance sheets.

HOLLYWOOD MEDIA CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Six Months Ended June 30,

Three Months Ended June 30,

CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

Nine Months Ended September 30,

Three Months Ended September 30,

OPERATING COSTS AND EXPENSES

Editorial, production, development and technology

Editorial, production, development

and technology

Selling, general and administrative

3 unchanged sentences

Loss from operations

EARNINGS (LOSSES) OF UNCONSOLIDATED INVESTEES

(LOSSES) EARNINGS OF UNCONSOLIDATED INVESTEES

Equity in (losses) earnings of unconsolidated investees

Impairment loss

Total equity in losses of unconsolidated investees

OTHER INCOME (EXPENSE)

Interest, net

(Loss) income from continuing operations

Gain (loss) on sale of discontinued operations, net of Income taxes

Income (loss) from discontinued operations

Loss from continuing operations before income taxes

Income tax benefit

Loss from continuing operations

Gain on sale of discontinued operations, net of income taxes

Income (loss) from discontinued operations

Net (loss) income

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST

Net (loss) income attributable to Hollywood Media Corp.

Income from discontinued operations

NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST

Net loss attributable to

Hollywood Media Corp.

$ (1,425,101 )

$ (6,901,140 )

$ (5,419,024 )

Basic and diluted (loss) income per common share

1 unchanged sentence

Discontinued operations

Total basic and diluted net (loss) income per share

Weighted average common and common equivalent shares outstanding –

The accompanying notes to condensed consolidated financial statements are an integral part ofthese condensed consolidated statements of operations.

Total basic and diluted net loss per share

Weighted average common and common equivalent shares outstanding

The accompanying notes to condensed consolidated

financial statements are an integral part of

these condensed consolidated statements

of operations.

HOLLYWOOD MEDIA CORP.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

$ (1,425,101 )

$ (6,871,113 )

Adjustments to reconcile net loss to net cash used in operating activities:

(Income) loss from discontinued operations

Income from discontinued operations

Income tax benefit

Depreciation and amortization

Amortization of deferred compensation costs - officers

Equity in losses (earnings) of unconsolidated investees, net of distributions or dividends

Amortization of deferred compensation costs –

Equity in losses of unconsolidated investees, net of distributions or dividends

Loss on disposal of fixed assets

Gain on sale of business

Goodwill impairment

Change in fair value of derivative liabilities

3 unchanged sentences

Related party receivable

Derivative liability

Accounts payable

4 unchanged sentences

continuing operations

Net cash (used in) provided by operating activities –

discontinued operations

Net cash used in operating activities –

Net cash used in operating activities

2 unchanged sentences

Acquisition of intangible assets

Net proceeds (expenditures) from sale of assets and businesses

Net proceeds (expenditures) from sale of assets and

Net cash provided by (used in) investing activities –

continuing operations

Net cash used in investing activities –

Net cash provided by (used in) investing activities

discontinued operations

8 unchanged sentences

Net cash used in financing activities –

discontinued operations

Net cash used in financing activities

(16,455,367 )

NET DECREASE IN CASH AND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(23,867,114 )

4 unchanged sentences

Income taxes paid

The accompanying notes to condensed consolidated

financial statements are an integral part of these condensed consolidated statements of cash flows.

The accompanying notes to condensed consolidated financial statements

are an integral part of these condensed consolidated statements of cash flows.

HOLLYWOOD MEDIA CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(1) BASIS OF PRESENTATION AND CONSOLIDATION:

In the opinion of management,

the accompanying unaudited condensed consolidated financial statements have been prepared by Hollywood Media Corp.

(“Hollywood

Media”, “our”

or “Company”) in accordance with accounting principles generally accepted in the United

States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles

generally accepted in the United States of America (“U.S.

GAAP”) have been condensed or omitted pursuant to applicable

rules and regulations.

However, management believes that the disclosures contained herein are adequate to make the information

presented not misleading.

The accompanying financial statements reflect, in the opinion of management, all material adjustments

(which include only normal recurring adjustments) necessary to present fairly Hollywood Media’s condensed consolidated financial

position, results of operations and cash flows.

The results of operations for the six and three months ended June 30, 2012 and

the cash flows for the six months ended June 30, 2012 are not necessarily indicative of the results of operations or cash flows

for the remainder of 2012.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction

with the audited consolidated financial statements and notes thereto included in Hollywood Media’s Annual Report on Form

10-K for the year ended December 31, 2011, as amended, as filed with the Securities and Exchange Commission.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

OF PRESENTATION AND CONSOLIDATION:

In the opinion of

management, the accompanying unaudited condensed consolidated financial statements have been prepared by Hollywood Media Corp.

(“Hollywood Media”, “our”

or “Company”) in accordance with accounting principles generally

accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article

10 of Regulation S-X.

Certain information and footnote disclosures normally included in annual financial statements prepared in

accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) have been condensed

or omitted pursuant to applicable rules and regulations.

However, management believes that the disclosures contained herein are

adequate to make the information presented not misleading.

The accompanying financial statements reflect, in the opinion of management,

all material adjustments (which include only normal recurring adjustments) necessary to present fairly Hollywood Media’s

condensed consolidated financial position, results of operations and cash flows.

The results of operations for the nine and three

months ended September 30, 2012 and the cash flows for the nine months ended September 30, 2012 are not necessarily indicative

of the results of operations or cash flows for the remainder of 2012.

The accompanying unaudited condensed consolidated financial

statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Hollywood

Media’s Annual Report on Form 10-K for the year ended December 31, 2011, as amended, as filed with the Securities and Exchange

OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

5 unchanged sentences

in NetCo Partners, MovieTickets.com and Project Hollywood LLC, respectively, are accounted for under the equity method of accounting.

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 $1,800,000.

See Note 9, “Related Party Transactions”

to these unaudited

Condensed Consolidated Financial Statements for more information on the assignment of the membership interest of Hollywood Media

in Project Hollywood, LLC.

Loss per Common Share

Financial Accounting Standards Board Accounting

Standards Codification (“ASC”) Topic No.

260, “Earnings Per Share”

(ASC 260), requires companies

to present basic and diluted earnings per share (“EPS”).

Loss per common share is computed by dividing net loss attributable

to Hollywood Media Corp.

(the numerator) by the weighted average number of common shares outstanding (the denominator) for the

period presented.

Financial Accounting

Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No.

260, “Earnings Per

(ASC 260), requires companies to present basic and diluted earnings per share (“EPS”).

Loss per common

share is computed by dividing net loss attributable to Hollywood Media Corp.

(the numerator) by the weighted average number of

common shares outstanding (the denominator) for the period presented.

The weighted average

number of common shares issuable upon conversion of convertible securities and upon exercise of outstanding options and warrants

totaled 75,000 shares for each of the six and three months ended June 30, 2012 and such shares were excluded from the calculation

of basic and diluted loss per share for the six and three months ended June 30, 2012, because their impact was anti-dilutive to

the loss per share from continuing operations.

Unvested shares are not included in the basic calculation until vesting occurs and

are not included in the diluted calculation because they are anti-dilutive.

There were no unvested shares as of June 30, 2012 and

2011, respectively.

For the Six Months

totaled 75,000 shares for each of the nine and three months ended September 30, 2012 and such shares were excluded from the calculation

of basic and diluted loss per share for the nine and three months ended September 30, 2012, because their impact was anti-dilutive

to the loss per share from continuing operations.

Unvested shares are not included in the basic calculation until vesting occurs

and are not included in the diluted calculation because they are anti-dilutive.

There were no unvested shares as of September

30, 2012 and 2011, respectively.

For the Nine Months

For the Three Months

Ended June 30,

Ended September 30,

Basic weighted average shares outstanding

39 unchanged sentences

15, 2011 and its adoption did not have a material effect on the Company’s condensed consolidated financial statements.

(3) DISCONTINUED OPERATIONS:

(3) DISCONTINUED

Sale of Broadway

1 unchanged sentence

On December 15, 2010,

Hollywood Media Corp.

(“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 (“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.

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.

Brand”), as contemplated by the Stock Purchase Agreement, dated as of December 22, 2009, as amended, entered into between

Hollywood Media and Key Brand (“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

Pursuant to the Purchase

7 unchanged sentences

associated with employment agreements with certain employees of Theatre Direct.

In addition, Hollywood Media is entitled to receive

earn-out payments (“the Earn-out”) of up to $14,000,000 contingent upon Theatre Direct and its subsidiaries achieving

certain revenue targets during the period from the closing date through the end of the 10 th full fiscal year following

the closing date as set forth in the Purchase Agreement.

In addition, Hollywood Media was entitled to receive

earnout payments (“the Earnout”) 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 10 th

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 “Intercreditor

Agreement”) 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.

Amendment to the Broadway Sale Purchase

1 unchanged sentence

the Company entered into Amendment No.

4 (the “Amendment”) to the Broadway Sale Purchase Agreement.

Pursuant to the

Amendment, the Company 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 includes Broadway.com, remains at Key Brand and Theatre Direct.

As part of the Amendment, Key Brand agreed to pay the first

$7 million earn-out amount to the Company 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 $7 million earn-out amount agreed to by Key Brand will

be recorded upon collection of the amount.

In addition, the revenue calculation for the second $7 million earn-out amount (the

“Second Earn-out”) was modified to exclude “

group sales ”

(and the revenues of the new joint venture

conducting such business) and the target for such second earn-out was reduced from $150 million to $123 million accordingly.

if the Second Earn-out amount is earned in Key Brand’s fiscal year ending June 30, 2012, then such amount would be added

to the principal amount of the $8.5 million loan due the Company under the Credit Agreement, would accrue and be paid interest

in accordance with such loan, and be paid over the then remaining term of the Credit Agreement in equal quarterly installments,

in each case as further described below.

If the Second Earn-out

amount is earned in any subsequent fiscal year, then such amount would be paid pursuant to the terms of the Purchase Agreement.

The Company also consented to certain amendments to the Credit Agreement, including consent to the Group Sales Contribution and

to provide for additional reporting requirements.

The Company also agreed to amend the Subordination and Intercreditor Agreement,

dated December 15, 2010 (the “Intercreditor Agreement”), among the Company, Key Brand and JPMorgan Chase Bank, N.A.,

as administrative agent for the senior secured lenders of Key Brand, to provide that, subject to Key Brand’s compliance with

the terms and conditions of its senior secured credit agreement, Key Brand would be permitted to make scheduled quarterly installment

payments of the Second Earn-out amounts prior to the maturity of the Credit Agreement, notwithstanding that the obligations under

the Credit Agreement are subordinated to Key Brand’s obligations under the senior secured credit agreement.

4 (the “Amendment”) to the Purchase Agreement.

Pursuant to the Amendment, the

Company 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 Amendment, Key Brand agreed to pay the first $7 million

earnout amount (the “First $7 Million Earnout”) to the Company 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 the Company on October 1, 2012 and was recorded upon collection of the $7 million received on

October 1, 2012.

In addition, the revenue calculation for the second $7 million 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

target for the Second $7 Million Earnout was reduced from $150 million to $123 million 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 Amendment, the Second $7 Million Earnout was

added as of October 1, 2012 to the principal amount of the Loan under the Credit Agreement.

Pursuant to the Credit Agreement,

interest at a rate of 12% per annum and principal on such Second $7 Million Earnout amount will be 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 $8.5 million

principal amount of the Loan, the principal amount of the Loan due Hollywood Media by Key Brand was $15.5 million as of October 1, 2012.

The Company also consented

to certain amendments to the Credit Agreement, including consent to the Group Sales Contribution and to provide for additional

reporting requirements.

The Company also agreed to amend the Intercreditor Agreement to provide that, subject to Key Brand’s

compliance with the terms and conditions of its senior secured credit agreement, Key Brand would be permitted to make scheduled

quarterly installment payments of the Second Earnout amounts prior to the maturity of the Credit Agreement, notwithstanding that

the obligations under the Credit Agreement are subordinated to $15 million of Key Brand’s obligations under the senior secured

credit agreement.

Hollywood Media will

record a gain on the loan and earn-out upon collection of consideration.

The Warrant will be marked to market each reporting period

to reflect changes in fair value.

Hollywood Media received payments of $515,667 and $257,833 of interest from Key Brand during

the six and three months ended June 30, 2012, respectively, and $512,833 and $257,833 in payments or interest from Key Brand during

the six and three months ended June 30, 2011, respectively, in accordance with the terms of the Loan which was included in “Interest,

in the accompanying condensed consolidated statements of operations for the six and three months ended June 30, 2012

record a gain on the earnout upon collection of consideration.

The Warrant will be marked to market each reporting period to reflect

changes in fair value.

Hollywood Media received payments of $776,333 and $260,667 of interest from Key Brand during the nine and

three months ended September 30, 2012, respectively, and $773,500 and $260,667 in payments of interest from Key Brand during the

nine and three months ended September 30, 2011, respectively, in accordance with the terms of the Loan which was included in “Interest,

in the accompanying condensed consolidated statements of operations for the nine and three months ended September 30,

2012 and 2011, respectively.

After the closing date

of the sale of Theatre Direct pursuant to the Purchase Agreement, Hollywood Media delivered on March 14, 2011 to Key Brand a closing

statement setting forth Hollywood Media’s calculation of Theatre Direct’s working capital as of the closing date determined

in the manner described in the Purchase Agreement.

Pursuant to the closing statement, Hollywood Media accrued $3,702,620 as a working

capital adjustment as of December 31, 2010 under the 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 and included $31,486

of interest which is included in “Gain (loss) on sale of discontinued operations, net of income taxes”

in the accompanying

condensed consolidated statements of operations for the six and three months ending June 30, 2011.

In connection with

the transactions contemplated by the Purchase Agreement, Hollywood Media incurred (i) $440,000 plus payroll taxes in aggregate

change of control payments to two executives in Hollywood Media’s legal department which were included in “Gain (loss)

on sale of discontinued operations, net of income taxes”

in the December 31, 2010 accompanying consolidated statements of

operations which was paid as follows:

$240,000 less payroll taxes was paid to one executive prior to December 31, 2010 and $200,000

less payroll taxes was paid to the other executive in January 2011.

As of December 31, 2010, the $200,000 unpaid amount was included

in “Accrued expenses and other”

in the accompanying December 31, 2010 consolidated balance sheet;

(ii) approximately

$400,000 in severance payments payable by Hollywood Media to 14 employees after a brief transition period;

(iii) approximately

$250,000 in fees to a valuation firm for providing the fairness opinion to Hollywood Media’s board of directors in connection

with evaluating and approving the Purchase Agreement and the transactions contemplated thereby;

(iv) $1,361,632 in legal fees in

connection with preparing and negotiating the Purchase Agreement and the related documents and preparing and filing the proxy statement

relating to the transactions contemplated by the Purchase Agreement;

and (v) $170,000 in investment banking fees for providing

professional services to the Company.

After the closing

date of the sale of Theatre Direct pursuant to the Purchase Agreement, Hollywood Media delivered on March 14, 2011 to Key Brand

a closing statement setting forth Hollywood Media’s calculation of Theatre Direct’s working capital as of the closing

date determined in the manner described in the Purchase Agreement.

Pursuant to the closing statement, Hollywood Media accrued

$3,702,620 as a working capital adjustment as of December 31, 2010 under the 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 and included $31,486 of interest which is included in “Gain (loss) on sale of discontinued operations, net of income

in the accompanying condensed consolidated statements of operations for the nine and three months ending September

Hollywood.com Business

On August 21, 2008,

Hollywood Media entered into a 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 owned by Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson

of the Board, and Laurie S.

Silvers, Hollywood Media’s President and Vice-Chairperson of the Board.

Pursuant to the purchase

agreement, Hollywood Media sold the Hollywood.com Business to R&S Investments for a potential purchase price of $10,000,000

cash, which includes $1,000,000 that was paid to Hollywood Media at closing and potential earn-out payments totaling $9,000,000,

of which $1,892,692 has been paid as of June 30, 2012.

Hollywood Media recognized $326,758 and $129,241 in earn-out gain during

the six and three months ended June 30, 2012, respectively, and $304,499 and $152,543 in earn-out gain during the six and three

months ended June 30, 2011, respectively, which is included in “Income from discontinued operations”

in our accompanying

condensed consolidated statements of operations.

Hollywood Media does not have a significant continuing involvement in the Hollywood.com

Business operations.

The earn-out payments equal the greater

of 10 percent of gross collected revenue and 90 percent of EBITDA (as defined in the purchase agreement) for the Hollywood.com

Business until the earn-out is fully paid.

The Company considers the remaining potential earn-out payments to be contingent consideration

and non-recourse.

Thus, the Company will not record a receivable and any corresponding gain until the contingencies have been met.

The Company will estimate an appropriate reserve for at-risk amounts, if necessary, at the time that any accounts receivable are

As of June 30, 2012, there remains $7,107,308 in potential earn-out payments.

9, “Related Party Transactions”

for information on the extension of payment terms of such earn-out.

If a subsequent change

of control of the Hollywood.com Business, or a portion thereof, occurs before the earn-out is fully paid, the remaining portion

of the earn-out would be paid to the Company immediately upon such an event, up to the amount of the consideration received less

related expenses.

If the aggregate proceeds received by the Company in such a change of control are less than the remaining balance

of the earn-out, then the surviving entity which owns the Hollywood.com Business will be obligated to pay the difference in accordance

with the same earn-out terms.

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 September

Hollywood Media recognized $412,684 and $85,926 in earnout gain during the nine and three months ended September 30,

2012, respectively, and $460,037 and $155,538 in earnout gain during the nine and three months ended September 30, 2011, respectively,

which is included in “Income from discontinued operations”

in our accompanying condensed consolidated statements of

Hollywood Media does not have a significant continuing involvement in the Hollywood.com Business operations.

Buyout of Obligation of R&S Investments,

LLC to Pay Hollywood.com Earnout

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 condensed consolidated balance sheets.

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 condensed consolidated balance sheets.

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.

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.

Jeffrey Spector, a director of Buyer, is 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).

Janette Erskine, a director of Buyer, is 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).

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.

Jeffrey Spector, a

director of Buyer, is 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).

Janette Erskine, a director of Buyer, is 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

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from discontinued operations”

in our accompanying Condensed Consolidated Statement of Operations.

in our accompanying Condensed Consolidated Statements of Operations.

portion of the discounted amount of the non-interest bearing loan is included in “Other receivables”

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portion of the non-interest bearing loan is included in “Other assets”

in our accompanying condensed consolidated balance

in our accompanying condensed consolidated

balance sheets.

The purchase price

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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

equity or redemption in respect of the Purchased Shares (and certain dividends, payments or other derivative assets received in

respect of the Purchased Shares).

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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.

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.

Pursuant to ASC Topic

360, “Accounting for the Impairment or Disposal of Long-Lived Assets”

ASC 360, the Company’s consolidated

financial statements have been reclassified for all periods presented to reflect the operations, assets and liabilities of Cinemasource

UK Limited as discontinued operations.

The sale of Cinemasource UK Limited qualifies for discontinued operations treatment under

The assets and liabilities of such operations have been reclassified as current or long term “Assets of discontinued

operations”

ASC 360, the Company’s condensed

consolidated financial statements have been reclassified for all periods presented to reflect the operations, assets and liabilities

of Cinemasource UK Limited as discontinued operations.

The sale of Cinemasource UK Limited qualifies for discontinued operations

treatment under ASC 360.

The assets and liabilities of such operations have been reclassified as current or long term “Assets

of discontinued operations”

and current and long term “Liabilities of discontinued operations”

in the accompanying December 31,

2011 consolidated balance sheet, and consist of the following:

in the accompanying

December 31, 2011 consolidated balance sheet, and consist of the following:

December 31, 2011

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Business and the operating gain from the Cinemasource UK Limited Business and through their respective dates of disposition, for

the six and three months ended June 30, 2012 and 2011.

Six Months Ended June 30,

Three Months Ended June 30,

the nine and three months ended September 30, 2012 and 2011.

Nine Months Ended September 30,

Three Months Ended September 30,

Net Revenues:

Gain (loss) on sale of discontinued operations, net of income taxes

Income (loss) from discontinued operations

Income (loss) from discontinued Operations

(4) PURCHASE OF COMMON STOCK TENDERED:

Gain on sale of discontinued operations

Income tax expense

Gain on sale of discontinued operations, net of income

Income (loss) from discontinued

Income from discontinued Operations

OF COMMON STOCK TENDERED:

On February 25, 2011,

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shares of common stock outstanding.

During the six and three months ended June 30, 2012, respectively, Hollywood Media did not

repurchase shares of its common stock.

(5) FAIR VALUE MEASUREMENTS:

During the nine and three months ended September 30, 2012, respectively, Hollywood Media did

not repurchase shares of its common stock.

VALUE MEASUREMENTS:

The carrying amounts

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does not require collateral when granting credit.

Fair value is the price

that would be received to sell an asset or paid to transfer a liability in the Company’s principal or most advantageous market

for the asset or liability in an orderly transaction between market participants at the measurement date, essentially the exit

In accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the

Company determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed

Fair value is the

price that would be received to sell an asset or paid to transfer a liability in the Company’s principal or most advantageous

market for the asset or liability in an orderly transaction between market participants at the measurement date, essentially the

In accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”),

the Company determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed

based on market data obtained from sources independent of the Company and the Company’s own assumptions about market participant

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inputs for which there is little or no market data available.

Within this level of

the hierarchy, fair value is based upon the lowest level of any input that is significant to the fair value measurement.

Within this level

of the hierarchy, fair value is based upon the lowest level of any input that is significant to the fair value measurement.

the determination of what constitutes “observable”

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Silvers entered into amended and restated employment agreements which include

a compensation arrangement that includes the right for each to receive 5% of all of the distributions that the Company receives

from its interest in MovieTickets.com which includes 5% to each of all proceeds received by the Company from either dividends or

from the sale of all or any portion of MovieTickets.com.

The fair value of this liability, which was initially measured on

March 15, 2011, the date that the compensation arrangement was effective, is recorded in “Derivative Liabilities”,

with any changes in the fair value recorded in “Other, net”

in the accompanying condensed consolidated statements of

At June 30, 2012, the fair value of the derivative liability was $1,040,000.

a compensation arrangement that includes the right for each to receive 5% of all of the distributions

that the Company receives from its interest in MovieTickets.com which includes 5% to each of all proceeds received by the Company

from either dividends or from the sale of all or any portion of MovieTickets.com.

In connection with the buyout of the obligation

of R&S Investments, LLC to pay to Hollywood Media the Hollywood.com earnout under the R&S Purchase Agreement, the Rubenstein

Silvers Letter Agreement reduced the amount of distributions payable to Mr.

Rubenstein and Ms.

See Note 3, “Discontinued

Operations”

to these unaudited Condensed Consolidated Financial Statements for more information regarding these transactions.

The fair value of this liability, which was initially measured on March 15, 2011, the date that the compensation arrangement was

effective, is recorded in “Derivative Liabilities”, with any changes in the fair value recorded in “Other, net”

in the accompanying condensed consolidated statements of operations.

See Note 3, “Discontinued Operations”

to these unaudited Condensed Consolidated Financial Statements for information

on the Buyout Amount and its reduction of the derivative liability.

At September 30, 2012, the fair value of the derivative liability

In conjunction with

the Broadway Sale, the Company received a warrant (initially valued at zero) to purchase 5% of the outstanding shares of common

stock of Theatre Direct, which can only be exercised upon a Conversion Event, as defined, and which also contains a put option

that allows the Company, after the seventh anniversary of the issue date, to put the warrant to Key Brand for the greater of fair

market value of the shares or $1.0 million.

the Broadway Sale, the Company received a warrant to purchase 5% of the outstanding shares of common stock of Theatre Direct,

which can only be exercised upon a Conversion Event, as defined, and which also contains a put option that allows the Company,

after the seventh anniversary of the issue date, to put the warrant to Key Brand for the greater of (i) fair market value of the

shares and (ii) $1.0 million.

The warrant is revalued on a recurring basis.

After estimating future cash flows

adjusted for risk factors it was determined that the fair value was zero at June 30, 2012.

After estimating future cash flows adjusted

for risk factors it was determined that the fair value was not material at September 30, 2012.

Certain assets such

as long-lived assets and goodwill are measured at fair value on a nonrecurring basis;

that is, the assets and liabilities are not

measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstance such as impairment

that is, the assets and liabilities are

not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances such as impairment

In those circumstances, fair value measurements are principally based upon unobservable inputs (Level 3 of the fair value

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presents the Company’s derivative liabilities and warrant on a recurring basis and the Company’s goodwill on a non-recurring

basis within the fair value hierarchy utilized to measure fair value as of June 30, 2012:

basis within the fair value hierarchy utilized to measure fair value as of September 30, 2012:

Derivative liabilities –

June 30, 2012

September 30, 2012

Warrant –

June 30, 2012

September 30, 2012

Goodwill –

June 30, 2012

September 30, 2012

There were no transfers between the levels

of the fair value hierarchy during the quarter ended June 30, 2012.

The following table presents a reconciliation of the compensation

derivative liabilities measured at fair value on a recurring basis using significant unobservable input (Level 3) from December

31, 2011 to June 30, 2012:

of the fair value hierarchy during the quarter ended September 30, 2012.

The following table presents a reconciliation

of the compensation derivative liabilities measured at fair value on a recurring basis using significant unobservable input (Level

3) from December 31, 2011 to September 30, 2012:

Balance at December 31, 2011

Change in fair value included in earnings

Balance at June 30, 2012

(6) SEGMENT REPORTING:

Change in Fair Value Resulting from R&S

Agreement Waivers included in Income from

Discontinued Operations

Balance at September 30, 2012

Hollywood Media’s

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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.

3, “Discontinued Operations”

for information on the sale of Cinemasource UK Limited.

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.

See Note 3, “Discontinued Operations”

to these unaudited Condensed Consolidated Financial Statements for information

on the sale of Cinemasource UK Limited.

The Intellectual Properties

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This segment also includes Tekno Books, a book development business.

The Other segment 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 fees and other fees and costs

relating to compliance with the provisions of the Sarbanes-Oxley Act of 2002 that require Hollywood Media to make an assessment

of and report on internal control over financial reporting.

This segment also includes Hollywood Media’s investment in Project

The Other segment

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 fees and other

fees and costs relating to compliance with the provisions of the Sarbanes-Oxley Act of 2002 that require Hollywood Media to make

an assessment of and report on internal control over financial reporting.

This segment also includes Hollywood Media’s investment

in Project Hollywood.

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 $1,800,000.

See Note 9, “Related Party Transactions”

to these unaudited Condensed Consolidated Financial Statements for more information on the assignment of Hollywood Media’s

membership interest in Project Hollywood, LLC.

There are no intersegment

sales or transfers.

As of June 30,

As of September 30,

2012, the Ad Sales segment consists of the Company’s investment in MovieTickets.com.

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regarding Hollywood Media’s reportable segments.

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Net Revenues:

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Intellectual Properties

September 30,

Segment Assets:

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(1) December 31, 2011 segment

assets have been adjusted for the reclassification of

assets related to Cinemasource UK Limited of $590,507

from the Ad Sales segment to the Other segment.

(7) CERTAIN COMMITMENTS AND CONTINGENCIES:

assets have been adjusted for the reclassification of assets

related to Cinemasource UK Limited of $590,507 from the

Ad Sales segment to the Other segment.

During the three months

ended September 30, 2012, due to a deterioration in the Ad Sales Division and its prospects over the next twelve months, we performed

an interim impairment test of goodwill in connection with the preparation of our financial statements for the three months ended

September 30, 2012.

For purposes of testing

goodwill for potential impairment, we estimated the fair value of the applicable reporting unit to which all goodwill is allocated

using generally accepted valuation methodologies, including market and income based approaches, and relevant data available through

and as of November 14, 2012.

The market approach is a valuation method in which fair value is estimated based on observed market

prices of publicly traded guideline companies.

Under the market approach, the valuation process is essentially that

of comparison and correlation between the subject company and other similar companies.

The income approach is a method in which

fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual

value cash flows.

These cash flows are then discounted to their present value equivalents using a rate of return that accounts

for the relative risk of not realizing the estimated annual cash flows and for the time value of money.

The key inputs

to the discounted cash flow model were our historical and estimated future revenues and the discount rate, among others.

During the three months

ended September 30, 2012, as a result of this testing, it was determined that the future cash flow of this (or assets comprised

by this) business unit is likely impaired, and the risk associated with previously expected cash flows has increased.

we concluded that goodwill was impaired and we recorded a non-cash goodwill impairment charge of $3,600,000 in the third quarter

This charge, representing approximately 58% of the previous carrying value is included in the impairment loss

line item in “Earnings (Losses) of Unconsolidated Investees”

in our condensed consolidated statement of operations

for the three and nine months ended September 30, 2012.

The perceived increased uncertainty and risk associated with expected

cash flows are based in part upon the dispute discussed at Note 7, “Certain Commitments and Contingencies”

unaudited Condensed Consolidated Financial Statements.

COMMITMENTS AND CONTINGENCIES:

On October 27, 2011,

the Company, together with National Amusements Inc., filed a lawsuit against AMC Entertainment Inc.

(“AMC”) (Case No.

(“AMC”) (Case

50 2011 CA 016684) in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida relating to MovieTickets.com.

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in contravention of its duty of loyalty to the joint venture and to the detriment of MovieTickets.com.

Hollywood Media and the other plaintiffs have asked for a jury trial and are seeking unspecified consequential damages and have

reserved the right to seek punitive damages.

Hollywood Media and the other plaintiffs also are seeking a declaratory

judgment that AMC is obligated to make available on MovieTickets.com’s website AMC’s ticket inventory for sale

on an exclusive basis and to honor its’

Hollywood Media and

the other plaintiffs have asked for a jury trial and are seeking unspecified consequential damages and have reserved the right

to seek punitive damages.

Hollywood Media and the other plaintiffs also are seeking a declaratory judgment that

AMC is obligated to make available on MovieTickets.com’s website AMC’s ticket inventory for sale on an exclusive basis

and to honor its’

contractual and common law fiduciary duties of good faith and loyalty.

is proceeding.

Discovery is proceeding.

Hollywood Media is

from time to time party to various legal proceedings, including matters arising in the ordinary course of business.

the Company is unaware of any actual or threatened litigation against it.

from time to time party to various other legal proceedings, including matters arising in the ordinary course of business.

Currently, the Company is unaware of any actual or threatened litigation against it.

(8) MOVIETICKETS.COM:

Hollywood Media owns 26.2% of the equity

in MovieTickets.com, Inc.

as of June 30, 2012 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 “Equity (losses) in earnings of unconsolidated investees”

in the accompanying condensed consolidated balance

Hollywood Media owns

26.2% of the equity in MovieTickets.com, Inc.

as of September 30, 2012 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 “Equity (losses) in earnings of unconsolidated investees”

in the accompanying condensed

consolidated balance sheets.

Hollywood Media recorded

its 26.2% share of net loss or $252,855 and $180,740 under “Earnings (Losses) of Unconsolidated Investees”

in the accompanying

unaudited condensed consolidated statement of operations for the six and three months ended June 30, 2012, respectively.

recorded $179,068 and $115,610 in earnings of unconsolidated investees for the six and three months ended June 30, 2011, respectively.

On July 18, 2011 MovieTickets.com declared a dividend of $4,000,000.

Hollywood Media received its 26.2% pro rata share of such

dividend, amounting to $1,048,875 on July 19, 2011, which reduced the Company’s investment in MovieTickets.com as the dividend

did not exceed the amount of the Company’s investment.

Hollywood Media distributed on July 19, 2011 $52,444 of such dividend

distribution, representing 5% of Hollywood Media’s share of the dividends, to each of Mr.

accompanying unaudited condensed consolidated statement of operations for the nine and three months ended September 30, 2012,

respectively.

Hollywood Media did not record $23,903 of its share of losses from MovieTickets.com for the nine and three months

ended September 30, 2012 respectively, because accumulated dividends and net losses from 2012 and prior years exceeded the Company’s

investment in MovieTickets.com as of September 30, 2012.

The Company recorded $409,232 and $230,164 in earnings of unconsolidated

investees for the nine and three months ended September 30, 2011, respectively.

On July 18, 2011 MovieTickets.com declared a dividend

of $4,000,000.

Hollywood Media received its 26.2% pro rata share of such dividend, amounting to $1,048,875 on July 19, 2011, which

reduced the Company’s investment in MovieTickets.com as the dividend did not exceed the amount of the Company’s investment.

Hollywood Media distributed, on July 19, 2011, $52,444 of such dividend distribution, representing 5% of Hollywood Media’s

share of the dividends, to each of Mr.

Rubenstein and Ms.

Silvers in accordance

with their amended and restated employment agreements dated December 23, 2009.

Other than the July 18, 2011 dividend discussed

above, there were no dividends declared or received during the six and three months ended June 30, 2012 or during the year ended

December 31, 2011.

For a description of the amended and restated employment agreements to Mr.

Silvers in accordance with their amended and restated employment agreements

dated December 23, 2009.

Other than the July 18, 2011 dividend discussed above, there were no dividends declared or received during

the nine and three months ended September 30, 2012 or during the year ended December 31, 2011.

For a description of the amended

and restated employment agreements with Mr.

Rubenstein and Ms.

Silvers, see Note

9, “Related Party Transactions”

to these unaudited condensed consolidated financial statements.

(9) RELATED PARTY TRANSACTIONS:

Silvers, see Note 9, “Related Party Transactions”

these unaudited condensed consolidated financial statements.

PARTY TRANSACTIONS:

Project Hollywood LLC

On October 27, 2011,

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The funds contributed were used for working capital and other capital needs of the Baseline StudioSystems business.

Hollywood entered into two agreements with the two former senior executives of Baseline StudioSystems to manage the business on

a day-to-day basis, as of December 1, 2011.

Under those agreements, the managers will each receive 7.5% of Project Hollywood LLC’s

membership units subject to a three year vesting schedule (at a rate of 2.5% per annum) and the obtaining of certain performance-based

EBITDA hurdles each year.

Under that vesting schedule, Hollywood Media’s ownership in Project Hollywood was reduced to 20.65%

at June 30, 2012, and (if vesting occurs) will be reduced to 19.57% at June 30, 2013 and 18.48% at June 30, 2014.

Project Hollywood

entered into two agreements with the two former senior executives of Baseline StudioSystems to manage the business on a day-to-day

basis, as of December 1, 2011.

Under those agreements, the managers will each receive 7.5% of Project Hollywood LLC’s membership

units subject to a three year vesting schedule (at a rate of 2.5% per annum) and the obtaining of certain performance-based EBITDA

hurdles each year.

Under that vesting schedule, Hollywood Media’s ownership in Project Hollywood was reduced to 20.65% at

June 30, 2012.

Distributions of

and $177,182 from Project Hollywood to Hollywood Media reduced Hollywood Media’s investment in Project Hollywood during the

year ended December 31, 2011 and the six months ended June 30, 2012, respectively.

Hollywood Media recorded

$326,758 and $129,241 in earn-out gain from R&S Investments, LLC during the six and three months ending June 30, 2012, respectively,

which is included in “Income (loss) from discontinued operations”

recorded in the accompanying condensed consolidated

statement of operations.

As of June 30, 2012, the Company has $642,082 included in “Related party receivable”

accompanying condensed consolidated balance sheets which consisted of $542,600 in earn-out receivable from R&S Investments,

LLC, $10,870 in distributions receivable from Project Hollywood, $72,109 in expense reimbursements from R&S Investments, LLC,

$16,139 for payroll taxes receivable from Mr.

$176,866 and $182,617 from Project Hollywood to Hollywood Media reduced Hollywood Media’s investment in Project Hollywood

during the year ended December 31, 2011 and the nine months ended September 30, 2012, respectively.

On August 28, 2012,

Hollywood Media entered into an Assignment and Assumption of Membership Interest and Waiver (the “Assignment”) with

Baseline Holdings LLC (“Baseline Holdings”), Project Hollywood LLC, Mitchell Rubenstein and Laurie S.

Holdings is wholly-owned by Mr.

Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and

Silvers, Hollywood Media’s President, Secretary and Vice-Chairperson of the Board.

As described below, the Assignment

and the transactions contemplated by the Assignment were approved by a Special Committee of Hollywood Media’s Board of Directors

comprised solely of independent directors (the “Special Committee”).

Pursuant to the Assignment,

Hollywood Media assigned to Baseline Holdings all of Hollywood Media’s membership interest in Project Hollywood in exchange

for total consideration of $1,800,000 (the “Project Hollywood Purchase Price”).

The Project Hollywood Purchase Price

has been paid as follows:

(1) $1,230,500 in cash (which has been paid by Baseline Holdings to Hollywood Media), (2) Mr.

Rubenstein waived his right to receive any future principal and interest owed by Key Brand to Hollywood Media pursuant to the

Loan (as of August 28, 2012, Mr.

Rubenstein had the right to receive 4.76% of the principal, or $404,600, and interest

on account of the Loan), and (3) Ms.

Silvers waived her right to receive any future principal and interest owed by Key Brand

to Hollywood Media pursuant to the Loan (as of August 28, 2012, Ms.

Silvers has the right to receive 1.94% of the principal,

or $164,900, and interest on account of the Loan).

Hollywood Media recorded the fair value of the waivers by Mr.

Rubenstein and

Silvers in the long term portion of “Other Assets”

in the accompanying condensed consolidated balance sheets.

Hollywood Media acquired its membership interest in Project Hollywood on October 27, 2011 for $1,250,000.

As a result of the

waivers of Mr.

Rubenstein and Ms.

Silvers and $364 for an expense reimbursement receivable from

MovieTickets.com.

$284,231 of the earn-out from R&S Investments, LLC was due on June 30, 2012.

However, the due date for such

earn-out, together with any other earn-out payments that may become due from R&S Investments, LLC on or before October 31,

2012 has been extended until October 31, 2012 in order for the parties to seek to finalize discussions that may lead to the buy-out

of the entire earn-out at a negotiated price.

The discussions are being handled on behalf of Hollywood Media by

a Special Committee of Hollywood Media’s Board of Directors comprised solely of independent directors.

There is no guaranty

or assurance that such discussions will lead to a final agreement regarding a buy-out of such earn-out.

Silvers described in the preceding paragraph, after August 28, 2012, Hollywood Media will retain

all payments of principal and interest made by Key Brand under the Loan.

As of August 28, 2012 and September 30, 2012, the principal

balance due under the Loan was $8,500,000.

As of October 1, 2012, the principal balance due under the Loan increased to $15,500,000

as a result of the achievement of the revenue threshold for the Second $7 Million Earnout in the Purchase Agreement.

The Special Committee

unanimously approved the Assignment and determined that the transactions contemplated by the Assignment were advisable, fair to

and in the best interests of Hollywood Media and its shareholders.

In connection with approving the transactions contemplated

by the Assignment, 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 Project Hollywood Purchase Price was fair from a financial point

of view to Hollywood Media.

R&S Investments

Hollywood Media recorded

$304,499 and $152,543 in earn-out gain from R&S Investments, LLC during the six and three months ending June 30, 2011 which

is included in “Income (loss) from discontinued operations”

recorded in the accompanying condensed consolidated statement

of operations.

$412,684 and $85,926 in earnout gain from R&S Investments, LLC during the nine and three months ending September 30, 2012,

respectively, which is included in “Income (loss) from discontinued operations”

recorded in the accompanying condensed

consolidated statement of operations.

As of September 30, 2012, the Company has $35,735 included in “Related party receivable”

in our accompanying condensed consolidated balance sheets which consisted of $35,371 in expense reimbursements from R&S Investments,

LLC and $364 for an expense reimbursement receivable from MovieTickets.com.

Pursuant to the R&S

Agreement dated August 28, 2012, in exchange for 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.

Accordingly, the earnout receivable from R&S Investments, LLC was $0 as of September 30,

See Note 3, “Discontinued Operations”

to these unaudited Condensed Consolidated Financial Statements for more

information on the Buyout Amount and this transaction.

Hollywood Media recorded

$460,037 and $155,538 in earnout gain from R&S Investments, LLC during the nine and three months ending September 30, 2011

respectively, which is included in “Income (loss) from discontinued operations”

recorded in the accompanying condensed

consolidated statement of operations.

As of December 31, 2011, the Company has $521,497 included in “Related party receivable”

in our accompanying

consolidated balance sheets which consisted of $371,353 in earn-out receivable, $105,561 in distributions receivable from Project

Hollywood, $36,106 in expense reimbursements from R&S Investments, $5,904 for an expense reimbursement receivable from MovieTickets.com

and $2,576 for a combined receivable from Mr.

in our accompanying consolidated balance sheets which consisted of $371,353 in earnout receivable, $105,561 in distributions receivable

from Project Hollywood, $36,106 in expense reimbursements from R&S Investments, $5,904 for an expense reimbursement receivable

from MovieTickets.com and $2,573 for a combined receivable from Mr.

Rubenstein and Ms.

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Certain of the celebrity photographs

at issue were posted during the time that Hollywood Media Corp.

at issue were posted during the time that Hollywood Media.

owned Hollywood.com.

Because Hollywood Media owned Hollywood.com

during part of the time that the alleged display of unlicensed celebrity photographs on the hollywood.com website occurred, the

possibility exists that Hollywood Media could be subject to claims relating to this matter and other similar claims.

the potential risks to Hollywood Media associated with any such claims, in February 2011, Hollywood Media entered into an indemnification

agreement with R&S Investments, LLC, whereby R&S Investments, LLC agrees to indemnify and hold Hollywood Media harmless

from any and all potential liabilities and claims against Hollywood Media arising from any such claims in exchange for a one-time

cash payment by Hollywood Media to R&S Investments, LLC of $350,000.

The indemnification agreement was approved on behalf of

the Company by an Independent Committee of the Board of Directors.

Because Hollywood Media owned Hollywood.com during

part of the time that the alleged display of unlicensed celebrity photographs on the hollywood.com website occurred, the possibility

exists that Hollywood Media could be subject to claims relating to this matter and other similar claims.

To address the potential

risks to Hollywood Media associated with any such claims, in February 2011, Hollywood Media entered into an indemnification agreement

with R&S Investments, LLC, whereby R&S Investments, LLC agreed to indemnify and hold Hollywood Media harmless from any

and all potential liabilities and claims against Hollywood Media arising from any such claims in exchange for a one-time cash

payment by Hollywood Media to R&S Investments, LLC of $350,000.

The indemnification agreement was approved on behalf of Hollywood

Media by a Special Committee of Hollywood Media’s Board of Directors comprised solely of independent Directors.

Amended and Restated Employment Agreements

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On December 23, 2009,

(i) Hollywood Media and Mitchell Rubenstein entered into an amendment to his amended and restated employment agreement and (ii)

Hollywood Media and Laurie S.

Silvers entered into an amendment to her amended and restated employment agreement (hereafter, collectively

referred to as “Amendments to Employment Agreements).

The Amendments to Employment Agreements provide for, among other things,

the following:

For a period of ninety days after the closing of the sale of Theatre Direct, Mr.

(i) Hollywood Media and Mitchell Rubenstein entered into an amendment to his amended and restated employment agreement (“Rubenstein

Employment Agreement”) and (ii) Hollywood Media and Laurie S.

Silvers entered into an amendment to her amended and restated

employment agreement (“Silvers Employment Agreement”) (hereafter, collectively referred to as “Amendments to

Employment Agreements).

The Amendments to Employment Agreements provided for, among other things, the following:

For a period of ninety days after the closing of the sale of Theatre

Rubenstein’s and Ms.

Silvers’

compensation continues in accordance with then existing terms.

compensation continued in accordance with then existing terms.

After this ninety-day period, Mr.

Rubenstein and Ms.

Silvers base salaries are each reduced to a nominal amount of $1 per year plus each is entitled to five percent (5%) of the sum of (i) any distributions and other proceeds Hollywood Media receives after such ninety-day period in connection with its ownership interest in MovieTickets.com, Inc.

Silvers base salaries

were each reduced to a nominal amount of $1 per year plus each is entitled to five percent (5%) of the sum of (i) any distributions

and other proceeds Hollywood Media receives after such ninety-day period in connection with its ownership interest in MovieTickets.com,

and (ii) certain other amounts that may be received by Hollywood Media from MovieTickets.com, Inc.

((i) and (ii) are referred to herein as the “5% Distribution”).

Upon a sale of Hollywood Media’s interest in MovieTickets.com, Inc., Mr.

((i) and (ii) are

referred to herein as the “5% Distribution”).

Upon a sale of Hollywood Media’s interest in MovieTickets.com,

Rubenstein and Ms.

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Should the employment agreements be terminated by Hollywood Media without “cause”, by death or by Mr.

Rubenstein and/or Ms.

Silvers, as applicable, for “good reason”

the 5% Distributions and 5% of proceeds upon sale are due to Mr.

the 5% Distributions and 5% of proceeds upon sale are due

Rubenstein and Ms.

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Rubenstein and/or Ms.

Silvers continue in the employment of the Company.

Silvers continue in

the employment of the Company.

A deferment by Mr.

Rubenstein and Ms.

Silvers of $812,501 and $332,189, respectively otherwise due to them as change of control payments upon the consummation of the sale of Theatre Direct (Deferred Change in Control Payments).

The Amendments to Employment

Agreements also provide that if Mr.

Rubenstein and/or Ms.

Silvers, continue to be employed by Hollywood Media on the first anniversary

(Sale Anniversary) of the sale of Theatre Direct (or if such employment is terminated on or before the Sale Anniversary by Hollywood

Media without “cause”

Silvers of $812,501 and $332,189,

respectively otherwise due to them as change of control payments upon the consummation of the sale of Theatre Direct (referred

to herein as the “Deferred Change in Control Payments”).

On August 28, 2012,

(1) Hollywood Media and R&S Investments, LLC (“R&S Investments”) entered into an Agreement (the “R&S

Agreement”) regarding the Purchase Agreement dated as of August 21, 2008 between Hollywood Media and R&S Investments,

as amended (the “R&S Purchase Agreement”) and (2) Hollywood Media, Mr.

Rubenstein and Ms.

Silvers entered into

a letter agreement regarding the R&S Agreement (the “Rubenstein Silvers Letter Agreement”).

R&S Investments

is wholly-owned by Mr.

Rubenstein and Ms.

See Note 3, “Discontinued Operations”

to these unaudited Condensed

Consolidated Financial Statements.

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 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 5% Distribution that would be distributed by Hollywood Media to

Rubenstein pursuant to his amended employment agreement will be retained by Hollywood Media (and not paid to Mr.

and is a reduction to “Derivative Liabilities”

in the accompanying condensed consolidated balance sheets.

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 5% Distribution that would be distributed by

Hollywood Media to Ms.

Silvers pursuant to her amended employment agreement will be retained by Hollywood Media (and not paid

Silvers) and is a reduction to “Derivative Liabilities”

in the accompanying condensed consolidated balance

Regardless of whether

Rubenstein or Ms.

Silvers continued to provide services to Hollywood Media after the first anniversary of the sale of Theatre

Direct, one-half of the Deferred Change in Control Payments were to be paid to Mr.

Rubenstein and/or Ms.

Silvers, as applicable, for “good reason”), and Hollywood

Media receives payments from the buyer of Theatre Direct under either i) the Promissory Note or ii) an earn-out provision (Earn-out),

they may be entitled to their Deferred Change in Control Payments.

Specifically, up to one-half of the Deferred Change in Control

Payments would be due upon collections under the Promissory Note, on a pro-rata basis, and up to one-half of the Deferred Change

in Control Payments would be due upon certain collections of the Earn-out, on a pro-rata basis.

These amounts will be due to Mr.

Rubenstein, Ms.

Silvers and/or their heirs regardless of whether or not Mr.

Silvers, as applicable,

upon the receipt by Hollywood Media of payments pursuant to the $8.5 million credit agreement (the “Credit Agreement”)

entered into in connection with the sale of Theatre Direct, on a pro rata basis, and one-half of such payments were be paid to

Rubenstein and/or Ms.

Silvers continue in the employment

of Hollywood Media after the Sale Anniversary.

The Deferred Change in Control Payments would be due according to the following

Rubenstein will be entitled to:

4.76% of all payments of principal and interest received by Hollywood Media on account of the Promissory Note (for a maximum amount of $407,201, of which a total of $76,065 has been paid to Mr.

Rubenstein), and

5.79% of the first $7 million of Earn-out payments received by Hollywood Media (for a maximum amount of $405,300).

Silvers will be entitled to:

1.94% of all payments of principal and interest received by Hollywood Media on account of the Promissory Note (for a maximum amount of $166,989 of which a total of $31,001 has been paid to Ms.

Silvers), and

2.36% of the first $7 million of Earn-out payments received by Hollywood Media (for a maximum amount of $165,200).

Silvers, as applicable, upon the receipt by Hollywood Media of payments under the first $7 million tranche

of the earnout in connection with the sale of Theatre Direct, on a pro rata basis.

On August 28, 2012,

Hollywood Media entered into an Assignment and Assumption of Membership Interest and Waiver (the “Assignment”) with

Baseline Holdings LLC (“Baseline Holdings”), Project Hollywood LLC (“Project Hollywood”), Mr.

Baseline Holdings is wholly-owned by Mr.

Rubenstein and Ms.

Pursuant to the Assignment,

Hollywood Media assigned to Baseline Holdings all of Hollywood Media’s membership interest in Project Hollywood in exchange

for total consideration of $1,800,000 (the “Project Hollywood Purchase Price”).

The Project Hollywood Purchase Price

was paid as follows:

(1) $1,230,500 in cash (which was paid by Baseline Holdings to Hollywood Media), (2) Mr.

Rubenstein waived

his right to receive any future principal and interest owed to Hollywood Media pursuant to the Loan under the Credit Agreement

(as of August 28, 2012, Mr.

Rubenstein had the right to receive 4.76% of the principal, or $404,600, and interest on

account of the Loan under the Credit Agreement), and (3) Ms.

Silvers waived her right to receive any future principal and interest

owed to Hollywood Media under the Loan under the Credit Agreement (as of August 28, 2012, Ms.

Silvers has the right to receive

1.94% of the principal, or $164,900, and interest on account of the Loan under the Credit Agreement).

Hollywood Media had acquired

its membership interest in Project Hollywood on October 27, 2011 for $1,250,000.

Hollywood Media recorded the fair value of the

waivers by Mr.

Rubenstein and Ms.

Silvers in the long term portion of “Other Assets”

in the accompanying condensed

consolidated balance sheets.

On October 1, 2012,

Hollywood Media received the first $7 million tranche of the earnout pursuant to the Broadway Sale.

As a result, in connection

with the Deferred Change in Control Payments due to Mr.

Rubenstein and Ms.

Silvers in connection with the Broadway Sale, on October

Rubenstein received $405,300 of such earnout payment and Ms.

Silvers received $165,200 of such earnout payment.

From time to time

3 unchanged sentences

or performance to the Company.

Rubenstein and Ms.

Silvers received no bonuses during the three months ended September 30,

Rubenstein received a bonus of $225,000 and Ms.

Silvers received a bonus of $200,000 during

the three months ended June 30, 2012 and no bonuses during the three months ended March 31, 2012.

Bonuses are included in “Payroll

and benefits”

in the accompanying unaudited condensed consolidated statements of operations.

Silvers received a bonus of $200,000 during the three months ended June

Bonuses are included in “Payroll and benefits”

in the accompanying unaudited condensed consolidated statements

of operations.

Rubenstein and Ms.

Silvers have notified the Compensation Committee that each of them plans to voluntarily waive the first $225,000 (in the case

Silvers have notified the Compensation Committee that each of them plans to voluntarily

waive the first $225,000 (in the case of Mr.

Rubenstein) and the first $200,000 (in the case of Ms.

Silvers) of the 5% Distribution each of them would be entitled to

receive of the 5% Distribution.

MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

Silvers) of the 5% Distribution

each of them would be entitled to receive of the 5% Distribution.

(10) SUBSEQUENT

The First $7 Million

Earnout was paid by Key Brand to the Company on October 1, 2012 and was recorded upon collection of the $7 million received on

October 1, 2012.

In addition, the revenue calculation for the “Second Earnout”

was modified to exclude “group

(and the revenues of the new joint venture conducting such business) and the target for the Second $7 Million Earnout

was reduced from $150 million to $123 million 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 Amendment, the Second $7 Million Earnout of $7 million was added as of October 1,

2012 to the principal amount of the Loan under the Credit Agreement.

Pursuant to the Credit Agreement, interest at a rate of 12%

per annum and principal on such Second $7 Million Earnout will be amortized over the term of the Credit Agreement in equal quarterly

installments through the maturity date of the Loan on December 15, 2015.

As a result of the Second $7 Million Earnout being added

to the $8.5 million principal amount of the Loan, the principal amount of the Loan due Hollywood Media by Key Brand was $15.5

million as of October 1, 2012.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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the market price of our common stock include, but are not limited to:

our continuing 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

continuing operating

cash flows and

accumulated deficit;

ability to develop

and maintain strategic

relationships;

MovieTickets.com

Inc.’s ability

to compete with

the other online

movie ticketing

service 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 Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly

Report on Form 10-Q);

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 MovieTickets.com,

Entertainment Inc.

relating to MovieTickets.com

(for more information

about such lawsuit,

see Note 7 “Certain

Commitments and

Contingencies”

in the Notes to

the Condensed Consolidated

Financial Statements

included in Part

I, Item 1 of this

Quarterly Report

on Form 10-Q);

ability to maintain

and obtain sufficient

capital to finance

our operations;

ability to realize

anticipated cost

efficiencies;

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 Amex (formerly the American Stock Exchange)

or the over-the-counter market);

the possibility of not receiving payments from Key Brand Entertainment Inc.

ability to design,

implement and maintain

effective internal

on our founders;

unpredictability

of our stock price;

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

Amex (formerly

the American Stock

Exchange) or the

over-the-counter

possibility of

not receiving payments

from Key Brand

Entertainment Inc.

in connection with

the sale of our Broadway Ticketing business pursuant to that certain Second Lien Credit Security Pledge Agreement dated as of December

15, 2010, entered into by Theatre Direct NY, Inc., Key Brand Entertainment Inc., and Hollywood Media (the “Credit Agreement”)

or payment due under Amendment No.

4 (the “Amendment”) to the Broadway Sale Purchase Agreement or pursuant to the potential

earn-out under that certain Stock Purchase Agreement, dated as of December 22, 2009, entered into between Hollywood Media and Key

Brand Entertainment Inc.

(as amended, the “Purchase Agreement”);

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;

the timing and amount of the payments we receive pursuant to the Credit Agreement and the potential

earn-out under the Purchase Agreement;

our ability to exercise or put our warrant to purchase 5% of the outstanding shares of common stock

of Theatre Direct NY, Inc.

issued to us by Theatre Direct NY, Inc.

pursuant to the Purchase Agreement.

the sale of our

Broadway Ticketing

business pursuant

to that certain

Second Lien Credit

Security Pledge

Agreement dated

as of December

15, 2010, entered

into by Theatre

Direct NY, Inc.,

Key Brand Entertainment

Inc., and Hollywood

Media (the “Credit

Agreement”);

impact of the death

of Tekno Books’

former Chief Executive

Greenberg, on the

ability of Tekno

Books to maintain

relationships it

has with certain

authors and publishers;

timing and amount

of the payments

we receive pursuant

to the Credit Agreement;

ability to exercise

or put our warrant

to purchase 5%

of the outstanding

shares of common

stock of Theatre

Direct NY, Inc.

issued to us by

Theatre Direct

to that certain

Stock Purchase

Agreement, dated

as of December

22, 2009, entered

into between Hollywood

Media and Key Brand

Entertainment Inc.

(as amended, the

“Purchase

Agreement”).

Hollywood Media is

1 unchanged sentence

as amended, 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.

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

18 unchanged sentences

● 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.

See Note 3, “Discontinued

Operations”

in the Notes to the 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.

Intellectual Properties –

owns or controls the exclusive rights to certain intellectual

properties created by best-selling authors and media celebrities, which it licenses for book 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.

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.

This segment also includes Hollywood Media’s equity interest in 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.

For additional information about the change in Hollywood Media’s equity interest in Project Hollywood, see Note 9, “Related

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.

Note 3, “Discontinued Operations”

Notes to the 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

Properties –

owns or controls

the exclusive rights

to certain intellectual

properties created

by best-selling

authors and media

celebrities, which

it licenses for

book and other

also includes our

wholly-owned subsidiary,

Tekno Books, a

book development

business, and this

segment does not

include our 50%

interest in NetCo

Partners, for purposes

of this discussion

and analysis.

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

August 28, 2012,

this segment also

included Hollywood

Media’s equity

interest in 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

28, 2012 Hollywood

Media assigned

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, LLC

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.

in the Notes to

the 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 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

3 unchanged sentences

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, 2012 (“Y2-12”)

and 2011 (“Y2-11”) and the three months ended June 30, 2012 (“Q1-12”) and 2011 (“Q1-11”), respectively:

The following table summarizes Hollywood Media’s revenues,

operating expenses and operating income (loss) from continuing operations by reportable segment for the nine months ended September

30, 2012 (“Y3-12”) and 2011 (“Y3-11”) and the three months ended September 30, 2012 (“Q3-12”)

and 2011 (“Q3-11”), respectively:

Operating Expenses

Operating Income (Loss)

Operating Loss

$ (3,456,034 )

5 unchanged sentences

Operating Expenses

Operating Income (Loss)

Operating Loss

$ (1,002,961 )

1 unchanged sentence

Operating Expenses

Operating Income (Loss)

Operating Loss

$ (1,768,911 )

10 unchanged sentences

(“Key Brand”), as contemplated by the Stock Purchase Agreement, dated as of December

22, 2009, entered into between Hollywood Media and Key Brand (“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.

22, 2009, as amended, entered into between Hollywood Media and Key Brand (“the Purchase Agreement”).

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

7 unchanged sentences

associated with employment agreements with certain employees of Theatre Direct.

In addition, Hollywood Media is entitled to receive

earn-out payments (“the Earn-out”) of up to $14,000,000 contingent upon Theatre Direct and its subsidiaries achieving

certain revenue targets during the period from the closing date through the end of the 10 th full fiscal year following

the closing date as set forth in the Purchase Agreement.

In addition, Hollywood Media was entitled to receive

earnout payments (“the Earnout”) 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 10 th

full fiscal year following the closing date as set forth in the Purchase Agreement.

On April 22, 2012,

the Company entered into Amendment No.

4 (the "Amendment") to the Broadway Sale Purchase Agreement which entitled the

Company to receive an earn-out payment of $7,000,000 on or before October 1, 2012 (regardless of the actual revenues of Theatre

Direct and its subsidiaries) and up to an additional $7,000,000 of earn-out payments contingent upon Theatre Direct and its subsidiaries

achieving $123 million in revenue (excluding revenue from "group sales") during any annual period from July 1, 2011 through

June 30, 2021 (provided that if such earn-out payment is earned based on revenues of Theatre Direct and its subsidiaries for the

period from July 1, 2011 to June 30, 2012, then such earn-out payment will (i) be added to the principal amount of the $8.5 million

loan due the Company under the Credit Agreement, (ii) accrue and be paid interest in accordance with the Credit Agreement, and

(iii) be paid over the then remaining term of the Credit Agreement in equal quarterly installments).

See Note 3, “Discontinued

Operations”

in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly

Report on Form 10-Q for revisions to the earn-out payments.

Hollywood Media will record a gain on the loan and earn-out upon collection

of consideration.

The Warrant will be marked to market each reporting period to reflect the changes in fair value.

After the closing date

of the sale of Theatre Direct pursuant to the Purchase Agreement, Hollywood Media delivered on March 14, 2011 to Key Brand a closing

statement setting forth Hollywood Media’s calculation of Theatre Direct’s working capital as of the closing date determined

in the manner described in the Purchase Agreement.

Pursuant to the closing statement, Hollywood Media accrued $3,702,620 as a working

capital adjustment as of December 31, 2010 under the agreement which included $530,102 related to the estimated working capital

delivered at closing by Key Brand.

This working capital adjustment of $3,734,106 was paid on March 22, 2011 and included $31,486

of interest which is included in “Gain on sale of discontinued operations, net of income taxes”

in the accompanying

condensed consolidated statements of operations for the three months ending March 31, 2011.

4 (the "Amendment") to the Purchase Agreement.

Pursuant to the Amendment, the

Company 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 Amendment, Key Brand agreed to pay the first $7 million

earnout amount (the “First $7 Million Earnout”) to the Company 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 Earnout amount

of $7 million was paid by Key Brand to the Company on October 1, 2012.

In addition, the revenue calculation for the second $7

million earnout amount (the “Second $7 Million Earnout”) was modified to exclude “group sales”

revenues of the new joint venture conduction such business) and the target for the Second Earnout was reduced from $150 million

to $123 million 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 Amendment, the Second $7 Million Earnout was added as of October 1, 2012 to the principal amount of the Loan under the

Credit Agreement.

Pursuant to the Credit Agreement, interest at a rate of 12% per annum and principal on such Second $7 Million

Earnout will be amortized over the term of the Credit Agreement in equal quarterly installments through the maturity date of the

Loan on December 15, 2015.

As a result of the Second $7 Million Earnout being added to the $8.5 million principal amount of the

Loan, the principal amount of the Loan due Hollywood Media by Key Brand was $15.5 million as of October 1, 2012.

Note 3, “Discontinued Operations”

in the Notes to the Condensed Consolidated Financial Statements included in Part

I, Item I of this Quarterly Report on Form 10-Q for information regarding revisions to the earnout payments.

The Warrant will

be marked to market each reporting period to reflect the changes in fair value.

After the closing

date of the sale of Theatre Direct pursuant to the Purchase Agreement, Hollywood Media delivered on March 14, 2011 to Key Brand

a closing statement setting forth Hollywood Media’s calculation of Theatre Direct’s working capital as of the closing

date determined in the manner described in the Purchase Agreement.

Pursuant to the closing statement, Hollywood Media accrued

$3,702,620 as a working capital adjustment as of December 31, 2010 under the agreement which included $530,102 related to the

estimated working capital delivered at closing by Key Brand.

This working capital adjustment of $3,734,106 was paid on March 22,

2011 and included $31,486 of interest which is included in “Gain on sale of discontinued operations, net of income taxes”

in the accompanying condensed consolidated statements of operations for the nine months ending September 31, 2011.

For additional information about this transaction,

2 unchanged sentences

I, Item I of this Quarterly Report on Form 10-Q.

Sale by Minority Interest in Project Hollywood LLC (which

owns the Baseline StudioSystems business)

On August 28, 2012,

Hollywood Media entered into an Assignment and Assumption of Membership Interest and Waiver (the “Assignment”) with

Baseline Holdings LLC (“Baseline Holdings”), Project Hollywood LLC, Mitchell Rubenstein and Laurie S.

Holdings is wholly-owned by Mr.

Rubenstein and Ms.

As described below, the Assignment and the transactions contemplated

by the Assignment were approved by a Special Committee of Hollywood Media’s Board of Directors comprised solely of independent

directors (the “Special Committee”).

Pursuant to the Assignment,

Hollywood Media assigned to Baseline Holdings all of Hollywood Media’s membership interest in Project Hollywood in exchange

for total consideration of $1,800,000 (the “Project Hollywood Purchase Price”).

The Project Hollywood Purchase Price

has been paid as follows:

(1) $1,230,500 in cash (which has been paid by Baseline Holdings to Hollywood Media), (2) Mr.

Rubenstein waived his right to receive any future principal and interest owed by Key Brand to Hollywood Media pursuant to the

Loan (as of August 28, 2012, Mr.

Rubenstein had the right to receive 4.76% of the principal, or $404,600, and interest

on account of the Loan), and (3) Ms.

Silvers waived her right to receive any future principal and interest owed by Key Brand

to Hollywood Media pursuant to the Loan (as of August 28, 2012, Ms.

Silvers has the right to receive 1.94% of the principal,

or $164,900, and interest on account of the Loan).

Hollywood Media recorded the fair value of the waivers by Mr.

Rubenstein and

Silvers in the long term portion of “Other Assets”

in the accompanying condensed consolidated balance sheets included

in Part I, Item I of this Quarterly Report on Form 10-Q.

Hollywood Media acquired its membership interest in Project Hollywood

on October 27, 2011 for $1,250,000.

As a result of the

waivers of Mr.

Rubenstein and Ms.

Silvers described in the preceding paragraph, after August 28, 2012, Hollywood Media will retain

all payments of principal and interest made by Key Brand under the Loan.

As of August 28 and September 30, 2012, the principal

balance due under the Loan was $8,500,000.

The Special Committee

unanimously approved the Assignment and determined that the transactions contemplated by the Assignment were advisable, fair to

and in the best interests of Hollywood Media and its shareholders.

In connection with approving the transactions contemplated

by the Assignment, 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 Project Hollywood Purchase Price was fair from a financial point

of view to Hollywood Media.

As of October 1, 2012, the Principal Balance due under the Loan increased to $15,500,000 as a result

of the achievement of the revenue threshold for the Second $7 Million Earnout in the Purchase Agreement.

Sale of Hollywood.com Business Unit

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Hollywood Media entered into a purchase agreement (the “R&S Purchase Agreement”) with R&S Investments, LLC

(“Purchaser”) for the sale of the Hollywood.com Business.

The Purchaser is owned by Mitchell Rubenstein, Hollywood

Media’s Chief Executive Officer and Chairperson of the Board, and Laurie S.

Silvers, Hollywood Media’s President and

Vice-Chairperson of the Board.

Pursuant to the R&S Purchase Agreement, Hollywood Media sold the Hollywood.com Business to Purchaser

for a potential purchase price of $10.0 million, which includes $1.0 million in cash which was paid to Hollywood Media at closing

and potential earn-out payments totaling $9.0 million.

During the six and three months ending June 30, 2012, Hollywood Media

recorded $326,758 and $129,241 respectively, in earn-out income under the R&S Purchase Agreement.

As of June 30, 2012, there

remains $7,107,308 in potential earn-out payments pursuant to the R&S Purchase Agreement.

For information on the extension

of payment terms in earn-out receivable under the R&S Purchase Agreement, see Note 9 “Related Party Transactions”

in the Notes to the Condensed Consolidated Financial Statements included in Item I, Part I of this Quarterly Report on Form 10-Q.

The Hollywood.com Business included the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television,

a free video on demand service distributed pursuant to annual affiliation agreements with certain cable operators.

additional information about this transaction, see Note 3 “Discontinued Operations”

in the Notes to the Condensed Consolidated

Financial Statements included in Item I, Part I of this Quarterly Report on Form 10-Q.

(“R&S Investments”) for the sale of the Hollywood.com Business.

R&S Investments is wholly-owned by Mr.

Hollywood Media’s Chief Executive Officer and Chairperson of the Board, and Ms.

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 $10.0 million, which includes $1.0 million in cash which was

paid to Hollywood Media at closing and potential earnout payments totaling $9.0 million, of which $1,892,629 has been paid as

of September 30, 2012.

During the nine and three months ending September 30, 2012, Hollywood Media recorded $412,684 and

$85,926 respectively, in earnout income under the R&S Purchase Agreement.

The Hollywood.com Business included the Hollywood.com

website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service distributed pursuant

to annual affiliation agreements with certain cable operators.

For additional information about this transaction, see

Note 3 “Discontinued Operations”

in the Notes to the Condensed Consolidated Financial Statements included in Item

I, Part I of this Quarterly Report on Form 10-Q.

Buyout of Obligation of R&S Investments, LLC to Pay

Hollywood.com Earnout

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”).

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 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 condensed consolidated balance sheets included in Part I, Item I 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 condensed consolidated balance sheets included in Part I, Item I 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.

Sale of Cinemasource UK Limited –

4 unchanged sentences

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

UK Theatres Online Limited, Spring Leisure Limited, Cinemasonline Limited and WWW.CO.UK Limited.

Pursuant to the Share

20 unchanged sentences

Properties net revenues in Y3-12 as compared to Y3-11 and Q3-12 as compared to Q3-11 was attributable to the timing of the delivery

of manuscripts.

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.

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”

of manuscripts and the beginning of a reorientation of the focus of this business to digital distribution from print.

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.

Revenues are recognized

when the earnings process is complete and the ultimate collection of such revenues is no longer subject to contingencies.

division does not include NetCo Partners, which is reported separately;

see “Earnings (Losses) of Unconsolidated Investees”

EARNINGS (LOSSES) OF UNCONSOLIDATED

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consisted of the following:

Six Months Ended

Nine Months Ended

Three Months Ended

September 30,

NetCo Partners (a)

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Project Hollywood (c)

(a) NetCo Partners

$ (3,741,851 )

$ (4,386,192 )

$ (3,759,665 )

$ (4,565,775 )

Hollywood Media owns

50% of NetCo Partners as of June 30, 2012 and accounts for its investment under the equity method.

50% of NetCo Partners as of September 30, 2012 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 Y2-12 and Y2-11 as well as Q2-12 and Q2-11.

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.

Media’s 50% share of income of NetCo Partners was essentially $0 for Y3-12 and Y3-11 as well as Q3-12 and Q3-11.

(b) MovieTickets.com

1 unchanged sentence

26.2% of the equity in MovieTickets.com, Inc.

as of June 30, 2012 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 “Equity in earnings of unconsolidated investees”

in the accompanying condensed consolidated statements

of operations.

Under applicable accounting principles, 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 recorded $179,068 and $115,610

in income from its investment in MovieTickets.com for the six and three months ended June 30, 2011, respectively.

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 and three months ended June 30, 2012

and June 30, 2011, respectively.

Hollywood Media owns

20.65% of the total equity in Project Hollywood LLC (“Project Hollywood”) as of June 30, 2012 (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, 2011 (Hollywood

Media’s initial interest in Project Hollywood was acquired on October 27, 2011).

Hollywood Media records 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 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.

as of September 30, 2012 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 “Equity in earnings of unconsolidated investees”

in the accompanying condensed

consolidated statements of operations.

Under applicable accounting principles, Hollywood Media recorded $252,855 and $180,740

in loss from its investment in MovieTickets.com for the nine and three months ended September 30, 2012, respectively.

Media did not record $23,903 of its share of losses from MovieTickets.com for the nine and three months ended September 30, 2012

because accumulated dividends and net losses from 2012 and prior years exceed the Company’s investment in MovieTickets.com

as of September 30, 2012.

Hollywood Media recorded $4,386,550 and $4,565,818 in loss from its investment in MovieTickets.com for

the nine and three months ended September 30, 2011, respectively.

During Y3-11, the Company determined that goodwill associated

with the assets of the Ad Sales Segment was impaired and accordingly recorded a non-cash goodwill impairment charge of $4,795,783.

During Y3-12, the Company determined that goodwill associated with the

assets of the Ad Sales Segment was impaired and accordingly recorded a non-cash goodwill impairment charge of $3,600,000.

For additional information see Note 6 –

Segment Reporting in the Notes to Condensed Consolidated Financial Statements included

in Item I, Part I of this quarterly report on Form 10-Q .

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.

On July 18, 2011 MovieTickets.com declared a dividend of $4,000,000.

Hollywood Media

received its 26.2% pro rata share of such dividend, amounting to $1,048,875 on July 19, 2011, which reduced the Company’s

investment in MovieTickets.com as the dividend did not exceed the amount of the Company’s investment.

Hollywood Media distributed

on, July 19, 2011, $52,444 of such dividend distribution, representing 5% of Hollywood Media’s share of the dividends, to

Rubenstein and Ms.

Silvers in accordance with their amended and restated employment agreements dated December 23,

2009, as amended.

Other than the July 18, 2011 dividend discussed above, there were no dividends declared by MovieTickets.com

or received from MovieTickets.com during the nine and three months ended September 30, 2012 and September 30, 2011, respectively.

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 LLC (“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.

Media did not own any equity in Project Hollywood as of September 30, 2011 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 $111,440 and $21,227 in income from its investment in Project

Hollywood for the nine and three months ended September 30, 2012, respectively.

There were $182,617 and $5,435 of distributions

during the nine and three months ended September 30, 2012, respectively.

For additional information about Hollywood Media’s

assignment of its membership interest in Project Hollywood LLC 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

3 unchanged sentences

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 $282,776 for Y2-12 as compared to $456,903 for Y2-11, a decrease of

$174,127 or 38%, and $157,672 for Q2-12 as compared to $293,516 for Q2-11, a decrease of $135,844 or 46%.

As a percentage of revenues,

these costs were 85% and 66% for Y2-12 and Y2-11 respectively, and 101% and 64% for Q2-12 and Q2-11, respectively.

in Y2-12 as compared to Y2-11 and the decrease in Q2-12 as compared to Q2-11 was due primarily to a decrease in payments to writers

and co-editors.

Editorial, production, development and technology costs were $391,503 for Y3-12 as compared to $562,042 for Y3-11, a decrease

of $170,539 or 30%, and $108,727 for Q3-12 as compared to $105,140 for Q3-11, an increase of $3,587 or 3%.

As a percentage of

revenues, these costs were 91% and 67% for Y3-12 and Y3-11 respectively, and 113% and 69% for Q3-12 and Q3-11, respectively.

decrease in Y3-12 as compared to Y3-11was due primarily to a decrease in payments to writers and co-editors.

Selling, General

1 unchanged sentence

Selling, general and

administrative (SG&A) expenses consist of occupancy costs, professional and consulting service fees, telecommunications costs,

provision for doubtful accounts receivable, general insurance costs and selling and marketing costs (such as advertising, marketing,

promotional, business development, public relations, and commissions due to advertising agencies, advertising representative

firms and other parties).

SG&A expenses for Y2-12 were $1,200,978 compared to $1,727,449 for Y2-11, a decrease of $526,471

administrative (SG&A) expenses consist of occupancy costs, professional, legal and consulting service fees, telecommunications

costs, provision for doubtful accounts receivable, general insurance costs and selling and marketing costs (such as advertising,

marketing, promotional, business development, public relations, and commissions due to advertising agencies, advertising

representative firms and other parties).

SG&A expenses for Y3-12 were $1,839,990 compared to $2,270,799 for Y3-11, a decrease

of $430,809 or 19%.

SG&A expenses for Q3-12 were $639,012 compared to $543,350 for Q3-11, an increase of $95,662 or 18%.

As a percentage

of net revenue, SG&A expenses were 361% in Y2-12 compared to 251% in Y2-11 and 446% in Q2-11 compared to 114% in Q1-11.

increase in SG&A expenses for Q3-12 as compared to Q3-11 was due to increased legal expenses.

The decrease in SG&A

expenses in Y3-12 as compared to Y3-11 was due primarily to the following:

legal expense decreased by approximately $191,000 primarily

due to the $350,000 indemnification payment to R&S Investments and $101,000 in legal fees and other costs associated with the

purchase of common stock under Hollywood Media’s tender offer, partially offset by increased legal expenses, a $32,000 decrease

in contributions and sponsorships and a $51,000 decrease in shareholder relations expense associated with the purchase of common

stock tendered.

For additional information, see Note 9 –

Related Party Transactions in the Notes to Condensed Consolidated

Financial Statements included in Part I, of this Quarterly Report on Form 10-Q.

The increase in SG&A

expenses for Q2-12 as compared to Q2-11 was primarily due to increased legal expenses.

legal expense decreased by approximately $96,000, a

$100,000 decrease in office-related expenses attributable to the Company’s continuing effort to reduce costs and expenses,

an $85,000 decrease in insurance costs and a $77,000 decrease in shareholder relations expense.

For additional information,

see Note 9 –

Related Party Transactions in the Notes to Condensed Consolidated Financial Statements included in Part I,

of this Quarterly Report on Form 10-Q.

Payroll and Benefits.

4 unchanged sentences

Payroll and benefits expenses

for Q2-12 were $851,862 compared to $746,459 for Q2-11, an increase of $105,403 or 14%.

As a percentage of net revenues, payroll

and benefits expenses were approximately 376% for Y2-12 and 234% for Y2-11, and 545% for Q2-12 and 162% for Q2-11.

for Q3-12 were $368,904 compared to $1,232,765 for Q3-11, a decrease of $863,861 or 70%.

The decrease in payroll

and benefits expense in Y2-12 as compared to Y2-11 was primarily due to a decrease in payroll of the accounting department of approximately

$63,000, a combined decrease in payroll of human resources, administration, MIS and legal of approximately $285,500 and an overall

reduction in the Intellectual Properties division payroll of $55,300.

This was partially offset by an increase in executive

payroll of approximately $59,100.

The increase in payroll

and benefits expenses in Q2-12 as compared to Q2-11 was primarily due to the following:

an increase in executive payroll of $365,500,

a decrease in payroll of the accounting department of $56,200, a combined decrease in the payroll of human resources, administration,

MIS and legal of $147,000, and an overall reduction in the Intellectual Properties division payroll of $59,100.

and benefits expense in Y3-12 as compared to Y3-11 was primarily due to a decrease in executive payroll of $771,000, a decrease

in payroll of the accounting department of approximately $59,000, a combined decrease in payroll of human resources, administration,

MIS and legal of approximately $298,000 and a reduction in the Intellectual Properties division payroll of $73,000.

in payroll and benefits expenses in Q3-12 as compared to Q3-11 was primarily due to a decrease in executive payroll of $800,000.

Depreciation and

14 unchanged sentences

Interest, net.

Interest, net remained

essentially unchanged at $513,009 of income for Y2-12 as compared to $529,278 of income for Y2-11.

Interest, net remained essentially

unchanged at $259,972 of income for Q2-12 as compared to $259,976 of income for Q2-11.

Interest, net primarily consists of the

interest on the $8,500,000 note received by Hollywood Media from the purchaser of the Broadway Ticketing Division.

an interest rate of 12% per annum, is paid quarterly and matures on December 15, 2015.

For additional information, see Note 3 -

Discontinued Operations in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly

Report on Form 10-Q.

Interest, net was

$777,411 of income for Y3-12 as compared to $789,660 of income for Y3-11.

Interest, net was $264,400 of income for Q3-12 as compared

to $260,381 of income for Q3-11.

Interest, net primarily consists of the interest on the $8,500,000 note received by Hollywood

Media from the purchaser of the Broadway Ticketing Division in the amount of $776,333.

The note has an interest rate of 12% per

annum, is paid quarterly and matures on December 15, 2015.

For additional information, see Note 3 - Discontinued Operations in

the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q.

As described in Note

3, “Discontinued Operations”

in the Notes to the Condensed Consolidated Financial Statements included in Item I, Part

I of this Quarterly Report on Form 10-Q, Hollywood Media received from Key Brand in connection with the Broadway Sale the First

$7 Million Earnout payment in cash and an additional $7 million representing the Second $7 Million Earnout payment which was added

to the Loan under the Credit Agreement.

As a result of the Second $7 Million Earnout amount being added to the $8.5 million principal

amount of the Loan, the principal amount of the Loan due Hollywood Media by Key Brand was $15.5 million as of October 1, 2012.

Key Brand is obligated to pay Hollywood Media interest at a rate of 12% per annum on the Loan, with the Loan maturing on December

The Loan is secured on a second lien basis by all stock and assets of Theatre Direct and its subsidiaries subordinated

to a $15 million loan to JP Morgan.

The Second Earnout amount of $7 million added to the Loan (from the Second $7 Million Earnout)

as of October 1, 2012 is to be amortized in equal quarter annual installments with interest at 12% per annum through maturity

on December 15, 2015.

Interest will begin on the $7 million portion of the Loan starting October 1, 2012 with the first principal

and interest payments on this $7 million portion to be received on December 31, 2012 in the amount of approximately $750,000 consisting

of principal of $538,000 and interest of $215,000.

Principal and interest payments on the $7,000,000 portion of the Loan (from

the Second Earnout) are expected to be approximately $2,840,000 in 2013.

In addition, interest payments on the original $8,500,000

portion of the Loan are expected to be approximately $1,030,000 in 2013.

Income from Discontinued

Income from discontinued

operations was $2,467,475 for Y3-12 compared to $91,971 for Y3-11, an increase of $2,375,504.

Income from discontinued operations

for Q3-12 was $1,839,788 compared to $158,058 for Q3-11, an increase of $1,681,730.

The increase in discontinued

operations in Y3-12 as compared to Y3-11 and Q3-12 as compared to Q3-11 was primarily due to the receipt by Hollywood Media of

the Buyout Amount, the earnout gain from R&S Investments, and the gain on sale in connection with the assignment of Hollywood

Media’s membership interest in Project Hollywood.

LIQUIDITY AND CAPITAL RESOURCES

Hollywood Media’s

cash and cash equivalents were $2,408,472 at June 30, 2012 as compared to $3,683,063 at December 31, 2011.

Our net working capital

(defined as current assets less current liabilities) was $2,280,919 at June 30, 2012 as compared to $3,067,463 at December 31,

cash and cash equivalents were $5,959,801 at September 30, 2012 as compared to $3,683,063 at December 31, 2011.

Hollywood Media’s

net working capital (defined as current assets less current liabilities) was $5,285,175 at September 30, 2012 as compared to $3,067,465

at December 31, 2011.

Net cash used in operating

activities from continuing operations during Y2-12 was $1,344,012, which was primarily attributable to losses from continuing operations.

By comparison, net cash used in continuing operations during Y2-11 was $2,849,100.

Net cash provided by

investing activities from continuing operations during Y2-12 was $119,289 primarily attributable to the Hollywood.com earn-out

payments to the Company.

By comparison, net cash used in continuing investing activities during Y2-11 was $5,554,461 primarily

used to pay Key Brand a working capital adjustment of $3,734,106 in connection with the sale of the Broadway Ticketing business

and for payments of $1,740,040 in payroll related bonuses due to the Broadway Sale in Q4-10.

activities during Y3-12 was $2,006,196, which was primarily attributable to a $3,600,000 non-cash goodwill impairment charge partially

offset by the following:

(1) $322,500 non-cash amortization expense of deferred compensation costs, (2) $113,032 depreciation

and amortization, (3) $776,333 of interest on the $8,500,000 note received from Key Brands, and (4) working capital of $221,343.

By comparison, net cash used in operating activities during Y3-11 was $1,982,652.

As described in Note

3, “Discontinued Operations”

in the Notes to the Condensed Consolidated Financial Statements included in Item I, Part

I of this Quarterly Report on Form 10-Q, Hollywood Media received on October 1, 2012, following the end of the third quarter period,

from Key Brand in connection with the Broadway Sale the First $7 Million Earnout payment in cash.

Further, an additional $7 million

representing the Second $7 Million Earnout payment was added to the Loan under the Credit Agreement as of October 1, 2012, which

$7 million amount is to be amortized with interest at 12% per annum over the period October 1, 2012 through December 15, 2015

in equal quarter-annual installments.

As a result of the Second $7 Million Earnout being added to the $8.5 million principal amount

of the Loan, the principal amount of the Loan due Hollywood Media by Key Brand was $15.5 million as of October 1, 2012.

Key Brand is obligated to pay Hollywood Media interest at a rate of 12% per annum on the Loan, with the Loan maturing on December

The Loan is secured on a second lien basis by all stock and assets of Theatre Direct and its subsidiaries.

will begin on the $7,000,000 portion of the Loan (from the Second Earnout) starting October 1, 2012 with the first principal and

interest payments on this $7,000,000 portion to be received on December 31, 2012 in the amount of approximately $750,000 consisting

of principal of $538,000 and interest of $215,000.

Principal and interest payments on the $7,000,000 portion of the Loan (from

the Second Earnout) are expected to be approximately $2,840,000 in 2013.

In addition, interest payments on the original $8,500,000

portion of the Loan are expected to be approximately $1,030,000 in 2013.

Net cash used in operating

activities during Y3-11 was $1,982,652, which was primarily attributable to:

(1) a net loss of $6,871,113, (2) a gain of $1,132,500

on life insurance recognized on the death of Dr.

Martin Greenburg, the former Chief Executive Partner of Tekno Books (3) a non-cash

change in the value of the derivative liability in the amount of $635,112, (4) $641,697 non-cash equity in losses of unconsolidated

subsidiaries, and (5) working capital used of $189,971.

These items were partially offset by the following:

(1) $4,795,783 non-cash

goodwill impairment charge, (2) $233,850 amortization expense of deferred compensation costs, (3) $162,653 depreciation and amortization,

and (4) $773,500 of interest received on the $8,500,000 note received from Key Brands.

Net cash provided

by investing activities during Y3-12 was $4,299,789 primarily attributable to:

(1) $1,230,500 cash received in connection with

the assignment and assumption of Hollywood Media’s membership interest in Project Hollywood;

(2) $2,950,000 cash received

in connection with the Buyout Amount from R&S Investments, and (3) Hollywood.com earnout payments of $155,000 paid to the

By comparison, net cash used in investing activities during Y3-11 was $5,429,095 primarily used to pay Key Brand a working

capital adjustment of $3,734,106 in connection with the sale of the Broadway Ticketing business and for payments of $1,740,040

in payroll related bonuses including change of control payments contractually due as a result of the Broadway Sale in Q4-10.

Net cash used in financing

activities from continuing operations during Y2-12 was $11,734, which cash was for repayments under capital lease obligations.

By comparison, net cash used in continuing financing activities during Y2-11 was $16,435,265, which cash usage was primarily for

the purchase of common stock tendered.

activities during Y3-12 was $16,855, for repayments under capital lease obligations.

By comparison, net cash used in financing

activities during Y3-11 was $16,455,367, which cash usage was primarily for the purchase of common stock tendered in the amount

of $16,400,000.

For additional information about the purchase of common stock tendered, see Note 4 –

“Purchase of Common Stock Tendered”

in the Notes to the Condensed Consolidated Financial Statements included in Part

I, Item I, of this Quarterly Report on Form 10-Q.

“Purchase of

Common Stock Tendered”

in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I, of this

Quarterly Report on Form 10-Q.

Sale of Broadway Ticketing Division

10 unchanged sentences

Agreement, at the closing of the Broadway Sale:

Hollywood Media received $20.5 million in cash (including $0.5 million pursuant to the estimated

working capital adjustment described in the Purchase Agreement);

Hollywood Media, Theatre Direct and Key Brand entered into that certain Second Lien Credit, Security

and Pledge Agreement, dated as of December 15, 2010 (the “Credit Agreement”) pursuant to which Key Brand is obligated

to pay to the Company $8.5 million at an interest rate of 12% per annum, which obligation matures on December 15, 2015 and is secured

on a second lien basis by all stock and assets of Theatre Direct and its subsidiaries;

Theatre Direct issued the Company 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 (the “Warrant”);

Key Brand assumed $1.6 million of liabilities associated with employment agreements with certain

employees of Theatre Direct;

Hollywood Media is entitled to receive earn-out payments of up to $14.0 million contingent upon

Theatre Direct and its subsidiaries achieving certain revenue targets during the period from the closing date through the end of

the tenth full fiscal year of Theatre Direct following the closing date as set forth in the Purchase Agreement.