NovelStem International Corp. 10-K

Item 1. Business . Overview Until December 15, 2010, Hollywood Media Corp. (“Hollywood Media,” the “Company,” “we,” “our,” or “us”) was comprised of various businesses focusing primarily on online ticket sales, deriving revenue primarily from Broadway, Off-Broadway and London’s West End ticket sales to individuals and groups, as well as advertising and book development license fees and royalties. Our Broadway Ticketing business was comprised of Broadway.com, 1-800-BROADWAY, Theatre Direct and Theatre.com. On December 15, 2010, as contemplated by the Stock Purchase Agreement, dated as of December 22, 2009, entered into between Hollywood Media and Key Brand (as amended, the “Purchase Agreement”) we completed the sale of our 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”). See Part II, Item 7 of this Annual Report on Form 10-K – Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5, “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K for more information on the Broadway Sale. Following the Broadway Sale and the other transactions described below, we currently have the following businesses and interests: (i) our Ad Sales Division (including our 26.2% equity interest in MovieTickets.com, Inc. (“MovieTickets.com”)), (ii) our Intellectual Properties Division (consisting of our wholly-owned subsidiary, Tekno Books, and a 50% interest in NetCo Partners), (iii) a warrant to purchase 5% of the outstanding shares of common stock of Theatre Direct issued by Theatre Direct in connection with the Broadway Sale (as amended, the “Warrant”), and (iv) the right to receive payments from Key Brand under the that certain Second Lien Credit, Security and Pledge Agreement, dated as of December 15, 2010, entered into by Theatre Direct, Key Brand and Hollywood Media, as amended (the “Credit Agreement”). Sale by Hollywood Media of its 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 (“Project Hollywood”), Mitchell Rubenstein (“Mr. Rubenstein”) and Laurie S. Silvers (“Ms. Silvers”). Baseline Holdings is wholly-owned by Mr. Rubenstein, the Chairman and Chief Executive Officer of Hollywood Media, and Ms. Silvers, the Vice-Chairman, President and Secretary of Hollywood Media. 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 $1,800,000.00 (the “Project Hollywood Purchase Price”). The Project Hollywood Purchase Price has been paid as follows: (1) $1,230,500.00 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 Credit Agreement (as of August 28, 2012, Mr. Rubenstein had the right to receive 4.76% of the principal, or $404,600.00, and interest on account of the Credit Agreement), and (3) Ms. Silvers waived her right to receive any future principal and interest owed by Key Brand to Hollywood Media under the Credit Agreement (as of August 28, 2012, Ms. Silvers has the right to receive 1.94% of the principal, or $164,900.00, and interest on account of the Credit Agreement). Hollywood Media acquired its membership interest in Project Hollywood on October 27, 2011 for $1,250,000.00. See Note 18, “Related Party Transactions” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K and Part III, Item 13 of this Annual Report on Form 10-K – Certain Relationships and Related Transactions, and Director Independence for more information on the Assignment and the transactions contemplated by the Assignment. 1 Sale of Cinemasource UK Limited - Share Purchase Agreement On May 1, 2012, Hollywood Media entered into a share purchase agreement (the “Share Purchase Agreement”) with Orchard Advertising Limited (“Buyer”), pursuant to which Hollywood Media sold, and Buyer purchased, the entire issued share capital of Cinemasource UK Limited (the “Purchased Shares”) which business was part of Hollywood Media’s Ad Sales segment and included UK Theatres Online Limited, Spring Leisure Limited, Cinemasonline Limited and WWW.CO.UK Limited. Pursuant to the Share Purchase Agreement, the purchase price for the Purchased Shares is U.S. $250,000, payable in cash in a non-interest bearing loan in twenty equal quarter-annual installments of $12,500 each over a period of five years. Subject to the terms and conditions of the Share Purchase Agreement, the first installment of the purchase price was due and was paid to Hollywood Media on July 31, 2012 and subsequent installments of the purchase price are due every three calendar months thereafter. Hollywood Media received such payments in accordance with the payment terms. See Part II, Item 7 of this Annual Report on Form 10-K – Management’s Discussion and Analysis of Financial Condition and Results of Operation and Note 5, “Discontinued Operations” in the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K for more information on the sale of Cinemasource UK Limited. Major Business Divisions of Hollywood Media The following summary descriptions of our continuing operations major business divisions are followed by more detailed descriptions of such businesses. Ad Sales Division Hollywood Media’s Ad Sales Division includes Hollywood Media’s 26.2% equity interest in MovieTickets.com. Prior to the sale of Cinemasource UK Limited on May 1, 2012 described above (which business included UK Theatres Online Limited, Spring Leisure Limited, Cinemasonline Limited and WWW.CO.UK Limited), the Ad Sales segment also sold advertising on plasma TV displays throughout the U.K. and Ireland, on lobby display posters, movie brochure booklets and ticket wallets distributed in cinemas, live theater and other entertainment venues in the U.K. and Ireland. See Part I, Item 3 of this Annual Report on Form 10-K for a discussion of the current lawsuit involving Hollywood Media, National Amusements Inc. and Movietickets.com as Plaintiffs and AMC Entertainment Inc., as Defendant. Intellectual Properties Division Our Intellectual Properties Division includes a book development and book licensing business owned and operated by our wholly-owned subsidiary, Tekno Books, which develops and executes book projects, frequently with best-selling authors. Tekno Books has worked with over 60 New York Times best-selling authors, including the late Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan Kellerman, Dean Koontz, the late Robert Ludlum, Nora Roberts and Scott Turow. Hollywood Media is also a 50% partner in NetCo Partners, a partnership that owns NetForce. Hollywood Media also owns directly additional intellectual property created for it by various best-selling authors such as Mickey Spillane, Anne McCaffrey and others. We are beginning a reorientation process of this business from print to digital distribution. Other Our Other Division 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. Prior to the assignment of Hollywood Media’s membership interest in Project Hollywood on August 28, 2012 described above, this division also included Hollywood Media’s membership interest in Project Hollywood. 2 Other Business and Financial Information The following portions of this Business section of this Annual Report on Form 10-K contain more detailed information about our various business units, and “Item 1A – Risk Factors” below contains discussions of various related risks. Additional financial and other important information about Hollywood Media and our businesses is also contained elsewhere in this Annual Report on Form 10-K, including without limitation, the following portions of this Annual Report on Form 10-K: Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and Part II, Item 8 – Financial Statements and Supplementary Data (including the Notes to Consolidated Financial Statements contained therein). SEC Reports Available on Internet Hollywood Media makes available free of charge through its internet website, www.hollywoodmedia.com, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”). Such materials are available on the website under the caption “Company SEC Filings” (this is a link to the Company’s “Real-Time SEC Filings” as provided by NASDAQ on NASDAQ’s website at www.nasdaq.com). Hollywood Media is a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and files reports and other information with the SEC. Our public electronic filings with the SEC (including the above-referenced filings) are available at the SEC’s internet website (www.sec.gov). Hollywood Media’s Internet website and any other website mentioned in this Annual Report on Form 10-K, and the information contained or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K. Ad Sales Division MovieTickets.com. Hollywood Media launched the MovieTickets.com website in May 2000 with several major theater exhibitors. MovieTickets.com is one of the two leading website destinations for the purchase of movie tickets through the Internet. The MovieTickets.com website allows users to purchase movie tickets and retrieve them at “will call” windows or kiosks at theaters and, for theaters with the capability, for users to print tickets out at their home or office. MovieTickets.com generates revenues primarily from service fees charged to users for the purchase of tickets, the sale of advertising, and the sale of research data. Hollywood Media owns a 26.2% equity interest in MovieTickets.com. See Part II, Item 7 of this Annual Report on Form 10-K – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Equity in Earnings of Unconsolidated Investees” below, and Note 13 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K below, for additional information about our equity interest in MovieTickets.com. MovieTickets.com entered into an agreement with Viacom Inc. effective August 2000 whereby Viacom Inc. acquired a 5% interest (now 4.1% after dilution) in MovieTickets.com for $25.0 million of advertising and promotion over five years. MovieTickets.com is promoted through on-screen advertising in most participating exhibitors’ theaters. In March 2001, America Online Inc. (“AOL”) purchased a non-interest bearing convertible preferred equity voting interest in MovieTickets.com for $8.5 million in cash, which was convertible into approximately 3% of the common stock of MovieTickets.com and which was converted in April 2005. The AOL interest is currently held by Time Warner Inc. In connection with the 2001 transaction with AOL, MovieTickets.com’s ticket inventory was promoted throughout AOL’s interactive properties and ticket inventory, including Moviefone. Through an agreement in August 2004 between MovieTickets.com and Moviefone, MovieTickets.com acquired by assignment and assumed the ticketing agreements that Moviefone had with its movie theater exhibitors. The Moviefone exhibitor agreements assumed by MovieTickets.com includes agreements with Clearview Cinemas and Landmark Theaters. Currently, MovieTickets.com sells tickets for over 250 movie theater chains. 3 Intellectual Properties Business Book Development and Book Licensing . Our Intellectual Properties division includes a book development and book licensing business owned and operated by our wholly-owned subsidiary, Tekno Books, which develops and executes book projects, frequently with best-selling authors. Tekno Books has worked with more than 60 New York Times best-selling authors, including the late Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan Kellerman, Dean Koontz, the late Robert Ludlum, Nora Roberts and Scott Turow, and numerous media celebrities, including Leonard Nimoy. Our intellectual properties division has licensed books for publication with more than 80 domestic book publishers, including Random House (Bertelsmann), Penguin Publishing Group (Pearson), Simon & Schuster (Viacom), HarperCollins (News Corp.), St. Martin’s Press (Holtzbrink of Germany), Warner Books (Time Warner), and the publishing division of Barnes & Noble. Tekno Books has also produced numerous books under license from such entertainment companies as Universal Studios, CBS Television, DC Comics (Time Warner), and MGM Studios. Since 1980, Tekno Books has developed over 2,080 books that have been published. Another 3,800 foreign, audio, paperback, electronic, and other editions of these books have been sold to hundreds of publishers around the world, and published in 33 languages. Tekno’s books have been finalists for, or winners of, more than 200 awards, including The Edgar Allan Poe Award, The Agatha Christie Award (Mystery), The Hugo Award (Science Fiction), The Nebula Award (Fantasy), The International Horror Guild Award (Horror) and The Sapphire Award (Romance). Intellectual Properties . The Intellectual Properties division also owns directly (separate from Tekno Books) the exclusive rights to certain intellectual properties that are complete stories and ideas for stories, created by best-selling authors and media celebrities. Some examples of our intellectual properties are Neil Gaiman’s Mr. Hero, Neil Gaiman’s Lady Justice, Anne McCaffrey’s Acorna the Unicorn Girl , Leonard Nimoy’s Primortals , and Mickey Spillane’s Mike Danger . We have the right to license rights to certain of our intellectual properties for use by licensees in developing projects in various media forms. We are beginning a reorientation process of this business from print to digital distribution. Tekno Books Effective as of December 30, 2011 in connection with the settlement of a dispute involving life insurance proceeds from the death of Tekno Books’ Chief Executive Partner, Dr. Martin H. Greenberg, as described below, the Estate of Martin H. Greenberg (“the Estate”) transferred all of its partnership and ownership interest in Tekno Books to Hollywood Media for no additional consideration pursuant to an Assignment of General Partnership Interest. Before such transfer, Hollywood Media owned 51% of Tekno Books. Following such transfer, Hollywood Media owns 100% of Tekno Books. Mitchell Rubenstein (the Chairman and CEO of Hollywood Media) was appointed Chief Executive Partner of Tekno Books on July 21, 2011 due to the death on June 25, 2011 of Dr. Greenberg. In July 2011, Hollywood Media and Tekno Books each received a $750,000 payment from a $1.5 million key-man life insurance policy resulting from Dr. Greenberg’s death. There was a dispute with the Estate as to whether the $750,000 in life insurance proceeds distributed to Tekno Books should instead have been paid to Hollywood Media. Hollywood Media believed that pursuant to the amended and restated partnership agreement of Tekno Books, the entire $1.5 million in policy proceeds were due to Hollywood Media. There was no dispute as to the $750,000 payment on the policy which was made to Hollywood Media in July 2011. 4 On February 8, 2012, Hollywood Media resolved its dispute with the Estate over the life insurance policy payments that were received as a result of Dr. Martin Greenberg’s death. As a result of such resolution, effective as of December 30, 2011, the Estate and Rosalind M. Greenberg (Dr. Greenberg’s widow) waived any right, entitlement or claim they may have to the above-mentioned a $1.5 million key-man life insurance policy payment, Tekno Books and Hollywood Media waived any right, entitlement or claim they may have to an additional $500,000 life insurance policy payment received by Rosalind M. Greenberg, and the Estate transferred all of its partnership and ownership interest in Tekno Books to Hollywood Media for no additional consideration pursuant to an Assignment of General Partnership Interest. Following such transfer, Hollywood Media owned 100% of Tekno Books and recorded the $367,500 reserve in “Other Income” in the Consolidated Financial Statements contained in Part II, Item 8 or this Annual Report on Form 10-K. NetCo Partners . In June 1995, Hollywood Media and C.P. Group Inc. (“C.P. Group”), entered into an agreement to form NetCo Partners. NetCo Partners owns NetForce . Hollywood Media and C.P. Group are each 50% partners in NetCo Partners. Tom Clancy is a shareholder of C.P. Group. At the inception of the partnership, C.P. Group contributed to NetCo Partners all rights to NetForce , and Hollywood Media contributed to NetCo Partners all rights to Tad Williams’ MirrorWorld , Arthur C . Clarke’s Worlds of Alexander , Neil Gaiman’s Lifers , and Anne McCaffrey’s Saraband . In 1997, NetCo Partners licensed to Putnam Berkley the rights to publish the first six NetForce books in North America, which books were created and published. This agreement was subsequently renewed in December 2001 for four more books that were created and published. NetForce books have so far been published in mass market paperback format. NetCo owns all rights in all media to the NetForce property including film, television, and video games. The first book in the series was adapted as a four-hour mini-series on ABC. Through its interest in NetCo Partners, Hollywood Media receives distributions of its share of proceeds generated from the rights to the NetForce series. Corporate Information Hollywood Media is a corporation that was incorporated in the State of Florida on January 22, 1993. Our principal executive office is located at 301 East Yamato Road, Suite 2199, Boca Raton, Florida 33431, and the telephone number at our principal executive office is (561) 998-8000. Employees At December 31, 2012, Hollywood Media employed approximately 15 full-time employees and no part-time employees for its continuing operations. Of those 15 full-time employees, 2 employees (who are overseen by Mitchell Rubenstein, the Chief Executive Partner of Tekno Books and Chairman and CEO of Hollywood Media) are engaged in our Intellectual Properties division and 13 are corporate, technology and administrative employees. None of the employees are represented by a labor union, nor have we experienced any work stoppages. We consider our relations with our employees to be in good standing.