UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-53690

HERE MEDIA INC.

(Exact Name of Registrant as Specified in Its Charter)


DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		26-3962587 (I.R.S. Employer Identification No.)

10990 WILSHIRE BOULEVARD, PENTHOUSE
LOS ANGELES, CALIFORNIA		90024
(Address of Principal Executive Offices)		(Zip Code)

(310) 806-4288
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Number of shares outstanding of the registrant’s Common Stock, $0.001 par value, outstanding as of April 30, 2010: 20,700,675

Here Media Inc.
INDEX
Form 10-Q
For the Period ended March 31, 2010


	PAGE
PART I — FINANCIAL INFORMATION		1

Item 1 Financial Statements		1

Unaudited Condensed Consolidated Balance Sheets as of December 31, 2009 and March 31, 2010		1

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2010		2

Unaudited Condensed Consolidated Statement of Stockholders’ Deficit and Comprehensive Loss for the Three Months ended March 31, 2010		3

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2010		4

Notes to Unaudited Condensed Consolidated Financial Statements		5

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 4 Controls and Procedures		24

PART II — OTHER INFORMATION		25

Item 6 Exhibits		25

SIGNATURES		26

EXHIBIT INDEX		27

Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I
FINANCIAL INFORMATION

Here Media Inc.

Item 1. Financial Statements

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)


	December 31,			March 31,
	2009			2010
ASSETS
Current assets:
Cash and cash equivalents	$	981		$	227
Receivable from factor		150			324
Accounts receivable, net		2,415			988
Inventory		579			527
Program broadcasting rights, current portion		2,606			2,473
Prepaid expenses and other current assets		759			656

Total current assets		7,490			5,195
Property and equipment, net		1,379			1,078
Intangible assets, net		2,234			2,162
Program broadcasting rights, including $13,199 and $12,763 from related parties as of December 31, 2009 and March 31, 2010, respectively, net of current portion		11,971			11,484
Other assets		551			616

Total assets	$	23,625		$	20,535


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	6,867		$	5,712
Accrued expenses and other liabilities		3,387			4,065
Accrued restructuring		523			225
Due to related parties, current portion		1,233			1,465
Deferred revenue, current portion		2,913			2,785
Capital lease obligations, current portion		273			272
Deferred rent, current portion		29			29

Total current liabilities		15,225			14,553
Lines of credit from related parties		3,835			3,958
Deferred revenue, less current portion		2,016			2,173
Capital lease obligations, less current portion		131			80
Deferred rent, less current portion		58			51
Due to related parties, less current portion		12,435			11,094
Other long-term liabilities		158			129

Total liabilities		33,858			32,038

Commitments and contingencies (Note 8)
Stockholders’ deficit:
Common stock: $0.001 par value, 40,000 shares authorized, 20,701 shares issued and outstanding at December 31, 2009 and March 31, 2010		21			21
Preferred stock: $0.001 par value, 10,000 shares authorized, zero shares issued and outstanding at December 31, 2009 and March 31, 2010		—			—
Special stock: $0.001 par value, 4,200 shares authorized, 4,071 shares issued and outstanding at December 31, 2009 and March 31, 2010		4			4
Additional paid-in capital		5,097			5,192
Accumulated other comprehensive loss		(17	)		(3	)
Accumulated deficit		(15,338	)		(16,717	)

Total stockholders’ deficit		(10,233	)		(11,503	)


Total liabilities and stockholders’ deficit	$	23,625		$	20,535

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Here Media Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Three Months Ended March 31,
	2009			2010
Revenue:
Advertising services (*)	$	2,221		$	3,771
Subscription services		1,146			2,566
Transaction services (*)		3,054			453

Total revenue		6,421			6,790

Operating costs and expenses:
Cost of revenue		4,626			4,652
Sales and marketing		1,369			1,464
General and administrative		1,514			1,580
Acquisition transaction costs		378			—
Depreciation and amortization		143			368

Total operating costs and expenses		8,030			8,064

Loss from operations		(1,609	)		(1,274	)
Interest expense		(3	)		(105	)

Loss from operations before income taxes		(1,612	)		(1,379	)
Provision for income taxes		—			—

Net loss	$	(1,612	)	$	(1,379	)


Net loss per share -
Basic and diluted	$	(0.10	)	$	(0.07	)


Weighted-average shares used to compute loss per share -
Basic and diluted		16,630			20,701


^(*) Supplemental disclosure of related party revenue (see Note 5):
Advertising services revenue:
Non-related parties	$	2,221		$	2,664
Related parties		—			1,107

	$	2,221		$	3,771


Transaction services revenue:
Non-related parties	$	374		$	401
Related parties		2,680			52

	$	3,054		$	453

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Here Media Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT AND
COMPREHENSIVE LOSS

(In thousands)


											Accumulated
									Additional		Other						Total
	Common Stock				Special Stock				Paid-in		Comprehensive			Accumulated			Stockholders’
	Shares		Par Value		Shares		Par Value		Capital		Loss			Deficit			Deficit
Balance as of December 31, 2009		20,701	$	21		4,071	$	4	$	5,097	$	(17	)	$	(15,338	)	$	(10,233	)
Net loss		—		—		—		—		—		—			(1,379	)		(1,379	)
Foreign currency translation adjustment		—		—		—		—		—		14			—			14

Comprehensive loss																		(1,365	)

Contribution of services		—		—		—		—		95		—			—			95

Balance as of March 31, 2010		20,701	$	21		4,071	$	4	$	5,192	$	(3	)	$	(16,717	)	$	(11,503	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Here Media Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Three Months Ended March 31,
	2009			2010
Cash flows from operating activities:
Net loss	$	(1,612	)	$	(1,379	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		143			368
Program broadcasting rights amortization		1,130			663
Sale of accounts receivable		—			2,663
Contributed services		—			95
Provision for (reversal of) doubtful accounts		25			(55	)
Amortization of deferred rent		(8	)		(7	)
Changes in operating assets and liabilities, net of acquisition effects:
Receivable from factor		—			(174	)
Accounts receivable		1,416			(1,181	)
Inventory		29			52
Program broadcasting rights		(1,681	)		(43	)
Prepaid expenses and other assets		(94	)		38
Accounts payable		144			(1,030	)
Accrued expenses and other liabilities		(204	)		684
Accrued restructuring		—			(298	)
Due to related parties		(3,656	)		(1,227	)
Deferred revenue		337			29

Net cash used in operating activities		(4,031	)		(802	)

Cash flows from investing activities:
Purchases of property and equipment		—			(2	)

Net cash used in investing activities		—			(2	)

Cash flows from financing activities:
Principal payments under capital lease obligations		(12	)		(52	)
Borrowings under lines of credit from related parties		—			183
Repayments under lines of credit from related parties		—			(95	)
Loans from related parties		1,598			—

Net cash provided by financing activities		1,586			36

Effect of exchange rate on cash and cash equivalents		—			14

Net decrease in cash and cash equivalents		(2,445	)		(754	)
Cash and cash equivalents, beginning of period		2,530			981

Cash and cash equivalents, end of period	$	85		$	227

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Here Media Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — The Company and Summary of Significant Accounting Policies

The Company

Here Media Inc. (“Here Media” or the “Company”) is the parent company of Here Networks, LLC (“Here Networks”), Here Publishing Inc. (“Here Publishing”) and PlanetOut Inc. (“PlanetOut”). The Company refers to Here Networks and Here Publishing collectively as the “HMI Entities.” Here Media was incorporated in Delaware in January 2009 in connection with the business combination of the HMI Entities and PlanetOut, which was completed on June 11, 2009. See Note 2, “Business Combinations and Intangible Assets.”

The HMI Entities, collectively, have been determined to be the acquiring entity in the business combination, and the historical information for the HMI Entities is presented as combined with Here Media. Both Here Networks and Here Publishing were commonly owned and controlled prior to the business combination with PlanetOut.

Here Networks offers original programming content tailored for the lesbian, gay, bisexual and transgender (“LGBT”) community on a subscription basis via cable television, direct-to-home (“DTH”) satellite television, fiber-optic television and the Internet under the brand name “here!” Here Publishing publishes magazines and books and operates companion websites targeting the LGBT community. Products include the magazines Out, The Advocate and HIVPlus and books published by Alyson Books which are distributed through traditional newsstands as well as other retail outlets, and by subscriptions of print and digital editions of the magazines. PlanetOut is an online media company serving the LGBT community. PlanetOut serves this audience through its website Gay.com, which is a social networking website.

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (the “SEC”) but omit certain information and footnote disclosures necessary to present the statements in accordance with United States generally accepted accounting principles (“U. S. GAAP”). The accompanying unaudited condensed consolidated financial statements are unaudited but reflect all adjustments, including normal recurring adjustments which in the opinion of management are necessary to state fairly the financial position and the results of operations for the interim periods. Results of interim periods are not necessarily indicative of results for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K and the Company’s Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Investments in entities in which the Company holds less than a 20 percent ownership interest and over which the Company does not have the ability to significantly influence the operations of the investee are accounted for using the cost method of accounting. The Company has performed an evaluation of subsequent events through the date the unaudited condensed consolidated financial statements were issued.

As a result of the Company experiencing losses and negative cash flow from operations in the year ended December 31, 2009 and the three months ended March 31, 2010, the Company has assessed its anticipated cash needs for the next twelve months and has adopted an operating plan to manage its capital expenditures and costs of operating activities consistent with its revenues in order to meet its working capital needs for the next twelve months. Although the Company believes that it will have sufficient working capital to conduct its operations and meet its current obligations for the next twelve months, it can give no assurance that it will be able to do so. The accompanying unaudited condensed consolidated financial statements are presented on the basis that the Company is a going concern and do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Reclassifications

Certain reclassifications have been made in the unaudited condensed consolidated financial statements for prior periods contained herein to conform to the current year presentation. These reclassifications do not change the previously reported net income (loss) or net income (loss) per share of the Company.

Use of Estimates

The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions made by management include, among others, the assessment of collectability of accounts receivable, the determination of the allowance for doubtful accounts, the determination of the reserve for inventory obsolescence, determination of ultimate revenue in the amortization of program broadcasting rights, the valuation and useful life of capitalized software and long-lived assets, any impairment of long-lived assets such as program broadcasting rights and intangible assets, the valuation of deferred tax asset balances and the fair value of the stock issued in the business combination. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original or remaining maturities of three months or less to be cash equivalents.

Receivable from Factor

Receivable from factor consists of approximately $150,000 and $324,000 as of December 31, 2009 and March 31, 2010, respectively, related to reserve requirements on sales of accounts receivable under the Company’s factoring agreement. See Note 7, “Accounts Receivable Factoring.”

Fair Value Disclosures of Financial Instruments

The Company has estimated the fair value of its financial instruments using the available market information and valuation methodologies considered to be appropriate and has determined that the book value of the Company’s accounts receivable, inventories, prepaid expenses, accrued expenses, due to related parties, deferred revenue and lines of credit from related parties as of December 31, 2009 and March 31, 2010 approximate fair value.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. Cash and cash equivalents are maintained by financial institutions in the United States. Deposits in the United States may exceed federally insured limits. Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially credit worthy and, accordingly, that minimal credit risk exists with respect to the Company’s cash and cash equivalents.

The Company’s accounts receivable are derived primarily from advertising customers, from major cable or satellite operators and from wholesale distributors of the Company’s magazines and books with limited risk. The Company performs ongoing credit evaluations of its customers, does not require collateral and maintains allowances for potential credit losses when deemed necessary. To date, such losses have been within management’s expectations. No single customer accounted for 10% or more of the Company’s total revenue in the three months ended March 31, 2009 and 2010, or for more than 10% or more of the accounts receivable as of December 31, 2009 and March 31, 2010.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company determines the adequacy of this allowance by regularly reviewing the composition of its aged accounts receivable and evaluating individual customer receivables, considering (i) the customer’s financial condition, (ii) the customer’s credit history, (iii) current economic conditions and (iv) other known factors. As of December 31, 2009 and March 31, 2010 the allowance for doubtful accounts included in accounts receivable, net was approximately $213,000 and $135,000, respectively.

Sales Returns and Allowances

The Company accrues an estimated amount for sales returns and allowances in the same period that the related revenue is recorded based on historical information, adjusted for current economic trends. To the extent actual returns and allowances vary from the estimated experience, revisions to the allowance may be required. Significant management judgments and estimates are made and used in connection with establishing the sales and allowances reserve. As of December 31, 2009 and March 31, 2010, the provision for sales returns and allowances included in accounts receivable, net was approximately $429,000 and $388,000, respectively.

Inventory

Inventory consists of books held for sale and materials related to the production of future publications such as editorial and artwork costs, advances on books, paper, other publishing and novelty products and shipping materials. Inventory is stated at the lower of cost or market. Cost is determined using the specific identification method for books held for sale and using the first-in, first-out method for materials related to future production.

The Company regularly reviews inventory quantities on hand and writes down obsolete inventories to their estimated net realizable value. Significant management estimates and assumptions are made based on judgments of inventory age, shipment history and the Company’s forecast of future demand. Recoveries of previously written down inventory are recognized only when the related inventory has been sold and revenue has been recognized. As of December 31, 2009 and March 31, 2010, the reserve for obsolete inventory was approximately $26,000 and $32,000, respectively.

Program Broadcasting Rights

Program broadcasting rights consist of the non-reimbursable amounts paid by the Company for rights to distribute particular films or film libraries. Rights to programs available for broadcast under program license agreements are initially recorded at the beginning of the license period on the basis of the amounts of total license fees payable under the license agreements and are charged to operating expense over the license period. Program broadcasting rights are recorded at the lower of cost, less accumulated amortization, or net realizable value. The Company’s distribution agreements with the producers of the films or programs typically include rights to exploit the films and television programming via most forms of media in the United States and its territories for the duration of the licensing agreement.

The Company offers multiple hours of programming each month to subscribers to its subscription video-on-demand (“SVOD”) and linear television channel services, refreshing the content by 50% or more on a monthly basis. In general, the Company is unable to attribute the monthly fees earned per subscriber to individual programs or films. As a result, the Company is generally unable to recognize expenses utilizing the individual film forecast method. Therefore, the majority of the Company’s program broadcasting rights are amortized utilizing the straight-line method, generally over the license term. The Company believes that this method provides a reasonable matching of expenses with total estimated revenues over the periods that revenues associated with the films and programs are expected to be realized. During the year ended December 31, 2009, the Company acquired program broadcasting rights for a particular film library which it is amortizing using the individual film forecast method. Under the individual film forecast method, costs are amortized and participation and residual costs are accrued in the proportion that the current year’s revenue bears to management’s estimate at the beginning of the current year of the ultimate revenue expected to be recognized from the exploitation, exhibition or sale of the films. Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release. Revenue estimates are reviewed annually by management and revised when warranted by changing conditions. When estimates of total revenues and costs indicate that a film will result in an ultimate loss, an impairment charge is recognized to the extent that total film costs exceed estimated recoverable value.

When certain factors indicate that impairment may exist, the Company tests for impairment of its program broadcasting rights. The carrying value of a long-lived asset held for use is considered impaired when the anticipated discounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset held for use. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved to estimate the fair value of the film assets. In determining the film assets’ fair value, the Company considers key indicators such as the anticipated growth in subscriber level, and the plan for expansion of its linear carriages. The Company also considers cash outflows necessary to generate the film assets’ revenues. The Company uses a discount rate that it believes is appropriate to the risk level for film production. During the three months ended March 31, 2009 and 2010, the Company had no impairment of program broadcasting rights included in amortization expense.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally ranging from three to five years. Leasehold improvements are amortized over the shorter of their economic lives or lease term, including the option to extend if extension is probable, generally ranging from two to seven years. Maintenance and repairs are charged to expense as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the Condensed Consolidated Statement of Operations in the period realized.

Internal Use Software and Website Development Costs

The Company capitalizes internally developed software and website development costs incurred in the application development stage of an internal-use software project when the preliminary project stage has been completed and technological and economic feasibility has been determined. The Company exercises judgment in determining which stage of development a software project is in at any point in time. Capitalized costs are amortized on a straight-line basis over the estimated useful life of the software, generally three years, once it is available for its intended use.

Intangible Assets and Other Long-Lived Assets

The Company evaluates identifiable intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. The Company records an impairment charge on intangibles or long-lived assets when it determines that the carrying value of these assets may not be recoverable and/or exceeds their fair value. Based on the existence of one or more indicators of impairment, the Company measures any impairment based on a projected discounted cash flow method using a discount rate that it determines to be commensurate with the risk inherent in its business model. These estimates of cash flow require significant judgment based on the Company’s historical results and anticipated results and are subject to many factors including assumptions about the timing and amount of future cash flows, growth rates and discount rates.

Investment in OUTtv

The Company has invested $200,000 for its 33% ownership stake in the holding company that owns a 58% interest in OUTtv (or a 19% effective ownership interest in OUTtv), a digital specialty television network providing programming of particular interest to the gay and lesbian community across Canada. The Company accounts for this investment using the cost method of accounting as it does not exercise significant influence over the investment (see “Principles of Consolidation and Basis of Presentation”). As part of this investment, the Company entered into a programming service and intellectual property agreement which calls for a barter exchange of programming rights deliverable by the Company in exchange for certain amounts of advertising time on OUTtv. Also, OUTtv is obligated to pay $1.00 per month for every 1,000 subscribers over 300,000. In addition, in consideration of the programming service and intellectual property agreement, OUTtv’s holding company is obligated to pay a license fee of $15,000 per month. The license fee payments were deferred until OUTtv or the holding company raises $2.0 million in a private placement or a public offering. Since the Company is uncertain that OUTtv will raise $2.0 million, the Company deems that the collectability requirement for revenue recognition is not met, and therefore does not account for the license fee revenues in the unaudited condensed consolidated financial statements.

Related Party Transactions

Here Management, LLC (“Here Management”) is the controlling stockholder of the Company and is 51% owned by the Company’s Chairman of the Board, Stephen P. Jarchow, and 35% owned by the Company’s Chief Executive Officer, Paul A. Colichman. Mr. Jarchow and Mr. Colichman are also the majority owners of Regent Releasing LLC (“Regent Releasing”), Oxford Media LLC (“Oxford Media”), Studios Funding LLC (“Studios Funding”), Convergent Funding LLC (“Convergent Funding”), Regent Studios LLC (“Regent Studios”), Hyperion Media LLC (“Hyperion”), Regent Worldwide Sales LLC (“RWS”), Regent Entertainment International Inc. and Regent Entertainment Partnership, L.P. (collectively, the “Affiliates”). During the three months ended March 31, 2009 and 2010, the Company was a party to agreements with certain of the Affiliates related to publicity and marketing services agreements, expense sharing arrangements and the acquisition, licensing or distribution of programming and motion pictures.

The Company and several of the Affiliates share certain general and administrative expenses. Expenses shared by the Company and the Affiliates require the use of judgments and estimates in determining the allocation of these expenses. Prior to the business combination on June 11, 2009, these shared expenses included salary and other non-payroll related costs. Allocation of salary costs among the Company and the Affiliates was performed on an individual employee basis and was based upon the proportionate share of each employee’s time spent per affiliate company. Non-payroll costs, such as insurance, office rent, utilities, information technology and other office expenses were allocated in proportion to allocated payroll costs. Subsequent to the business combination on June 11, 2009, the sharing of employees with the Affiliates has been eliminated and non-payroll costs have been allocated among the Company and the Affiliates based primarily on usage. The Company’s management believes the allocation methodology is reasonable and represents management’s best available estimate of actual costs incurred by each company.

The Company is also a party to agreements with several of its affiliates relating to the acquisition, licensing or distribution of programming and motion pictures and the provision of publicity and marketing services. See Note 5, “Related Party Transactions.”

During the year ended December 31, 2009, the Company entered into line of credit agreements with Mr. Colichman and Mr. Jarchow. See Note 6, “Lines of Credit from Related Parties.”

The Company has barter agreements with Regent Releasing under which Regent Releasing supplies program license rights to the Company in exchange for advertising in the Company’s print publications and on the Company’s websites. The Company recognizes the license rights as program broadcasting rights and deferred advertising revenue at the estimated fair value when the product is available for telecast. Program broadcasting rights licensed under these barter agreements are amortized in the same manner as the non-barter component of the licensed programming, and advertising revenue is recognized when impressions are delivered or when magazines are placed on sale at the newsstands. See Note 5, “Related Party Transactions.”

The Company has a barter agreement with OUTtv under which the Company supplies program license rights to OUTtv in exchange for advertising time on OUTtv. The Company recognizes transaction services revenue related to the program license rights upon delivery and acceptance of the programs by OUTtv and advertising expense as the advertisements are broadcast. See Note 5, “Related Party Transactions.”

Revenue Recognition

The Company’s revenue is derived principally from advertising services, subscription services and transaction services. Advertising services revenue is generated from banner and sponsorship advertisements on the Company’s websites and from advertisements placed in the Company’s printed publications. Subscription services revenue is generated from paid membership subscriptions to Gay.com, from fees paid by subscribers for the Company’s SVOD and linear television channel services and from print and digital subscriptions to Out magazine. Transaction services revenue includes sales of Out magazine through traditional newsstands as well as other retail outlets, sales of books through the Company’s Alyson Books publishing business, theatrical box office receipts, consulting fees earned for publicity and marketing services provided to Regent Releasing under marketing agreements related to theatrical motion picture releases and revenue earned under a barter agreement with OUTtv for programming rights.

The duration of the Company’s banner advertising commitments has ranged from one week to one year. Sponsorship advertising contracts have terms ranging from three months to two years and also involve more integration with the Company’s services, such as the placement of units that provide users with direct links to the advertiser’s website. Advertising revenue on both banner and sponsorship contracts is recognized ratably over the term of the contract, provided that no significant Company obligations remain at the end of a period and collection of the resulting receivables is reasonably assured, at the lesser of the ratio of impressions delivered over the total number of undertaken impressions or the straight-line basis. The Company’s obligations typically include undertakings to deliver a minimum number of “impressions,” or times that an advertisement appears in pages viewed by users of the Company’s websites. To the extent that these minimums are not met, the Company defers recognition of the corresponding revenue until the minimums are achieved.

Magazine advertising revenues are recognized, net of related agency commissions, on the date the magazines are placed on sale at the newsstands. Revenues received for advertisements in magazines to go on sale in future months are classified as deferred advertising revenue.

Premium online subscription services are generally for a period of one to twelve months. Premium online subscription services are generally paid for upfront by credit card, subject to cancellations by subscribers or charge backs from transaction processors. Revenue, net of estimated cancellations and charge backs, is recognized ratably over the service term. To date, cancellations and charge backs have not been significant and have been within management’s expectations.

Subscription services revenue from television services is recognized for the month in which programming is broadcast to viewers. The relevant cable or satellite television operator collects the fees from subscribers and pays to the Company its corresponding portion, typically within 90 days of receipt from the customer. Viewership counts are reported monthly by system operators. Generally, under the terms of the Company’s agreements with the cable, satellite and fiber-optic television operators, the Company is paid based on a percentage of the amount charged to subscribers, typically ranging from 40% to 50% of those charges, subject to a negotiated minimum dollar amount per subscriber and to any additional incentives that the Company may offer an operator for carrying its service for a specified period of time. These additional incentives may include the operator effectively retaining the full amount of monthly subscriber fees for a specified period, such as the first three months of a twelve-month period, before fees are paid to the Company. The incentives are recognized as a reduction of revenues. The Company recognizes revenue earned from viewers net of the portion retained by the relevant system operator. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company has the substantial risks and rewards of ownership under the terms of the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue based on the gross amount billed to the ultimate customer. If the Company is acting as an agent in a transaction, the Company reports revenue on the net amount received from the customer after commissions and other payments to third parties. To the extent revenues are recorded on a gross basis, any commissions or other payments to third parties are recorded as expense so that the net amount (gross revenues less expense) is reflected in operating income (loss). Accordingly, the impact on operating income (loss) is the same whether the Company records revenue on a gross or net basis.

Deferred subscription revenue results from advance payments for premium online subscriptions to Gay.com and magazine subscriptions received from subscribers and is amortized on a straight-line basis over the subscription period. The Company provides an estimated reserve for magazine subscription cancellations at the time such subscription revenues are recorded.

Transaction services revenue from sales of Out magazine through traditional newsstands as well as other retail outlets is recognized based on the on-sale dates of magazines and is recorded based upon estimates of sales, net of product placement costs paid to resellers. Estimated returns from newsstand revenues are recorded based upon historical experience. Transaction revenue generated from the sale of books held in inventory is recognized when the books are shipped, net of estimated returns. Revenues from theatrical box office receipts are recognized as they are exhibited. Transaction services revenue derived from publicity and marketing consulting services related to theatrical motion picture releases provided to Regent Releasing was recognized as the services were performed.

Advertising Expense

Costs related to advertising and promotion are charged to sales and marketing expense as incurred. Direct-response advertising costs consist primarily of production costs associated with direct-mail promotion of magazine subscriptions and are recorded as prepaid expenses and are amortized on a straight-line basis over the subscription period. As of December 31, 2009 and March 31, 2010, the balance of unamortized direct-response advertising costs was approximately $350,000 and $162,000, respectively. Total advertising costs in the three months ended March 31, 2009 and 2010 were approximately $641,000 and $322,000, respectively.

Stock-Based Compensation

The Company does not have stock-based compensation expense.

Segment Reporting

The Company operates in one segment. Although the chief operating decision maker does review revenue results across the three revenue streams of advertising, subscription and transaction services, the profitability of each revenue stream is not measured separately. Financial reporting is consistent with the Company’s method of internal reporting where the profitability of the Company is measured on an overall basis since the chief operating decision maker evaluates, assesses performance and makes decisions on the allocation of resources at a consolidated results of operations level. The Company has no operating managers reporting to the chief operating decision maker over components of the enterprise for which separate financial information of revenue, results of operations and assets is available.

Income Taxes

The Company accounts for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence.

The Company has adopted guidance related to the accounting for uncertainty in income taxes which prescribes rules for recognition, measurement and classification in financial statements of tax positions taken or expected to be taken in a tax return. The guidance prescribes a two-step approach which involves evaluating whether a tax position will be more likely than not (greater than 50 percent likelihood) sustained upon examination based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is a greater than 50 percent likelihood of being realized upon settlement. The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company has determined that there is no material impact on the financial position, results of operations or cash flows due to uncertain tax positions. The Company is not currently under examination by any taxing authority nor has the Company been notified of an impending examination. Due to the Company’s net operating loss carryforwards, the oldest tax year that remains open to possible evaluation and interpretation of the Company’s tax position is 1999 and is related to the PlanetOut pre-acquisition net operating losses.

Comprehensive Loss

Comprehensive loss includes net income (loss) and foreign currency translation adjustments and is reported in the Unaudited Condensed Consolidated Statement of Stockholders’ Deficit and Comprehensive Loss.

Income (Loss) Per Share

Basic net income (loss) per share (“Basic EPS”) is computed by dividing net income (loss) by the sum of the weighted-average number of common shares outstanding during the period. Diluted net income per share (“Diluted EPS”) gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. The dilutive effect of outstanding warrants is computed using the treasury stock method. Common stock equivalents included in the denominator for purposes of computing basic and diluted net loss per share do not include 87,000 shares issuable upon conversion of warrants, as their effect would be anti-dilutive. Due to the net loss in the three months ended March 31, 2009 and 2010, Basic EPS and Diluted EPS are the same, as the effect of potential common stock equivalents would be antidilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):


	Three months ended March 31,
	2009			2010
Numerator:
Net loss	$	(1,612	)	$	(1,379	)

Denominator for basic and diluted net loss per share:
Weighted-average shares		16,630			20,701

Net loss per share:
Basic and diluted	$	(0.10	)	$	(0.07	)

Recent Accounting Guidance

In September 2009, the FASB issued new accounting guidance related to the revenue recognition of multiple element arrangements. The new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. The accounting guidance will be applied prospectively and will become effective for the Company during the first quarter of fiscal 2011. Early adoption is allowed. The Company is currently evaluating the impact of this accounting guidance on its unaudited condensed consolidated financial statements.

In February 2010, the Company adopted new accounting guidance related to subsequent events as issued by the FASB. This guidance requires SEC filers to evaluate subsequent events through the date the financial statements are issued, but removes the requirement to disclose the date to which subsequent events were evaluated. The adoption of this accounting guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Note 2 — Business Combinations and Intangible Assets

Business Combinations

Merger with PlanetOut Inc.

On June 11, 2009, the HMI Entities and PlanetOut combined their businesses and became wholly-owned subsidiaries of the Company. As a result of the merger, the Company operates the businesses formerly conducted by the HMI Entities and PlanetOut.

On June 11, 2009, the owners of the HMI Entities contributed to the Company all of their interests in the HMI Entities, which constituted 100% of the ownership interest in each of those companies, in exchange for the common stock of the Company, $0.001 par value per share (the “Common Stock”). The aggregate number of shares of Common Stock received by the former owners of the HMI Entities equaled approximately 80% of the issued and outstanding shares of the Common Stock, or 16,630,140 shares.

On June 11, 2009, PlanetOut merged with a subsidiary of the Company. In connection with the merger, each of the issued and outstanding shares of PlanetOut’s common stock was exchanged for one share of the Common Stock and one share of the special stock of the Company, $0.001 par value per share (the “Special Stock”). The aggregate number of shares of Common Stock received by PlanetOut stockholders equaled approximately 20% of the issued and outstanding shares of the Common Stock, or 4,070,535 shares of such stock, and 100% of the issued and outstanding shares of the Special Stock, or 4,070,535 shares of such stock. In addition, the Company assumed warrants to purchase up to 87,000 shares of PlanetOut’s common stock in connection with the transaction and has reserved 87,000 shares of both Common Stock and Special Stock of the Company for issuance upon exercise of the warrants.

The merger was accounted for under the acquisition method of accounting. The Company acquired PlanetOut for approximately $900,000 based on the estimated fair value of the tangible assets and intangible assets acquired and liabilities assumed on the acquisition date. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. The intangible assets consist of tradenames, customer lists and content databases.

There is no active market or established fair value for either of the Common Stock or the Special Stock of Here Media which was exchanged in the PlanetOut acquisition. Therefore, the value of the Common Stock and Special Stock was recorded at a value equal to the net assets acquired in the PlanetOut acquisition. Each of the Common Stock and Special Stock was recorded at its extended par value based on the number of shares exchanged and the remainder of the value exchanged was recorded as additional paid-in-capital. No recording of goodwill resulted from the PlanetOut acquisition.

Pro Forma Information

Supplemental consolidated information on an unaudited pro forma consolidated basis, as if the PlanetOut merger were completed at the beginning of each period presented, is as follows (in thousands, except per share amounts):


	Three Months Ended
	March 31, 2009
Revenue	$	10,265
Loss from continuing operations	$	(4,524	)
Basic loss from continuing operations per share	$	(0.22	)

Intangible Assets

The components of acquired intangible assets are as follows (in thousands):


	December 31, 2009						March 31, 2010
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Tradenames	$	1,292	$	—	$	1,292	$	1,292	$	—	$	1,292
Customer lists		605		70		535		605		101		504
Content database		506		99		407		506		140		366

	$	2,403	$	169	$	2,234	$	2,403	$	241	$	2,162

Intangible assets subject to amortization consist of customer lists and content databases with amortization periods of three to five years. As of March 31, 2010, the weighted-average useful economic life of customer lists and content databases being amortized was 4.1 years. During the three months ended March 31, 2009 and 2010, the Company did not record amortization expense on its tradenames which it considers to be indefinitely lived assets. During the three months ended March 31, 2009 and 2010, amortization expense of intangible assets was approximately $0 and $72,000, respectively.

As of March 31, 2010, expected future intangible asset amortization is as follows (in thousands):


Fiscal Years:
2010 (remaining nine months)	$	218
2011		290
2012		191
2013		121
2014		50

	$	870

Note 3 — Other Balance Sheet Components


	December 31,			March 31,
	2009			2010
	(In thousands)
Accounts receivable:
Trade accounts receivable	$	3,057		$	1,511
Less: Allowance for doubtful accounts		(213	)		(135	)
Less: Provision for returns		(429	)		(388	)

	$	2,415		$	988

In the three months ended March 31, 2009 and 2010, the Company provided for an increase (decrease) in the allowance for doubtful accounts of approximately $126,000 and ($8,000), respectively, and wrote-off $106,000 and approximately $70,000, respectively, against the allowance for doubtful accounts.

In the three months ended March 31, 2009 and 2010, the Company provided for an increase in the provision for returns of approximately $453,000 and $284,000, respectively, and wrote-off accounts receivable against the provision for returns totaling approximately $472,000 and $325,000, respectively.

In December 2009, the Company entered into an agreement with Amegy Bank National Association, providing the Company with a facility with which to finance accounts receivable of the Company. During the three months ended March 31, 2010, the Company sold approximately $2,663,000 of accounts receivable under this agreement. Receivables sold under this facility at December 31, 2009 and March 31, 2010 of approximately $744,000 and $1,734,000, respectively, are excluded from accounts receivables in the Unaudited Condensed Consolidated Balance Sheets. See Note 7, “Accounts Receivable Factoring.”


	December 31,			March 31,
	2009			2010
	(In thousands)
Inventory:
Materials for future publications	$	148		$	117
Finished goods available for sale		457			442

		605			559
Less: reserve for obsolete inventory		(26	)		(32	)

	$	579		$	527

In the three months ended March 31, 2009 and 2010, the Company provided for an increase in the provision for obsolete inventory of approximately $18,000 and $11,000, respectively, and wrote-off inventory against the reserve for obsolete inventory totaling approximately $133,000 and $5,000, respectively.


	December 31,		March 31,
	2009		2010
	(In thousands)
Prepaid expenses and other current assets:
Unamortized direct-response advertising costs	$	350	$	162
Other prepaid expenses and other current assets		409		494

	$	759	$	656


	December 31,			March 31,
	2009			2010
	(In thousands)
Property and equipment:
Computer equipment and software	$	1,922		$	1,924
Furniture and fixtures		861			861
Leasehold improvements		489			489
Website development costs		202			202

		3,474			3,476
Less: Accumulated depreciation and amortization		(2,095	)		(2,398	)

	$	1,379		$	1,078

In the three months ended March 31, 2009 and 2010, the Company recorded depreciation and amortization expense of property and equipment of approximately $143,000 and $296,000, respectively


	December 31,		March 31,
	2009		2010
	(In thousands)
Accrued expenses and other liabilities:
Accrued payroll and related liabilities	$	1,345	$	1,347
Other accrued liabilities		2,042		2,718

	$	3,387	$	4,065

Note 4 — Program Broadcasting Rights

Program broadcasting rights are subject to amortization, and the balances are as follows:


	December 31,			March 31,
	2009			2010
	(In thousands)
Program broadcasting rights:
Related parties	$	23,420		$	23,420
Non-related parties		2,608			2,651
Less accumulated amortization:
Related parties		(10,221	)		(10,657	)
Non-related parties		(1,230	)		(1,457	)

Program broadcasting rights		14,577			13,957
Less : current portion		2,606			2,473

Program broadcasting rights, less current portion	$	11,971		$	11,484

Amortization expense for the three months ended March 31, 2009 and 2010 was approximately $1,130,000 and $663,000, respectively. During the three months ended March 31, 2009 and 2010, the Company had no impairment of program broadcasting rights included in amortization expense.

As of March 31, 2010, expected future program broadcasting rights amortization is as follows (in thousands):


Fiscal Years:
2010 (remaining nine months)	$	1,945
2011		2,035
2012		1,336
2013		1,097
2014		1,002
2015		929
Thereafter		5,613

	$	13,957

Note 5 — Related Party Transactions

Related party revenue and expense

The Company had several one-year term publicity and marketing agreements with Regent Releasing, whose terms expired in the first quarter of fiscal 2009. Under these agreements, Regent Releasing agreed to pay a total of approximately $16,696,000 in consulting fees over the terms of the agreements for use of the Company’s marketing staff expertise in creating content and strategically releasing films and for providing assistance with marketing plans, press releases and advertising campaigns. The Company has several ongoing service agreements with Hyperion, Regent Releasing and RWS. Under the agreements with Hyperion, the Company provides circulation, production and information technology services for a monthly fee of approximately $13,000. Under the agreement with Regent Releasing and RWS, the Company provides distribution services in connection with motion pictures for a monthly fee of approximately $5,000. The Company has barter agreements with Regent Releasing and OUTtv. Under the agreement with Regent Releasing, Regent Releasing supplies program license rights to the Company in exchange for advertising in the Company’s print publications and on the Company’s websites. Under the barter agreement with OUTtv, the Company supplies program license rights to OUTtv in exchange for advertising time on OUTtv.

The following table summarizes related party revenue (in thousands):


	Three Months Ended March 31,
	2009		2010
	(In thousands)
Related party revenue:
Advertising services:
Regent Releasing	$	—	$	1,107

Total advertising services revenue from related parties		—		1,107

Transaction services:
Regent Releasing		2,680		—
Hyperion		—		37
Regent Releasing / RWS		—		15

Total transaction services revenue from related parties		2,680		52

Total revenue from related parties	$	2,680	$	1,159

There were no related party expenses in the three months ended March 31, 2009 or 2010.

Related party deferred revenue

As of December 31, 2009 and March 31, 2010, the Company had outstanding deferred license fee revenue of approximately $1,200,000 included in deferred revenue from Oxford Media related to rights sub-licensed by the Company to Oxford Media to distribute certain motion picture and television programs.

Related party receivables/payables

At December 31, 2009 and March 31, 2010, the Company had outstanding approximately $134,000 and $190,000 of funds due from various companies affiliated through common ownership, respectively. The amounts are unsecured, non-interest bearing and due on demand.

At December 31, 2009, the Company had outstanding commitments of approximately $11,387,000, $2,951,000 and $147,000 in programming license fees payable to Studios Funding, Convergent Funding and Regent Studios, respectively. At March 31, 2010, the Company had outstanding commitments of approximately $11,387,000, $2,881,000, $147,000 and $125,000 in programming license fees payable to Studios Funding, Convergent Funding, Regent Studios and OUTtv, respectively. The license fees payable pertain to license rights for films and TV programs.

At December 31, 2009, the Company had outstanding approximately $413,000 and $270,000 of receivables due from Regent Releasing and OUTtv, respectively, related to barter agreements. At March 31, 2010, the Company had outstanding approximately $1,521,000 and $270,000 of receivables due from Regent Releasing and OUTtv, respectively, related to barter agreements.

Program broadcasting rights

During the three months ended March 31, 2009, the Company entered into license agreements with Convergent Funding, Studios Funding and RWS for programming rights, which agreements provide for payments aggregating approximately $580,000, $410,000 and $100,000, respectively, over terms of one to 15 years. During the three months ended March 31, 2010, the Company did not enter into any new license agreements with related parties for programming rights. During the three months ended March 31, 2010, the Company licensed program broadcasting rights under its existing barter agreements with Regent Releasing of approximately $1,181,000. Rights to programs available for broadcast under program license agreements are initially recorded at the beginning of the license period on the basis of the amounts of total license fees payable under the license agreements and are charged to operating expense over the license period, generally one to 15 years.

At December 31, 2009 and March 31, 2010, the Company’s carrying value for program broadcasting rights purchased from related parties amounted to: approximately $7,292,000 and $7,071,000, respectively, from Regent Studios; $4,176,000 and $4,037,000, respectively, from RWS; $1,627,000 and $1,558,000, respectively, from Convergent Funding; and $104,000 and $97,000, respectively, from Regent Releasing.

Note 6 — Lines of Credit from Related Parties

On August 17, 2009, the Company entered into a line of credit agreement with Mr. Colichman and a separate line of credit agreement with Mr. Jarchow (collectively, the “Credit Agreements”), which set forth the terms upon which Mr. Colichman and Mr. Jarchow (collectively, the “Lenders”) may lend up to $2,000,000 and $3,000,000, respectively, to the Company in their respective discretion as and when requested by the Company from time to time until August 17, 2011.

The outstanding principal balance of advances made under the Credit Agreements accrue interest at a rate equal to the U.S. prime rate, as set forth in the Wall Street Journal, plus 1.00% per annum (4.25% at March 31. 2010). Advances made under the Credit Agreements are secured by the collateral specified in the Credit Agreements, including certain domain names owned or under the control of the Company, trademarks and tradenames. The Credit Agreements provide for customary events of default. Upon an event of default, the Lenders may declare all or any part of the outstanding principal balance of the advances to be immediately due and payable. During the three months ended March 31, 2010, the Company borrowed approximately $183,000, made repayments of approximately $95,000 and recognized approximately $35,000 of interest expense related to those borrowings under the Credit Agreements. As of December 31, 2009 and March 31, 2010, the Company had approximately $3,835,000 and $3,958,000, respectively, of principal outstanding under the Credit Agreements.

Note 7 — Accounts Receivable Factoring

On December 14, 2009, the Company entered into a Purchase and Sale Agreement/Security Agreement (the “Agreement”) with Amegy Bank National Association, providing the Company with a facility with which to finance accounts receivable of the Company. Under the terms of the Agreement, the Company can sell accounts receivable from time to time at an annual discount rate ranging from 6.6% to 20% based on the collection date of the receivables. During the three months ended March 31, 2010, the Company sold approximately $2,663,000 of accounts receivable under the Agreement and recognized costs associated with the Agreement of approximately $63,000. As of December 31, 2009 and March 31, 2010, the Company had a receivable from factor of approximately $150,000 and $324,000, respectively, related to reserve requirements under the Agreement. These transactions are accounted for as sales because the Company has relinquished control of the receivables. Accordingly, receivables sold under this facility at December 31, 2009 and March 31, 2010 of approximately $744,000 and $1,734,000, respectively, are excluded from accounts receivables in the Unaudited Condensed Consolidated Balance Sheets.

Note 8 — Commitments and Contingencies

January 2008 Severance Plan

Certain employees acquired through the PlanetOut business combination were provided in January 2008 with an incentive to remain committed to the Company’s business (the “Severance Plan”). The Severance Plan provides for certain cash payments in the event of termination without cause. The Company did not make any payments under the Severance Plan in the three months ended March 31, 2009 or March 31, 2010. As of March 31, 2010, the Company estimates that the total outstanding potential payments remaining under the Severance Plan that have not been paid or accrued to date is approximately $104,000. The actual amounts may vary as they depend on numerous factors outside of the Company’s control, such as whether the eligible participants choose to remain with the Company.

Employment Agreements

The Company has entered into employment agreements with certain senior executives for various terms up to three years. Aggregate future commitments under these agreements are as follows (in thousands):


Fiscal Years:
2010 (remaining nine months)	$	692
2011		397
2012		134

	$	1,223

Contingencies

The Company is not currently subject to any material legal proceedings. The Company may from time to time, however, become a party to various legal proceedings arising in the ordinary course of business. The Company may also be indirectly affected by administrative or court proceedings or actions in which the Company is not involved but which have general applicability to the Internet industry.

Note 9 — Stockholders’ Equity

Common Stock

The Company has 40,000,000 shares of Common Stock authorized with a par value of $0.001 per share. The Company had 20,700,675 common shares issued and outstanding at December 31, 2009 and March 31, 2010. The Company issued 16,630,140 shares of Common Stock to the former owners of the HMI Entities and 4,070,535 shares of Common Stock to the former owners of PlanetOut common stock in the business combination on June 11, 2009. Since the HMI Entities have been determined to be the acquiring entity in the business combination, and the historical information for the HMI Entities is presented as combined with Here Media, the Common Stock issued to the former owners of the HMI Entities is presented as issued and outstanding as of December 31, 2008. See Note 1, “The Company and Summary of Significant Accounting Policies — The Company” and Note 2, “Business Combinations and Intangible Assets — Business Combinations — Merger with PlanetOut Inc.,” for more detail.

Preferred Stock

The Company has 10,000,000 shares of preferred stock authorized with a par value of $0.001 per share. The Company had no preferred shares issued and outstanding at December 31, 2009 and March 31, 2010.

Special Stock

The Company has 4,200,000 shares of Special Stock authorized with a par value of $0.001 per share. In conjunction with the merger with PlanetOut on June 11, 2009, the Company issued 4,070,535 shares of Special Stock to the former stockholders of PlanetOut common stock. The Special Stock was issued to provide a limited form of downside protection in the event of a liquidation, dissolution or winding up of the Company or a sale of the Company for cash or publicly tradable securities within four years after the merger and in which the holders of the Company’s Common Stock would, but for the effect of the Special Stock, receive less than $4.00 per share. The former stockholders of PlanetOut would have a priority claim to any liquidation proceeds distributable to holders of the Common Stock of Here Media to the extent necessary (and to the extent liquidation proceeds are available) to provide the former PlanetOut stockholders with total liquidation proceeds of at least $4.00 per share.

Warrants

In connection with the merger with PlanetOut, the Company assumed warrants to purchase up to 87,000 shares of PlanetOut common stock, which warrants became exercisable for Common Stock and Special Stock of the Company upon completion of the merger. Warrants to purchase 12,000 shares at an exercise price of $37.40 per share will expire in September 2013. Warrants to purchase 75,000 shares at an exercise price of $0.69 per share will expire in January 2018.

Note 10 — Restructuring

In July 2009, the Company’s management committed to a restructuring plan to align the Company’s resources with its strategic business objectives. The restructuring included a reduction of the Company’s total workforce by approximately 24%, or a total of 39 employees, and the consolidation of certain facilities. Restructuring costs of approximately $1,688,000, related to employee severance benefits of approximately $243,000 and net facilities consolidation expenses of approximately $1,445,000 were recorded during the year ended December 31, 2009. The Company completed this restructuring in the fourth quarter of fiscal 2009, with certain payments continuing beyond the fourth quarter of fiscal 2009 in accordance with the terms of existing agreements.

The following is a summary of the restructuring activities:


				Facilities
	Termination			Consolidation
	Benefits			Expenses			Total
	(In thousands)
Accrued restructuring as of January 1, 2010	$	10		$	513		$	523
Payments		(10	)		(288	)		(298	)

Accrued restructuring as of March 31, 2010	$	—		$	225		$	225

Note 11 — Subsequent Events

On April 9, 2010, the Company borrowed $350,000 from Mr. Jarchow and executed an unsecured promissory note (the “Note”) in favor of Mr. Jarchow setting forth the terms of the Company’s obligations with respect to such borrowing. The Note bears interest at the rate of 10% per annum. Principal and interest on the Note are payable monthly beginning on May 3, 2010 with the final payment becoming due on or before July 1, 2010. The Note provides for prepayment in certain events, including receipt by the Company of payments on certain customer accounts.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” except where the context requires, the term “we,” “us,” “our,” or “Here Media” refers to the consolidated businesses of Here Media Inc. and its wholly-owned subsidiaries Here Networks, LLC, or Here Networks, Here Publishing Inc., or Here Publishing, and PlanetOut Inc., or PlanetOut.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include statements concerning the possible or assumed future results of operations of the Company. Such statements typically are preceded by, followed by or include words such as “future,” “position,” “anticipate(s),” “expect,” “believe(s),” “intend,” “estimate,” “predict,” “may,” “see,” “plan,” “further improve,” “outlook,” “should,” or similar words or phrases. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions, many of which are outside of our control or our ability to accurately predict. You should understand that many factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially and adversely from those expressed in our forward-looking statements. Additional information concerning these important factors can be found in our filings with the SEC. Forward-looking statements in this Quarterly Report on Form 10-Q should be evaluated in light of these important factors.

You should not place undue reliance on the forward-looking statements included in this Quarterly Report on Form 10-Q, which apply only as of the date of this Quarterly Report on Form 10-Q. We expressly disclaim any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this Quarterly Report on Form 10-Q to reflect changes in circumstances or expectations or the occurrence of unanticipated events, except to the extent required by applicable securities laws.

Overview

We are the parent company of Here Networks, Here Publishing and PlanetOut. We were formed in connection with a business combination in which these companies became our wholly-owned subsidiaries that was completed on June 11, 2009. The results of operations for PlanetOut have been included in our Unaudited Condensed Consolidated Statements of Operations for the period subsequent to its acquisition date.

Here Networks offers programming content tailored for the LGBT community on a subscription basis via cable television, DTH satellite television, fiber-optic television and the Internet under the brand name “here!.” Here Networks has agreements with major cable, satellite and fiber-optic television operators in the United States for its SVOD and/or regularly scheduled (also referred to as linear) television channel services. Here Networks generates revenue primarily from the receipt of fees paid by its subscribers for its SVOD and linear television channel services.

Here Publishing publishes magazines and books and operates companion websites targeting the LGBT community. Products include the websites out.com and advocate.com, the magazines Out, The Advocate and HIVPlus and books published by Alyson Books. Here Publishing’s websites publish original content as well as content from the magazines. Here Publishing sells and distributes Out on a subscription and newsstand basis, and delivers The Advocate as a supplement to subscribers to Out magazine as a separate edition. Here Publishing offers HIVPlus free to health care professionals and organizations. Here Publishing’s revenues are derived principally from fees charged for advertising on its websites and in its magazines. Here Publishing also derives revenues from print and digital subscriptions to Out magazine and sales of Out magazine and books published by Alyson Books through traditional newsstands as well as other retail outlets.

PlanetOut is an online media and entertainment company serving the LGBT community through its flagship website, Gay.com. This website provides revenues from advertising services and subscription services.

The combined businesses of Here Networks, Here Publishing and PlanetOut function as a multi-platform content company serving and marketing to the LGBT community.

Executive Operating and Financial Summary

Our total revenue was $6.8 million in the three months ended March 31, 2010, increasing 6% from total revenue of $6.4 million in the three months ended March 31, 2009. This increase was primarily due to the incremental effect of the merger with PlanetOut and revenues generated under barter agreements with Regent Releasing LLC (“Regent Releasing”), a related party, for advertising services, partially offset by decreases in advertising and transaction services revenues generated under marketing agreements with Regent Releasing whose terms expired in the first quarter of fiscal 2009.

Total operating costs and expenses were $8.1 million in the three months ended March 31, 2010, compared to operating costs and expenses of $8.0 million in the three months ended March 31, 2009. This increase was primarily due to the incremental effect of the merger with PlanetOut, offset partially by the non-recurrence of acquisition transaction costs of approximately $0.4 million related to the merger that were recognized in the three months ended March 31, 2009.

Loss from operations was $1.3 million in the three months ended March 31, 2010, compared to loss from operations of $1.6 million in the three months ended March 31, 2009.

Outlook

We expect that revenue will increase for the remainder of fiscal 2010 in comparison to fiscal 2009, primarily as a result of the incremental effect of the merger with PlanetOut in June 2009. We expect operating costs and expenses to decrease for the remainder of fiscal 2010 in comparison to fiscal 2009 primarily as a result of the non-recurrence of acquisition transaction costs related to the merger that were recognized in fiscal 2009, a decrease in program broadcasting rights amortization expenses as a result of term extensions in our existing program broadcasting rights agreements ranging from two years to 15 years and a decrease in payroll and related benefits as a result of the reduction in our workforce related to the July 2009 restructuring plan, partially offset by an increase due to the incremental effect of the merger with PlanetOut including an increase in depreciation and amortization expense related to intangible assets. Our results of operations in fiscal 2010 will be dependent on how successful we are in implementing our operating plan discussed in “Liquidity and Capital Resources.”

Results of Operations

Revenue

Advertising Services. We derive advertising revenue from advertising contracts in which we typically undertake to deliver a minimum number of impressions, or times that an advertisement appears in pages viewed by users on our websites and from advertisements placed in our printed publications. In addition, we generate advertising services revenue under barter agreements with Regent Releasing under which Regent Releasing has exclusively licensed to us the television and Internet rights to certain motion pictures in exchange for advertising in our print publications and on our websites. Our advertising services revenue was $3.8 million in the three months ended March 31, 2010, an increase of 70% from revenue of $2.2 million in the three months ended March 31, 2009. This increase in advertising services revenue was primarily due to revenues generated under the barter agreements with Regent Releasing and the merger with PlanetOut in June 2009. Advertising services revenue included $1.1 million in advertising services provided to Regent Releasing under barter agreements in the three months ended March 31, 2010.

Subscription Services. We derive subscription services revenue from paid membership subscriptions to Gay.com, fees paid by subscribers for SVOD and linear television channel services and print and digital subscriptions to Out magazine. Our subscription services revenue was $2.6 million in the three months ended March 31, 2010, an increase of 124% from revenue of $1.1 million in the three months ended March 31, 2009. This increase in subscription services revenue was primarily due to the incremental effect of the merger with PlanetOut.

Transaction Services. Transaction services revenue includes sales of Out magazine through traditional newsstands as well as other retail outlets, sales of books through our Alyson Books publishing business, theatrical box office revenues, consulting fees for publicity and marketing services provided to Regent Releasing under marketing agreements related to theatrical motion picture releases and revenue earned under a barter agreement with OUTtv for programming rights. Our transaction services revenue was $0.5 million in the three months ended March 31, 2010, a decrease of 85% from revenue of $3.1 million in the three months ended March 31, 2009. This decrease in transaction services revenue was primarily due to a decrease of $2.7 million in consulting fees generated under the marketing agreements with Regent Releasing, whose terms expired in the first quarter of fiscal 2009.

Operating Costs and Expenses

Cost of Revenue. Cost of revenue primarily consists of amortization of program broadcasting rights, expenses related to the delivery of programming to cable satellite and fiber-optic television providers and on-air promotional segments or interstitials that are broadcast between programs on here! television network, payroll and related benefits associated with supporting our subscription-based services, the cost of paper used in producing our magazines, mailing costs incurred in the delivery of magazines to our subscribers, the development and expansion of site operations and support infrastructure and producing and maintaining content for our various websites. Other expenses directly related to generating revenue included in cost of revenue include transaction processing fees, computer equipment maintenance, occupancy costs, co-location and Internet connectivity fees, purchased content and cost of goods sold. Cost of revenue was $4.7 million in the three months ended March 31, 2010, increasing 1% from cost of revenue of $4.6 million in the three months ended March 31, 2009. This increase was primarily due to the incremental effect of the merger with PlanetOut, partially offset by reductions in printing, distribution and content costs as a result of converting The Advocate from a subscription-based magazine to a supplement of Out magazine, a reduction in amortization of program broadcasting rights as a result of term extensions in our existing program broadcasting rights agreements ranging from two years to 15 years, and a reduction in broadcasting expense as a result of negotiated cost reductions in contracts with existing vendors.

Sales and Marketing. Sales and marketing expense primarily consists of publicity and marketing activities, payroll and related benefits for employees involved in publicity, sales, advertising client service, customer service, marketing and other support functions; product, service and general corporate marketing and promotions; and occupancy costs related to sales and marketing functions. Sales and marketing expenses were $1.5 million in the three months ended March 31, 2010, increasing 7% from sales and marketing expenses of $1.4 million in the three months ended March 31, 2009. Sales and marketing expenses as a percentage of revenue were 22% for the three months ended March 31, 2010, up from 21% in the three months ended March 31, 2009. These increases in sales and marketing expenses in both absolute dollars and as a percentage of revenue were primarily due to the incremental effect of the merger with PlanetOut, partially offset by reductions in print marketing expenses as a result of reduced spending and converting The Advocate from a subscription-based magazine to a supplement of Out magazine and a reduction in travel and entertainment expenses.

General and Administrative. General and administrative expense consists primarily of payroll and related benefits for executive, finance, administrative and other corporate personnel, occupancy costs, professional fees, insurance and other general corporate expenses. General and administrative expenses were $1.6 million for the three months ended March 31, 2010, increasing 4% from general and administrative expenses of $1.5 million in the three months ended March 31, 2009. This increase was due primarily to the incremental effect of the merger with PlanetOut and increased legal and accounting fees, partially offset by a reduction in bad debt expense and occupancy costs as a result of the consolidation of certain facilities. General and administrative expenses as a percentage of revenue were 23% for the three months ended March 31, 2010, down from 24% in the three months ended March 31, 2009.

Acquisition Transaction Costs. During the three months ended March 31, 2009, we recognized $0.4 million of transaction costs related to the merger with PlanetOut. These expenses included legal costs, transaction fees to our investment bankers, printing costs and accounting fees related to the transaction.

Depreciation and Amortization. Depreciation and amortization expense was $0.4 million for the three months ended March 31, 2010, increasing 157% from depreciation and amortization expense of $0.1 million in the three months ended March 31, 2009. This increase was primarily due to the incremental effect of the merger with PlanetOut.

Interest Expense

Interest expense was $105,000 and $3,000 in the three months ended March 31, 2010 and 2009, respectively. During fiscal 2009, we entered into line of credit agreements with Stephen P. Jarchow and Paul A. Colichman, who are our principal stockholders and our Chairman of the Board and President, respectively. Advances made under the lines of credit accrue interest at a rate equal to the U.S. prime rate, as set forth in the Wall Street Journal, plus 1.00% per annum from the date of issuance of such advances to and including the date of repayment. During the three months ended March 31, 2010, we recognized approximately $35,000 of interest expense related to the lines of credit. During the fourth quarter of fiscal 2009, we entered into a factoring agreement with Amegy Bank National Association, providing us with a facility with which to finance our accounts receivable. Under the terms of the Agreement, we can sell accounts receivable from time to time at an annual discount rate ranging from 6.6% to 20% based on the collection date of the receivables. During the three months ended March 31, 2010, we recognized approximately $63,000 of interest expense related to the factoring agreement.

Liquidity and Capital Resources

Cash used in operating activities for the three months ended March 31, 2010 was $0.8 million, due primarily to our net loss of $1.4 million, an increase in accounts receivable of $1.2 million and decreases in accounts payable of $1.0 million and due to related parties of $1.2 million, partially offset by the sale of accounts receivable under our accounts receivable factoring agreement of $2.7 million and non-cash charges related to amortization of program broadcasting rights of $0.7 million and depreciation and amortization expenses of $0.4 million. Cash used in operating activities for the three months ended March 31, 2009 was $4.0 million, and was primarily attributable to our net loss of $1.6 million, a decrease in due to related parties of $3.7 million and an increase in program broadcasting rights of $1.7 million, partially offset by a decrease in accounts receivable of $1.4 million and non-cash charges related to amortization of program broadcasting rights of $1.1 million.

Cash used in investing activities in the three months ended March 31, 2010 was $2,000 and was attributable to purchases of property and equipment. Cash used in investing activities in the three months ended March 31, 2009 was $0.

Net cash provided by financing activities in the three months ended March 31, 2010 was $36,000, due to net borrowings under lines of credit from related parties of $0.1 million, partially offset by payments under capital lease obligations of $0.1 million. Net cash provided by financing activities in the three months ended March 31, 2010 was $1.6 million, primarily due to borrowings from related parties to cover net cash used in operating activities.

We expect that cash used in operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, acquisitions of program broadcasting rights, changes in theatrical box office revenues, advertising sales, subscription trends and accounts receivable collections.

Our capital requirements depend on many factors, including the level of our revenues, the resources we devote to developing, marketing and selling our products and services, the timing and extent of our introduction of new features and services, the extent and timing of potential investments and other factors. In particular, our subscription services consist of prepaid subscriptions that provide cash flows in advance of the actual provision of services. We expect to invest capital resources to continue our product development and marketing efforts and for other general corporate activities.

As a result of experiencing losses and negative cash flow from operations in the year ended December 31, 2009 and the three months ended March 31, 2010, we have assessed our anticipated cash needs for the next twelve months and adopted an operating plan to manage our capital expenditures and costs of operating activities consistent with our revenue in order to meet our working capital needs for the next twelve months. To this end, we have negotiated cost reductions with existing vendors and adopted a restructuring plan in the third quarter of fiscal 2009 under which we have reduced our headcount and terminated some of our existing lease obligations in order to consolidate facilities. We may make further reductions as necessary to meet our working capital needs.

On August 17, 2009, we entered into line of credit agreements with Mr. Colichman and Mr. Jarchow, under which we may borrow an aggregate of up to $5.0 million. Advances under the lines of credit bear interest at a rate equal to the U.S. prime rate, as set forth in the Wall Street Journal, plus 1.00% per annum. During the three months ended March 31, 2010, we borrowed approximately $0.2 million under the lines of credit, made repayments of approximately $0.1 million and recognized approximately $35,000 of interest expense related to those borrowings.

On December 14, 2009, we entered into a Purchase and Sale Agreement/Security Agreement (the “Agreement”) with Amegy Bank National Association, providing us with a facility with which to finance our accounts receivable. Under the terms of the Agreement, we can sell accounts receivable from time to time at an annual discount rate ranging from 6.6% to 20% based on the collection date of the receivables. During the three months ended March 31, 2010, we sold approximately $2.7 million of accounts receivable under the Agreement and recognized costs associated with the Agreement of approximately $0.1 million. As of December 31, 2009 and March 31, 2010, we had a receivable from factor of approximately $0.2 million and $0.3 million, respectively, related to reserve requirements under the Agreement. These transactions are accounted for as sales because we have relinquished control of the receivables. Accordingly, receivables sold under this facility at December 31, 2009 and March 31, 2010 of approximately $0.7 million and $1.7 million, respectively, are excluded from accounts receivables in the Unaudited Condensed Consolidated Balance Sheets.

Prior to the business combination on June 11, 2009, we met our liquidity requirements primarily through capital contributions from equity holders and borrowings from related parties. If we do not have sufficient cash available to finance our operations, we may be required to obtain additional public or private debt or equity financing. We cannot be certain that additional financing will be available to us on favorable terms when required or at all. If we are unable to raise sufficient funds, we may need to reduce our planned operations. In that event, we cannot provide any assurance that our assets will be sufficient to meet our liabilities.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet liabilities or transactions as of March 31, 2010.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis on which we make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because this can vary in each situation, actual results may differ from the estimates under different assumptions and conditions.

For additional information regarding our critical accounting policies and estimates, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2009.

Seasonality

We anticipate that our business may be affected by the seasonality of certain revenue lines. For example, advertising buys are usually higher approaching year-end and lower at the beginning of a new year than at other times during the year.

Recent Accounting Pronouncements

See Note 1, “The Company and Summary of Significant Accounting Policies,” of Notes to Unaudited Condensed Consolidated Financial Statements regarding the impact of certain recent accounting pronouncements on our financial statements.


Item 4.		Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2010. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions to be made regarding required disclosure. It should be noted that any system of controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met and that, due to resource constraints, management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2010, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2010, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION


Item 6.		Exhibits

(a) Exhibits


Exhibit
Number		Description of Documents
	2.1	Agreement and Plan of Merger, dated as of January 8, 2009, by and among Here Media Inc., PlanetOut Inc., HMI Merger Sub, Inc. and other parties signatory thereto (incorporated by reference to Annex C to the Form 242(b) filing with the SEC on May 20, 2009, supplementing the Prospectus filed on the Registration Statement on Form S-4, effective May 14, 2009)

	2.2	First Amendment to Agreement and Plan of Merger, dated as of April 27, 2009, by and among PlanetOut Inc., Here Media Inc., HMI Merger Sub, Inc. and the HMI Owners and HMI Entities signatory thereto (incorporated by reference to Exhibit 2.2 to Amendment No. 3 to the Registration Statement on Form S-4 filed with the SEC on April 30, 2009)

	2.3	Letter Agreement, dated as of May 13, 2009, by PlanetOut Inc. and Here Media Inc. (incorporated by reference to Exhibit 2.3 to Amendment No. 4 to the Registration Statement on Form S-4 filed with the SEC on May 14, 2009)

	2.4	Second Amendment to Agreement and Plan of Merger, dated as of June 1, 2009, by and among PlanetOut Inc., Here Media Inc., HMI Merger Sub, Inc. and the HMI Owners and HMI Entities signatory thereto (incorporated by reference to Exhibit 2.1 to PlanetOut Inc.’s current report on Form 8-K filed on June 4, 2009)

	3.1	Amended and Restated Certificate of Incorporation of Here Media Inc. (incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 filed with the SEC on June 10, 2009)

	3.2	Amended and Restated Bylaws of Here Media Inc. (incorporated by reference to Exhibit 3.4 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 filed with the SEC on June 10, 2009)

	4.1	Form of Certificate representing the Common Stock, par value $0.001 per share, of Here Media Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 filed with the SEC on January 15, 2009)

	4.2	Form of Certificate representing the Special Stock, par value $0.001 per share, of Here Media Inc. (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the SEC on March 5, 2009)

	10.1	Promissory Note, dated April 9, 2010, between Here Media Inc. and Stephen P. Jarchow

	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HERE MEDIA INC.
Date: May 12, 2010	By:	/s/ TONY SHYNGLE
		Tony Shyngle
		Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit
Number		Description of Documents
	2.1	Agreement and Plan of Merger, dated as of January 8, 2009, by and among Here Media Inc., PlanetOut Inc., HMI Merger Sub, Inc. and other parties signatory thereto (incorporated by reference to Annex C to the Form 242(b) filing with the SEC on May 20, 2009, supplementing the Prospectus filed on the Registration Statement on Form S-4, effective May 14, 2009)

	2.2	First Amendment to Agreement and Plan of Merger, dated as of April 27, 2009, by and among PlanetOut Inc., Here Media Inc., HMI Merger Sub, Inc. and the HMI Owners and HMI Entities signatory thereto (incorporated by reference to Exhibit 2.2 to Amendment No. 3 to the Registration Statement on Form S-4 filed with the SEC on April 30, 2009)

	2.3	Letter Agreement, dated as of May 13, 2009, by PlanetOut Inc. and Here Media Inc. (incorporated by reference to Exhibit 2.3 to Amendment No. 4 to the Registration Statement on Form S-4 filed with the SEC on May 14, 2009)

	2.4	Second Amendment to Agreement and Plan of Merger, dated as of June 1, 2009, by and among PlanetOut Inc., Here Media Inc., HMI Merger Sub, Inc. and the HMI Owners and HMI Entities signatory thereto (incorporated by reference to Exhibit 2.1 to PlanetOut Inc.’s current report on Form 8-K filed on June 4, 2009)

	3.1	Amended and Restated Certificate of Incorporation of Here Media Inc. (incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 filed with the SEC on June 10, 2009)

	3.2	Amended and Restated Bylaws of Here Media Inc. (incorporated by reference to Exhibit 3.4 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 filed with the SEC on June 10, 2009)

	4.1	Form of Certificate representing the Common Stock, par value $0.001 per share, of Here Media Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 filed with the SEC on January 15, 2009)

	4.2	Form of Certificate representing the Special Stock, par value $0.001 per share, of Here Media Inc. (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the SEC on March 5, 2009)

	10.1	Promissory Note, dated April 9, 2010, between Here Media Inc. and Stephen P. Jarchow

	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Here Media Inc. 10-Q