10-Q

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: September 30, 2009

or

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	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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 October 31, 2009: 20,700,675

Here Media Inc.
INDEX
Form 10-Q
For the Period ended September 30, 2009

	PAGE
PART I — FINANCIAL INFORMATION		1
Item 1 Financial Statements		1
Unaudited Condensed Consolidated Balance Sheets as of December 31, 2008 and September 30, 2009		1
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2008 and 2009 and the Nine Months Ended September 30, 2008 and 2009		2
Unaudited Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Nine Months ended September 30, 2009		3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2009		4
Notes to Unaudited Condensed Consolidated Financial Statements		5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 4T Controls and Procedures		30
PART II — OTHER INFORMATION		31
Item 1 Legal Proceedings		31
Item 1A Risk Factors		31
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3 Defaults Upon Senior Securities		31
Item 4 Submission of Matters to a Vote of Security Holders		31
Item 5 Other Information		31
Item 6 Exhibits		31
SIGNATURES		33
EXHIBIT INDEX		34
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

i

PART I
FINANCIAL INFORMATION

Here Media Inc.

Item 1. Financial Statements

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	December 31,		September 30,
	2008		2009
ASSETS
Current assets:
Cash and cash equivalents	$	2,530	$	507
Restricted cash		—		550
Accounts receivable, net		3,849		3,263
Inventory		713		616
Program broadcasting rights, current portion		3,864		3,242
Prepaid expenses and other current assets		1,313		1,507
Due from related parties		—		156
Total current assets		12,269		9,841
Property and equipment, net		1,019		1,780
Intangible assets, net		430		2,307
Program broadcasting rights, less current portion		8,859		11,560
Other assets		286		549
Total assets	$	22,863	$	26,037
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	2,154	$	6,049
Accrued expenses and other liabilities		1,291		3,508
Accrued restructuring		—		716
Due to related parties, current portion		5,785		511
Deferred revenue, current portion		1,305		3,380
Capital lease obligations, current portion		44		200
Deferred rent, current portion		—		29
Total current liabilities		10,579		14,393
Lines of credit from related parties		—		3,538
Deferred revenue, less current portion		1,319		2,244
Capital lease obligations, less current portion		92		115
Deferred rent, less current portion		117		66
Due to related parties, less current portion		5,800		12,703
Other long-term liabilities		—		193
Total liabilities		17,907		33,252
Commitments and contingencies (Note 7)
Stockholders’ equity (deficit):
Common stock: $0.001 par value, 40,000 shares authorized, 16,630 and 20,701 shares issued and outstanding at December 31, 2008 and September 30, 2009, respectively		17		21
Preferred stock: $0.001 par value, 10,000 shares authorized, zero shares issued and outstanding at December 31, 2008 and September 30, 2009, respectively		—		—
Special stock: $0.001 par value, 4,200 shares authorized, zero and 4,071 shares issued and outstanding at December 31, 2008 and September 30, 2009, respectively		—		4
Additional paid-in capital		4,939		5,001
Accumulated other comprehensive loss		—		(1	)
Accumulated deficit		—		(12,240	)
Total stockholders’ equity (deficit)		4,956		(7,215	)
Total liabilities and stockholders’ equity (deficit)	$	22,863	$	26,037

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

1

Here Media Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Three months ended September 30,					Nine months ended September 30,
	2008		2009			2008			2009
Revenue:
Advertising services (*)	$	2,483	$	3,726		$	2,483		$	11,404
Subscription services		905		3,000			1,972			5,754
Transaction services (*)		3,800		637			6,538			2,085
Total revenue		7,188		7,363			10,993			19,243
Operating costs and expenses:
Cost of revenue		3,120		6,887			6,123			15,504
Sales and marketing		975		2,056			1,580			4,790
General and administrative		1,304		2,615			4,761			6,385
Restructuring		—		786			—			786
Acquisition transaction costs		—		223			—			3,008
Depreciation and amortization		83		568			170			970
Total operating costs and expenses		5,482		13,135			12,634			31,443
Income (loss) from operations		1,706		(5,772	)		(1,641	)		(12,200	)
Interest expense		—		(31	)		—			(40	)
Income (loss) from continuing operations		1,706		(5,803	)		(1,641	)		(12,240	)
Income from discontinued operations		11		—			11			—
Net income (loss)	$	1,717	$	(5,803	)	$	(1,630	)	$	(12,240	)
Net loss per share:
Basic and diluted			$	(0.28	)				$	(0.67	)
Weighted-average shares used to compute net loss per share — basic and diluted				20,701						18,285
(*) Supplemental disclosure of related party revenue (see Note 5):
Advertising services revenue:
Related parties	$	423	$	83		$	423		$	2,314
Non-related parties		2,060		3,643			2,060			9,090
	$	2,483	$	3,726		$	2,483		$	11,404
Transaction services revenue:
Related parties	$	3,553	$	—		$	6,236		$	467
Non-related parties		247		637			302			1,618
	$	3,800	$	637		$	6,538		$	2,085

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

2

Here Media Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

												Accumulated						Total
									Additional			Other						Stockholders’
	Common Stock				Special Stock				Paid-in			Comprehensive			Accumulated			Equity
	Shares		Par Value		Shares		Par Value		Capital			Loss			Deficit			(Deficit)
Balance as of December 31, 2008		16,630	$	17		—	$	—	$	4,939		$	—		$	—		$	4,956
Members’ distribution		—		—		—		—		(990	)		—			—			(990	)
Merger with PlanetOut Inc.		4,071		4		4,071		4		892			—			—			900
Contribution of film rights		—		—		—		—		50			—			—			50
Contribution of services		—		—		—		—		110			—			—			110
Foreign currency translation adjustment		—		—		—		—		—			(1	)		—			(1	)
Net loss		—		—		—		—		—			—			(12,240	)		(12,240	)
Balance as of September 30, 2009		20,701	$	21		4,071	$	4	$	5,001		$	(1	)	$	(12,240	)	$	(7,215	)

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

3

Here Media Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2008			2009
Cash flows from operating activities:
Net loss	$	(1,630	)	$	(12,240	)
Net income from discontinued operations, net of tax		(11	)		—
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		170			970
Program broadcasting rights amortization		3,065			3,456
Sale of accounts receivable		—			3,200
Contributed services		—			110
Provision for doubtful accounts		—			89
Restructuring		—			786
Amortization of deferred rent		(4	)		(120	)
Loss on disposal or write-off of property and equipment		—			6
Changes in operating assets and liabilities, net of acquisition effects:
Accounts receivable		(732	)		(2,093	)
Inventory		48			97
Program broadcasting rights		(4,612	)		(3,894	)
Prepaid expenses and other assets		(598	)		458
Accounts payable		(419	)		3,124
Accrued expenses and other liabilities		662			229
Accrued restructuring		—			(165	)
Due to related parties		2,068			1,106
Deferred revenue		(33	)		692
Net cash used in operating activities of continuing operations		(2,026	)		(4,189	)
Net cash used in operating activities of discontinued operations		(47	)		—
Net cash used in operating activities		(2,073	)		(4,189	)
Cash flows from investing activities:
Purchases of property and equipment		(178	)		(297	)
Cash received in acquisition of PlanetOut Inc.		—			915
Changes in restricted cash		—			550
Net cash provided by (used in) investing activities		(178	)		1,168
Cash flows from financing activities:
Principal payments under capital lease obligations		(5	)		(224	)
Borrowings under lines of credit from related parties, net of repayments		—			3,520
Loans from (repayments to) related parties		2,475			(2,297	)
Net cash provided by financing activities of continuing operations		2,470			999
Net cash provided by financing activities of discontinued operations		48			—
Net cash provided by financing activities		2,518			999
Effect of exchange rate on cash and cash equivalents		—			(1	)
Net increase (decrease) in cash and cash equivalents		267			(2,023	)
Cash and cash equivalents, beginning of period		26			2,530
Cash and cash equivalents, end of period	$	293		$	507
Supplemental disclosure of noncash flow investing and financing activities:
Contribution of film rights	$	—		$	50
Distribution of related party receivable to members	$	—		$	990
Assignment of investment in OUTtv from related party	$	—		$	75
Assignment of program broadcasting rights from related party	$	—		$	1,600
Acquisitions (see Note 2):
Assets acquired	$	6,630		$	7,717
Liabilities assumed		6,130			6,817
Net fair value of stock issued in acquisition	$	500		$	900

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

4

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. (formerly named Regent Entertainment Media Inc.) (“Here Publishing”) and PlanetOut Inc. (“PlanetOut”). Here Media was formed in connection with the business combination of Here Networks and Here Publishing (collectively, 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 of the HMI Entities were commonly owned and controlled prior to the business combination with PlanetOut. The owners of Here Networks acquired Here Publishing in August 2008. The historical financial information for Here Publishing is included from the date of its acquisition, August 13, 2008.

Here Networks offers original movies, series, documentaries and music specials tailored for the lesbian, gay, bisexual and transgender (“LGBT”) community on a subscription and transaction basis via cable television, DTH satellite television, fiber-optic television and the Internet under the brand name “here!”. Here Publishing publishes magazines and books targeting the LGBT community, which are distributed through the newsstand distribution network as well as by subscriptions of print and digital editions of the magazines. Products include The Advocate, Out, HIVPlus and Alyson Books, and companion websites. PlanetOut is a leading online media company serving the LGBT community. PlanetOut serves this audience through its websites Gay.com and PlanetOut.com.

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. The accompanying unaudited condensed consolidated balance sheet as of December 31, 2008 has been derived from the audited balance sheet of each of the HMI entities at that date. 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 Amendment No. 4 to the Registration Statement on Form S-4 filed with the SEC on May 14, 2009 and PlanetOut’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Principles of Consolidation and Basis of Presentation

The accompanying 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 financial statements were issued on November 13, 2009.

As a result of the Company experiencing recurring losses and negative cash flow from operations in each of the last two years to date and its accumulated deficit, 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 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.

5

Reclassifications

Certain reclassifications have been made in the 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 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. The Company’s investments are primarily comprised of money market funds and certificates of deposit, the fair market value of which approximates cost.

Restricted Cash

Restricted cash consists of reserves required by the Company’s former credit card processor for its online operations in order to cover any exposure that they may have as the Company collects revenue in advance of providing services to its customers.

Fair Value Measurement of Assets and Liabilities

The Company’s financial assets and liabilities are valued using market prices on both active markets (“Level 1”) and less active markets (“Level 2”). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments. As of September 30, 2009, the Company did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (“Level 3”). The Company’s financial assets consist primarily of cash and cash equivalents which are highly liquid investments with original or remaining maturities of three months or less when purchased. The Company’s financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value because of the short-term nature of these instruments. The fair value of line of credit agreements approximate carrying value because the related effective rates of interest approximate current market rates available to us for debt with similar terms and similar remaining maturities.

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.

During each of the three and nine months ended September 30, 2008 and 2009, no customer accounted for more than 10% of total revenues from unrelated parties. As of December 31, 2008 and September 30, 2009, no customer accounted for more than 10% of total accounts receivable.

6

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.

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 to be held and used when it determines that the carrying value of these assets may not be recoverable and/or exceeds their carrying 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.

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 to subscribers each month, refreshing the content by 50% or more on a monthly basis. Accordingly, the Company is unable to attribute the monthly fees earned per subscriber to individual programs or films. As a result, the Company is unable to recognize expenses utilizing the individual film forecast method. Therefore, 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.

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 into international territories. The Company also considers cash outflows necessary to generate the film assets’ cash inflows. The Company uses a discount rate that it believes is appropriate to the risk level for film production. Based on the result of discounted cash flows, no impairment loss was recognized during the three and nine months ended September 30, 2008 and 2009.

7

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 stockholders 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. (the “Affiliates”). During the three and nine months ended September 30, 2008 and 2009, the Company was a party to agreements with certain of the Affiliates related to publicity and marketing services agreements, expense sharing arrangements, the sale of accounts receivable 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 between 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 between 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 shares its merchant services provided by US Bank with Hyperion through its magazine fulfillment center. The funds and transactions are clearly identified, and the Company believes that there are no risks associated with the comingling of funds.

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.

During the nine months ended September 30, 2009, the Company sold accounts receivable without recourse to the Company’s Chief Executive Officer, Paul A. Colichman, and the Company’s Chairman of the Board, Stephen P. Jarchow. See Note 5, “Related Party Transactions.” During the three months ended September 30, 2009, the Company entered into line of credit agreements with Mr. Colichman and Mr. Jarchow. See Note 6, “Lines of Credit from Related Parties.”

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), and 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. The Company deems this barter exchange and the obligation on the subscriber counts as immaterial for the three and nine months ended September 30, 2008 and 2009. 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 condensed consolidated financial statements.

Revenue Recognition

The Company’s revenue is derived principally from advertising services, subscription services and transaction services. Advertising services revenue is generated by advertisements placed in the Company’s printed publications and from banner and sponsorship advertisements on the Company’s websites. Subscription services revenue is generated by fees paid by subscribers for the Company’s subscription video-on-demand (“SVOD”) and linear television channel services, subscription services across the Company’s print media properties and paid membership subscriptions to the Company’s online media properties. Transaction services revenue includes publicity and marketing services relating to theatrical motion picture releases, transactional fees paid by viewers for the Company’s video-on-demand (“VOD”) services, revenues from distribution of feature films, newsstand sales of the Company’s various print properties and revenue generated from co-marketing opportunities with other affiliates that are marketing to the LGBT community.

8

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.

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 online properties. To the extent that these minimums are not met, the Company defers recognition of the corresponding revenue until the minimums are achieved.

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, video-on-demand or pay-per-view viewers of the relevant cable, satellite or fiber-optic television operator, 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 involves judgment and is based on an evaluation of whether the Company has the substantial risks and rewards of ownership under the terms of the transaction.

Deferred magazine subscription revenue results from advance payments for magazine subscriptions received from subscribers and it is amortized on a straight-line basis over the life of the subscription as issues are delivered. The Company provides an estimated reserve for magazine subscription cancellations at the time such subscription revenues are recorded.

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.

Transaction services revenue derived from publicity and marketing services related to theatrical motion picture releases provided to Regent Releasing is recognized as the services are performed. The Company provides the expertise to strategically release these movies, especially to the LGBT community. The Company also provides consultative services for content creation such as the production of movie trailers, behind-the-scenes featurettes and electronic press kits. The Company’s marketing employees also provide leadership in the design and planning strategy for these releases, including assisting with marketing plans, press releases and advertising campaigns. The Company supervises the creation and placement of editorial content in its magazines and coordinated the campaign with editorial content of its related websites. The Company also advises on grass roots promotional activities in local media outlets of target markets.

Revenues from the theatrical distribution of feature films are recognized as they are exhibited.

Transaction services revenue from newsstand sales of the Company’s various print properties 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 magazines and books held in inventory is recognized when the books are shipped, net of estimated returns. The Company also earns transaction services revenue from licensing of its subscriber lists, which is recognized at the time the cash is received.

9

Advertising

Costs related to advertising and promotion are charged to sales and marketing expense as incurred except for direct-response advertising costs which are amortized over the expected life of the subscription, typically a twelve month period. Direct-response advertising costs consist primarily of production costs associated with direct-mail promotion of magazine subscriptions. As of December 31, 2008 and September 30, 2009, the balance of unamortized direct-response advertising costs was approximately $930,000 and $628,000, respectively, and is included in prepaid expenses and other current assets. Total advertising costs in the three months ended September 30, 2008 and 2009 were approximately $318,000 and $906,000, respectively. Total advertising costs in the nine months ended September 30, 2008 and 2009 were approximately $504,000 and $1,893,000, 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, 2008 and September 30, 2009, the provision for sales returns and allowances included in accounts receivable, net was approximately $519,000 and $504,000, respectively.

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, 2008 and September 30, 2009, the allowance for doubtful accounts included in accounts receivable, net was approximately $191,000 and $249,000, 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, financial reporting is consistent with the Company’s method of internal reporting where 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 reports a liability for unrecognized tax benefits, if any, resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

10

Net Loss Per Share

Basic net loss per share (“Basic EPS”) is computed by dividing net loss by the sum of the weighted-average number of common shares outstanding during the period. Diluted net loss 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 stock options and warrants is computed using the treasury stock method.

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

	Three months ended			Nine months ended
	September 30, 2009			September 30, 2009
Numerator:
Net loss	$	(5,803	)	$	(12,240	)
Denominator for basic and diluted net loss per share:
Weighted-average shares		20,701			18,285
Net loss per share:
Basic and diluted	$	(0.28	)	$	(0.67	)

Potential shares which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive are as follows (in thousands):

	Nine months ended
	September 30, 2009
Warrants		87

Recent Accounting Pronouncements

On January 1, 2009, the Company adopted new accounting guidance for business combinations as issued by the Financial Accounting Standards Board (the “FASB”). The new accounting guidance establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from previous guidance resulting from this new guidance include the expansion of the definitions of a “business” and a “business combination.” For all business combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date and; for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. The new accounting guidance also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. This guidance was effective for the Company in the first quarter of fiscal 2009 and was followed by the Company in its accounting for the business combination described in Note 2, “Business Combinations and Intangible Assets — Merger with PlanetOut Inc.” The Company recognized approximately $3,008,000 of transaction costs in connection with the merger with PlanetOut during the nine months ended September 30, 2009.

On January 1, 2009, the Company adopted new accounting guidance by the FASB which delayed the effective date of fair value accounting for all nonfinancial assets and nonfinancial liabilities by one year, except those recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2009, the Company adopted new accounting guidance for assets acquired and liabilities assumed in a business combination as issued by the FASB. The new guidance amends the provisions previously issued by the FASB related to the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The new guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

11

During the second quarter of fiscal 2009, the Company adopted three related sets of accounting guidance as issued by the FASB. The accounting guidance sets forth rules related to determining the fair value of financial assets and financial liabilities when the activity levels have significantly decreased in relation to the normal market, guidance related to the determination of other-than-temporary impairments to include the intent and ability of the holder as an indicator in the determination of whether an other-than-temporary impairment exists and interim disclosure requirements for the fair value of financial instruments. The adoption of the three sets of accounting guidance did not have a material impact on the Company’s consolidated financial statements.

During the second quarter of fiscal 2009, the Company adopted new accounting guidance for the determination of the useful life of intangible assets as issued by the FASB. The new guidance amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The new guidance also requires expanded disclosure regarding the determination of intangible asset useful lives. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

During the second quarter of fiscal 2009, the Company adopted new accounting guidance related to subsequent events as issued by the FASB. This new requirement establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. See “Principles of Consolidation and Basis of Presentation” for the related disclosure. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

During the third quarter of fiscal 2009, the Company adopted the new Accounting Standards Codification (the “ASC”) as issued by the FASB. The ASC has become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The ASC is not intended to change or alter existing U.S. GAAP. The adoption of the ASC did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued new accounting guidance which amends the criteria for a transfer of a financial asset to be accounted for as a sale, redefines a participating interest for transfers of portions of financial assets, eliminates the qualifying special-purpose entity concept and provides for new disclosures. The provisions of this new accounting guidance are effective for financial statements issued for interim and annual periods ending after November 15, 2009. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

In June 2009, the FASB issued new accounting guidance which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity (“VIE”) and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the VIE. The new guidance significantly changes the consolidation rules for VIEs including the consolidation of common structures, such as joint ventures, equity method investments and collaboration arrangements. The provisions of this new accounting guidance are effective for interim and annual reporting periods ending after November 15, 2009. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

In October 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 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 currently conducted by the HMI Entities and PlanetOut and plans to expand into other areas of content production and distribution.

On June 11, 2009, the owners of the HMI Entities contributed to the Company all of their interests in the HMI Entities, which consisted of stock and limited liability company interests that 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.

12

On June 11, 2009, PlanetOut merged with a subsidiary of the Company. In connection with the merger, each share 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 their 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 following is a statement of the net assets acquired (in thousands):

Cash and cash equivalents	$	915
Restricted cash		1,100
Accounts receivable, net		753
Prepaid expenses and other current assets		552
Property and equipment, net		2,145
Intangible assets		1,973
Other assets		279
Liabilities assumed		(6,817	)
Net assets acquired	$	900

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 were recorded at their 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.

The results of operations for PlanetOut provided revenue of approximately $2,951,000 and net loss of approximately $2,013,000 for the period of June 11, 2009 to September 30, 2009 and have been included in the Company’s condensed consolidated statements of operations.

Acquisition of LPI Media, Inc. and SpecPub, Inc. Assets

In August 2008, Here Publishing completed the acquisition of substantially all of the assets and assumption of certain liabilities of LPI Media Inc. (“LPI”) and SpecPub, Inc. (“SPI”) the former magazine publishing operations of PlanetOut, for an aggregate purchase price of approximately $500,000. The assets of SPI were transferred out of the Company in December 2008 to Hyperion, a related party. See Note 10, “Discontinued Operations.”

Accounting guidance requires that the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed be recognized as goodwill. If the sum of the amounts assigned to assets acquired and liabilities assumed exceeds the cost of the acquired entity (so-called “negative” goodwill), the excess is required to be allocated as a pro rata reduction of the amounts that otherwise would have been assigned to the acquired noncurrent assets. As a result of such allocation of negative goodwill recognized in the Company’s acquisition of the LPI assets, the value assigned to the intangible assets was reduced by approximately $900,000.

13

A condensed, unaudited balance sheet reflecting the adjusted value of acquired assets and liabilities assumed as of the date of acquisition is as follows (in thousands):

Accounts receivable, net	$	3,385
Inventory		900
Prepaid expenses and other current assets		1,095
Property and equipment, net		820
Intangible assets, net		430
Liabilities assumed		(6,130	)
Total purchase price	$	500

The Company evaluated the intangible assets, which consist of tradenames, during the three months ended September 30, 2009 and determined that there was no indication of impairment. The results of operations for LPI have been included in the Company’s condensed consolidated statements of operations for the period subsequent to the acquisition date of August 13, 2008.

Pro Forma Information

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

	Three months ended September 30,						Nine months ended September 30,
	2008			2009			2008			2009
Revenue	$	16,116		$	7,363		$	38,977		$	25,382
Loss from continuing operations	$	(480	)	$	(5,580	)	$	(16,123	)	$	(13,113	)
Basic loss from continuing operations per share	$	(0.02	)	$	(0.27	)	$	(0.78	)	$	(0.63	)

The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable. The unaudited pro forma supplemental information prepared by management is not necessarily indicative of the consolidated financial position or results of income in future periods or the results that actually would have been realized had the Company, LPI and PlanetOut been a combined company during the specified periods.

Intangible Assets

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

	December 31, 2008						September 30, 2009
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Tradenames	$	430	$	—	$	430	$	1,292	$	—	$	1,292
Customer lists		—		—		—		605		40		565
Content database		—		—		—		506		56		450
	$	430	$	—	$	430	$	2,403	$	96	$	2,307

Intangible assets subject to amortization consist of customer lists and content databases with amortization periods of three to five years. As of September 30, 2009, the weighted-average useful economic life of customer lists and content databases being amortized was 4.1 years. During the three and nine months ended September 30, 2008 and 2009, the Company did not record amortization expense on its tradenames which it considers to be indefinitely lived assets. During the three months ended September 30, 2008 and 2009, amortization expense of intangible assets was zero and approximately $72,000, respectively. During the nine months ended September 30, 2008 and 2009, amortization expense of intangible assets was zero and approximately $96,000, respectively.

14

As of September 30, 2009, expected future intangible asset amortization is as follows (in thousands):

Fiscal Years:
2009 (remaining three months)	$	73
2010		290
2011		290
2012		191
2013		121
2014		50
	$	1,015

Note 3 — Other Balance Sheet Components

	December 31,			September 30,
	2008			2009
	(In thousands)
Accounts receivable:
Trade accounts receivable	$	4,559		$	4,016
Less: Allowance for doubtful accounts		(191	)		(249	)
Less: Provision for returns		(519	)		(504	)
	$	3,849		$	3,263

In the three months ended September 30, 2008 and 2009, the Company provided for an increase in the allowance for doubtful accounts of $54,000 and approximately $99,000, respectively, and wrote-off $74,000 and approximately $96,000, respectively, against the allowance for doubtful accounts. In the nine months ended September 30, 2008 and 2009, the Company provided for an increase in the allowance for doubtful accounts of $54,000 and approximately $322,000, respectively, and wrote-off $74,000 and approximately $327,000, respectively, against the allowance for doubtful accounts.

Prior to the acquisition of the LPI assets in August 2008, the Company had no history of returns. See Note 2, “Business Combinations and Intangible Assets — Acquisition of LPI Media, Inc. and SpecPub, Inc. Assets.” In the three months ended September 30, 2008 and 2009, the Company provided for an increase in the provision for returns of approximately $408,000 and $514,000, respectively, and wrote-off accounts receivable against the provision for returns totaling approximately $182,000 and $431,000, respectively. In the nine months ended September 30, 2008 and 2009, the Company provided for an increase in the provision for returns of approximately $408,000 and $1,346,000, respectively, and wrote-off accounts receivable against the provision for returns totaling approximately $182,000 and $1,361,000, respectively.

	December 31,			September 30,
	2008			2009
	(In thousands)
Inventory:
Materials for future publications	$	293		$	195
Finished goods available for sale		573			440
		866			635
Less: reserve for obsolete inventory		(153	)		(19	)
	$	713		$	616

Prior to the acquisition of the LPI assets in August 2008, the Company had no inventory and therefore no provision for obsolete inventory. See Note 2, “Business Combinations and Intangible Assets — Acquisition of LPI Media, Inc. and SpecPub, Inc. Assets.” In the three months ended September 30, 2008 and 2009, the Company provided for an increase in the provision for obsolete inventory of approximately $174,000 and $17,000, respectively, and wrote-off inventory against the reserve for obsolete inventory totaling approximately $37,000 and $5,000, respectively. In the nine months ended September 30, 2008 and 2009, the Company provided for an increase in the reserve for obsolete inventory of approximately $174,000 and $63,000, respectively, and wrote-off inventory against the reserve for obsolete inventory totaling approximately $37,000 and $197,000, respectively.

15

	December 31,		September 30,
	2008		2009
	(In thousands)
Prepaid expenses and other current assets:
Unamortized direct-response advertising costs	$	930	$	628
Other prepaid expenses and other current assets		383		879
	$	1,313	$	1,507

	December 31,			September 30,
	2008			2009
	(In thousands)
Property and equipment:
Computer equipment and software	$	590		$	1,922
Furniture and fixtures		817			861
Leasehold improvements		467			489
Website development costs		—			188
		1,874			3,460
Less: Accumulated depreciation and amortization		(855	)		(1,680	)
	$	1,019		$	1,780

In the three months ended September 30, 2008 and 2009, the Company recorded depreciation and amortization expense of property and equipment of approximately $83,000 and $495,000, respectively. In the nine months ended September 30, 2008 and 2009, the Company recorded depreciation and amortization expense of property and equipment of approximately $170,000 and $872,000, respectively.

	December 31,		September 30,
	2008		2009
	(In thousands)
Accrued expenses and other liabilities:
Accrued payroll and related liabilities	$	497	$	1,413
Other accrued liabilities		794		2,095
	$	1,291	$	3,508

Note 4 — Program Broadcasting Rights

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

	December 31,			September 30,
	2008			2009
	(In thousands)
Program broadcasting rights:
Related parties	$	29,828		$	33,975
Non-related parties		1,584			2,931
Less accumulated amortization:
Related parties		(18,044	)		(20,840	)
Non-related parties		(645	)		(1,264	)
Program broadcasting rights		12,723			14,802
Less: current portion		3,864			3,242
Program broadcasting rights, less current portion	$	8,859		$	11,560

Amortization expense for the three months ended September 30, 2008 and 2009 was approximately $997,000 and $1,052,000, respectively. Amortization expense for the nine months ended September 30, 2008 and 2009 was approximately $3,065,000 and $3,415,000, respectively. During the three and nine months ended September 30, 2008 and 2009, the Company had no impairment of program broadcasting rights included in amortization expense.

16

As of September 30, 2009, expected future program broadcasting rights amortization is as follows (in thousands):

Fiscal Years:
2009 (remaining three months)	$	646
2010		3,571
2011		2,011
2012		1,243
2013		1,053
2014		950
Thereafter		5,328
	$	14,802

Note 5 — Related Party Transactions

Related party revenue

The Company has several one-year term publicity and marketing agreements with Regent Releasing. 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 also has several ongoing service agreements with Hyperion. Under these agreements, the Company provides circulation, production and information technology services for a monthly fee of approximately $28,000. During the three months ended September 30, 2008 and 2009, the Company generated approximately $3,976,000 and $83,000, respectively, in revenue from services provided under these agreements. During the nine months ended September 30, 2008 and 2009, the Company generated approximately $6,659,000 and $2,781,000, respectively, in revenue from services provided under these agreements.

Related party deferred revenue

As of December 31, 2008 and September 30, 2009, the Company had outstanding deferred license fee revenue of zero and $1,200,000, respectively, included in deferred revenue on the Condensed Consolidated Balance Sheets from Oxford Media, related to licensing rights sub-licensed by the Company to Oxford Media to distribute certain motion picture and television programs.

Related party receivables/payables

At December 31, 2008 and September 30, 2009, the Company had outstanding approximately $818,000 of funds due to and $156,000 of funds due from, respectively, various companies affiliated through common ownership. The amounts are unsecured, non-interest bearing and due on demand.

At December 31, 2008, the Company also had outstanding commitments of approximately $10,352,000 and $415,000 in programming license fees payable to Studios Funding and Convergent Funding, respectively. At September 30, 2009 the Company had outstanding commitments of approximately $10,912,000, $1,883,000 and $419,000 in programming license fees payable to Studios Funding, Convergent Funding and Regent Studios, respectively. The license fees payable pertain to license rights for films and TV programs.

Program broadcasting rights

Approximately $3,280,000 and $870,000 of programming was purchased from related parties for the three months ended September 30, 2008 and 2009, respectively. The total amount of programming purchased from related parties amounted to approximately $4,045,000 and $4,147,000 for the nine months ended September 30, 2008 and 2009, respectively. The total amount of programming payments to related parties was zero for the three and nine months ended September 30, 2008 and 2009.

At December 31, 2008 and September 30, 2009, the Company’s carrying value for program broadcasting rights purchased from related parties amounted to approximately $7,399,000 and $6,368,000, respectively, from Regent Studios; $3,862,000 and $3,685,000, respectively from RWS; $372,000 and $2,971,000, respectively from Convergent Funding; and $151,000 and $111,000, respectively, from Regent Releasing.

17

Sale of accounts receivable

During the nine months ended September 30, 2009, the Company sold accounts receivable of approximately $3,200,000 without recourse to Mr. Colichman and Mr. Jarchow and received $3,200,000 in cash.

Note 6 — Lines of Credit from Related Parties

On August 17, 2009, the Company entered into a line of credit agreement with Paul A. Colichman and a separate line of credit agreement with Stephen P. Jarchow (collectively, the “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 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 September 30, 2009). Advances made under the Agreements are secured by the collateral specified in the Agreements, including certain domain names owned or under the control of the Company, trademarks and tradenames and cash reserves (not to exceed $1,000,000) held by the Company’s former credit card processor. The 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 September 30, 2009, the Company borrowed approximately $3,668,000 and made repayments of approximately $148,000 under the Agreements, and recognized approximately $18,000 of interest expense related to those borrowings.

Note 7 — 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 has made payments of approximately $46,000 and $198,000 under the Severance Plan in the three and nine months ended September 30, 2009, respectively. As of September 30, 2009, the Company estimates that the total outstanding potential payments that have not been paid or accrued to date remaining under the Severance Plan is approximately $153,000. 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:
2009 (remaining three months)	$	653
2010		1,502
2011		628
2012		134
	$	2,917

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.

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Note 8 — 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 16,630,140 and 20,700,675 common shares issued and outstanding at December 31, 2008 and September 30, 2009. 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 — 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, 2008 and September 30, 2009.

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 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 9 — 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 $786,000, related to employee severance benefits of approximately $243,000 and net facilities consolidation expenses of approximately $543,000 were recorded during the three months ended September 30, 2009. The Company expects to be able to complete 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 severance and other agreements.

The following is a summary of the restructuring activities:

								Accrued
						Non-cash		Restructuring
	Restructuring		Cash			(Charges)		As of
	Charges		Payments			Benefit		September 30, 2009
	(In thousands)
Termination benefits	$	243	$	(165	)	$	—	$	78
Facilities consolidation expenses		543					95		638
Total	$	786	$	(165	)	$	95	$	716

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Note 10 — Discontinued Operations

In August 2008, the Company completed the purchase of assets and assumption of certain liabilities of LPI and SPI. See Note 2, “Business Combinations and Intangible Assets.” The assets, liabilities and business operations of SPI were transferred from the Company in December 2008 and are reflected as discontinued operations in the condensed consolidated financial statements.

The results of discontinued operations for the business previously conducted under SPI for the period from August 13, 2008 to September 30, 2008 were as follows (in thousands):

Total revenue	$	434
Operating costs and expenses:
Cost of revenue		287
Sales and marketing		62
General and administrative		74
Total operating costs and expenses		423
Income from discontinued operations	$	11

Note 11 — Subsequent Events

On October 14, 2009, Phillip S. Kleweno resigned from the board of directors of the Company.

On November 2, 2009, the Company entered into a Lease Termination, Surrender and Settlement Agreement (the “Agreement”) with its former landlord terminating an operating lease for office space. The Agreement is effective as of September 30, 2009 and provides for a settlement amount of $500,000 to be paid in increments through March 2, 2010. The settlement amount has been included in facilities consolidation expenses in restructuring expense in the condensed consolidated financial statements. See Note 9, “Restructuring.”

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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. (formerly Regent Entertainment Media 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.

These factors include the following:

• We have a history of losses. If we do not attain and sustain profitability, our financial condition and investment value could suffer.

• If we are not successful in our efforts to reduce costs substantially and to increase revenues to achieve the planned benefits of our recent business combination with PlanetOut, we may have difficulty funding our operations, may not be able to expand our business as planned and may instead find it necessary to curtail operations.

• We may require additional capital, which may not be available, particularly under current capital and credit market conditions.

• Our success is dependent upon audience acceptance of our programming and other entertainment content, which is difficult to predict.

• The entertainment and media programming industries are highly competitive industries, and many of our competitors have much greater resources, longer operating histories and more well known brand names than we have.

• If we are unable to generate increased revenue from advertising or if we were to lose existing advertisers, our business will suffer.

• Our success depends, in part, upon the growth of Internet advertising and upon our ability to predict the cost of customized campaigns.

• If our efforts to attract and retain subscribers are not successful, our revenue will decrease. We could lose subscribers if we are unable to provide satisfactory customer service.

• Increased programming production and content costs may adversely affect our results of operations and financial condition.

• Disruption or failure of satellites and facilities that transmit our media network to cable television operators and other distributors, and disputes over supplier contracts on which we depend to distribute our programming could adversely affect our business.

• We must respond to and capitalize on rapid changes in new technologies and distribution platforms, including their effect on consumer behavior, in order to remain competitive and exploit new opportunities.

• Our operations could be harmed if we lost the services of our senior executives including Paul A. Colichman, our Chief Executive Officer, and Stephen P. Jarchow, the Chairman of our Board of Directors.

• Any significant disruption in service on our websites or in our computer and communications hardware and software systems could harm our business.

• If we are unable to compete effectively, we may lose market share and our revenue may decline.

• Our efforts to develop new products and services for evolving markets are subject to a number of factors beyond our control.

• Our reputation and brand could be harmed if we are unable to protect our domain names and third parties gain rights to, or use, these domain names in a manner that confuses or impairs our ability to attract and retain customers.

• If we fail to protect our trademarks and other proprietary rights, or if we become involved in intellectual property litigation, our revenue may decline and our expenses may increase.

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• The risks of transmitting confidential information online, including credit card information, may discourage customers from subscribing to our services.

• Existing or future government regulation in the United States and other countries could limit our growth and result in loss of revenue.

• We may be the target of negative publicity campaigns or other actions by advocacy groups that could disrupt our operations because we serve the lesbian, gay, bisexual and transgender, or LGBT, community.

• If one or more states or countries successfully assert that we should collect sales or other taxes on the use of the Internet or the online sales of goods and services, our expenses will increase, resulting in lower margins.

• We are exposed to pricing and production capacity risks associated with our magazine publishing business, which could result in lower revenues and profit margins.

• Our common stock is not listed on any securities exchange, which results in very limited liquidity for our stockholders.

• The ownership of 80% of Here Media’s common stock by the pre-transaction owners of the HMI Entities, and provisions in Here Media’s certificate of incorporation and Here Media’s bylaws, may prevent takeover attempts that could be beneficial to Here Media’s other stockholders.

• The interests of our principal stockholders may differ from the interests of our other stockholders.

• The special stock will provide only limited downside protection to its holders.

• Recent and potential future acquisitions could result in operating difficulties and unanticipated liabilities.

• Adult content in our online service may be the target of negative publicity campaigns or subject us to restrictive or costly regulatory compliance.

• In the event we are unable to satisfy regulatory requirements relating to internal control over financial reporting, or if these internal controls are not effective, our business could suffer.

• In the event of an earthquake, other natural or man-made disaster, or power loss, our operations could be interrupted or adversely affected, resulting in lower revenue.

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 the business combination of Here Networks, Here Publishing and PlanetOut, which was completed on June 11, 2009. As a result of such business combination, Here Networks, Here Publishing and PlanetOut became our wholly-owned subsidiaries. We operate the businesses currently conducted by Here Networks, Here Publishing and PlanetOut and plan to expand into other areas of content production and distribution. The results of operations for PlanetOut have been included in our condensed consolidated statements of operations for the period subsequent to the acquisition date.

Here Networks offers original movies, series, documentaries and music specials tailored for the LGBT community on a subscription and transactional basis via cable television, direct-to-home (also referred to as 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 VOD and SVOD and/or regularly scheduled (also referred to as linear) television channel services. Here Networks generates revenue from the receipt of fees paid by its subscribers for its SVOD and linear television channel services and transactional fees paid by viewers of its VOD services.

Here Publishing publishes magazines and books targeting the LGBT community, which are distributed through the newsstand distribution network as well as by subscriptions of print and digital editions of the magazines. Products include The Advocate, Out, HIVPlus and Alyson Books, and companion websites. Here Publishing offers Out and The Advocate on a subscription and newsstand basis, while it offers HIVPlus free to health care professionals and organizations. Here Publishing’s revenues are derived principally from subscriptions and newsstand sales for its magazines and fees charged for advertising in its magazines and on its websites. Here Publishing’s business consists of the former magazine publishing operations of PlanetOut that were conducted through LPI Media Inc., or LPI. Here Publishing acquired substantially all of the assets and liabilities of LPI in August 2008. The results of operations for LPI have been included in our condensed consolidated statements of operations for the period subsequent to the acquisition date.

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PlanetOut is a leading online media and entertainment company serving the LGBT community through its flagship websites, Gay.com and PlanetOut.com. These websites provide revenues from advertising services and subscription services.

The combined companies 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 $7.4 million in the three months ended September 30, 2009, increasing 2% from total revenue of $7.2 million in the three months ended September 30, 2008. Our total revenue was $19.2 million in the nine months ended September 30, 2009, increasing 75% from total revenue of $11.0 million in the nine months ended September 30, 2008. These increases were primarily due to the incremental effect of the acquisition of the LPI assets and the merger with PlanetOut, as well as increases in SVOD subscription services revenue and theatrical box office revenues due to the initiation of our distribution of theatrical motion picture releases, partially offset by decreases in publicity and marketing services revenues caused by the timing of motion picture title releases by Regent Releasing.

Total operating costs and expenses were $13.1 million in the three months ended September 30, 2009, increasing 140% from total operating costs and expenses of $5.5 million in the three months ended September 30, 2008. Total operating costs and expenses were $31.4 million in the nine months ended September 30, 2009, increasing 149% from total operating costs and expenses of $12.6 million in the nine months ended September 30, 2008. These increases were primarily due to the incremental effect of the acquisition of the LPI assets and the merger with PlanetOut.

Loss from operations was $5.8 million in the three months ended September 30, 2009, compared to income from operations of $1.7 million in the three months ended September 30, 2008. Loss from operations was $12.2 million in the nine months ended September 30, 2009, compared to loss from operations of $1.6 million in the nine months ended September 30, 2008.

Outlook

We expect that revenue will increase for the remainder of fiscal 2009 in comparison to fiscal 2008, primarily as a result of the incremental effect of the merger with PlanetOut in June 2009 and the acquisition of the LPI assets in August 2008, increases in SVOD subscription services revenue and increases in transaction services revenue from theatrical box office revenues. We expect operating costs and expenses to increase for the remainder of fiscal 2009 in comparison to fiscal 2008 due to the incremental effect of our acquisition of the LPI assets and the merger with PlanetOut, increases in program broadcasting rights amortization expenses, costs related to the development of our planned motion picture production operations and increased depreciation and amortization expense due to an increase in depreciable assets in service and an increase in intangible assets as a result of the merger with PlanetOut. Our results of operations for the remainder of fiscal 2009 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 advertisements placed in our printed publications and from advertising contracts in which we typically undertake to deliver a minimum number of impressions to users over a specified time period for a fixed fee on our websites. Our advertising services revenue was $3.7 million in the three months ended September 30, 2009, an increase of 50% from the three months ended September 30, 2008. Our advertising services revenue was $11.4 million in the nine months ended September 30, 2009, an increase of 359% from the nine months ended September 30, 2008. These increases in advertising services revenue were primarily due to the acquisition of the LPI assets in August 2008 and, to a lesser extent, the merger with PlanetOut in June 2009. Advertising services revenue included $0.1 million and $0.4 million in publicity and marketing services provided to Regent Releasing in the three months ended September 30, 2009 and 2008, respectively. Advertising services revenue included $2.3 million and $0.4 million in publicity and marketing services provided to Regent Releasing in the nine months ended September 30, 2009 and 2008, respectively.

Subscription Services. We derive subscription services revenue from the receipt of fees paid by subscribers for our subscription video-on-demand, or SVOD, and linear television channel services, subscription services across our print media properties and paid membership subscriptions to our online media properties. Our subscription services revenue was $3.0 million in the three months ended September 30, 2009, an increase of 232% from the three months ended September 30, 2008. Our subscription services revenue was $5.8 million in the nine months ended September 30, 2009, an increase of 192% from the nine months ended September 30, 2008. These increases in subscription services revenue were primarily due to the incremental effect of the acquisition of the LPI assets and the merger with PlanetOut and, to a lesser extent, increases in SVOD subscription services revenue.

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Transaction Services. Transaction services revenue includes publicity and marketing services provided to Regent Releasing, transactional fees paid by viewers for our video-on-demand, or VOD, services, theatrical box office revenues, newsstand sales of our various print properties and revenue generated from co-marketing opportunities with other affiliates that are marketing to the LGBT community. Our transaction services revenue was $0.6 million in the three months ended September 30, 2009, a decrease of 83% from the three months ended September 30, 2008. Our transaction services revenue was $2.1 million in the nine months ended September 30, 2009, a decrease of 68% from the nine months ended September 30, 2008. These decreases in transaction services revenue were primarily due to decreases in publicity and marketing services revenues caused by the timing of title releases by Regent Releasing, partially offset by increases due to the incremental effect of the acquisition of the LPI assets and theatrical box office revenues due to the initiation of our distribution of theatrical motion picture releases. Transaction services revenue included zero and $3.6 million in publicity and marketing services provided to Regent Releasing in the three months ended September 30, 2009 and 2008, respectively. Transaction services revenue included $0.5 million and $6.2 million in publicity and marketing services provided to Regent Releasing in the nine months ended September 30, 2009 and 2008, respectively.

Operating Costs and Expenses

Cost of Revenue. Cost of revenue primarily consists of amortization of program broadcasting rights and 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!, payroll and related benefits associated with supporting our subscription-based services, 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 $6.9 million in the three months ended September 30, 2009, increasing 121% from cost of revenue of $3.1 million in the three months ended September 30, 2008. Cost of revenue was $15.5 million in the nine months ended September 30, 2009, increasing 153% from cost of revenue of $6.1 million in the nine months ended September 30, 2008. These increases were primarily due to the incremental effect of the acquisition of the LPI assets and the merger with PlanetOut.

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. Sales and marketing expenses were $2.1 million in the three months ended September 30, 2009, increasing 111% from sales and marketing expenses of $1.0 million in the three months ended September 30, 2008. Sales and marketing expenses were $4.8 million in the nine months ended September 30, 2009, increasing 203% from sales and marketing expenses of $1.6 million in the nine months ended September 30, 2008. Sales and marketing expenses as a percentage of revenue were 28% for the three months ended September 30, 2009, up from 14% in the three months ended September 30, 2008. Sales and marketing expenses as a percentage of revenue were 25% for the nine months ended September 30, 2009, up from 14% in the nine months ended September 30, 2008. 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 acquisition of the LPI assets and the merger with PlanetOut and costs associated with the generation of theatrical box office revenues, partially offset by reductions in print advertising costs, cross channel promotion expenses, website expenses, research expenses, talent appearance fees and travel costs.

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 $2.6 million for the three months ended September 30, 2009, increasing 101% from general and administrative expenses of $1.3 million in the three months ended September 30, 2008. General and administrative expenses were $6.4 million for the nine months ended September 30, 2009, increasing 34% from general and administrative expenses of $4.8 million in the nine months ended September 30, 2008. These increases were due primarily to the incremental effect of the acquisition of the LPI assets and the merger with PlanetOut including increased legal and accounting fees, partially offset by reduced payroll costs and insurance expenses. General and administrative expenses as a percentage of revenue were 36% for the three months ended September 30, 2009, up from 18% in the three months ended September 30, 2008. This increase was due to the incremental effect of the acquisition of the LPI assets and the merger with PlanetOut, integration and other expenses associated with the merger with PlanetOut and costs associated with the generation of theatrical box office revenues. General and administrative expenses as a percentage of revenue were 33% for the nine months ended September 30, 2009, down from 43% in the nine months ended September 30, 2008. This decrease was primarily due to the incremental effect of the acquisition of the LPI assets and the merger with PlanetOut.

Restructuring. In July 2009, management committed to a restructuring plan to align our resources with our strategic business objectives. The restructuring included a reduction of our total workforce by approximately 24%, or a total of 39 employees, and the consolidation of certain facilities. Restructuring costs of approximately $0.8 million, related to employee severance benefits of approximately $0.2 million and net facilities consolidation expenses of approximately $0.6 million were recorded during the three months ended September 30, 2009. We expect to be able to complete 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 severance and other agreements.

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Acquisition Transaction Costs. During the three and nine months ended September 30, 2009, we recognized $0.2 million and $3.0 million, respectively, of acquisition transaction costs related to the merger with PlanetOut. These expenses include 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 $0.6 million for the three months ended September 30, 2009, increasing 584% from depreciation and amortization expense of $0.1 million in the three months ended September 30, 2008. Depreciation and amortization expense was $1.0 million for the nine months ended September 30, 2009, increasing 471% from depreciation and amortization expense of $0.2 million in the nine months ended September 30, 2008. These increases were primarily due to an increase in depreciable assets in service as a result of the acquisition of the LPI assets and the merger with PlanetOut.

Other Income and Expenses

Interest expense. Interest expense was $31,000 and $40,000 in the three and nine months ended September 30, 2009. Interest expense was zero in the three and nine months ended September 30, 2008. During the three months ended September 30, 2009, we entered into line of credit agreements with Mr. Colichman and Mr. Jarchow. 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.

Discontinued Operations

In August 2008, we completed the purchase of assets and assumption of certain liabilities of LPI and SPI. The assets, liabilities and business operations of SPI were transferred by us in December 2008 and are reflected as discontinued operations in the condensed consolidated financial statements.

The results of discontinued operations for the business previously conducted under SPI for the period from August 13, 2008 to September 30, 2008 were as follows (in thousands):

Total revenue	$	434
Operating costs and expenses:
Cost of revenue		287
Sales and marketing		62
General and administrative		74
Total operating costs and expenses		423
Income from discontinued operations	$	11

Liquidity and Capital Resources

Cash used in operating activities for the nine months ended September 30, 2009 was $4.2 million, due primarily to our net loss of $12.2 million which included acquisition transaction costs of $3.0 million related to our business combination of the HMI Entities and PlanetOut, an increase in program broadcasting rights and an increase in accounts receivable, partially offset by $3.2 million of cash received from the sale of accounts receivable to our Chief Executive Officer, Paul A. Colichman, and our Chairman of the Board, Stephen P. Jarchow, increases in accounts payable, deferred revenue and due to related parties and non-cash charges related to amortization of program broadcasting rights, restructuring charges and deprecation and amortization expenses. Cash used in operating activities for the nine months ended September 30, 2008 was $2.1 million, and was primarily attributable to our net loss of $1.6 million and an increase in program broadcasting rights, partially offset by an increase in due to related parties and non-cash charges related to amortization of program broadcasting rights.

Cash provided by investing activities in the nine months ended September 30, 2009 was $1.2 million and was attributable to cash acquired in the merger with PlanetOut of $0.9 million and a decrease in restricted cash of $0.6 million, partially offset by purchases of property and equipment of $0.3 million. Cash used in investing activities in the nine months ended September 30, 2008 was $0.2 million and was attributable to purchases of property and equipment.

Net cash provided by financing activities in the nine months ended September 30, 2009 was $1.0 million, due to net borrowings under lines of credit from related parties of $3.5 million, partially offset by repayments of loans from related parties of $2.3 million and principal payments under capital lease obligations of $0.2 million. Net cash provided by financing activities in the nine months ended September 30, 2008 was $2.5 million, primarily due to borrowings from related parties to cover net cash used in operating activities.

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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, 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. In addition, we expect to incur costs in developing our planned motion picture production operations, which will consist principally of compensation expenses and other costs incurred on a production-by-production basis in connection with the production of individual motion pictures.

As a result of experiencing recurring losses and negative cash flow from operations in each of the last two years to date and our accumulated deficit, 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 Paul A. Colichman and Stephen P. 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 September 30, 2009, we borrowed approximately $3.7 million under the lines of credit, made repayments of approximately $0.2 million and recognized approximately $18,000 of interest expense related to those borrowings.

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 September 30, 2009.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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.

We believe the following critical accounting policies require more significant judgments and estimates in the preparation of our consolidated financial statements:

Revenue Recognition. Our revenue is derived principally from advertising services, subscription services and transaction services. Advertising services revenue is generated by advertisements placed in our printed publications and from banner and sponsorship advertisements on our websites. Subscription services revenue is generated by fees paid by subscribers for our SVOD and linear television channel services, subscription services across our print media properties and paid membership subscriptions to our online media properties. Transaction services revenue includes publicity and marketing services relating to theatrical motion picture releases, transactional fees paid by viewers for our VOD services, revenues from distribution of feature films, newsstand sales of our various print properties and revenue generated from co-marketing opportunities with other affiliates that are marketing to the LGBT community.

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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.

The duration of our 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 our 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 we have no significant obligations remaining 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. Our obligations typically include undertakings to deliver a minimum number of “impressions,” or times that an advertisement appears in pages viewed by users of our online properties. To the extent that these minimums are not met, we defer recognition of the corresponding revenue until the minimums are achieved.

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 us our corresponding portion, typically within 90 days of receipt from the customer. Viewership counts are reported monthly by system operators. Generally, under the terms of our agreements with the cable, satellite and fiber-optic television operators, we are paid based on a percentage of the amount charged to subscribers, video-on-demand or pay-per-view viewers of the relevant cable, satellite or fiber-optic television operator, typically ranging from 40% to 50% of those charges, subject to a negotiated minimum dollar amount per subscriber and to any additional incentives that we may offer an operator for carrying our 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 us. The incentives are recognized as a reduction of revenues. We recognize revenue earned from viewers net of the portion retained by the relevant system operator. The determination of whether we act as a principal or an agent in a transaction involves judgment and is based on an evaluation of whether we have the substantial risks and rewards of ownership under the terms of the transaction.

Deferred magazine subscription revenue results from advance payments for magazine subscriptions received from subscribers and it is amortized on a straight-line basis over the life of the subscription as issues are delivered. We provide an estimated reserve for magazine subscription cancellations at the time such subscription revenues are recorded.

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.

Transaction services revenue derived from publicity and marketing services related to theatrical motion picture releases provided to Regent Releasing is recognized as the services are performed. We provide the expertise to strategically release these movies, especially to the LGBT community. We also provide consultative services for content creation such as the production of movie trailers, behind-the-scenes featurettes and electronic press kits. Our marketing employees also provide leadership in the design and planning strategy for these releases, including assisting with marketing plans, press releases and advertising campaigns. We supervise the creation and placement of editorial content in our magazines and coordinated the campaign with editorial content of our related websites. We also advise on grass roots promotional activities in local media outlets of target markets.

Revenues from the theatrical distribution of feature films are recognized as they are exhibited.

Transaction services revenue from newsstand sales of our various print properties 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 magazines and books held in inventory is recognized when the books are shipped, net of estimated returns. We also earn transaction services revenue from licensing of our subscriber lists, which is recognized at the time the cash is received.

Advertising Costs. Costs related to advertising and promotion are charged to sales and marketing expense as incurred except for direct-response advertising costs which are amortized over the expected life of the subscription, typically a twelve month period. Direct-response advertising costs consist primarily of production costs associated with direct-mail promotion of magazine subscriptions.

Valuation Allowances. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.

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We accrue 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 in connection with establishing the sales and allowances reserve.

We regularly review inventory quantities on hand and write down obsolete inventories to their estimated net realizable value. We make significant estimates and assumptions based on our judgment of inventory age, shipment history and our 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.

Intangible Assets and Other Long-lived Assets. Our long-lived assets include intangible assets, property and equipment and other assets. We record an impairment charge on intangible or other long-lived assets to be held and used when we determine that the carrying value of these assets may not be recoverable and/or exceed their carrying value. Based on the existence of one or more indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate that we determine to be commensurate with the risk inherent in our business model. Our estimates of cash flow require significant judgment based on our 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.

Capitalized Website Development Costs. We capitalize the costs of enhancing and developing features for our websites when we believe that the capitalization criteria for these activities have been met and amortize these costs on a straight-line basis over the estimated useful life, generally three years. We expense the cost of enhancing and developing features for our websites in cost of revenue only when we believe that capitalization criteria have not been met. We exercise judgment in determining when to begin capitalizing costs and the period over which we amortize the capitalized costs. If different judgments were made, it would have an impact on our results of operations.

Program Broadcasting Rights. Program broadcasting rights consist of the non-reimbursable amounts paid by us 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. Our distribution agreements with the producers of 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 distribution agreement.

We offer multiple hours of programming to subscribers each month, refreshing the content by 50% or more on a monthly basis. Accordingly, we cannot attribute the monthly fees earned per subscriber to individual programs or films. As a result, we are unable to recognize expenses utilizing the individual film forecast method. Therefore we amortize program broadcasting rights utilizing the straight-line method, generally over the license term. We believe 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.

We evaluate 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 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, we consider key indicators such as the anticipated growth in subscriber level, and the plan for expansion into international territories. We also consider cash outflows necessary to generate the film assets’ cash inflows. We use a discount rate that we believe is appropriate to the risk level for film production.

Related Party Transactions. We and several of the Affiliates share certain general and administrative expenses. Expenses shared by us and the Affiliates require the use of judgments and estimates in determining the allocation of 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 between us 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 between us and the Affiliates based primarily on usage. Our management believes the allocation methodology is reasonable and represents management’s best available estimate of actual costs incurred by each company.

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We share our merchant services provided by US Bank with Hyperion through its magazine fulfillment center. The funds and transactions are clearly identified, and we believe that there are no risks associated with the comingling of funds.

We are also a party to agreements with several of our affiliates relating to the acquisition, licensing or distribution of programming and motion pictures and the provision of publicity and marketing services.

During the nine months ended September 30, 2009, we sold accounts receivable without recourse to our Chief Executive Officer, Paul A. Colichman, and our Chairman of the Board, Stephen P. Jarchow. See Note 5, “Related Party Transactions” of Notes to Unaudited Condensed Consolidated Financial Statements. During the three months ended September 30, 2009, we entered into line of credit agreements with Mr. Colichman and Mr. Jarchow. See Note 6, “Lines of Credit from Related Parties” of Notes to Unaudited Condensed Consolidated Financial Statements.

Income Taxes. We account 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 our 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.

We report a liability for unrecognized tax benefits, if any, resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

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 points during the year.

Recent Accounting Pronouncements

On January 1, 2009, we adopted new accounting guidance for business combinations as issued by the Financial Accounting Standards Board (the “FASB”). The new accounting guidance establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from previous guidance resulting from this new guidance include the expansion of the definitions of a “business” and a “business combination.” For all business combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date and; for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. The new accounting guidance also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. This guidance was effective for us in the first quarter of fiscal 2009 and was followed by us in our accounting for the business combination described in Note 2, “Business Combinations and Intangible Assets — Merger with PlanetOut Inc.” of Notes to Unaudited Condensed Consolidated Financial Statements. We recognized approximately $3,008,000 of transaction costs in connection with the merger with PlanetOut during the nine months ended September 30, 2009.

On January 1, 2009, we adopted new accounting guidance by the FASB which delayed the effective date of fair value accounting for all nonfinancial assets and nonfinancial liabilities by one year, except those recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2009, we adopted new accounting guidance for assets acquired and liabilities assumed in a business combination as issued by the FASB. The new guidance amends the provisions previously issued by the FASB related to the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The new guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

During the second quarter of fiscal 2009, we adopted three related sets of accounting guidance as issued by the FASB. The accounting guidance sets forth rules related to determining the fair value of financial assets and financial liabilities when the activity levels have significantly decreased in relation to the normal market, guidance related to the determination of other-than-temporary impairments to include the intent and ability of the holder as an indicator in the determination of whether an other-than-temporary impairment exists and interim disclosure requirements for the fair value of financial instruments. The adoption of the three sets of accounting guidance did not have a material impact on our consolidated financial statements.

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During the second quarter of fiscal 2009, we adopted new accounting guidance for the determination of the useful life of intangible assets as issued by the FASB. The new guidance amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The new guidance also requires expanded disclosure regarding the determination of intangible asset useful lives. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

During the second quarter of fiscal 2009, we adopted new accounting guidance related to subsequent events as issued by the FASB. This new requirement establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. See Note 1, “The Company and Summary of Significant Accounting Policies — Principles of Consolidation and Basis of Presentation,” of Notes to Unaudited Condensed Consolidated Financial Statements for the related disclosure. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

During the third quarter of fiscal 2009, we adopted the new Accounting Standards Codification (the “ASC”) as issued by the FASB. The ASC has become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The ASC is not intended to change or alter existing U.S. GAAP. The adoption of the ASC did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued new accounting guidance which amends the criteria for a transfer of a financial asset to be accounted for as a sale, redefines a participating interest for transfers of portions of financial assets, eliminates the qualifying special-purpose entity concept and provides for new disclosures. The provisions of this new accounting guidance are effective for financial statements issued for interim and annual periods ending after November 15, 2009. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2009, the FASB issued new accounting guidance which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity (“VIE”) and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the VIE. The new guidance significantly changes the consolidation rules for VIEs including the consolidation of common structures, such as joint ventures, equity method investments and collaboration arrangements. The provisions of this new accounting guidance are effective for interim and annual reporting periods ending after November 15, 2009. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In October 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 us during the first quarter of fiscal 2011. Early adoption is allowed. We are currently evaluating the impact of this accounting guidance on our consolidated financial statements.

Item 4T. 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 September 30, 2009. 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 September 30, 2009, 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 September 30, 2009, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time in various legal proceedings, investigations and claims incident to the normal conduct of our business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate. We believe that the outcome of these proceedings, investigations and claims, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations.

Item 1A. Risk Factors

Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

Item 5. Other Information

Not applicable.

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)

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Exhibit
Number		Description of Documents
	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	Line of Credit Agreement, dated as of August 17, 2009, between Here Media Inc. and Stephen P. Jarchow
	10.2	Line of Credit Agreement, dated as of August 17, 2009, between Here Media Inc. and Paul A. Colichman
	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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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: November 13, 2009	By:	/s/ TONY SHYNGLE
		Tony Shyngle
		Chief Financial Officer (Principal Financial and Accounting Officer)

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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	Line of Credit Agreement, dated as of August 17, 2009, between Here Media Inc. and Stephen P. Jarchow
	10.2	Line of Credit Agreement, dated as of August 17, 2009, between Here Media Inc. and Paul A. Colichman
	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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EX-10.1

Exhibit 10.1

LINE OF CREDIT AGREEMENT

This LINE OF CREDIT AGREEMENT (this “Agreement”) is dated and effective as of the 17th day of August, 2009 (the “Effective Date”) by and between HERE MEDIA INC., a corporation organized under the laws of the State of Delaware and with its principal place of business in Los Angeles, California (the “Borrower”), and STEPHEN P. JARCHOW, an individual residing in Dallas, Texas (hereinafter referred to as the “Lender”). The Lender and the Borrower are sometimes collectively referred to herein as the “parties” and individually as a “party.”

ARTICLE I
PREAMBLE

WHEREAS, in order to provide additional working capital to Borrower, the Lender has agreed to make available to the Borrower a line of credit in an amount of up to Three Million Dollars ($3,000,000.00) (the “Credit Line”), subject to the terms and conditions set forth herein; and

WHEREAS, the parties desire to set forth certain terms and conditions relating to the Credit Line;

NOW, THEREFORE, in consideration of the mutual covenants, promises, representations and warranties set forth herein, the parties agree as follows:

ARTICLE II
DEFINITIONS

All capitalized terms used in this Agreement shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):

“ADVANCES” shall have the meaning set forth in Section 3.01.

“AGREEMENT” shall mean this Line of Credit Agreement, as the same may be amended or otherwise modified from time to time.

“BUSINESS DAY” shall mean a day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of the United States of America.

“DEFAULT” shall mean any of the events specified in Section 6.01, without giving effect to any requirement for the giving of notice, for the lapse of time, or both, or for the happening of any other condition, event or act.

“EVENT OF DEFAULT” shall mean any of the events specified in Section 6.01, provided that any requirement for the giving of notice, the lapse of time, or both, or for the happening of any further condition, event or act has occurred or has been satisfied.

“GOVERNMENTAL AUTHORITY” shall mean any government (whether the located within or outside the United States) or any department, agency, division or instrumentality thereof.

“LAW” shall mean any statute, rule, regulation, order, judgment, award or decree of any Governmental Authority.

“MATURITY DATE” shall mean two (2) years from the Effective Date.

“PERSON” shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or any other entity or a government or any agency or political subdivision thereof.

“OUTSTANDING PRINCIPAL BALANCE” shall mean the aggregate amount of all Advances made by the Lender to the Borrower hereunder, less all repayments thereof.

ARTICLE III
THE LINE OF CREDIT

SECTION 3.01. ADVANCES.

(a) The Lender may make advances to the Borrower (each an “Advance’’) from time to time during the term hereof and ending on the Maturity Date; in such amounts as may be requested by the Borrower in accordance with the provisions hereof; provided, however, that the Outstanding Principal Amount at any time shall not exceed the Credit Line. Borrower shall account for the Advances made and the outstanding principal amount in a form or manner similar to the form of Exhibit A.

All requests for Advances shall be made by the Borrower to the Lender in writing (in such form as is reasonably satisfactory to the Lender) or by telephone request (which shall be promptly confirmed in writing) which specifies the amount of the Advance to be made and the date the proceeds of the Advance are requested to be made available to the Borrower (an “Advance Request’’).

Notwithstanding the foregoing, any Advances are at the sole discretion of the Lender. Lender may review Borrower’s financial statements in determining whether or not additional Advances may be made.

(b) An Advance Request received by the Lender on a day that is not a Business Day or that is received by Lender after 12:00 noon, Los Angeles, California time, on a Business Day shall be treated as having been received by the Lender on the first following Business Day. Subject to Lender’s discretion and approval, Lender shal! fund all such Advance Requests within one (1) business day of receipt of the Advance Request. The Lender shall not incur liability to the Borrower for treating any such request as an Advance Request if the Lender believes in good faith that the Person making the request is an authorized officer of the Borrowing.

(c) Advances under the Line of Credit shall be made by direct wire transfer of funds from the Lender to an account designated by Borrower in writing to Lender, or by delivery of a check made payable to Lender and delivered to Borrower or Borrower’s agent.

LINE OF CREDIT AGREEMENT

Page 2

SECTION 3.02. USE OF PROCEEDS. The Investment shall be applied by the Borrower for working capital purposes.

SECTION 3.03. SECURITY INTEREST. Borrower hereby grants Lender a security interest in the following collateral:

(a) List of domain names owned or under the control of Borrower as listed in Exhibit B.

(b) List of trademarks and tradenames as identified in Exhibit C.

(c) Any reserves not to exceed one million dollars ($1,000,000) held by Borrower’s credit card processor, Wells Fargo.

ARTICLE IV
INTEREST

SECTION 4.01. INTEREST RATE. The Borrower shall pay interest on the Outstanding Principal Balance at the Prime Rate (as hereinafter defined), as adjusted every 30 days, plus 1.00%, from the date of issuance thereof to and including the date of repayment. The “Prime Rate” means the US Prime Rate as set out in the Wall Street Journal Money Rates column on the date the rate is to be determined.

SECTION 4.02. COMPUTATION. Interest on the Advances shall be computed on the basis of a year deemed to consist of 365 days and paid for the actual number of days elapsed.

ARTICLE V
COVENANTS

SECTION 5.01. AFFIRMATIVE COVENANTS. During the term of this Agreement, the Borrower covenants and agrees:

(a) CORPORATE EXISTENCE AND AUTHORIZATIONS. The Borrower shall maintain in good standing its corporate existence and its right to transact business in those jurisdictions in which it is now or hereafter doing a material amount of business, and the Borrower shall maintain all material licenses, permits and registrations necessary for the conduct of its operations.

(b) COMPLIANCE WITH LAWS. The Borrower shall comply with all material Laws applicable to its business operations.

ARTICLE VI
DEFAULT

SECTION 6.01. EVENTS OF DEFAULT. Anyone or more of the following shall constitute an Event of Default under this Agreement, unless waived by the Lender:

(a) FAILURE TO PAY. Failure to pay any amounts owed under this Agreement which continues beyond any applicable grace period.

(b) BREACH OF COVENANTS. The material breach of any covenant in this Agreement unless expressly waived, in writing, by the Lender, which breach is not cured within 30 Business Days.

LINE OF CREDIT AGREEMENT

Page 3

SECTION 6.02. RIGHTS AND REMEDIES IN THE EVENT OF DEFAULT. Upon any Event of Default, and at any time thereafter, the Lender may declare in writing to the Borrower all or any part of the Outstanding Principal Balance immediately due and payable.

SECTION 6.03. REMEDIES NOT EXCLUSIVE. The Lender shall be entitled to enforce payment and performance of all obligations of the Borrower hereunder and to exercise all rights and powers hereunder or under any Law and the pursuit of any remedy available to the Lender against the Borrower shall not prejudice or in any manner affect the Lender’s right to realize upon or enforce any other remedy or security now or hereafter available to it in such order and in such manner as the Lender may determine in its sole discretion. No such right or remedy shall be exclusive, but each shall be cumulative and shall be in addition to every other remedy provided herein or in any other agreement or by Law and each such remedy may be exercised concurrently or independently.

ARTICLE VII
MISCELLANEOUS

SECTION 7.01. NOTICES. All notices or other communications to be given hereunder shall be given in writing and delivered by (a) certified mail, return receipt requested, (b) personal delivery, (c) facsimile or (d) express carrier addressed as follows:

If to the Lender:	Mr. Stephen P. Jarchow
	8411 Preston Road, Suite 740
	Dallas, Texas 75225
	Email: spj@regententertainment.com
	Telephone: (214) 373-3434
	Facsimile: (214) 361-2535
If to the Borrower:	Here Media Inc.
	10990 Wilshire Blvd., Penthouse Suite
	Los Angeles, California 90024
	Attention: Tony Shyngle
	Email: Tony.shyngle@regentmedia.com
	Telephone: (310) 806-4288
	Facsimile: (310) 806-4268

or to such other address furnished by any party to the other in writing at any time and from time to time for such notice purposes. Any notice served by either party on the other shall be deemed effective upon receipt of return receipt if sent by certified mail, return receipt requested, when received, if delivered personally, upon machine confirmation if sent by facsimile, or upon confirmation of delivery by an express carrier.

SECTION 7.02. AMENDMENTS AND WAIVERS. No amendment, modification or waiver of any provision of this Agreement or the Note shall be effective unless the same shall be in writing and signed by the Borrower and the Lender; provided, however, that any such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

SECTION 7.03. SUCCESSORS AND ASSIGNS. Neither the Borrower nor the Lender may assign, delegate or transfer any of its rights or obligations under this Agreement or the Note without the prior written consent of the other.

LINE OF CREDIT AGREEMENT

Page 4

SECTION 7.04. SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable, or which is prohibited under Law for any reason, the invalidity shall not affect the validity of the remaining provisions of this Agreement, and the parties shall substitute for the invalid provision a valid provision which most closely approximates the intent and economic effect of the invalid provision.

SECTION 7.05. COUNTERPARTS. This Agreement may be executed by the parties hereto on any number of separate counterparts, and all such counterparts taken together shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart signed by the party to be charged.

SECTION 7.06. GOVERNING LAW; ARBITRATION; NO THIRD-PARTY RIGHTS.

(a) This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed and interpreted in accordance with the laws of the United States and State of California applicable to contracts made and to be performed wholly within such State, without regard to any choice or conflict of laws rules.

(b) The parties to this Agreement shall act in good faith to resolve any dispute or other controversy arising under this Agreement. Absent agreement resolving a dispute within twenty (20) days after written notice of the dispute has been delivered from one party to the other, any party shall have the right to seek to settle the matter by arbitration to the exclusion of any other form of dispute resolution. Any arbitration shall be conducted according to the applicable rules of the American Arbitration Association and shall take place in Los Angeles, California. Such arbitration shall be heard by a single arbitrator, who shall be jointly designated by the Lender and the Borrower if the parties are unable to agree within ten (10) days after the dispute is submitted to arbitration, by the American Arbitration Association. The decision of the arbitrator shall be final and binding upon the parties hereto. The each party in any arbitration proceeding shall pay its own costs in connection therewith, including attorneys’ fees.

(c) This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and no other Person shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement.

SECTION 7.07. HEADINGS. The section headings are for convenience only and shall not affect the interpretation or construction of this Agreement or the Note. The Exhibits referred to throughout this Agreement are attached to this Agreement and are incorporated into this Agreement. Unless the context clearly indicates, words used in the singular include the plural, words in the plural include the singular and the word “including” means “including, but not limited to.”

SECTION 7.08. THE LENDER’S SOLE DISCRETION. Any provision in any of this Agreement or the Note which requires the Lender’s approval or consent shall be interpreted to mean at the Lender’s sole discretion unless otherwise specified.

SECTION 7.09. CONFLICT OF TERMS. In the event of any material conflict between the terms of this Agreement and the Note, the terms of this Agreement shall control.

LINE OF CREDIT AGREEMENT

Page 5

SECTION 7.10. OTHER JURISDICTIONS. The Borrower agrees that the Lender shall have the right to proceed against the Borrower or its property in a court in any location to enable the Lender to enforce a judgment or other court order entered in favor of the Lender. The Borrower waives any objection that it may have to the location of the court in which the Lender have commenced a proceeding described in this Section.

SECTION 7.11. WAIVER. The failure of either party at any time to require performance by the other party of any provision of this Agreement shall not affect in any way the full right to require the performance at any subsequent time. The waiver by either party of a breach of any provision of this Agreement shall not be taken or held to be a waiver of the provision itself. Any course of performance shall not be deemed to amend or limit any provision of this Agreement.

SECTION 7.12. SECTION REFERENCES. References to “Sections,” “subsections” and “Exhibits” shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided.

SECTION 7.13. RELATIONSHIP OF PARTIES. Nothing contained in this Agreement shall be deemed or construed by the parties, or by any third party, to create the relationship of partnership or joint venture between the parties hereto, it being understood and agreed that no provision contained herein shall be deemed to create any relationship between the parties hereto other than the relationship of Borrower and Lender.

SECTION 7.14. ENTIRE AGREEMENT. This Agreement and the Note set forth all of the promises, agreements, conditions and understandings between the parties respecting the subject matter hereof and supersedes all negotiations, conversations, discussions, correspondence, memorandums and agreements between the parties concerning the subject matter.

SECTION 7.15. TIME OF THE ESSENCE. Time is of the essence with respect to this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

LENDER:

Signed by Stephen Jarchow

BORROWER:

HERE MEDIA INC., a Delaware corporation

Signed by Tony Shyngle, CFO

LINE OF CREDIT AGREEMENT

Page 6

EXHIBIT “A” (List of Advances & Principal Reductions)

Date of Advance Amount of Advance Amount of Principal Repayment

LINE OF CREDIT AGREEMENT

Page 7

EXHIBIT “B”
(URL’s)
gay.com	kleptomaniac.com
gay.net	kleptomaniac.net
gayemail.com	Igbt.com
gaynet.com	Igbt.us
gay-net.com	menofgay.com
gay-net.net	menofgaycom.com
gaynet.org	mrgaycom.com
gaysportsblog.com	onlinepartners.com
gaytvblog.com	outandabout.com
gayvote.net	pride.com
gaywire.net	queer.org

LINE OF CREDIT AGREEMENT

Page 8

Mark	Status	Country	Application Number
Gay.com & design	Registered	USA	75871682
Gay.net & design	Registered	USA	75332677
Out & About	Registered	USA	74317960
Out & About	Registered	USA	78690466
Gay.com logo (black on white)	Filed	USA	77565110
Gay.com logo (white on black)	Filed	USA	77565137
Gay.com & Design	Registered	European Union (O.H.M.I.)	001558410
Gay.com & Design	Filed	Brazil	823067858
Gay.com & Design	Registered	Argentina	2405881

LINE OF CREDIT AGREEMENT

Page 9

EX-10.2

Exhibit 10.2

LINE OF CREDIT AGREEMENT

This LINE OF CREDIT AGREEMENT (this “Agreement”) is dated and effective as of the 17th day of August, 2009 (the “Effective Date’’) by and between HERE MEDIA INC., a corporation organized under the laws of the State of Delaware and with its principal place of business in Los Angeles, California (the “Borrower’’), and PAUL A. COLICHMAN, an individual residing in Los Angeles, California (hereinafter referred to as the “Lender’’). The Lender and the Borrower are sometimes collectively referred to herein as the “parties” and individually as a “party.”

ARTICLE I
PREAMBLE

WHEREAS, in order to provide additional working capital to Borrower, the Lender has agreed to make available to the Borrower a line of credit in an amount of up to Two Million Dollars ($2,000,000.00) (the “Credit Line’’), subject to the terms and conditions set forth herein; and

WHEREAS, the parties desire to set forth certain terms and conditions relating to the Credit Line;

NOW, THEREFORE, in consideration of the mutual covenants, promises, representations and warranties set forth herein, the parties agree as follows:

ARTICLE II
DEFINITIONS

All capitalized terms used in this Agreement shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):

“ADVANCES” shall have the meaning set forth in Section 3.01.

“AGREEMENT” shall mean this Line of Credit Agreement, as the same may be amended or otherwise modified from time to time.

“BUSINESS DAY” shall mean a day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of the United States of America.

“DEFAULT” shall mean any of the events specified in Section 6.01, without giving effect to any requirement for the giving of notice, for the lapse of time, or both, or for the happening of any other condition, event or act.

“EVENT OF DEFAULT” shall mean any of the events specified in Section 6.01, provided that any requirement for the giving of notice, the lapse of time, or both, or for the happening of any further condition, event or act has occurred or has been satisfied.

“GOVERNMENTAL AUTHORITY” shall mean any government (whether the located within or outside the United States) or any department, agency, division or instrumentality thereof.

“LAW” shall mean any statute, rule, regulation, order, judgment, award or decree of any Governmental Authority.

“MATURITY DATE” shall mean two (2) years from the Effective Date.

“PERSON” shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or any other entity or a government or any agency or political subdivision thereof.

“OUTSTANDING PRINCIPAL BALANCE” shall mean the aggregate amount of all Advances made by the Lender to the Borrower hereunder, less all repayments thereof.

ARTICLE III
THE LINE OF CREDIT

SECTION 3.01. ADVANCES.

(a) The Lender may make advances to the Borrower (each an “Advance”) from time to time during the term hereof and ending on the Maturity Date; in such amounts as may be requested by the Borrower in accordance with the provisions hereof; provided, however, that the Outstanding Principal Amount at any time shall not exceed the Credit Line. Borrower shall account for the Advances made and the outstanding principal amount in a form or manner similar to the form of Exhibit A.

All requests for Advances shall be made by the Borrower to the Lender in writing (in such form as is reasonably satisfactory to the Lender) or by telephone request (which shall be promptly confirmed in writing) which specifies the amount of the Advance to be made and the date the proceeds of the Advance are requested to be made available to the Borrower (an “Advance Request”).

Notwithstanding the foregoing, any Advances are at the sole discretion of the Lender. Lender may review Borrower’s financial statements in determining whether or not additional Advances may be made.

(b) An Advance Request received by the Lender on a day that is not a Business Day or that is received by Lender after 12:00 noon, Los Angeles, California time, on a Business Day shall be treated as having been received by the Lender on the first following Business Day. Subject to Lender’s discretion and approval, Lender shall fund all such Advance Requests within one (1) business day of receipt of the Advance Request. The Lender shall not incur liability to the Borrower for treating any such request as an Advance Request if the Lender believes in good faith that the Person making the request is an authorized officer of the Borrowing.

(c) Advances under the Line of Credit shall be made by direct wire transfer of funds from the Lender to an account designated by Borrower in writing to Lender, or by delivery of a check made payable to Lender and delivered to Borrower or Borrower’s agent.

LINE OF CREDIT AGREEMENT

Page 2

SECTION 3.02. USE OF PROCEEDS. The Investment shall be applied by the Borrower for working capital purposes.

SECTION 3.03. SECURITY INTEREST. Borrower hereby grants Lender a security interest in the following collateral:

(a) List of domain names owned or under the control of Borrower as listed in Exhibit B.

(b) List of trademarks and tradenames as identified in Exhibit C.

(c) Any reserves not to exceed one million dollars ($1,000,000) held by Borrower’s credit card processor, Wells Fargo.

ARTICLE IV
INTEREST

SECTION 4.01. INTEREST RATE. The Borrower shall pay interest on the Outstanding Principal Balance at the Prime Rate (as hereinafter defined), as adjusted every 30 days, plus 1.00%, from the date of issuance thereof to and including the date of repayment. The “Prime Rate” means the US Prime Rate as set out in the Wall Street Journal Money Rates column on the date the rate is to be determined.

SECTION 4.02. COMPUTATION. Interest on the Advances shall be computed on the basis of a year deemed to consist of 365 days and paid for the actual number of days elapsed.

ARTICLE V
COVENANTS

SECTION 5.01. AFFIRMATIVE COVENANTS. During the term of this Agreement, the Borrower covenants and agrees:

(a) CORPORATE EXISTENCE AND AUTHORIZATIONS. The Borrower shall maintain in good standing its corporate existence and its right to transact business in those jurisdictions in which it is now or hereafter doing a material amount of business, and the Borrower shall maintain all material licenses, permits and registrations necessary for the conduct of its operations.

(b) COMPLIANCE WITH LAWS. The Borrower shall comply with all material Laws applicable to its business operations.

ARTICLE VI
DEFAULT

SECTION 6.01. EVENTS OF DEFAULT. Anyone or more of the following shall constitute an Event of Default under this Agreement, unless waived by the Lender:

(a) FAILURE TO PAY. Failure to pay any amounts owed under this Agreement which continues beyond any applicable grace period.

(b) BREACH OF COVENANTS. The material breach of any covenant in this Agreement unless expressly waived, in writing, by the Lender, which breach is not cured within 30 Business Days.

LINE OF CREDIT AGREEMENT

Page 3

SECTION 6.02. RIGHTS AND REMEDIES IN THE EVENT OF DEFAULT. Upon any Event of Default, and at any time thereafter, the Lender may declare in writing to the Borrower all or any part of the Outstanding Principal Balance immediately due and payable.

SECTION 6.03. REMEDIES NOT EXCLUSIVE. The Lender shall be entitled to enforce payment and performance of all obligations of the Borrower hereunder and to exercise all rights and powers hereunder or under any Law and the pursuit of any remedy available to the Lender against the Borrower shall not prejudice or in any manner affect the Lender’s right to realize upon or enforce any other remedy or security now or hereafter available to it in such order and in such manner as the Lender may determine in its sole discretion. No such right or remedy shall be exclusive, but each shall be cumulative and shall be in addition to every other remedy provided herein or in any other agreement or by Law and each such remedy may be exercised concurrently or independently.

ARTICLE VII
MISCELLANEOUS

SECTION 7.01. NOTICES. All notices or other communications to be given hereunder shall be given in writing and delivered by (a) certified mail, return receipt requested, (b) personal delivery, (c) facsimile or (d) express carrier addressed as follows:

If to the Lender:	Mr. Paul Colichman
	10990 Wilshire Blvd., Penthouse Suite
	Los Angeles, California 90024
	Email: pac@regententertainment.com
	Telephone: (310) 806-4288
	Facsimile: (310) 806-4268
If to the Borrower:	Here Media Inc.
	10990 Wilshire Blvd., Penthouse Suite
	Los Angeles, California 90024
	Attention: Tony Shyngle
	Email: Tony.shyngle@regentmedia.com
	Telephone: (310) 806-4288
	Facsimile: (310) 806-4268

or to such other address furnished by any party to the other in writing at any time and from time to time for such notice purposes. Any notice served by either party on the other shall be deemed effective upon receipt of return receipt if sent by certified mail, return receipt requested, when received, if delivered personally, upon machine confirmation if sent by facsimile, or upon confirmation of delivery by an express carrier.

SECTION 7.02. AMENDMENTS AND WAIVERS. No amendment, modification or waiver of any provision of this Agreement or the Note shall be effective unless the same shall be in writing and signed by the Borrower and the Lender; provided, however, that any such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

LINE OF CREDIT AGREEMENT

Page 4

SECTION 7.03. SUCCESSORS AND ASSIGNS. Neither the Borrower nor the Lender may assign, delegate or transfer any of its rights or obligations under this Agreement or the Note without the prior written consent of the other.

SECTION 7.04. SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable, or which is prohibited under Law for any reason, the invalidity shall not affect the validity of the remaining provisions of this Agreement, and the parties shall substitute for the invalid provision a valid provision which most closely approximates the intent and economic effect of the invalid provision.

SECTION 7.05. COUNTERPARTS. This Agreement may be executed by the parties hereto on any number of separate counterparts, and all such counterparts taken together shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart signed by the party to be charged.

SECTION 7.06. GOVERNING LAW; ARBITRATION; NO THIRD-PARTY RIGHTS.

(a) This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed and interpreted in accordance with the laws of the United States and State of California applicable to contracts made and to be performed wholly within such State, without regard to any choice or conflict of laws rules.

(b) The parties to this Agreement shall act in good faith to resolve any dispute or other controversy arising under this Agreement. Absent agreement resolving a dispute within twenty (20) days after written notice of the dispute has been delivered from one party to the other, any party shall have the right to seek to settle the matter by arbitration to the exclusion of any other form of dispute resolution. Any arbitration shall be conducted according to the applicable rules of the American Arbitration Association and shall take place in Los Angeles, California. Such arbitration shall be heard by a single arbitrator, who shall be jointly designated by the Lender and the Borrower if the parties are unable to agree within ten (10) days after the dispute is submitted to arbitration, by the American Arbitration Association. The decision of the arbitrator shall be final and binding upon the parties hereto. The each party in any arbitration proceeding shall pay its own costs in connection therewith, including attorneys’ fees.

(c) This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and no other Person shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement.

SECTION 7.07. HEADINGS. The section headings are for convenience only and shall not affect the interpretation or construction of this Agreement or the Note. The Exhibits referred to throughout this Agreement are attached to this Agreement and are incorporated into this Agreement. Unless the context clearly indicates, words used in the singular include the plural, words in the plural include the singular and the word “including” means “including, but not limited to.”

SECTION 7.08. THE LENDER’S SOLE DISCRETION. Any provision in any of this Agreement or the Note which requires the Lender’s approval or consent shall be interpreted to mean at the Lender’s sole discretion unless otherwise specified.

SECTION 7.09. CONFLICT OF TERMS. In the event of any material conflict between the terms of this Agreement and the Note, the terms of this Agreement shall control.

LINE OF CREDIT AGREEMENT

Page 5

SECTION 7.10. OTHER JURISDICTIONS. The Borrower agrees that the Lender shall have the right to proceed against the Borrower or its property in a court in any location to enable the Lender to enforce a judgment or other court order entered in favor of the Lender. The Borrower waives any objection that it may have to the location of the court in which the Lender have commenced a proceeding described in this Section.

SECTION 7.11. WAIVER. The failure of either party at any time to require performance by the other party of any provision of this Agreement shall not affect in any way the full right to require the performance at any subsequent time. The waiver by either party of a breach of any provision of this Agreement shall not be taken or held to be a waiver of the provision itself. Any course of performance shall not be deemed to amend or limit any provision of this Agreement.

SECTION 7.12. SECTION REFERENCES. References to “Sections,” “subsections” and “Exhibits” shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided.

SECTION 7.13. RELATIONSHIP OF PARTIES. Nothing contained in this Agreement shall be deemed or construed by the parties, or by any third party, to create the relationship of partnership or joint venture between the parties hereto, it being understood and agreed that no provision contained herein shall be deemed to create any relationship between the parties hereto other than the relationship of Borrower and Lender.

SECTION 7.14. ENTIRE AGREEMENT. This Agreement and the Note set forth all of the promises, agreements, conditions and understandings between the parties respecting the subject matter hereof and supersedes all negotiations, conversations, discussions, correspondence, memorandums and agreements between the parties concerning the subject matter.

SECTION 7.15. TIME OF THE ESSENCE. Time is of the essence with respect to this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

LENDER:

Signed by Paul A. Colichman

BORROWER:

HERE MEDIA INC., a Delaware corporation

Signed by Tony Shyngle, CFO

LINE OF CREDIT AGREEMENT

Page 6

EXHIBIT “A” (List of Advances & Principal Reductions)

Date of Advance Amount of Advance Amount of Principal Repayment

LINE OF CREDIT AGREEMENT

Page 7

EXHIBIT “B”
(URL’s)
gay.com	kleptomaniac.com
gay.net	kleptomaniac.net
gayemail.com	Igbt.com
gaynet.com	Igbt.us
gay-net.com	menofgay.com
gay-net.net	menofgaycom.com
gaynet.org	mrgaycom.com
gaysportsblog.com	onlinepartners.com
gaytvblog.com	outandabout.com
gayvote.net	pride.com
gaywire.net	queer.org

LINE OF CREDIT AGREEMENT

Page 8

Mark	Status	Country	Application Number
Gay.com & design	Registered	USA	75871682
Gay.net & design	Registered	USA	75332677
Out & About	Registered	USA	74317960
Out & About	Registered	USA	78690466
Gay.com logo (black on white)	Filed	USA	77565110
Gay.com logo (white on black)	Filed	USA	77565137
Gay.com & Design	Registered	European Union (O.H.M.I.)	001558410
Gay.com & Design	Filed	Brazil	823067858
Gay.com & Design	Registered	Argentina	2405881

LINE OF CREDIT AGREEMENT

Page 9

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Paul A. Colichman, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2009 of Here Media Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) not applicable;

(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ PAUL A. COLICHMAN  

Paul A. Colichman 

Chief Executive Officer 

Date: November 13, 2009

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Tony Shyngle, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2009 of Here Media Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) not applicable;

(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ TONY SHYNGLE  

Tony Shyngle 

Chief Financial Officer 

Date: November 13, 2009

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Paul A. Colichman, Chief Executive Officer of Here Media Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1. the Company’s quarterly report on Form 10-Q for the period ended September 30, 2009 (the “Report”), and to which this certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

In Witness Whereof, the undersigned has set his hand hereto as of the 13th day of November 2009.

/s/ PAUL A. COLICHMAN  

Paul A. Colichman 

Chief Executive Officer 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this report. A signed original of this written statement required by Section 906 has been provided to Here Media Inc. and will be retained by Here Media Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Tony Shyngle, Chief Financial Officer of Here Media Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1. the Company’s quarterly report on Form 10-Q for the period ended September 30, 2009 (the “Report”), and to which this certification is attached as Exhibit 32.2, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

In Witness Whereof, the undersigned has set his hand hereto as of the 13th day of November 2009.

/s/ TONY SHYNGLE  

Tony Shyngle 

Chief Financial Officer 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this report. A signed original of this written statement required by Section 906 has been provided to Here Media Inc. and will be retained by Here Media Inc. and furnished to the Securities and Exchange Commission or its staff upon request.