SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23600
MOVIEFONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3757816
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(State or other jurisdic- (I.R.S. Employer
tion of incorporation or Identification No.)
organization)
4 WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
----------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-504-7442
------------
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 twelve months and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 13, 1996
Common stock, Class A par value $.01 per share 5,644,947
Common stock, Class B par value $.01 per share 7,155,053
<PAGE>
MOVIEFONE, INC.
INDEX
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PAGE NO.
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PART I FINANCIAL INFORMATION:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II OTHER INFORMATION:*
Item 6. Exhibits and Reports on Form 8-K 12
* Item numbers which are inapplicable or to which the answer is negative have
been omitted.
2
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
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1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 989,570 $ 839,337
Short-term investments 5,019,561 6,025,743
Trade accounts receivable 2,410,907 1,996,491
Prepaid expenses and other current assets 324,097 323,253
Inventory 112,062 167,717
Due from related parties -- 93,524
------------ ------------
Total current assets 8,856,197 9,446,065
PROPERTY AND EQUIPMENT 5,102,902 4,946,935
ACCUMULATED DEPRECIATION (3,105,802) (2,618,655)
------------ ------------
PROPERTY AND EQUIPMENT, net 1,997,100 2,328,280
LONG-TERM INVESTMENTS 11,731,524 12,019,869
OTHER ASSETS 432,612 225,782
------------ ------------
TOTAL ASSETS $ 23,017,433 $ 24,019,996
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to related parties $ 171,683 $ --
Accounts payable 1,158,739 1,389,006
Accrued expenses and other current liabilities 1,375,507 1,005,711
------------ ------------
Total current liabilities 2,705,929 2,394,717
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock par value $.01 per share;
5,000,000 shares authorized, no shares issued
Common Stock, par value $.01 per share; 30,000,000
shares authorized; 5,644,947 shares of Class A
Common Stock issued and outstanding in 1996 and 1995;
7,155,053 shares of Class B Common Stock
issued and outstanding in 1996 and 1995 128,000 128,000
Additional paid-in capital 34,255,327 34,255,327
Accumulated deficit (14,071,823) (12,758,048)
------------ ------------
Total stockholders' equity 20,311,504 21,625,279
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,017,433 $ 24,019,996
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Advertising revenue $ 1,875,616 $ 1,402,037 $ 3,144,382 $ 2,263,169
Sponsorship revenue 1,050,055 850,247 2,107,568 1,592,427
Ticket service fees, net 528,625 538,929 1,176,844 920,104
Other revenue 73,357 61,479 226,869 70,044
------------ ------------ ------------ ------------
Total revenue 3,527,653 2,852,692 6,655,663 4,845,744
------------ ------------ ------------ ------------
COST OF SERVICES
Advertising commissions 155,458 198,621 216,749 327,041
Ticket sales servicing and transaction fees 168,838 191,691 368,153 355,076
Telecommunications 272,200 216,019 518,353 431,799
Other expenses 79,946 38,055 159,784 38,055
------------ ------------ ------------ ------------
Total cost of services 676,442 644,386 1,263,039 1,151,971
------------ ------------ ------------ ------------
Gross Profit 2,851,211 2,208,306 5,392,624 3,693,773
OTHER COSTS AND EXPENSES
Selling, general and administrative 1,678,858 1,263,354 3,232,113 2,589,276
Advertising and promotions 1,232,482 1,051,383 2,511,259 2,049,801
Legal expenses 395,579 253,999 1,022,579 570,073
Depreciation and amortization 248,478 193,605 487,147 371,560
Interest income (269,834) (299,372) (546,699) (607,304)
------------ ------------ ------------ ------------
Total other costs and expenses 3,285,563 2,462,969 6,706,399 4,973,406
------------ ------------ ------------ ------------
NET LOSS ($434,352) ($254,663) ($1,313,775) ($1,279,633)
============ ============ ============ ============
NET LOSS PER COMMON SHARE ($0.03) ($0.02) ($0.10) ($0.10)
============ ============ ============ ============
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,800,000 12,800,000 12,800,000 12,800,000
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,313,775) $(1,279,633)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 487,147 371,560
Amortization of premium/discount on investment securities 63,171 (83,419)
Barter services received 1,964,868 1,481,064
Barter services provided (1,964,868) (1,481,064)
Net changes in assets and liabilities (161,699) 92,284
----------- -----------
Net cash used in operating activities (925,156) (899,208)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (2,768,644) (4,856,519)
Maturities of investment securities 4,000,000 8,759,614
Purchases of property and equipment (155,967) (691,816)
----------- -----------
Net cash provided by investing activities 1,075,389 3,211,279
----------- -----------
Net increase in cash and cash equivalents 150,233 2,312,071
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 839,337 531,172
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 989,570 $ 2,843,243
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
MOVIEFONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- - -------------------------------------------------------------------------------
1. In the opinion of management the accompanying unaudited interim financial
statements reflect all adjustments consisting only of a normal and
recurring nature necessary to fairly present the financial position of
MovieFone, Inc ( the "Company" ) and subsidiaries as of June 30, 1996,
and the results of their operations and their cash flows for the three
and six month periods ended June 30, 1996 and 1995. These interim
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes to the consolidated
financial statements contained in the Company's annual report on Form
10-K for the year ended December 31, 1995. The results of operations for
the six month period ended June 30, 1996 are not necessarily indicative
of financial results on an annual basis.
2. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which will be effective for the Company
beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on the fair
value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded. The
Company will continue to apply APB Opinion No. 25 to its stock-based
compensation awards to employees and will disclose the required pro forma
effect on net income and earnings per share.
3. Certain amounts in the condensed consolidated financial statements for
prior periods have been reclassified to conform to the current
presentation.
4. On October, 26 1994 the Company was sued by PCC Management, Inc. ("PCC")
in the Superior Court of the State of California in an action entitled
PCC Management, Inc. v. MovieFone, Inc. et al. (the "California Action")
for alleged breach of contract, fraud and interference with contractual
relations, inducement of breach of contract, misappropriation of
proprietary information, false advertising and unfair competition. The
action alleges that the Company breached the terms of an agreement (the
"Agreement") with PCC's predecessor, Pacer/CATS Corporation
("Pacer/CATS"), to provide teleticketing services. The action sought
injunctive and declaratory relief and compensatory and punitive damages
in an unspecified amount. On November 1, 1994, in response to PCC's
California Action and pursuant to an arbitration clause in the Agreement,
the Company filed a Demand for Arbitration ("Demand") with the American
Arbitration Association ("AAA") against Pacer/CATS in an action entitled
PromoFone, Inc. et al. v. Pacer/CATS Corporation. The Demand alleged that
Pacer/CATS has failed to perform its obligations under the Agreement and
promoted the services of Ticketmaster Inc. ("Ticketmaster"), the
Company's main competitor. The Demand sought an injunction and damages in
an unspecified amount.
On November 22, 1994, after Pacer/CATS failed to answer the Demand, the
Company moved by Order to Show Cause in the Supreme Court of the State of
New York, New York County in an action entitled PromoFone, Inc. et al. v.
PCC Management, Inc., to compel arbitration and
6
<PAGE>
restrain PCC from pursuing its California Action. On January 27, 1995,
the court ordered arbitration before the AAA of all disputes and
enjoined PCC from prosecuting any action or proceeding related to the
Agreement. On April 4, 1995, PCC filed a motion asking the Supreme Court
to reconsider its order. On April 27, 1995, the Supreme Court denied
PCC's motion. PCC subsequently appealed this order and filed a motion
seeking a stay of arbitration pending appeal. This motion was denied. On
February 8, 1996, the appellate division denied PCC's appeal of the
Supreme Court's January 27, 1995 order.
On July 6, 1995 the Company was sued by Pacer/CATS/CCS - a Wembley
Ticketmaster Joint Venture ("JV") in the Supreme Court of the State of
New York in an action entitled Pacer/CATS/CCS - a Wembley Ticketmaster
Joint Venture v. MovieFone, Inc., Promofone, Inc., and The Teleticketing
Company, LP (the "New York Action") alleging that the Agreement between
the Company and Pacer/CATS is void or voidable, or, in the alternative,
the Agreement does not bind the JV and seeks damages from the Company
for alleged tortious conduct. On August 17, 1995, the Supreme Court
stayed the New York Action pending resolution of the arbitration between
the Company and PCC. The Court found that the two actions were
"intertwined". Pacer/CATS/CCS appealed that decision. On April 2, 1996,
the appellate division denied Pacer/CATS/CCS's appeal of the Supreme
Court's August 17, 1995 decision.
The arbitration is proceeding before the AAA. On July 28, 1995 the AAA
appointed the neutral third arbitrator. On January 19, 1996, PCC filed
counterclaims, alleging that the Company breached the February 1992
Agreement by allegedly charging a "usurious rate of interest on its
financing/subsidizing of PCC's equipment sales", making improper
contacts with theaters, failing to provide financial disclosures, making
"false, deceptive and unfair statements to theater owners and
operators", and by "appropriating PCC's equipment and proprietary
information". PCC has requested a declaration that the February 1992
Agreement is void and an award of unspecified damages. Pacer/CATS has
repeatedly requested postponement of the arbitration and evidentiary
hearings are now scheduled to commence on September 30, 1996. The
Company believes that its claims are well based and that the allegations
against it are without merit, and the Company will contest them
vigorously. Although the outcome of such matter is not presently
determinable, the Company believes that the outcome will not result in
any material adverse impact on the financial condition and results of
operations of the Company.
On March 17, 1995, the Company filed an action against Ticketmaster in
the federal court in the Southern District of New York, alleging that
Ticketmaster violated the federal antitrust laws and the common laws of
New York. In particular, the Company alleged that Ticketmaster violated
the Sherman Act by entering into unlawful exclusive-dealing contracts,
by making unlawful acquisitions, and by engaging in other exclusionary
conduct including the acquisition of PCC. The Company also alleges that
Ticketmaster tortiously interfered with the Company's contract with PCC,
tortiously interfered with the Company's prospective business
relationships, otherwise interfered with business relationships of the
Company, misappropriated the Company's trade secrets, breached the
contractual obligations it assumed as an affiliate of PCC, and engaged
in unfair competition. On May 9, 1995, Ticketmaster filed a motion to
dismiss. The Company filed opposition to this motion on June 27, 1995.
Oral argument on Ticketmaster's motion was held in late September 1995.
The court took the motion under submission. To date, no decision has
been rendered.
7
<PAGE>
On January 31, 1996, Ticketmaster-New York, Inc. and Ticketmaster
Corporation filed a summons and complaint against the Company and others
in the Supreme Court of the State of New York, New York County, for
defamation as a result of alleged misstatements regarding the U.S.
Department of Justice's investigation of Ticketmaster. The Company has
moved to dismiss this suit on several grounds and believes it has
several meritorious defenses. Oral argument on the motion to dismiss is
scheduled to be heard in August 1996.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
- - ---------------------
Three Months Ended June 30, 1996 vs. Three Months Ended June 30, 1995
Second quarter total revenue increased 24% from $2.85 million in 1995 to $3.53
million in 1996. Advertising revenue increased 34% from $1.40 million in the
second quarter of 1995 to $1.88 million in the second quarter of 1996. The
increase in advertising revenue was the result of an increased number of calls
received by the Company's MovieFone service and an increase in the average
advertising rate per call sold. The percentage of calls on which the Company
sold advertising time decreased from 96% in the second quarter of 1995 to 94%
in the second quarter of 1996. Sponsorship revenue increased 24% from $.85
million in 1995 to $1.05 million in 1996 due to increased barter services
provided. Ticket service fees decreased 2% from $.54 million in the second
quarter of 1995 to $.53 million in the second quarter of 1996. The decrease in
ticket service fees is due to a decrease in the number of tickets sold, offset
by an increase in the ticket service fee from $1.00 to $1.25 in most of the
Company's markets and from $1.00 to $1.50 in Manhattan. Other revenue
increased 17% from $.06 million in the second quarter of 1995 to $.07 million
in the second quarter of 1996. Other revenue is comprised of revenue earned
from the Company's emerging business units, consisting primarily of sales of
the Company's Mars II theater management system.
Total cost of services increased 6% from $.64 million to $.68 million from the
second quarter of 1995 to the second quarter of 1996. These costs increased
primarily due to the increase in telecommunications costs.
Second quarter gross profit increased 29% from $2.21 million in 1995 to $2.85
million in 1996.
Total other costs and expenses increased 34% from $2.46 million to $3.29
million from the second quarter of 1995 to the second quarter of 1996. These
expenses increased primarily as a result of the Company's increased personnel
expenses associated with hiring of additional staff in nearly all areas of the
Company's business, the increase in advertising and promotion expenses, and
increased legal expenses. The increase in legal expenses relates primarily to
the Company's ongoing arbitration proceeding with Pacer/CATS, with which the
Company has an agreement related to certain of the Company's teleticketing
activities. (See Note 4 to the Company's condensed consolidated financial
statements.)
The second quarter net loss increased 72% from $.25 million ($.02 per share)
in 1995 to $.43 million ($.03 per share) in 1996.
The number of calls received by the Company's MovieFone service increased 28%
from 10.7 million in the second quarter of 1995 to 13.7 million in the second
quarter of 1996. The Company believes that the growth in its calls received
from the second quarter of 1995 to the second quarter of 1996 was the result
of the addition of new markets and theaters, increased awareness in
established markets, and an increase in domestic movie theatre attendance.
The number of tickets sold through MovieFone decreased 10% from 576,000 in the
second quarter of 1995 to 520,000 in the second quarter of 1996. The Company
believes its ticket sales are to some extent
9
<PAGE>
driven by the release of "hit" movies, since moviegoers attending these movies
are more likely to buy tickets in advance using the Company's service in order
to avoid being sold-out from these movies. There were fewer of these "hit"
movies in the second quarter of 1996 than in the second quarter of 1995, which
contributed to the decrease in the Company's ticket sales.
The Company added one new market during the second quarter of 1996
(Cincinnati) bringing its total number of markets to 27.
Six Months Ended June 30, 1996 vs. Six Months Ended June 30, 1995
First half total revenue increased 37% from $4.85 million in 1995 to $6.66
million in 1996. Advertising revenue increased 39% from $2.26 million in the
first half of 1995 to $3.14 million in the first half of 1996. The increase in
advertising revenue was the result of the increased number of calls received
by the Company's MovieFone service and an increase in the average advertising
rate per call sold. The percentage of calls on which the Company sold
advertising time was 87% in the first half of 1995 and the first half of 1996.
Sponsorship revenue increased 33% from $1.59 million in 1995 to $2.11 million
in 1996 due to increased barter services provided and cash sponsorships
earned. Ticket service fees increased 28% from $.92 million in the first six
months of 1995 to $1.18 million in the first six months of 1996. The increase
in ticket service fees is due to an increase in the number of tickets sold and
an increase in the ticket service fee from $1.00 to $1.25 in most of the
Company's markets and from $1.00 to $1.50 in Manhattan. Other revenue
increased 229% from $.07 million in the first half of 1995 to $.23 million in
the first half of 1996. Other revenue is comprised of revenue earned from the
Company's emerging business units, consisting primarily of sales of the
Company's Mars II theater management system.
Total cost of services increased 10% from $1.15 million to $1.26 million from
the first half of 1995 to the first half of 1996. These costs increased
primarily due to the increase in telecommunications costs and the increase in
other expenses, consisting primarily of the cost of sales of the Company's
Mars II theater management system.
First half gross profit increased 46% from $3.69 million in 1995 to $5.39
million in 1996.
Total other costs and expenses increased 35% from $4.97 million to $6.71
million from the first half of 1995 to the first half of 1996. These expenses
increased primarily as a result of the Company's increased personnel expenses
associated with hiring of additional staff in nearly all areas of the
Company's business, the increase in advertising and promotion expenses, and
increased legal expenses. The increase in legal expenses relates primarily to
the Company's ongoing arbitration proceeding with Pacer/CATS, with which the
Company has an agreement related to certain of the Company's teleticketing
activities. (See Note 4 to the Company's condensed consolidated financial
statements.)
The first half net loss increased 2% from $1.28 million ($.10 per share) in
1995 to $1.31 million ($.10 per share) in 1996.
The number of calls received by the Company's MovieFone service increased 37%
from 19.6 million in the first half of 1995 to 26.9 million in the first half
of 1996.
10
<PAGE>
The number of tickets sold through MovieFone increased 10% from 999,000 in the
first half of 1995 to 1,099,000 in the first half of 1996.
The Company believes that the growth in its calls received and the number of
tickets sold from the first half of 1995 to the first half of 1996 were the
result of the addition of new markets and theaters, the promotional efforts of
its marketing staff, and an estimated 16% increase in domestic movie theatre
attendance.
The Company added one new market during the first half of 1996 (Cincinnati)
bringing its total number of markets to 27.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's primary capital requirements are to maintain its operations, to
fund the investment required to establish MovieFone in additional markets and
teleticketing at additional theaters, and to develop new businesses.
The Company's cash balance increased 18% from $.84 million at December 31,
1995 to $.99 million at June 30, 1996, primarily due to the maturities of
investment securities during the first six months of 1996.
From the six months ended June 30, 1995 to the six months ended June 30, 1996,
net cash used in operating activities increased 3% from $.90 million to $.93
million.
The Company does not have any significant outstanding commitments for capital
expenditures, but intends to incur such expenditures for expansion of its core
businesses and development of its new businesses.
11
<PAGE>
PART II OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) There were no reports on Form 8-K filed for the twelve weeks ended
June 30, 1996.
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.
MOVIEFONE, INC.
(Registrant)
Date: /s/ ANDREW R. JARECKI
---------------------------------
August 13, 1996 Andrew R. Jarecki
Chief Executive Officer
Date: /s/ ADAM H. SLUTSKY
---------------------------------
August 13, 1996 Adam H. Slutsky, Chief Financial
Officer and Chief Operating Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MovieFone,
Inc.'s condensed consolidated financial statements as of and for the six months
ended June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 989,570
<SECURITIES> 5,019,561
<RECEIVABLES> 2,410,907
<ALLOWANCES> 0
<INVENTORY> 112,062
<CURRENT-ASSETS> 8,856,197
<PP&E> 5,102,902
<DEPRECIATION> 3,105,802
<TOTAL-ASSETS> 23,017,433
<CURRENT-LIABILITIES> 2,705,929
<BONDS> 0
<COMMON> 128,000
0
0
<OTHER-SE> 20,183,504
<TOTAL-LIABILITY-AND-EQUITY> 23,017,433
<SALES> 108,682
<TOTAL-REVENUES> 6,655,663
<CGS> 136,749
<TOTAL-COSTS> 1,263,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,313,775)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,313,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,313,775)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
