<PAGE>
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 March 31, 1997
------------------------------------
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
------------------------- ------------------
(State or other jurisdic- (I.R.S. Employer
tion of incorporation or Identification No.)
organization)
335 MADISON AVENUE, NEW YORK, NEW YORK 10017
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-450-8000
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 MAY 14, 1997
----- ---------------------------
Common stock, Class A par value $.01 per share 5,650,947
Common stock, Class B par value $.01 per share 7,155,053
<PAGE>
MOVIEFONE, INC.
INDEX
PAGE NO.
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 9-10
PART II OTHER INFORMATION:*
Item 6. Exhibits and Reports on Form 8-K 11
* 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>
MARCH 31, DECEMBER 31,
1997 1996
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,127,730 $ 3,560,007
Short-term investments 3,001,280 3,003,839
Trade accounts receivable 2,871,599 3,213,869
Prepaid expenses and other current assets 469,970 305,674
Inventory 81,345 103,923
----------- -----------
Total current assets 8,551,924 10,187,312
PROPERTY AND EQUIPMENT 5,518,856 5,402,602
ACCUMULATED DEPRECIATION (3,844,839) (3,629,074)
----------- -----------
PROPERTY AND EQUIPMENT, net 1,674,017 1,773,528
LONG-TERM INVESTMENTS 13,038,961 11,685,777
DUE FROM OFFICER 17,056 16,663
OTHER ASSETS 227,593 292,709
----------- -----------
TOTAL ASSETS $23,509,551 $23,955,989
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to related parties $ 118,770 $ 79,860
Accounts payable 2,137,734 2,026,610
Accrued expenses and other current liabilities 2,520,492 2,157,527
----------- -----------
Total current liabilities 4,776,996 4,263,997
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; 5,650,947
shares in 1997 and 1996 of Class A Common
Stock issued and outstanding; 7,155,053 shares
of Class B Common Stock issued and outstanding
in 1997 and 1996 128,060 128,060
Additional paid-in capital 34,279,267 34,279,267
Accumulated deficit (15,674,772) (14,715,335)
Total stockholders' equity ----------- -----------
18,732,555 19,691,992
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,509,551 $23,955,989
=========== ===========
</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
MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
REVENUE
Advertising revenue $ 2,123,213 $ 1,268,766
Sponsorship revenue 1,286,069 1,057,513
Ticket service fees, net 1,338,110 648,219
Other revenue 288,464 153,512
----------- -----------
Total revenue 5,035,856 3,128,010
----------- -----------
COST OF SERVICES
Advertising commissions 215,719 61,291
Ticket sales servicing and transaction
fees 305,532 199,315
Telecommunications 328,231 246,153
Other expenses 91,690 79,838
----------- -----------
Total cost of services 941,172 586,597
----------- -----------
GROSS PROFIT 4,094,684 2,541,413
----------- -----------
OTHER COSTS AND EXPENSES
Selling, general and administrative 1,969,481 1,553,255
Advertising and promotions 1,586,630 1,278,777
Legal expenses 1,548,500 627,000
Depreciation and amortization 215,764 238,669
Interest income (266,254) (276,865)
----------- -----------
Total other costs and expenses 5,054,121 3,420,836
----------- -----------
NET LOSS $ (959,437) $ (879,423)
=========== ===========
NET LOSS PER COMMON SHARE $ (0.07) $ (0.07)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 12,806,000 12,800,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (959,437) $(879,423)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 215,764 238,669
Amortization of premium/discount on
investment securities 24,879 27,836
Barter services received 1,209,696 986,559
Barter services provided (1,209,696) (986,559)
Net changes in assets and liabilities 778,274 23,681
----------- ---------
Net cash provided by (used in)
operating activities 59,480 (589,237)
----------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of investment securities (1,375,504) --
Purchases of property and equipment (116,253) (82,591)
----------- ---------
Net cash used in investing activities (1,491,757) (82,591)
----------- ---------
Net decrease in cash and cash equivalents (1,432,277) (671,828)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,560,007 839,337
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,127,730 $ 167,509
=========== =========
</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
March 31, 1997, and the results of their operations and their cash
flows for the three month period ended March 31, 1997 and 1996. 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, 1996. The
results of operations for the three month period ended March 31, 1997
are not necessarily indicative of financial results on an annual
basis.
2. 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 Corp.
("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
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 ruling. 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 February 5, 1997, PCC voluntarily dismissed the California
Action.
6
<PAGE>
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.
On January 19, 1996, PCC filed counterclaims in the arbitration,
alleging that the Company breached the 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 Agreement is void and an award of
$1,238,748 in damages.
Evidentiary hearings in the arbitration began September 30, 1996 and
concluded on April 11, 1997. A decision is expected sometime during
the summer of 1997. During the October 1996 hearings, PCC withdrew
with prejudice its counterclaim that the Company breached the
Agreement by charging a usurious rate of interest to PCC. The Company
believes that its claims are well based and that any 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 of the
Company.
On March 17, 1995, the Company filed an action against Ticketmaster
in the U.S. District Court for 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.
On March 4, 1997, the Company filed an amended complaint against
Ticketmaster, adding a federal claim of
7
<PAGE>
racketeering and additional tort claims. On April 17, 1997,
Ticketmaster filed a motion to dismiss all federal claims in the
amended complaint. The Company's opposition to this motion is due
July 31, 1997.
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. On
September 9, 1996, the Supreme Court granted the Company's motion to
dismiss the suit in its entirety. On October 10, 1996, Ticketmaster
filed a notice of appeal. To date, Ticketmaster has yet to perfect
such appeal.
On January 24, 1997, the Company filed an action against Sir Brian
Wolfson, a former director of PCC, in the Supreme Court of the State
of New York, alleging that Sir Brian Wolfson breached his fiduciary
duties to the Company by causing the assets of PCC to be fraudulently
transferred so as to render PCC an insolvent shell corporation
incapable of performing its contractual obligations to the Company.
The Company is seeking damages in excess of $7 million. On February
10, 1997, Sir Brian Wolfson removed the action to the U.S. District
Court for the Southern District of New York. On February 28, 1997,
Sir Brian Wolfson filed an answer to the complaint.
3. The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share", the
adoption of which will be effective for the Company's fiscal year
ending December 31, 1997. The Company believes that the new method of
calculating basic earnings per share will not result in amounts
materially different from the currently reported primary earnings per
share amounts.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
First quarter total revenue increased 61% from $3.13 million in 1996 to $5.04
million in 1997. Advertising revenue increased 67% from $1.27 million in 1996
to $2.12 million in 1997. The increase in advertising revenue was primarily
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.
Advertising revenue in the first quarter of 1997 also included sales of $.18
million of the Company's new advertising product called "Previews". The
percentage of calls on which the Company sold advertising time decreased from
79% in the first quarter of 1996 to 67% in the first quarter of 1997.
Sponsorship revenue increased 22% from $1.06 million in 1996 to $1.29 million
in 1997 primarily due to increased barter services provided. Ticket service
fees increased 106% from $.65 million in the first quarter of 1996 to $1.34
million in the first quarter of 1997. The increase in ticket service fees is
primarily due to an increase in the number of tickets sold and an increase in
the ticket service fee from $1.25 to $1.50 in Manhattan effective during June
1996. Other revenue increased 93% from $.15 million in 1996 to $.29 million in
1997. 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 59% from $.59 million to $.94 million from
the first quarter of 1996 to the first quarter of 1997. These costs increased
as a result of the corresponding increases in advertising and ticket service
fees sales, as well as an increase in other revenue.
First quarter gross profit increased 61% from $2.54 million in 1996 to $4.09
million in 1997.
Total other costs and expenses increased 48% from $3.42 million to $5.05
million from the first quarter of 1996 to the first quarter of 1997. These
expenses increased primarily as a result of the Company's increased legal
expenses and personnel expenses associated with hiring of additional staff in
many areas of the Company's business. The increase in legal expenses relates
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 2 to the Company's condensed consolidated financial
statements.)
Net loss increased 9% from $.88 million ($.07 per share) in 1996 to $.96
million ($.07 per share) in 1997.
The number of calls received by the Company's MovieFone service increased 34%
from 13.2 million in the first quarter of 1996 to 17.7 million in the first
quarter of 1997. The Company believes that the growth in its calls received
was the result of a general increase in movie theater attendance, increased
awareness in established markets, and the addition of new markets and
theaters.
9
<PAGE>
The number of tickets sold by the Company's MovieFone service increased 84%
from .58 million in the first quarter of 1996 to 1.07 million in the first
quarter of 1997. The Company believes its ticket sales are to some extent
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 more of these "hit"
movies in the first quarter of 1997 than in the first quarter of 1996, which
contributed to the increase in the Company's ticket sales.
The Company added one new market during the first quarter of 1997 (San
Antonio) bringing its total number of markets to 29.
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 decreased 40% from $3.56 million at December 31,
1996 to $2.13 million at March 31, 1997, primarily due to the purchase of
investment securities during the first three months of 1997.
Net cash from operating activities increased 110% from $.59 million used in
the first quarter of 1996 to $.06 million provided in the first quarter of
1997. This positive net cash provided by operating activities in the first
quarter of 1997 is mainly due to the increased net changes in assets and
liabilities.
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.
10
<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 March 31, 1997.
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/ ADAM H. SLUTSKY
May 14, 1997 ----------------------------------
Adam H. Slutsky, Chief Financial
Officer and Chief Operating Officer
(Duly authorized signatory)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MovieFone,
Inc.'s condensed consolidated financial statements as of and for the three
months ended March 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,127,730
<SECURITIES> 3,001,280
<RECEIVABLES> 2,871,599
<ALLOWANCES> 0
<INVENTORY> 81,345
<CURRENT-ASSETS> 8,551,924
<PP&E> 5,518,856
<DEPRECIATION> 3,844,839
<TOTAL-ASSETS> 23,509,551
<CURRENT-LIABILITIES> 4,776,996
<BONDS> 0
<COMMON> 128,060
0
0
<OTHER-SE> 18,732,555
<TOTAL-LIABILITY-AND-EQUITY> 23,509,551
<SALES> 89,089
<TOTAL-REVENUES> 5,035,856
<CGS> 74,750
<TOTAL-COSTS> 941,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (959,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (959,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (959,437)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
