<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 June 30, 1998
-----------------------------------
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 AUGUST 14, 1998
----- ------------------------------
Common stock, Class A par value $.01 per share 5,264,785
Common stock, Class B par value $.01 per share 7,155,053
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
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 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
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>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,948,553 $ 3,482,363
Short-term investments 1,314,625 --
Trade accounts receivable 3,628,739 3,586,604
Prepaid expenses and other current assets 568,357 380,024
Inventory 350,345 370,549
------------ ------------
Total current assets 10,810,619 7,819,540
PROPERTY AND EQUIPMENT 6,629,880 6,071,681
ACCUMULATED DEPRECIATION (4,991,970) (4,569,828)
------------ ------------
PROPERTY AND EQUIPMENT, net 1,637,910 1,501,853
LONG-TERM INVESTMENTS 7,568,311 12,151,101
DUE FROM OFFICER -- 8,844
OTHER ASSETS 76,067 111,773
------------ ------------
TOTAL ASSETS $ 20,092,907 $ 21,593,111
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to related parties $ 8,218 $ 13,908
Accounts payable 2,073,475 3,453,071
Accrued expenses and other current liabilities 2,185,664 2,288,529
------------ ------------
Total current liabilities 4,267,357 5,755,508
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; 5,664,785 and 5,662,135 shares in
1998 and 1997, respectively, of Class A Common Stock
issued and outstanding; 7,155,053 shares of Class B
Common Stock issued and outstanding in 1998 and 1997 128,198 128,172
Additional paid-in capital 34,327,240 34,316,355
Unrealized holding gain on investments 45,243 101,920
Accumulated deficit (16,455,131) (16,488,844)
------------ ------------
18,045,550 18,057,603
Less: Treasury Stock, 400,000 shares, at cost (2,220,000) (2,220,000)
------------ ------------
Total stockholders' equity 15,825,550 15,837,603
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,092,907 $ 21,593,111
============ ============
</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,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Advertising revenue $2,835,510 $2,047,766 $5,699,516 $4,170,979
Sponsorship revenue 1,327,813 1,317,710 2,585,284 2,603,779
Ticket service fees, net 1,047,505 759,788 2,419,319 2,097,898
Other revenue 527,537 212,427 1,208,855 500,891
------------ ------------ ------------ ------------
Total revenue 5,738,365 4,337,691 11,912,974 9,373,547
------------ ------------ ------------ ------------
COST OF SERVICES
Advertising commissions 203,685 165,044 314,345 380,763
Ticket sales servicing and transaction fees 244,397 186,234 559,314 491,766
Telecommunications 432,220 269,330 849,901 597,561
Other expenses 129,251 37,733 233,441 129,423
------------ ------------ ------------ ------------
Total cost of services 1,009,553 658,341 1,957,001 1,599,513
------------ ------------ ------------ ------------
GROSS PROFIT 4,728,812 3,679,350 9,955,973 7,774,034
OTHER COSTS AND EXPENSES
Selling, general and administrative 3,286,691 2,048,100 6,250,799 4,017,581
Advertising and promotions 1,693,371 1,538,159 3,316,778 3,124,789
Legal expenses 155,138 875,000 315,138 2,423,500
Depreciation and amortization 223,685 231,553 422,142 447,317
Investment income (171,456) (269,405) (382,597) (535,659)
------------ ------------ ------------ ------------
Total other costs and expenses 5,187,429 4,423,407 9,922,260 9,477,528
------------ ------------ ------------ ------------
NET INCOME (LOSS) ($458,617) ($744,057) $33,713 ($1,703,494)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE -
BASIC ($0.04) ($0.06) $0.00 ($0.13)
============ ============ ============ ============
DILUTED ($0.04) ($0.06) $0.00 ($0.13)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
BASIC 12,418,573 12,813,511 12,417,980 12,809,776
============ ============ ============ ============
DILUTED 12,418,573 12,813,511 12,899,325 12,809,776
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 33,713 $(1,703,494)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 422,142 447,317
Amortization of premium/discount on investments -- 41,610
Net loss on sales of investments 6,196 --
Barter services received 2,428,592 2,449,258
Barter services provided (2,428,592) (2,449,258)
Net changes in assets and liabilities (1,653,865) 1,301,890
----------- -----------
Net cash (used in) provided by operating activities (1,191,814) 87,323
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments -- (4,414,638)
Sales of investments 3,205,292 3,000,000
Purchases of property and equipment (558,199) (285,998)
----------- -----------
Net cash provided by (used in) investing activities 2,647,093 (1,700,636)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 10,911 32,972
----------- -----------
Net cash provided by financing activities 10,911 32,972
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,466,190 (1,580,341)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,482,363 3,560,007
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,948,553 $ 1,979,666
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MOVIEFONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. The accompanying unaudited condensed consolidated financial statements of
MovieFone, Inc. (the "Company") and subsidiaries have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
2. On November 1, 1994, the Company filed a Demand for Arbitration
("Demand") with the American Arbitration Association ("AAA") against
Pacer/CATS Corporation ("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 February 14, 1992
agreement between Promofone, Inc. and Pacer/CATS and promoted the
services of Ticketmaster Corporation ("Ticketmaster"). The Demand sought
an injunction and damages in an unspecified amount. Evidentiary hearings
in the arbitration began September 30, 1996 and concluded on April 11,
1997. Final briefs were filed during May and June and closing arguments
in the arbitration were heard on June 10, 1997. On July 23, 1997, a
unanimous panel of three arbitrators awarded the Company $22,751,250 in
monetary damages and certain injunctive relief against Pacer/CATS, its
successors and assigns, and all persons or entities acting in concert
with them. On July 24, 1997, the Company filed a petition in the Supreme
Court of the State of New York to confirm the arbitration award. On
November 20, 1997, the Supreme Court of the State of New York confirmed
the arbitration award and the decision was entered on November 25, 1997.
On December 22, 1997, Pacer/CATS filed a notice of appeal of the decision
to confirm the arbitration award. The appeal has not been perfected to
date. On February 23, 1998, the arbitration award was entered as a valid,
enforceable judgment. The Company has not received any proceeds from the
award.
On May 29, 1998, the Company filed a petition in the Supreme Court of the
State of New York, requesting that Pacer/CATS/CCS ("CCS"), as a successor
to Pacer/CATS, be held in civil contempt for violating the injunctive
relief provisions of the arbitration award. The petition requested that
the court award the Company monetary damages for CCS' violation of the
injunction. On June 18, 1998, CCS submitted its opposition to the
contempt petition. The Company submitted a reply to the opposition on
June 25, 1998. Oral argument on the contempt petition was held on June
25, 1998. On July 8, 1998, the Supreme Court of the State
6
<PAGE>
of New York ordered CCS to disclose certain documents and to produce its
corporate agents and officers for depositions to determine to what extent
CCS has violated the injunction. The Court has scheduled an evidentiary
hearing for August 24-25, 1998 to make a final determination as to
whether and to what extent CCS has violated the injunction and, if so,
what civil contempt fine will be imposed.
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 Management, Inc.
("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 March 4, 1997,
the Company filed an amended complaint against Ticketmaster, adding a
federal claim of racketeering and additional antitrust and tort claims.
On April 17, 1997, Ticketmaster filed a motion to dismiss all federal
claims in the amended complaint. On August 15, 1997, the Company
submitted its opposition to the motion to dismiss. Ticketmaster submitted
a reply to the opposition on November 19, 1997. On January 6, 1998, the
Company submitted a sur- reply to Ticketmaster's reply. Ticketmaster
submitted a response to the Company's sur-reply on January 28, 1998.
3. The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." Effective January 1, 1998, the Company adopted
SFAS No. 130 which established disclosure standards for reporting
comprehensive income in a full set of general purpose financial
statements. Comprehensive loss for the three and six months ended June
30, 1998 was $(475,082) and $(22,964), respectively, which included
decreases in unrealized holding gains on investments available-for-sale
of $16,465 and $56,677, respectively.
The FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires a disclosure of
business segments in the financial statements of the Company. This
Statement is effective for fiscal years beginning after December 31,
1997. Adoption of this standard will not impact the Company's
consolidated financial position, results of operations or cash flows, and
any effect, while not yet determined by the Company, will be limited to
the presentation of its disclosures.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 vs. Three Months Ended June 30, 1997
Second quarter total revenue increased 32% from $4.34 million in 1997 to $5.74
million in 1998. Advertising revenue increased 38% from $2.05 million in 1997
to $2.84 million in 1998. The increase in advertising revenue was the result of
an increased number of sessions received by the Company's MovieFone and
MovieLink services and an increase in the number of sessions on which
advertising time was sold. Sponsorship revenue of $1.33 million in the second
quarter of 1998 was unchanged versus the second quarter of 1997. Ticket service
fees increased 38% from $.76 million in the second quarter of 1997 to $1.05
million in the second quarter of 1998. The increase in ticket service fees is
primarily due to an increase in the number of tickets sold. Other revenue
increased 148% from $.21 million in 1997 to $.53 million in 1998. Other revenue
is comprised of revenue earned from the Company's emerging business units,
consisting primarily of sales of the Company's Mars theater management system.
Total cost of services increased 53% from $.66 million in the second quarter of
1997 to $1.01 million in the second quarter of 1998. 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.
Second quarter gross profit increased 29% from $3.68 million in 1997 to $4.73
million in 1998.
Total other costs and expenses increased 17% from $4.42 million in the second
quarter of 1997 to $5.19 million in the second quarter of 1998. These expenses
increased as a result of increases in personnel expenses associated with hiring
of additional staff in many areas of the Company's business, partially offset
by decreased legal expenses. The decrease in legal expenses is due to the
conclusion of the Company's arbitration proceeding with Pacer/CATS. (See Note 2
to the Company's condensed consolidated financial statements.)
Net loss decreased 38% from $.74 million ($.06 per share) in 1997 to $.46
million ($.04 per share) in 1998.
The number of calls received by the Company's MovieFone service increased 21%
from 15.5 million in the second quarter of 1997 to 18.7 million in the second
quarter of 1998. 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.
The number of tickets sold by the Company's MovieFone service increased 26%
from .62 million in
8
<PAGE>
the second quarter of 1997 to .78 million in the second quarter of 1998. 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.
The Company added two new markets during the second quarter of 1998 (Milwaukee
and St. Louis) bringing its total number of markets to 33.
Six Months Ended June 30, 1998 vs. Six Months Ended June 30, 1997
First half total revenue increased 27% from $9.37 million in 1997 to $11.91
million in 1998. Advertising revenue increased 37% from $4.17 million in the
first half of 1997 to $5.70 million in the first half of 1998. The increase in
advertising revenue was the result of the increased number of sessions received
by the Company's MovieFone and MovieLink services and an increase in the number
of sessions on which advertising time was sold. Sponsorship revenue of $2.60
million in the first half of 1998 was unchanged versus the first half of 1997.
Ticket service fees increased 15% from $2.10 million in the first six months of
1997 to $2.42 million in the first six months of 1998. Other revenue increased
141% from $.50 million in the first half of 1997 to $1.21 million in the first
half of 1998. Other revenue is comprised of revenue earned from the Company's
emerging business units, consisting primarily of sales of the Company's Mars
theater management system.
Total cost of services increased 22% from $1.60 million in the first half of
1997 to $1.96 million in the first half of 1998. These costs increased as a
result of the corresponding increases in the respective components of revenue.
First half gross profit increased 28% from $7.77 million in 1997 to $9.96
million in 1998.
Total other costs and expenses increased 5% from $9.48 million in the first
half of 1997 to $9.92 million in the first half of 1998. These expenses
increased primarily as a result of increases in personnel expenses associated
with the hiring of additional staff in many areas of the Company's business,
partially offset by decreased legal expenses. The decrease in legal expenses is
due to the conclusion of the Company's arbitration proceeding with Pacer/CATS.
(See Note 2 to the Company's condensed consolidated financial statements.)
The Company posted net income of $0.03 million (breakeven on a per share basis)
in 1998 versus a net loss of $1.7 million ($.13 per share) in 1997.
The number of calls received by the Company's MovieFone service increased 17%
from 33.2 million in the first half of 1997 to 38.7 million in the first half
of 1998. 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.
The number of tickets sold through MovieFone increased 10% from 1.69 million in
the first half of
9
<PAGE>
1997 to 1.85 million in the first half of 1998. The Company believes that the
growth in 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.
The Company added two new markets during the first half of 1998 (Milwaukee and
St. Louis) bringing its total number of markets to 33.
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 42% from $3.48 million at December 31,
1997 to $4.95 million at June 30, 1998, primarily due to the sale of investment
securities during the second quarter of 1998.
Net cash from operating activities decreased from $.09 million provided in the
first half of 1997 to $1.19 million used in the first half of 1998. The change
in cash from operating activities is mainly due to a decrease in accounts
payable, partially offset by the favorable operating performance discussed
earlier.
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
June 30, 1998.
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
-------------------
August 14, 1998 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 six months
ended June 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,948,553
<SECURITIES> 1,314,625
<RECEIVABLES> 3,628,739
<ALLOWANCES> 0
<INVENTORY> 350,345
<CURRENT-ASSETS> 10,810,619
<PP&E> 6,629,880
<DEPRECIATION> 4,991,970
<TOTAL-ASSETS> 20,092,907
<CURRENT-LIABILITIES> 4,267,357
<BONDS> 0
128,198
0
<COMMON> 0
<OTHER-SE> 15,697,352
<TOTAL-LIABILITY-AND-EQUITY> 20,092,907
<SALES> 177,295
<TOTAL-REVENUES> 11,912,974
<CGS> 165,076
<TOTAL-COSTS> 1,957,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,713
<INCOME-TAX> 0
<INCOME-CONTINUING> 33,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,713
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
