<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 September 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 NOVEMBER 13, 1998
----- --------------------------------
Common stock, Class A par value $.01 per share 5,245,685
Common stock, Class B par value $.01 per share 7,155,053
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
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
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II OTHER INFORMATION:*
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
* 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>
September 30, December 31,
1998 1997
----- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,831,010 $ 3,482,363
Short-term investments 2,587,922 --
Trade accounts receivable, net 2,947,135 3,586,604
Prepaid expenses and other current assets 1,492,216 380,024
Inventory 202,060 370,549
------------ -----------
Total current assets 12,060,343 7,819,540
PROPERTY AND EQUIPMENT 6,916,920 6,071,681
ACCUMULATED DEPRECIATION (5,227,391) (4,569,828)
------------ -----------
PROPERTY AND EQUIPMENT, net 1,689,529 1,501,853
LONG-TERM INVESTMENTS 6,410,885 12,151,101
DUE FROM OFFICER -- 8,844
OTHER ASSETS 81,910 111,773
------------ -----------
TOTAL ASSETS $ 20,242,667 $21,593,111
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to related parties, net $ 95,275 $ 13,908
Accounts payable 1,740,848 3,453,071
Accrued expenses and other current liabilities 3,550,755 2,288,529
------------ -----------
Total current liabilities 5,386,878 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; 5,667,585 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 128,210 128,172
Additional paid-in capital 34,331,056 34,316,355
Unrealized holding gain on investments 161,113 101,920
Accumulated deficit (17,379,552) (16,488,844)
------------ -----------
17,240,827 18,057,603
Less: Treasury Stock, at cost; 421,900 and 400,000 shares (2,385,038) (2,220,000)
in 1998 and 1997, respectively
------------ -----------
Total stockholders' equity 14,855,789 15,837,603
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,242,667 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Advertising revenue $3,153,413 $2,166,448 $8,852,929 $6,337,427
Sponsorship revenue 1,405,557 1,323,217 3,990,841 3,926,996
Ticket service fees, net 956,778 768,125 3,376,097 2,866,023
Other revenue 356,445 340,462 1,565,300 841,353
----------- ---------- ---------- -----------
Total revenue 5,872,193 4,598,252 17,785,167 13,971,799
----------- ----------- ---------- -----------
COST OF SERVICES
Advertising commissions 126,562 167,588 440,907 548,351
Ticket sales servicing and transaction fees 252,252 176,003 811,566 667,769
Telecommunications 442,878 298,135 1,292,779 895,696
Other expenses 260,641 97,116 494,082 226,539
----------- ----------- ---------- -----------
Total cost of services 1,082,333 738,842 3,039,334 2,338,355
----------- ----------- ---------- -----------
Gross Profit 4,789,860 3,859,410 14,745,833 11,633,444
OTHER COSTS AND EXPENSES
Selling, general and administrative 3,422,525 2,660,476 9,673,324 6,678,057
Advertising and promotions 1,847,639 1,597,080 5,164,417 4,721,869
Legal expenses 417,845 350,000 732,983 2,773,500
Depreciation and amortization 235,421 239,977 657,563 687,294
Investment income (209,149) (257,766) (591,746) (793,425)
----------- ----------- ---------- -----------
Total other costs and expenses 5,714,281 4,589,767 15,636,541 14,067,295
----------- ----------- ---------- -----------
NET LOSS ($924,421) ($730,357) ($890,708) ($2,433,851)
=========== =========== ========== ===========
NET LOSS PER COMMON SHARE -
BASIC ($0.07) ($0.06) ($0.07) ($0.19)
=========== =========== ========== ===========
DILUTED ($0.07) ($0.06) ($0.07) ($0.19)
=========== =========== ========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
BASIC 12,412,140 12,786,227 12,416,033 12,801,840
=========== =========== ========== ===========
DILUTED 12,412,140 12,786,227 12,416,033 12,801,840
=========== =========== ========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (890,708) $(2,433,851)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 657,563 687,294
Amortization of premium/discount on investments -- 37,319
Provision for doubtful accounts 71,000 --
Net loss on sales of investments 38,370 --
Barter services received 3,665,061 3,694,814
Barter services provided (3,665,061) (3,694,814)
Net changes in assets and liabilities (705,157) (130,028)
---------- ----------
Net cash used in operating activities (828,932) (1,839,266)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments -- (4,414,638)
Sales of investments 3,173,117 7,017,754
Purchases of property and equipment (845,239) (417,256)
---------- ----------
Net cash provided by investing activities 2,327,878 2,185,860
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 14,739 37,200
Purchase of treasury stock (165,038) (2,220,000)
---------- ----------
Net cash used in financing activities (150,299) (2,182,800)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,348,647 (1,836,206)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,482,363 3,560,007
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $4,831,010 $1,723,801
========== ==========
</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. and subsidiaries (the "Company") 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 nine months ended September 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 February 23, 1998, the arbitration
award was entered as a valid, enforceable judgment. To date, 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 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.
6
<PAGE>
Evidentiary hearings were held in the Supreme Court of the State of New
York on August 24, 25, and 27, 1998. On September 18, 1998, the parties
submitted post-hearing briefs in support of their positions. On October
13, 1998, each party submitted a reply to the other party's post-hearing
brief.
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. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income",
which established disclosure standards for reporting comprehensive income
in a full set of general purpose financial statements. Comprehensive loss
for the three and nine months ended September 30, 1998 was ($808,551) and
($831,515), respectively, which included increases in unrealized holding
gains on investments available-for-sale of $115,870 and $59,193,
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.
4. During the third quarter of 1998, the Company recorded a charge of
$175,000 which is included in other expenses, a component of cost of
services, on the condensed consolidated statements of operations. This
charge consists principally of a provision to adjust the carrying value of
inventory to the lower of cost or market.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 vs. Three Months Ended September 30, 1997
Third quarter total revenue increased 28% from $4.60 million in 1997 to $5.87
million in 1998. Advertising revenue increased 45% from $2.17 million in 1997 to
$3.15 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.com services and an increase in the number of sessions on which
advertising time was sold. Sponsorship revenue increased 6% from $1.32 million
in 1997 to $1.40 million in 1998 primarily due to an increase in the number of
sponsorships and other promotional services to local media and credit card
companies. Ticket service fees increased 25% from $0.77 million in the third
quarter of 1997 to $0.96 million in the third quarter of 1998. The increase in
ticket service fees is primarily due to an increase in the number of tickets
sold. Other revenue increased 6% from $0.34 million in 1997 to $0.36 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 46% from $0.74 million in the third quarter of
1997 to $1.08 million in the third 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. Additionally, during the third
quarter of 1998, the Company recorded an inventory writedown of $0.18 million,
consisting principally of a provision to adjust the carrying value of inventory
to the lower of cost or market.
Third quarter gross profit increased 24% from $3.86 million in 1997 to $4.79
million in 1998.
Total other costs and expenses increased 24% from $4.59 million in the third
quarter of 1997 to $5.71 million in the third 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.
The third quarter net loss in 1998 is $0.92 million ($0.07 per share) compared
to the third quarter net loss in 1997 of $0.73 million ($0.06 per share).
The number of calls received by the Company's MovieFone service increased 25%
from 18.1 million in the third quarter of 1997 to 22.7 million in the third
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 19% from
0.62 million in
8
<PAGE>
the third quarter of 1997 to 0.74 million in the third 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.
Nine Months Ended September 30, 1998 vs. Nine Months Ended September 30, 1997
Total revenue increased 27% from $13.97 million in the first nine months of 1997
to $17.79 million in the first nine months of 1998. Advertising revenue
increased 40% from $6.34 million in the first nine months of 1997 to $8.85
million in the first nine months of 1998. The increase in advertising revenue
was the result of the increased number of sessions received by the Company's
MovieFone and Movielink.com services and an increase in the number of sessions
on which advertising time was sold. Sponsorship revenue increased 2% from $3.93
million in the first nine months of 1997 to $3.99 million in the first nine
months of 1998. Ticket service fees increased 18% from $2.87 million in the
first nine months of 1997 to $3.38 million in the first nine months of 1998.
Other revenue increased 86% from $0.84 million in the first nine months of 1997
to $1.56 million in the first nine months 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 30% from $2.34 million in the first nine months
of 1997 to $3.04 million in the first nine months of 1998. These costs increased
as a result of the corresponding increases in the respective components of
revenue. Additionally, during the third quarter of 1998, the Company recorded an
inventory writedown of $0.18 million, consisting principally of a provision to
adjust the carrying value of inventory to the lower of cost or market.
Gross profit increased 27% from $11.63 million in the first nine months of 1997
to $14.75 million in the first nine months of 1998.
Total other costs and expenses increased 11% from $14.07 million in the first
nine months of 1997 to $15.64 million in the first nine months 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 a net loss of $0.89 million ($0.07 per share) in the first
nine months of 1998 versus a net loss of $2.43 million ($0.19 per share) in
1997.
The number of calls received by the Company's MovieFone service increased 20%
from 51.3 million in the first nine months of 1997 to 61.4 million in the first
nine months 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.
9
<PAGE>
The number of tickets sold through MovieFone increased 13% from 2.31 million in
the first nine months of 1997 to 2.60 million in the first nine months 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 nine months of 1998 (St.
Louis and Milwaukee) 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 39% from $3.48 million at December 31, 1997
to $4.83 million at September 30, 1998.
The Company utilized $0.83 million of cash in operating activities. Net cash
provided by investing activities is primarily the result of the sale of
investment securities, offset by purchases of property and equipment.
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.
Net cash used in financing activities was $0.15 million primarily due to the
purchase of 21,900 shares of treasury stock.
OTHER MATTERS
The Company recognizes that the arrival of the Year 2000 poses a unique
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and, like other companies, has assessed and
is repairing its computer applications and business processes to ensure Year
2000 compliance. Internal and external resources are being used to make the
required modifications and test Year 2000 compliance. The Company expects to
complete the testing process of all significant applications by the end of the
second quarter of fiscal 1999.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by
10
<PAGE>
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company.
The total cost of the Year 2000 project is estimated at $800,000 and is being
funded through operating cash flows. To date the Company has incurred
approximately $100,000 related to the assessment of, and preliminary efforts in
connection with, its Year 2000 project and the development of its remediation
plan. Additional costs of software and hardware remediation are estimated to be
$50,000 and $650,000 in 1998 and 1999, respectively. Purchased hardware and
software will be capitalized in accordance with normal policy. Personnel and all
other costs related to the project are being expensed as incurred. In the event
that the Company's material systems are not Year 2000 compliant, the Company may
experience reductions or interruptions in operations which could have a material
adverse effect on the Company's results of operations.
The Company has contingency plans for some mission-critical applications and is
working on plans for others.
The information set forth in the preceding four paragraphs constitutes a "Year
2000 Readiness Disclosure" pursuant to the Year 2000 Information and Readiness
Disclosure Act. (P.L. 105-271, signed into law October 19, 1998).
The preceding "Year 2000 Issue" discussion contains various forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and the Section 27A Securities Act of 1933. These forward-looking
statements represent the Company's belief or expectations regarding future
events. When used in the "Year 2000 Issue" discussion, the words "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Forward-looking statements include, without limitation, the Company
expectations as to when it will complete the modification and testing phases of
its Year 2000 project plan as well as its Year 2000 contingency plans; its
estimated cost of achieving Year 2000 readiness; and the Company's belief that
its internal systems will be Year 2000 compliant in a timely manner. All
forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
Factors that may cause these differences include, but are not limited to, the
availability of qualified personnel and other information technology resources;
the ability to identify and remediate all date sensitive lines of computer code
or to replace embedded computer chips in affected systems or equipment; and the
actions of governmental agencies or other third parties with respect to Year
2000 problems.
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 September 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
-------------------------------------
November 14, 1998 Adam H. Slutsky, Chief Financial
Officer and Chief Operating Officer
(Duly authorized signatory)
12
<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 nine months
ended September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,831,010
<SECURITIES> 2,587,922
<RECEIVABLES> 3,018,135
<ALLOWANCES> 71,000
<INVENTORY> 202,060
<CURRENT-ASSETS> 12,060,343
<PP&E> 6,916,920
<DEPRECIATION> 5,227,391
<TOTAL-ASSETS> 20,242,667
<CURRENT-LIABILITIES> 5,386,878
<BONDS> 0
128,210
0
<COMMON> 0
<OTHER-SE> 14,727,669
<TOTAL-LIABILITY-AND-EQUITY> 20,242,667
<SALES> 192,295
<TOTAL-REVENUES> 17,785,167
<CGS> 180,076
<TOTAL-COSTS> 3,039,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (890,708)
<INCOME-TAX> 0
<INCOME-CONTINUING> (890,708)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (890,708)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
