<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, 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 MAY 14, 1998
Common stock, Class A par value $.01 per share 5,262,660
Common stock, Class B par value $.01 per share 7,155,053
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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 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II OTHER INFORMATION:*
Item 6. Exhibits and Reports on Form 8-K 10
* Item numbers which are inapplicable or to which the answer is negative have
been omitted.
2
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MOVIEFONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,205,089 $ 3,482,363
Short-term investments 3,139,616 -
Trade accounts receivable 3,340,319 3,586,604
Prepaid expenses and other current assets 372,611 380,024
Inventory 343,386 370,549
------------------ -------------------
Total current assets 10,401,021 7,819,540
PROPERTY AND EQUIPMENT 6,306,045 6,071,681
ACCUMULATED DEPRECIATION (4,768,285) (4,569,828)
------------------ -------------------
PROPERTY AND EQUIPMENT, net 1,537,760 1,501,853
LONG-TERM INVESTMENTS 8,899,402 12,151,101
DUE FROM OFFICER 9,053 8,844
DUE FROM AFFILIATES 17,963 -
OTHER ASSETS 121,757 111,773
------------------ -------------------
TOTAL ASSETS $ 20,986,956 $ 21,593,111
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to related parties $ - $ 13,908
Accounts payable 2,491,027 3,453,071
Accrued expenses and other current liabilities 2,204,065 2,288,529
------------------ -------------------
Total current liabilities 4,695,092 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; 5,662,660 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. 128,177 128,172
Additional paid-in capital 34,318,493 34,316,355
Unrealized holding gain on investments 61,708 101,920
Accumulated deficit (15,996,514) (16,488,844)
------------------ -------------------
18,511,864 18,057,603
Less: Treasury Stock, 400,000 shares, at cost (2,220,000) (2,220,000)
------------------ -------------------
Total stockholders' equity 16,291,864 15,837,603
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,986,956 $ 21,593,111
================== ===================
</TABLE>
See notes to condensed consolidated financial statements.
3
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MOVIEFONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------------ ------------------
<S> <C> <C>
REVENUE
Advertising revenue $2,864,006 $2,123,213
Sponsorship revenue 1,257,471 1,286,069
Ticket service fees, net 1,371,814 1,338,110
Other revenue 681,318 288,464
------------------ ------------------
Total revenue 6,174,609 5,035,856
------------------ ------------------
COST OF SERVICES
Advertising commissions 110,660 215,719
Ticket sales servicing and transaction fees 314,917 305,532
Telecommunications 417,681 328,231
Other expenses 104,190 91,690
------------------ ------------------
Total cost of services 947,448 941,172
------------------ ------------------
Gross Profit 5,227,161 4,094,684
OTHER COSTS AND EXPENSES
Selling, general and administrative 2,964,108 1,969,481
Advertising and promotions 1,623,407 1,586,630
Legal expenses 160,000 1,548,500
Depreciation and amortization 198,457 215,764
Investment income (211,141) (266,254)
------------------ ------------------
Total other costs and expenses 4,734,831 5,054,121
------------------ ------------------
Income (Loss) Before Income Taxes 492,330 (959,437)
Income Taxes - -
------------------ ------------------
NET INCOME (LOSS) $492,330 ($959,437)
================== ==================
NET INCOME (LOSS) PER COMMON SHARE -
BASIC $0.04 ($0.07)
================== ==================
DILUTED $0.04 ($0.07)
================== ==================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
BASIC 12,417,386 12,806,000
================== ==================
DILUTED 12,826,700 12,806,000
================== ==================
See notes to condensed consolidated financial statements.
</TABLE>
4
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MOVIEFONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 492,330 $ (959,437)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 198,457 215,764
Amortization of premium/discount on investments -- 24,879
Net gain on sales of investments (17,547) --
Barter services received 1,188,097 1,209,696
Barter services provided (1,188,097) (1,209,696)
Net changes in assets and liabilities (807,711) 778,274
----------- -----------
Net cash (used in) provided by operating activities (134,471) 59,480
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (3,154,243) (1,375,504)
Sales of investments 3,243,661 --
Purchases of property and equipment (234,364) (116,253)
----------- -----------
Net cash used in investing activities (144,946) (1,491,757)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,143 --
----------- -----------
Net cash provided by financing activities 2,143 --
----------- -----------
Net decrease in cash and cash equivalents (277,274) (1,432,277)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,482,363 3,560,007
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,205,089 $ 2,127,730
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
5
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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 subsidiary as of March 31, 1998, and
the results of their operations and their cash flows for the three month
period ended March 31, 1998 and 1997. 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, 1997. The results of operations for the three
month period ended March 31, 1998 are not necessarily indicative of
financial results on an annual basis.
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 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 Court 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 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
6
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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
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. During the quarter ended March 31, 1998, the Company invested in
marketable equity securities and commodity futures contracts with
off-balance sheet risk. The Company's commodity futures contracts
represent commitments to purchase or sell commodities at specific
terms at specified future dates. Each of these commodity futures
contracts contains varying degrees of off-balance sheet risk whereby
changes in the market values of the commodities underlying these
contracts may exceed the carrying amounts.
The Company's marketable equity securities and commodity futures
contracts are considered to be trading instruments and are marked to
fair market value. Dividends, interest, and gains and losses, both
realized and unrealized, are recognized currently in the consolidated
statement of operations. The fair market value of the marketable
equity securities at March 31, 1998 included in short-term
investments in the condensed consolidated balance sheet is $2.3
million. The carrying value of commodity futures contracts at March
31, 1998 included in short-term investments in the condensed
consolidated balance sheet is $.8 million. Such commodity futures
contracts had a notional amount of $7.8 million at March 31, 1998.
During the quarter ended March 31, 1998, the Company entered into an
agreement with a related party to provide certain managerial and
administrative services with respect to the Company's investment
portfolio. These fees are included in selling, general and
administrative expenses on the accompanying consolidated statement of
operations.
During May 1998, the Company divested all marketable equity
securities and commodity futures contracts and terminated the related
party services agreement.
4. The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards 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 income for the three months ended March 31,
1998 was $452,118, which included the decrease of $40,212 in
unrealized holding gain on investments available-for-sale from
December 31, 1997 to March 31, 1998.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
First quarter total revenue increased 22% from $5.04 million in 1997 to $6.17
million in 1998. Advertising revenue increased 35% from $2.12 million in 1997
to $2.86 million in 1998. The increase in advertising revenue was primarily
the result of an increased number of calls and sessions received by the
Company's MovieFone and MovieLink services. Sponsorship revenue decreased 2%
from $1.29 million in 1997 to $1.26 million in 1998 primarily due to decreased
barter services provided. Ticket service fees increased 2% from $1.34 million
in the first quarter of 1997 to $1.37 million in the first quarter of 1998.
Other revenue increased 134% from $.29 million in 1997 to $.68 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 1% from $.94 million to $.95 million from the
first quarter of 1997 to the first quarter of 1998.
First quarter gross profit increased 28% from $4.09 million in 1997 to $5.23
million in 1998.
Total other costs and expenses decreased 6% from $5.05 million to $4.73
million from the first quarter of 1997 to the first quarter of 1998. These
expenses decreased primarily as a result of the Company's decreased legal
expenses, which were offset by the increase in personnel expenses associated
with hiring of additional staff in many areas of the Company's business. The
decrease in legal expenses are due to the conclusion of the Company's
arbitration proceeding with Pacer/CATS. (See Note 2 to the Company's condensed
consolidated financial statements.)
First quarter net income of $.49 million ($.04 per share) in 1998 is an
increase over the net loss of $.96 million ($.07 per share) in 1997.
The number of calls received by the Company's MovieFone service increased 13%
from 17.7 million in the first quarter of 1997 to 20.0 million in the first
quarter of 1998. The Company believes that the growth in its calls received
was the result of a general increase in movie theater attendance and increased
awareness in established markets.
The number of tickets sold by the Company's MovieFone service was 1.07 million
in the first quarter of 1998 and 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.
The Company added no new markets during the first quarter of 1998. The total
number of markets the Company operates in is 31.
8
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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 8% from $3.48 million at December 31,
1997 to $3.21 million at March 31, 1998, primarily due to the purchases of
investments and property during the first three months of 1998.
First quarter net cash used in operating activities of $.13 million in 1998 is
a decrease from the net cash provided by operating activities of $.06 million
in the first quarter of 1997. This decrease is mainly due to the net changes
in assets and liabilities offset by net income for the first quarter of 1998.
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.
9
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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, 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
-------------------
May 14, 1998 Adam H. Slutsky, Chief Financial
Officer and Chief Operating Officer
(Duly authorized signatory)
10
<TABLE> <S> <C>
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<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, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,205,089
<SECURITIES> 3,139,616
<RECEIVABLES> 3,340,319
<ALLOWANCES> 0
<INVENTORY> 343,386
<CURRENT-ASSETS> 10,401,021
<PP&E> 6,306,045
<DEPRECIATION> 4,768,285
<TOTAL-ASSETS> 20,986,956
<CURRENT-LIABILITIES> 4,695,092
<BONDS> 0
0
0
<COMMON> 128,177
<OTHER-SE> 16,163,687
<TOTAL-LIABILITY-AND-EQUITY> 20,986,956
<SALES> 69,759
<TOTAL-REVENUES> 6,174,609
<CGS> 75,109
<TOTAL-COSTS> 947,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 492,330
<INCOME-TAX> 0
<INCOME-CONTINUING> 492,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 492,330
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
