<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, 1999
------------------------------------
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, 1999
----- ---------------------------
Common stock, Class A par value $.01 per share 5,347,970
Common stock, Class B par value $.01 per share 7,080,053
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARY
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 9-11
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.
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,911,713 $ 3,264,404
Short-term investments 5,311,892 5,263,868
Trade accounts receivable, less allowance for uncollectible accounts
of $111,000 and $71,000 in 1999 and 1998, respectively 3,327,927 5,603,400
Prepaid expenses and other current assets 999,805 1,305,431
Inventory 368,952 241,374
------------ ------------
Total current assets 11,920,289 15,678,477
PROPERTY AND EQUIPMENT, net 2,157,620 1,841,970
LONG-TERM INVESTMENTS 3,414,341 3,565,076
OTHER ASSETS 176,793 176,193
------------ ------------
TOTAL ASSETS $ 17,669,043 $ 21,261,716
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to related parties, net $ 68,230 $ 33,323
Accounts payable 2,109,459 2,638,172
Accrued expenses and other current liabilities 4,857,277 5,053,489
------------ ------------
Total current liabilities 7,034,966 7,724,984
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;
5,756,235 and 5,755,085 shares in 1999 and 1998, respectively, of Class A
Common Stock
issued and outstanding; 57,562 57,550
7,080,053 shares in 1999 and 1998, respectively,
of Class B Common Stock issued and outstanding 70,801 70,801
Additional paid-in capital 34,388,463 34,383,227
Accumulated other comprehensive income 3,704 85,226
Accumulated deficit (21,501,415) (18,675,034)
------------ ------------
13,019,115 15,921,770
Less: Treasury Stock, at cost;
421,900 shares in 1999 and 1998, respectively (2,385,038) (2,385,038)
------------ ------------
Total stockholders' equity 10,634,077 13,536,732
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,669,043 $ 21,261,716
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUE
Advertising revenue $ 2,937,142 $ 2,864,006
Sponsorship revenue 2,270,792 1,257,471
Ticket service fees, net 716,758 1,371,814
Other revenue 711,829 681,318
------------ ------------
Total revenue 6,636,521 6,174,609
------------ ------------
COST OF SERVICES
Advertising commissions 147,942 110,660
Ticket sales servicing and transaction fees 128,014 314,917
Telecommunications 636,180 417,681
Other expenses 62,108 104,190
------------ ------------
Total cost of services 974,244 947,448
------------ ------------
Gross Profit 5,662,277 5,227,161
OTHER COSTS AND EXPENSES
Selling, general and administrative 4,449,084 3,124,108
Advertising and promotions 2,782,581 1,623,407
Merger-related costs 1,230,000 --
Depreciation and amortization 180,234 198,457
Investment income (153,241) (211,141)
------------ ------------
Total other costs and expenses 8,488,658 4,734,831
------------ ------------
NET (LOSS) INCOME $ (2,826,381) $ 492,330
============ ============
NET (LOSS) INCOME PER COMMON SHARE:
BASIC $ (0.23) $ 0.04
============ ============
DILUTED $ (0.23) $ 0.04
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
BASIC 12,413,618 12,417,386
============ ============
DILUTED 12,413,618 12,826,700
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(2,826,381) $ 492,330
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 180,234 198,457
Amortization of premium/discount on investments 21,189 --
Net loss on sales of investments -- (17,547)
Barter services received 1,552,165 1,188,097
Barter services provided (1,552,165) (1,188,097)
Net changes in assets and liabilities 1,762,903 (807,711)
----------- -----------
Net cash used in operating activities (862,055) (134,471)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments -- (3,154,243)
Sales of investments -- 3,243,661
Purchases of property and equipment (495,884) (234,364)
----------- -----------
Net cash used in investing activities (495,884) (144,946)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from exercise of stock options 5,248 2,143
----------- -----------
Net cash provided by financing activities 5,248 2,143
----------- -----------
Net decrease in cash and cash equivalents (1,352,691) (277,274)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,264,404 3,482,363
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,911,713 $ 3,205,089
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MOVIEFONE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. The accompanying unaudited condensed consolidated financial statements of
MovieFone, Inc. and subsidiary (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 months
ended March 31, 1999 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1999. 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, 1998.
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.
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.
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 November
23, 1998, the Supreme Court of the State of New York awarded the Company
judgment in the amount of $1,383,241 in monetary damages as a result of CCS'
violation of the Court's order confirming the arbitrator's injunction. The
judgement was entered on November 24, 1998.
6
<PAGE>
To date, 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 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. No decision has been rendered by the Court to date.
3. The FASB recently issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes new disclosure requirements which provide a
comprehensive standard for recognition and measurement of derivatives and
hedging activities. SFAS 133 will require new disclosures to be recorded on
the balance sheet at fair value and establishes special accounting for
certain types of hedging activities and will take effect in 2000. The
Company does not believe that SFAS 133 will have a material effect on the
Company's financial condition or results of operations.
4. SFAS No. 128, "Earnings per Share" requires the dual presentation of basic
and diluted earnings per share ("EPS"). Basis EPS excludes dilution and is
computed by dividing net income (loss) by the weighted average number of
common shares outstanding. Diluted EPS reflects the potential dilution that
could occur if stock options were exercised and resulted in the issuance of
common stock that then shared in the earnings of the Company. For the three
months ended March 31, 1999 and 1998, the weighted average number of common
shares outstanding was calculated excluding stock options of 1,030,019 and
524,030, respectively, as they are antidilutive.
5. Effective January 1, 1998, the Company adopted 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) income for the three months ended March 31, 1999 and
1998 was ($2,907,903) and $452,118, respectively.
6. On February 1, 1999, the Company entered into an Agreement and Plan of
Merger with America OnLine, Inc. ("AOL"), pursuant to which the Company will
be merged with and into AOL and the Company will become a wholly-owned
subsidiary of AOL. AOL is a global leader in branded interactive services
and content operating two of the world's leading internet on-line services,
a local on-line city resource network, and a number of Web-based properties.
7
<PAGE>
Each outstanding share of common stock of the Company will be converted into
a fraction of a share of AOL's common stock. The fraction will be determined
based on the average closing price per share of AOL common stock on the New
York Stock Exchange for the 20 consecutive trading days ending two trading
days before the completion of the merger. Consummation of the merger is
expected to occur in May 1999, and is subject to various conditions,
including, but not limited to, approval by the stockholders of the Company.
The merger will be accounted for as a pooling of interests.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended March 31, 1999 vs. Three Months Ended March 31, 1998
First quarter total revenue increased 7% from $6.17 million in 1998 to $6.64
million in 1999. Advertising revenue increased 3% from $2.86 million in 1998 to
$2.94 million in 1999. The increase in advertising revenue was primarily due to
an increase in advertising rates. Sponsorship revenue increased 81% from $1.26
million in 1998 to $2.27 million in 1999 primarily due to a significant increase
in sponsorship fees paid by American Express for a national sponsorship and an
increase in the number of sponsorships and other promotional services local
media. Ticket service fees decreased by 48% from $1.37 million in the first
quarter of 1998 to $0.72 million in the first quarter of 1999. The decrease in
ticket service fees is primarily due to the lack of a "hit" movie to drive
ticket sales in the first quarter of 1999 to the same degree that "Titanic" was
able to do in the first quarter of 1998. Other revenue increased 4% from $0.68
million in 1998 to $0.71 million in 1999. 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 3% from $0.95 million in the first quarter of
1998 to $0.97 million in the first quarter of 1999. These costs increased as a
result of an increase in telecommunications expense arising from the company's
continuing expansion of its network infrastructure.
First quarter gross profit increased 8% from $5.23 million in 1998 to $5.66
million in 1999.
Total other costs and expenses increased 79% from $4.73 million in the first
quarter of 1998 to $8.49 million in the first quarter of 1999. This increase is
primarily attributable to $1.23 million of merger-related costs incurred in the
first quarter of 1999 (refer to Note 6 for additional information on merger).
Other costs and expenses also increased as a result of increases in personnel
expense associated with the hiring of additional staff in the Company's core
advertising and ticket sales businesses, the development of the Company's
emerging business units, and the increase in advertising and promotion expenses.
The first quarter net loss in 1999 is $2.83 million ($0.23 per share) compared
to the first quarter net income in 1998 of $0.49 million ($0.04 per share).
The combined number of calls received and sessions logged by the Company's
MovieFone and moviefone.com services decreased 4% from 25.8 million in the first
quarter of 1998 to 24.7 million in the first quarter of 1999. The Company
believes that the decreased volume was the result of a estimated 12% decrease in
movie theater attendance.
The number of tickets sold by the Company's MovieFone and moviefone.com services
decreased 28%
9
<PAGE>
from 1.06 million in the first quarter of 1998 to 0.76 million in the first
quarter of 1999. 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 believes that its ticket sales in
the first quarter of 1998 were driven to some extent by the extraordinary
performance of a single "hit" movie, "Titanic". The Company also believes that
the lack of a similarly strong film in the first quarter of 1999 contributed to
both the decline in the Company's ticket sales and an estimated 12% decline in
movie theater attendance.
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 41% from $3.26 million at December 31, 1998
to $1.91 million at March 31, 1999.
The Company utilized $0.86 million of cash in operating activities. Net cash
flows used in investing activities were $0.50 million for 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 flows provided by financing activities was $0.01 million due to stock
option exercises.
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 anticipates
that all software certifications will be completed by June 30, 1999 and all
hardware certifications will be completed by September 30, 1999.
The Year 2000 challenge is a priority within the Company at every level of the
organization. The Company has designated a Year 2000 project coordinator to
monitor adherence of the Company's Year 2000 project to established due dates.
The Company has also established a methodology to measure, track and report Year
2000 readiness consisting of five steps: assessment, renovation, testing and
evaluation, implementation and certification.
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
10
<PAGE>
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 another company, or a conversion that
is incompatible with the Company's systems, would not have a material adverse
effect on the Company. The Company is in the process of updating its current
disaster recovery plan and developing a Year 2000 specific contingency plan
which addresses Year 2000 related issues in addition to natural disasters, etc.
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 $300,000 related to the assessment of, and efforts in connection
with, its Year 2000 project and the development of its remediation plan.
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 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's 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash flows and earnings are not subject to fluctuations resulting
from changes in interest rates and changes in foreign currency exchange rates.
The Company does not enter into financial instruments for speculation or trading
purposes.
11
<PAGE>
Part II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) The Company filed a Form 8-K on February 9, 1999.
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: May 14, 1999 /s/ ADAM H. SLUTSKY
-----------------------------------
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 three
months ended March 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,911,713
<SECURITIES> 5,311,892
<RECEIVABLES> 3,327,927
<ALLOWANCES> 111,000
<INVENTORY> 368,952
<CURRENT-ASSETS> 11,920,289
<PP&E> 7,831,211
<DEPRECIATION> 5,673,591
<TOTAL-ASSETS> 17,669,043
<CURRENT-LIABILITIES> 7,034,966
<BONDS> 0
<COMMON> 128,363
0
0
<OTHER-SE> 10,505,714
<TOTAL-LIABILITY-AND-EQUITY> 17,669,043
<SALES> 2,927
<TOTAL-REVENUES> 6,636,521
<CGS> 0
<TOTAL-COSTS> 974,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,826,381)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,826,381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,826,381)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
