<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

               [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 1998

                                       OR
             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the transition period from___to:___

                         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
                                                           ------------

Securities registered pursuant to Section 12(b) of the Act:

         Title of class                Name of each exchange on which registered
         --------------                -----------------------------------------
Class A Common Stock, par value                 The Nasdaq Stock Market
$.01 per share

Securities registered pursuant to Section 12(g) of the Act:  None

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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                                YES   X          NO
                                                     ---            ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sales price of the Class A Common Stock on
March 24, 1999, as reported on NASDAQ was approximately $73,690,000. Shares of
Common Stock held by each officer and director and by each person who owns 5
percent or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of March 24, 1999, the Registrant had outstanding 5,334,335 shares of Class
A Common Stock, par value $.01 per share and 7,080,053 shares of Class B Common
Stock, par value $.01 per share.


                                  Page 1 of 35
                     Index to Exhibits on Page E-1 and E-2

<PAGE>





                         MOVIEFONE, INC. AND SUBSIDIARY
                               TABLE OF CONTENTS
                                   FORM 10-K

<TABLE>
<CAPTION>
                                                                                        PAGE 
                                                                                        ---- 

                                     PART I
                                     ------


<S>                                                                                   <C>
Item 1.           BUSINESS                                                               3

Item 2.           PROPERTIES                                                            10

Item 3.           LEGAL PROCEEDINGS                                                     11

Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                   12


                                    PART II
                                    -------


Item 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                           STOCKHOLDER MATTERS                                          13

Item 6.           SELECTED FINANCIAL DATA                                               14

Item 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS                                    15

Item 7a.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK            23

Item 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                           23

Item 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                    AND FINANCIAL DISCLOSURE                                            23


                                    PART III
                                    --------


Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                    24

Item 11.          EXECUTIVE COMPENSATION                                                27

Item 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        30

Item 13.          CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS                  33


                                    PART IV
                                    -------


Item 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K      34
                  SIGNATURES
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                  EXHIBIT INDEX


<PAGE>

                                     PART I

ITEM 1.  BUSINESS
         --------

General
-------

         MovieFone, Inc. (the "Company"), incorporated in Delaware in March
1994, is the leading provider of interactive advertising, information, and
ticketing services to the motion picture industry and moviegoers through its
interactive telephone movie guide, MovieFone, and its online service,
moviefone.com (formerly known as MovieLink). MovieFone(R), commonly known by
its trademark telephone numbers such as 777-FILM(R), and moviefone.com(R)
provide moviegoers with movie listings for approximately 17,000 movie screens
(representing more than 95 percent of all movie screens in the Company's
markets and approximately 53 percent of all screens in the United States) and
the ability to purchase tickets in advance by credit card for many of these
screens. The Company currently operates its MovieFone telephone service in 34
markets: New York, Los Angeles, San Francisco, Boston, Chicago, Dallas/Ft.
Worth, Miami, Denver, Philadelphia, San Diego, Houston, Cleveland, Washington
D.C, Atlanta, Palm Springs, Santa Barbara, Minneapolis/St. Paul, Sacramento,
Seattle, Tampa/St. Petersburg, Orlando, Phoenix, Detroit, Las Vegas, Kansas
City, Cincinnati, Salt Lake City, San Antonio, Nashville, Baltimore, St. Louis,
Milwaukee, West Palm Beach, and Toronto, Canada. The Company's moviefone.com
service serves all 34 MovieFone markets and an additional 17 small and
mid-sized markets across the United States. The Company also provides "Private
Label" MovieFone systems for individual theater chains. During the year ended
December 31, 1998, the Company received approximately 80.2 million MovieFone
calls, 24 million moviefone.com sessions, and sold approximately 3.4 million
tickets via teleticketing.

         At the beginning of each call, MovieFone callers hear a 20-second
advertisement usually for an upcoming movie (the "Feature Billboard"), after
which they access movie listings by selecting a movie and theater using the
buttons on their touch-tone telephone. On the moviefone.com service, the
Feature Billboard is the main banner advertisement on moviefone.com's home
page. The Company provides these listings free of charge and, for a $1.00 to
$1.50 per-ticket fee, offers users the opportunity to purchase tickets in
advance, thereby avoiding ticket-buyers lines and the disappointment of being
turned away from a sold-out show. The Feature Billboard advertisement, which
the Company sells primarily to motion picture studios on a per-call or per
session basis, provides these advertisers with a highly targeted medium for
marketing their movies, with the added benefit of a link to a direct
ticket-selling mechanism.

         The Company's primary sources of revenue include (i) advertising sales
on MovieFone and moviefone.com to motion picture studios and other advertisers
($12.6 million, $9.5 million, and $7.7 million in 1998, 1997, and 1996
respectively), (ii) sponsorships and other promotional services to local media
and credit card companies ($5.5 million, $5.2 million, and

                                       3
<PAGE>

$4.4 million in 1998, 1997, and 1996, respectively), (iii) service fees for
movie tickets sold to the public via MovieFone's and moviefone.com's
teleticketing service ($4.5 million, $4.1 million, and $2.7 million in 1998,
1997 and 1996, respectively), and (iv) other revenue ($2.7 million, $1.7
million, and $0.5 million in 1998, 1997, and 1996, respectively) which
primarily includes software license fees, hardware sales, and installation and
service fees from Mars theater management system sales (see "Business: Mars
Theater Management System" below).

         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. 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
during the spring of 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.

Business
--------

MovieFone

         MovieFone is the interactive telephone movie guide commonly known by
its trademark telephone numbers such as 777-FILM. MovieFone provides moviegoers
with movie listings for approximately 15,000 movie screens (representing more
than 95 percent of all movie screens in the Company's markets and approximately
47 percent of all screens in the United States) and the ability to purchase
tickets in advance by credit card for many of these screens (see
"Teleticketing" below).

         Each MovieFone caller hears a single 20-second Feature Billboard
advertisement at the beginning of each call. The Company sells this time on a
per-call basis to motion picture studios that use it to advertise their movies
and to consumer products companies that use it to advertise their merchandise
and services. In addition to the Feature Billboard advertisement, the Company
also sells another advertising position on MovieFone called a "Preview".
Previews provide MovieFone callers with movie descriptions including star
names, plot, running time, and rating. Motion picture studios are charged a
flat fee per preview.

         All of the major motion picture studios and most "mini-majors" have
advertised on MovieFone including, among others, Buena Vista Distribution (the
distribution arm of Touchstone Pictures, Walt Disney Pictures, and Hollywood
Pictures), Columbia Pictures, MGM, Miramax, Paramount Pictures, TriStar
Pictures, 20th Century Fox, Fox Searchlight, 


                                       4
<PAGE>

Universal Pictures, Warner Brothers, October Films, Trimark, Gramercy,
Polygram, and New Line. Non-studio customers have included Samsung, Max Factor,
and Sprint, to name a few. Historically, the Company has sold the bulk of its
available advertising time to motion picture studios. During 1998, MovieFone's
average rate card price for advertisers was $.15 per call for Feature Billboard
advertisements and $20,000 per Preview, though advertisers may receive a
discount for bulk purchases of advertising time.

         The Feature Billboard is sold on a per-call basis and may be "rotated"
among multiple advertisers. For example, the Company may sell 50 percent of its
calls in a specified week to each of two advertisers. In this case, MovieFone's
call distribution system ensures that every other caller hears the
advertisement for the second movie in the rotation. While advertising time on
MovieFone is generally sold nationally for all MovieFone markets, the Company
can also sell advertisers time for each MovieFone market separately. MovieFone
also enables advertisers to customize and rotate different messages in one or
multiple markets.

         The Company's primary market for selling advertising time has been
motion picture studios. In 1998, 147 films were advertised on MovieFone.
According to Entertainment Data Inc., the major motion picture studios released
approximately 221 movies in 1998 and the total number of movies released in
1998 by all distributors was approximately 490.

         In addition to the services the Company offers under MovieFone's
centralized numbers such as 777-FILM(R), which provide movie listings and
teleticketing services for multiple theater chains in a given market
("MovieFone Systems"), the Company provides some theater chains with systems
that provide these services for a single theater chain in a given market
("Private Label MovieFone Systems"). As with MovieFone Systems, the Company is
able to run Feature Billboard and Previews advertisements and sell tickets on
these Private Label MovieFone Systems.

Moviefone.com

         Moviefone.com, the online version of MovieFone, was launched on the
World Wide Web in July 1995 and currently logs as many as 600,000 individual
user sessions each week. The service offers up-to-the-minute movie showtimes
for 17,000 screens, online ticket sales (see "Teleticketing"), downloadable
movie trailers and other multimedia, movie synopses and production notes, and a
parents' ratings guide. Users may access moviefone.com through any commercial
online service or directly on the Internet. To help increase moviefone.com
usage, the Company has entered into marketing alliances with such online
services as WebTV and Snap! Online, which provide direct connections to
moviefone.com from their respective services. In addition, the Company has
established links with hundreds of major Web sites for promotion and
traffic-building. The Company has sold advertising on moviefone.com to a number
of motion picture studios, as well as various other advertisers, including
Samsung, Dunkin' Donuts, and Sprint.


                                       5
<PAGE>


         The Company has also entered into agreements with many motion picture
studios to provide them with a custom, or "Private Label" version of
moviefone.com just for their films. These custom pages provide theater and
showtime information only for the specific movie being promoted on the studio's
web site. Moviefone.com earns a service fee for providing these custom links,
which is reported in Other Revenue in the Statements of Operations.

         During 1997, the Company launched a service called MovieMail.
MovieMail is a direct e-mail service that provides moviegoers with free,
customized movie information. Moviegoers who subscribe to MovieMail receive
e-mails telling them about movies that match their individual film preferences,
including downloadable movie trailers and local showtimes for their closest
neighborhood theaters. Revenue for MovieMail comes from advertisers who pay to
promote their movies or other products. The Company has sold advertising on
MovieMail to a number of motion picture studios, as well as various other
advertisers. This revenue is reported in Advertsing Revenue in the Statements
of Operations.

Teleticketing

         The Company currently sells tickets for most major theater chains in
19 of MovieFone's markets. The Company currently charges ticket buyers a
service fee of $1.00 to $1.50 per ticket purchased through MovieFone or
moviefone.com.

         The Company sells tickets through its automated teleticketing system
without the use of live operators, mailing of tickets, or other labor intensive
elements of conventional box-office or telephone ticket sales. After receiving
showtimes for a movie and theater of their choice, MovieFone and moviefone.com
users are asked if they wish to purchase tickets. They are then asked to enter
their credit card number and the number of tickets they require, and are
instructed to pick up their tickets at the theater. Tickets may be retrieved at
the theater either through an ATM-style ticket dispensing machine located in
the theater lobby or at a "will call" window at the theatre box-office.

Mars Theater Management System

         The Mars theater management system includes proprietary software and
off-the-shelf hardware which provides theaters with a complete point-of-sale
and theater management system to perform such functions as theater scheduling,
ticketing (including on-line teleticketing through MovieFone and
moviefone.com), concession operations, and home office reporting. The Company
offers procurement, installation, training, and help desk support and service
for the Mars theater management system. As of December 31, 1998, 213 Mars
theater management systems were installed in theaters in several markets across
the United States. The primary sources of revenue from Mars theater management
systems include software license fees, hardware sales, and installation and
service fees, which are reported as other revenue in the Statements of
Operations.


                                       6
<PAGE>


Sponsorships

         The Company has numerous sponsorship agreements with radio stations,
television stations, and local newspapers, including The New York Times and the
Los Angeles Times. These entities provide the Company with advertising space or
airtime in return for promotional "sponsorship" mentions on the local MovieFone
system and presence on the Company's in-theater promotional materials. Many of
the entities also provide revenue in the form of quarterly promotional fees or
other consideration.

         In addition, the Company has sold an "official card" sponsorship to
American Express. In return for an annual fee, the Company includes the
American Express logo on its in-theater promotional materials, in its newspaper
and other print advertising, and mentions the American Express card as part of
the message teleticketing customers hear on MovieFone (e.g. "We welcome the
American Express Card, and also accept..."). The Company also has agreements
with cellular telephone companies, including AT&T Wireless. These agreements
allow the cellular telephone companies to permit their subscribers to access
MovieFone using a special abbreviated dialing pattern (such as "*-FILM") in
return for which the Company receives payments, promotional support, and/or
free cellular airtime.

New Business Opportunities
--------------------------

Other Ticketing Services

         The Company believes that some of the elements of its teleticketing
system may be applicable to the sale of tickets for non-movie events, such as
live theater, concerts, and sporting events, and that there may be an
opportunity to expand its teleticketing capabilities to include the sale of
tickets to these events. The Company does not currently provide any of these
services, nor has it generated any revenue from these services and no
assurances can be given that, if it determines to provide these services, the
Company will be successful in doing so.

Direct Marketing and Research

         The Company conducts surveys of MovieFone callers from time to time in
which callers provide certain demographic information in response to computer
automated questions.

         No assurances can be given that the Company will be successful in this
endeavor. In addition, there are many competitors in these businesses which
have been in existence significantly longer and have significantly greater
financial and other resources than the Company.


                                       7
<PAGE>

Key Relationships and Agreements
--------------------------------

Motion Picture Studios

         All of the major motion picture studios have purchased advertising
time from the Company. Also, most major motion picture studios have entered
into license agreements with the Company which permit them to use the Company's
trademark telephone numbers and World Wide Web address in their own print and
broadcast advertising to encourage moviegoers to call MovieFone or use
moviefone.com to purchase tickets.

Theater Chain Agreements

         The Company has agreements with many major theater chains for the sale
of tickets to their theaters. The Company's agreements with theater chains
generally require that the theater chains assist the Company in advertising its
services on an on-going basis by displaying and distributing printed
promotional materials and running on-screen advertisements in their theaters.

Motion Picture Association of America ("MPAA")

         The Company has a multi-year agreement with the MPAA, pursuant to
which the Company provides MPAA ratings information in its markets through a
special "Ratings Guide" branch of MovieFone's interactive telephone service.
The MPAA pays an annual fee for this service and supports usage of MovieFone by
promoting the numbers as a means of obtaining ratings information. In addition,
the Company has been appointed as an Associate Member of the MPAA.

System and Operations
---------------------

         MovieFone allows consumers to access information and execute
transactions using the buttons and corresponding numbers and letters on a
touch-tone telephone. MovieFone allows callers to access movie listings by: (i)
entering the first three letters of the movie title on their touch-tone keypad;
(ii) browsing through a list of current movie titles and previews organized by
genre; and (iii) picking a particular theater and choosing from the movies
currently playing there. Callers are asked to enter their 5-digit zip code,
which permits MovieFone to provide showtimes for the theaters nearest them. If
callers wish to see a movie in another area, they can choose to find a theater
geographically. Where teleticketing is available, callers can enter their
credit card number and the number of tickets they wish to purchase.

         Moviefone.com is the online version of MovieFone accessed via the
Internet's world wide web. moviefone.com users can access movie listings by:
(i) movie title, (ii) movie genre, (iii) star name, (iv) theatre name, and (v)
time. Aside from the service charge for tickets the Company does not charge
moviegoers to use MovieFone or moviefone.com.

                                       8
<PAGE>


         In order to ensure that MovieFone is a local call from most areas
within each market, the Company operates individual computer centers in each
area code in the markets in which the Company operates. These computer centers
use computer equipment containing "voice processing cards" and other
components, all of which are readily available from multiple manufacturers. The
Company collects showtimes and other data needed to update the information
stored at its computer centers in two ways. Listing information from some
theaters is collected electronically, in which case the respective MovieFone
System is updated directly via a computer interface to each theater. Listing
information from other theaters is sent by theater chains via facsimile or, in
certain cases, a third party provider to the Company's data center in New York
City. There, the listing information is entered manually via the Company's
proprietary data entry system. Once the information is entered and checked for
accuracy, it is sent by computer modem via regular telephone lines to the
corresponding local computer center, where it updates the information available
to MovieFone callers. This information is then sent to the computer centers in
the manner described above. The MovieFone system is readily expandable by
adding new phone lines and computer equipment. The Company currently employs
over 3,600 incoming telephone lines nationwide.

         The moviefone.com service is based in a computer center located in the
Company's headquarters in New York City. Listing information on moviefone.com
for theatres in MovieFone markets is shared with MovieFone and is thus
automatically updated wherever the MovieFone listing information database is
updated. Listing information on moviefone.com for theatres in markets not also
served by MovieFone is provided by a third party.

Competition
-----------

         Generally, the Company's advertising sales business competes with
other advertising vehicles, such as newspapers and television, while its
teleticketing business primarily competes with the sale of tickets at theater
box-offices.

         The business of selling advertising time to motion picture studios is
highly competitive and motion picture studios spend a much larger portion of
their advertising dollars on more traditional forms of advertising such as
television and newspapers.

         For the teleticketing business potential competitors include theater
chains, which may choose themselves or through third parties to develop the
technology to provide teleticketing without the assistance of the Company, and
other ticket selling companies. Other potential competitors include motion
picture studios and providers of remote ticket sales services for events other
than motion pictures. There can be no assurance that, should any of these
potential competitors determine to engage in teleticketing or assist the
Company's competitors in the provision of such services, the Company could
compete effectively with such competitors or potential competitors. If
potential competitors were to attempt to compete with the Company, these
competitors might encourage theater chains to enter into teleticketing


                                       9
<PAGE>

relationships with such competitors in addition to or in lieu of entering into,
or maintaining, relationships with the Company. Such competition could reduce
the Company's revenues.

         The Company's Mars theater management system has several direct
competitors and some theater chains choose to create their own systems
internally.

Trademarks
----------

         The Company has numerous registered trademarks including "MovieFone",
"777-FILM", "moviefone.com", and others.

Regulation
----------

         The Company is not currently subject to direct regulation other than
regulation applicable generally to businesses. However, changes in the
regulatory environment relating to the industry in which the Company currently
operates, or regulatory schemes applicable to new business areas in which the
Company may enter could have an effect on the Company's business. Increasing
concern over consumer privacy has led to the introduction from time to time of
proposed legislation which could impact the direct marketing industries. The
Company does not know when or whether any such proposed legislation may pass or
whether any such legislation would relate to the types of services the Company
intends to develop. The Company cannot predict the effect, if any, that any
future regulation may have on its business.

Employees
---------

         As of December 31, 1998, the Company employed 149 persons (126
full-time and 23 part-time), 12 of whom constituted executive management, 35 of
whom were employed in sales and marketing, 11 of whom were employed in
accounting and administration and 91 of whom were employed in systems
development, operations, and maintenance. None of the Company's employees are
represented by union or bargaining agents. The Company believes that its
relations with its employees are satisfactory.

ITEM 2. PROPERTIES
        ----------

         The Company leases its premises in three locations. Its New York
offices are located at 335 Madison Avenue, New York, NY 10017 and 565 Fifth
Avenue, New York, NY 10017. Its Los Angeles office is located at 1875 Century
Park East, Los Angeles, CA 90067. The Company also has approximately 63 leases
at various sites for space located in the markets in which it operates,
aggregating to approximately 5,800 square feet.


                                      10
<PAGE>

ITEM 3. LEGAL PROCEEDINGS
        -----------------

Pacer/Cats
----------

         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 of 1997 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
judgement.

         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 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.

         To date, the Company has not received any proceeds from the above
awards.

Ticketmaster
------------

         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, 


                                      11
<PAGE>

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 tortuously interfered with the Company's contract
with PCC, tortuously 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
        ---------------------------------------------------

         No matters were submitted to a vote of the registrant's security
holders during the last quarter of its fiscal year ended December 31, 1998.


                                      12
<PAGE>


                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
        ---------------------------------------------------------------------

         The Company's Class A common stock, par value $.01 per share (the
"Class A Common Stock"), is traded on The Nasdaq Stock Market under the symbol
MOFN. As of December 31, 1998, the registrant had 49 Class A Common Stock
shareholders of record, which represented approximately 1,502 beneficial
shareholders. The following table sets forth the range of high and low prices
for shares of the Class A Common Stock for the fiscal quarters indicated, as
furnished by The Nasdaq Stock Market.

                                                HIGH              LOW
Fiscal Year Ended December 31, 1998
First Quarter                                   9 1/8           6 10/32
Second Quarter                                 14 1/8            8 7/8
Third Quarter                                     12             6 1/8
Fourth Quarter                                17 10/32           6 3/4

                                                HIGH              LOW

Fiscal Year Ended December 31, 1997
First Quarter                                   5 1/4               4 
Second Quarter                                  8 7/8             4 1/8 
Third Quarter                                   8 1/2             4 5/8
Fourth Quarter                                  7 5/8             5 1/4 

         There is no established public trading market for the Company's Class
B common stock. The registrant had 6 Class B common stock shareholders of
record at December 31, 1998.

         The Company has not paid any cash dividends on any of its common stock
since its inception. While the Board of Directors has general authority over
dividend policy, and there are no material restrictions on the Company's
ability to pay dividends, it does not anticipate paying cash dividends in the
foreseeable future.



                                      13
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA
-------------------------------


                                                                         Years Ended December 31,
                                          ----------------------------------------------------------------------------------------
                                                   1998              1997               1996               1995              1994
                                                   ----              ----               ----               ----              ----
                                                                 (in thousands, except per share data)
<S>                                            <C>                <C>               <C>                <C>                <C>    
       Statement of Operations Data:

       Total Revenue (a)                       $ 25,396           $20,598           $ 15,355           $ 11,245           $ 8,140
                                               ========           =======           ========           ========           =======

       Net Loss                               $ (2,186)          $(1,774)          $ (1,957)          $ (1,723)         $ (1,943)
                                              =========          ========          =========          =========         =========

       Net Loss per common share -
       Basic and diluted                       $ (0.18)          $ (0.14)           $ (0.15)            $(0.13)          $ (0.17)
                                               ========          ========           ========            =======          ========


                                                                               December 31,
                                          ----------------------------------------------------------------------------------------
                                                   1998              1997               1996               1995              1994
                                                   ----              ----               ----               ----              ----
                                                                             (in thousands)

       Balance Sheet Data:

       Total Assets                            $ 21,262          $ 21,593           $ 23,956           $ 24,020          $ 25,152
                                               ========          ========           ========           ========          ========

       Total Stockholders' Equity              $ 13,537          $ 15,838           $ 19,692           $ 21,625          $ 23,348
                                               ========          ========           ========           ========          ========

</TABLE>

         (a) Total revenue for 1994 has been reclassified to eliminate from
revenue the price of tickets sold.




                                      14
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        -----------------------------------------------------------------------
        OF OPERATIONS
        -------------

General
-------

         The Company's revenues are derived primarily from the sale of
advertising time to advertisers, the sale of sponsorships to local media and
others, and the sale of movie tickets to the public.

         Advertising Sales. This business includes those activities relating to
the provision of movie listings via MovieFone and moviefone.com, and the sale
of advertising time on a per-call and per-preview basis (principally to motion
picture studios) on MovieFone and a per-user basis on moviefone.com.

         Sponsorship Sales. The Company currently receives, in exchange for
certain services, local media time and space from its sponsors and others with
which it has marketing relationships. Local media time and space are typically
in the form of 20 to 30-second advertisements on radio stations and one-eighth
to full-page advertisements in newspapers circulated in the markets where the
Company offers its services. These exchanges of media services are reported at
estimated fair market value of the services received and revenues and expenses
are recorded as these services are provided or received.

         Teleticketing. The Company's revenues from the sale of movie tickets
is comprised of a service fee earned (currently $1.00 to $1.50 depending upon
the market) per movie ticket sold.

         Other Revenue. The Company's other revenue consists primarily of sales
of the Mars theater management system, which includes software license fees,
hardware sales, and installation and service fees.



                                      15
<PAGE>



Results of Operations
---------------------

         The following table sets forth, for the periods indicated, operating
results expressed as a percentage of total revenue:

<TABLE>
<CAPTION>


                                                              Percent of Total Revenue
                                                               Years Ended December 31,

                                                           1998             1997           1996
                                                           ----             ----           ----
<S>                                                         <C>             <C>             <C> 
 Revenue1
     Advertising revenue                                    49.7            46.1            50.1
     Sponsorship revenue                                    21.7            25.5            29.0
     Ticket service fees, net                               17.8            19.9            17.8
     Other revenue                                          10.8             8.5             3.1
                                                          ---------        ------         -------

              Total revenue                                100.0           100.0           100.0

 Cost of Services
     Advertising commissions                                 2.6             3.8             4.7
     Ticket sales servicing and transaction fees             4.6             4.5             4.8
     Telecommunications                                      6.9             5.9             7.2
     Other expenses                                          2.5             2.7             1.8


              Total cost of services                        16.6            16.9            18.5
                                                          ---------         -----           -----

 Gross profit                                               83.4            83.1            81.5
     Total other costs and expenses                         92.1            91.7            94.2

 Net loss                                                   (8.7)           (8.6)          (12.7)
                                                           =======          =====           =====
</TABLE>


Fiscal Year 1998 Compared to Fiscal Year 1997
---------------------------------------------

         Total revenue increased 23% from $20.6 million to $25.4 million from
1997 to 1998. Advertising revenue increased 33% from $9.5 million in 1997 to
$12.6 million in 1998. The increase in advertising revenue was the result of an
increased number of MovieFone calls and moviefone.com sessions on which
advertising was sold and an increase in the average advertising rate per call
and session sold, as well as an increase in Preview sales. The percentage of
calls on which the Company sold advertising time increased from 77% in 1997 to
79% in 1998. Sponsorship revenue increased 5% from $5.2 million in 1997 to $5.5
million in 1998 due to increased cash sponsorship fees and barter services
provided. Ticket service fees increased 10% from $4.1 million in 1997 to $4.5
million in 1998. The increase in ticket 


                                      16
<PAGE>

service fees was due to an increase in the number of tickets sold. Other
revenue increased 57% from $1.7 million in 1997 to $2.7 million in 1998. The
increase in other revenue is primarily due to an increase in sales of the
Company's Mars systems.

         Cost of services increased 20% from $3.5 million to $4.2 million from
1997 to 1998. These costs increased primarily due to increased
telecommunication expense associated with the expansion of the Company's
telecommunications network to accommodate greater usage and increased ticket
sales servicing and transaction fees resulting from increased ticket sales.

         Gross profit increased 24% from $17.1 million in 1997 to $21.2 million
in 1998.

         Other costs and expenses (which include selling, general and
administrative expenses) increased 24% from $18.9 million to $23.4 million from
1997 to 1998. These expenses increased primarily as a result of the Company's
increased personnel expenses primarily associated with hiring of additional
staff in the Company's core advertising and ticket sales business, the
development of the Company's emerging business units, and the increase in
advertising and promotion expenses. Legal expenses, relating primarily to the
Company's arbitration and litigation proceedings with Pacer/CATS (see Item 3.
in Part I and Note 7 to the Company's consolidated financial statements),
decreased 66% from $3.0 million in 1997 to $1.0 million in 1998.

         The net loss increased 23% from $1.8 million ($.14 per share) in 1997
to $2.2 million ($.18 per share) in 1998.

         The number of calls received by the Company's MovieFone service
increased 15% from 69.5 million in 1997 to 80.2 million in 1998.

         The number of sessions logged on the Company's moviefone.com service
increased 64% from 14.6 million in 1997 to 24.0 million in 1998.

         The number of tickets sold through MovieFone and moviefone.com
increased 6% from 3.2 million in 1997 to 3.4 million in 1998.

         The Company believes that the growth in its call volume and session
volume and the number of tickets sold from 1997 to 1998 were the result of
increased awareness in established markets, the addition of new markets and
theaters, and increased moviegoing in the United States. Also, 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.


                                      17
<PAGE>


         The Company added three new markets during 1998 (St. Louis, Milwaukee,
and West Palm Beach) bringing its total number of MovieFone markets to 34.

Fiscal Year 1997 Compared to Fiscal Year 1996
---------------------------------------------

         Total revenue increased 34% from $15.4 million to $20.6 million from
1996 to 1997. Advertising revenue increased 24% from $7.7 million in 1996 to
$9.5 million in 1997. The increase in advertising revenue was the result of an
increased number of calls on which advertising was sold and an increase in the
average advertising rate per call sold, as well as an increase in Preview
sales. The percentage of calls on which the Company sold advertising time
decreased from 87% in 1996 to 77% in 1997. Sponsorship revenue increased 18%
from $4.4 million in 1996 to $5.2 million in 1997 primarily due to increased
barter services provided. Ticket service fees increased 50% from $2.7 million
in 1996 to $4.1 million in 1997. The increase in ticket service fees was due to
an increase in the number of tickets sold and a full year's increase in the
ticket service fee from $1.25 to $1.50 in Manhattan which began in June 1996.
Other revenue increased 263% from $.5 million in 1996 to $1.7 million in 1997.
The increase in other revenue is primarily due to an increase in sales of the
Company's Mars systems.

         Cost of services increased 23% from $2.8 million to $3.5 million from
1996 to 1997. These costs increased primarily due to increased ticket sales
servicing and transaction fees resulting from increased ticket sales, and
increased expenses, particularly computer equipment costs, associated with the
growth of the Company's other Mars business.

         Gross profit increased 37% from $12.5 million in 1996 to $17.1 million
in 1997.

         Other costs and expenses (which include selling, general and
administrative expenses) increased 30% from $14.5 million to $18.9 million from
1996 to 1997. These expenses increased primarily as a result of the Company's
increased personnel expenses primarily associated with hiring of additional
staff in the Company's core advertising and ticket sales business, the
development of the Company's emerging business units, the increase in
advertising and promotion expenses, and increased legal expenses. Legal
expenses, relating primarily to the Company's arbitration and litigation
proceedings with Pacer/CATS (see Item 3. In Part I and Note 7 to the Company's
consolidated financial statements), increased 22% from $2.4 million in 1996 to
$3.0 million in 1997.

         The net loss decreased 9% from $2.0 million ($.15 per share) in 1996
to $1.8 million ($.14 per share) in 1997.

         The number of calls received by the Company's MovieFone service
increased 22% from 56.9 million in 1996 to 69.5 million in 1997.


                                      18
<PAGE>



         The number of tickets sold through MovieFone and moviefone.com
increased 33% from 2.4 million in 1996 to 3.2 million in 1997.

         The Company believes that the growth in its call volume and the number
of tickets sold from 1996 to 1997 were the result of increased awareness in
established markets, the addition of new markets and theatres, and increased
moviegoing in the United States. Also, the Company believes its ticket sales
are to some extent driven by the release of "hit" movies, since moviegoers
attending these movies are more likely to buy tickets in advance using the
Company's service in order to avoid being sold out from these movies. There
were more of these "hit" movies in 1997 than 1996 which contributed to the
increase in the Company's ticket sales.

         The Company added three new markets during 1997 (San Antonio,
Nashville, and Baltimore) bringing its total number of MovieFone markets to 31.

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.

         During 1998, net cash flows used in operating activities was $2.1
million. The increase in the use of cash from the year ended December 31, 1997
was mainly due to an increased net loss, an increase in trade accounts
receivable, an increase in prepaid expenses and other current assets, and a
decrease in accounts payable. During 1997, net cash flows provided by operating
activities was $0.2 million. Cash flows provided by operating activities for
the year ended December 31, 1997 was primarily due to a minimal increase in
trade accounts receivable and a significant increase in accounts payable.

         During 1998, 1997, and 1996, net cash flows provided by investing
activities was $1.9 million, $1.9 million, and $2.8 million, respectively. For
each of the three years in the period ended December 31, 1998, net cash flows
provided by investing activities was primarily due to the sales/maturities of
investment securities.

         During 1998, net cash flows used in financing activities was $0.1
million primarily due to the purchase of 21,900 shares of treasury stock at a
cost of $0.2 million. During 1997, net cash flows used in financing activities
was $2.2 million primarily due to the purchase of 400,000 shares of treasury
stock at a cost of $2.2 million. During 1996, net cash flows provided by
financing activities was $.02 million.

         The Company's cash balance decreased 6% from $3.5 million to $3.3
million from December 31, 1997 to December 31, 1998.


                                      19
<PAGE>

         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 infrastructure and new businesses.

         Management believes that current cash and cash equivalents as well as
its short-term and long-term investments should be sufficient during fiscal
1999 and beyond to fund its planned capital expenditures and working capital
needs.

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 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 $150,000 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
$650,000 in 1999. 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


                                      20
<PAGE>

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 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.

Seasonality and Quarterly Comparisons
-------------------------------------

         Historically, the Company's revenues have been seasonal, with the
highest sales occurring during the months of June, July, and August, and the
months of November, December, and January. These periods correspond to the busy
moviegoing seasons. During these two periods, typically referred to as the
summer and holiday seasons, respectively, moviegoing increases and motion
picture studios typically release their big-budget and most highly-anticipated
movies.

         The advertising sales business is dependent on MovieFone call volume
and moviefone.com session volume. While calls and sessions tend to rise and
fall with movie theater attendance, the Company believes that they are less
volatile than movie theater attendance.

         Teleticketing volume is generally more volatile than movie theater
attendance. When motion picture studios have released big-budget,
highly-anticipated movies, teleticketing volume has increased significantly
compared to other periods during the year. The Company believes this higher
volume is the result of moviegoers' increased concerns about particular
performances being sold out. In addition, motion picture distributors often
release high-profile movies for exhibition on a limited number of screens
during the busy seasons. The Company


                                      21
<PAGE>

believes that the limited release of high-profile movies further heightens
moviegoers' concern that a particular movie will be sold-out and increases
teleticketing volume.

         The Company typically neither increases its staff during its busy
periods nor decreases its staff during the other times of the year. However,
the Company has scheduled periodic additions of telephone lines and related
computer equipment to its MovieFone Systems just prior to these two busy
seasons.

         In addition to fluctuations in movie theater attendance, the Company
expects that its quarterly results will fluctuate due to its expansion efforts.
As the Company expands its existing markets, enters into new markets and
initiates new business activities, its expenses may increase more than its
revenues, resulting in quarterly fluctuations in operating results.

Impact of Inflation
-------------------

         The Company does not believe that inflation has had a material impact
on its operations to date. However, substantial inflation-driven increases in
the costs of labor and telephone service in particular could adversely affect
the Company's profitability.

Impact of New Accounting Standards
----------------------------------

         In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133") was issued. SFAS 133 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.

Special Note Regarding Forward Looking Statements
-------------------------------------------------

         Certain statements in this Annual Report on Form 10-K, including
information appearing under the captions "Business", "Legal Proceedings", and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 ("the Reform Act"). The
Company desires to take advantage of certain "Safe Harbor" provisions of the
Reform Act and is including this special note to enable the Company to do so.
Forward-Looking Statements involve known and unknown risks, uncertainties, and
other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ materially from the future
results, performance (financial or operating) or achievements expressed or
implied by such Forward-Looking Statements. Such risks, uncertainties and other
factors include, among others: the Year 2000, including the success with which
the Company's customers and suppliers address their Year 2000 exposures; as
well 

                                      22
<PAGE>

as more general factors affecting future cash flows and their effects on the
Company's ability to meet its future working capital needs, including demand
for the Company's products and services; the impact of competition; the effect
of changing economic and political conditions; the level of success and timing
in implementing corporate strategies and new technologies; changes in
governmental and tax laws and regulations and other factors (known or unknown)
which may affect the Company. As a result, no assurance can be given as to
future results, levels of activity and achievements.

ITEM 7a.  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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
        -------------------------------------------

         The financial statements and supplementary financial information
required by this Item and included in this Report are listed in the Index to
Consolidated Financial Statements appearing on page F-1 and are incorporated
herein by reference.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        ---------------------------------------------------------------
        FINANCIAL DISCLOSURE
        --------------------

          None.

                                      23
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         --------------------------------------------------

         The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>

Name                          Age         Position
----                          ---         --------
<S>                          <C>         <C>
Dr. Henry G. Jarecki          65          Chairman of the Board of Directors
Mark N. Kaplan                68          Director
George H. McLaughlin          61          Director
Strauss Zelnick               41          Director
Andrew R. Jarecki             36          Chief Executive Officer; Director
Adam H. Slutsky               35          Chief Financial Officer and Chief Operating Officer; Director
J. Russell Leatherman         36          President; Director
Thomas A. Jarecki             33          Senior Vice President, Operations
John Ventura                  38          Senior Vice President, Theater Management Systems
Nada Stirrat                  33          Senior Vice President, Sales
Francesca Hauser              30          Senior Vice President, Finance & Administration
Matthew Blumberg              28          Vice President, Marketing & Product Management
Robert Gukeisen               34          Vice President, Data Services
Marc S. Hollander             39          Vice President, Systems Development
Philip Talamas                32          Vice President, Operations
Brendan P. Gow                28          Vice President, Exhibitor Relations
</TABLE>

                                  
Dr. Henry G. Jarecki has been Chairman of the Board of Directors of the Company
since its inception. In addition, Dr. Jarecki has been Chairman of The
Falconwood Corporation of New York ("Falconwood"), a merchant banking and
financial services firm, since 1976. From 1969 to 1989 he was Chairman of
Mocatta Metals Corporation, a bullion dealing company. He has been on the
faculty at the Yale University School of Medicine since 1963. Dr. Jarecki is
the father of Andrew R. Jarecki and Thomas A. Jarecki.

Mark N. Kaplan has been a Director of the Company since March 1994. For more
than the past five years he has been a partner in the law firm of Skadden,
Arps, Slate, Meagher & Flom LLP. Skadden, Arps, Slate, Meagher & Flom LLP
currently provides legal services to the Company. He is also a Director of the
following companies: American Biltrite Inc., Auto-By-Tel Corporation, Congoleum
Corporation, Inc., DRS Technologies, Inc., Grey Advertising Inc., International
Creative Management, Inc., The Jim Pattison Group Ltd., Monte-Carlo Grand Hotel
SAM, REFAC Technology Development Corporation, Volt Information Sciences, Inc.,
Worldwide Securities Limited, and Worldwide Special Fund N.V.

George H. McLaughlin has been a Director of the Company since March 1994. Mr.
McLaughlin is an entrepreneur in the food industry and has, from 1989 to the
present, held executive positions in the following companies: Ideal Macaroni
Company, Weiss Noodle


                                      24
<PAGE>

Company, and Food Tree, Inc. In addition, Mr. McLaughlin has, since 1989, been
president of World Wide Licensing Corporation, a distributor of fashion
accessories.

Strauss Zelnick has been a Director of the Company since March 1994. Mr.
Zelnick is President and Chief Executive Officer of BMG Entertainment. Prior to
joining BMG Entertainment, Mr. Zelnick was President and Chief Executive
Officer of Crystal Dynamics, a supplier of video game software, from 1993 to
1994. Prior to joining Crystal Dynamics, he was President and Chief Operating
Officer of Twentieth Century Fox from 1989 to 1993. Mr. Zelnick is a former
member of the Board of Directors of the Motion Picture Association of America.

Andrew R. Jarecki has been Chief Executive Officer and a Director of the
Company since its inception. Prior to co-founding MovieFone, Mr. Jarecki served
as managing director of Falconwood, overseeing the firm's venture capital
activities. Mr. Jarecki is the son of Dr. Henry G. Jarecki.

Adam H. Slutsky has been Chief Financial Officer and Chief Operating Officer
and a Director of the Company since its inception. Prior to co-founding
MovieFone, Mr. Slutsky was Trading Manager and Director of Industrial Marketing
for Falconwood from 1987 to 1989.

J. Russell Leatherman has been President and a Director of the Company since
its inception. Prior to co-founding MovieFone, Mr. Leatherman was an
independent film and television producer/director. Mr. Leatherman has directed
news programs and produced sports broadcasts and television specials for public
television. He also operated a production company which specialized in
producing motion picture trailers, commercials, and videos.

Thomas A. Jarecki has been Senior Vice President, Operations of the Company
since March 1997 and was Vice President, Operations of the Company since its
inception. Prior to joining the Company, he worked at Brody, White and Company
as a business analyst. Mr. Jarecki is the brother of Andrew R. Jarecki and the
son of Dr. Henry G. Jarecki.

John Ventura has been Senior Vice President, Theater Management Systems of the
Company since July 1995. Prior to joining the Company, Mr. Ventura was Director
of Finance and Operations at A-Vision Entertainment, a division of Time Warner,
from 1992 to 1995. From 1989 to 1992, Mr. Ventura was TRS Manager of Gold Card
Marketing at American Express.

Nada Stirratt has been Senior Vice President, Sales since joining the Company
in November 1997. Prior to joining MovieFone, Ms. Stirratt was the Advertising
Director at Conde Nast's Allure magazine.

Francesca Hauser has been Senior Vice President, Finance & Administration since
joining the Company in July 1998. Prior to joining MovieFone, Ms. Hauser was
the Controller for the New York Division of Coca-Cola Enterprises, Inc. from
1997 to 1998 and the Corporate

                                      25
<PAGE>

Controller for The Coca-Cola Bottling Company of
New York, Inc. from 1996 to 1997. From 1990 to 1995, Ms. Hauser held various
positions with Price Waterhouse, Ernst & Young, and The Coca-Cola Bottling
Company of New York, Inc.

Matthew Blumberg has been Vice President, Marketing & Product Management since
March 1998. Mr. Blumberg was Vice President, MovieLink from 1995 to 1998. Prior
to joining MovieFone, Mr. Blumberg was an associate with General Atlantic
Partners, a private equity investment firm, which invests in later-stage
software and online services companies, and a consultant at Mercer Management
Consulting.

Robert Gukeisen has been Vice President, Data Services since July 1998. Mr.
Gukeisen was Vice President, New Technologies from May 1995 to June 1998 and
was Vice President, Systems Development prior to that. Prior to co-founding
MovieFone, Mr. Gukeisen was a systems analyst for US Topper, a provider of
interactive telephone service, from 1986 to 1989.

Marc S. Hollander has been Vice President, Systems Development since July 1998
and was Vice President, Computer Systems since joining the Company in 1992.
From 1983 until he began working for the Company, he was a computer systems
analyst at Brody, White and Company.

Philip Talamas has been Vice President, Operations since January 1998 and was
Vice President, Technical Services since joining the Company in May 1995. Prior
to joining the Company, Mr. Talamas worked at Brody, White and Company as the
Vice President of New York Operations from 1992 to 1995.

Brendan P. Gow has been Vice President, Exhibitor Relations since joining the
Company in August 1998. Prior to joining the Company, Mr. Gow was a successful
entrepreneur in Australia, having founded Voicecard, a telecommunication-based
greeting service company, and MovieFone Australia.



                                      26
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION
         ----------------------

         The following table sets forth information concerning compensation
paid or accrued by the Company to the Chief Executive Officer and the other
four most highly compensated executive officers for services rendered in all
capacities to the Company during the years ended December 31, 1998, 1997, and
1996:


<TABLE>
<CAPTION>

                                           Annual Compensation                     Long-Term Compensation Awards
                                           -------------------                     -----------------------------
                                                                                Securities
           Name &                                                              Underlying     All Other Compensation
     Principal Position         Year         Salary               Bonus          Options                (a)
     ------------------         ----         ------               -----          -------                ---
<S>                                <C>          <C>          <C>                  <C>                   <C>
Andrew R. Jarecki                  1998         $225,000     $ 79,327             10,000                $30
Chief Executive Officer            1997         $202,000     $132,494             21,000                $30
                                   1996         $180,000     $114,573               --                  $30

Adam H. Slutsky                    1998         $220,000     $ 79,231             10,000               $144
COO and CFO                        1997         $200,000     $124,461             21,000               $144
                                   1996         $185,000     $109,114               --                 $144

J. Russell Leatherman              1998         $180,000     $ 78,462 (b)          8,000               $144
President                          1997         $170,000     $185,249 (b)          8,000               $144
                                   1996         $155,000     $187,263 (b)           --                 $144

John Ventura                       1998         $130,000     $ 47,500 (c)          6,000               $144
Sr.   VP,   Theatre   Mgmn't       1997         $120,000     $ 60,109 (c)         10,000               $144
Systems
                                   1996         $ 88,000     $ 18,692              3,500                --
 
Nada Stirratt                      1998         $190,000     $ 78,654               --                 $144
Sr. VP, Sales                      1997         $ 26,277     $    --  (d)         50,000                --
                                   1996            --             --                --                  --
</TABLE>

(a) Other compensation is for life insurance premiums paid by the Company.
(b) Mr. Leatherman's bonuses for 1998, 1997, and 1996 were earned for
    performance in accordance with the Company's sales plans for such years.
(c) Mr. Ventura's bonuses for 1998 and 1997 were earned for performance in
    accordance with the Company's sales plan for such years.
(d) Ms. Stirratt began working for the Company in November 1997.


                                      27
<PAGE>

Stock Option Grants in 1998
---------------------------

The following table sets forth information with respect to grants of stock
options in 1998 pursuant to the 1994 Stock Option Plan to the named officers.

<TABLE>
<CAPTION>

                              Number of         % of Total
                              Securities        Options
                              Underlying        Granted to         Exercise or
                              Options           Employees in       Base Price       Expiration
Name                          Granted           Fiscal Year        ($/Sh)           Date
----                          -------           -----------        ------           ----
<S>                           <C>                   <C>             <C>             <C>  
Andrew R. Jarecki             10,000                3.7             6.81            1/30/08
Adam H. Slutsky               10,000                3.7             6.81            1/30/08
J. Russell Leatherman          8,000                3.0             6.81            1/30/08
John Ventura                   6,000                2.2             6.81            1/30/08
Nada Stirratt                     --                 --               --              --

</TABLE>


Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
--------------------------------------------------------------------------------

The following table sets forth information with respect to the named officers
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year. The options shown in the table
reflect options granted to the named officers by the Company under the 1994
Stock Option Plan.

<TABLE>
<CAPTION>


                                                                Number of Securities
                                                           Underlying Unexercised Options     Value of Unexercised in-the
                                                                      at FY-End                 Money Options at FY-End
                            Shares Acquired      Value
          Name                on Exercise       Realized    Exercisable    Unexercisable     Exercisable     Unexercisable
          ----                -----------       --------    -----------    -------------     -----------     -------------
<S>                                <C>             <C>            <C>           <C>            <C>                 <C>      
Andrew R. Jarecki                  0               $0             21,400        40,029         $ 275,392           $ 453,359
Adam H. Slutsky                    0               $0            122,405        83,317        $ 1,607,143         $1,024,112
J. Russell Leatherman              0               $0             65,100        56,329         $ 801,030           $ 666,842
John Ventura                       0               $0             19,875        39,625         $ 238,697           $ 462,391
Nada Stirratt                      0               $0              5,000        45,000          $ 54,375           $ 489,375
                                                                                         
</TABLE>

Retirement Plan

The Executive Officers of the Company are participants in the Falconwood Group
Defined Benefit Pension Plan (the "Retirement Plan"). See "Certain
Relationships and Related Party Transactions, Transactions Between the
Falconwood Corporation and the Company." Normal benefits under the Retirement
Plan, payable beginning at age 65, are calculated with respect to any
participant as follows: 1.30 percent of such participant's average annual
compensation for


                                      28
<PAGE>

the five highest paid consecutive years multiplied by such participant's years
of service. The following table shows annual benefits payable under the
Retirement Plan to participants at age 65 in specified years of service and
remuneration classes:


AVERAGE ANNUAL
COMPENSATION IN
FIVE CONSECUTIVE                            YEARS IN SERVICE           
HIGHEST PAID YEARS  ---------------------------------------------------
------------------    15       20         25         30         35
                      --       --         --         --         --

$100,000          $19,500   $26,000    $32,500    $39,000    $45,500
$125,000          $24,375   $32,500    $40,625    $48,750    $56,875
$150,000          $29,250   $39,000    $48,750    $58,500    $68,250
                                                          
         Compensation covered under the Retirement Plan is the total
compensation reported on a participant's Federal tax Form W-2, which for 1998,
1997, and 1996 is equal to the amount of compensation for each named executive
set forth in the Summary Compensation Table (which for purposes of the
Retirement Plan may not exceed $160,000, subject to increase from time to time
pursuant to Treasury regulations under the Code). Estimated credited years of
service for the named executives for purposes of computing their benefits are:
Andrew R. Jarecki, 13 years; Adam H. Slutsky, 11 years; J. Russell Leatherman,
5 years; John Ventura, 3 years; and Nada Stirratt, 1 year. Benefits are payable
in an annuity form for a period of at least 10 years and thereafter for the
life of the participant. Benefits payable are not subject to any deduction for
Social Security or other offset amounts.

Employment Agreements and Compensation Arrangements
---------------------------------------------------

         During the Company's fiscal year ended December 31, 1994, the Company
entered into employment agreements with each of Messrs. Andrew R. Jarecki, Adam
H. Slutsky and J. Russell Leatherman (each, an "Executive"). Each such
employment agreement provides for an employment term expiring in May 1998. Each
of Mr. Jarecki's and Mr. Leatherman's agreements were automatically renewed for
a two year term in May of 1996. The agreements also provide that for a period
of two years after termination of the Executive's employment with the Company,
the Executive may not (without the written approval of the Board of Directors
of the Company) engage in any business in competition with the Company or its
subsidiaries, as such business is conducted on the date on which such
Executive's employment with the Company is terminated, or solicit the
employment of any employee of the Company. The agreements provide that the
Company will pay, during the initial term of each agreement, each of Mr.
Jarecki and Mr. Leatherman an annual base salary of not less than $110,000, and
thereafter such greater amount as may be determined by the Board of Directors.
Bonus payments may be paid in such amounts and at such times as the Board of
Directors may determine. In May of 1996, the Company entered a new employment
agreement with Mr. Slutsky. Mr. Slutsky's new agreement contains substantially
the same terms as his original 


                                      29
<PAGE>

agreement, except that the new agreement provided for an employment term
expiring in May of 1998, which was automatically renewed for one additional
year, and an annual base salary of not less than $185,000.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

         The following table sets forth information concerning the beneficial
ownership of common stock of MovieFone as of March 24, 1999 for the following:
each person or entity who is known by MovieFone to own beneficially more than
5% of the outstanding shares of MovieFone common stock; each of MovieFone's
current directors; the chief executive officer and certain other highly
compensated officers of MovieFone; and all directors and executive officers of
MovieFone as a group.

         The number and percentage of shares beneficially owned is determined
in accordance with Rule 13d-3 of the Exchange Act and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the individual
or entity has voting power or investment power and any shares that the
individual has the right to acquire within 60 days of March 24, 1999 through
the exercise of any stock option or other right. Unless otherwise indicated in
the footnotes or table, each person or entity has sole voting and investment
power (or shares such powers with his or her spouse) with respect to the shares
shown as beneficially owned.

         Certain stockholders of MovieFone, as indicated below, have entered
into a stockholders agreement with America Online, Inc. ("AOL") agreeing to
vote their shares of MovieFone common stock in favor of a proposed merger with
AOL (refer to Note 11 for additional information on proposed merger.)

         In addition to the ownership of MovieFone common stock by the Jarecki
entities set forth in the following table, other Jarecki entities own an
aggregate of 360,817 shares of Class A common stock, representing approximately
6.8 percent of the outstanding Class A common stock.





                                      30
<PAGE>

<TABLE>
<CAPTION>

                                                                   NUMBER OF SHARES              PERCENTAGE OF OUTSTANDING
                                                                  BENEFICIALLY OWNED                      SHARES(I)
                                                                  ------------------                      ---------
                                                           CLASS A              CLASS B                CLASS A       CLASS B
                                                           -------              -------                -------       -------
<S>                                                    <C>                 <C>                          <C>         <C>  
 Dr. Henry G. Jarecki*................................     75,000(a)**         7,080,053(b)(f)**            1.4         100.0
  (Chairman of the Board)
 Eugene Eliasoph......................................  1,497,770(a)(c)**      6,914,010(b)**              28.1          97.6
  400 Prospect Street
   New Haven, Connecticut 06511
 Andrew R. Jarecki*...................................  1,453,899(c)**                --                   27.1            --
  (Chief Executive Officer)
 Adam H. Slutsky*.....................................    283,702(d)                  --                    5.2            --
  (COO and CFO)
 J. Russell Leatherman................................    239,534                     --                    4.4            --
  (President)
  1875 Century Park East, Suite 2230
  Los Angeles, California  90067
 Thomas A. Jarecki*...................................    195,696                     --                    3.6            --
  (Senior VP, Operations)
 John Ventura*........................................     22,675                     --                    0.4            --
  (Sr. VP, Theater Management Systems)
 Nada Stirrat*........................................      5,000                     --                    0.1            --
  (Sr. VP, Sales)
 Matthew Blumberg*....................................     28,850                     --                    0.5            --
  (VP, Marketing and Product Management)
 Robert Gukeisen*.....................................    389,789                     --                    7.3            --
  (VP, Data Services)
 Marc S. Hollander*...................................     25,023                     --                    0.5            --
  (VP, Computer Systems)
 Francesca Hauser*....................................         --                     --                     --            --
  (Sr. VP, Finance and Administration)
 Brendan Gow*.........................................         --                     --                     --            --
  (VP, Exhibitor Relations)
 Philip Talamas*......................................     16,580                     --                    0.3            --
  (VP, Operations)
 Mark N. Kaplan.......................................     17,000                     --                    0.3            --
  (Director)
  c/o Skadden, Arps, Slate, Meagher & Flom LLP
  919 Third Avenue, New York, New York 10022
 George H. McLaughlin.................................     15,260(e)                  --                    0.3            --
  (Director)
  263 Mercer Street
  Princeton, New Jersey 08540
 Strauss Zelnick......................................     27,500                     --                    0.5            --
  BMG Entertainment (Director)
  1540 Broadway,39th Floor
  New York, New York 10036

 All directors and executive officers as a group        2,795,508              7,080,053(b)(f)**           48.3         100.0


                                      31
<PAGE>

 Cannell Capital Management...........................    388,470                     --                    7.3            --
  600 California Street, Floor 14
  San Francisco, CA  94108
 FMR Corp.................................................383,200                     --                    7.2            --
  82 Devonshire Street
  Boston, MA  02109
 Timothy R. Barakett....................................  282,200                     --                    5.3            --
  c/o Atticus Holdings, LLC
  590 Madison Avenue, 32nd Floor
  New York, NY 10022
 America OnLine, Inc.  ...............................  8,847,494(g)(h)        7,080,053(h)                76.8         100.0
  22000 AOL Way
  Dulles, Virginia 20166

</TABLE>

---------------
*    The address of each of these individuals is 335 Madison Avenue, 27th Floor,
     New York, New York 10017.
**   Includes shares set forth elsewhere in this table.

(a)  Includes 75,000 shares held by The Timber Falls Trust. Dr. Jarecki and Mr.
     Eliasoph, as co-trustees of this trust (the beneficiaries of which are
     various members of Dr. Jarecki's family and their lineal descendants),
     share investment and voting control with respect to these shares.
(b)  Includes an aggregate of 6,914,010 shares held by: The Timber
     Acres Trust (956,840 shares); The Timber Top Trust (1,156,620
     shares); The Timber Edge Trust (1,226,410 shares); The Timber
     Falls Trust (3,434,280 shares); and The Timber Nation Trust
     (139,860 shares). Dr. Jarecki and Mr. Eliasoph, as co-trustees of
     each of these trusts (the beneficiaries of which are various
     members of Dr. Jarecki's family and their lineal descendants),
     share investment and voting control with respect to these shares.
(c)  Includes 1,422,770 shares held by The Timber Acres Trust II. Mr.
     Jarecki and Mr. Eliasoph, as co-trustees of this trust (the
     beneficiaries of which are Mr. Jarecki and his lineal
     descendants), share investment and voting control with respect to
     these shares.
(d)  Includes 3,000 shares held in trust for Mr. Slutsky's children.
(e)  Excludes 36,000 shares held in trust for Mr. McLaughin's
     grandchildren.
(f)  Includes 166,043 shares held by the JEF Limited Partnership, of
     which The Rapmil Corporation, of which Dr. Jarecki has 100%
     ownership, is the general partner.
(g)  Pursuant to an option agreement, America Online has a contingent
     right to acquire up to 6,186,762 shares of MovieFone Class A
     common stock which may or may not be exercisable within sixty
     days.
(h)  Pursuant to a stockholders agreement, America Online has shared
     voting power with respect to 2,660,732 shares of MovieFone Class
     A common stock and has shared voting power with respect to
     7,080,053 shares of MovieFone Class B common stock.
(i)  The calculation of percentages is based upon the number of shares
     of MovieFone Class A common stock issued and outstanding on March
     24, 1999, plus shares of MovieFone Class A common stock subject
     to options held by the respective persons on March 24, 1999 and
     exercisable within 60 days thereafter.


                                      32
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
         ----------------------------------------------------

Registration Rights Agreement
-----------------------------

         Pursuant to the terms of a Registration Rights Agreement (the
"Registration Rights Agreement") by and among Dr. Henry Jarecki, Andrew R.
Jarecki, certain members of their immediate family and certain trusts and a
corporation affiliated with Dr. Jarecki (collectively, the "Jarecki Entities"),
Adam H. Slutsky, J. Russell Leatherman, Robert Gukeisen, and certain other
current stockholders of the Company (collectively, the "Holders") and the
Company, the Company has agreed that the Holders, subject to certain
conditions, may cause the Company to file a registration statement with the
Securities and Exchange Commission (the "SEC") relating to the Common Stock
held by them (or their transferees) (the "Registrable Securities"). The Company
generally will be required to use its best efforts to effect any such
registration on demand. The Company is not required to effect more than five
such demand registrations for the holders of Registrable Securities, and not
more frequently than two times during any period of twelve consecutive months.
Such registrations will be at the Company's expense, except that each selling
stockholder will bear its pro rata share of the underwriting fees and expenses,
the fees and expenses of its counsel and applicable transfer taxes.

         In addition, the Holders of Registrable Securities have certain
incidental (or "piggyback") registration rights that require the Company to
include in any registration statement that the Company proposes to file with
respect to its securities (whether for its own account or for the account of
any security holder), such amount of Registrable Securities requested by them
to be included therein, subject to certain exceptions. Such registrations will
be at the Company's expense except that each selling stockholder will bear its
pro rata share of the underwriting fees and expense, the fees and expenses of
its counsel and applicable transfer taxes.

Transactions Between The Falconwood Corporation and the Company
---------------------------------------------------------------

         During 1998, 1997, and 1996, the Company had an agreement with
Falconwood for the provision of certain administrative and other services.
During the years ended December 31, 1998, 1997, and 1996, Falconwood was paid
approximately $188,000, $191,000 and $264,000, respectively, for such services.
During the years ended 1998, 1997, and 1996 various Company employees provided
certain administrative and professional services to Falconwood and its
affiliates and charged Falconwood approximately $27,000, $32,000, and $59,000,
respectively, for such services.

         Historically, as a convenience to the Company, employees of the
Company have participated in a defined benefit pension plan provided by
Falconwood. In the future, the Company may determine to provide similar
benefits to its employees other than through this Falconwood plan. During the
fiscal years ended December 31, 1998, 1997, and 1996, pension expense related
to the Company's participation in the Falconwood plan was approximately
$150,000, $83,000, and $121,000 respectively.



                                      33
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
         ----------------------------------------------------------------



   (a)  1.  Consolidated Financial Statements:

               See Index to Consolidated Financial
               Statements on page F-1 hereof.

        2.  Financial Statement Schedules:

               None.

        3.  Exhibits:

               See Exhibit Index on pages E-1 and E-2 hereof.

   (b)      Reports on Form 8-K:

               None.


                                      34
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                               MOVIEFONE, INC.
                                                 (Registrant)

Date:
                                       By      /s/  Adam H. Slutsky
                                               ---------------------------
March 24, 1999                                 Adam H. Slutsky,
                                               Chief Financial Officer
                                               and Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


    Signature                              Title


    /s/ Dr. Henry G. Jarecki               Chairman of the Board of Directors
---------------------------------
    Dr. Henry G. Jarecki


    /s/ Andrew R. Jarecki                  Chief Executive Officer (principal
---------------------------------          executive officer); Director
    Andrew R. Jarecki                      


    /s/ Adam H. Slutsky                    Chief Operating Officer and Chief
---------------------------------          Financial Officer (principal     
    Adam H. Slutsky                        financial                        
                                           and accounting officer); Director
                                           

    /s/ J. Russell Leatherman              President; Director
---------------------------------
    J. Russell Leatherman


    /s/ Mark N. Kaplan                     Director
---------------------------------
    Mark N. Kaplan


    /s/ George H. McLaughlin               Director
---------------------------------
    George H. McLaughlin


    /s/ Strauss Zelnick                    Director
---------------------------------
    Strauss Zelnick


March 24, 1999







                                      35
<PAGE>

                         MOVIEFONE, INC. AND SUBSIDIARY
                               TABLE OF CONTENTS
                                   FORM 10-K





                                                                         PAGE



INDEPENDENT AUDITORS' REPORT                                              F-2

CONSOLIDATED FINANCIAL STATEMENTS

   Consolidated Balance Sheets as of December 31, 1998 and 1997           F-3

   Consolidated Statements of Operations for the Years Ended
      December 31, 1998, 1997 and 1996                                    F-4

   Consolidated Statements of Changes in Stockholders' Equity 
      for the Years Ended December 31, 1998, 1997 and 1996                F-5

   Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1998, 1997 and 1996                                    F-6

   Notes to Consolidated Financial Statements                             F-7











                                      F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors of
  MovieFone, Inc.:

We have audited the accompanying consolidated balance sheets of MovieFone, Inc.
and Subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of MovieFone, Inc. and Subsidiary at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.


/s/DELOITTE & TOUCHE LLP

Parsippany, New Jersey
March 23, 1999




                                      F-2

<PAGE>


                         MOVIEFONE, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                     December 31,
                                                                                 --------------------
                                                                                 1998             1997
                                                                                 ----             ----
<S>                                                                         <C>             <C>         
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                                $  3,264,404    $  3,482,363
   Short-term investments                                                      5,263,868            --
   Trade accounts receivable, less allowance for uncollectible accounts
     of $71,000 and $0 in 1998 and 1997, respectively                          5,603,400       3,586,604
   Prepaid expenses and other current assets                                   1,305,431         380,024
   Inventory                                                                     241,374         370,549
                                                                           -------------    ------------
     Total current assets                                                     15,678,477       7,819,540

PROPERTY AND EQUIPMENT, net                                                    1,841,970       1,501,853

LONG-TERM INVESTMENTS                                                          3,565,076      12,151,101

DUE FROM OFFICER                                                                    --             8,844

OTHER ASSETS                                                                     176,193         111,773
                                                                           -------------    ------------
   TOTAL ASSETS                                                             $ 21,261,716    $ 21,593,111
                                                                           =============    ============


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Due to related parties                                                   $     33,323    $     13,908
   Accounts payable                                                            2,638,172       3,453,071
   Accrued expenses and other current liabilities                              5,053,489       2,288,529
                                                                           -------------    ------------
    Total current liabilities                                                  7,724,984       5,755,508


COMMITMENTS AND CONTINGENCIES  (Note 7)

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;
       5,755,085 and 5,662,135 shares in 1998 and 1997,
       respectively, of Class A Common Stock issued and outstanding;              57,550          56,621
       7,080,053 and 7,155,053 shares in 1998 and 1997, respectively,
       of Class B Common Stock issued and outstanding                             70,801          71,551

   Additional paid-in capital                                                 34,383,227      34,316,355
   Accumulated other comprehensive income                                         85,226         101,920
   Accumulated deficit                                                       (18,675,034)    (16,488,844)
                                                                           -------------    ------------
                                                                              15,921,770      18,057,603
   Less Treasury Stock, at cost;
   421,900 and 400,000 shares in 1998 and 1997, respectively                  (2,385,038)     (2,220,000)
                                                                           -------------    ------------
     Total stockholders' equity                                               13,536,732      15,837,603
                                                                           -------------    ------------

     TOTAL LIABILITIES AND STOCKHOLDERS'  EQUITY                            $ 21,261,716    $ 21,593,111
                                                                           =============    ============
</TABLE>


See notes to consolidated financial statements


                                      F-3

<PAGE>



                           MOVIEFONE, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                       YEARS ENDED DECEMBER 31,
                                                           --------------------------------------------
                                                                1998            1997            1996
                                                            ------------   ------------    -------------
<S>                                                        <C>             <C>             <C>         
REVENUE
  Advertising revenue                                      $ 12,613,399    $  9,505,205    $  7,693,891
  Sponsorship revenue                                         5,508,570       5,247,879       4,441,411
  Ticket service fees, net                                    4,522,777       4,095,832       2,738,817
  Other revenue                                               2,751,574       1,749,002         481,203
                                                            ------------   ------------    -------------
    Total revenue                                            25,396,320      20,597,918      15,355,322
                                                            ------------   ------------    -------------

COST OF SERVICES
  Advertising commissions                                       658,088         781,289         712,065
  Ticket sales servicing and transaction fees                 1,159,525         935,716         734,613
  Telecommunications                                          1,739,259       1,208,110       1,110,300
  Other expenses                                                635,841         553,667         279,003
                                                            ------------   ------------    -------------
    Total cost of services                                    4,192,713       3,478,782       2,835,981
                                                            ------------   ------------    -------------

    Gross Profit                                             21,203,607      17,119,136      12,519,341

OTHER COSTS AND EXPENSES
  Selling, general and administrative                        13,987,661       9,438,187       6,716,389
  Advertising and promotions                                  8,145,422       6,563,561       5,393,665
  Legal expenses                                              1,019,868       2,973,500       2,443,661
  Depreciation and amortization                                 923,529         940,754       1,010,420
  Interest income                                              (686,683)     (1,023,357)     (1,087,507)
                                                            ------------   ------------    -------------
    Total other costs and expenses                           23,389,797      18,892,645      14,476,628
                                                            ------------   ------------    -------------

NET LOSS                                                   ($ 2,186,190)   ($ 1,773,509)   ($ 1,957,287)
                                                            ============   ============    =============

NET LOSS PER COMMON SHARE -
  BASIC AND DILUTED                                              ($0.18)         ($0.14)         ($0.15)
                                                            ============   ============    =============
WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING -
  BASIC AND DILUTED                                          12,415,086      12,704,887      12,801,820
                                                            ============   ============    =============
</TABLE>

See notes to consolidated financial statements.

                                      F-4




<PAGE>


                         MOVIEFONE, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                                         Accumulated
                                                              Class A       Class B        Additional        Other
                                                              Common        Common         Paid-in       Comprehensive 
                                                              Stock          Stock         Capital       Income (loss) 
                                                              -----          -----         -------       ------------- 
<S>                                                      <C>             <C>             <C>            <C>            
BALANCE, DECEMBER 31, 1995 ...........................   $     56,449    $     71,551    $ 34,255,327   $       --     
   Net loss ..........................................           --              --              --             --     
   Issuance of 6,000 shares of Class A Common
     Stock upon exercise of stock options ............             60            --            23,940           --     
                                                         ------------    ------------    ------------   ------------
BALANCE, DECEMBER 31, 1996 ...........................         56,509          71,551      34,279,267           --     
   Net loss ..........................................           --              --              --             --     
   Unrealized holding gain on investments ............           --              --              --          101,920   
   Comprehensive loss ................................                
   Issuance of 11,188 shares of Class A Common
     Stock upon exercise of stock options ............            112            --            37,088           --     
   Purchase of 400,000 shares of Treasury Stock ......           --              --              --             --     
                                                         ------------    ------------    ------------   ------------

BALANCE, DECEMBER 31, 1997 ...........................         56,621          71,551      34,316,355        101,920   
   Net loss ..........................................           --              --              --             --     
   Unrealized holding loss on investments ............           --              --              --          (16,694)  
   Comprehensive loss ................................                
   Issuance of 17,950 shares of Class A Common
      Stock upon exercise of stock options ...........            179            --            66,872           --     
   Purchase of 21,900 shares of Treasury Stock .......           --              --              --             --     
   Conversion of 75,000 shares of Class B Common Stock
      to Class A Common Stock ........................            750            (750)           --             --     
                                                         ------------    ------------    ------------   ------------
BALANCE, DECEMBER 31, 1998 ...........................   $     57,550    $     70,801    $ 34,383,227   $     85,226   
                  === ====                               ============    ============    ============   ============   




<CAPTION>

                                                        
                                                        
                                                           Accumulated      T reasury                     Comprehensive  
                                                            Deficit           Stock            Total             Loss     
                                                            -------           -----            -----             ----     
<S>                                                        <C>                             <C>                          
BALANCE, DECEMBER 31, 1995 ...........................   ($12,758,048)   $       --      $ 21,625,279                   

   Net loss ..........................................     (1,957,287)           --        (1,957,287)                  
   Issuance of 6,000 shares of Class A Common                                                                           
     Stock upon exercise of stock options ............           --              --            24,000                   
                                                         ------------    -------------   ------------
BALANCE, DECEMBER 31, 1996 ...........................    (14,715,335)           --        19,691,992                   
   Net loss ..........................................     (1,773,509)           --        (1,773,509)   ($ 1,773,509)  
   Unrealized holding gain on investments ............           --              --           101,920         101,920   
                                                                                                        -------------
   Comprehensive loss ................................                                                   ($ 1,671,589)
   Issuance of 11,188 shares of Class A Common                                                                          
     Stock upon exercise of stock options ............           --              --            37,200                   
   Purchase of 400,000 shares of Treasury Stock ......           --        (2,220,000)     (2,220,000)                  
                                                         ------------    -------------   ------------

BALANCE, DECEMBER 31, 1997 ...........................    (16,488,844)     (2,220,000)     15,837,603                   
   Net loss ..........................................     (2,186,190)           --        (2,186,190)   ($ 2,186,190)  
   Unrealized holding loss on investments ............           --              --           (16,694)        (16,694)  
                                                                                                        -------------
   Comprehensive loss ................................                                                   ($ 2,202,884)
   Issuance of 17,950 shares of Class A Common                                                                          
      Stock upon exercise of stock options ...........           --              --            67,051                   
   Purchase of 21,900 shares of Treasury Stock .......           --          (165,038)       (165,038)                  
   Conversion of 75,000 shares of Class B Common Stock                                                                  
      to Class A Common Stock ........................           --              --              --                     
                                                         ------------    -------------   ------------
BALANCE, DECEMBER 31, 1998 ...........................   ($18,675,034)   ($ 2,385,038)   $ 13,536,732                   
                                                         ============    ============    ============                   

</TABLE>

See notes to consolidated financial statements.

                                      F-5

<PAGE>

                         MOVIEFONE, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>


                                                                                      YEARS ENDED DECEMBER 31,
                                                                           -----------------------------------------------
                                                                                1998           1997           1996
                                                                                ----           ----           ----
<S>                                                                         <C>            <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                 ($2,186,190)   ($1,773,509)   ($1,957,287)
   Adjustments to reconcile net loss to net cash  (used in) provided by
      operating activities:
      Depreciation and amortization                                             923,529        940,754      1,010,420
      Amortization of premium (discount) on investment securities                93,976         61,242        124,640
      Loss (gain) on sale of investment securities                                6,195        (28,577)          --
      Provision for doubtful accounts                                            71,000           --             --
      Barter services received                                                5,032,911      4,938,969      4,148,929
      Barter services provided                                               (5,032,911)    (4,938,969)    (4,148,929)
      Changes in assets and liabilities:
         Increase in trade accounts receivable                               (2,087,796)      (372,735)    (1,217,378)
         (Increase) decrease in prepaid expenses and other current assets      (925,407)       (74,350)        17,579
         Decrease (increase)  in inventory                                      129,175       (266,626)        63,794
         Decrease in due from related parties                                      --             --           93,524
         Decrease (increase) in due from officer                                  8,844          7,819         (1,051)
         (Increase) decrease  in other assets                                   (64,420)       180,936        (82,539)
          Increase (decrease) in due to related parties                          19,415        (65,952)        79,860
         (Decrease) Increase in accounts payable                               (814,899)     1,426,461        637,604
         Increase in accrued expenses and other current liabilities           2,764,960        131,002      1,151,816
                                                                            -----------    -----------    -----------

            Net cash (used in) provided by operating activities              (2,061,618)       166,465        (79,018)
                                                                            -----------    -----------    -----------


CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of investment securities                                     (3,200,000)    (4,414,638)    (2,768,644)
      Sales/maturities of investment securities                               6,405,292      7,022,408      6,000,000
      Purchases of property and equipment                                    (1,263,646)      (669,079)      (455,668)
                                                                            -----------    -----------    -----------

            Net cash provided by investing activities                         1,941,646      1,938,691      2,775,688
                                                                            -----------    -----------    -----------


CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from exercise of stock options                                    67,051         37,200         24,000
      Purchase of treasury stock                                               (165,038)    (2,220,000)          --
                                                                            -----------    -----------    -----------

             Net cash (used in) provided by financing activities                (97,987)    (2,182,800)        24,000
                                                                            -----------    -----------    -----------

             Net (decrease) increase in cash and cash equivalents              (217,959)       (77,644)     2,720,670

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                  3,482,363      3,560,007        839,337
                                                                            -----------    -----------    -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                                      $ 3,264,404    $ 3,482,363    $ 3,560,007
                                                                            ===========    ===========    ===========

</TABLE>

See notes to consolidated financial statements 

                                      F-6

<PAGE>

                         MOVIEFONE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 1998, 1997 and 1996


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Business--MovieFone, Inc. and its wholly-owned subsidiary (the
"Company") provide interactive advertising, information, and ticketing services
to the motion picture industry and moviegoers through its interactive telephone
movie guide ("MovieFone") and its online service ("moviefone.com"). The
Company's primary sources of revenue include (1) advertising sales on MovieFone
and moviefone.com to motion picture studios and other advertisers, (2) service
fees for movie tickets sold to the public via MovieFone's and moviefone.com's
teleticketing service, (3) sponsorships and other promotional services to local
media and credit card companies, and (4) other revenue which primarily includes
software licenses, service and installation fees, and hardware sales from Mars
theater management systems sales.

         Basis of Presentation--The consolidated financial statements include
the accounts of MovieFone, Inc. and its wholly-owned subsidiary, MF
Investments, Corp. ("MFI"). All significant intercompany accounts and
transactions have been eliminated in consolidation.

         Earnings Per Share-- SFAS No. 128, "Earnings per Share" requires the
dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS
excludes dilution and is computed by dividing net 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
December 31, 1998, 1997 and 1996, the weighted average number of common shares
outstanding was calculated excluding stock options of 1,037,169, 873,869 and
707,444, respectively, as they are antidilutive.

         Revenue Recognition and Barter Services--Ticket service fee revenue is
recognized upon the sale of tickets to a buyer. Ticket service fee revenue is
net of ticket purchases of approximately $25,601,300, $23,500,000, and
$16,004,000 in 1998, 1997 and 1996, respectively, as well as allowances for
disputed charges and refunds of approximately $234,000, $235,000, and $404,000
in 1998, 1997 and 1996, respectively.

         Advertising revenue for MovieFone is based on a per call charge and is
recognized as calls are received. Moviefone.com advertising revenue is based on
a per user charge and is recognized as users log onto the website. Previews
advertising revenue is based on a per preview charge and is recognized upon
initial setup of the Preview on MovieFone.

         Sponsorship revenue includes barter services revenue as well as
promotional fees. All promotional fees are deferred and amortized over the
sponsorship period. Deferred sponsorship revenue as of December 31, 1998, 1997,
and 1996 was $1,073,000, $31,000, and $13,000, respectively. The Company's
barter revenue is generated via the exchange of MovieFone advertising time and
MovieLink advertising space for various sponsor media 


                                      F-7
<PAGE>

services. These barter transactions and other services are reported at the
estimated fair market value of the sponsor media services received, and
revenues and expenses are recorded as these barter services are provided or
received. Amounts reported as both sponsorship revenue and advertising and
promotions expense were approximately $5,033,000, $4,939,000, and $4,149,000 in
1998, 1997 and 1996, respectively. These cross-promotion barter transactions
resulted in no receivables or liabilities as of December 31, 1998 and 1997.

         Other revenue primarily includes software license, service and
installation fees, and hardware sales from Mars theater management systems.
Software license and installation fees, as well as hardware sales are
recognized upon installation of the system in the movie theater. Service fees
are deferred and amortized to revenue over the service period.

         Cash and Cash Equivalents--Cash and cash equivalents include cash on
hand and in banks, and all highly liquid debt instruments with a maturity of
three months or less when purchased.

         Investments- The Company's long-term investments at December 31, 1998
and 1997 consist of United States Treasury notes with maturities greater than
one year from the balance sheet date. All investments are recorded on a trade
date basis. During 1997, the Company's investments were reclassified from
held-to-maturity to available-for-sale in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". Investments are carried at fair market value with
unrealized holding gains and losses reported as other comprehensive income.
Investments were previously accounted for at amortized cost. The Company's
decision to sell investments originally intended to be held to maturity was due
to the need for funds to purchase treasury stock.

         Inventory--Inventory consists of computer hardware equipment which is
valued at the lower of first-in, first-out (FIFO) cost or current market value.

         Property and Equipment--Property and equipment are stated at cost.
Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful lives of the assets, principally five years.
Leasehold improvements are capitalized and amortized over the shorter of the
useful life of the asset or the lease term. Maintenance and repairs of property
and equipment are charged to operations when incurred and major improvements
are capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation or amortization are eliminated
from the accounts and any gain or loss is credited or charged to operations.

         Research and Development Costs--Costs incurred for the development of
proprietary software are expensed as incurred and for the years ended December
31, 1998, 1997 and 1996 were approximately $392,000, $303,000, and $369,000,
respectively.

         Advertising and promotion costs are expensed as incurred. Trailer
production costs are capitalized and expensed at the time that the trailer is
distributed to exhibitors. Total advertising and promotion expenses were
$8,145,422, $6,563,561, and $5,393,665 for the 


                                      F-8
<PAGE>

years ended December 31, 1998, 1997 and 1996 respectively. Included in prepaid
expenses and other current assets was $546,603, and $166,403 at December 31,
1998 and 1997, respectively relating principally to trailer production costs.

         Income Taxes--Deferred taxes are provided for the temporary
differences between the book and tax basis of the Company's assets and
liabilities.

         Use of estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

         Fair value of financial instruments--Fair value estimates are based on
pertinent information available to management as of December 31, 1998 and 1997.
The estimated fair value, which approximates cost, of cash and cash
equivalents, accounts receivable, due from officer, due to affiliates, accounts
payable and accrued expenses are reflected in the consolidated balance sheets.
The fair value of investments is based on quoted market prices as presented in
Note 2.

         Recently issued accounting standard -- In June 1998, SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") was
issued. SFAS 133 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.

2.  INVESTMENTS

         The amortized cost, gross unrealized gains and losses and fair value
of the investment securities available-for-sale as of December 31, 1998 are as
follows:

<TABLE>
<CAPTION>

                                                              Gross                Gross
                                                              Unrealized           Unrealized
                                            Amortized         Holding              Holding     Fair
                                            Cost              Gains                Losses           Value
                                            ----              -----                ------           -----
<S>                                         <C>               <C>                  <C>         <C>       
Debt securities issued by the
U.S. Treasury with maturities:
   In 1 year or less                        $5,327,950        $46,547              $110,629    $5,263,868
   After 1 year through 5 years             $3,517,688        $47,388              $     --    $3,565,076

</TABLE>


         Proceeds from sale of investment securities available-for-sale during
1998 were $6,405,292 and related net realized losses included in income were
$6,195. The cost of the investment securities sold was based on the specific
identification method.


                                      F-9
<PAGE>

         The amortized, gross unrealized gains and losses and fair value of the
investment securities available-for-sale as of December 31, 1997 are as
follows:

<TABLE>
<CAPTION>
                                                      Gross             Gross
                                                      Unrealized        Unrealized
                                     Amortized        Holding           Holding          Fair
                                        Cost          Gains             Losses           Value
                                        ----          -----             ------           -----
<S>                                 <C>              <C>                 <C>            <C>        
Debt securities issued by the
U.S. Treasury with maturities:
   After 1 year through 5 years     $12,049,181      $124,719            $22,799        $12,151,101
</TABLE>

         Proceeds from the sale of investment securities available-for-sale
during 1997 were $4,119,939 and related net realized gains included in income
were $28,577. The cost of the investment securities sold was based on the
specific identification method.

Stock Warrants

     In September 1998, the Company entered into a Strategic Marketing
Agreement with Big Star Entertainment, Inc. ("Big Star"), a non-public company.
These warrants are recorded at no value since information is unavailable to
determine such value. The agreement includes the sale and delivery fulfillment
of filmed entertainment via the Internet of videocassettes, laser discs, and
DVD's by Big Star to the Company's Movielink customers. As part of the
agreement, Big Star issued the Company warrants to purchase up to 35,000 shares
of Big Star at $5.80 per share, and up to an additional 50,000 shares of Big
Star at $7.25 per share. The warrants expire in September 2001.

3.       PROPERTY AND EQUIPMENT

                                                      December 31,      
                                            -------------------------------
                                                  1998             1997
                                                  ----             ----

Computer equipment                          $  4,603,877        $3,363,427
Theater equipment                              1,323,205         1,323,205
Capitalized software costs                       795,858           795,858
Telephone equipment                              187,762           187,762
Furniture, fixtures, and lease-
hold improvements                                424,625           401,429
                                                --------          --------

                                               7,335,327         6,071,681
Less accumulated depreciation
and amoritization                              5,493,357         4,569,828
                                               ---------         ---------
                                            $  1,841,970        $1,501,853
                                               =========         =========


                                     F-10
<PAGE>


         Capitalized software costs are recorded in accordance with the
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed" and relate
solely to the costs incurred for the Company's theater management system, which
provides theaters with a complete management system for all movie theater
scheduling, ticketing and concession operations. Capitalized software costs are
being depreciated on a straight-line basis over a three year period which began
January 1, 1996. Depreciation expense for capitalized software costs for each
of the three years ended December 31, 1998, 1997, and 1996 was $265,286.

4.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>

                                                                            December 31,              
                                                              --------------------------------------
                                                                    1998                      1997
                                                                    ----                      ----
<S>                                                           <C>                       <C>         
Accrued payroll, bonuses and related taxes                    $ 1,617,287               $  1,019,364
Accrued pension and vacation benefits.......................      688,318                    490,918
Accrued professional fees....................................     526,808                    367,609
Deferred revenue.............................................   1,684,942                    147,535
Other........................................................     536,134                    263,103
                                                              -------------             ------------
                                                              $ 5,053,489                $ 2,288,529
                                                              ===========               ============
</TABLE>


5.  RELATED PARTY TRANSACTIONS

         The Company enters into various transactions in connection with its
operations with companies whose officers, directors and partners are also
officers and/or shareholders of MovieFone, Inc. (collectively, "Related
Party").

         During 1998, 1997, and 1996, the Company had an agreement with a
Related Party for the provision of certain administrative and other services.
During the years ended December 31, 1998, 1997, and 1996, the Related Party was
paid approximately $188,000, $191,000, and $264,000, respectively for such
services. During 1998, 1997, and 1996, various Company employees provided
certain administrative and professional services to a Related Party. The
Company charged the Related Party approximately $27,000, $32,000, and $59,000
for these services for the years ended December 31, 1998, 1997, and 1996
respectively.

6.  INCOME TAXES

         There was no income tax expense or benefit for 1998, 1997 and 1996 due
to the operating losses incurred.


                                     F-11
<PAGE>

         The major sources of temporary differences and their tax effect are as
follows:

                                                    December 31,         
                                            -----------------------------
                                                1998             1997
                                                ----             ----
Deferred tax asset:
     Net operating loss carry forward       $6,083,000      $  5,142,000
     Accrued expenses and other                123,000           246,000
     Valuation allowance                    (6,206,000)       (5,388,000)      
                                            -----------     ------------
Net deferred tax asset after
valuation allowance                         $       --      $        --        
                                            -----------     ------------

         The Company has available federal net operating loss carry forwards to
offset future taxable income of approximately $15,600,000 which expire in 2003
through 2018.

7. COMMITMENTS AND CONTINGENCIES

         At December 31, 1998, the Company was committed under operating leases
for office space, expiring at various dates through 2003, requiring minimum
annual rental payments as follows:

                 1999                                             $ 630,485
                 2000                                               462,820
                 2001                                               498,518
                 2002                                               498,912
                 2003                                               333,008
                                                                 ----------
                                                                 $2,423,743
                                                                 ==========

         Rental expense under such leases totaled $675,300, $322,600, and
$274,800 for the years ended December 31, 1998, 1997 and 1996, respectively.

         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 between Promofone, Inc. and
Pacer/CATS and promoted the services of Ticketmaster Corp. ("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 of 1997 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 Supreme Court of the State of New
York 

                                     F-12
<PAGE>

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 the court award the
Company monetary damages for CCS' violation of the injunction.

         Evidentiary hearings 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. 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.

8. EMPLOYEE BENEFITS AND EMPLOYMENT AGREEMENTS

         The Company participates in a related party sponsored noncontributory
defined benefit pension plan, which covers substantially all salaried
employees. Normal benefits, payable beginning at age 65, are based on
employee's length of service and earnings. Benefits are payable in an annuity
form for a period of at least 10 years and thereafter for the life of the
participant. For the years ended December 31, 1998, 1997 and 1996 pension
expense was approximately $150,000, $83,000, and $121,000, respectively.


                                     F-13
<PAGE>

         The Company has entered into employment agreements with certain of its
executive officers. These agreements automatically renew for an additional
two-year term unless notice of non-renewal is given. These agreements provide
for a minimum base salary. These agreements include a covenant against
competition with the Company extending for a period of two years after
termination.

9. CAPITAL STOCK

         The shares of the Class A and Class B common stock are identical
except as to voting rights. On all matters submitted to a vote of stockholders,
holders of Class A common stock are entitled to one vote per share and holders
of Class B common stock are entitled to five votes per share. Both classes vote
together as a single class on all matters, except that the holders of Class A
common stock are entitled to vote as a separate class on certain amendments to
the Company's Certificate of Incorporation.

10. STOCK OPTION PLAN

         In 1994, the Board of Directors adopted a stock option plan which
provides for the granting of stock options to key employees and other persons
rendering services to the Company. The plan provides for the granting of
incentive and/or non-statutory stock options. The exercise price of the options
is determined by the Compensation Committee of the Board of Directors, and may
not be less than, in the case of incentive stock options, the fair market value
of the Company's common stock at the date of grant (or 110% in the case of an
employee owning more than 10% of the outstanding stock of the Company). Any
options granted will be exercisable in full at any time or from time to time as
determined by the Compensation Committee and provided in the option agreement.
Any options would expire from five to fifteen years from the date granted.

         The activity in the plan is presented below:

<TABLE>
<CAPTION>

                                             ----------------------------------------------
                                                                                  Weighted
                                                                                  Average
                                                                                  Exercise
                                               Shares Under     Price Range       Price
                                                  Option        Per Share         Per Share
                                             ----------------------------------------------
<S>                                              <C>            <C>     <C>       <C>   
Outstanding December 31, 1995.............       667,694        $  3.19-11.50     $ 3.94
Granted...................................       173,000           3.63- 4.50       4.05
Exercised.................................        (6,000)                4.00       4.00
Expired or canceled......................       (127,250)          3.19- 4.19       3.86
                                              ---------------------------------------------
Outstanding December 31, 1996.............       707,444        $  3.19-11.50     $ 3.98
Granted...................................       243,000           4.25- 7.50       4.72
Exercised.................................       (11,188)          3.19- 4.19       3.32


                                     F-14
<PAGE>


Expired or canceled.......................       (65,387)          3.19- 4.25       3.77
                                              ---------------------------------------------
Outstanding December 31, 1997.............       873,869        $  3.19-11.50     $ 4.21
Granted...................................       271,000           6.81-10.25       7.85
Exercised.................................       (17,950)          3.19- 4.25       3.74
Expired or canceled......................        (89,750)          3.63- 7.75       5.11
                                              ---------------------------------------------
Outstanding December 31, 1998............      1,037,169        $  3.19-$11.50    $ 5.09
                                              ---------------------------------------------
Exercisable December 31, 1996............        118,036        $  3.19- 11.50    $ 3.92
Exercisable December 31, 1997............        196,644        $  3.19- 11.50    $ 3.96
Exercisable December 31, 1998............        376,859        $  3.19- 11.50    $ 4.23
                                              ---------------------------------------------

</TABLE>

         For options outstanding and exercisable at December 31, 1998, the
exercise price ranges and weighted average prices and remaining lives were as
follows:

<TABLE>
<CAPTION>


                                            OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                                            -------------------                          -------------------
                                             Weighted-
                                              Average          
                               Outstanding    Remaining          Weighted-            Exercisable     Weighted-
    Range of Exercise             as of       Contractual      Average Exercise          as of        Average
         Prices                 12/31/1998       Life              Price               12/31/1998     Exercise Price         
         ------                 ----------       ----              -----               ----------     --------------         
<S>              <C>             <C>             <C>               <C>                   <C>           <C>   
   $ 2.30        $ 3.45          294,394         5.4               $ 3.19                205,234       $ 3.19
   $ 3.45        $ 4.60          414,775         7.2               $ 4.25                136,624       $ 4.26
   $ 4.60        $ 5.75           50,000         8.8               $ 5.50                  5,000       $ 5.50
   $ 5.75        $ 6.90          127,000         9.1               $ 6.81                      0       $ 0.00
   $ 6.90        $ 8.05           16,000         8.4               $ 7.31                  3,001       $ 7.17
   $ 8.05        $ 9.20           32,000         9.6               $ 8.36                      0       $ 0.00
   $ 9.20        $10.35           76,000         9.6               $ 9.80                      0       $ 0.00
   $10.35        $11.50           27,000         5.4               $11.50                 27,000       $11.50
                               ---------                                                 -------
                               1,037,169         7.2               $ 5.09                376,859       $ 4.23
                               =========                                                 =======

</TABLE>

         The Company has reserved 1,400,000 shares of Class A Common Stock for
issuance under this plan.

         The estimated fair value on the date of grant of options granted
during 1998, 1997, and 1996 ranged from $4.16 to $7.14, $2.48 to $5.03, and
$1.69 to $2.10, respectively. The Company accounts for the stock option plan in
accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25"), under which no compensation cost has
been recognized for stock option awards. Had compensation cost for the stock
option plan been determined consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
the Company's pro forma net loss and loss per share for 1998, 1997, and 1996
would have been 

                                     F-15
<PAGE>

$3.56 million and $.29 per share, $1.97 million and $.16 per share, and $2.13
million and $.17 per share, respectively.

         The fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following range of
weighted average assumptions used for grants in 1998, 1997 and 1996: risk-free
interest rate of 4.54% to 4.58%, 5.71% to 5.75%, and 6.12% to 6.14%,
respectively, no dividend yield for all years, expected life of 5 and 7 years,
5 and 7 years, and 5 years, respectively, and expected volatility of 69.4%,
62.72%, and 43.11%, respectively.

NOTE 11.  SUBSEQUENT EVENTS

         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.

         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 during the spring of 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.

         The Company has entered into a lease commitment for office space in
White Plains, New York. The lease commitment provides for minimum rentals for
twelve years, excluding renewal options. Minimum annual rental payments will
approximate $7.6 million over the lease term.







                                     F-16
<PAGE>

EXHIBIT INDEX
-------------

The following exhibits are filed as part of this Annual Report or, where
indicated, were heretofore filed and are hereby incorporated by reference.

2        Form of Reorganization Agreement (incorporated by refernce to Exhibit
         2 of the registrant's Registration Statement on Form S-1, dated May
         13, 1994 (File No. 33-76062)).

3.1      Registrant's Certificate of Incorporation (incorporated by reference
         to Exhibit 3.1 of the registrant's Registration Statement on Form S-1,
         dated May 13, 1994 (File No. 33-76062)).

3.2      Registrant's By-Laws, (incorporated by reference to Exhibit 3.2 of the
         registrant's Registration Statement on Form S-1, dated May 13, 1994
         (File No. 33-76062)).

4.1      Specimen of Class A Common Stock Certificate (incorporated by
         reference to Exhibit 4.1 of the registrant's Registration Statement on
         Form S-1, dated May 13, 1994 (File No. 33-76062)).

4.2      Form of Registration Rights Agreement (incorporated by reference to
         Exhibit 4.2 of the registrant's Registration Statement on Form S-1,
         dated May 13, 1994 (File No. 33-76062)).

4.3      Stock Option Agreement dated as of February 1, 1999, between
         MovieFone, Inc. and America Online, Inc. (incorporated by reference to
         Exhibit 4.1 of the registrant's Current Report on Form 8-K, dated
         February 9, 1999)

10.1     Stock Option Plan (incorporated by reference to Exhibit 10.1 of the
         registrant's Registration Statement on Form S-1, dated May 13, 1994
         (File No. 33-76062)). *

10.2     Form Indemnification Agreement entered into with each director and
         executive officer of the Company (incorporated by reference to Exhibit
         10.2 of the registrant's Registration Statement on Form S-1, dated May
         13, 1994 (File No. 33-76062)).

10.11    Amendment, dated as of February 25, 1994, to the PromoFone Loan
         Agreements and The Teleticketing Company, L.P. Loan Agreement, between
         Falconwood, the Timber Trusts, PromoFone, The Teleticketing Company,
         L.P., Douglas F. Hoitenga, J. Russell Leatherman and Robert Gukeisen
         (incorporated by reference to Exhibit 10.11 of the registrant's
         Registration Statement on Form S-1, dated May 13, 1994 (File No.
         33-76062)).

10.12    Letter Agreement, dated as of February 14, 1992, between The
         Teleticketing Company, L.P. and Pacer/CATS Corporation (incorporated
         by reference to Exhibit 10.12 of the registrant's Registration
         Statement on Form S-1, dated May 13, 1994 (File No. 3-76062).


                                      E-1

<PAGE>

10.13    Sublease, dated as of March 1, 1994, by and among The Falconwood
         Corporation and Brody, White & Company, Inc., as sublessors, and
         TheTeleticketing Company, L.P. and Promofone, Inc., as sublessees
         (incorporated by reference to Exhibit 10.13 of the registrant's
         Registration Statement on Form S-1, dated May 13, 1994 (File No.
         33-76062)).

10.14    Facilities Service Agreement, dated as of March 1, 1994, by and among
         The Falconwood Corporation and The Teleticketing Company, L.P. and
         PromoFone, Inc (incorporated by reference to Exhibit 10.14 of the
         registrant's Registration Statement on Form S-1, dated May 13, 1994
         (File No. 33-76062)).

10.15    Employment Agreement between MovieFone, Inc. and Andrew R. Jarecki
         (incorporated by reference to Exhibit 10.15 of the registrant's
         Registration Statement on Form S-1, dated May 13, 1994 (File No.
         33-76062)).*

10.16    Employment Agreement between MovieFone, Inc. and Adam H. Slutsky
         (incorporated by reference to Exhibit 10.16 of the registrant's
         Registration Statement on Form S-1, dated May 13, 1994 (File No.
         33-76062)).*

10.17    Employment Agreement between MovieFone, Inc. and J. Russell Leatherman
         (incorporated by reference to Exhibit 10.17 of the registrant's
         Registration Statement on Form S-1, dated May 13, 1994 (FIle No.
         33-76062)).*

10.18    Agreement and Plan of Merger among America Online, Inc., MF
         Acquisition Corporation and MovieFone Inc., dated as of February 1,
         1999 (incorporated by reference to Exhibit 2.1 of the registrant's
         Current Report on Form 8-K, dated February 9, 1999)

21       Subsidiaries of the Company (incorporated by reference to Exhibit 21
         of the registrant's Registration Statement on Form S-1, dated May 13,
         1994 (File No. 33-76062)).

23       Independent Auditors' Consent

27       Financial Data Schedule

--------------------------------------

* As required by Item 14, each of Exhibits 10.1 and Exhibits 10.15 through
  10.17 is hereby identified as a management contract or compensatory plan or
  arrnangement.