MoviePass may be in bigger trouble than people realize (HMNY)

MoviePass CEO Mitch Lowe and Helios and Matheson Chief Executive Ted Farnsworth.

MoviePass's parent company, Helios and Matheson, may be in a worse financial position than realized.
In the first quarter, it lost money at a faster rate than it had previously acknowledged.
It's already said it needs to raise additional funds this month, potentially through a stock sale, which would be its third this year.
But the company appears to no longer be meeting Nasdaq's listing standards, which could put future stock sales in jeopardy.

Enjoy your MoviePass subscriptions while you've got one. They may not work for much longer.

It's no secret that Helios and Matheson Analytics, MoviePass' corporate parent, is in financial peril. The company is losing more than $20 million a month and its cash stockpile is dwindling.

But recently filed regulatory documents — as well as the company's recent stock performance — indicate it may be in deeper trouble than is widely appreciated.

In the first quarter, it burned through cash at a faster rate than it previously reported. It's so low on cash that it says it's going to need to sell more equity in the company to the public this month to raise funds, which would mark the third time this year it's tapped the public markets. But because of its recent stock slump, that tap may run dry before the year is out.

"Without additional funding, the company will not have sufficient funds to meet its obligations within one year," Helios and Matheson said in its quarterly report, filed on Tuesday.

It continued: "Without raising additional capital, there is substantial doubt about the company’s ability to continue as a going concern through May 15, 2019."

MoviePass is burning through cash at a faster-than-reported rate

Helios and Matheson's troubles stem from MoviePass, which has become the core of its business. As its fans know well, MoviePass offers a $10-a-month service that allows subscribers to see a movie-a-day in the theaters.

When subscribers go see a movie, the company generally pays the theater the retail price of the tickets on behalf of those subscribers. Because ticket prices in many places are more than $10 and because many subscribers see more than one movie a month, many customers are getting a great deal — and MoviePass is losing money hand over fist.

In the first quarter, for example, Helios and Matheson posted $49.4 million in sales — $47.2 million of which came from MoviePass subscriptions. But the company's direct costs associated with those sales were $136 million in the period, almost all of which was likely due to buying movie tickets for its customers. In other words, on average, MoviePass customers are getting about $28 in tickets each month for their $10 subscription.

That's translated into a massive outflow of cash. In the first quarter, the company's operations burned through $68.4 million. That's nearly $23 million a month — or about $1 million more every month than what the company had previously said it has averaged during the seven-month period since September.

Helios and Matheson have been using the stock market like an ATM

To fund these ongoing and mushrooming losses, Helios and Matheson has started to use the stock market as a kind of ATM. The company sold $105 million worth of stock in February and another $30 million worth last month.

Despite the repeated fund raising, the company said in a regulatory filing last week that it had just $15.5 million in cash on hand at the end of last month, a perilously low figure, given its cash burn rate. While the company assured investors that it had cut down its losses significantly at the beginning of this month, it warned investors that it didn't think it has sufficient funds to last it even for the rest of the month.

"We will need proceeds from sales of our common stock ... or other sources of capital, starting in May 2018," the company said.

The company has already filed the paperwork to sell another $265 million worth of stock, so the next round of sales could happen at any time.

But Helios and Matheson's stock has now fallen below Nasdaq's listing standards

Selling stock to raise money is a good game, but it can't go on forever, particularly if the cash raised is immediately burned. All else being equal, floating more shares on the market will make each share worth less. And if the company has nothing to show for the money invested except a larger and larger accumulated deficit, investors are likely to sour on putting more money in.

But there's another practical problem with Helios and Matheson's fund-raising strategy: Its stock is now at risk of being delisted by mid-December.

The Nasdaq — the market on which the company's shares trade — requires listed companies to have a stock price of at least $1 a share and a market capitalization of at least $50 million. Helios and Matheson fell below both standards last week. At the close of trading Tuesday, its stock was priced at 65.21 cents a share, and its market capitalization stood at $41.4 million.

Should the company stay below Nasdaq's price or market value standards for 30 days, it will officially be noncompliant with Nasdaq's standards and will almost certainly get a warning letter from the exchange. If it can't meet those standards for the next six months, Nasdaq will delist Helios and Matheson's shares. At that point, its game of selling stock to pay for subscribers' tickets will almost certainly be up.

That's, of course, not the picture CEO Ted Farnsworth has been painting publicly about the company lately. He's said he's "not worried at all" about the MoviePass's cash burn rate he told Variety on Monday, saying the company has "17 months worth of cash" thanks to a $300 million line of credit.

But Helios and Matheson didn't mention that line of credit in its regulatory filings, an odd omission given its apparent financial straits.

So, have your fun on MoviePass. Just don't be shocked when it all comes to an end.

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