In yet another dramatic drop in the market, Helios and Matheson Analytics Inc (NASDAQ: HMNY) is down more than 60% today, trading at just over $2.50 per share. Considering the price, it’s hard to imagine that earlier this week the company moved forward with a 1-for-250 reverse split, driving its price to more than $22 per share. In my view, today is nothing less than another example of why the company has a strong chance of going out of business within the next year.
The Core Problem With HMNY
The big problem with Helios and Matheson Analytics came about in August of 2017, when the company purchased a majority stake in MoviePass and drastically cut the price of the service.
MoviePass is an all-you-can-eat buffet of sorts. However, instead of food, subscribers are consuming entertainment… Movies to be exact. The service, originally priced at around $50 per month allows its subscribers to go to the movie theater on an unlimited basis. When Helios and Matheson took charge, the price for the service was reduced to $9.95 per month, making it an unsustainable service.
The truth of the matter is that the company pays full price for movie tickets purchased by subscribers using the service. With the average movie ticket costing just shy of $9 in the United States, the second time a subscriber goes to the movie theater in a month, that subscriber generates a loss for the company.
Dilution Has Been The Result
As a result of the company’s reduction of the fee to subscribe to MoviePass, HMNY has seen growing losses. Unfortunately, these growing losses have gone far and above the money that the company has to sustain itself with. So, in 3 overwhelmingly dilutive moves over a course of six months, the company has raised $324 million.
More Dilution To Come
While $324 million is a massive amount of money, it’s simply not enough money to fund a company that is losing as much as Helios and Matheson Analytics is, suggesting that more dilution is ahead. In fact, the 1-for-250 reverse split was a clear sign of this coming dilution.
Ultimately, the split brought the company well above the $1 per share minimum bid requirement at the NASDAQ. This gives the stock room to see further dramatic declines before risking delisting yet again. Considering the financial outlook of the company, I believe that the move was done to set the stage for more public offerings of HMNY shares as the company desperately attempts to stay afloat.
Things Go From Bad To Worse With Blackout Dates
Talking about signs of dilution and signs of the fact that the $324 million raised in 6 months wasn’t enough, let’s talk blackout dates. The HMNY subsidiary, MoviePass, offers unlimited use at movie theaters without blackout dates. That is, until there are blackout dates.
In fact, recently, there was what is being called a “Thursday Blackout.” Helios and Matheson Analytics couldn’t afford to pay the bills when it came time to pay for the tickets used by its subscribers. So, on Thursday of this week, its users couldn’t go to the movie theater as the day ended up being blacked out. On top of that, because of the company’s sketchiness when it comes to ability to pay, MoviePass users will not be able to use their subscription to purchase “Mission Impossible – Fallout” tickets.
The Laughable IOU Business Model
Adding insult to injury, Helios and Matheson Analytics seems to be trying to get away with an IOU type of business model. In an 8-K filed by the company this morning, the company outlined its latest plans to save money. In the filing, the company announced that it issued a promissory note to Hudson Bay Master Fund Ltd.
The company is going to receive a $6.2 million cash injection (enough to cover losses for less than a week!). In exchange, it will pay $1.2 million back immediately upon receipt. The company has also agreed to pay $3.1 million more by August 1 and pay off the IOU by August 5th.
What Happens Next?
At the end of the road, we have bankruptcy to look forward to when it comes to HMNY. However, what happens between now and then? The answer is that we can expect to see more dilution and more desperate attempts to fund a failing service as the stock spirals to ZERO!