HMNY Helios and Matheson Analytics Inc (CE)

PROPOSAL 1

TO APPROVE AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION, AS AMENDED, TO EFFECT A REVERSE SPLIT OF THE COMPANY’S COMMON STOCK

(the Reverse Split Proposal)

The Board has unanimously adopted a resolution authorizing, approving, declaring advisable and recommending to the Company’s stockholders for their approval an amendment to the Company’s Certificate of Incorporation to effect a reverse split of the outstanding and treasury shares of the Company’s common stock in a ratio of 1 share-for-2 shares up to a ratio of 1 share-for-500 shares (the “Reverse Split Amendment”), which ratio will be selected by the Board following stockholder approval and prior to the time of filing of a Certificate of Amendment with the Delaware Secretary of State and set forth in a public announcement. The form of Reverse Split Amendment is attached to this proxy statement as Annex A.

The Board believes that a reverse stock split will likely be necessary to regain compliance with Nasdaq’s minimum $1.00 bid price requirement prior to the current deadline of December 18, 2018, as described below.

If Proposal 1 is approved at the Special Meeting, the Company may issue the shares of common stock that would become available for issuance upon completion of any reverse split (i) pursuant to future securities offering transactions, (ii) pursuant to future acquisition transactions involving payment of consideration in equity securities of the Company, (iii) other general corporate purposes, and (iv) as of September 14, 2018, upon conversion or exercise of outstanding securities of the Company that are convertible into or exercisable for common stock, as described below:

In addition, if our stockholders approve the issuance of all shares issuable upon conversion of the outstanding June Notes, as of September 14, 2018, an additional 4.2 billion shares of common stock may be issuable upon conversion of the June Notes.

As of September 14, 2018, under the November Notes we had an aggregate of approximately $20.4 million in restricted principal outstanding, under the January Notes we had an aggregate of approximately $29.0 million in restricted principal outstanding, and under the June Notes we had an aggregate of approximately $74.8 million in restricted principal outstanding, for a total amount of approximately $124.2 million in restricted principal outstanding under the Notes as of such date. As of September 14, 2018, the conversion price of the November Notes and the January Notes is $0.02 and the conversion price of the June Notes is $250. The conversion price of the June Notes is not subject to downward adjustment until or unless we obtain stockholder approval of the issuance of shares under the June Notes to the extent required by Nasdaq Listing Rule 5635.

Under the Notes, we are currently required to reserve approximately 5.3 billion shares of the Company’s common stock for issuance. As a result, unless we reach an agreement with the holders of the Notes to reduce our reserve requirements under the Notes, we do not have enough authorized, unissued and unreserved shares to fulfill the current reserve requirements under the Notes or to meet the Company’s needs for future equity financing or acquisitions. Moreover, the number of shares issuable upon conversion of the Notes may increase significantly if there are further conversion price reductions resulting from the full ratchet conversion price adjustment provisions of the Notes, which provide that if we issue securities in certain transactions, such as our at-the-market offering, at a price lower than the applicable conversion price of the Notes, then the applicable conversion price of the Notes will be reduced to equal such lower price, resulting in additional shares issuable upon conversion of the Notes. As of September 14, 2018, there is no unrestricted principal outstanding under the Notes. As such, all of the approximate 5.3 billion shares that we are required to reserve under the Notes as stated above represent shares issuable upon conversion of restricted principal under the Notes for which an equivalent amount owed to us under the corresponding investor notes has not yet been paid. Such restricted principal may not, as of the date of this proxy statement, be converted into any shares of our common stock. However, to the extent holders of the Notes provide additional payments to us under the corresponding investor notes, an amount equal to such payment will become unrestricted principal under the Notes that may be converted to our common stock at the election of the holders of the Notes. The lack of adequate authorized shares of common stock available to satisfy our reserve requirements under the Notes and for future equity financings could materially limit or delay the Company’s ability to obtain capital as and when needed or consummate future acquisitions involving the payment of consideration in shares of our common stock. Effecting the Reverse Split Amendment would enable the Company to satisfy its reserve requirements under the Notes and create additional unreserved shares available for future equity financings and acquisitions.

If the Board determines to implement the Reverse Split Amendment, the Company would communicate to the public, prior to the effective time of the Reverse Split Amendment, additional details regarding the Reverse Split Amendment (including the final reverse split ratio, as determined by the Board). The Board reserves the right to elect not to proceed with the Reverse Split Amendment if it determines, in its sole discretion, that the Reverse Split Amendment is no longer in the best interests of the Company or its stockholders.

In determining which reverse split amendment to implement, if any, following receipt of stockholder approval of this Proposal 1, the Board may consider, among other things, various factors, such as:

The failure of stockholders to approve this Proposal 1 could prevent the Company from regaining compliance with Nasdaq’s $1.00 minimum bid price requirement (the “Minimum Bid Price Requirement”), unless the market price of our common stock increases above the Minimum Bid Price Requirement without a reverse split for at least 10 consecutive trading days (or at least 20 consecutive trading days if required by Nasdaq in its discretion) prior to December 18, 2018. If Nasdaq delists our common stock, then our common stock would likely become traded on the over the counter market maintained by OTC Markets Group Inc. (the “OTC”), which does not have the substantial corporate governance or quantitative listing requirements for continued trading that Nasdaq has. In that event, interest in our common stock may decline and certain institutions may not have the ability to trade in our common stock, all of which could have a material adverse effect on the liquidity or trading volume of our common stock. If our common stock becomes significantly less liquid due to delisting from Nasdaq, our shareholders may not have the ability to liquidate their investments in our common stock as and when desired and we believe our access to capital would become significantly diminished as a result. Also, due to certain state securities (blue sky) law requirements which apply to securities that are not listed on an exchange, our ability to consummate future public offerings would be materially limited, and could require that the Company undertake private placements on terms that are significantly less favorable than the terms of a public offering.

Reasons for the Reverse Split

To maintain our Nasdaq Listing.

On June 21, 2018, Nasdaq notified us that the bid price of our common stock had closed below the required $1.00 per share for 30 consecutive trading days, and, accordingly, that we did not comply with the Minimum Bid Price Requirement. We have been provided 180 calendar days, or until December 18, 2018, to regain compliance with the Minimum Bid Price Requirement. If we are not able to regain compliance with the Minimum Bid Price Requirement, the common stock could be delisted and trade on the over the counter market.

We believe that a reverse stock split could increase the market price of our common stock sufficient to satisfy the Minimum Bid Price Requirement in the near term, though we cannot provide any assurance that a reverse stock split will have that effect. In July 2018, we effected a 1-for-250 reverse split of our common stock (the “July 2018 Reverse Stock Split”), which had the initial effect of increasing the market price of our common stock to approximately $22.50 per share. However, in less than five trading days after the July 2018 Reverse Stock Split, the closing bid price of our common stock declined to less than $1.00, and we were not able to regain compliance with the Minimum Bid Price Requirement. As of September 13, 2018, the closing price of our common stock was $0.0218. As a result, we continue to be out of compliance with the Minimum Bid Price Requirement.

The Board has weighed the potential harm to the Company and its stockholders resulting from a Nasdaq delisting against the potential harm to the Company and its stockholders from another significant reverse stock split, including the risks described below under “Certain Risks Associated with a Reverse Split”. Although MoviePass recently has implemented significant cost cutting measures which have had an immediate and materially positive effect in reducing the Company’s monthly cash deficit, the Company believes it will continue to need to raise capital to fund MoviePass until MoviePass becomes cash flow positive or profitable (of which there is no assurance). If the Company is unable to maintain its Nasdaq listing, its access to capital will become further limited and it may not have sufficient capital to enable MoviePass to continue its operations or become cash flow positive or profitable. Therefore, the Board has concluded that the potential harm to the Company and its stockholders resulting from a Nasdaq delisting outweighs the potential harm to the Company and its stockholders from another significant reverse stock split.

To potentially improve the liquidity of our common stock.

A reverse split could allow a broader range of institutions to invest in our common stock (namely, funds that are prohibited from buying stocks whose price is below a certain threshold), potentially increasing trading volume and liquidity of our common stock and potentially decreasing the volatility of our common stock if institutions become long-term holders of our common stock. A reverse split could help increase analyst and broker interest in our common stock as their policies can discourage them from following or recommending companies with low stock prices. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, a low average price per share of common stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were higher.

Certain Risks Associated with a Reverse Split

There can be no assurance that the reverse split will increase the market price of the common stock and have the desired effect of maintaining compliance with the Minimum Bid Price Requirement. The Board believes that a reverse split has the potential to increase the market price of the common stock so that the Company may be able to satisfy the Minimum Bid Price Requirement. However, the long- and near-term effect of the reverse split upon the market price of the common stock cannot be predicted with any certainty. The July 2018 Reverse Split did not enable the Company to regain compliance with the Minimum Bid Price Requirement, and the history of similar reverse stock splits for companies in like circumstances is varied, particularly since investors may view a reverse stock split negatively.

Moreover, the total market capitalization of the common stock after the reverse split may be lower than the total market capitalization before the reverse split. On the trading day immediately before the July 2018 Reverse Stock Split, our market capitalization was $37.9 million, with 421,299,736 shares of common stock outstanding. Immediately after giving effect to the July 2018 Reverse Stock Split, we had 1,750,979 shares issued and outstanding. As of the record date, our market capitalization was $[                 ], notwithstanding that we had [                 ] billion shares outstanding as of the record date.

To regain compliance with the Minimum Bid Price Requirement, we effected the July 2018 Reverse Stock Split of our common stock at a ratio of 1 share-for-250 shares. However, since the effectiveness of the July 2018 Reverse Stock Split, the per share market price of our common stock has fallen below $1.00 and as of September 13, 2018, the closing price of our common stock was $0.0218. As a result, we are not in compliance with the Minimum Bid Price Requirement. There can be no assurance that another reverse stock split will increase the market price of the common stock so that the Company may be able to maintain compliance with the Minimum Bid Price Requirement.

Further, following any reverse stock split, we will have additional shares available to issue upon conversion or exercise of outstanding securities of the Company that are convertible into or exercisable for common stock, including the conversion of unrestricted principal and make-whole interest under our outstanding Notes following payments by investors under investor notes payable to us. Stockholders should be aware of the extremely dilutive nature of the Notes and that additional conversions of the Notes could cause downward pressure on the price for the common stock. In addition, we will continue to require significant proceeds from sales of our debt or equity securities to fund our operations for the near future, which will cause further dilution to stockholders. The issuance of a substantial amount of shares of common stock or securities convertible into or exercisable for common stock in the future could cause downward pressure on the price of our common stock and there is no assurance that the market price for the common stock will remain at a level sufficient to satisfy the Minimum Bid Price Requirement.

Even if another reverse stock split enables us to regain compliance with the Minimum Bid Price Requirement, the Company may be delisted due to other Nasdaq listing criteria deficiencies, including the failure to maintain the minimum required market value of listed shares equal to at least $35 million and the failure to have at least three independent directors on the audit committee of the Board and a majority of independent directors on the Board. Further, the reverse split may not result in a per share price that would attract brokers and investors who do not trade in lower priced stocks.

Moreover, Nasdaq may delist our common stock if it concludes that delisting is in the public interest. For example, if we engage in further dilutive issuances of our common stock in an amount deemed unacceptable by Nasdaq, or Nasdaq concludes that such dilutive issuances in an unacceptable amount are likely to occur, Nasdaq may conclude that delisting our common stock is in the public interest. Nasdaq has the authority to delist our common stock for such public interest concerns.

Impact of a Reverse Split If Implemented

A reverse split would affect all of our common stockholders uniformly and would not affect any stockholder’s percentage ownership interests or proportionate voting power. The other principal effects of the reverse split will be that:

Although the number of outstanding shares of common stock would decrease following the Reverse Split Amendment, the Board does not intend for a reverse split to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.

The following table reflects the number of shares of common stock that would be outstanding as a result of the effectiveness of the Reverse Split Amendment and the approximate percentage reduction in the number of outstanding shares based on approximately [●] shares of common stock issued and outstanding as of September 14, 2018. We currently have [●] shares of common stock available for issuance. The following table also shows the shares that would be available for issuance if the Reverse Split Amendment is effected.

Effect of Reverse Split and Potential Anti-Takeover Effect

Management does not anticipate that our financial condition, the percentage ownership of common stock by management, the number of our stockholders, or any aspect of our business will materially change as a result of the Reverse Split Amendment. Because the Reverse Split Amendment will apply to all issued and outstanding shares of common stock and outstanding rights to purchase common stock or to convert other securities into common stock, the proposed Reverse Split Amendment will not alter the relative rights and preferences of existing stockholders. However, the number of shares of common stock outstanding will be decreased, while the number of authorized but unissued shares will be increased.

Management does not currently plan to use the increase in our authorized but unissued shares that will result from the Reverse Split Amendment to make it more difficult or to discourage a future merger, tender offer or proxy contest or the removal of incumbent management. This Proposal 1 is not the result of management’s knowledge of an effort to accumulate our securities or to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise.

Summarized in the following paragraphs are provisions included in our Certificate of Incorporation, as amended, and our bylaws that may have the effect of discouraging, delaying or preventing a change in control or an unsolicited acquisition proposal that a stockholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by our stockholders.

Effects of authorized but unissued common stock and blank check preferred stock. One of the effects of the existence of authorized but unissued common stock and undesignated preferred stock may be to enable our Board to make more difficult or to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby to protect the continuity of management. If the Board were to determine that a takeover proposal was not in our best interest, such shares could be issued by the Board without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, by putting a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.

In addition, our Certificate of Incorporation grants our Board broad power to establish the rights and preferences of authorized and unissued shares of additional series of preferred stock. The creation and issuance of one or more additional series of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance also may adversely affect the rights and powers, including voting rights, of those holders and may have the effect of delaying, deterring or preventing a change in control of the Company.

Cumulative Voting. Our Certificate of Incorporation does not provide for cumulative voting in the election of directors which would allow holders of less than a majority of the voting stock to elect some directors.

Vacancies. Section 223 of the Delaware General Corporation Law and our bylaws provide that all vacancies, including newly created directorships, may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.

Special Meeting of Stockholders. A special meeting of stockholders may be called by our Board or the Chairman of our Board and must be called by our Secretary at the request in writing of holders of record of a majority of our outstanding capital stock entitled to vote. The requirement that a majority of our outstanding capital stock is required to call a special meeting means that small stockholders will not have the power to call a special meeting to, for example, elect new directors.

Fractional Shares

If the reverse stock split ratio determined to be implemented by the Board, if any, will result in fractional shares, the Company will not issue fractional shares. Instead the Company will, at the discretion of the Board, determine (i) whether to effect an issuance of shares to holders that would otherwise be entitled to a fractional share such that any fractional shares will be rounded up to the nearest whole number or (ii) whether the Company will pay cash in an amount equal to the fair value of the fractions.

Procedure for Effecting Reverse Stock Split

If the Board decides to implement a reverse split, the reverse split will become effective on the date the Reverse Split Amendment is filed with the Secretary of State of the State of Delaware. The time of such filing, if any, will be determined by the Board in its sole discretion. Beginning on the effective time of the Reverse Split Amendment, each certificate representing pre-reverse split shares of common stock will be deemed for all corporate purposes to evidence ownership of post-reverse split shares of common stock.

Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split

The following discussion is a general summary of certain U.S. federal income tax consequences of the reverse split that may be relevant to U.S. Holders (as defined below) of our common stock, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder (the “Treasury Regulations”), judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (“IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of our common stock. We have not sought and will not seek an opinion of counsel or any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the reverse split.

This discussion is limited to holders that hold our common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income tax consequences relevant to such holders’ particular circumstances, including the impact of the tax on net investment income imposed by Section 1411 of the Code. In addition, it does not address consequences relevant to holders subject to particular rules, including, without limitation:

If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. HOLDERS OF OUR COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

For purposes of the discussion below, a “U.S. Holder” is a beneficial owner of shares of our common stock that for U.S. federal income tax purposes is or is treated as: (1) an individual who is a citizen or resident of the United States; (2) a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia; (3) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (4) a trust that (a) is subject to the primary supervision of a U.S. court and the control of one of more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (b) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

A reverse split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder generally should not recognize gain or loss upon the reverse split, except with respect to cash received in lieu of a fractional share of our common stock. A U.S. Holder’s aggregate tax basis in the shares of our common stock received pursuant to the reverse split should equal the aggregate tax basis of the shares of our common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of our common stock), and such U.S. Holder’s holding period in the shares of our common stock received should include the holding period in the shares of our common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered to the shares of our common stock received pursuant to the reverse split. Holders of shares of our common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

Information Reporting and Backup Withholding. A U.S. Holder (other than corporations and certain other exempt recipients) may be subject to information reporting and backup withholding when such holder receives cash in lieu of a fractional share of our common stock pursuant to the reverse split. A U.S. Holder will be subject to backup withholding if such holder is not otherwise exempt and such holder does not provide its taxpayer identification number in the manner required or otherwise fails to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the U.S. Holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.

Vote required to pass Proposal 1

Proposal 1 will be approved if a quorum is present at the Special Meeting and the holders of (i) a majority of the voting power of the outstanding shares of common stock and any Preferred Stock, voting together as a single class, voted “for” such approval and (ii) a majority of the voting power of the outstanding shares of Preferred Stock, voting separately as a single class, vote “for” such approval. Abstentions will have the effect of a vote against Proposal 1. As this Proposal 1 is a “routine” matter, we do not expect any broker non-votes. If you are a beneficial owner, your broker may vote on Proposal 1. If Proposal 1 is approved and the Board decides to implement the Reverse Split Amendment, the Reverse Split Amendment will become effective on the date that the Reverse Split Amendment is filed with the Secretary of State of the State of Delaware, which time, if at all, will be determined by the Board in its sole discretion. The Board reserves the right at any time before the effective time of the Reverse Split Amendment, notwithstanding approval of Proposal 1 by the Company’s stockholders, to abandon the proposed amendment without further action by the stockholders. If Proposal 1 is not approved, the Reverse Split Amendment will not be filed with the Secretary of State of the State of Delaware.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE REVERSE SPLIT AMENDMENT.