Notes to Condensed Consolidated Financial
Statements
The accompanying unaudited
condensed interim consolidated financial statements (“interim statements”) of Helios and Matheson Analytics Inc. (“Helios
and Matheson”, “HMNY” or the “Company”) have been prepared in accordance with accounting principles
generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions
to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they
do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results
reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. The
consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements as of and for
the year ended December 31, 2017. These interim statements should be read in conjunction with the Company’s consolidated
financial statements for the year ended December 31, 2017.
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2.
|
Business
and Basis of Presentation
|
Business
Since 1983, the Company
has provided high quality information technology, or IT, services and solutions including a range of technology platforms focusing
on big data, business intelligence, and consumer-centric technology. More recently, to provide greater value to stockholders,
the Company has sought to expand its business primarily through acquisitions that leverage its capabilities and expertise.
On November 9, 2016,
the Company acquired Zone Technologies, Inc., a Nevada corporation (“Zone”), a state-of-the-art mapping and spatial
analysis company. On December 11, 2017, the Company acquired a majority interest in MoviePass Inc., a Delaware corporation (“MoviePass”),
whose primary product offering is MoviePass™, the nation’s premier movie theater subscription service. MoviePass allows
its subscribers to see up to three movies a month, from a schedule of select movies, in theaters nationwide, for a low fixed price
and additional movies at a discounted price.
In January 2018, the
Company formed the Company’s wholly-owned subsidiary, MoviePass Ventures LLC, a Delaware limited liability company (“MoviePass
Ventures”), which aims to collaborate with film distributors to share in film revenues while using the data analytics that
MoviePass offers for marketing and targeting services reaching MoviePass’ paying subscribers using the platform.
In April 2018, the
Company acquired the Moviefone brand and related assets (“Moviefone”). Moviefone is an entertainment information and
marketing service which provides its users with access to the entire entertainment ecosystem. Moviefone delivers movie show times
and tickets, trailers, TV schedules, streaming information, cast and crew interviews, photo galleries and more. Moviefone’s
editorial coverage includes up-to-date entertainment news, trailers and clips, red-carpet coverage and celebrity features.
On May 15, 2018, the
Company formed MoviePass Films LLC, a Delaware limited liability company (“MoviePass Films”), to focus on studio-driven
content and new film production for theatrical release and other distribution channels. On May 23, 2018, the Company executed
a binding letter of intent (the “LOI”) with Emmett Furla Oasis Films LLC (“EFO”) pursuant to which EFO
acquired a 49% membership interest in MoviePass Films.
On July 16, 2018, the
Company formed 10 Minutes Gone, LLC, a Delaware limited liability company (“10 Minutes Gone”), for the purpose of
engaging in the production and distribution of the film
10 Minutes Gone
.
On July 16, 2018, 100%
of the membership interests in Georgia Film Fund 79, LLC, a Delaware limited liability company (“GFF79”), formed on
January 16, 2018 by EFO, for the purpose of engaging in motion picture production was transferred to 10 Minutes Gone.
Basis of Presentation
The Company’s
condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The condensed consolidated financial
statements include all accounts of the Company and its wholly owned and majority owned subsidiaries. The Company consolidates
entities in which it owns more than 50% of the voting equity interests and controls operations. All intercompany transactions
and balances among consolidated subsidiaries have been eliminated. The Company consolidated the operations of MoviePass as of
December 11, 2017, Moviefone as of April 4, 2018, MoviePass Ventures as of January 2018 and MoviePass Films as of May 15, 2018.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Reverse Stock-Split
On July 24, 2018,
the Company effected a reverse stock-split of its issued and outstanding common stock at a ratio of one-for-250 (“Reverse
Stock Split”). The Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary
of State of the State of Delaware effecting the Reverse Stock Split. The Reverse Stock Split did not affect the number of authorized
shares of common stock, which, following the increase in authorized shares effected on July 23, 2018 discussed in Note 11, remains
at 5,000,000,000 shares. A proportionate adjustment was made to (i) the per share exercise price and the number of shares issuable
upon the exercise or conversion of the Company’s outstanding equity awards, options and warrants to purchase shares of common
stock and outstanding convertible notes and (ii) the number of shares reserved for issuance pursuant to the Company’s 2014
Equity Incentive Plan. The accompanying condensed consolidated financial statements and notes give retroactive effect to the Reverse
Stock Split for all periods presented.
Use of Estimates
The preparation of
financial statements in conformity with U.S. GAAP 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 dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include,
but are not limited to, allowance for doubtful accounts, purchase accounting allocations, recoverability and useful lives of property,
plant and equipment, identifiable intangibles and goodwill, warrant liabilities, derivative liabilities, the valuation allowance
of deferred taxes, contingencies and equity compensation. Actual results could differ from those estimates.
Reclassification
Certain prior period
amounts have been reclassified to conform to current period presentation.
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3.
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Summary
of Significant Accounting Policies
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Revenue Recognition
ASC 606 Revenue from Contracts with
Customers (“ASC 606”)
The Company adopted
the new revenue standard, ASC 606, using the modified retrospective method with respect to all non-completed contracts as of January
1, 2018. This method required retrospective application of the new accounting standard to all unfulfilled contracts that were
outstanding as of January 1, 2018. Revenues and contract assets and liabilities for contracts completed prior to January 1, 2018
are presented in accordance with ASC 605.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
The Company has determined
that there were no adjustments required with respect to the adoption of ASC 606 with respect to any prior periods.
Disaggregation of Revenue
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Three Months Ended
September 30,
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|
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Nine Months Ended
September 30,
|
|
|
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2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
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(Unaudited)
|
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Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
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Consulting
|
|
$
|
802,114
|
|
|
$
|
1,173,023
|
|
|
$
|
2,471,223
|
|
|
$
|
3,672,036
|
|
Subscription
|
|
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78,921,951
|
|
|
|
-
|
|
|
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198,488,038
|
|
|
|
-
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Marketing, promotional services, and films
|
|
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1,615,177
|
|
|
|
-
|
|
|
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3,991,575
|
|
|
|
-
|
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Total revenues
|
|
$
|
81,339,242
|
|
|
$
|
1,173,023
|
|
|
$
|
204,950,836
|
|
|
$
|
3,672,036
|
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The following is a
description of the principal activities from which the Company generates revenue, including from consulting customers and subscribers.
Consulting Revenue
Consulting revenues
are recognized as services are provided. The Company primarily provides consulting services under time and material contracts,
whereby revenue is recognized as hours and costs are incurred. Clients for consulting revenues are billed on a weekly or monthly
basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method,
which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and
accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based
on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of
the software to a customer because future obligations associated with such revenue are insignificant.
Subscription Revenue
Subscription revenue
consists primarily of subscription fees for monthly, quarterly, semi-annual or annual subscriptions. Revenue from subscriptions
is recognized on a straight-line basis when the performance obligations to provide each service for the period are satisfied,
which is over time as subscription services can be used by subscribers at any time. Consumers purchasing subscriptions generally
pay on an annual or monthly basis, and any prepaid amounts for subscription services are recorded as deferred revenue and amortized
to revenue evenly over the service period which begins once a subscriber has activated his or her subscription.
Marketing, Promotional Services,
and Films
The Company also generates
revenue from marketing services primarily related to major motion picture releases. Marketing revenue is generated through e-mail
and digital advertising to the Company’s subscriber base and pursuant to a contract for such services with the movie distributor.
Such agreements are short-term and are generally represented by a fully executed customer agreement. Revenue is recognized as performance
obligations are satisfied which generally occurs within a month of the date the contract begins. Payment terms on marketing agreements
vary and payment is generally due once the performance obligations have been satisfied. Revenue from our participation in the theatrical
release of feature films is recognized as earned based on our share of the ultimate expected revenue.
Deferred Revenue
Subscription fees are
generally paid in advance by credit card through merchant processors. Subscription fees received in advance of completion of the
performance obligations are recorded as deferred revenue until such time the services are provided to the customer.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Goodwill
The Company reviews
goodwill for impairment, typically during the fourth quarter of each year, and periodically analyzes whether any indicators of
impairment have occurred. The Company performs reviews of each of its reporting units that have goodwill balances. During the third
quarter of 2018, due to a significant decline in its MoviePass subscribers resulting primarily from substantial changes made to
our service offerings during the third quarter, the Company deemed it more appropriate to assess impairment of goodwill and corresponding
intangible assets of the MoviePass reporting unit as of September 30, 2018. In conjunction with the events occurring in the third
quarter of 2018, the Company updated its long-term business plan, which was used as the basis for estimating the future cash flows
of its reporting units. That plan considered then current economic conditions and trends, estimated future operating results, the
Company’s views of growth rates and then-anticipated future economic and regulatory conditions.
The Company
determined that the fair value of the MoviePass reporting unit was below its carrying value. Therefore, the Company conducted
step two of the impairment test for the MoviePass reporting unit and determined the carrying value of goodwill in the
MoviePass reporting unit exceeded its implied fair value, resulting in an impairment charge of $38,524,016. This was as
a result of reduced financial projections for the MoviePass reporting unit, due to, among other things, lower than expected
actual financial results from this business due to a lower number of subscribers resulting from changes in the MoviePass
service offering, which resulted in diminished financial performance relative to its original expectations. Given the
foregoing, the Company determined there was greater uncertainty in achieving its prior financial projections and so applied a
higher discount rate for purposes of its goodwill impairment analysis. Additionally, modifications of certain cashflow
assumptions to reflect the current economic conditions as well as market participant levels were made. These assumptions
along with a higher discount rate negatively affected the fair value of the MoviePass reporting unit.
Generally, fair value
is determined using a multiple of earnings, or discounted projected future cash flows, and is compared to the carrying value of
a reporting unit for purposes of identifying potential impairment. Projected future cash flows are based on management’s
knowledge of the current operating environment and expectations for the future. Goodwill impairment is recognized for any excess
of the carrying value of the reporting unit’s goodwill over the its estimated fair value, not to exceed the total amount
of goodwill allocated to the reporting unit.
The identification
of relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant
judgments by management. These judgments include the consideration of the general economic outlook, industry and market considerations,
cost factors, overall financial performance, events which are specific to the Company, and trends in the market price of the Company’s
common stock. Each factor is assessed to determine whether it impacts the impairment test as well as the magnitude of any such
impact.
Intangible Assets, net
Intangible assets
consist of customer relationships, technology, trademarks, broker relationships and patents. Applicable long-lived assets are
amortized or depreciated on the straight-line method over their useful lives ranging from three to twelve years.
The Company recorded
amortization expense of $1,363,638 and $430,716 for the three months ended September 30, 2018 and 2017, respectively, and $3,977,211
and $1,284,018 for the nine months ended September 30, 2018 and 2017, respectively.
The Company monitors
the carrying value of long-lived assets for potential impairment each quarter based on whether certain triggering events have
occurred. These events include current period losses or a projection of continuing losses or a significant decrease in the market
value of an asset. When a triggering event occurs, an impairment calculation is performed, comparing projected undiscounted future
cash flows, utilizing current cash flow information and expected growth rates, to the respective carrying value. If the Company
identifies impairment for long-lived assets to be held and used because the carrying value is greater than the projected undiscounted
cash flows, the Company compares the assets’ current carrying value to the assets’ fair value. Fair value is based
on current market values or discounted future cash flows. The Company records impairment when the carrying value exceeds the assets’
fair value. With respect to owned property and equipment held for disposal, the value of the property and equipment is adjusted
to reflect recoverable values based on previous efforts to dispose of similar assets and current economic conditions. Impairment
is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of
disposal.
The Company evaluated
the MoviePass intangible assets in connection with the MoviePass impairment analysis and did not record any impairment charges
in regard to definite-lived intangible assets for the three and nine months ended September 30, 2018 and 2017.
Research and Development
Research and development
costs are charged to operations when incurred and are included in operating expenses.
Stock Based Compensation
The Company follows
the fair value recognition provisions in ASC Topic 718,
Stock Compensation
(“ASC 718”) and the provisions of
ASC Topic 505,
Equity
(“ASC 505”) for stock-based transactions with non-employees. Stock based compensation
expense for employees is recognized over the requisite service period based on the estimated grant-date fair value of the awards.
The Company accounts for forfeitures as they occur. The grant date is the date at which an employer and employee reach a mutual
understanding of the key terms and conditions of a share-based payment award. Stock-based compensation for non-employee stock
options is recorded over the vesting period and remeasured at fair value until they vest.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Investment in Films
The Company capitalizes
film production costs, including direct costs and production overhead, net of production incentives, for films in production and
the cost of acquiring copyright interests in or participation rights to completed but not released films. The Company amortizes
film production costs, including the costs to acquire interests or participation rights to direct operating expenses, using the
individual film forecast computation method, which amortizes the costs for an individual film in the proportion that the current
year’s revenues bear to management’s estimates of the ultimate revenue expected to be recognized from the distribution,
exhibition or sale of such film. Ultimate revenue includes estimates over a period not to exceed ten years following the date
of initial release of the motion picture. As of September 30, 2018, unamortized capitalized investment in film costs were $13,403,433. This balance represents total capitalized costs for the period of $17,212,981 less $3,809,548 of costs
related to amortization and impairments.
Due to the inherent
uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates may differ from actual results
and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business,
some films and titles are more successful or less successful than anticipated. Management regularly reviews and revises when necessary
its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and/or write-down
of all or a portion of the unamortized costs of the film to its estimated fair value. Management estimates the ultimate revenue
based on experience with similar titles or title genre, the general public appeal of the cast, actual performance (when available)
at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures
or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions
and other tangible and intangible factors, many of which we do not control and which may change.
An increase in the
estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less film amortization expense,
while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher
film amortization expense, and could also periodically result in an impairment requiring a write-down of the film cost to the
title’s fair value. These write-downs are included in amortization expense within cost of revenues in our consolidated statements
of operations.
Investment in films
is stated at the lower of amortized cost or estimated fair value. Additional amortization is recorded in the amount by which the
unamortized costs exceed the estimated fair value of the film. Estimates of future revenue involve measurement uncertainty and
it is therefore possible that reductions in the carrying value of investment in films may be required as a consequence of changes
in our future revenue estimates.
Film Production Incentives
The Company has access
to various governmental programs that are designed to promote film production within the United States. Tax credits earned with
respect to expenditures on qualifying film production activities, including qualifying capital projects, are included as an offset
to the related asset or as an offset to production expenses when we have reasonable assurance regarding the realizable amount
of the tax credits.
The unamortized balance
includes $2,376,451 representing our investment in participation rights in completed and released films and $11,026,982 in film
costs for completed and partially completed films that have yet to be released.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Fair Value Measurements
ASC Topic 820,
Fair
Value Measurement and Disclosures
, defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification
based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure
fair value:
Level 1: Observable
inputs such as quoted prices (unadjusted) in an active market for identical assets or liabilities.
Level 2: Inputs other
than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities
in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable
inputs that are supported by little or no market activity; therefore, the inputs are developed by the Company using estimates
and assumptions that the Company expects a market participant would use, including pricing models, discounted cash flow methodologies,
or similar techniques.
The carrying value
of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable and
accrued expenses approximate fair value because of the short-term maturity of these financial instruments.
The liabilities in
connection with the conversion and make-whole features included within certain of the Company’s convertible notes payable
and warrants are each classified as a level 3 liability.
Derivative Instruments
The Company does not
use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates its
convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for in accordance with Paragraph 815-10-05-4 of the FASB ASC and Paragraph 815-40-25 of the Codification.
The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet
date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded
in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument
is marked to fair value at the conversion date and then that fair value is reclassified to equity.
In circumstances where
the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative
instruments in the convertible instrument that are required to be bifurcated the bifurcated derivative instruments are accounted
for as a single, compound derivative instrument.
The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at
the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification
are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities
are classified in the balance sheet as current or non-current to correspond with its host instrument.
The Company marks
to market the fair value of the embedded derivatives at each balance sheet date and records the change in the fair value of the
embedded derivatives as other income or expense in the statements of operations.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
The Company utilizes
a Monte Carlo Method that values the liability of the debt conversion feature derivative financial instruments and derivative
warrants based on a probability of a down round event. The reason the Company selected the lattice binomial model is that in many
cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes
valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by
simple models.
Warrant Liability
The Company evaluates
its warrants to determine if those contracts qualify as liabilities in accordance with ASC 480-10 and ASC 815-40. The result of
this accounting treatment is that the fair value of the warrant liability is marked-to-market each balance sheet date and recorded
as a liability, with the change in fair value recorded in the statements of operations as other income or expense. Upon conversion
or exercise of a warrant liability, the instrument is marked to fair value at the conversion date and then that fair value is
reclassified to equity.
For warrants with
a fixed conversion price and a fixed number of shares, the Company utilizes a Black Scholes model for valuation. For warrants
with variability in the number of shares or conversion price (such as a down round feature), the Company utilizes the Monte Carlo
Method to value the warrant liability. The reason the Company selected the lattice binomial model is that in many cases there
may be multiple embedded features or the features may be so complex that a Black-Scholes valuation does not consider all of the
terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models.
Recent Accounting Pronouncements
The following accounting
standards updates were recently issued and have not yet been adopted. These standards are currently under review to determine
their impact on the consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated
statements of cash flows.
In February 2016,
the FASB issued Accounting Standards Update (“ASU”) 2016-02,
Leases,
(“ASU 2016-02”), which supersedes
FASB ASC 840,
Leases
and provides principles for the recognition, measurement, presentation and disclosure of leases for
both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or
operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification
will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the
term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of
greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar
to existing guidance for operating leases. In July 2018, the FASB issued ASU 2018-10,
Codification Improvements to Topic
842 (Leases)
, and ASU 2018-11,
Leases (Topic 842), Targeted Improvements
, which provide (i) narrow amendments
to clarify how to apply certain aspects of the new lease standard, (ii) entities with an additional transition method to adopt
the new standard, and (ii) lessors with a practical expedient for separating components of a contract. The standard is effective
for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is
currently evaluating the method of adoption and the impact of adopting ASU 2016-02 on its results of operations, cash flows and
financial position. We expect to adopt the guidance using the modified retrospective method and practical expedients for transition.
The practical expedients allow us to largely account for our existing leases consistent with current guidance except for the incremental
balance sheet recognition for lessees. We have started an initial evaluation of our leasing contracts and activities. We do not
expect a material change to the timing of expense recognition, but we are early in the implementation process and will continue
to evaluate the impact. We are evaluating our existing disclosures and may need to provide additional information as a result
of adoption of the ASU.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
In January 2017, the
FASB issued ASU 2017-04
Intangibles-Goodwill and Other
(“ASC 350”):
Simplifying the Accounting for Goodwill
Impairment
(“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step
2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures
to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities)
following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business
combination. Instead, under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing
the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible
goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04
is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019 and an entity
should apply the amendments of ASU 2017-04 on a prospective basis. Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the effects of ASU 2017-04
on its consolidated financial statements.
In July 2017, the
FASB issued ASU 2017-11,
Earnings Per Share
(“ASC 260”),
Distinguishing Liabilities from Equity
(“ASC
480”), and
Derivatives and Hedging
(“ASC 815”). ASU 2017-11 is intended to simplify the accounting for
financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether
an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for
mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable non-controlling
interests. ASU 2017-11 is effective for the Company on January 1, 2019. The Company is currently evaluating the potential impact
of ASU 2017-11 on the Company’s consolidated financial statements.
In June 2018, the
FASB issued ASU 2018-07,
Compensation - Stock Compensation
(“ASC 718”)
, Improvements to Nonemployee Share-Based
Payment Accounting
(“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based
payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company has evaluated the impact
of ASU 2018-07 on the Company’s consolidated financial statements and determined it will not have a material impact.
In
August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement
(“ASC 820”)
, Disclosure Framework—Changes
to the Disclosure Requirements for Fair Value Measurement
(“ASU 2018-13”). ASU 2018-13 is intended to improve
the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15,
2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact
of ASU 2018-13 on the Company’s consolidated financial statements.
|
4.
|
Going
Concern Analysis
|
In evaluating the Company’s
ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about
the Company’s ability to continue as a going concern within twelve months after the Company’s interim financial statements
were issued (November 15, 2018). Management considered the Company’s current financial condition and liquidity sources, including
current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due before
November 15, 2019.
The Company is subject
to a number of risks similar to those of other big data technology, technology consulting companies and subscription based businesses,
including its dependence on outside sources of capital, the Company’s ability to maintain and grow its subscriber base,
uncertainty of generation of revenues and positive cash flow, dependence on key individuals, risks associated with research, development,
testing, and successful protection of intellectual property, and the Company’s susceptibility to infringement on the proprietary
rights of others. The attainment of profitable operations is dependent on future events, including obtaining adequate financing
to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s
cost structure.
The Company has experienced
net losses and significant cash outflows from cash used in operating activities over the past years. As of September 30, 2018,
the Company had an accumulated deficit of $377,266,866, a loss from operations for the three and nine months ended September 30,
2018 of $86,414,887 and $320,785,739, respectively, and net cash used in operating activities for the nine months ended September
30, 2018 of $321,093,755.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed
Consolidated Financial Statements
The Company expects
to continue to incur net losses and have significant cash outflows for at least the next twelve months. As of September 30, 2018,
the Company had cash and a working capital deficit of $4,850,972 and $15,657,290, respectively, compared to $24,949,393 and $107,097,249
as of December 31, 2017. Of the working capital deficit at September 30, 2018, $60,809 pertained to warrant and derivative liabilities
classified on the balance sheet within current liabilities. Management has evaluated the significance of the conditions described
above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company
will not have sufficient funds to meet its obligations within one year from the date the condensed consolidated financial statements
were issued. While management will look to continue funding operations by raising additional capital from sources such as sales
of the Company’s debt or equity securities or loans in order to meet operating cash requirements, there is no assurance
that management’s plans will be successful.
The Company obtained
convertible debt financing for up to $60,000,000 in gross proceeds on January 11, 2018, of which the Company had received $31,000,000
in gross proceeds as of September 30, 2018, which the Company used (i) to increase the Company’s ownership interests or
other rights and interests in MoviePass; (ii) to satisfy certain indebtedness; and (iii) for general corporate purposes and transaction
expenses. The Company may also use the proceeds to make other acquisitions. Additionally, during the second and third quarter
of 2018, the Company received $58,959,736 in gross proceeds related to the convertible debt financing obtained on November 7,
2017.
On June 26, 2018,
the Company obtained preferred stock and convertible debt financing for up to $139,400,000 in gross proceeds, of which the Company
had received $20,500,000 in gross proceeds as of September 30, 2018, which the Company used for general corporate purposes and
transaction expenses.
As of September 30,
2018, the Company had no outstanding unrestricted principal under the Senior Convertible Notes issued to institutional investors
on November 7, 2017 and January 23, 2018, respectively, and there remained $49,388,861 in restricted principal for which a corresponding
amount of principal under the investor notes remains to be paid to the Company by the holders of those convertible notes.
In order to facilitate
the Company’s further access to capital, in January 2018 the Company filed a shelf registration statement on form S-3 that
was declared effective by the SEC on February 9, 2018, which allows the Company to offer and sell up to $400,000,000 of its equity
or equity-linked securities. Using the shelf registration statement, the Company completed an underwritten public offering of common
stock and warrants for gross proceeds of $105,050,000 on February 13, 2018. The total net proceeds to the Company from the February
2018 public offering were $96,912,380. The Company also completed an underwritten public offering of common stock and warrants
for gross proceeds of approximately $30,250,000 on April 23, 2018. The total net proceeds to the Company from the April 2018 public
offering were $27,677,558.
On April 18, 2018, the
Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with Canaccord Genuity LLC (“Canaccord”)
under which the Company could offer and sell under the shelf registration statement up to $150,000,000 of its common stock at
prevailing market prices in a continuous at-the market offering (the “ATM Offering”) through its sales agent Canaccord.
The Company used the net proceeds from the ATM Offering to increase the Company’s ownership stake in MoviePass and to support
the operations of MoviePass and MoviePass Ventures, to satisfy a portion or all of any amounts due and payable in connection with
the convertible notes issued on November 7, 2017, January 23, 2018 and June 26, 2018, and for general corporate purposes and transaction
expenses. As of September 30, 2018, the Company sold approximately 627,933,083 shares, and received net proceeds of approximately
$119,423,879, pursuant to the ATM Offering. The Sales Agreement was terminated on October 1, 2018, and, as a result, no further
offers or sales of the Company’s common stock will be made pursuant to the ATM Offering.
Without raising additional
capital, there is substantial doubt about the Company’s ability to continue as a going concern through November 15, 2019.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in
the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of
positive cash flows adequate to support the Company’s cost structure.
Notice of Potential Delisting from NASDAQ
On June 21, 2018, the
Company received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq
Stock Market LLC (“Nasdaq”) notifying the Company that, for the prior 30 consecutive business days, the closing bid
price for the Company’s common stock has closed below a minimum $1.00 per share required for continued listing on The Nasdaq
Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)” or the “Minimum Bid Price Requirement”).
In accordance with
Nasdaq Listing Rule 5810(b), the Company has been given 180 calendar days, or until December 18, 2018 to regain compliance with
Rule 5550(a)(2).
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
The Special Meeting
of Stockholders scheduled to be held on November 14, 2018 to provide stockholders with an opportunity to vote on the proposed reverse
stock split in a ratio of 1 share-for-2 shares up to a ratio of 1 share-for-500 shares has been cancelled. The Company was presenting
the reverse stock split proposal in an effort to regain compliance with the Rule 5550(a)(2). Since the Company will not be able
to effect a reverse stock split ten business days prior to December 18, 2018, absent an extension by The Nasdaq Capital Market
(of which there can be no assurance) the Company believes that our common stock will be subject to delisting from The Nasdaq Capital
Market, which would adversely impact the liquidity and marketability of our common stock. The Company intends to monitor the closing
bid price of its common stock and consider its available options to resolve its noncompliance with Rule 5550(a)(2).
If the Company does
not regain compliance with Rule 5550(a)(2) by December 18, 2018, the Company may be afforded a second 180-calendar day period to
regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly
held shares and all other initial listing standards for The Nasdaq Capital Market, except for the Minimum Bid Price Requirement.
In addition, the Company would be required to notify Nasdaq of its intent to cure the deficiency during the second compliance period,
which may include, if necessary, implementing a reverse stock split. If the Company is afforded additional time to regain compliance
(of which there can be no assurance), the Board of Directors of the Company plans to call a special meeting as soon as practicable
with a new record date for the Company’s stockholders to vote on a reverse stock split in an effort to regain compliance
with Rule 5550(a)(2). Even if the Company is eligible for an additional compliance period, Nasdaq may decline to grant the Company
an additional compliance period in its discretion.
If the Company does
not regain compliance with Rule 5550(a)(2) by December 18, 2018, and is either not eligible for an additional compliance period
at that time or Nasdaq declines to grant the Company an additional compliance period in Nasdaq’s discretion, the Staff will
provide notice to the Company that its securities will be subject to delisting. At that time, the Company may appeal the Staff’s
delisting determination to a Nasdaq Listing Qualifications Panel (“Panel”). The Company would remain listed pending
the Panel’s decision.
On August 25, 2018,
Carl J. Schramm resigned from the Board of Directors of the Company and each committee of the Board of Directors which he was
a member, including the Audit Committee. As a result, the Company is no longer compliant with Nasdaq Listing Rule 5605(b)(1),
which requires that a majority of the Board of Directors of the Company be independent, and Nasdaq Listing Rule 5605(c)(2)(A),
which requires that the Audit Committee have at least three independent directors.
In accordance with
Nasdaq Listing Rules, on August 27, 2018, the Company notified Nasdaq of Mr. Schramm’s resignation and non-compliance with
the above Nasdaq Listing Rules. Nasdaq responded on September 6, 2018 with a notification letter confirming the Company’s
non-compliance with Nasdaq’s independent director and audit committee requirements as set forth above. Nasdaq advised that,
pursuant to Nasdaq Listing Rules 5605(b)(1)(A) and 5605(c)(4), the Company will have until the following to cure the deficiencies
caused by Mr. Schramm’s departure:
|
●
|
until
the earlier of the Company’s next annual shareholders’ meeting or August 25, 2019; or
|
|
|
|
|
●
|
if
the next annual shareholders’ meeting is held before February 21, 2019, then the Company must evidence compliance no
later than February 21, 2019.
|
The Board of Directors
of the Company intends to appoint a new independent director who satisfies the applicable requirements of the Nasdaq Listing Rules
to serve on the Company’s Board of Directors and Audit Committee prior to the expiration of the cure period.
|
5.
|
Acquisitions of MoviePass and Moviefone and the Formation of MoviePass Films
|
Acquisition of Controlling Interest
in MoviePass Inc.
On December 11, 2017,
the Company completed its acquisition of a 62.41% majority interest in MoviePass (such acquisition, the “MoviePass Transaction”),
for the following consideration: (1) a subordinated convertible promissory note in the principal amount of $12,000,000 (the “Helios
Convertible Note”), which is convertible into shares of HMNY’s common stock, as further described below; (2) a $5,000,000
promissory note issued to MoviePass (the “Helios Note”); (3) the exchange of a convertible promissory note issued
by MoviePass to HMNY in an aggregate principal amount of $11,500,000 (plus accrued interest thereon); (4) $1,000,000 in cash to
purchase outstanding convertible notes of MoviePass, which were converted into shares of MoviePass’ common stock amounting
to an additional 2% of the outstanding shares of MoviePass common stock; and (5) $20,000,000 in cash pursuant to the Investment
Option Agreement, dated October 11, 2017, between the Company and MoviePass.
The Helios Convertible
Note will convert into 16,000 (4,000,000 pre-split) unregistered shares of the Company’s common stock (the “Conversion
Shares”) automatically upon the Company’s receipt of approval of its stockholders relating to the issuance of the
Conversion Shares as required by and in accordance with Nasdaq Listing Rule 5635. Of that amount, 2,667 (666,667 pre-split)
of the Conversion Shares are subject to forfeiture by MoviePass, in the Company’s sole discretion, as MoviePass failed to
list its common stock on the Nasdaq Stock Market by March 31, 2018 (as required by the securities purchase agreement between the
Company and MoviePass). As of the date of this report, the Company has not made a decision with respect to the disposition of
those shares that are subject to forfeiture.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
The Company has valued
the Helios Convertible Note as of the acquisition date, including the valuation of the shares subject to forfeiture as noted above,
at the fair value on the acquisition date based on a Monte Carlo simulation. The shares subject to forfeiture are contingent consideration
and have been valued as a separate component of the Helios Convertible Note. As of the acquisition date the Helios Convertible
Note was valued at $29,000,000 and the portion of the Conversion Shares subject to forfeiture was valued at $5,152,446. All of
the purchase consideration, with the exception of the $1,000,000 paid for the MoviePass convertible notes which were converted
into MoviePass common stock, was retained by MoviePass. Accordingly, the value of the Helios Convertible Note, the Helios Note
and the value associated with the Conversion Shares subject to forfeiture are eliminated in consolidation for financial reporting
purposes.
Goodwill recognized
as part of the MoviePass Transaction is not expected to be tax deductible.
The Company has made
a provisional allocation of the purchase price of the MoviePass Transaction to the assets acquired and the liabilities assumed
as of the acquisition date. The following table summarizes the provisional purchase price allocations relating to the MoviePass
Transaction:
Purchase consideration:
|
|
MoviePass
|
|
Cash
|
|
$
|
32,671,792
|
|
Notes payable (includes Helios Convertible Note and Helios Note)
|
|
|
39,152,446
|
|
Fair value of consideration transferred
|
|
$
|
71,824,238
|
|
|
|
|
|
|
Recognized amounts of identifiable assets and liabilities acquired:
|
|
|
|
|
Cash acquired
|
|
$
|
1,106,171
|
|
Accounts receivable
|
|
|
9,669,390
|
|
Notes receivable
|
|
|
39,152,446
|
|
Investment option payment receivable
|
|
|
7,850,000
|
|
Prepaid expenses and other current assets
|
|
|
192,180
|
|
Property and equipment
|
|
|
39,320
|
|
Other assets
|
|
|
8,000
|
|
Identifiable intangible assets:
|
|
|
|
|
Tradenames and trademarks
|
|
|
19,550,000
|
|
Technology
|
|
|
3,800,000
|
|
Customer relationships
|
|
|
2,560,000
|
|
Liabilities assumed
|
|
|
(9,261,785
|
)
|
Deferred revenue
|
|
|
(38,718,397
|
)
|
Non-controlling interest
|
|
|
(43,260,264
|
)
|
Goodwill
|
|
|
79,137,177
|
|
Total purchase price allocation
|
|
$
|
71,824,238
|
|
The Company has not
completed the valuation studies necessary to finalize the acquisition fair values of the assets acquired and liabilities assumed
and related allocation of the purchase price for the MoviePass Transaction. Accordingly, the type and value of the intangible
assets and deferred revenue amounts set forth above are preliminary. Once the valuation process is finalized for the MoviePass
Transaction, there could be changes to the reported values of the assets acquired and liabilities assumed, including goodwill,
intangible assets and deferred revenue and those changes could differ materially from what is presented above.
The Company determined
the provisional fair value of the acquired intangible assets through a combination of the market approach and the income approach.
The significant assumptions used in certain valuations associated with the MoviePass Transaction include discount rates ranging
from 10.0% to 51.0%. In determining the value of tradenames and trademarks the Company observed royalty rates ranging from 0.0%
to 100.0%, and utilized a 1.0% rate for MoviePass’s aggregated tradenames and trademarks. Additionally, the Company observed
royalty rates related to MoviePass’s technology assets acquired ranging from 0.0% to 50.0%, and used a 1.0% royalty rate
in determining the fair value of the acquired technology. In accordance with Emerging Issues Task Force (“EITF”) guidance,
the fair value of an acquired liability related to deferred revenue would include the direct and incremental cost of fulfilling
the obligation plus a normal profit margin. The Company utilized historical operating results in estimating the direct and incremental
costs of fulfilling the acquired deferred revenue obligations. The non-controlling interest in MoviePass was determined based
on the fair value of MoviePass less the amounts paid by the Company for its 62.41% controlling interest.
The estimated useful
lives of acquired intangible assets are 7 years for customer relationships, 3 years for technology, and 7 years for tradenames
and trademarks. Acquired deferred revenue is estimated to be realized based on the length of the subscription, over 12 months
from the acquisition date.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Additional MoviePass Subscription
Agreements
On March 8, 2018,
the Company entered into a Subscription Agreement with MoviePass (the “March 2018 Agreement”), pursuant to which,
in lieu of repayment of advances totaling $55,525,000 made by the Company, MoviePass agreed to sell to the Company an amount of
MoviePass common stock equal to 18.79% of the total then outstanding shares of MoviePass common stock (excluding shares underlying
MoviePass options and warrants) (the “March 2018 MoviePass Purchased Shares”). MoviePass also agreed to issue to the
Company, in addition to the March 2018 MoviePass Purchased Shares, without payment of additional consideration by the Company,
for purposes of anti-dilution, an amount of shares of MoviePass common stock that caused the Company’s total ownership of
the outstanding shares of MoviePass common stock (excluding shares underlying MoviePass options and warrants), together with the
March 2018 MoviePass Purchased Shares, to equal 81.2% as of March 8, 2018.
From February
27, 2018 through April 12, 2018, the Company advanced a total of $35,000,000 to MoviePass (the “Second Advance”).
On April 16, 2018, the Company entered into an additional Subscription Agreement with MoviePass (the “April 2018 Agreement”),
pursuant to which, in lieu of repayment of the Second Advance, MoviePass agreed to sell to the Company an amount of shares of
common stock of MoviePass equal to 10.6% of the total then outstanding MoviePass common stock (excluding shares underlying MoviePass
options and warrants) (the “April 2018 MoviePass Purchased Shares”), based on a pre-money valuation of MoviePass of
$295,525,000 as of March 31, 2018. Pursuant to the April 2018 Agreement, MoviePass also agreed to issue to the Company, in addition
to the April 2018 MoviePass Purchased Shares, without payment of additional consideration by the Company, for purposes of anti-dilution,
an amount of shares of common stock of MoviePass that caused the Company’s total ownership of the outstanding shares of
common stock of MoviePass (excluding shares underlying MoviePass options and warrants), together with the April 2018 MoviePass
Purchased Shares, to equal 91.8% as of April 12, 2018.
In
addition, from April 16, 2018 through September 30, 2018 the Company has advanced MoviePass, $187,285,000 for operational funding.
Such amount remains payable to the Company by MoviePass and has been eliminated in consolidation for financial reporting purposes.
The Company
has accounted for the March 2018 MoviePass Purchased Shares and the April 2018 MoviePass Purchased Shares as an acquisition of
a portion of the non-controlling interest in MoviePass. Accordingly, the non-controlling interest at March 8, 2018 and April 12,
2018 was reduced respectively, based on the percentage acquired, and the balance invested in excess of the value of the non-controlling
interest acquired was recorded as additional invested capital.
Acquisition of Moviefone Brand
On April
4, 2018, the Company entered into an Asset Purchase Agreement (the “Moviefone Purchase Agreement”) with Oath Inc.
(formerly, AOL Inc.), a Delaware corporation and subsidiary of Verizon Communications and certain of its subsidiaries (“Oath”),
pursuant to which the Company completed the acquisition from Oath of certain products, rights, technology, contracts, data and
other assets related to the Moviefone brand (the “Moviefone Assets”). The acquisition of Moviefone has been accounted
for as the acquisition of a business. The historical operational results of Moviefone were not significant for purposes of providing
pro forma financial information. The purchase price for the Moviefone Assets consisted of the following: (i) $1.0 million in cash,
(ii) the issuance of 10,201 (2,550,154 pre-split) shares of common stock of the Company with a market value of $7.6 million as
of the closing date, and (iii) the issuance of warrants to purchase 10,201 (2,550,154 pre-split) shares of common stock of the
Company at an exercise price of $1,375 ($5.50 pre-split) per share. In addition, and pursuant to the Moviefone Purchase Agreement,
the Company assumed certain specified liabilities incurred after the acquisition date and retained certain employees of Moviefone.
The Company
determined the provisional fair value of the acquired intangible assets through a combination of the market approach, cost and
the income approach. The significant assumptions used in certain valuations associated with the Moviefone transaction include
discount rates ranging from 9.0% to 22.1%. In determining the value of tradenames and trademarks the Company observed royalty
rates ranging from 0.0% to 100.0% and utilized a 10.0% rate for Moviefone’s aggregated tradenames and trademarks. Additionally,
the Company utilized a cost approach for Moviefone’s technology assets acquired based on man hours to construct in determining
the fair value of the acquired technology. The non-compete agreements were analyzed and found to have a de minimis value.
The estimated
useful lives of acquired intangible assets are 20 years for tradenames and trademarks, 7 years for customer relationships and
3 years for technology.
The following
table summarizes the consideration paid for Moviefone by the Company, and the amounts of assets acquired, and liabilities assumed
and recognized at the acquisition date:
Purchase consideration:
|
|
Moviefone
|
|
Cash
|
|
$
|
1,000,000
|
|
Common shares issued
|
|
|
7,599,459
|
|
Warrants for common shares issued
|
|
|
5,475,500
|
|
Fair value of consideration transferred
|
|
$
|
14,074,959
|
|
|
|
|
|
|
Trade names and trademarks
|
|
$
|
4,640,000
|
|
Technology
|
|
|
340,000
|
|
Customer relationships
|
|
|
560,000
|
|
Goodwill
|
|
|
8,534,959
|
|
Total purchase price allocation
|
|
$
|
14,074,959
|
|
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
MoviePass Films
On May 23, 2018, the
Company entered into the LOI with EFO, pursuant to which EFO acquired a 49% membership interest in MoviePass Films. Pursuant to
the LOI, the Company capitalized MoviePass Films with an initial capital contribution of $2,000,000 in cash and retained a 51%
interest in MoviePass Films and capitalized MoviePass Films with an additional $4,200,000 as of September 30, 2018, for a total
of $6,200,000 capitalized by the Company as of September 30, 2018.. EFO has assigned its rights in a film output agreement of EFO
to MoviePass Films. MoviePass Films has begun operations, and the Company and EFO are finalizing the long form agreements that
will further define the relative rights and duties of the Company and EFO with respect to MoviePass Films. In accordance with the
LOI, as of September 30, 2018, the Company is committed to contribute 16,000 (4,000,000 pre-split) shares of common stock of the
Company to EFO.
The Company has not
performed the valuation studies required to value film output agreement assigned to MoviePass Films by EFO.
The Company has a
51% membership interest in MoviePass Films and the right to designate three out of five of the members of its board of managers
and accordingly has consolidated the results of MoviePass Films with those of the Company.
|
6.
|
Net Loss Per Share Attributable to Common Stockholders
|
Earnings per share
(“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to
refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB ASC. Pursuant to ASC Paragraphs
260-10-45-10 through 260-10-45-16, basic EPS is computed by dividing income available to common stockholders (the numerator) by
the weighted-average number of common shares outstanding (the denominator) during the period. The computation of diluted EPS is
similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential
dilution that could occur from common shares issuable through contingent shares issuance arrangements, stock options or warrants.
The following table
shows the outstanding dilutive common shares excluded from the diluted net loss per share attributable to common stockholder’s
calculation as they were anti-dilutive:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Warrants
|
|
|
67,468
|
|
|
|
38,526
|
|
Conversion features on convertible notes
|
|
|
-
|
|
|
|
5,482
|
|
Total potentially dilutive shares
|
|
|
67,468
|
|
|
|
44,008
|
|
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
|
7.
|
Prepaid
Expenses and Other Current Assets
|
Prepaid expenses and
other current assets consisted of the following as of September 30, 2018 and December 31, 2017:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Vendor deposits
|
|
$
|
2,293,641
|
|
|
$
|
147,533
|
|
Tax
|
|
|
105,503
|
|
|
|
108,433
|
|
Deposits
|
|
|
-
|
|
|
|
230,711
|
|
Insurance
|
|
|
167,016
|
|
|
|
86,181
|
|
Professional fees and services
|
|
|
61,359
|
|
|
|
33,333
|
|
Deferred stock compensation
|
|
|
250,333
|
|
|
|
2,885,278
|
|
Rent
|
|
|
-
|
|
|
|
52,650
|
|
Other
|
|
|
591,793
|
|
|
|
13,692
|
|
Total prepaid expenses and other current assets
|
|
$
|
3,469,645
|
|
|
$
|
3,557,811
|
|
|
8.
|
Intangible
Assets, net and Goodwill
|
The following table
sets forth the major categories of the Company’s intangible assets and the estimated useful lives as of September 30, 2018
and December 31, 2017 for those assets that are not already fully amortized:
|
|
|
|
|
|
|
September 30, 2018
|
|
|
Estimate Useful Life (Years)
|
|
Gross
Carrying Amount
|
|
|
Acquisitions
|
|
|
Accumulated Amortization
|
|
|
Impairments
|
|
|
Net Book Value
|
Customer relationships
|
|
7
|
|
$
|
2,560,000
|
|
|
|
560,000
|
|
|
|
(334,043
|
)
|
|
|
-
|
|
|
|
2,785,957
|
Technology
|
|
3
|
|
|
8,070,000
|
|
|
|
340,000
|
|
|
|
(3,773,338
|
)
|
|
|
(1,210
|
)
|
|
|
4,635,452
|
Tradenames and trademarks
|
|
10-20
|
|
|
19,873,224
|
|
|
|
4,640,000
|
|
|
|
(2,013,260
|
)
|
|
|
-
|
|
|
|
22,499,964
|
Patents
|
|
12
|
|
|
196,353
|
|
|
|
-
|
|
|
|
(20,327
|
)
|
|
|
-
|
|
|
|
176,026
|
|
|
|
|
$
|
30,699,577
|
|
|
|
5,540,000
|
|
|
|
(6,140,968
|
)
|
|
|
(1,210
|
)
|
|
|
30,097,399
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Estimate
Useful Life (Years)
|
|
Gross
Carrying Amount
|
|
|
Acquisitions
|
|
|
Accumulated Amortization
|
|
|
Impairments
|
|
|
Net Book Value
|
|
Customer relationships
|
|
7
|
|
$
|
-
|
|
|
$
|
2,560,000
|
|
|
$
|
(20,645
|
)
|
|
$
|
-
|
|
|
$
|
2,539,355
|
|
Technology
|
|
3
|
|
|
4,270,000
|
|
|
|
3,800,000
|
|
|
|
(1,700,431
|
)
|
|
|
-
|
|
|
|
6,369,569
|
|
Tradenames and trademarks
|
|
10-20
|
|
|
1,977,000
|
|
|
|
19,550,000
|
|
|
|
(433,588
|
)
|
|
|
(1,653,776
|
)
|
|
|
19,439,636
|
|
Broker relationships
|
|
5
|
|
|
4,200
|
|
|
|
-
|
|
|
|
(962
|
)
|
|
|
(3,238
|
)
|
|
|
-
|
|
Patents
|
|
12
|
|
|
196,353
|
|
|
|
-
|
|
|
|
(8,131
|
)
|
|
|
-
|
|
|
|
188,222
|
|
|
|
|
|
$
|
6,447,553
|
|
|
$
|
25,910,000
|
|
|
$
|
(2,163,757
|
)
|
|
$
|
(1,657,014
|
)
|
|
$
|
28,536,782
|
|
The Company recorded
amortization expense of $1,363,638 and $430,716 for the three months ended September 30, 2018 and 2017, respectively, and $3,977,211
and $1,284,018 for the nine months ended September 30, 2018 and 2017, respectively.
HELIOS AND MATHESON
ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
The following table
outlines estimated future annual amortization expense for the next five years and thereafter:
September 30,
|
|
|
|
Remaining 2018
|
|
$
|
1,363,077
|
|
2019
|
|
|
5,246,717
|
|
2020
|
|
|
3,957,471
|
|
2021
|
|
|
2,678,569
|
|
2022
|
|
|
2,648,976
|
|
Thereafter
|
|
|
14,202,589
|
|
|
|
$
|
30,097,399
|
|
Goodwill
represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Goodwill and
indefinite lived intangible assets are tested for impairment annually as of December 31st and more often if a triggering event
occurs, by comparing the fair value of each reporting unit to its carrying value. During the third quarter of 2018, due to a significant
decline in its MoviePass subscribers resulting primarily from changes made to service offerings during the third quarter, the Company
deemed it appropriate to assess goodwill impairment of the MoviePass reporting unit as of September 30, 2018. Due to the complexity
and the effort required to estimate the fair value of the reporting units in step one of the impairment test and to estimate the
fair value of all assets and liabilities of the reporting units in the second step of the test, the fair value estimates were derived
based on preliminary assumptions and analyses that are subject to change. Based on our preliminary analyses, the implied fair value
of goodwill was substantially lower than the carrying value of goodwill for the reporting units of the Subscription and Marketing,
Promotional Services, and Films segment. As a result, we recorded our best estimate of $38,524,016 for the goodwill impairment
charge in the three months ended September 30, 2018, which is included in impairment of goodwill on the condensed consolidated
statements of operations and comprehensive income/(loss). Any adjustments to the estimated impairment loss following the completion
of the measurement of the impairment will be recorded in the fourth quarter of 2018.
The
Company used a discounted cash flow model, to determine the fair value of the reporting unit. Key assumptions within the
analysis included revenue projections, revenue growth assumptions, adjustments for the latest subscriber information, revisions
to the current costs of the subscription program including limitations on visits per month and first run movies, revenue growth
assumptions, expectations for working capital and capital expenditure needs discount rates, and the effective tax rate that the
Company determined to be appropriate. Revenue projections reflected declines in the current and next year, and revenues are expected
to moderate to a terminal growth rate of 3%. The discount rate was 49.4% and the effective tax rate was 28%.
Balance as of December 31, 2017
|
|
$
|
79,137,177
|
|
Acquisition of Moviefone
|
|
|
8,534,959
|
|
Impairment of a portion of MoviePass
|
|
|
(38,524,016
|
)
|
Balance as of September 30, 2018
|
|
$
|
49,148,120
|
|
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
|
9.
|
Accounts
Payable and Accrued Expenses
|
As of September 30,
2018 and December 31, 2017, accounts payable and accrued expenses consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Accounts payable
|
|
$
|
5,292,213
|
|
|
$
|
5,087,060
|
|
Accrued ticket expense
|
|
|
1,174,638
|
|
|
|
4,743,582
|
|
Accrued professional fees
|
|
|
1,763,670
|
|
|
|
597,187
|
|
Accrued credit card fees
|
|
|
-
|
|
|
|
782,670
|
|
Accrued payroll expense
|
|
|
4,111,418
|
|
|
|
312,149
|
|
Accrued other expense
|
|
|
3,755,564
|
|
|
|
852,840
|
|
Accrued interest
|
|
|
1,593,757
|
|
|
|
768,515
|
|
Total accounts payable and accrued expenses
|
|
$
|
17,691,260
|
|
|
$
|
13,144,003
|
|
|
10.
|
Senior
Secured Convertible Notes and Warrants and Unit Offerings
|
February 2017 Notes
On February 8, 2017,
the Company issued two Senior Secured Convertible Notes (the “February 2017 Notes”) to an institutional investor (the
“Investor”) in the aggregate principal amount of $5,681,818 for consideration consisting of a secured promissory note
payable by the Investor to the Company in the principal amount of $5,000,000 (the “February 2017 Investor Note”), which
offsets the February 2017 Notes of the same amount. Upon issuance, the initial principal balance of $681,818 of the February 2017
Notes was accounted for as an original issuance discount and accreted into interest expense over the life of the February 2017
Notes. As cash is received from the February 2017 Investor Note, and the related principal amount of the February 2017 Notes increases
accordingly, a derivative liability related to the conversion feature embedded within the February 2017 Notes is recorded as a
debt discount, and accreted into interest expense over the life of the February 2017 Notes using the effective interest method,
and any excess value over the amount of cash received is expensed immediately to interest expense. In addition, February Placement
Agent Warrants were also issued (See
The Placement Agent Notes and Warrants
below), recognized as liabilities pursuant
to their terms and recorded as a debt discount, and accreted into interest expense over the life of the February 2017 Notes using
the effective interest method, and any excess value over the amount of cash received is expensed immediately to interest expense.
The February 2017 Notes had a maturity date of October 8, 2017.
As of December 31,
2017, the Investor had fully funded the February 2017 Investor Note and had subsequently converted the aggregate principal amount
due under the February 2017 Notes and approximately $49,000 of interest into 7,411 (1,852,886 pre-split) shares of the Company’s
common stock in full payment of the February 2017 Notes. On any principal balance owed by the Company to the Investor, a 6% interest
obligation was due quarterly and calculated on a 360-day basis. For the three and nine months ended September 30, 2017, the Company
had interest expense of $42,750 and $173,963, respectively. In a letter agreement executed on August 27, 2017, in consideration
for the prepayment in the amount of $2,500,000, on the February 2017 Investor Note, which the Investor subsequently made on August
28, 2017, the Investor and the Company agreed that the Investor would have the right, but not the obligation, until December 31,
2017, to effect an exchange (the “Share Exchange”) of 3,365 (841,250 pre-split) shares of the Company’s common
stock (the “Exchange Shares”) for one or more senior secured convertible promissory notes in the form of the February
Additional Note (the “New Note”), with the right to substitute the alternate conversion price of the New Note with
the alternate conversion price of the Company’s Series B Senior Secured Convertible Note (the “Series B Note”)
that was issued on August 16, 2017. Any New Note issued was in a principal amount equal to the product of the prepayment amount
($2,500,000) multiplied by a fraction, the numerator of which was the number of the aggregate shares being tendered to the Company
in the Share Exchange and the denominator of which was 3,365 (841,250 pre-spilt). The maturity date of any New Note was 45 days
following the issuance of the New Note, and the conversion price of the New Notes was $1,125 ($4.50 pre-split), or, at the election
of the Investor, the Investor could convert at the Alternate Conversion Price. The Alternate Conversion Price was defined as either
(A) the lower of (i) $1,125 ($4.50 pre-split) and (ii) the greater of (I) $1,000 ($4.00 pre-split) and (II) 85% of the quotient
of (x) the sum of the volume weighted average price of the common stock for each of the 5 consecutive trading days ending on the
trading day immediately preceding the delivery of the Conversion Notice, divided by (y) 5 or (B) that price which shall be the
lowest of (i) $750 ($3.00 pre-split) and (ii) the greater of (I) the Floor Price then in effect and (II) 85% of the quotient of
(x) the sum of the volume weighted average price of the Company’s common stock for each of the 5 consecutive trading days
ending and including the date of the alternate conversion, divided by (y) 5. The Floor Price was defined as $750 ($3.00 pre-split)
through October 4, 2017 and $125 ($0.50 pre-split) following October 4, 2017. On October 23, 2017, the Company and the Investor
entered into a Third Amendment and Exchange Agreement (the “Third Exchange Agreement”) for the purpose of exchanging
the New Note for 3,789 (947,218 pre-split) shares of common stock (the “New Exchange Shares”) and rights (the “Rights”)
to receive 2,211 (552,782 pre-split) additional shares of common stock. As partial consideration for the New Exchange Shares and
the Rights, the Investor agreed, among other things, to terminate the Investor’s right to exchange the remaining Exchange
Shares for New Notes. The termination of these rights is accounted for as financing fees associated with the February 2017 Notes,
valued at $19,950,000 based on the trading price of the Company’s stock on the date of the Third Exchange Agreement and
recorded as interest expense.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
August 2017 Notes
On August 16,
2017, the Company issued to the Investor three Senior Secured Convertible Notes (the “August 2017 Notes”) in the
aggregate principal amount of $10,300,000 and a 5-year warrant for the purchase of 7,572 (1,892,972 pre-split) shares of the
Company’s common stock at an exercise price of $812.50 ($3.25 pre-split) per share (the “Investor Warrant”)
for consideration consisting of a secured promissory notes payable by the Investor to the Company (the “August 2017
Investor Notes”) in the principal amount of $8,800,000 and $220,000, which offset the August 2017 Notes of the same
amount. The August 2017 Notes had a maturity date of April 16, 2018 and the Investor Warrant had an expiration date of April
16, 2022. The $220,000 secured promissory note payable by the Investor was issued in exchange for a $250,000 Senior Secured
Convertible Note; therefore, a discount of $30,000 was recognized upon issuance and accreted into interest expense over the
life of the note using the effective interest method. Upon issuance, the Investor Warrant, which was determined to be a
liability, was recorded at fair value and accounted for as an original issuance discount to the August 2017 Notes. The excess
in value of the Investor Warrant over the August 2017 Notes upon issuance was recorded as interest expense, while the initial
principal balance was recorded as a debt discount and accreted into interest expense over the life of the August 2017
Notes.
At December 31, 2017,
the contracted conversion prices for the August 2017 Notes, which included an Initial Series A Note, an Additional Series A Note
and the Series B Note, were $1,000 ($4.00 pre-split) for the Initial Series A Note and the Additional Series A Note and $750 ($3.00
pre-split) for the Series B Note. As of December 31, 2017, the Investor had fully prepaid the August 2017 Investor Note and converted
$5,794,560 in principal amount, plus accrued interest, of the August 2017 Notes into 5,931 (1,482,639 pre-split) shares of the
Company’s common stock. On any principal balance owed by the Company to the Investor, a 6% interest obligation was due quarterly
and calculated on a 360-day basis. For the three and nine months ended September 30, 2018, the Company had $0 and $37,126, respectively,
of interest expense pertaining to the unpaid principal amount of the August 2017 Notes. The full outstanding principal balance
of $4,677,899 and accrued interest of $37,126 were converted to 4,678 (1,169,475 pre-split) shares of the Company’s common
stock on February 20, 2018. As of September 30, 2018, the unpaid principal amount of the August 2017 Notes owed to the Investor
was $0.
The Investor Warrant
included anti-dilution provisions. The anti-dilution provisions were triggered when the Company issued a new senior convertible
note to the Investor in the aggregate principal amount of $697,000 (the “Exchange Note”) in September 2017. Because
the Exchange Note had a conversion price of $750 ($3.00 pre-split) per share, which was lower than the Investor Warrant per share
exercise price of $812.50 ($3.25 pre-split), the number of shares of the Company’s common stock issuable to the Investor
pursuant to the Investor Warrant was increased from 7,572 (1,892,972 pre-split) to 8,203 (2,050,720 pre-split) and the per share
exercise price of the Investor Warrant was decreased from $812.50 ($3.25 pre-split) to $750 ($3.00 pre-split). As of December
31, 2017, the Investor had elected, in a cashless transaction, to exercise the Investor Warrant to purchase 6,860 (1,715,006 pre-split)
shares of common stock and also paid the Company the sum of $977,142 to exercise the Investor Warrant for an additional 1,303
(325,714 pre-split) shares of common stock. On November 21, 2017 in conjunction with the Fourth Amendment and Exchange Agreement
entered into between the Investor and the Company, the remaining 40 (10,000 pre-split) shares of common stock subject to the Investor
Warrant were exchanged for a new warrant (the “Exchange Warrant”). The Exchange Warrant, which was determined to be
a liability and was recorded at fair value, was in substantially the form of the Investor Warrant, except that:
|
●
|
The Exchange Warrant
had an exercise price of $3,578 ($14.31 pre-split).
|
|
●
|
The expiration date
of the Exchange Warrant was November 21, 2022.
|
|
●
|
The Exchange
Warrant could not be exercised for the purchase of shares of common stock unless the stockholders of the Company approve
the issuance in compliance with the rules and regulations of The Nasdaq Capital Market, which stockholder approval was
obtained at a special meeting of the Company’s stockholders in October 2017.
|
|
●
|
The
Exchange Warrant was subject to redemption, refund or alternate cashless exercise after the August 2017 Notes were no longer
outstanding (or on or after February 16, 2018 if the Company failed to remain current in its filings or an event of default
under the August 2017 Notes occurred).
|
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
In March 2018, the
Investor exercised the Exchange Warrant by means of a cashless exercise into 17,414 (4,353,581 pre-split) shares of common stock
and a cash payment from the Company of $779,219, resulting in a reduction of the warrant liability and corresponding adjustment
to Additional Paid in Capital.
With the issuance
of the Exchange Warrant, the resulting cash flows of the remaining Investor Warrant were considered to be significantly modified
within the context of ASC 470. Accordingly, the incremental change in fair value between the Investor Warrant and the Exchange
Warrant was calculated as $12,878,864 and recorded as interest expense.
November 2017 Notes
On November 7, 2017,
the Company issued two Senior Secured Convertible Notes in the aggregate principal amount of $100,000,000 (collectively, the “November
2017 Notes”) to institutional investors. The November 2017 Notes consist of a Senior Secured Convertible Note in the amount
of $5,000,000 (the “November Initial Note”) and a Senior Secured Convertible Note in the amount of $95,000,000 (the
“November Additional Note”) in exchange for an upfront cash payment of $5,000,000 and a senior secured promissory
note of $95,000,000 (the “November 2017 Investor Note”). As of December 31, 2017, purchasers of the November 2017
Notes prepaid $15,650,000 of the November 2017 Investor Note with the remaining principal being subject to master netting agreements
between the Company and such holders. In conjunction with the prepayment, the Company was also obligated to pay the holders interest
which would have accrued with respect to the outstanding balance for the period from the redemption date through the maturity
date (the “Make-Whole Interest”). As cash is received from the November 2017 Investor Note, and the related principal
amount of the November 2017 Notes increases accordingly, a derivative liability related to the conversion feature and Make-Whole
Interest feature embedded within the November 2017 Notes is recorded as a debt discount, and accreted into interest expense over
the life of the November 2017 Notes using the effective interest method, and any excess value over the amount of cash received
is expensed immediately to interest expense. In addition, November Placement Agent Warrants are also issued (See
The Placement
Agent Notes Warrants
below), recognized as liabilities pursuant to their terms and recorded as a debt discount, and accreted
into interest expense over the life of the November 2017 Notes using the effective interest method, and any excess value over
the amount of cash received is expensed immediately to interest expense.
The Company elected
to defer payment of the Make-Whole Interest by capitalizing the full balance under the same terms as the original November 2017
Notes. On January 2, 2018, an additional $646,263 of interest was capitalized and added to the principal balance of the November
2017 Notes and on January 26, 2018, investors redeemed principal of $2,894,062 in exchange for cash. On April 2, 2018 and July
2, 2018, an additional $1,028,730 and $714,977 of interest respectively, was capitalized and added to the principal balance of
the note. As of September 30, 2018, the entire capitalized balance was converted to shares of the Company’s common stock
and the outstanding balance owed on the capitalized Make-Whole Interest was $0.
The November 2017
Notes have a maturity date of November 7, 2019. On any unfunded principal balance of the November 2017 Investor Notes the Company
owed to the investors a 5.25% interest obligation which is due quarterly and calculated on a 360-day basis. For the funded portion
of the November 2017 Notes the Company has a 10% interest obligation. The initial conversion price for the November 2017 Notes,
which includes both the November Initial Note and November Additional Note, was $3,015 ($12.06 pre-split). However, the conversion
price may be adjusted upon obtaining stockholder approval in accordance with Nasdaq Listing Rule 5635(d) of the issuance of our
common stock at any conversion price below $3,015, which may result from full ratchet conversion price adjustments required by
the November 2017 Notes in the event of certain issuances below the initial conversion price. Such stockholder approval was obtained
at the stockholders meeting held in February 2018. As a result, during the second and third quarters of 2018, in conjunction with
the April 2018 Offering and the sale of shares in the ATM Offering at prices lower than the initial conversion price, the conversion
price for the November 2017 Notes has been reduced, and as of September 30, 2018, the conversion price was $0.02.
During the second and
third quarters of 2018, the Company received cash prepayments on the November 2017 Investor Notes of $58,959,736, of which $58,959,736
of principal and $8,252,583 of accrued interest, were converted into 612,792 (58,905,544 pre-split) shares of the Company’s
common stock during the nine months ended September 30, 2018. As of September 30, 2018, there was no outstanding unrestricted
principal under the November 2017 Notes and $20,388,861 in restricted principal outstanding for which there was a corresponding
amount due under corresponding November 2017 Investor Notes. For the three and nine months ended September 30, 2018, the Company
recognized $261,657 and $5,994,771 of interest expense pertaining to the November 2017 Notes and had $261,657 of accrued interest
as of September 30, 2018.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
On
June 1, 2018, the Company entered into an amendment to the securities purchase agreement between the Company and the institutional
investors holding the November 2017 Notes to reduce the number of shares of common stock required to be reserved for issuance
under the November 2017 Notes from 200% to 110% of the maximum number of shares of common stock issuable upon conversion of the
November 2017 Notes until the earlier of the January 2018 Notes Stockholder Approval Date (as defined below) and August 1, 2018.
After such date, the required reserve amount will be increased back to 200%. As more fully described in Note 19 – Subsequent
Events, the Securities Purchase Agreement between the Company and certain institutional investors pursuant to which the Company
issued the November 2017 Notes was amended to reduce the number of shares of common stock of the Company required to be reserved
for issuance under the November 2017 Notes to 100% of the maximum number of shares of common stock of the Company issuable upon
conversion of the November 2017 Notes.
MoviePass has guaranteed
the obligations arising under the November 2017 Notes.
January 2018 Notes
On January 23, 2018,
pursuant to a securities purchase agreement (the “January Securities Purchase Agreement”) entered into by the Company
and an institutional investor the Company sold and issued senior convertible notes in the aggregate principal amount of $60,000,000
(collectively, the “January 2018 Notes”), consisting of (i) a Series A-1 Senior Bridge Subordinated Convertible Note
in the aggregate principal amount of $25,000,000 (the “Series A-1 Note”) and (ii) a Series B-1 Senior Secured Bridge
Convertible Note in the aggregate principal amount of $35,000,000 (the “Series B-1 Note”) for consideration consisting
of (i) a cash payment in the aggregate amount of $25,000,000, and (ii) a secured promissory note payable by the buyer to the Company
(the “January 2018 Investor Note”) in the aggregate principal amount of $35,000,000 which is subject to a master netting
agreement between the Company and the buyer (collectively, the “January 2018 Financing”). In conjunction with the
prepayment of the January 2018 Investor Note the Company was also obligated to pay the buyer interest which would have accrued
with respect to the outstanding balance for the period from the redemption date through the maturity date (the “January
Make-Whole Interest”). As cash is received from the January 2018 Investor Note, and the related principal amount of the
January 2018 Notes increases accordingly, a derivative liability related to the conversion feature and the January Make-Whole
Interest feature embedded within the January 2018 Notes is recorded as a debt discount and any excess value over the amount of
cash received is expensed immediately to interest expense. In addition, January Placement Agent Warrants were also issued (See
The Placement Agent Notes and Warrants
below), recognized as liabilities pursuant to their terms and recorded as a debt
discount, and accreted into interest expense over the life of the January 2018 Notes using the effective interest method, and
any excess value over the amount of cash received was expensed immediately to interest expense.
The Company
elected to defer payment of the January Make-Whole Interest by capitalizing the full balance under the same terms as the
original January 2018 Notes. On April 2, 2018, $352,187 and July 2, 2018, $468,180 of interest, respectively, was capitalized
and added to the principal balance of the note. As of September 30, 2018, the entire capitalized was converted to shares of
the Company’s common stock and the outstanding balance owed on the capitalized Make-Whole Interest was $0.
Unless earlier converted
or redeemed, the January 2018 Notes have a maturity date of January 23, 2020. The Series A-1 Note bears interest at a rate of
10% per annum. Upon issuance, the Series B-1 Note initially consisted entirely of “Restricted Principal” which is
defined as that portion of the principal amount of a Series B-1 Note that equals the outstanding principal amount of the corresponding
January 2018 Investor Note. The principal amount of the January 2018 Investor Note is subject to reduction through prepayments
by the buyer of the January 2018 Investor Note given by the buyer to the Company or, upon maturity or redemption of the Series
B-1 Note, by netting the amount owed by the buyer under the January 2018 Investor Note against a corresponding amount of principal
to be canceled under the buyer’s Series B-1 Note. Each prepayment under the January 2018 Investor Note will convert a corresponding
amount of Restricted Principal under the Series B-1 Note into “Unrestricted Principal” that may be converted into
common stock.
The January 2018 Notes
have an initial conversion price of $2,860 ($11.44 pre-split) per share. However, pursuant to the January Securities Purchase
Agreement, the Company was required to seek stockholder approval in accordance with Nasdaq Listing Rule 5635(d) of the issuance
of our common stock at a conversion price per share as low as $1.83 following the occurrence of an event of default or otherwise
at any conversion price below $2,860 which may result from full ratchet conversion price adjustments required by the January 2018
Notes in the event of certain issuances below the initial conversion price. Such stockholder approval was obtained on July 23,
2018. As a result, in conjunction with the April 2018 Offering and the sale of shares in the ATM Offering at prices lower than
the initial conversion price, the conversion price for the January 2018 Notes has been reduced, and as of September 30, 2018,
the conversion price was $0.02.
The Company is required
to redeem the January 2018 Notes (i) at the option of the buyer from and after June 7, 2018; (ii) at the option of the buyer if
the Company completes a subsequent public or private offering of debt or equity securities, including equity-linked securities
(subject to certain excluded issuances); (iii) upon the occurrence of an Event of Default, including a Bankruptcy Event of Default
(each, as defined in the January 2018 Notes); or (iv) in the event of a Change of Control (as defined in the January 2018 Notes).
With the exception of a redemption required by an Event of Default (as defined in the January 2018 Notes), which may be paid with
cash or shares of the Company’s common stock at the election of the buyer, the Company will be required to redeem the January
2018 Notes with cash. All amounts outstanding under the January 2018 Notes are secured by the January 2018 Investor Note and all
proceeds therefrom. The January 2018 Notes are not secured by, and the buyer does not have a lien on, any assets of the Company
other than the January 2018 Investor Note.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
MoviePass has guaranteed
the obligations arising under the January 2018 Notes.
Provided there has
been no Equity Conditions Failure (as defined in the January 2018 Notes) and, as to the Series A-1 Note, no August 2017 Notes
or November 2017 Notes remain outstanding, and as to the Series B-1 Note, no August 2017 Notes, November 2017 Notes, Series A-1
Note or Series B-1 Note with any Unrestricted Principal remain outstanding, the Company will have the right to redeem all, but
not less than all, of the Outstanding Amount (as defined in the January 2018 Notes) remaining unpaid under the January 2018 Notes.
The portion of the January 2018 Notes subject to redemption can be redeemed by the Company in cash at a price equal to 115% of
the amount being redeemed. Under the Series B-1 Note, the Company may reduce, on a dollar for dollar basis, the Restricted Principal
by the surrender for cancellation of such portion of the corresponding January 2018 Investor Note equal to the amount of Restricted
Principal included in the redemption.
During the third quarter
of 2018, the Company received cash payments on the January 2018 Notes of $6,000,000, of which $6,000,000 of principal and $909,021
of accrued interest, were converted into 109,897,912 shares of the Company’s common stock during the third quarter of 2018.
Additionally, during the third quarter of 2018, the Company converted principal under the January 2018 Notes in the amount of
$820,367, and interest of $128,068 into 1,896,872 shares of the Company’s common stock. As of September 30, 2018, there
was no outstanding unrestricted principal on the January Notes. For the three and nine months ended September 30, 2018, the Company
recognized $372,167 and $1,182,130 of interest expense pertaining to the January 2018 Notes and had $372,167 of accrued interest
as of September 30, 2018.
On June 1, 2018, the
Company and the buyer entered into an amendment to the January Securities Purchase Agreement and the January 2018 Notes to reduce
the number of shares of common stock required to be reserved for issuance under the January 2018 Notes from 200% to 100% of the
maximum number of shares of common stock issuable upon conversion of the January 2018 Notes until the earlier of (1) the date
stockholders approve resolutions providing for the issuance of the January 2018 Notes and the shares of common stock issuable
upon conversion of the January 2018 Notes (the “January 2018 Notes Stockholder Approval” and the date the Stockholder
Approval is obtained, the “January 2018 Notes Stockholder Approval Date”) and (2) August 1, 2018. After such date,
the required reserve amount will be increased back to 200%. The amendment to the January Securities Purchase Agreement also extended
the date by which the Company must hold the special meeting to obtain the January 2018 Notes Stockholder Approval from June 1,
2018 to August 1, 2018. As more fully described in Note 19 – Subsequent Events, the January Securities Purchase Agreement
was amended to reduce the number of shares of common stock of the Company required to be reserved for issuance under the January
2018 Notes to 125% of the maximum number of shares of common stock of the Company issuable upon conversion of the January 2018
Notes.
February 2018 Units Offering
On February 13, 2018,
the Company sold an aggregate of approximately $105 million worth of units (the “Units”) of the Company’s securities
to Canaccord Genuity Inc., on behalf of itself and as representative of the underwriters (the “Underwriters”), pursuant
to which the Company issued and sold to the Underwriters in a best-efforts underwritten public offering (the “Offering”)
at a purchase price of $5.192 per Unit with each Unit consisting of (A) 7,425,000 Series A-1 units (the “Series A-1 Units”),
with each Series A-1 Unit consisting of (i) 0.004 (one pre-split) share of the Company’s common stock, and (ii) 0.004 (one
pre-split) Series A-1 warrant to purchase 0.004 (one pre-split) share of the Company’s common stock (a “Series A-1
Warrant”); and (B) for those purchasers whose purchase of Series A-1 Units would result in the purchaser, together with
its affiliates and certain related parties, beneficially owning more than 9.99% of the Company’s outstanding common stock
following the consummation of the Offering, 11,675,000 Series B-1 units (the “Series B-1 Units”), consisting of (i)
0.004 (one pre-split) pre-funded Series B-1 warrant to purchase 0.004 (one pre-split) share of common stock (a “Series
B-1 Warrant”; and the Series B-1 Warrants, together with the Series A-1 Warrants, the “Warrants”) and (ii) 0.004
(one pre-split) Series A-1 Warrant.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Each Warrant is exercisable
at any time on or after the issuance date until the five-year anniversary of the issuance date. Each Series A-1 Warrant is exercisable
at a price of $1,625 ($6.50 pre-split) per share of common stock. Each Series B-1 Warrant has an aggregate exercise price of $1,375
($5.50 pre-split) per share of common stock, all of which were pre-funded except for a nominal exercise price of $0.001 per share
of common stock. All Series B-1 Warrants were exercised.
The Company received
approximately $96.9 million in net proceeds from the sale of the Units, after deducting underwriting discounts and commissions
equal to $5.9 million and estimated offering expenses of approximately $0.5 million, not taking into account any exercise of the
Warrants. In addition, Palladium Capital Advisors, LLC acted as financial advisor in connection with the Offering and received
a financial advisory fee equal to $1.9 million.
The Warrants were
recorded as liabilities and initially recorded at fair value with the residual amount received allocated to the Company’s
common stock. The exercise price of and number of shares of the Company’s common stock underlying the Warrants are subject
to adjustment upon the issuance by the Company of stock dividends, stock splits, and similar proportionately applied changes affecting
the Company’s outstanding common stock. In addition, the Series A-1 Warrants are subject to adjustment of the applicable
exercise price then in effect, if, as of December 17, 2018 (the “Adjustment Date”), the quotient determined by dividing
the (x) sum of the VWAP (as defined in the Series A-1 Warrant) of the common stock for each trading day during the 10 consecutive
trading day period ending and including the trading day immediately preceding the Adjustment Date, divided by (y) 0.4 (10 pre-split)
(all such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period) (the “Adjustment Price”), is less than the applicable exercise price. If the Adjustment
Price is less than the applicable exercise price as of the Adjustment Date, then the exercise price shall be automatically adjusted
to be equal to the Adjustment Price.
If the Company consummates
any merger, consolidation, sale or other reorganization event in which its common stock is converted into or exchanged for securities,
cash or other property (“Fundamental Transaction”), then the Company shall pay at the Warrants holder’s option,
exercisable at any time commencing on the occurrence or the consummation of a Fundamental Transaction and continuing for 90 days,
an amount of cash equal to the value of the remaining unexercised portion of the warrant as determined in accordance with the
Black-Scholes option pricing model on the date of such Fundamental Transaction.
April 2018 Units Offering
On April 23, 2018,
the Company sold an aggregate of approximately $30 million worth of units (the “April 2018 Units”) of the Company’s
securities to Canaccord Genuity Inc., on behalf of itself and as representative of the underwriters (the “April Offering
Underwriters”), pursuant to which the Company issued and sold to the April Offering Underwriters in a best-efforts underwritten
public offering (the “April 2018 Offering”) at a purchase price of $2.59875 per April 2018 Unit with each April 2018
Unit consisting of (A) 10,500,000 Series A-2 units (the “Series A-2 Units”), with each Series A-2 Unit consisting
of (i) 0.004 (one pre-split) share (an “April Share”) of the Company’s common stock, and (ii) 0.004 (one pre-split)
Series A-2 warrant to purchase 0.004 (one pre-split) share of common stock (the “Series A-2 Warrants”); and (B) for
those purchasers whose purchase of Series A-2 Units would result in the purchaser, together with its affiliates and certain related
parties, beneficially owning more than 9.99% of the Company’s outstanding common stock following the consummation of the
April 2018 Offering, 500,000 Series B-2 units (the “Series B-2 Units”), consisting of (i) 0.004 (one pre-split) pre-funded
Series B-2 warrant to purchase 0.004 (one pre-split) share of common stock (the “Series B-2 Warrants”, and together
with the Series A-2 Warrants, the “April Warrants”) and (ii) 0.004 (one pre-split) Series A-2 Warrant. The April Shares,
Series A-2 Warrants and Series B-2 Warrants were immediately separable.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Each April Warrant
is exercisable at any time on or after the issuance date until the five-year anniversary of the issuance date. Each Series A-2
Warrant is exercisable at a price of $250 ($1.00 pre-split) per share of common stock. Each Series B-2 Warrant had an aggregate
exercise price of $687.50 ($2.75 pre-split) per share of common stock, all of which were pre-funded except for a nominal exercise
price of $0.001 per share of common stock. All of the Series B-2 Warrants were exercised.
The Company received
approximately $27.7 million in net proceeds from the sale of the April 2018 Units, after deducting underwriting discounts and
commissions equal to $1.7 million and estimated offering expenses of approximately $1.0 million, not taking into account any exercise
of the April Warrants. In addition, Palladium Capital Advisors, LLC acted as financial advisor in connection with the April 2018
Offering and received a financial advisory fee equal to $0.6 million
The April Warrants
were recorded as liabilities and initially recorded at fair value with the residual amount received allocated to the Company’s
common stock. The exercise price of and number of shares of common stock underlying the April Warrants are subject to adjustment
upon the issuance by the Company of stock dividends, stock splits, and similar proportionately applied changes affecting the Company’s
outstanding common stock. The Series A-2 Warrants also include “full ratchet” anti-dilution protection provisions
(the “Full Ratchet Adjustment”), which provide that if the Company issues any shares of common stock at a price less
than the then current exercise price of the Series A-2 Warrants, or if the Company issues any securities convertible into, or
exercisable, or exchangeable for, shares of common stock with an exercise or conversion price less than the then current exercise
price of the Series A-2 Warrants, then the exercise price of the Series A-2 Warrants will automatically be reduced to the issuance
price of the new shares of common stock or the exercise or conversion price of the April Warrants, options or other convertible
or exchangeable securities.
The Full Ratchet Adjustment
does not apply if the Company issues “Excluded Securities”, including certain (i) option and other equity incentive
awards approved by the Company’s Board of Directors to be issued to directors, officers, consultants and employees, (ii)
shares of common stock issuable pursuant to existing employment agreements, (iii) shares of common stock issued upon conversion
or exercise of convertible securities that were previously issued, (iv) shares of common stock issued pursuant to strategic license
agreements, mergers or acquisitions (but does not include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital), (v) shares of common stock issued under the ATM Offering after the fifteenth calendar day that
the Series A-2 Warrants were issued and (vi) 2,000 (500,000 pre-split) shares granted by the Company’s Board of Directors
to Helios & Matheson Information Technology Ltd, a current stockholder of the Company, in exchange for its entry into a 12-month
lock-up agreement with the Company.
If the Company consummates
any merger, consolidation, sale or other reorganization event in which its common stock is converted into or exchanged for securities,
cash or other property (“fundamental transaction”), then the Company shall pay at the holder’s option, exercisable
at any time commencing on the occurrence or the consummation of a fundamental transaction and continuing for 90 days, an amount
of cash equal to the value of the remaining unexercised portion of the warrant as determined in accordance with the Black-Scholes
option pricing model on the date of such fundamental transaction.
June 2018 Convertible Notes and Series A Preferred Stock
On June 26, 2018,
pursuant to the Securities Purchase Agreement, dated as of June 21, 2018, by and between the Company and certain institutional
investors (the “June Buyers” and such agreement, the “June Securities Purchase Agreement”), the Company
issued and sold 20,500 shares of Series A Preferred Stock of the Company (the “Preferred Stock”) and Series B-2 Senior
Convertible Notes in the aggregate principal amount of $164,000,000 (which includes an approximate 15.0% original issue discount)
(the “June 2018 Convertible Notes”), for total consideration consisting of an aggregate cash payment to the Company
of $20,500,000 and secured promissory notes payable by the June Buyers to the Company (the “June 2018 Investor Notes”)
in the aggregate principal amount of $139,400,000.
Unless earlier converted or redeemed, the June 2018 Convertible Notes would have
matured on June 26, 2020. The maturity date of the June 2018 Investor Notes was June 26, 2060. Upon issuance, (i) $24,600,000
in principal amount of the June 2018 Convertible Notes consisted of “Unrestricted Principal”, which is defined as
that portion of the principal amount of June 2018 Convertible Note that may be converted at any time and is not subject to netting
against any June 2018 Investor Notes, and (ii) the balance of the principal amount under the June 2018 Convertible Notes, equal
to $139,400,000, consisted entirely of “Restricted Principal”, which is defined as that portion of the principal amount
of a June 2018 Convertible Note that equals the outstanding principal amount of a corresponding June 2018 Investor Note. The principal
amount of each June 2018 Investor Note was subject to reduction through prepayments by the applicable June Buyer of the applicable
June 2018 Investor Note given by the applicable June Buyer to the Company or, upon maturity or redemption of the June 2018 Convertible
Notes, by netting the amount owed by the applicable June Buyer under such June 2018 Investor Note against a corresponding amount
of Restricted Principal to be canceled under the June 2018 Convertible Note. Each prepayment under the June 2018 Investor Notes
would convert a corresponding amount of Restricted Principal under the June 2018 Convertible Notes into “Unrestricted Principal”
that could be converted into common stock.
As of September 30,
2018, the June Buyers prepaid $24,600,000 of the June 2018 Investor Notes with the remaining principal being subject to a master
netting agreement between the Company and the June Buyers (collectively, the “June 2018 Financing”). In conjunction
with the prepayment, the Company was also obligated to pay the June Buyers interest which would have accrued with respect to the
outstanding balance for the period from the redemption date through the maturity date (the “June Make-Whole Interest”).
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
On any unfunded principal
balance of the June 2018 Investor Notes the Company owed to the June Buyers a 5.25% interest obligation which was due quarterly
and calculated on a 360-day basis. For the funded portion of the June 2018 Notes the Company had a 10% interest obligation.
Interest on the June
2018 Convertible Notes was capitalized on each quarterly interest payment date starting July 1, 2018 by adding the interest to
the then outstanding principal amount of the June 2018 Convertible Notes. Interest could also be paid by inclusion in the “Outstanding
Amount”, which is defined in the June 2018 Convertible Notes as the principal amount to be converted or redeemed, accrued
and unpaid interest with respect to such principal amount, accrued and unpaid late charges, if any, and the “June Make-Whole
Amount.” The “June Make-Whole Amount” is defined as the amount of any interest that, but for a conversion or
redemption, would have accrued with respect to the Outstanding Amount (as defined in the June 2018 Convertible Notes) of principal
being redeemed or converted under the June 2018 Convertible Notes, for the period from the applicable date of conversion or redemption
date through the maturity date of the June 2018 Convertible Notes. No June Make-Whole Amount is payable under the June 2018 Convertible
Notes with respect to any portion of Restricted Principal after the cancellation of such Restricted Principal pursuant to netting
under the June 2018 Convertible Notes, the June 2018 Investor Notes or the Master Netting Agreement (as defined below), as applicable.
In the event of an event of default interest under the June 2018 Convertible Notes could be increased to 15% during the first
30 days following the occurrence and continuance of an event of default and to 18% thereafter (the “Default Rate”).
Provided there
has been no Equity Conditions Failure (as defined in the June 2018 Convertible Notes) and no November 2017 Notes, January 2018
Notes, or shares of the Preferred Stock remain outstanding and no Unrestricted Principal remains outstanding under the June 2018
Convertible Notes, the Company had the right to redeem all, but not less than all, of the Outstanding Amount remaining unpaid
under the June 2018 Convertible Notes. The portion of the June 2018 Convertible Notes subject to redemption could be redeemed
by the Company in cash at a price equal to 115% of the amount being redeemed. Under the June 2018 Convertible Notes, the Company
could reduce, on a dollar for dollar basis, the Restricted Principal by the surrender for cancellation of such portion of the
corresponding June 2018 Investor Notes equal to the amount of Restricted Principal included in the redemption.
The June Buyers had
the right to elect, at any time after the Company obtains approval by its stockholders to either increase its authorized shares
of common stock or effect a reverse stock split, which approval was obtained on July 23, 2018, to convert the June 2018 Convertible
Notes into shares of the Company’s common stock at the Conversion Price, subject to certain beneficial ownership limitations
described below. The “Conversion Price” is $250 ($1.00 pre-split) per share (subject to anti-dilution adjustment as
described in the June 2018 Convertible Notes). However, pursuant to the June Securities Purchase Agreement, the Company was required
to seek stockholder approval in accordance with Nasdaq Listing Rule 5635(d) of the issuance of common stock at a conversion price
per share below $250 which may result from the full ratchet conversion price adjustments required by the June 2018 Convertible
Notes in the event of certain issuances below the initial conversion price. The Company was required to hold a special meeting
of stockholders by November 14, 2018 to obtain such approval. If such stockholder approval was obtained, if the Company issues
securities in certain transactions, such as the ATM Offering, at a price lower than the applicable conversion price, then the applicable
conversion price for the June 2018 Convertible Notes will be reduced to equal such lower price.
The Preferred Stock
was determined to be classified in equity. Accordingly, the June 2018 Convertible Notes and the Preferred Stock were recorded
based on their relative fair values. A derivative liability related to the conversion feature and make-whole interest feature
embedded within the June 2018 Convertible Notes is recorded as a debt discount, and accreted into interest expense over the life
of the June 2018 Convertible Notes using the effective interest method, and any excess value over the amount allocated to the
June 2018 Convertible Notes was expensed immediately to interest expense. In addition, June Placement Agent Warrants are also
issued (See
The Placement Agent Notes and Warrants
below), recognized as liabilities pursuant to their terms and recorded
as a debt discount, and accreted into interest expense over the life of the June 2018 Convertible Notes using the effective interest
method, and any excess value over the amount of cash received is expensed immediately to interest expense.
MoviePass has guaranteed
the obligations arising under the June 2018 Convertible Notes.
In connection with
the June 2018 Financing, Theodore Farnsworth, the Chief Executive Officer and Chairman of the Board of the Company, and Helios
& Matheson Information Technology Ltd, of which Muralikrishna Gadiyaram, a director of the Company, is the chief executive
officer, and its wholly-owned subsidiary, Helios & Matheson Inc., who collectively owned approximately 1.5% of the Company’s
issued and outstanding common stock as of the closing of the June 2018 Financing, entered into Voting and Lockup Agreements with
the Company. In addition, the Company entered into separate Buyer Voting Agreements with each of the June Buyers with terms consistent
with the June 2018 Amendment and Exchange Agreements (see
Exchange of Warrants for Common Shares
below).
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
As of September 30,
2018, there was no unrestricted principal balance of the June 2018 Convertible Notes outstanding and restricted principal outstanding
was $74,800,000 for which there was a corresponding amount due under the June 2018 Investor Notes. For the three and nine months
ended September 30, 2018, the Company recognized $959,933 and $965,233, respectively, of interest expense pertaining to the June
2018 Convertible Notes and had $959,933 of accrued interest as of September 30, 2018.
On October 4, 2018,
the Company entered into an Amendment and Exchange Agreement (the “October Exchange Agreement”) with the holder of
a June 2018 Convertible Note having an outstanding principal amount of $68,882,583 for the purpose of (i) netting the June 2018
Investor Note issued by such holder to the Company having an aggregate principal amount of $68,000,000 against such holder’s
June 2018 Convertible Note and (ii) following such netting transaction, exchanging the remaining outstanding amount payable under
such holder’s June 2018 Convertible Note for a new non-convertible Senior Note issued by the Company to such holder (the
“New Non-Convertible Note”) in an aggregate principal amount of $20,400,000, subject to reduction as provided in the
New Non-Convertible Note. As a result, such holder’s June 2018 Convertible Note and the corresponding June 2018 Investor
Note issued by such holder were each cancelled and became null and void.
Following the consummation
of the transactions contemplated by the October Exchange Agreement and the netting of the other June 2018 Investor Notes by the
other holders of the June 2018 Investor Notes against their corresponding June 2018 Convertible Notes, all of the June 2018 Convertible
Notes have been cancelled.
Exchange of Warrants for Common Shares
On June 28, 2018,
the Company entered into separate June 2018 Amendment and Exchange Agreements (each, an “Exchange Agreement”) with
the holders (each, a “Holder” and collectively, the “Holders”) of certain warrants to purchase shares
of the Company’s common stock for the purpose of exchanging outstanding warrants to purchase an aggregate of 106,437 (26,609,269
pre-split) shares of common stock (the “June Exchange Warrants”) for an aggregate of 90,472 (22,617,879 pre-split)
shares of common stock (collectively, the “June Exchange Shares”), based on a ratio of 0.85 June Exchange Shares for
each warrant share. As a result, the June Exchange Warrants have been cancelled.
On June 28, 2018,
each Holder that was not a party to the June Securities Purchase Agreement entered into a voting agreement with the Company (each,
a “Voting Agreement” and collectively, the “Voting Agreements”). Pursuant to the Voting Agreements, each
Holder agreed to vote the June Exchange Shares and any shares of common stock the Holder owns or may acquire (collectively, the
“Holder Securities”) at any meeting of stockholders of the Company: (a) in favor of (i) approval of resolutions providing
for the January 2018 Notes Stockholder Approval, (ii) an increase in the authorized shares of the Company and (iii) a reverse
stock split of the common stock; and (b) against any proposal or any other corporate action or agreement that would result in
a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Transaction
Documents (as defined in the June Securities Purchase Agreement) or the Transaction Documents (as defined in the January Securities
Purchase Agreement) or which could result in any of the conditions to the Company’s obligations under the Transaction Documents
(as defined in the June Securities Purchase Agreement) or the Transaction Documents (as defined in the January Securities Purchase
Agreement), as applicable, not being fulfilled. The agreements to vote the Holder Securities described above terminate immediately
following the occurrence of the January 2018 Notes Stockholder Approval described above.
The Voting Agreements
also required that, at any time on or prior to the record date for the meeting of stockholders of the Company at which the
Company obtained the January 2018 Notes Stockholder Approval, each Holder would not sell or transfer any of the June Exchange
Shares. However, the Holders (or their designees, as applicable) were not prohibited from (i) using their Holder Securities to
cover the Holders’ or their respective affiliates’ Short Sales (as defined in SEC Regulation SHO) outstanding as of
the date of the Voting Agreement, (ii) lending any of their Holder Securities to any person, or (iii) pledging any of the Holder
Securities to any person.
In connection with
the Exchange Agreements, on June 28, 2018, each Holder entered into a leak-out agreement with the Company (each a “Leak-Out
Agreement” and collectively, the “Leak-Out Agreements”), which restricted each Holder from selling the June
Exchange Shares during certain periods. Pursuant to the Leak-Out Agreements, for a period ending on the earlier of (x) July 23,
2018 and (y) the Stock Split Stockholder Approval Date (as defined in the June Securities Purchase Agreement) (such earlier date,
the “Lock-Up End Date”), the Holder was not, after the date of the Leak-Out Agreement, to sell any of the June Exchange
Shares. However, the Holders (or their designees, as applicable) were not prohibited from (i) using their Holder Securities to
cover the Holders’ or their respective affiliates’ Short Sales (as defined in SEC Regulation SHO) outstanding as of
the date of the Leak-Out Agreement, (ii) lending any of their Holder Securities to any person, or (iii) pledging any of their
Holder Securities to any person. In addition, subject to certain exclusions, Holders and any Trading Affiliates (as defined in
the Leak-Out Agreements) were restricted from selling specified amounts of their June Exchange Shares for up to fifteen calendar
days after the Lock-Up End Date, unless certain events, as described in the Leak-Out Agreements, earlier terminated such restrictions.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
On June 28, 2018,
the Company and the Required Holder (as defined in the June Securities Purchase Agreement), entered into an amendment to the June
Securities Purchase Agreement (“Amendment No. 1 to Securities Purchase Agreement”), pursuant to which the Stockholder
Meeting Deadline (as defined in the June Securities Purchase Agreement) was amended from July 18, 2018 to July 23, 2018.
The collective June
Exchange Warrants which were exchanged in this transaction, were all recorded as liabilities at fair value upon issuance, and
marked to market at each balance sheet date. The June Exchange Warrants were valued through the date of exchange, June 28, 2018,
based upon the original terms of the agreements with changes in fair value recorded in the as gain/loss on warrant liability.
The June Exchange Warrants were then valued on the same day based on the fair value of the common shares into which they were
converted (0.85 June Exchange Shares for each warrant), and the difference in the fair value between the two instruments was recorded
as gain/loss on exchange of warrant. The fair value determined on June 28, 2018 then became the consideration received for the
issuance of the common stock. The excess of the consideration received over the par value of the common stock was recorded as
Additional Paid in Capital. Accordingly, the incremental change in fair value between the Investor Warrant and the Exchange Warrant
is calculated as $301,500 and recorded as Gain on Exchange of Warrants.
Waiver Agreements
On July 10, 2018,
the Company entered into a Waiver Agreement (the “July Waiver Agreement”) with a holder of the November 2017 Notes,
January 2018 Notes and June 2018 Convertible Notes (collectively, the “Existing Notes”).
Pursuant to the July
Waiver Agreement, such holder, in its capacity as the Required Holder under the Securities Purchase Agreements pursuant to which
the Existing Notes were issued: (i) waived any obligation by the Company to effect any redemption of the Existing Notes as a result
of the consummation of a proposed public offering of securities by the Company (the “New Proposed Offering”), (ii)
reduced the aggregate number of shares required to be reserved for issuance upon conversion of the November 2017 Notes and the
January 2018 Notes, (iii) deferred the right that the holders of the Existing Notes may have to adjust the Conversion Price (as
defined in the applicable Existing Note) of such Existing Notes solely as a result of the issuance of securities in the New Proposed
Offering until the fourth trading day after the time of the pricing of the New Proposed Offering, (iv) consented to the New Proposed
Offering, and (v) waived any prohibition with respect to the issuance of the securities in the New Proposed Offering.
On July 13, 2018,
the Company entered into an amendment (the “Amendment”) to the July Waiver Agreement. The Amendment revised the July
Waiver Agreement as follows: (i) the waiver of the Company’s obligation to effect any redemption of the Existing Notes as
a result of the consummation of a New Proposed Offering (as defined in the July Waiver Agreement) applies only to the extent the
redemption right arises from the occurrence of a Financing (as defined in the June 2018 Convertible Notes) occurring between July
11, 2018 and July 17, 2018; (ii) the number of shares permitted to be offered in the New Proposed Offering was reduced; (iii)
the number of shares required to be reserved for issuance upon conversion of the November 2017 Notes was increased; (iv) the reduction
in the number of shares required to be reserved upon conversion of the November 2017 Notes (the “Reduction Shares”)
ends when stockholders approve either an increase in the authorized shares of common stock or a reverse stock split of the common
stock, and if the Reduction Shares are not issued prior to close of market on July 17, 2018, the Reduction Shares that were not
issued would be restored to (and increase) the reserve for the November 2017 Notes; and (v) the deferral of the right that the
holders of the Existing Notes may have to adjust the Conversion Price (as defined in the applicable Existing Note) of such Existing
Notes solely as a result of the issuance of securities in the New Proposed Offering until the fourth trading day after the time
of the pricing of the New Proposed Offering provided in the July Waiver Agreement was eliminated.
July 13, 2018 Demand Note
On July 13, 2018 the
Company issued a demand note (the “July 13 Demand Note”) in the principal amount of $6,806,850, which included $5.0
million in cash borrowed by the Company from the holder and $1,806,850 required to be paid by the Company to the holder pursuant
to a partial redemption of the June 2018 Convertible Notes held by the holder. The July 13 Demand Note bore interest on the unpaid
principal amount at the rate of 10.0% per year. The holder could make a demand for full payment of the July 13 Demand Note from
and after July 17, 2018. The Company was required to use all proceeds received by the Company under its ATM Offering to repay
the July 13 Demand Note. The July 13 Demand Note and all accrued interest could be prepaid by the Company without penalty. With
the agreement of the holder, principal and interest accrued on the July 13 Demand Note could be applied to all, or any part, of
the purchase price of securities to be issued upon the consummation, after July 13, 2018, of an offering of securities by the
Company to the holder. Any amount of principal or other amounts due which is not paid when due would result in a late charge being
incurred and payable by the Company to the holder in an amount equal to interest on such amount at the rate of 15% per year from
the date such amount was due until the same is paid in full.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
The $5,000,000 cash
proceeds received from the July 13 Demand Note were used by the Company to pay the Company’s merchant and fulfillment processors.
MoviePass executed
a guaranty (the “MoviePass July 13 Demand Note Guaranty”) pursuant to which MoviePass guaranteed the punctual payment
of the July 13 Demand Note, including, without limitation, all principal, interest and other amounts that accrue after the commencement
of any insolvency proceeding of the Company or MoviePass, whether or not the payment of such interest and/or other amounts are
enforceable or are allowable and agreed to pay any and all costs and expenses (including counsel fees and expenses) incurred by
the holder in enforcing any rights under the MoviePass July 13 Demand Note Guaranty or the July 13 Demand Note.
On July 31, 2018, the
Company paid in full the $6,800,000 outstanding under the July 13 Demand Note.
July 27, 2018 Demand Note
On July 27, 2018,
the Company issued a demand note (the “July 27 Demand Note”) in the principal amount of $6,200,000, which included
$5.0 million in cash borrowed by the Company from the holder and $1.2 million of original issue discount. The holder could make
a demand for full payment of the July 27 Demand Note from and after (x) with respect to up to $3,100,000 of the principal outstanding
under the July 27 Demand Note (the “Initial Principal”), August 1, 2018 or (y) with respect to any other amounts then
outstanding under the July 27 Demand Note, August 5, 2018. The Company was required to use all proceeds received by the Company
on or after July 31, 2018 from sales of common stock under its ATM Offering against any Initial Principal until no Initial Principal
remains outstanding, and thereafter, against any remaining amounts due under the July 27 Demand Note. The July 27 Demand Note’s
principal, together with accrued and unpaid late charges could be prepaid by the Company without penalty. With the agreement of
the holder, principal and accrued and unpaid late charges on the July 27 Demand Note could be applied to all, or any part, of
the purchase price of securities to be issued upon the consummation, after July 27, 2018, of an offering of securities by the
Company to the holder. Any amount of principal or other amounts due which is not paid when due (a “Payment Default”)
would result in a late charge being incurred and payable by the Company to the holder in an amount equal to interest on such amount
as the rate of 15% per year from the date such amount was due until the same was paid in full. If a Payment Default remained outstanding
for a period of 48 hours, the holder could require the Company to redeem all or a portion of the July 27 Demand Note at a redemption
price of 130%.
The $5,000,000 cash
proceeds received from the July 27 Demand Note were used by the Company to pay the Company’s merchant and fulfillment processors.
If the Company is unable to make required payments to its merchant and fulfillment processors, the merchant and fulfillment processors
may cease processing payments for MoviePass, which would cause a MoviePass service interruption. Such a service interruption occurred
on July 26, 2018. Any future service interruptions could have a further material adverse effect on MoviePass’ ability to
retain its subscribers. This would have an adverse effect on the Company’s financial position and results of operations.
MoviePass executed
a guaranty (the “MoviePass July 27 Demand Note Guaranty”) pursuant to which MoviePass guaranteed the punctual payment
of the July 27 Demand Note, including, without limitation, all principal, interest and other amounts that accrue after the commencement
of any insolvency proceeding of the Company or MoviePass, whether or not the payment of such interest and/or other amounts are
enforceable or are allowable, and agreed to pay any and all costs and expenses (including counsel fees and expenses) incurred
by the holder in enforcing any rights under the MoviePass July 27 Demand Note Guaranty or the July 27 Demand Note.
On July 31, 2018,
the Company paid in full the $6,200,000 outstanding under the July 27 Demand Note.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
The Placement Agent Notes and Warrants
The Company entered
into an agreement with a placement agent (the “Placement Agent”) for assistance with the placement of the February
2017 Notes. The Placement Agent accepted from the Company a 5-year warrant (each, a “February Placement Agent Warrant”)
as partial payment for the Placement Agent’s services. The February Placement Agent Warrants allow the purchase of up to
8% of the number of shares of the Company’s common stock into which the unrestricted principal of the February 2017 Notes
may be converted. Through the first nine months of 2017, the Company received $5,000,000 of cash payments for the February 2017
Notes, resulting in the issuance of February Placement Agent Warrants for the purchase of 533 (133,334 pre-split) shares of common
stock at an exercise price of $750 ($3.00 pre-split) per share. As of September 30, 2018, the Placement Agent has not elected
to exercise any February Placement Agent Warrants.
The Company entered
into an agreement with the Placement Agent for assistance with the placement of the August 2017 Notes and Investor Warrant. The
Placement Agent accepted from the Company a 5-year warrant (each, an “August Placement Agent Warrant”) as partial
payment for the Placement Agent’s services. The August Placement Agent Warrants allow the purchase of up to 8% of the number
of shares of the Company’s common stock into which the unrestricted principal of the Additional Series A Note and the Series
B Note in the combined principal amount of $9,050,000 becomes convertible at an exercise price equal to the greater of the exercise
price of the August 2017 Notes and the consolidated closing bid price of the Company’s common stock on the date that the
Placement Agent becomes entitled to the August Placement Agent Warrants. During the period ended December 31, 2017, the Company
received $8,800,000 of cash payments in conjunction with the August 2017 Notes and issued August Placement Agent Warrants for
the purchase of 704 (176,000 pre-split) shares of common stock at exercise price of $750 ($3.00 pre-split) and $3,568 ($14.27
pre-split) per share. As of September 30, 2018, the Placement Agent has not elected to exercise any August Placement Agent Warrants.
The Company
entered into an agreement with the Placement Agent for assistance with the placement of the November 2017 Notes. The Placement
Agent accepted from the Company a 5-year warrant (each, a “November Placement Agent Warrant”) as partial payment for
the Placement Agent’s services. The November Placement Agent Warrants allow the purchase of up to 8% of the number of shares
of the Company’s common stock into which the unrestricted principal of the November Series A Note and the November 2017
Notes in the combined principal amount of $100,000,000 becomes convertible at an exercise price equal to the greater of the exercise
price of the November 2017 Notes and the consolidated closing bid price of the Company’s common stock on the date that the
Placement Agent becomes entitled to the November Placement Agent Warrants. During the nine months ended September 30, 2018, the
Company received $58,959,736 of cash payments for the November 2017 Notes resulting in the issuance of 751 (187,711 pre-split)
warrants at an exercise price of $3,015 ($12.06 pre-split) per share. As of September 30, 2018, the Placement Agent has not elected
to exercise any November Placement Agent Warrants.
The Company entered
into an agreement with the Placement Agent for assistance with the placement of the January 2018 Notes. The Placement Agent accepted
from the Company a 5-year warrant (each, a “January Placement Agent Warrant”) as partial payment for the Placement
Agent’s services. The January Placement Agent Warrants allow the purchase of up to 8% of the number of shares of the Company’s
common stock into which the unrestricted principal of the Series A-1 Note and the Series B-1 Note in the combined principal amount
of $0 becomes convertible at an exercise price equal to the greater of the exercise price of the January 2018 Notes and the consolidated
closing bid price of the Company’s common stock on the date that the Placement Agent becomes entitled to the January Placement
Agent Warrants. During the nine months ended September 30, 2018, the Company received $31,000,000 of cash payments for the January
2018 Notes resulting in the issuances of 867 (216,786 pre-split) warrants at an exercise price of $2,860 ($11.44 pre-split) per
share. As of September 30, 2018, the Placement Agent has not elected to exercise any January Placement Agent Warrants.
The
Company entered into an agreement with the Placement Agent for assistance with the placement of the June 2018 Financing. The Placement
Agent accepted from the Company a 5-year warrant (each, a “June Placement Agent Warrant”) as partial payment for the
Placement Agent’s services. The June Placement Agent Warrants allow the purchase of up to 8% of the number of shares of
the Company’s common stock determined by dividing the aggregate purchase price of the Preferred Stock purchased by the Conversion
Price of the June 2018 Convertible Notes in effect as of the Subscription Date (as defined in the June Placement Agent Warrant)
and eight percent (8%) of the number of shares of common stock into which any Unrestricted Principal of the June 2018 Convertible
Notes purchased is initially convertible at the Conversion Price in effect as of the Subscription Date, at an exercise price equal
to the Conversion Price of the June 2018 Convertible Notes in effect as of the Subscription Date, without regard to any adjustment
of the Conversion Price resulting from the anti-dilution provision of the June 2018 Convertible Notes, other than proportionate
adjustments to the Conversion Price resulting from stock splits or combinations or similar proportionately applied changes to
the Company’s outstanding common stock. During the nine months ended September 30, 2018, the Company issued 3,200 (800,000
pre-split) warrants at an exercise price of $250 ($1.00 pre-split) per share. As of September 30, 2018, the Placement Agent has
not elected to exercise any June Placement Agent Warrants.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Note Activity
:
MoviePass Films Senior
Notes consist of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
GFF79 loan from SSS Entertainment
|
|
$
|
150,000
|
|
|
$
|
-
|
|
A Vigilante loan from Film Science, LLC (See Note 16)
|
|
|
2,625,000
|
|
|
|
-
|
|
10 Minutes Gone loan from City National Bank
|
|
|
5,923,250
|
|
|
|
-
|
|
Balance at period end
|
|
$
|
8,698,250
|
|
|
$
|
-
|
|
On September 10, 2018,
MoviePass Films entered into a note payable for $7.2 million with annual interest equal to either a) 3.5% plus the prime rate
plus 0.25% or b) the greater of (i) 3.5% and (ii) the LIBOR rate plus 2.75%. The note can be prepaid at anytime without penalty
through the earlier of the abandonment of the production of the 10 Minutes Gone films or March 15, 2020.
Senior Secured Convertible
Notes consist of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
August 2017 Notes
|
|
$
|
-
|
|
|
$
|
2,061,072
|
|
November 2017 Notes
|
|
|
-
|
|
|
|
1,550,555
|
|
Balance at period end
|
|
$
|
-
|
|
|
$
|
3,611,627
|
|
Under ASC 210-20-45-1,
management offset the Senior Secured Convertible Notes by the corresponding investor notes payable to the Company that the Company
received as partial payment for the Senior Secured Convertible Notes (collectively, the “Investor Notes”) yet to be
funded. As of September 30, 2018, the unfunded portion of the Investor Notes remaining was $49,390,264.
The carrying value
of the Senior Secured Convertible Notes is comprised of the following:
|
|
September 30,
2018
|
|
|
December
31,
2017
|
|
August 2017 Notes
|
|
$
|
-
|
|
|
$
|
4,505,440
|
|
November 2017 Notes
|
|
|
-
|
|
|
|
2,943,069
|
|
Unamortized discounts
|
|
|
|
|
|
|
(3,836,882
|
)
|
Balance at period end
|
|
$
|
-
|
|
|
$
|
3,611,627
|
|
During the three months
ended September 30, 2018, the Investor has converted a total of $40,756,847 in principal and $5,537,785 in interest into 728,934,054
(including 361,245 shares which were split affected (90,311,250 pre-split)) shares of the Company’s common stock and for
the nine months ended September 30, 2018, the Investor has converted a total of $64,959,736 in principal and $9,161,604 in interest
into 729,185,600 (including 612,792 shares which were split affected (153,198,000 pre-split)) shares of the Company’s common
stock.
Warrant Liabilities Activity
:
The following is a
summary of the Company’s warrant activity during the nine months ended September 30, 2018:
|
|
Warrant Shares
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life Years
|
|
Outstanding/exercisable – December 31, 2017
|
|
|
38,526
|
|
|
$
|
6.04
|
|
|
|
4.86
|
|
Granted
|
|
|
180,819
|
|
|
|
3.84
|
|
|
|
4.44
|
|
Exercised
|
|
|
(151,877
|
)
|
|
|
7.17
|
|
|
|
4.40
|
|
Forfeited/cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding/exercisable – September 30, 2018
|
|
|
67,468
|
|
|
|
5.43
|
|
|
|
4.46
|
|
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
|
11.
|
Common
and Preferred Stock
|
Common Stock
On February 5, 2018,
the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the number
of authorized shares of common stock from 100,000,000 to 500,000,000 shares (the “Charter Amendment”). Following stockholder
approval of the Charter Amendment, a Certificate of Amendment to the Company’s Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on February 8, 2018, at which time the Charter Amendment became effective.
On July 23, 2018,
the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the number
of authorized shares of common stock from 500,000,000 to 5,000,000,000 shares and to increase the total number of authorized shares
of capital stock from 502,000,000 to 5,002,000,000 (the “Authorized Share Increase”), of which 2,000,000 shares with
a par value of one cent ($0.01) per share shall be designated as “Preferred Stock” and 5,000,000,000 shares with a
par value of one cent ($0.01) per share shall be designated as “Common Stock.” Following the stockholder approval,
a Certificate of Amendment to the Company’s Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on July 23, 2018, at which time the Authorized Share Increase became effective.
Reverse Stock Split
On July 23, 2018,
the Board of Directors approved the Reverse Stock Split and the filing of a Certificate of Amendment to the Certificate of Incorporation
of the Company to effectuate the Reverse Stock Split.
A Certificate of Amendment
to the Company’s Certificate of Incorporation authorizing the Reverse Stock Split was filed with the Secretary of State
of the State of Delaware on July 24, 2018, and the Reverse Stock Split became effective in accordance with the terms of the Certificate
of Amendment on July 24, 2018.
The Reverse Stock
Split did not affect the number of authorized shares of common stock, which (following the Authorized Share Increase) is 5,000,000,000
shares. A proportionate adjustment was made to (i) the per share exercise price and the number of shares issuable upon the exercise
or conversion of the Company’s outstanding equity awards, options and warrants to purchase shares of common stock and outstanding
convertible notes and (ii) the number of shares reserved for issuance pursuant to the Company’s 2014 Equity Incentive Plan.
Fractional shares were not issued as a result of the Reverse Stock Split; instead, the Board of Directors, determined to effect
an issuance of shares to holders that would otherwise be entitled to a fractional share such that any fractional shares were rounded
up to the nearest whole number.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
Preferred Stock
On June 25, 2018,
the Company filed an amended Certificate of Incorporation in the State of Delaware to designate 20,500 shares of preferred stock
as the Preferred Stock.
The following is a description of the Preferred
Stock:
Dividends
The Preferred Stock does not accrue dividends.
Conversion
The Preferred Stock is not convertible
into common stock.
Voting Rights
Each share of Preferred
Stock is entitled to 3,205 votes per share on all matters on which holders of common stock are entitled to vote. However, the
amount of votes with respect to the Preferred Stock held by any holder, when aggregated with any other voting securities of the
Company held by such holder, cannot exceed 19.9% of the Company’s outstanding voting power calculated as of June 21, 2018
(or such greater percentage allowed by Nasdaq without any stockholder approval requirements).
Redemption
From and after the
time when the first 15% of the aggregate principal amount of any June 2018 Convertible Notes is paid or converted in accordance
with the terms of the June 2018 Convertible Notes, the Company will have the right to redeem all or a portion of the Preferred
Stock at a price per share equal to $0.01, payable, at the Company’s option with cash or shares of common stock or, if required
by certain beneficial ownership limitations, rights to receive common stock.
Transfer
The shares of Preferred
Stock are transferable, subject to limitations, as defined, and applicable securities laws.
Liquidation
Preference
Upon any liquidation,
dissolution or winding up of the Company, the holders of the shares of Preferred Stock will be entitled to receive in cash out
of the assets of the Company, before any amount is paid to the holders of any junior stock, including common stock of the Company,
an amount per share of Preferred Stock equal to 100% of the stated value per share (which is equal to $1,000) plus $0.01.
The Certificate of
Designations also includes covenants restricting the Company’s ability to take certain actions without the approval of at
least a majority of the outstanding shares of the Preferred Stock.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
|
12.
|
Fair
Value of Financial Assets and Liabilities Measured on a Recurring Basis
|
Financial assets and
liabilities measured at fair value on a recurring basis are summarized below and disclosed on the Company’s consolidated
balance sheets as of September 30, 2018 and December 31, 2017:
|
|
Amount at
|
|
|
Fair Value Measurement Using
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – warrants
|
|
$
|
60,809
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
60,809
|
|
Total
|
|
$
|
60,809
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
60,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – warrants
|
|
$
|
67,288,800
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
67,288,800
|
|
Derivative liability – conversion feature
|
|
|
4,834,462
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,834,462
|
|
Total
|
|
$
|
72,123,262
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
72,123,262
|
|
The table below provides
a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured
at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30,
2018:
|
|
Amount
|
|
Balance at December 31, 2017
|
|
$
|
72,123,262
|
|
Issuances to debt discount
|
|
|
105,223,694
|
|
Issuances to interest expense
|
|
|
40,734,226
|
|
Reclass from APIC to derivative - February offering
|
|
|
158,944,798
|
|
Reclass from APIC to derivative - April offering
|
|
|
33,997,600
|
|
Warrants issued in acquisition of Moviefone
|
|
|
5,475,500
|
|
Gain on exchange of warrants
|
|
|
(301,487
|
)
|
Settlement of warrant liability for March warrant exchange
|
|
|
(12,894,165
|
)
|
Settlement of warrant liability for June warrant exchange
|
|
|
(5,202,100
|
)
|
Gain on March exchange (cash paid)
|
|
|
(781,195
|
)
|
Conversion to paid-in capital
|
|
|
(134,365,641
|
)
|
Gain on extinguishment
|
|
|
(60,524,508
|
)
|
Change in FMV warrant
|
|
|
(194,058,069
|
)
|
Change in FMV derivative
|
|
|
(8,311,106
|
)
|
Balance at September 30, 2018
|
|
$
|
60,809
|
|
The fair value of
the derivative conversion features and warrant liabilities as of September 30, 2018 and December 31, 2017 were calculated using
a Monte Carlo option model valued with the following weighted average assumptions:
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
Amount
|
|
Amount
|
Dividend yield
|
|
0%
|
|
-
|
|
0%
|
|
|
|
0%
|
|
|
Expected volatility
|
|
165%
|
|
-
|
|
280%
|
|
45%
|
|
-
|
|
270%
|
Risk free interest rate
|
|
2.40%
|
|
-
|
|
2.93%
|
|
1.06%
|
|
-
|
|
2.20%
|
Contractual term (in years)
|
|
1.14
|
|
-
|
|
4.55%
|
|
0.19
|
|
-
|
|
5.00
|
Exercise price
|
|
$0.01
|
|
-
|
|
$1,812.50
|
|
$
0.25
($0.001
pre-split)
|
|
-
|
|
$
3,577.50
($14.310 pre-split)
|
Changes in the observable
input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant
unobservable input (probability of a down round event) used in the fair value measurement is the estimation of the likelihood
of the occurrence of a change in the contractual terms of the financial instruments. A significant increase (decrease) in this
likelihood would result in a higher (lower) fair value measurement.
HELIOS
AND MATHESON ANALYTICS INC.
Notes
to Condensed Consolidated Financial Statements
|
13.
|
Stock
Based Compensation
|
The
Company has a stock-based compensation plan, which is described as follows:
On March 3, 2014,
the Board of Directors approved and adopted the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan (the “2014
Plan”) which the Company’s stockholders approved at the annual stockholders’ meeting on May 5, 2014. The 2014
Plan as amended set aside and reserved 12,000 (3,000,000 pre-split) shares of the Company’s common stock for grant and issuance
in accordance with its terms and conditions. Persons eligible to receive awards from the 2014 Plan include employees (including
officers and directors) of the Company and its affiliates, consultants who provide significant services to the Company or its
affiliates, and directors who are not employees of the Company or its affiliates (the “Participants”). The 2014 Plan
permits the Company to issue to Participants qualified and/or non-qualified options to purchase the Company’s common stock,
restricted common stock, performance units, and performance shares. The 2014 Plan will terminate on March 3, 2024. The Company’s
Board of Directors is responsible for administration of the 2014 Plan and has the sole discretion to determine which Participants
will be granted awards and the terms and conditions of the awards granted. The 2014 Plan also provides for an annual automatic
increase in the number of shares of common stock authorized for issuance thereunder by the lesser of (A) 12,000 (3,000,000 pre-split)
shares of the Company’s common stock or the equivalent of such number of shares after the administrator of the 2014 Plan,
in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar
transaction; (B) a number of shares of common stock equal to 5% of the Company’s common stock outstanding on January 2nd
of each year, and (C) an amount determined by the Company’s Board of Directors. A total of 10,440 (2,610,000 pre-split)
shares of common stock remained available for issuance as of September 30, 2018.
As of September 30,
2018, there have not been any stock option grants made pursuant to the 2014 Plan.
From time to time
the Board of Directors has also authorized the issuance of shares of common stock outside of the 2014 Plan to consultants and
employees for services rendered. During the three and nine months ended September 30, 2018 the Company awarded 0 and 2,027 (506,750
pre-split) shares, respectively, to consultants who provided services to the Company. In connection with such awards (including
awards granted in 2017) the Company recorded stock compensation expense of $232,188 and $5,913,349, which is included in selling,
general and administrative expenses for the three and nine months ended September 30, 2018, respectively. Unamortized stock compensation
costs related to these awards at September 30, 2018 of $250,333 will be recognized over the anticipated service period during
the balance of 2018. The Company issued 0 and 4,809 (1,202,167 pre-split) shares of common stock to employees and consultants
for services provided during 2017 during the three and nine months ended September 30, 2018, respectively. The Company recognized
expense in 2017 of $15,631,605, with respect to such awards, and also recorded a liability on the balance sheet at December 31,
2017, related to these costs which were settled in shares.
The
shares historically issued both pursuant to the 2014 Plan and outside the 2014 Plan have been fully vested in certain cases and
subject to vesting conditions in other cases; they generally contain resale or transfer restrictions pursuant to lock up agreements
ranging from 18 to 24 months from the award date.
The
Company generally recognizes stock compensation expense on the grant date and over the period of vesting or period that services
will be provided. Compensation associated with shares issued or to be issued to consultants and other non-employees is recognized
over the expected service period beginning on the measurement date which is generally the time the Company and the service provider
enter into a commitment whereby the Company agrees to grant shares in exchange for the services to be provided.
HELIOS
AND MATHESON ANALYTICS INC.
Notes
to Condensed Consolidated Financial Statements
MoviePass,
Inc.
MoviePass
maintained the 2011 Equity Incentive Plan (the “2011 Plan”) during the nine months ended September 30, 2018. The 2011
Plan provides for the grant of up to 95,000,000 shares of common stock for issuance as non-statutory or incentive stock options,
stock appreciation rights, restricted stock and restricted stock units to the employees, officers, directors, or consultants of
MoviePass. The 2011 Plan is administered by the Board of Directors of MoviePass, which selects the individuals to whom options
will be granted, and determines the number of options to be granted and the term and exercise price of each option. Stock options
granted pursuant to the terms of the 2011 Plan generally cannot be granted with an exercise price of less than 100% of the fair
market value on the date of grant. The term of the options granted under the 2011 Plan cannot be greater than 10 years. Options
vest at varying rates generally over three to five years along with performance-based options.
For the nine months
ended September 30, 2018, MoviePass granted 39,809,175 stock options at an exercise price of $0.43 per share.
The
following table summarizes stock option activity under the MoviePass share-based plan for the nine months ended September 30,
2018:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Options for
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Common
Shares
|
|
|
Exercise
Price
|
|
|
Contractual
Term
|
|
|
Intrinsic
Value
|
|
Outstanding as of December 31, 2017
|
|
|
28,396,428
|
|
|
$
|
0.14
|
|
|
|
9.13
|
|
|
$
|
8,313,684
|
|
Granted
|
|
|
39,809,175
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited, cancelled, expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2018
|
|
|
68,205,603
|
|
|
$
|
0.31
|
|
|
|
8.93
|
|
|
$
|
6,760,947
|
|
Vested and exercisable at September 30, 2018
|
|
|
27,476,989
|
|
|
$
|
0.20
|
|
|
|
8.58
|
|
|
$
|
5,042,235
|
|
The weighted average
grant date fair value per share of stock options granted during the nine months ended September 30, 2018 was $0.16. No options
were exercised during the nine months ended September 30, 2018.
The Company recognized
share-based payment expense associated with stock options of $1,170,726 and $4,257,970 for the three and nine months ended September
30, 2018, respectively.
The
following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees:
|
|
Nine months ended
|
|
|
|
September 30,
2018
|
|
Risk-free interest rate
|
|
|
2.50
|
%
|
Expected life of options – years
|
|
|
5.79
|
|
Expected stock price volatility
|
|
|
37.20
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
There
were no options granted to the Company’s Board of Directors or third parties during the nine months ended September 30,
2018.
HELIOS
AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial
Statements
|
14.
|
Concentration
of Credit Risk
|
Consulting
For
the three months ended September 30, 2018 and September 30, 2017, respectively, 3 customers accounted for 85.0% and 4 customers
accounted for 92.8% of consulting revenues.
For
the nine months ended September 30, 2018 and September 30, 2017, respectively, 4 customers accounted for 92.3% and 4 customers
accounted for 88.9% of consulting revenues.
As
of September 30, 2018 and December 31, 2017, respectively, 7 customers accounted for 100.0% and 4 customers accounted for 62.6%
of consulting accounts receivables.
As
of September 30, 2018 and December 31, 2017, respectively, 5 vendors accounted for 90.8% and 3 vendors accounted for 82.7% of
consulting accounts payables.
Technology
As of September 30,
2018 and December 31, 2017, respectively, 5 vendors accounted for 82.3% and 3 vendors accounted for 60.8% of technology accounts
payables.
Subscription and Marketing, Promotional
Services, and Films
As of September
30, 2018 and December 31, 2017, respectively, 4 customers accounted for 96.7% of subscription and marketing, promotional
services, and films accounts receivables and 2 customers accounted for 100.0% of subscription and marketing, promotional
services, and films accounts receivables.
As of September 30,
2018 and December 31, 2017, respectively, 6 vendors accounted for 51.8% subscription and marketing, promotional services, and
films accounts payables and 1 vendor accounted for 41.0% of subscription and marketing, promotional services, and films accounts
payables.
|
15.
|
Commitments
and Contingencies
|
The
Company’s operating lease commitments as of September 30, 2018 are comprised of the following:
|
|
Payments due by period
|
|
Less than 1 year
|
|
$
|
74,094
|
|
1 to 3 years
|
|
|
548,808
|
|
3 to 5 years
|
|
|
347,985
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
970,887
|
|
The Company’s
executive office is located at the Empire State Building, 350 Fifth Avenue, Suite 7520, New York, New York 10118. The Company’s
executive office is located in a leased facility with a term expiring on June 30, 2022. Zone leases office space at 444 Brickell
Avenue, Miami Florida with a term expiring on April 30, 2020. Prior to August 1, 2018, MoviePass leased space at WeWork on a month
to month basis at 175 Varick Street New York, NY 10014. As of August 1, 2018, MoviePass has relocated to WeWork at 135 Madison
Avenue New York, NY 10016 under a one-year lease agreement effective July 9, 2018. In addition, the Company’s Indian subsidiary
has an office in Bangalore, India at a leased facility located at 3rd Floor, Beta Block, Number 7 Sigma Tech Park, Varthur Kodi,
Bangalore 560066. This lease was amended on September 26, 2017 to extend the duration of the lease until September 30, 2019.
HELIOS
AND MATHESON ANALYTICS INC.
Notes
to Condensed Consolidated Financial Statements
The
Company’s executive office lease is subject to escalations based on increases in real estate taxes and operating expenses,
all of which are charged to rent expense. Rent expense for the three months ended September 30, 2018 and 2017 was approximately
$585,702 and $81,051, respectively, and $1,046,790 and $215,068 for the nine months ended September 30, 2018 and 2017, respectively.
In April 2017, Zone
signed a three-year lease agreement for office space at 444 Brickell Avenue, Miami Florida. The lease term began in May 2017 and
expires in April 2020 and requires a monthly rent payment of $5,026 for the first 12 months, $5,177 for the next 12 months, and
$5,332 for the last 12 months of the lease.
As
of September 30, 2018, the Company does not have any “Off Balance Sheet Arrangements”.
Legal
Proceeding
:
On August 2, 2018,
Jeffrey Chang, acting on behalf of himself and a putative class of persons who purchased or otherwise acquired the Company’s
common stock between August 15, 2017, and July 26, 2018, filed a class action complaint in the U.S. District Court for the Southern
District of New York against the Company and two of its executive officers, Theodore Farnsworth and Stuart Benson (the “August
2, 2018 Complaint”). Jeffrey Chang v. Helios and Matheson Analytics Inc., et. al., Case No. 1:18-cv-6965. The August 2,
2018 Complaint alleges, among other things, that the Company’s statements to the market were materially false or misleading.
The plaintiffs assert claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5.
On August 13, 2018,
Jeffrey Braxton, acting on behalf of himself and a putative class of persons who purchased or otherwise acquired the Company’s
common stock between August 15, 2017, and July 26, 2018, filed a class action complaint in the U.S. District Court for the Southern
District of New York against the Company and two of its executive officers, Theodore Farnsworth and Stuart Benson (the “August
13, 2018 Complaint”). Jeffrey Braxton v. Helios and Matheson Analytics, Inc. et al., Case No. 1:18-cv-07242-UA. The August
13, 2018 Complaint makes substantially identical allegations as the August 2, 2018 Complaint.
Motions have been
filed to consolidate the cases and for the appointment of lead plaintiff and lead plaintiffs’ counsel. The motions are scheduled
to be argued November 16, 2018. The Company intends to vigorously defend these matters and believes that they are without merit.
Given the preliminary status of the litigation, it is difficult to predict the likelihood of an adverse outcome or estimate the
amount or range of any reasonably possible losses, if any.
On September 20, 2018,
Yu Chen, a purported stockholder of the Company, filed a complaint in the Supreme Court of the State of New York, County of New
York, Index No. 654686/2018, derivatively on behalf of the Company against Theodore Farnsworth, Stuart Benson, Muralikrishna Gadiyaram,
Prathap Singh, Gavriel Ralbag, and Carl Schramm, and the Company as a nominal defendant (the “September 20, 2018 Complaint”).
The September 20, 2018 Complaint alleges claims for breach of fiduciary duty and unjust enrichment against the individual defendants.
The Plaintiff has agreed to stay the action pending a decision on an anticipated motion to dismiss the consolidated complaint
that is expected to be filed in the securities actions discussed above.
|
16.
|
Transactions
with Related Parties
|
Gadiyaram
Agreements
On
October 5, 2017, the Company entered into a consulting agreement (the “Consulting Agreement”) with Mr. Muralikrishna
Gadiyaram (the “Consultant”), a director of the Company, for a period of two years from the agreement date (the “Consulting
Term”). The Consulting Agreement formalized, on a compensatory basis, the arrangement that was in place for performance
without compensation by the Consultant for consulting services since the acquisition of Zone in November of 2016. Mr. Gadiyaram
will continue to provide guidance to the Company and Zone relating to the further development of their respective businesses and
technologies. In addition to the aforementioned services, if requested by the Company, Mr. Gadiyaram will provide guidance with
respect to the development of any businesses or technologies that the Company or Zone may acquire during the Consulting Term,
including, but not limited to, MoviePass. Pursuant to the Consulting Agreement, the Consultant will receive fees in the amount
of $18,750 per month in cash. Such fees have been accrued and paid by the Company since January 1, 2017. The amount payable to
Mr. Gadiyaram as of September 30, 2018 was approximately $18,750.
On
May 22, 2018, the Company and Helios and Matheson Information Technology, Ltd (“HMIT”), an Indian corporation, owned
and controlled by Mr. Muralikrishna Gadiyaram, a director of the Company executed a letter agreement whereby HMIT agreed not to
sell HMNY shares held by HMIT until after April 15, 2019 (the “Lockup Agreement”). In exchange for such Lockup Agreement
the Company agreed to issue to HMIT 2,000 (500,000 pre-split) shares of HMNY stock. As of September 30, 2018, the shares issuable
to HMIT had not yet been issued and accordingly, the Company accrued $225,000 with respect thereto, representing the value of
the shares on May 22, 2018.
HELIOS
AND MATHESON ANALYTICS INC.
Notes
to Condensed Consolidated Financial Statements
Emmett Furla Oasis Films (“EFO”)
On July 27, 2018,
the Company entered into an assignment agreement with Georgia Film Fund 50, LLC, a company owned and operated by EFO, for the
assignment of the rights, title and interest in the film
The Row
in exchange for a payment in the amount of $525,000. At
September 30, 2018, $400,000 of the payment due in connection with the assignment agreement was included in amounts due to related
parties on the balance sheet.
On
August 28, 2018, MoviePass Films entered into an assignment agreement with Georgia Film Fund 56, LLC, a company owned and operated
by EFO, for all of the rights, title and interest in the film
A Vigilante
, including all rights associated with distribution
agreements in connection therewith. MoviePass Films agreed to pay $3,499,400 in connection with the assignment of the rights granted,
in satisfaction of obligations of EFO with respect to the film. The terms of the related note payable provide for annual interest
of 20% and the amounts are due in September 2020.
As of September
30, 2018, $2,625,000 remains payable with respect thereto and is included in notes payable on the balance sheet.
On September 25, 2018,
Randall Emmett, Co-CEO of MoviePass Films advanced to MoviePass Films $100,000, which is included in due to related parties on
the balance sheet at September 30, 2018. On October 4
,
2018 this amount was repaid in full.
In September 2018, George
Furla and Randall Emmett, Co-CEO’s of MoviePass Films, entered into equity finance agreements with Georgia Film Fund 79,
LLC, a wholly owned subsidiary of MoviePass Films, for the partial funding of the production of the film
10 Minutes Gone
,
in the amounts of $400,000 and $250,000, respectively. These amounts are included in due to related parties on the balance sheet
at September 30, 2018. The principal amounts are repayable from the proceeds of the film plus interest at 20% per annum. The maximum
interest payable with respect to these equity finance agreements is subject to a two year cap.
|
17.
|
Provision
for Income Taxes
|
The Company had a
tax provision for the three months ended September 30, 2018 and 2017 of $10,283 and $(2,747), respectively, and $46,953 and $39,110
for the nine months ended September 30, 2018 and 2017, respectively. Tax for both the nine months ended September 30, 2018 and
2017 was comprised of minimum state taxes and a provision for tax in respect to taxes incurred by the Company’s Indian subsidiary.
The
Company’s provision for income taxes for the nine months ended September 30, 2018 and 2017 is based on the estimated annual
effective tax rate method prescribed by ASC 740-270, plus discrete items. The difference between the Company’s effective
tax rates for the nine months ended September 30, 2018 and 2017 and the US statutory tax rates of 21% and 35%, respectively, primarily
relates to changes in the valuation allowances against deferred tax assets, non-deductible expenses, state income taxes (net of
federal income tax benefit), the effect of taxes on foreign earnings, and changes to provisional amounts recorded for certain
aspects of the Act.
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that either some portion
or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, tax-planning strategies, and available carry-back capacity
in making this assessment, therefore, the Company has recorded a valuation allowance on its net domestic deferred tax assets,
excluding deferred tax liabilities that are not expected to serve as a source of income for the recognition of deferred tax assets
due to their indefinite reversal period (tax amortization of goodwill).
As
of September 30, 2018, the Company did not record any tax liabilities for uncertain income tax positions and concluded that all
of its tax positions are either certain or are not material to the Company’s financial statements. The Company is currently
not under audit in any jurisdiction in which it conducts business.
Operating segments
are defined as components of an enterprise about which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing
performance. The Company’s chief operating decision–making group is composed of the Chief Executive Officer and Chief
Financial Officer. The Company operates in three segments, Consulting, Technology, and Subscription and Marketing, Promotional
Services, and Film. During the three and nine months ended September 30, 2018, the Company reported three segments. The Company
allocates corporate expenses to the segments for purposes of individually measuring operating segments. Corporate expenses are
allocated on the basis of each segment’s relative earnings prior to the allocation.
HELIOS AND MATHESON
ANALYTICS INC.
Notes to Condensed
Consolidated Financial Statements
The
Company evaluates performance of its operating segments based on revenue and operating loss. The following table summarizes the
Company’s segment information for the following balance sheet dates presented, and for the three and nine months ended September
30, 2018 and 2017:
|
|
For the Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Consulting
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,471,223
|
|
|
$
|
3,672,036
|
|
Cost of revenue
|
|
|
2,023,707
|
|
|
|
2,969,357
|
|
Gross margin
|
|
|
447,516
|
|
|
|
702,679
|
|
Total operating expenses
|
|
|
19,908,946
|
|
|
|
6,280,032
|
|
Income/(loss) from operations
|
|
|
(19,461,430
|
)
|
|
|
(5,577,353
|
)
|
Total other income/(expense)
|
|
|
73,915,297
|
|
|
|
(44,914,576
|
)
|
Provision for income taxes
|
|
|
(8,826
|
)
|
|
|
39,110
|
|
Total net income/(loss)
|
|
$
|
54,445,041
|
|
|
$
|
(50,531,039
|
)
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross margin
|
|
|
-
|
|
|
|
-
|
|
Total operating expenses
|
|
|
2,871,608
|
|
|
|
4,601,330
|
|
Income/(loss) from operations
|
|
|
(2,871,608
|
)
|
|
|
(4,601,330
|
)
|
Total other income/(expense)
|
|
|
70
|
|
|
|
(47,220
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Total net income/(loss)
|
|
$
|
(2,871,538
|
)
|
|
$
|
(4,648,550
|
)
|
|
|
|
|
|
|
|
|
|
Subscription and Marketing, Promotional Services, and Films
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
202,479,613
|
|
|
|
-
|
|
Cost of revenue
|
|
|
422,347,371
|
|
|
|
-
|
|
Gross margin
|
|
|
(219,867,758
|
)
|
|
|
-
|
|
Loss on goodwill
|
|
|
38,524,016
|
|
|
|
|
|
Total other operating expenses
|
|
|
40,060,927
|
|
|
|
-
|
|
Income/(loss) from operations
|
|
|
(298,452,701
|
)
|
|
|
-
|
|
Total other income/(expense)
|
|
|
-
|
|
|
|
-
|
|
Provision for income taxes
|
|
|
(38,127
|
)
|
|
|
-
|
|
Total net income/(loss)
|
|
$
|
(298,490,828
|
)
|
|
$
|
-
|
|
HELIOS
AND MATHESON ANALYTICS INC.
Notes
to Condensed Consolidated Financial Statements
|
|
As of
September 30,
|
|
|
As of
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Consulting
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,674,904
|
|
|
$
|
569,886
|
|
Accounts receivable
|
|
$
|
290,561
|
|
|
$
|
332,753
|
|
Prepaid expenses and other current assets
|
|
$
|
638,522
|
|
|
$
|
3,382,127
|
|
Property and equipment
|
|
$
|
151,379
|
|
|
$
|
96,464
|
|
Intangible assets
|
|
$
|
805,482
|
|
|
$
|
-
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
-
|
|
Deposits and other assets
|
|
$
|
128,232
|
|
|
$
|
129,119
|
|
Accounts payable and accrued expenses
|
|
$
|
4,475,771
|
|
|
$
|
2,088,867
|
|
Liabilities to be settled in stock
|
|
$
|
5,669,263
|
|
|
$
|
20,875,045
|
|
Convertible notes payable
|
|
$
|
-
|
|
|
$
|
3,611,627
|
|
Warrant liability
|
|
$
|
60,809
|
|
|
$
|
67,288,800
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
4,834,462
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
160,124
|
|
|
$
|
21,933,765
|
|
Accounts receivable
|
|
$
|
-
|
|
|
$
|
-
|
|
Unbilled receivables
|
|
$
|
-
|
|
|
$
|
-
|
|
Prepaid expenses and other current assets
|
|
$
|
3,333
|
|
|
$
|
21,666
|
|
Property and equipment
|
|
$
|
81,613
|
|
|
$
|
95,301
|
|
Intangible assets
|
|
$
|
1,748,388
|
|
|
$
|
2,829,295
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
-
|
|
Deposits and other assets
|
|
$
|
10,052
|
|
|
$
|
10,052
|
|
Accounts payable and accrued expenses
|
|
$
|
164,447
|
|
|
$
|
607,622
|
|
Liabilities to be settled in stock
|
|
$
|
319,100
|
|
|
$
|
445,660
|
|
Convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Subscription and Marketing, Promotional Services,
and Films
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,015,944
|
|
|
$
|
2,445,742
|
|
Accounts receivable
|
|
$
|
30,432,024
|
|
|
$
|
27,137,466
|
|
Unbilled receivables
|
|
$
|
-
|
|
|
$
|
-
|
|
Prepaid expenses and other current assets
|
|
$
|
2,827,790
|
|
|
$
|
154,018
|
|
Property and equipment
|
|
$
|
146,674
|
|
|
$
|
42,270
|
|
Intangible assets
|
|
$
|
27,543,529
|
|
|
$
|
25,707,487
|
|
Goodwill
|
|
$
|
49,148,120
|
|
|
$
|
79,137,177
|
|
Deposits and other assets
|
|
$
|
496,888
|
|
|
$
|
8,000
|
|
Accounts payable and accrued expenses
|
|
$
|
13,051,042
|
|
|
$
|
10,447,514
|
|
Liabilities to be settled in stock
|
|
$
|
-
|
|
|
$
|
-
|
|
Note Payable
|
|
$
|
8,698,250
|
|
|
|
|
|
Convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred revenue
|
|
$
|
27,035,060
|
|
|
$
|
54,425,630
|
|
Due to Related Parties
|
|
$
|
1,150,000
|
|
|
$
|
-
|
|
Investment in films
|
|
$
|
13,403,433
|
|
|
$
|
-
|
|
HELIOS
AND MATHESON ANALYTICS INC.
Notes
to Condensed Consolidated Financial Statements
October
Amendment and Exchange Agreement
On October 4, 2018,
the Company entered into the October Exchange Agreement, with the holder of a June 2018 Convertible Note having an outstanding
principal amount of approximately $68,750,000 for the purpose of (i) netting the June 2018 Investor Note issued by such holder
to the Company having an aggregate principal amount of approximately $68,000,000 against such holder’s June 2018 Convertible
Note and (ii) following such netting transaction, exchanging the remaining outstanding amount payable under such holder’s
June 2018 Convertible Note for a new non-convertible Senior Note issued by the Company to such holder (the “New Non-Convertible
Note”) in an aggregate principal amount of $20,400,000, subject to reduction as provided in the New Non-Convertible Note.
As a result such holder’s June 2018 Convertible Note and the corresponding June 2018 Investor Note issued by such holder
were each cancelled and became null and void.
Following the consummation
of the transactions contemplated by the October Exchange Agreement and the netting of the other June 2018 Investor Notes by the
other holders of the June 2018 Investor Notes against their corresponding June 2018 Convertible Notes, all of the June 2018 Convertible
Notes have been cancelled.
Under the October
Exchange Agreement, at any time on or prior to the later of (i) the date that the New Non-Convertible Note no longer remains outstanding
and (ii) the first anniversary of the date of the October Exchange Agreement, the Company and its subsidiaries may not effect
any Subsequent Placement (as defined in the November Securities Purchase Agreement (as defined below)) unless the Company first
offers to issue and sell to, or exchange with, the holder of the New Non-Convertible Note, at least 25% of the securities offered
in the Subsequent Placement, subject to the terms and conditions of the October Exchange Agreement.
Amendment
to November Securities Purchase Agreement
Pursuant to the October
Exchange Agreement, the Securities Purchase Agreement between the Company and certain institutional investors pursuant to which
the Company issued the November 2017 Notes (the “November Securities Purchase Agreement”) was amended to reduce the
number of shares of common stock of the Company required to be reserved for issuance under the November 2017 Notes to 100% of
the maximum number of shares of common stock of the Company issuable upon conversion of the November 2017 Notes.
Amendment
to January Securities Purchase Agreement
Pursuant to the October
Exchange Agreement, the January Securities Purchase Agreement was amended to reduce the number of shares of common stock of the
Company required to be reserved for issuance under the January 2018 Notes to 125% of the maximum number of shares of common stock
of the Company issuable upon conversion of the January 2018 Notes.
HELIOS
AND MATHESON ANALYTICS INC.
Notes
to Condensed Consolidated Financial Statements
New
Non-Convertible Note
On
October 4, 2018, the Company issued the New Non-Convertible Note. The New Non-Convertible Note bears interest at a rate of 3%
per annum, capitalized quarterly. The New Non-Convertible Note is unsecured and not convertible into equity securities of the
Company. Unless earlier redeemed, the New Non-Convertible Note will mature on May 29, 2020.
As
long as no Event of Default (as defined in the New Non-Convertible Note) has occurred, the Company has the right to redeem the
New Non-Convertible Note at any time on or prior to the nine-month anniversary of the issuance of the New Non-Convertible Note
for 50% of the principal being redeemed and 100% of the accrued and unpaid interest and late charges, if any. After the nine-month
anniversary of the issuance of the New Non-Convertible Note, the Company has the right to redeem the New Non-Convertible Note
at any time for 100% of the principal being redeemed and 100% of the accrued and unpaid interest and late charges, if any. If
the Company does not redeem the New Non-Convertible Note within such nine-month period, the New Non-Convertible Note will amortize
monthly in cash for, from June 28, 2019, four monthly payments of $850,000 per month (plus accrued and unpaid interest, including
any capitalized interest) and, commencing on October 30, 2019, eight monthly payments of $2,125,000 (plus accrued and unpaid interest,
including any capitalized interest). Upon an Event of Default, the Company must redeem the New Non-Convertible Note in cash at
a price equal to, if the Event of Default occurs on or prior to the nine-month anniversary of the issuance of the New Non-Convertible
Note, and there is neither a Primary Covenant Event of Default nor a Bankruptcy Default (each as defined in the New Non-Convertible
Note), 50% of the principal being redeemed and 100% of the accrued and unpaid interest and late charges, if any, in each case,
multiplied by a redemption premium. If the Event of Default occurs after the nine-month anniversary of the issuance of the New
Non-Convertible Note, or there exists either a Primary Covenant Event of Default or a Bankruptcy Default, then the Company must
redeem the New Non-Convertible Note in cash at a price equal to 100% of the principal being redeemed and 100% of the accrued and
unpaid interest and late charges, if any, in each case, multiplied by a redemption premium.
If the holder of the
New Non-Convertible Note participates in a subsequent offering by the Company or prepays the January 2018 Investor Notes or November
2017 Investor Notes issued by such holder to the Company, then 14.5% of the cash proceeds paid (or payable) by such holder in
such applicable transaction will be used to pay down the New Non-Convertible Note on a dollar-for-dollar basis. Each such payment
amount will reduce the scheduled amortization payments on a reverse basis (i.e. last amortization reduced first).
Special
Meeting of Stockholders
The Special Meeting
of Stockholders scheduled to be held on November 14, 2018 to provide stockholders with an opportunity to vote on the proposed
reverse stock split in a ratio of 1 share-for-2 shares up to a ratio of 1 share-for-500 shares has been cancelled. The Company
was presenting the reverse stock split proposal in an effort to regain compliance with Rule 5550(a)(2). Since the Company will
not be able to effect a reverse stock split ten business days prior to December 18, 2018, absent an extension by The Nasdaq Capital
Market (of which there can be no assurance) the Company believes that our common stock will be subject to delisting from The Nasdaq
Capital Market, which would adversely impact the liquidity and marketability of our common stock.
If the Company does
not regain compliance with Rule 5550(a)(2) by December 18, 2018, the Company may be afforded a second 180-calendar day period
to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of
publicly held shares and all other initial listing standards for The Nasdaq Capital Market, except for the Minimum Bid Price Requirement.
In addition, the Company would be required to notify Nasdaq of its intent to cure the deficiency during the second compliance
period, which may include, if necessary, implementing a reverse stock split. If the Company is afforded additional time to regain
compliance (of which there can be no assurance), the Board of Directors of the Company plans to call a special meeting as soon
as practicable with a new record date for the Company’s stockholders to vote on a reverse stock split in an effort to regain
compliance with Rule 5550(a)(2). Even if the Company is eligible for an additional compliance period, Nasdaq may decline to grant
the Company an additional compliance period in its discretion.
If the Company does
not regain compliance with Rule 5550(a)(2) by December 18, 2018, and is either not eligible for an additional compliance period
at that time or Nasdaq declines to grant the Company an additional compliance period in Nasdaq’s discretion, the Staff will
provide notice to the Company that its securities will be subject to delisting. At that time, the Company may appeal the Staff’s
delisting determination to Panel. The Company would remain listed pending the Panel’s decision.