MoviePass/Reuters
MoviePass CEO Mitch Lowe and Helios and Matheson Chief Executive Ted Farnsworth in happier times.
- MoviePass' parent company appears to have turned to an old tactic to pay off an emergency cash advance it took out last Friday - issuing new shares.
- The company's share count has nearly quadrupled just since it executed a reverse stock split last week.
- The move is a familiar one for the company; it increased its share count by 3,000% over the previous year to help fund ongoing losses.
Things were so desperate for MoviePass last week that its parent company had to get an emergency $5 million cash advance from its largest shareholder to just to pay its payment processor so it could continue to take ticket orders from customers.
But by Tuesday, Helios and Matheson, MoviePass' corporate parent, was flush enough to completely pay not just the cash advance, but the entire $6.2 million note from the creditor.
It's not entirely clear how Helios and Matheson was able to turn its fortunes around in less than a week, and company officials did not respond to a request for comment. But the company's recent filings with the Securities and Exchanges Commission indicate it returned to an old tactic - issuing new shares of its stock.
While that move may have saved the company for now, it also likely played a role in the dramatic - and possibly terminal - decline in Helios and Matheson's stock price over the last week.
Helios and Matheson had to get and emergency cash advance
Last week, to prevent Helios and Matheson's stock from being delisted by the Nasdaq, company shareholders approved a reversed split of its shares. The next day, July 24, the company executed a 250-1 reverse split. The move left the company with about 1.7 million shares outstanding.
Helios and Matheson had its outage with its payment processor that prompted its demand for a cash advance from Hudson Bay Capital Management just three days later. That the company was running low on cash wasn't much of a surprise. On July 10, the company warned it had just $13.7 million in cash on hand at the end of June and another $32 million on deposit with its payment processor, but was burning through cash at a rate of about $45 million a month.
What was somewhat of a surprise is that days later, on July 31, Helios and Matheson repaid its creditor in full. But that announcement gave a strong indication of how it did so. Along with disclosing the payment, Helios and Matheson said its share count had swelled by 5 million shares to 6.7 million in the just the week since its reverse split.
That may not sound like a lot, but it means that the company nearly quadrupled its share count in that time period. If the company hadn't executed its reverse split, it would have been the equivalent of issuing 1.25 billion shares in the course of a week.
Helios and Matheson seems to have issued new shares to pay off its loan
Company officials didn't respond to requests to confirm that Helios and Matheson paid off its loan by issuing new shares. But its filings strongly indicate that's exactly what it did, in one of two fashions.
In the document in which Helios and Matheson announced its demand for a cash advance from Hudson Bay, it laid out the idea that it might sell new shares on the open market to repay the loan.
"All proceeds received by the company on or after July 31, 2018 from sales of common stock under its outstanding at-the-market offering ... must be applied against any initial principal until no initial principal remains outstanding, and thereafter, against any remaining amounts due under the demand note," the terms of the contract stated.
But the company also laid out the possibility that it might issue shares directly to Hudson Bay in lieu off cash to pay off the debt.
"With the agreement of the [Hudson Bay], principal and accrued and unpaid late charges on the demand note may 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."
In its filing announcing that it had paid off the loan, Helios and Matheson didn't say whether it did so in cash or by issuing shares to Hudson Bay.
The company has a history of using that tactic
The tactic of issuing new shares to raise funds is one the company has returned to again and again as losses swelled at MoviePass. Even before the stock split, its share count had swelled by more than 3,000% over the previous year.
Regardless of the approach it took to pay off its cash advance, the result was that the company's outstanding share count surged yet again. And, thanks to the law of supply and demand, that likely had a negative effect on Helios and Matheson's share price.
The company's stock closed regular trading on July 26 at $6.83 a share. On July 27, amid news of the outage and the emergency cash advance, it dropped to $2 a share. Since then it's fallen even farther, closing at 10 cents a share on Thursday - and putting it once again in danger of being delisted by the Nasdaq for failing to trade above $1 a share.
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