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MoviePass’ massive losses have been shouldered by shareholder army

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  • MoviePass and its parent company, Helios and Matheson Analytics, have covered massive losses by selling new shares of stock to a passionate base of retail shareholders.
  • At a special shareholders meeting in July, Helios CEO Ted Farnsworth characterized them as an “army” and stressed that he had their best interests in mind, while seeking support for measures he needed passed.
  • Within days, several assurances Farnsworth made at the meeting started to unwind.
  • Many Helios shareholders have seen their stakes fall over 99% in value, with some losing over $100,000.

It didn’t take long for Ted Farnsworth’s assurances to begin to unravel.

Less than 24 hours, to be exact.

At a special shareholders meeting on July 23, Farnsworth, the CEO of MoviePass owner Helios and Matheson Analytics, told a room of nervous but supportive investors that everything was going to be okay. He described Helios shareholders as an army that loved the MoviePass service and stressed that he was looking out for them.

“The institutions on Wall Street, they’re big boys, they make money, they lose money,” Farnsworth said, according to a recording of the meeting obtained by Business Insider. “But to me, it’s always the shareholder. And, to me, that’s why I think [MoviePass CEO Mitch Lowe] and myself are constantly fighting for the $9.95 [subscription price] and building that army of the people to really go out there.”

The retail investor army is real. 99.91% of Helios stock is held by non-institutional investors, according to Nasdaq. And though no-fee trading platform Robinhood has suspended trading of Helios shares, about 68,000 of its users still currently hold the stock.

At that July meeting, Farnsworth needed a couple of things from his army. Farnsworth sought approval for two measures in particular: a reverse stock split (which could range from 1-2 to 1-250), and the authorization to raise the number of outstanding shares to 5 billion (from 500 million).

When asked at the meeting why Helios needed authorization for 5 billion shares, Farnsworth first said that it was “just in the authorized, not in the issue.” The implication seems to have been that the company might not end up selling all of the shares.

Later Farnsworth elaborated further, describing the 5 billion shares, a 10-fold increase, as an “insurance policy.”

“The five billion was for the reason we didn’t know if the reverse would go through — if it wouldn’t, whatever — that’s why it’s such a large number,” Farnsworth said. “More of an insurance policy than anything else.” His explanation for why the number of shares needed to be so high was in case the other measure put forth, the reverse split, didn’t pass.

The reverse split was also a subject of confusion at the meeting. A shareholder asked Farnsworth for clarity on what end of the 1-2 to 1-250 it would be.

Farnsworth said the company hadn’t disclosed “exact numbers” and was “still going through that.” He added that the reverse split would happen “sooner rather than later, but we don’t have a timeframe.” The reverse split happened the next day, less than 24 hours after the meeting, at the very upper end at 1-250.

That wasn’t the only statement from Farnsworth at the meeting that didn’t stand the test of time.

“Absolutely I’m not worried about cash for the company,” Farnsworth assured attendees later. Less than a week later, Helios would have to take an emergency multi-million-dollar loan after the MoviePass app stopped working.

Helios did not respond to a request for comment from Business Insider.

1.7 million shares to 637 million and counting

At the July meeting, shareholders approved both measures, with less than 17% voting against each.

The next day, on July 24, Helios enacted the reverse split. For every 250 shares an investor had, they got back one in return, though the percentage of the company they owned was preserved. The reverse split temporarily boosted the share price from $0.09 to $22.50.

But that share price, and the preservation of the investors’ stakes, did not last. Helios immediately began to take advantage of the 5 billion in authorized shares to sell hundreds of millions of new ones into the market, pushing the stock price down again.

By August 14, Helios had increased its number of outstanding shares from about 1.7 million immediately after the reverse split to 637 million by selling new shares, according to filings with the Securities and Exchange Commission. And the company has not indicated that it plans to stop selling.

“I don’t think any of them thought [the dilution] would happen so fast,” a shareholder who attended the meeting told Business Insider. Farnsworth had described it as an insurance policy, but Helios began to use it immediately, and to great effect.

Farnsworth’s assurances at the meeting about Helios’ cash flow also proved illusory.

Just a few days after the meeting, on July 26, the MoviePass app stopped working because the company temporarily ran out of money. Helios had to take an emergency loan of $5 million in cash to turn the service back on, it disclosed in a filing with the SEC. Helios, whose primary business is owning MoviePass, ended July with an estimated $45 million in losses for the month, a figure that had been ramping up as 2018 had progressed.

“No one gets more diluted than I do”

Though many Helios investors have seen their stakes dip over 99% in value, with some losing more than $100,000, Farnsworth has reminded shareholders on multiple occasions that any dilution happening to them is happening to him as well.

“No one gets more diluted than I do,” Farnsworth said at the July shareholders meeting when discussing the reverse split and selling of new shares. While it is true that Farnsworth’s stake of common stock was affected by the reverse split, he has made money on Helios and MoviePass despite the stock troubles.

In 2017, besides stock compensation, Farnsworth made $1,575,000 in cash from Helios, including a $1 million bonus for “efforts in bringing capital sources that have been critical to the company’s needs during 2017.”

Additional reporting by Graham Rapier.

If you are an HMNY investor, or know anything about the company or MoviePass, email the author at [email protected]

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