|
Item
1.01
|
Entry
Into a Material Definitive Agreement.
|
Convertible
Note Financing
On June 21, 2018 (the
“Subscription Date”), pursuant to a securities purchase agreement (“SPA”) entered into by Helios and Matheson
Analytics Inc. (the “Company,” “we,” “our” and “us”) and the institutional investors
party to the SPA (the “Buyers”), the Company agreed to sell and issue to the Buyers 20,500 shares of Series A Preferred
Stock of the Company (the “Preferred Stock”) and Series B-2 senior secured convertible notes in the aggregate principal
amount of $164,000,000 (which includes an approximate 15.0% original issue discount) (the “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 Buyers to the Company (the “Investor Notes”) in an aggregate principal amount of $139,400,000 (collectively,
the “Financing”). The date on which the Preferred Stock and the Convertible Notes will be issued is referred to in
this Current Report on Form 8-K (this “Current Report”) as the “Closing Date.”
Unless earlier converted
or redeemed, the Convertible Notes will mature on the second anniversary of the Closing Date. The Company is required to redeem
the Convertible Notes at the option of the Buyers (i) from and after 7 months from the date of any prepayment by the Buyers in
connection with the Investor Notes; (ii) 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 a cash prepayment of any promissory note
issued to the Company as payment of all, or any part, of the purchase price of any note or convertible note issued by the Company;
(iv) upon the exercise of an option or right to subscribe for common stock or convertible securities of the Company; (v) upon
the occurrence of an Event of Default, including a Bankruptcy Event of Default (each, as defined in the Convertible Notes); or
(vi) in the event of a Change of Control (as defined in the Convertible Notes). Except for a redemption following an Event of
Default, which may be paid with cash or shares of the Company’s common stock at the election of the Buyers, the Company
will be required to redeem the Convertible Notes with cash. The Convertible Notes and the shares of common stock into which the
Convertible Notes may be converted (collectively, the “Conversion Shares”) are sometimes referred to in this Current
Report as the “Securities.” All amounts outstanding under the Convertible Notes will be secured by the Investor Notes
and all proceeds therefrom. The Convertible Notes will not be secured by, and the Investors will not have a lien on, any assets
of the Company other than the Investor Notes.
As
a condition to closing the Financing, MoviePass Inc. (“MoviePass”) will be obligated to guaranty the obligations arising
under the Convertible Notes pursuant to the form of Guaranty attached as an exhibit to the SPA (the “MoviePass Guaranty”).
The
Company is permitted to use the net proceeds from the sale of the Convertible Notes for general corporate purposes, transaction
expenses and, subject to the rules of the Nasdaq Stock Market (“Nasdaq”), for acquisitions.
In accordance with
terms of the SPA, the Company is obligated to convene a special meeting of its stockholders (i) not later than October 18, 2018,
to approve, to the extent required by Nasdaq Listing Rule 5635, the issuance of all shares of common stock of the Company that
may be issued pursuant to the terms of the Convertible Notes, and (ii) not later than July 18, 2018, to approve a reverse stock
split of the common stock of the Company.
The
Preferred Stock
Dividends
The
Preferred Stock will not accrue dividends.
Conversion
The
Preferred Stock will not be convertible into common stock.
Voting
Rights
Each holder of Preferred
Stock will be entitled to the whole number of votes equal to the number of shares of the Company’s common stock equal to
the purchase price of the Preferred Stock then held by such holder (calculated as the portion of the aggregate purchase price
for all of the Preferred Stock attributable to the shares of Preferred Stock then held by such holder); divided by $0.312 (which
is equal to the last Nasdaq closing bid price of the common stock preceding the execution of the SPA). However, the amount of
votes with respect to the Preferred Stock held by any Buyer, when aggregated with any other voting securities of the Company held
by such Buyer, will not exceed 19.9% of the outstanding voting power of the Company calculated as of the Subscription Date (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 Convertible Note is paid or converted in accordance
with the terms of the Convertible Notes, the Company will have the right to redeem all or a portion of the Preferred Stock held
by the holder of that Convertible Note at a price per share equal to the par value of the Preferred Stock ($0.01 per share). The
holder(s) of the Preferred Stock may require the Company to redeem some or all the shares of Preferred stock at any time at a
price per share equal to the par value of the Preferred Stock ($0.01 per share).
Transfer
Each
holder of the Preferred Stock will not be permitted to transfer such holder’s Preferred Stock prior to the time when at
least 15% of the aggregate principal amount of such holder’s Convertible Note has been converted or paid.
Liquidation Preference
Upon any liquidation, dissolution or winding up of the Company, the holder(s) 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, an amount per share of Preferred Stock equal to 100% of the stated value per share (which is equal to $0.01) plus $0.01.
The
Convertible Notes
At
the Closing, the Convertible Notes will be issued to the Buyers in consideration of the Investor Notes. The aggregate initial
principal amount of the Convertible Notes is $164,000,000 (which includes an approximate 15.0% original issue discount). Upon
issuance, (i) $24,600,000 in principal amount of the Convertible Notes will consist of “Unrestricted Principal”, meaning
principal that may be converted at any time and is not subject to netting against any Investor Notes as further described below,
and (ii) the balance of the principal amount under the Convertible Notes upon issuance, equal to $139,400,000, will consist entirely
of “Restricted Principal”, which is defined as that portion of the principal amount of a Convertible Note that equals
the outstanding principal amount of a corresponding Investor Note. The principal amount of each Investor Note is subject to reduction
through prepayments by the applicable Buyer of the Investor Note given by the Buyer to the Company or, upon maturity or redemption
of the Convertible Notes, by netting the amount owed by the Buyer under such Investor Note against a corresponding amount of Restricted
Principal to be canceled under the Buyer’s Convertible Note. Each prepayment under the Investor Notes will convert a corresponding
amount of Restricted Principal under the Convertible Notes into “Unrestricted Principal” that may be converted into
common stock.
The
Convertible Notes will bear interest at a rate of (i) 5.25% per annum with respect to any Restricted Principal, and (ii) 10% per
annum with respect to any Unrestricted Principal
Payment
of Interest
Interest
on the Convertible Notes will be capitalized on each quarterly interest payment date starting July 1, 2018 by adding the
interest to the then outstanding principal amount of the Convertible Notes. Interest may also be paid by inclusion in the
“Outstanding Amount”, which is defined in the 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
“Make-Whole Amount.” The “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 of principal being redeemed or converted
under the Convertible Notes, for the period from the applicable date of conversion or redemption date through the maturity
date of the Convertible Notes. No Make-Whole Amount will be payable under the Convertible Notes with respect to any portion
of Restricted Principal after the cancellation of such Restricted Principal pursuant to netting under the Convertible Notes,
the Investor Notes or the Master Netting Agreement (as defined below), as applicable. In the event of an event of default
interest under the Convertible Notes may 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”).
Conversion
of the Convertible Notes
The
Buyers may 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, to convert the 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 $1.00 per share (subject to anti-dilution adjustment as described in the Convertible Notes).
Beneficial
Ownership Limitations on Conversion and Issuance
The
Convertible Notes may not be converted and shares of the Company’s common stock may not be issued under the Convertible
Notes if, after giving effect to the conversion or issuance, the Buyer together with its affiliates would beneficially own more
than 4.99% or 9.99%, as elected by the Buyer, of the Company’s outstanding shares of common stock. At the Buyer’s
option, the ownership limitation blocker may be raised or lowered to any other percentage not in excess of 4.99% or 9.99%, as
elected by the Buyer, except that any raise will only be effective upon 61-days’ prior notice to the Company.
Redemption
of the Convertible Notes
Provided
there has been no Equity Conditions Failure (as defined in the Convertible Notes) and no senior convertible bridge notes issued
by the Company on November 7, 2017 (the “November Notes”), convertible notes issued by the Company on January 11,
2018 (the “January Notes”), or shares of the Preferred Stock remain outstanding or any Unrestricted Principal remains
outstanding under the Convertible Notes, the Company will have the right to redeem all, but not less than all, of the Outstanding
Amount remaining unpaid under the Convertible Notes. The portion of the Convertible 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 Convertible Notes, the Company may reduce,
on a dollar for dollar basis, the Restricted Principal by the surrender for cancellation of such portion of the corresponding
Investor Notes equal to the amount of Restricted Principal included in the redemption.
The
Buyers have the right to require the Company to redeem the Convertible Notes (i) at the option of the Buyers from and after 7
months from the date of any prepayment by the Buyers in connection with the Investor Notes; (ii) 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 a cash prepayment of any promissory note issued to the Company as payment of all, or any part, of the purchase price
of any note or convertible note issued by the Company; (iv) upon the exercise of an option or right to subscribe for common stock
or convertible securities of the Company; (v) upon the occurrence of an Event of Default, including a Bankruptcy Event of Default
(as defined in the Convertible Notes); or (vi) in the event of a Change of Control. Except for a redemption required by an Event
of Default, which may be paid with cash or shares of the Company’s common stock at the election of the Buyers, the Company
will be required to redeem the Convertible Notes with cash.
Events
of Default
The
Convertible Notes contain customary events of default including but not limited to: (i) a suspension from trading or a failure
to maintain the listing of the Company’s common stock for a period of 5 trading days; (ii) after a conversion by the Buyer,
the failure by the Company to deliver the common stock for a period of 5 trading days; (iii) the failure to reserve a number of
shares of the Company’s common stock to permit a Buyer to fully convert the principal, interest, late charges, if any, and
Make-Whole Amounts under the Convertible Notes, to the extent required by the Convertible Notes; (iv) the failure by the Company
or any subsidiary to make payments when due under the Convertible Notes; (v) upon a conversion by the Buyer, the failure by the
Company to remove a restrictive legend from shares of the Company’s common stock if permitted by the applicable securities
laws; (vi) breaches of covenants; (vii) bankruptcy or insolvency; (viii) the failure to pay indebtedness when due; and (ix) the
failure of the grant of the security interest in the Investor Notes to create a first priority lien against the Investor Notes.
As
indicated above, following an event of default, the Buyers may require the Company to redeem all or any portion of the Convertible
Notes. The redemption amount may be paid in cash or with shares of the Company’s common stock, at the election of the Buyers,
at a price equal to the Event of Default Redemption Price (as defined in the Convertible Notes).
The
Company must immediately redeem the Convertible Notes in cash upon the occurrence of a Bankruptcy Event of Default (as defined
in the Convertible Notes).
The
Event of Default Redemption Price will be computed as a price equal to the greater of (i) 125% of the Outstanding Amount to be
redeemed and (ii) the product of (X) the Outstanding Amount to be redeemed divided by the Conversion Price multiplied by (Y) the
product of (1) 125% multiplied by (2) the greatest closing sale price of the Company’s common stock on any trading day during
the period commencing on the date preceding such event of default and ending on the date the Company makes the entire payment
required to be made under the Convertible Notes.
In
addition, following an event of default, the Buyers will have the right to convert the Convertible Notes at the “Alternate
Conversion Event of Default Price” which means, with respect to each such conversion, that price which shall be the lowest
of (i) the applicable Conversion Price as in effect on the date of the conversion, and (ii) the greater of (A) the Default Floor
Price (which means (i) at any time prior to the Stockholder Approval Date (as defined in the SPA), the Floor Price (as defined
in the Convertible Notes) (initially, $1.00) or (ii) at any time on or after the Stockholder Approval Date, $0.0624 (or such lower
price as mutually determined by the Company and the Buyers in writing, subject to the prior consent of Nasdaq)), and (B) 75% of
the lowest volume weighted average price of the Company’s common stock for each of the 30 consecutive trading days ending
and including the trading day of delivery or deemed delivery of the applicable notice of conversion.
Fundamental
Transactions
The
Convertible Notes will prohibit the Company from entering into specified transactions involving a change of control unless the
successor entity, which must be a publicly traded corporation whose common stock is quoted on or listed for trading on an eligible
market, assumes in writing all of the Company’s obligations under the Convertible Notes.
Rights
Upon Issuance of Other Securities
After
the Stockholder Approval Date (as defined in the SPA), whenever the Company issues or sells, or is deemed to have issued or sold,
any shares of common stock (including options and convertible securities but excluding any Excluded Securities, as defined in
the SPA) for a consideration per share less than a price equal to the Conversion Price in effect immediately prior to such issuance
or sale or deemed issuance or sale (the “New Issuance Price”) (the foregoing a “Dilutive Issuance”), then,
immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance
Price. Prior to the Stockholder Approval Date (as defined in the SPA), the New Issuance Price following any Dilutive Issuance
will not be less than the Floor Price (as defined in the Convertible Notes).
Note
Purchase Agreement
The
Investor Notes will be issued as payment in full for the Convertible Notes pursuant to the terms and conditions of a note purchase
agreement entered into by the Company and each Buyer (collectively, the “Note Purchase Agreements”).
Investor
Notes
The
Investor Notes will be payable in full on the forty-second anniversary of the Closing Date, although the Buyers may
prepay the Investor Notes in whole or in part, without premium or penalty, at any time. The Investor Notes accrue interest at
an annual rate of 2.83%. The Buyers’ obligation to pay the Company the principal amount of the Investor Notes is to
be secured with cash, cash equivalents, any Group of Ten (“G10”) currency and any notes or other securities
issued by any G10 country, or certain other securities, in each case having a value equal to the principal amount of the
Investor Notes. The Investor Notes are also subject to mandatory prepayment, in whole or in part, at any time (i) if the
Company receives a conversion notice from a Buyer in which all or any part of the principal of the Convertible Notes to be
converted includes any Restricted Principal and (ii) the Buyer receives a confirmation from the Company’s transfer
agent that it has been irrevocably instructed by the Company to deliver to the Buyer the shares of the Company’s common
stock to be issued pursuant to the conversion notice. Subject to the satisfaction of certain Equity Conditions, whenever the
closing bid price of our common stock exceeds 110% of the Conversion Price of the Convertible Notes for a period of two
trading days, we have the right to force the prepayment of the Investor Notes in an aggregate amount equal to the lesser of
(x) $5 million and (y) 20% of the sum of the daily dollar trading volume of the our common stock during such prior two
trading day period (subject to reduction for any voluntary prepayments from the applicable investor in such period);
provided, that all such forced prepayments, in the aggregate, may not exceed 1/3 of the initial principal outstanding under
the Investor Notes on the closing date.
The
Investor Notes also contain certain optional “netting” rights of the Buyers which, if exercised, would reduce the
amount outstanding under the Convertible Notes and the Investor Notes by the same amount and, accordingly, the cash proceeds received
by the Company from the Buyers pursuant to the Financing. These netting rights include (i) the right of the Buyer, (A) on or after
the 30
th
calendar day after the Closing Date, or (B) at any time on or after the occurrence of an event of default
under Notes, with respect to any portion of principal under the Investor Notes, to net against any obligations of the Company
remaining under the Convertible Notes an equal amount of the obligations of the Buyer remaining under the Buyer’s Investor
Note; (ii) the right of the Buyers, on the maturity date of the Convertible Notes, to net against any obligations remaining under
the Convertible Notes an equal amount of the obligations remaining under the Investor Notes; (iii) the right of the Buyers, with
respect to any required redemption of all or any portion of the Convertible Notes, solely to the extent such portion of the Conversion
Amount (as defined in the Convertible Notes) subject to such redemption includes Restricted Principal, (iv) the right of the Buyers
to net against any obligations remaining under the Convertible Notes an equal amount of the obligations remaining under the Investor
Notes if an Event of Default occurs and is not cured; (v) the right of the Buyers to net against the unpaid principal amount of
the Convertible Notes an equal amount of the unpaid principal of the Investor Notes upon a Bankruptcy Event of Default; and (vi)
an automatic netting of obligations under the Convertible Notes equal to 75% of the Restricted Principal in exchange for the cancellation
of the principal amount of the Investor Notes outstanding on the date of a transfer by the Company of the Investor Notes to any
person without the consent of the Buyers.
Master
Netting Agreement
The
Company and the Buyers will enter into a master netting agreement (the “Master Netting Agreement”) to set forth for
each party its right to net obligations that may arise under the Note Purchase Agreement, the Investor Notes, the Convertible
Notes and the SPA (collectively, the “Underlying Agreements”) upon the occurrence of certain events, including as
described above.
MoviePass
Guaranty
As
noted above, as a condition to closing the Financing, MoviePass will be obligated to provide a Guaranty to the Buyers pursuant
to which it will (i) guarantee the punctual payment of all obligations under the Convertible Notes, including all interest, make-whole
and other amounts that accrue after the commencement of any insolvency proceeding of the Company, whether or not the payment of
such obligations are enforceable or allowable in the insolvency proceeding, and all fees, interest, premiums, penalties, causes
of actions, costs, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under any
of the Financing documents, and (ii) agree to pay any and all costs and expenses (including counsel fees and expenses) incurred
by the Buyers in enforcing any rights under the MoviePass Guaranty or any other Financing document.
Voting
and Lockup Agreements
As
a condition to closing the Financing, Theodore Farnsworth, the Chief Executive Officer and Chairman of the Board of the Company,
and Helios and Matheson Information Technology Ltd. (“HMIT”), of which Muralikrishna Gadiyaram, a director of the
Company, is the chief executive officer, and its wholly-owned subsidiary, Helios & Matheson Inc. (collectively, the “Principal
Stockholders”), who collectively own approximately 1.7% of the Company’s issued and outstanding common stock as of
the Closing Date, will execute voting and lockup agreements with the Company (each a “Voting and Lockup Agreement”
and collectively, the “Voting and Lockup Agreements”). Pursuant to the Voting and Lockup Agreements, the Principal
Stockholders agree to vote in favor of or consent to the Company’s issuance of the Securities at any meeting of stockholders
or written consent of stockholders for such purpose. The Voting and Lockup Agreements also require that, for a period
beginning on the Closing Date and ending on the initial date when all of the principal outstanding under the Convertible Notes
issued to the Buyers consists of Restricted Principal thereunder, the Principal Stockholders will not (i) dispose of or agree
to dispose of, directly or indirectly, any securities of the Company (except that shares underlying equity awards granted to Mr.
Farnsworth may be sold between April 1 to April 15 of any given year, not to exceed a total of 262,500 shares, in connection with
the full or partial payment of applicable taxes or tax withholding obligations arising from the issuance of an award of common
stock or options to purchase common stock granted to Mr. Farnsworth pursuant to an Approved Stock Plan, as defined in the SPA),
or establish or increase a put equivalent position or liquidate or decrease a call equivalent position or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any
securities of the Company owned directly by the Principal Stockholders (including holding as a custodian) or (iii) permit to exist
any security interest, lien, claim, pledge, option, right of first refusal, agreement, or limitation on the Principal Stockholders’
voting rights, charge or other encumbrance of any nature with respect to the Principal Stockholders’ securities in the Company
or (iv) engage in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result
in a sale or disposition of the Principal Stockholders’ securities in the Company or (v) directly or indirectly initiate,
solicit or encourage any person to take actions which could reasonably be expected to lead to the occurrence of any of the foregoing.
Buyer Voting Agreements
As
a condition to closing the Financing, we required each Buyer, severally and not jointly, to execute a separate voting
agreement with the Company (each a “Buyer Voting Agreement” and collectively, the “Buyer Voting
Agreements”). Pursuant to the Buyer Voting Agreements, each Buyer will agree to vote the Preferred Stock and any shares
of common stock the Buyer owns or may acquire (together, the “Buyer Securities”) in favor of or consent to the
(i) approval of the issuance of shares of common stock upon conversion of the January Notes, to the extent required by Nasdaq
Listing Rule 5635 (the “Stockholder Approval”) (ii) Stockholder Resolutions (as defined in the January Securities
Purchase Agreement), (iii) an increase in the authorized shares of the Company from 500,000,000 to 2,000,000,000 and (iv) a
reverse stock split of the common stock of the Company in the range of 1 share-for-2 up to a ratio of 1 share-for-250 shares;
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 SPA) 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 SPA) or the Transaction
Documents (as defined in the January Securities Purchase Agreement), as applicable, not being fulfilled. The agreement to
vote the Buyer Securities described above terminates upon the receipt of the Stockholder Approval (as defined in the January
Securities Purchase Agreement).
The
Buyer Voting Agreements also require that, at any time prior to the record date for the Stockholder Meeting (as defined in
the January Securities Purchase Agreement), each Buyer will not directly or indirectly (i) offer or agree to sell, transfer, tender,
assign, hypothecate or otherwise dispose of Buyer Securities, (ii) grant a proxy or power of attorney with respect to Buyer Securities,
or (iii) create or permit to exist any security interest, lien, claim, pledge, option, right of first refusal, agreement, limitation
on the Buyer’s voting rights, charge or other encumbrance of any nature whatsoever with respect to Buyer Securities, or
(iv) initiate, solicit or encourage any person to take actions which could reasonably be expected to lead to the occurrence of
any of the foregoing.
The
above discussion does not purport to be a complete description of the SPA, the Convertible Notes, the Note Purchase Agreement,
the Investor Notes, the Master Netting Agreement, the Guaranty, the Voting and Lockup Agreements and the Buyer Voting Agreements
described in this Current Report on Form 8-K (this “Current Report”) and it is qualified in its entirety by reference
to the full text of such documents, which are attached as exhibits to this Current Report and are incorporated herein by reference.
|
Item
2.03
|
Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
|
To the extent required,
t
he information included in Item 1.01 of this Current
Report is hereby incorporated by reference into this Item 2.03.
|
Item
3.02
|
Unregistered
Sales of Equity Securities.
|
T
he information included in Item 1.01 of
this Current Report is hereby incorporated by reference into this Item 3.02.
Financing
Fees
Canaccord
Genuity, Inc. (“Canaccord”) was the placement agent for the Financing and (1) with respect to the sale of the Convertible
Notes and Preferred Stock to Hudson Bay Master Fund Ltd. (“Hudson Bay”) will be entitled to a cash fee equal to 3%
of gross proceeds and (2) with respect to the sale of the Convertible Notes and Preferred Stock to other investors will be entitled
to a cash fee equal to 7% of gross proceeds received by the Company.
Palladium
Capital Advisors, LLC will receive (1) five percent (5%) of the gross cash proceeds actually received by the Company from Hudson
Bay in connection with the sale of Convertible Notes and the Preferred Stock, as and when received; plus (2) a warrant (the “Warrants”)
to purchase eight percent (8%) of the number of shares of Common Stock (the “Warrant Shares”) determined by dividing
the aggregate purchase price of the Preferred Stock purchased by Hudson Bay by the Conversion Price in effect as of the Subscription
Date and eight percent (8%) of the number of shares of Common Stock into which any Unrestricted Principal of the Note purchased
by Hudson Bay 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 Note in effect as of the Subscription Date, without regard to any adjustment of the Conversion
Price resulting from the anti-dilution provision of the Note, 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.
The
above discussion does not purport to be a complete description of the Warrants described in this Current Report and it is qualified
in its entirety by reference to the full text of such document, which is attached as an exhibit to this Current Report and is
incorporated herein by reference.
The
Securities, the Warrants, the Warrant Shares, and the Preferred Stock are being offered and sold pursuant to the exemption from
registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Regulation
D thereunder. Each Buyer represented to the Company that the Buyer is an “accredited investor” as defined in Regulation
D of the Securities Act and that the Convertible Notes and the Conversion Shares are being acquired solely for the Buyer’s
own account and for investment purposes and not with a view to the future sale or distribution of any such securities by the Buyer.
Appropriate legends will be affixed to the Convertible Notes, the Conversion Shares, the Preferred Stock, the Warrants, the Warrant
Shares upon issuance.
|
Item
3.03
|
Material
Modification to Rights of Security Holders
|
To
the extent required, the information included in Item 1.01 of this Current Report is hereby incorporated by reference into
this Item 3.03.
|
Item
7.01
|
Regulation
FD Disclosure.
|
Financial
Update
MoviePass
continues to be a hypergrowth company, as demonstrated by its acquisition of over 3 million paying subscribers since August 15,
2017. To become a profitable company and achieve the economy of scale in the movie industry that we are expecting, we will require
a significant amount of additional capital for MoviePass (our movie theater subscription service subsidiary), MoviePass Ventures
(our movie investment subsidiary), MoviePass Films (our original content production subsidiary), Moviefone™ (our media content
advertising platform) and any future acquisitions we may seek in order to continue our vertical integration, potentially exceeding
$1.2 billion in total additional required capital. We expect to continue raising debt or equity capital to achieve our objectives,
as and when available. If we maintain our access to capital, we expect the rapid growth of MoviePass to continue for the foreseeable
future. We expect MoviePass’ continued growth will continue to create new revenue opportunities from marketing the movies
of others, from partnerships with exhibitors and from our own movie content businesses including participation in box office and
home entertainment revenues from our own movies, which we believe we can maximize by marketing our films through the MoviePass
subscription service. To maintain our growth and continue to fundamentally transform the movie industry, for the benefit of the
entire movie ecosystem, we will continue to incur a significant monthly cash deficit, until or unless we achieve positive cash
flow or profitability, of which there is no assurance.
Due
to MoviePass’ greater than anticipated subscriber growth, investments we are making in movies through our subsidiaries MoviePass
Ventures and MoviePass Films, and completing acquisitions such as Moviefone™, our monthly cash deficit has continued to
grow. As of May 31, 2018, we had approximately $18.5 million in available cash and approximately $30.3 million on deposit with
our merchant and fulfillment processors for a total of approximately $48.8 million. The funds held by these processors represent
a portion of the payments received for annual and other extended term MoviePass subscription plans and future ticket fulfillment,
which we classify as current assets on our balance sheet and which we expect to be disbursed to us or utilized during 2018. Our
average monthly cash deficit has been approximately $25.0 million per month from September 30, 2017 to May 31, 2018 inclusive
of our processor deposits. From May 1, 2018 through June 15, 2018, we acquired approximately 545,000 new paying subscribers. Due
to our greater than anticipated subscriber growth in May 2018, our cash deficit for the month of May 2018 was approximately $40.0
million and we anticipate our cash deficit for the month of June 2018 will be at least $45.0 million due to significant subscriber
growth and strong box office results of recently released films. As the MoviePass subscriber base increases rapidly, and as we
increase our investments in movies through MoviePass Ventures and MoviePass Films, and make other acquisitions, our monthly cash
deficit will continue to increase in the coming months.
However,
the usage rate of our MoviePass subscribers has been declining significantly since January 1, 2018, and our cost per ticket has
been declining as well. We believe the continuing decline in our subscriber usage rates, cost per ticket and cost savings resulting
from recent technological measures we implemented to promote the fair use of the MoviePass subscription product, together with
MoviePass’ marketing and promotional revenues and additional revenues resulting from our investments in movies through MoviePass
Ventures and MoviePass Films, including both box office and home entertainment revenues, will result in the Company becoming cash
flow positive during the first half of 2019, assuming we are able to maintain our access to capital, of which there is no assurance.
To
maintain our growth and continue to fundamentally transform the movie industry, we will continue to require significant proceeds
from sales of our debt or equity securities, including common stock pursuant to our Equity Distribution Agreement with Canaccord
Genuity, among other sources of capital. Beginning May 9, 2018 and through June 15, 2018, the Company has issued shares of common
stock pursuant to its Equity Distribution Agreement with Canaccord Genuity, and its November 2017 convertible notes following
receipt of prepayments under corresponding November 2017 investor notes. Accordingly, during the period from May 9, 2018 through
June 15, 2018, the Company has issued approximately 100.8 million shares of its common stock and received gross cash proceeds
of approximately $54.8 million from sales of its common stock pursuant to the Equity Distribution Agreement. In addition, during
the same period, the Company received gross proceeds of approximately $23.8 million with respect to funding of the November 2017
investor notes and issued approximately 57.4 million shares with respect to the conversion of its November 2017 convertible notes
inclusive of shares related to the make-whole interest provisions of those notes.
Furthermore,
to the extent we use any net proceeds from sales of our securities for acquisitions of other businesses or financial interests
in additional movies (through our subsidiaries, MoviePass Ventures or MoviePass Films), we will need additional capital to offset
our monthly cash deficit to the extent resulting from those further investments.
Our
access to additional equity capital will depend, in part, on our ability to obtain the requisite stockholder approval at a
special meeting of stockholders (the “Special Meeting”), as described in our preliminary proxy statement filed
with the Securities and Exchange Commission (the “SEC”) on June 19, 2018, to increase our authorized common
stock, to effect a reverse stock split and to issue shares of common stock pursuant to the convertible notes we issued to an
institutional investor in January 2018 (the “Special Meeting Proposals”), all of which the holders of our
Preferred Stock will be required to vote for affirmatively (as described under Item 1.01 of this Current Report). As of June
19, 2018, we had 222,914,649 shares outstanding out of our currently authorized 500 million shares of common stock. If we are
unable to obtain the requisite stockholder approval of the Special Meeting Proposals, our access to additional equity
capital, including through our Equity Distribution Agreement with Canaccord Genuity, will be significantly diminished, until
or unless we are able to obtain such approval. In that case, we would be reliant on seeking non-convertible debt capital,
which may not be available on acceptable terms, if at all, or voluntary prepayments from our institutional investors under
the investor notes payable to us that we hold totaling $229.9 million in aggregate principal amount, including the Investor
Notes issued in the Financing described in Item 1.01 above.
As
previously reported, if we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope
of our planned growth or otherwise alter our business model, objectives and operations, which could harm our business, financial
condition and operating results.
Forward
Looking Statements
All
statements in this report that are not historical facts should be considered “Forward Looking Statements” within the
meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking
statements can be identified by use of words such as “believe,” “expect,” “may,” “will,”
“should,” “seek,” “approximately,” “intend,” “plan,” “estimate,”
“project,” “continue” or “anticipates” or similar expressions or words, or the negatives of
those expressions or words. Forward-looking statements include, but are not limited to, statements regarding our expectations
and beliefs regarding: the future growth of MoviePass; our monthly cash deficits; and our ability to become cash flow positive
and the timing thereof. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future results, performance or achievements expressed
or implied by the forward-looking statements. Some, but not all, of these risks include, among other things: our capital requirements
and whether or not we will be able to raise capital as needed; our ability to obtain the requisite stockholder approval to increase
our authorized common stock, effect a reverse split and issue shares pursuant to our January 2018 convertible notes; an increase
in MoviePass subscriber usage rates; an increase MoviePass’ cost per ticket; our ability to continue to obtain cost savings
from technological measures we implement to promote the fair use of the MoviePass subscription product; our ability to successfully
develop the business model of MoviePass; our ability to integrate the operations of MoviePass and other acquired businesses into
our operation; our ability to retain our existing clients and market and sell our services to new clients; and the risk factors
set forth in the periodic reports we file with the Securities and Exchange Commission including our Annual Report on Form 10-K
for the fiscal year ended December 31, 2017 and subsequent quarterly reports.
This
Report does not constitute an offer to sell or the solicitation of an offer to buy our common stock, nor will there be any sale
of our common stock in any state or other jurisdiction in which such offer, solicitation or sale is not permitted. A final prospectus
supplement dated April 18, 2018 and accompanying prospectus relating to the offering of common stock pursuant to the Equity Distribution
Agreement with Canaccord Genuity has been filed with the SEC and is available for free on the SEC’s website at www.sec.gov.