- 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.
- While seeking support for measures he needed passed at a special shareholders meeting in July, Helios CEO Ted Farnsworth characterised them as an “army” and stressed that he had their best interests in mind.
- 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 $US100,000.
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 OK. He described Helios shareholders as an army that loved the MoviePass movie-ticket subscription 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 $US9.95 [subscription price] and building that army of the people to really go out there.”
The retail-investor army is real, with 99.91% of Helios stock held by noninstitutional investors, according to Nasdaq. And though the no-fee trading platform Robinhood has suspended trading of Helios shares, about 68,000 of its users still hold the stock.
At that July meeting, Farnsworth needed a couple of things from his army. Farnsworth sought approval for two measures: a reverse stock split, which could range from 1-for-2 to 1-for-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 it was “just in the authorised, not in the issue.” The implication seemed to be that the company might not end up selling all of the shares.
Later Farnsworth elaborated, describing the 5 billion shares, a tenfold increase, as an “insurance policy” for a situation in which the reverse split didn’t pass.
But that measure was also a subject of confusion at the meeting. A reverse split involves reducing the number of outstanding shares; if the company’s market cap goes unchanged, the company’s share price will increase. Farnsworth’s stated range meant every two shares would become one on the low end, or every 250 shares would become one on the high end. A shareholder asked Farnsworth for clarity on which end 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 time frame.” The reverse split happened the next day, less than 24 hours after the meeting, at the very upper end at 1-for-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 took an emergency multimillion-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
Shareholders approved both measures at the July meeting, 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, the investor got back one in return, though the percentage of the company the investor owned was preserved. The reverse split temporarily boosted the share price to $US22.50 from $US0.09.
But that share price, and the preservation of the investors’ stakes, did not last. Helios immediately began to take advantage of the new shares ceiling and introduced hundreds of millions of new shares into the market. That helped the company raise money, but it pushed 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, 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 $US5 million in cash to turn the service back on, it disclosed in a filing with the SEC.
Helios, whose primary business is owning MoviePass, lost an estimated $US45 million in July, a figure that had been ramping up as 2018 progressed. The primary way Helios has covered these losses is by selling new shares in the public market and diluting its previous investors.
‘No one gets more diluted than I do’
Though many Helios investors have seen their stakes dip by over 99% in value, with some losing more than $US100,000, 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 $US1,575,000 in cash from Helios, including a $US1 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]