MoviePass owner Helios & Matheson Analytics said in a filing with the Securities and Exchange Commission earlier this week that the company’s independent auditors have “substantial doubt” about the company’s ability to continue to operate.
“Our auditors’ doubts are based on our incurring significant net losses and our working capital position,” Helios & Matheson state in the filing. “Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to continue the development and integration of our MoviePass business.”
The company said it lost $150 million in 2017, up from more than $7 million in losses in 2016. Helios & Matheson CEO Ted Farnsworth told TheWrap that most of the loss is tied to the acquisition of MoviePass, which Helios & Matheson said has lost money since its inception.
But even as the company refocuses its business around MoviePass — with the risk of not being sustainable if the company can’t continue raising money for it — Farnsworth doesn’t seem concerned.
“Even before MoviePass we were hearing the same thing,” Farnsworth said, “‘growing concerns’ about our business. There’s just more focus on us now because everyone knows MoviePass.”
Publicly traded shares of Helios & Matheson were up as much as 7 percent during the session on Wednesday from the previous day’s close. And shares are up more than 36 percent in the last five days, so investors aren’t as worried about the losses either.
Farnsworth also told TheWrap that $10 million of the loss was cash tied to the company’s operating loss, the other $140 million, he said, is “tied to warrants, derivatives and accounting.”
“Really, I think people thought we were burning a lot more cash that we have. That’s why the stock has rallied a bit in the last few days,” Farnsworth said.
Still, the risk factors surrounding MoviePass and its owner remain. Helios & Matheson reported total revenue of $10.4 million, nearly $6 million of which is from the company’s subscription services.
“If MoviePass ever does achieve profitability, of which no assurances can be given, MoviePass may be unable to sustain or increase such profitability,” the company’s SEC filing states.
Shares of Helios & Matheson have fallen more than 35 percent in the year to date.
The company’s auditors believe there is a “significant risk” that MoviePass won’t be able to achieve the objectives needed — increasing subscribers, finding additional sources of revenue and economies of scale — to achieve and sustain profitability.
“MoviePass currently spends more to retain a subscriber than the revenue derived from that subscriber and MoviePass’ other sources of revenue are currently inadequate to offset or exceed the costs of subscriber retention,” the filing reads. “This results in a negative gross profit margin… There is no assurance that MoviePass will be able to sufficiently increase its other sources of revenue or be able to achieve economies of scale that would reduce the cost of revenue sufficiently to generate a positive gross profit margin.”