Helios & Matheson more than doubled its share count in the last month

MoviePass CEO Mitch Lowe, left, and Helios and Matheson CEO Ted FarnsworthMoviePass/Reuters

• Helios & Matheson, which owns MoviePass, has more than doubled its share count in the last month.
• The massive increase in shares helps to explain why its stock price has plunged — and why it’s seeking to reverse split its stock for a second time in three months.
• The company’s share count has increased an amazing 80,368% just since its reverse split in July.
• Thanks to that and its plunging share price, it’s basically run out of room to issue new shares.

The parent company of MoviePass revealed Wednesday that it continues to rely on one of the oldest tricks it’s used to stay in business — issuing new shares of stock.

Unfortunately for Helios & Matheson, that trick has now put it in a tight bind, one that’s forcing it to seek shareholder approval for a second reverse split of its stock just less than two months after going through with a 250-1 reverse swap. Thanks to all the shares it’s issued lately — and the ones it’s agreed to set aside for creditors who hold convertible notes it issued — the company has effectively run out of room to issue or sell new stock.

“We do not have enough authorized, unissued and unreserved shares to fulfill the current reserve requirements under the notes or to meet the company’s needs for future equity financing or acquisitions,” Helios & Matheson said in a document filed with the Securities and Exchange Commission on Wednesday.

Just in the last month, the company, which took a controlling stake in MoviePass last year, has more than doubled its share count. Its total outstanding shares stood at 1.36 billion on September 14, according to the regulatory document. That was up from 636.9 million on August 14.

The company didn’t explain how it managed to increase its share count by 719 million shares over that time period. But it had prior approval from shareholders to raise hundreds of millions of dollars by selling shares on the open market — something it’s done repeatedly over the last year.

Helios & Matheson has massively diluted shareholders

The share increase just over the last month mean that Helios & Matheson’s total share count has increased an unbelievable 80,368% just since its first reverse split in July. Adjusting for that split, the company’s number of outstanding shares has increased by more than 3,800,000% in the last year.

All that dilution has weighed heavily on the company’s shares. In May, Helios & Matheson’s stock fell below $1 a share, the minimum threshold to be listed on the Nasdaq market. After the Nasdaq sent the company a delisting warning, Helios & Matheson officials urged shareholders to approve its first reverse split in an effort to boost its stock price.

That worked, but only temporarily. Less than a week later the company’s stock was trading below $1 again, before plunging even more. In recent weeks, Helios & Matheson’s stock has hovered around 2 cents a share. That means it’s still in danger of being delisted by the Nasdaq, which requires a company’s stock to trade above a $1 a share for at least 10 consecutive trading days to avoid such a sanction.

The company’s stock price has fallen largely in tandem with its issuance of new shares. A month ago, when it had fewer than half as many shares outstanding, its stock was priced at 5 cents a share. Immediately after its reverse split — and before it issued hundreds of millions of new shares — it was trading at more than $20 a share.

The company has to set aside more shares than it’s authorized to issue

In addition to sinking Helios & Matheson’s stock, the issuance of all those new shares has had another consequence. The company has basically run out of room to issue new shares.

Besides approving the reverse stock split in July, shareholders upped the number of shares that Helios & Matheson could issue to 5 billion shares. Although only 1.36 billion are now outstanding, it has to set aside some 5.3 billion shares for its creditors.

The company issued convertible notes in November, January, and June to fund its operations. Should its creditors decide to do so, they can exchange those notes for shares. 

But the November and January notes have a provision in them in which the price at which they can be converted gets reduced to the lowest price at which the company has sold shares on the public market. At the same time, the number of shares that Helios & Matheson would have to issue at that price to the creditors goes up proportionately.

Both of those sets of notes can now be converted at a price of 2 cents a share, the company said in its filing, indicating that the company has sold stock on the open market recently at just that price. The result of the lowering of the conversion price is that Helios & Matheson now has to set aside more shares for those notes than it can issue in total.

Now the company is seeking approval to reverse split its stock again by as much as a 500-to-1 ratio. Such a move could potentially address both problems, by raising its share price above $1 a share and by giving it again extra headroom to cover conversion or issue new stock. The number of shares Helios & Matheson would have to issue to cover the convertible notes would be reduced by the same ratio by which it reduced its total share count.

Of course, if the company’s stock fell again after a second reverse split — due to the issuance of yet more shares or for some other reason — it could soon find itself in the same bind, under threat of delisting and running out of room to issue new shares for its creditors.