In a bid to save MoviePass, the struggling theater-subscription service’s parent — Helios & Matheson Analytics — announced a plan to spin off the division as a separate, publicly traded entity called MoviePass Entertainment Holdings.
HMNY said its board had preliminarily approved the spinoff plan that would combine MoviePass Inc. and other film related assets held by HMNY to create a “vertically integrated” entertainment company.
There’s no guarantee Helios & Matheson will be able to execute the spinoff. For one thing, HMNY said that it’s not sure such a transaction is allowed under Delaware law. Meanwhile, the company is under investigation by the New York Attorney General’s office into whether HMNY misled investors, and the company has been sued by investors alleging it deceived shareholders.
The proposed MoviePass Entertainment Holdings would include: the shares of common stock of MoviePass Inc. held by HMNY, which currently owns 92% of the outstanding shares; the membership interests of MoviePass Films, HMNY’s movie production company partnered with Emmett Furla Oasis Films; the membership interests of MoviePass Ventures, which was established to acquire completed films; Moviefone, which HMNY bought from Verizon’s Oath earlier this year.
“Since we acquired control of MoviePass in December 2017, HMNY largely has become synonymous with MoviePass in the public’s eye, leading us to believe that our shareholders and the market perception of HMNY might benefit from separating our movie-related assets from the rest of our company,” Ted Farnsworth, chairman and CEO of HMNY, said in a prepared statement.
Earlier this year, MoviePass touted that it had topped 2 million subscribers for its service letting customers see one movie per day for just $9.95 per month. But the deal was too good to be true: The surge in users caused an enormous cash drain on HMNY and the company was forced to take out several loans. To stay afloat, MoviePass drastically changed its offer in August to limit customers to only three movies per month for the same price and curtailed access to wide-release movies during peak demand.
Helios & Matheson said that “if permitted to do so under applicable Delaware law,” it plans to distribute a minority of the outstanding shares of MoviePass Entertainment common stock as a dividend to stockholders of HMNY as of a record date that is yet to be determined, with HMNY retaining control of MoviePass Entertainment.
Other caveats on the spinoff plan: According to HMNY, a dividend of MoviePass Entertainment shares and/or a contemplated listing of MoviePass Entertainment on Nasdaq (or an alternate trading market) are “subject to numerous conditions.” Those include: completion of the contemplated reorganization; completion of audited financial statements of MoviePass Entertainment; the filing and effectiveness of a registration statement by MoviePass Entertainment with the SEC; the approved listing of shares of MoviePass Entertainment on Nasdaq or an alternate trading market; and HMNY being permitted to distribute MoviePass Entertainment shares under Delaware law, “of which there is no assurance,” according to Helios & Matheson.
Following the MoviePass Entertainment spinoff, HMNY plans to retain its ownership of Zone Technologies and would discontinue its previously announced plan to spin off Zone. HMNY said it plans to continue focusing on data analytics and consumer-centric technologies.