Ever since MoviePass drastically cut its price last summer, people in the movie industry have wondered how it will stay afloat financially. Its auditors have the same question.
MoviePass owner, Helios & Matheson Analytics, faces “substantial doubt” about its ability stay in business — as the company continues to burn through cash — its auditor said on Tuesday in the company’s long-awaited annual report.
The auditor, Rosenberg Rich Baker Berman & Co., wrote that the company had “suffered recurring losses from operations and negative cash flows from operating activities,” adding that this gives it “substantial doubt about the Company’s ability to continue as a going concern.”
Shares of Helios & Matheson were lower on Tuesday after earlier rising as much as 10%. The annual report filing had been delayed, concerning some analysts.
Helios & Matheson CEO Ted Farnsworth downplayed the significance of the “going concern” warning to Business Insider, saying such a warning was in “pretty much most” 10-K filings when a company is running at a loss. “If they don’t raise money, they could go out of business,” he continued. Such statements, though, aren’t triggered by a company’s profits or losses. Instead, they reflect the auditor’s view on how viable a company is in the year forward.
MoviePass has warned investors that it needs to be able to raise funds to continue growing. “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,” it says in the report.
Since MoviePass dropped its subscription price to $9.95 a month last summer, which allows members to see one movie per day in theaters, it has shaken up the industry. It has attracted millions of new subscribers, but many have questioned how it will continue to sustain itself financially given that it’s paying most theaters full price for movie tickets.
The company recently told Variety that MoviePass CEO Mitch Lowe and Farnsworth had, since last summer, together raised $280 million and secured a $375 million line of credit to fund the business.
Continuing to spend
Helios & Matheson reported a loss of $150.8 million for last year, “primarily due to the acquisition of MoviePass,” according to the filing. That’s compared with a loss of $7.4 million in 2016.
Farnsworth emphasized to Business Insider that the $150.8 million wasn’t an entire cash loss for the company.
“Out of the $150 million, basically $110 million is all non-cash — derivative accounting,” Farnsworth told Business Insider Tuesday. “The gross loss is only $10 million cash.”
MoviePass is continuing to spend. The company acquired Moviefone from Verizon in early April, reportedly paying Verizon $23 million for the movie-ticket site — $1 million in cash and a mix of Helios & Matheson stock and warrants worth about $22 million.
Farnsworth said he will continue to fund MoviePass through Helios & Matheson and that the plan is to use Moviefone as an ad sales source for MoviePass.
“I’m the biggest fan because I see what’s going on from the inside and what Mitch is creating here,” he said.
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