Helios and Matheson Analytics Inc (NASDAQ: HMNY) is a company that we’ve been warning our readers about for some time now, and while the stock is making its way upward today, news released is writing on the wall that shows investors that the stock will eventually fall to ZERO. Today, we’ll talk about:
- Today’s news;
- why HMNY is headed to zero;
- what we’re seeing from the stock; and
- what we’ll be watching for ahead!
HMNY Announces Issuance Of Convertible Notes
As mentioned above, Helios and Matheson Analytics released news that outlines just how bad things are getting for the company. In a press release issued early this morning, the comapny announced that it has entered into a securities purchase agreement with institutional investors. Under the agreement, HMNY will issue convertible notes in the aggregate principal amount of $164 million and 20,500 shares of preferred stock.
In the release, the company said that it will be using the proceeds from the transaction for general corporate purposes. The transaction was structured so that HMNY will not be obligated to register the resale of any shares underlying the Notes with the SEC. The company said that the notes will be convertible, at the option of the holder, at a conversion price of $1.00, subject to adjustment. Also, the Preferred stock is not convertible into common stock. In the release, the company said that each share of Preferred Stock is entitled to 3,205 votes per share on all matters.
Under the terms of the agreement, at the closing of the financing, the investors will pay for the Preferred Stock and the Notes with $20.5 million in up front cash and investor notes in the aggregate principal amount of $139.4 million. Finally, each investor may prepay its Investor Note, with resulting cash being paid to Helios and Matheson.
Pursuant to the terms of the securities purchase agreement, at the closing of the financing, the investors will pay for the Preferred Stock and the Notes with $20.5 million in cash up front and investor notes in the aggregate principal amount of $139.4 million payable to HMNY (the “Investor Notes”). Each investor may prepay its Investor Note, with the resulting cash being paid to HMNY, in its discretion.
Why This Is Writing On The Wall
At the end of the day, we believe that this is yet another transaction that shows that Helios and Matheson is headed for the bottom. Since the acquisition of the majority stake in MoviePass, the company has been embarking on an adventure that only leads to growing losses. With each new subscriber, the company stands the chance of losing more money. As a result, since the acquisition, the company has been forced to process various dilutive offerings to cover the cost of the losses generated by MoviePass.
Today’s news is no different. Yet again, HMNY is diluting shares in an attempt to drive operating funds into the business. Usually, the company will say that the funds are being used to support MoviePass, other acquisitions, and for general corporate purposes. However, this time, the company just said general corporate purposes, meaning that it can be used for just about anything. Considering the fact that the company is burning through cash, and before today’s announcement had little to nothing on hand, we believe that these funds will be used to support the growing losses in MoviePass.
Moreover, the structure of the notes is interesting. Not only does the transaction greatly dilute the stock, it takes away quite a bit of voting power from investors. Think about it, 65,502,500 new votes have been added to the pool, reducing the validity of votes of investors who are already there. At the end of the day, this is an incredibly bad move for investors and a great move for the lenders in this transaction.
What We’re Seeing
While the news released is writing on the wall that Helios and Matheson is headed for the bottom, investors seem to be blinded by the idea that the $164 million might actually help the company make its way to profit. So, we’re seeing unrealistic gains that will likely disappear over the next few sessions. Of course, our partners at Trade Ideas were the first to alert us to the movement. At the moment (10:13), HMNY is trading at $0.34 per hsare after a gain of $0.024 per share or 7.72% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on HMNY. In particular, we’re interested in following the story surrounding the company’s continued dilution of shares in an attempt to keep MoviePass afloat. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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