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MoviePass owner draws debt financing to avoid service outage

Helios & Matheson Analytics Inc. is drawing a $6.2 million demand note from lender Hudson Bay Master Fund Ltd to support the operations of its 92%-owned movie ticket subscription service MoviePass Inc., whose subscribers experienced a service interruption on July 26.

The note includes $5.0 million in cash borrowed by Helios & Matheson and $1.2 million of original issue discount. The company said without the cash proceeds its merchant and fulfillment processors could cease processing payments for MoviePass, causing more service interruptions, which could have a "material adverse effect" on MoviePass' ability to retain customers, according to a July 27 SEC filing.

"We have handled the issues on the back-end, and our app is now up-and-running with stability at 100%. We thank you for your patience and your ongoing support," MoviePass CEO Mitch Lowe said in a letter to subscribers about the service disruption.

Hudson Bay may demand payment of $3.1 million of the note on or after Aug. 1, and any other outstanding amounts on or after Aug. 5. Helios & Matheson said it will commit all proceeds received from its at-the-market equity offering on or after July 31 to pay against the demand note.

Helios & Matheson on July 24 undertook a 1-to-250 reverse stock split and issued several lines of debt financing in the first half of 2018 to support its MoviePass operation, which is running at a significant loss in order to build a subscriber base, according to reports and a recent interview with MoviePass CEO Mitch Lowe. The company has expressed a need for financing if MoviePass is to continue as a going concern. The platform expects to hit 5 million subscribers by the end of the year, and it is looking at maturity at about 20 million subscribers, Lowe said.

MoviePass is adding lines of business including original productions and third-party marketing efforts to supplement its subscription business, which is generating losses. The company also has started diversifying its pricing, including adding a $7.95-per-month plan allowing subscribers access to three movies per month in addition to its $9.95 unlimited subscription. It also recently introduced "Peak Pricing" surcharges for high-demand movie showings.

As more "occasional moviegoers" join the service, Lowe expects ticketing rates to fall to 1.1 tickets per month per subscriber, improving the company's financial position.