UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended: March 31, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 0-22945

HELIOS AND MATHESON ANALYTICS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware 13-3169913 (State or Other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Empire State Building, 350 Fifth Avenue, New York, New York 10118 (212) 979-8228 (Address of Principal Executive Offices) (Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 11, 2018, there were 82,655,182 shares of common stock, with $.01 par value per share, outstanding.

HELIOS AND MATHESON ANALYTICS INC.

INDEX

PART I FINANCIAL INFORMATION ITEM 1. Financial Statements 1 Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017 (audited) 1 Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the Three Months Ended March 31, 2018 and 2017 (unaudited) 2 Condensed Consolidated Statement of Change in Stockholders’ Deficit for the Three Months Ended March 31, 2018 (unaudited) 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited) 4 Notes to the Condensed Consolidated Financial Statements (unaudited) 5 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 39 ITEM 4. Controls and Procedures 39 PART II OTHER INFORMATION ITEM 1. Legal Proceedings 40 ITEM 1A. Risk Factors 40 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 40 ITEM 3. Defaults upon Senior Securities 40 ITEM 4. Mine Safety Disclosures 40 ITEM 5. Other Information 40 ITEM 6. Exhibits 41 SIGNATURES 42 EXHIBIT INDEX

i

Part I. Financial Information

Item I. Financial Statements

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2018 December 31, 2017 (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 42,520,518 $ 24,949,393 Accounts receivable - less allowance for doubtful accounts of $75,336 and $72,335 at March 31, 2018 and December 31, 2017, respectively 24,432,216 27,470,219 Prepaid expenses and other current assets 3,267,327 3,557,811 Total current assets 70,220,061 55,977,423 Property and equipment, net of accumulated depreciation of $290,004 and $274,587 at March 31, 2018 and December 31, 2017, respectively 310,727 234,035 Intangible assets, net 27,279,711 28,536,782 Goodwill 79,137,177 79,137,177 Deposits and other assets 147,046 147,171 Total assets $ 177,094,722 $ 164,032,588 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable and accrued expenses $ 13,328,090 $ 13,144,003 Deferred revenue 84,887,136 54,425,630 Liabilities to be settled in stock 10,276,266 21,320,705 Convertible notes payable, net of debt discount of $0 and $2,444,368, respectively - 2,061,072 Warrant liability 70,030,200 67,288,800 Derivative liability 699,900 4,834,462 Total current liabilities 179,221,592 163,074,672 Convertible notes payable, net of current portion and debt discount of $54,064 and $1,392,514, respectively 641,206 1,550,555 Total liabilities 179,862,798 164,625,227 Commitments and contingencies Stockholders’ deficit: Preferred stock, $0.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2018 and December 31, 2017 - - Common stock, $0.01 par value; 500,000,000 shares authorized; 49,613,144 issued and outstanding as of March 31, 2018; 100,000,000 shares authorized; 23,981,253 issued and outstanding as of December 31, 2017 496,131 239,813 Paid-in capital 180,415,969 150,356,757 Accumulated other comprehensive loss - foreign currency translation (111,130 ) (103,980 ) Accumulated deficit (184,319,310 ) (189,495,185 ) Noncontrolling interest 750,264 38,409,956 Total stockholders’ deficit (2,768,076 ) (592,639 ) Total liabilities and stockholders’ deficit $ 177,094,722 $ 164,032,588

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)

Three Months Ended

March 31, 2018 2017 Revenues: Consulting $ 839,503 $ 1,358,062 Subscription 47,162,447 - Marketing and promotional services 1,440,910 - Total revenues 49,442,860 1,358,062 Cost of revenue 135,968,976 1,105,485 Gross (loss) profit (86,526,116 ) 252,577 Operating expenses: Selling, general & administrative 19,709,831 4,180,172 Research and development 224,771 - Depreciation and amortization 1,271,275 430,925 Total operating expenses 21,205,877 4,611,097 Loss from operations (107,731,993 ) (4,358,520 ) Other income / (expense): Change in fair market value – derivative liabilities 8,597,378 867,468 Change in fair market value – warrant liabilities 93,608,200 114,863 Gain on extinguishment of debt 15,007,699 - Interest expense (35,534,899 ) (3,108,832 ) Interest income 15,341 17,950 Total other income/(expense) 81,693,719 (2,108,551 ) Loss before income taxes (26,038,274 ) (6,467,071 ) Provision for income taxes 7,951 30,484 Net loss (26,046,225 ) (6,497,555 ) Net loss attributable to the noncontrolling interest 31,222,100 - Net income/(loss) attributable to Helios and Matheson Analytics Inc. $ 5,175,875 $ (6,497,555 ) Other comprehensive (loss)/income – foreign currency adjustment (7,150 ) 823 Comprehensive income/(loss) $ 5,168,725 $ (6,496,732 ) Basic income (loss) per share: Net income (loss) per share attributable to common stockholders – basic $ 0.15 $ (1.17 ) Weighted average shares – basic 34,850,281 5,530,083 Diluted income (loss) per share: Net income (loss) per share attributable to common stockholders – diluted $ 0.09 $ (1.17 ) Weighted average shares – diluted 36,602,367 5,530,083

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

Common Stock Paid-in Accumulated

Other

Comprehensive Accumulated Non-controlling Total

Stockholders’ Shares Amount Capital Loss Deficit Interest Deficit Balance at December 31, 2017 23,981,253 $ 239,813 $ 150,356,757 $ (103,980 ) $ (189,495,185 ) $ 38,409,956 $ (592,639 ) Settlement of warrant liability 4,353,581 43,536 12,850,629 - - - 12,894,165 Warrant liability which ceases to exist - - 50,307,400 - - - 50,307,400 Conversion of convertible notes and interest 1,169,475 11,694 4,666,205 - - - 4,677,899 Shares issued for settlement of a liability 1,202,167 12,022 11,054,583 - - - 11,066,605 MoviePass shares issued in advance of services - - 324,369 - - - 324,369 Share based compensation 631,668 6,316 4,906,911 - - - 4,913,227 Derivative liability which ceases to exist - - 1,734,940 - - - 1,734,940 Shares/warrants issued for February public offering 18,275,000 182,750 96,721,381 - - - 96,904,131 Reclassification of warrants from February public offering to derivative liability - - (158,944,798 ) - - - (158,944,798 ) Adjustment of non-controlling interest in connection with the MoviePass Acquisition - - 6,437,592 - - (6,437,592 ) - Net income - - - - 5,175,875 (31,222,100 ) (26,046,225 ) Foreign exchange translation - - - (7,150 ) - - (7,150 ) Balance at March 31, 2018 49,613,144 $ 496,131 $ 180,415,969 $ (111,130 ) $ (184,319,310 ) $ 750,264 $ (2,768,076 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the Three Months Ended March 31, 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(26,046,225) $(6,497,555) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,271,275 430,925 Change in fair market value – derivative liabilities (8,597,378 ) (867,468 ) Change in fair market value – warrant liabilities (93,608,200 ) (114,863 ) Gain on extinguishment of debt (15,007,699 ) - Provision for doubtful accounts 3,001 (4,055 ) Non-cash interest expense 34,969,982 3,108,832 Share based compensation 5,766,329 1,896,400 Change in operating assets and liabilities: Accounts receivable 3,035,002 (58,087 ) Unbilled receivables - (9,460 ) Prepaid expenses and other current assets (216,083 ) (197,501 ) Accounts payable and accrued expenses (440,874 ) (93,213 ) Deferred revenue 30,461,506 - Deposits and other assets 125 (86,740 ) Net cash used in operating activities (68,409,239 ) (2,492,785 ) CASH FLOWS FROM INVESTING ACTIVITIES: Disposal of property and equipment - 956 Purchases of equipment (92,108 ) (20,811 ) Net cash used in investing activities (92,108 ) (19,855 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable 25,000,000 3,000,000 Proceeds from public offering, net 96,923,231 - Note repayment (27,894,062 ) - Payment of deferred financing fees (2,170,328 ) - Payment of Make-Whole Interest (5,000,000 ) - Settlement of warrant liability (779,219 ) - Net cash provided by financing activities 86,079,622 3,000,000 Net change in cash and cash equivalents 17,578,275 487,360 Effect of foreign currency exchange rate changes on cash and cash equivalents (7,150 ) 823 Cash and cash equivalents, beginning of period 24,949,393 2,747,240 Cash and cash equivalents, end of period $ 42,520,518 $ 3,235,423 Supplemental disclosure of cash and non-cash transactions: Cash investing and financing activities Cash paid for income taxes $ - $ 5,975 Cash paid during the period for interest $ 7,735,245 $ 128,114 Non-cash investing and financing activities Conversion of convertible notes and interest to shares of common stock $ 4,677,899 $ 1,857,001 Settlement of warrants $ 12,894,165 $ - Warrant liability which ceases to exist $ 50,307,400 $ - Debt discount for derivative and warrant liability $ 22,046,843 $ 2,054,731 Shares issued for settlement of liability $ 11,066,605 $ - Derivative ceases to exist - reclassified to paid in capital $ 1,734,940 $ 882,199 Reclassification of warrant from public offering to derivative liability $ 158,944,800 $ - Non-cash fees relating to public offering $ 19,100 $ - Shares issued for prepaid services $ 1,020,905 $ - Conversion of convertible notes and interest to shares of common stock $ 6,375,714 $ -

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

1. General

The accompanying unaudited condensed interim consolidated financial statements (“interim statements”) of Helios and Matheson Analytics Inc. (“Helios and Matheson” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. The consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2017. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2017.

2. Business and Basis of Presentation

Business

Since 1983, the Company has provided high quality information technology, or IT, services and solutions including a range of technology platforms focusing on big data, business intelligence, and consumer-centric technology. More recently, to provide greater value to stockholders, the Company has sought to expand its business primarily through acquisitions that leverage its capabilities and expertise.

On November 9, 2016, the Company acquired Zone Technologies, Inc., a Nevada corporation (“Zone”), a state-of-the-art mapping and spatial analysis company. On December 11, 2017 the Company acquired a majority interest in MoviePass Inc., a Delaware corporation (“MoviePass”), whose primary product offering is MoviePass™, the nation’s premier movie theater subscription service. MoviePass provides subscribers with access to up to one new movie title in theaters per day, subject to the MoviePass terms of use, at a fixed monthly, quarterly, semi-annual or annual fee.

In January 2018, the Company formed the Company’s wholly-owned subsidiary, MoviePass Ventures LLC, a Delaware limited liability (“MoviePass Ventures”), which aims to collaborate with film distributors to share in film revenues while using the data analytics that MoviePass offers for marketing and targeting services reaching MoviePass’ paying subscribers using the platform.

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The condensed consolidated financial statements include all accounts of the Company and its wholly owned and majority owned subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated. The Company consolidated the operations of MoviePass as of December 11, 2017.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include, but are not limited to, allowance for doubtful accounts, purchase accounting allocations, recoverability and useful lives of property, plant and equipment, identifiable intangibles and goodwill, warrant liability, derivative liabilities, the valuation allowance of deferred taxes, contingencies and equity compensation. Actual results could differ from those estimates.

Reclassification

Certain prior period amounts have been reclassified to conform to current period presentation.

3. Summary of Significant Accounting Policies

Revenue Recognition

Consulting revenues are recognized as services are provided. The Company primarily provides consulting services under time and material contracts, whereby revenue is recognized as hours and costs are incurred. Clients for consulting revenues are billed on a weekly or monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of the software to a customer because future obligations associated with such revenue are insignificant.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

As of March 31, 2018, the Company owned approximately 81.2% of MoviePass.

Subscription revenue consists primarily of subscription fees for monthly, quarterly, semi-annual or annual subscriptions. Revenue from subscriptions is recognized on a straight-line basis when the performance obligations to provide each service for the period are satisfied, which is over time as our subscription services can be used by our subscribers at any time. Consumers purchasing subscriptions generally pay on an annual or monthly basis, and any prepaid amounts for subscription services are recorded as deferred revenue and amortized to revenue evenly over the service period which begins once a subscriber has activated his or her subscription.

The Company also generates revenue from marketing services primarily related to major motion picture releases. Marketing revenue is generated through e mail and digital advertising to the Company’s subscriber base and pursuant to a contract for such services with the movie distributor. Such agreements are short term and are generally represented by a fully executed customer agreement. Revenue is recognized as performance obligations are satisfied which generally occurs within a month of the date the contract begins. Payment terms on marketing agreements vary and payment is generally due once the performance obligations have been satisfied.

Adoption of ASC 606 Revenue from Contracts with Customers

The Company adopted the new revenue standard, ASC 606, using the modified retrospective method with respect to all non-completed contracts as of January 1, 2018. This method required retrospective application of the new accounting standard to all unfulfilled contracts that were outstanding as of January 1, 2018. Revenues and contract assets and liabilities for contracts completed prior to January 1, 2018 are presented in accordance with ASC 606.

The Company has determined that there were no adjustments required with respect to the adoption of ASC 606 with respect to any prior periods.

Disaggregation of Revenue

Three Months Ended

March 31, 2018 2017 Types of revenues: Consulting $ 839,503 $ 1,358,062 Subscription 47,162,447 - Marketing and promotional services 1,440,910 - Total revenues $ 49,442,860 $ 1,358,062

The following is a description of the principal activities from which the Company generates revenue, including from subscribers and consulting customers.

Consulting Revenue

Consulting revenues are recognized as services are provided. The Company primarily provides consulting services under time and material contracts, whereby revenue is recognized as hours and costs are incurred. Clients for consulting revenues are billed on a weekly or monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of the software to a customer because future obligations associated with such revenue are insignificant.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

Subscription Revenue

Subscription revenue consist of subscription fees related to monthly, quarterly, semi-annual and annual subscriptions to the MoviePass service. Once a subscriber activates his or her account, revenue is recognized on a straight-line basis when the performance obligation to provide each service for the period is satisfied, which is over time as our subscription service is continuously available to our subscribers.

Marketing and Promotional Services

Marketing and promotional services consists of services associated with the MoviePass business. The Company recognizes revenue from marketing contracts with customers when the performance obligations have been completed and the service has been provided to the customer.

Deferred Revenue

Subscription fees are generally paid in advance by credit card through merchant processors. Subscription fees received in advance of completion of the performance obligations are recorded as deferred revenue until such time the services are provided to the customer.

Goodwill

The Company reviews goodwill for impairment during the fourth quarter of each year, and also upon the occurrence of a triggering event. The Company performs reviews of each of its operating divisions that have goodwill balances. Generally, fair value is determined using a multiple of earnings, or discounted projected future cash flows, and is compared to the carrying value of a reporting unit for purposes of identifying potential impairment. Projected future cash flows are based on management’s knowledge of the current operating environment and expectations for the future. Goodwill impairment is recognized for any excess of the carrying value of the reporting unit’s goodwill over the fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The identification of relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgments by management. These judgments include the consideration of the general economic outlook, industry and market considerations, cost factors, overall financial performance, events which are specific to the Company, and trends in the market price of our common stock. Each factor is assessed to determine whether it impacts the impairment test as well as the magnitude of any such impact. For the three months ended March 31, 2018 and 2017, the Company did not record an impairment on goodwill.

Intangible Assets, net

Intangible assets consist of customer relationships, technology, trademarks, broker relationships and patents. Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment. Intangible assets are amortized on the straight-line method over their useful lives ranging from 3 to 12 years.

The Company recorded amortization expense of $1,255,859 and $426,651 for the three months ended March 31, 2018 and 2017, respectively.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether certain triggering events have occurred. These events include current period losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a triggering event occurs, an impairment calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates, to the respective carrying value. If the Company identifies impairment for long-lived assets to be held and used, the Company compares the assets’ current carrying value to the assets’ fair value. Fair value is based on current market values or discounted future cash flows. The Company records impairment when the carrying value exceeds fair market value. With respect to owned property and equipment held for disposal, the value of the property and equipment is adjusted to reflect recoverable values based on previous efforts to dispose of similar assets and current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal.

The Company did not record impairment charges in regard to definite-lived intangible assets for the three months ended March 31, 2018 and 2017.

Research and Development

Research and development costs are charged to operations when incurred and are included in operating expenses.

Stock Based Compensation

The Company follows the fair value recognition provisions in ASC 718, Stock Compensation (“ASC 718”) and the provisions of ASC 505 Equity (“ASC 505”) for stock-based transactions with non-employees. Stock based compensation expense recognized during the three months ended March 31, 2018 includes compensation expense for all share-based payments based on a grant date fair value estimated in accordance with the provisions in the guidance for stock compensation issued by the Financial Accounting Standards Board (“FASB”). The grant date is the date at which an employer and employee reach a mutual understanding of the key terms and conditions of a share-based payment award.

Fair Value Measurements

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices (unadjusted) in an active market for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that are supported by little or no market activity; therefore the inputs are developed by the Company using estimates and assumptions that the Company expects a market participant would use.

The carrying value of the Company’s short-term investments, prepaid expenses and other current assets, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term maturity of these financial instruments.

The derivative liability in connection with the conversion feature of the Company’s convertible debt and the warrant liability is classified as a level 3 liability.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In addition, this guidance requires new or expanded disclosures related to the judgments made by companies when following this framework and additional quantitative disclosures regarding contract balances and remaining performance obligations. ASU No. 2014-09 may be applied using either a full retrospective approach, under which all years included in the financial statements will be presented under the revised guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the entity.

ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Company developed an implementation plan to adopt this new guidance, which included an assessment of the impact of the new guidance on the Company’s financial position and results of operations. On January 1, 2018, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and for all open contracts and related amendments as of January 1, 2018 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 will be presented under ASC 606, while the comparative information will not be restated and will continue to be reported under the accounting standards in effect for those periods.

During January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income. On January 1, 2018, the Company adopted the new accounting standard and has substantially completed its assessment and has determined that this standard will have no impact on its financial position or results of operations.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (“ASC 230”): Classification of Certain Cash Receipts and Cash Payments, (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. On January 1, 2018, the Company adopted ASU 2016-15. The adoption of this update did not significantly impact the current presentation of the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (“ASC 230”): Restricted Cash (“ASU 2016-18”), requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. On January 1, 2018, the Company adopted ASU 2016-18. The adoption of this update did not significantly impact the Company’s consolidated financial statements.

The following accounting standards updates were recently issued and have not yet been adopted by us. These standards are currently under review to determine their impact on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases, (“ASC 842”), which supersedes FASB ASC 840, Leases and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently evaluating the method of adoption and the impact of adopting ASU 2016-02 on its results of operations, cash flows and financial position.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (“ASC 740”): Intra-Entity Transfers of Assets Other than Inventory (“ASU 2016-16”), which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently in the process of evaluating the impact of ASU 2016-16 on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019 and an entity should apply the amendments of ASU 2017-04 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the effects of ASU 2017-04 on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (“ASC 260”), Distinguishing Liabilities from Equity (“ASC 480”), and Derivatives and Hedging (“ASC 815”). ASU No. 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable non-controlling interests. ASU No. 2017-11 is effective for the Company on January 1, 2019. The Company is currently evaluating the potential impact of ASU No. 2017-11 on the Company’s consolidated financial statements.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

4. Going Concern Analysis

During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (May 15, 2018). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due before May 15, 2019.

The Company is subject to a number of risks similar to those of other big data technology, technology consulting companies and subscription based businesses, including its dependence on key individuals, uncertainty of product development and generation of revenues and positive cash flow, dependence on outside sources of capital, risks associated with research, development, testing, and successful protection of intellectual property, the Company’s ability to maintain and grow its subscriber base and the Company’s susceptibility to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s cost structure.

The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years. As of and for the three months ended March 31, 2018, the Company had an accumulated deficit of $184,319,310 a loss from operations of $107,731,993 and net cash used in operating activities of $68,409,239.

The Company expects to continue to incur net losses and have significant cash outflows for at least the next 12 months. As of March 31, 2018, the Company had cash and a working capital deficit of $42,520,518 and $109,001,531, respectively. Of the working capital deficit, $70,730,100 pertained to warrant and derivative liabilities classified on the balance sheet within short term liabilities. Management has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the condensed consolidated financial statements were issued. While management will look to continue funding operations by raising additional capital from sources such as sales of its debt or equity securities or loans in order to meet operating cash requirements, there is no assurance that management’s plans will be successful.

The Company obtained convertible debt financing for up to $60,000,000 in gross proceeds on January 11, 2018, of which the Company had received $25,000,000 in gross proceeds as of March 31, 2018, which the Company used (i) to increase the Company’s ownership interests or other rights and interests in MoviePass; (ii) to satisfy certain indebtedness; and (iii) for general corporate purposes and transaction expenses. The Company may also use the proceeds to make other acquisitions. The Company had $695,270 of make-whole principle balance outstanding under the Senior Convertible Notes issued to institutional investors on November 7, 2017 and January 23, 2018, and there remained $114,350,000 in restricted principal for which a corresponding amount of principal under the investor notes remains to be paid to the Company by the holders of those convertible notes.

In order to facilitate the Company’s further access to capital, in January 2018 the Company filed a shelf registration statement on form S-3 that was declared effective by the Securities and Exchange Commission on February 9, 2018, which allows the Company to offer and sell up to $400,000,000 of its equity or equity-linked securities. This aggregate offering amount includes up to $150 million of common stock that the Company may sell at prevailing market prices in a continuous at-the market offering through its sales agent Canaccord Genuity LLC. Using the shelf registration statement, the Company completed an underwritten public offering of common stock and warrants for gross proceeds of approximately $105.0 million on February 13, 2018. The total net proceeds to the Company from the public offering were $96.9 million.

Without raising additional capital, there is substantial doubt about the Company’s ability to continue as a going concern through May 15, 2019. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company’s cost structure.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

5. Acquisitions

Acquisition of Controlling Interest in MoviePass Inc.

On December 11, 2017, the Company completed its acquisition of a 62.41% majority interest in MoviePass Inc., a Delaware corporation (“MoviePass”, and such acquisition, the “MoviePass Transaction”), for the following consideration: (1) a subordinated convertible promissory note in the principal amount of $12,000,000 (the “Helios Convertible Note”), which is convertible into shares of HMNY’s common stock, as further described below; (2) a $5,000,000 promissory note issued to MoviePass (the “Helios Note”); (3) the exchange of a convertible promissory note issued by MoviePass to HMNY in an aggregate principal amount of $11,500,000 (plus accrued interest thereon); (4) $1,000,000 in cash to purchase outstanding convertible notes of MoviePass, which were converted into shares of MoviePass’ common stock amounting to an additional 2% of the outstanding shares of MoviePass common stock; and (5) $20,000,000 in cash pursuant to the Investment Option Agreement, dated October 11, 2017, between the Company and MoviePass.

The Helios Convertible Note will convert into 4,000,000 unregistered shares of the Company’s common stock (the “Conversion Shares”) automatically upon the Company’s receipt of approval of its stockholders relating to the issuance of the Conversion Shares as required by and in accordance with Nasdaq Listing Rule 5635 (the “Stockholder Approval”). Of that amount, 666,667 of the Conversion Shares are subject to forfeiture by MoviePass, in the Company’s sole discretion, as MoviePass failed to list its common stock on the Nasdaq Stock Market by March 31, 2018 (as required by the securities purchase agreement between the Company and MoviePass). As of the date of this report, the Company has not made a decision with respect to the disposition of those shares that are subject to forfeiture.

The Company has valued the Helios Convertible Note as of the acquisition date including the valuation of the shares subject to forfeiture as noted above, at the fair value on the acquisition date based on a Monte Carlo simulation. The shares subject to forfeiture are contingent consideration and have been valued as a separate component of the Helios Convertible Note. As of the acquisition date the Helios Convertible Note was valued at $29,000,000 and the portion of the Conversion Shares subject to forfeiture was valued at $5,152,446. All of the purchase consideration, with the exception of the $1,000,000 paid for the MoviePass convertible notes which were converted into MoviePass common stock, was retained by MoviePass. Accordingly, the value of the Helios Convertible Note, the Helios Note and the value associated with the Conversion Shares subject to forfeiture are eliminated in consolidation for financial reporting purposes.

Goodwill recognized as part of the MoviePass acquisition is not expected to be tax deductible.

The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the MoviePass Transaction. These values are subject to change as management performs additional reviews of the assumptions utilized.

The Company has made a provisional allocation of the purchase price of the MoviePass Transaction to the assets acquired and the liabilities assumed as of the acquisition date. The following table summarizes the provisional purchase price allocations relating to the MoviePass Transaction.

Purchase consideration: MoviePass Cash $ 32,671,792 Notes payable (includes Helios Convertible Note and Helios Note) 39,152,446 Fair value of consideration transferred $ 71,824,238 Recognized amounts of identifiable assets and liabilities acquired: Cash acquired $ 1,106,171 Accounts receivable 9,669,390 Notes receivable 39,152,446 Investment option payment receivable 7,850,000 Prepaid expenses and other current assets 192,180 Property and equipment 39,320 Other assets 8,000 Identifiable intangible assets: Tradenames and trademarks 19,550,000 Technology 3,800,000 Customer relationships 2,560,000 Liabilities assumed (9,261,785 ) Deferred revenue (38,718,397 ) Non-controlling interest (43,260,264 ) Goodwill 79,137,177 Total purchase price allocation $ 71,824,238

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

The Company has not completed the valuation studies necessary to finalize the acquisition fair values of the assets acquired and liabilities assumed and related allocation of purchase price for the MoviePass Transaction. Accordingly, the type and value of the intangible assets and deferred revenue amounts set forth above are preliminary. Once the valuation process is finalized for the MoviePass Transaction, there could be changes to the reported values of the assets acquired and liabilities assumed, including goodwill, intangible assets and deferred revenue and those changes could differ materially from what is presented above.

The Company determined the provisional fair value of the acquired intangible assets through a combination of the market approach and the income approach. The significant assumptions used in certain valuations associated with the MoviePass Transaction include discount rates ranging from 10.0% to 51.0%. In determining the value of tradenames and trademarks the Company observed royalty rates ranging from 0.0% to 100.0%, and utilized a 1.0% rate for MoviePass’s aggregated tradenames and trademarks. Additionally, the Company observed royalty rates related to MoviePass’s technology assets acquired ranging from 0.0% to 50.0%, and used a 1.0% royalty rate in determining the fair value of the acquired technology. In accordance with EITF guidance, the fair value of an acquired liability related to deferred revenue would include the direct and incremental cost of fulfilling the obligation plus a normal profit margin. The Company utilized historical operating results in estimating the direct and incremental costs of fulfilling the acquired deferred revenue obligations. The Company recorded an amount of $43,260,264 representing the non-controlling interest of MoviePass. The non-controlling interest in MoviePass was determined based on the fair value of MoviePass less the amounts paid by the Company for its 62.41% controlling interest.

The estimated useful lives of acquired intangible assets are 7 years for customer relationships, 3 years for technology, and 7 years for tradenames and trademarks. Acquired deferred revenue is estimated to be realized based on the length of the subscription, over 12 months from the acquisition date.

Additional MoviePass Subscription Agreements

On March 8, 2018, the Company entered into a Subscription Agreement with MoviePass (the “March 2018 Agreement”), pursuant to which, in lieu of repayment of advances totaling $55,525,000 made by the Company, MoviePass agreed to sell to the Company an amount of MoviePass Common Stock equal to 18.79% of the total then outstanding shares of MoviePass Common Stock (excluding shares underlying MoviePass options and warrants) (the “March 2018 MoviePass Purchased Shares”). MoviePass also agreed to issue to the Company, in addition to the March 2018 MoviePass Purchased Shares, without payment of additional consideration by the Company, for purposes of anti-dilution, an amount of shares of MoviePass Common Stock that caused the Company’s total ownership of the outstanding shares of MoviePass Common Stock (excluding shares underlying MoviePass options and warrants), together with the March 2018 MoviePass Purchased Shares, to equal 81.2% as of March 8, 2018.

The Company has accounted for the March 2018 MoviePass Purchased Shares as an acquisition of a portion of the non-controlling interest in MoviePass. Accordingly, the non-controlling interest at March 8, 2018 was reduced based on the percentage acquired, and the balance invested in excess of the value of the non-controlling interest acquired was recorded as additional invested capital.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

6. Net Income/(Loss) Per Share Attributable to Common Stockholders

Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangements, stock options or warrants. The calculation of diluted EPS excludes 4,934,555 shares for securities deemed to be anti-dilutive.

The following sets forth the computation of diluted EPS for the three months ended March 31, 2018 and March 31, 2017:

Three months ended March 31, 2018 Net Income Available to Common Stockholders (Numerator) Shares (Denominator) Per Share Amount Basic EPS $ 5,175,875 34,850,281 $ 0.15 Assumed conversion of convertible notes (1,940,056 ) - - Dilutive shares related to warrants and convertible notes - 1,752,086 - Dilutive EPS $ 3,235,819 36,602,367 $ 0.09

Three months ended March 31, 2017 Net Loss Available to Common Stockholders (Numerator) Shares (Denominator) Per Share Amount Basic EPS $ (6,496,732 ) 5,530,083 $ (1.17 ) Dilutive shares related to warrants and convertible notes - - - Dilutive EPS $ (6,496,732 ) 5,530,083 $ (1.17 )

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

7 . Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following on March 31, 2018 and December 31, 2017:

March 31,

2018 December 31, 2017 Vendor deposits $ 152,285 $ 147,533 Tax 99,407 108,433 Deposits 226,750 230,711 Insurance 78,797 86,181 Professional fees and services 549,140 33,333 Deferred stock compensation 2,054,341 2,885,278 Rent 42,779 52,650 Other 63,828 13,692 Total prepaid expenses and other current assets $ 3,267,327 $ 3,557,811

8. Intangible Assets, net

The following table sets forth the major categories of the Company’s intangible assets and the estimated useful life as of March 31, 2018 and December 31, 2017 for those assets that are not already fully amortized:

Estimated Gross March 31, 2018 Useful Life (Years) Carrying Amount Accumulated Amortization Impairments Net Book Value Customer relationships 7 $ 2,560,000 $ (112,074 ) $ - $ 2,447,926 Technology 3 8,070,000 (2,373,259 ) - 5,696,741 Tradenames and trademarks 7 19,550,000 (599,113 ) - 18,950,887 Patents 12 196,353 (12,196 ) - 184,157 $ 30,376,353 $ (3,096,642 ) $ - $ 27,279,711

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

Estimated Gross December 31, 2017 Useful Life (Years) Carrying Amount Acquisitions Accumulated Amortization Impairments Net Book Value Customer relationships 7 $ - $ 2,560,000 $ (20,645 ) $ - $ 2,539,355 Technology 3 4,270,000 3,800,000 (1,700,431 ) - 6,369,569 Tradenames and trademarks 7 1,977,000 19,550,000 (433,588 ) (1,653,776 ) 19,439,636 Broker relationships 5 4,200 - (962 ) (3,238 ) - Patents 12 196,353 - (8,131 ) - 188,222 $ 6,447,553 $ 25,910,000 $ (2,163,757 ) $ (1,657,014 ) $ 28,536,782

The Company recorded amortization expense of $1,255,859 and $426,651 for the three months ended March 31, 2018 and 2017, respectively.

The following table outlines estimated future annual amortization expense for the next five years and thereafter:

March 31, Remaining 2018 $ 3,770,233 2019 4,821,384 2020 3,532,137 2021 2,336,976 2022 2,336,976 Thereafter 10,482,005 $ 27,279,711

9. Accounts Payable and Accrued Expenses

As of March 31, 2018 and December 31, 2017, accounts payable and accrued expenses consisted of the following:

March 31,

2018 December 31, 2017 Accounts payable $ 5,412,887 $ 5,087,060 Accrued ticket expense 1,852,876 4,743,582 Accrued professional fees 2,719,192 597,187 Accrued credit card fees - 782,670 Accrued payroll expense 1,079,841 312,149 Accrued other expense 869,818 852,840 Accrued interest 1,393,476 768,515 Total accounts payable and accrued expenses $ 13,328,090 $ 13,144,003

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

10. Senior Secured Convertible Notes and Warrants

On February 8, 2017, the Company issued two Senior Secured Convertible Notes (the “February 2017 Notes”) to an institutional investor (the “Investor”) in the aggregate principal amount of $5,681,818 for consideration consisting of a secured promissory note payable by the Investor to the Company in the principal amount of $5,000,000 (the “February 2017 Investor Note”) which offsets the February 2017 notes of the same amount. Upon issuance, the initial note with a principal balance of $681,818 was accounted for as an original issuance discount and accreted into interest expense over the life of the February 2017 Notes. As cash payments are applied to the February 2017 Investor Note, a derivative liability is recognized and placement agent warrants are issued. Both the derivative liability and the warrants are accounted for as debt discount to the February 2017 Notes and accreted into interest expense over the life of the note using the effective interest method. The February 2017 Notes had a maturity date of October 8, 2017. As of December 31, 2017, the Investor had fully prepaid the February 2017 Investor Note and had subsequently converted the principal amount due under the February 2017 Notes and approximately $49,000 of interest into 1,852,886 shares of the Company’s common stock in full payment of the February 2017 Notes. On any principal balance owed by the Company to the Investor, a 6% interest obligation was due quarterly and calculated on a 360-day basis. For the three months ended March 31, 2018 and March 31, 2017, the Company had interest expense of $0 and $10,277, respectively, related to the February 2017 Notes as the final principal balance was converted in August 2017. In a letter agreement executed on August 27, 2017, in consideration for the prepayment in the amount of $2,500,000, on the February 2017 Investor Note, which the Investor subsequently made on August 28, 2017, the Investor and the Company agreed that the Investor would have the right, but not the obligation, until December 31, 2017, to effect an exchange (the “Share Exchange”) of 841,250 shares of the Company’s common stock (the “Exchange Shares”) for one or more senior secured convertible promissory notes in the form of the February Additional Note (the “New Note”), with the right to substitute the alternate conversion price of the New Note with the alternate conversion price of the Company’s Series B Senior Secured Convertible Note (the “Series B Note”) that was issued on August 16, 2017. Any New Note issued would be in a principal amount equal to the product of the prepayment amount ($2,500,000) multiplied by a fraction, the numerator of which is the number of the aggregate shares being tendered to the Company in the Share Exchange and the denominator of which is 841,250. The maturity date of any New Note was 45 days following the issuance of the New Note, and the conversion price of the New Notes was $4.50, or, at the election of the Investor, the Investor could convert at the Alternate Conversion Price. The Alternate Conversion Price was defined as either (A) the lower of (i) $4.50 and (ii) the greater of (I) $4.00 and (II) 85% of the quotient of (x) the sum of the volume weighted average price of the common stock for each of the 5 consecutive trading days ending on the trading day immediately preceding the delivery of the Conversion Notice, divided by (y) 5 or (B) that price which shall be the lowest of (i) $3.00 and (ii) the greater of (I) the Floor Price then in effect and (II) 85% of the quotient of (x) the sum of the volume weighted average price of the Company’s common stock for each of the 5 consecutive trading days ending and including the date of the alternate conversion, divided by (y) 5. The Floor Price was defined as $3.00 through October 4, 2017 and $0.50 following October 4, 2017. On October 23, 2017, the Company and the Investor entered into a Third Amendment and Exchange Agreement (the “Third Exchange Agreement”) for the purpose of exchanging the New Note for 947,218 shares of common stock (the “New Exchange Shares”) and rights (the “Rights”) to receive 552,782 additional shares of common stock. As partial consideration for the New Exchange Shares and the Rights, the Investor agreed, among other things, to terminate the Investor’s right to exchange the remaining Exchange Shares for New Notes. The termination of these rights is accounted for as financing fees associated with the February 2017 Notes and valued at $19,950,000 based on the trading price of the Company’s stock on the date of the Third Exchange Agreement.

On August 16, 2017, the Company issued to the Investor three Senior Secured Convertible Notes (the “August 2017 Notes”) in the aggregate principal amount of $10,300,000 and a 5-year warrant for the purchase of 1,892,972 shares of the Company’s common stock at an exercise price of $3.25 per share (the “Investor Warrant”) for consideration consisting of a secured promissory note payable by the Investor to the Company (the “August 2017 Investor Note”) in the principal amount of $8,800,000 and $220,000 which offsets the August 2017 Notes of the same amount. The August 2017 Notes have a maturity date of April 16, 2018 and the Investor Warrant will expire on April 16, 2022. The $220,000 secured promissory note payable by the Investor was issued in exchange for a $250,000 Senior Secured Convertible Note; therefore, a discount of $30,000 was recognized upon issuance and accreted into interest expense over the life of the note using the effective interest method. Upon issuance, the Investor Warrant was recorded at fair value and accounted for as an original issuance discount to the August 2017 Notes. The excess in value of the Investor Warrant over the August 2017 Notes upon issuance was recorded as interest expense, while the capitalized balance was accreted into interest expense over the life of the August 2017 Notes. At December 31, 2017, the contracted conversion prices for the August 2017 Notes, which include an Initial Series A Note, an Additional Series A Note and the Series B Note, were $4.00 for the Initial Series A Note and the Additional Series A Note and $3.00 for the Series B Note. As of December 31, 2017, the Investor had fully prepaid the August 2017 Investor Note and subsequently converted $5,794,560 in principal amount, plus accrued interest, of the August 2017 Notes into 1,482,639 shares of the Company’s common stock. As of December 31, 2017, the unpaid principal amount of the August 2017 Notes owed to the Investor was $4,505,440. On any principal balance owed by the Company to the Investor, a 6% interest obligation is due quarterly and calculated on a 360-day basis. For the three months ended March 31, 2018, the Company had $37,126 of interest expense pertaining to the unpaid principal amount of the August 2017 Notes. The full outstanding principal balance of $4,677,899 and accrued interest of $37,126 were converted to 1,169,475 shares of the Company’s common stock on February 20, 2018.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

The Investor Warrant included anti-dilution provisions. The anti-dilution provisions were triggered when the Company issued a new senior convertible note to the Investor in the aggregate principal amount of $697,000 (the “Exchange Note”). Because the Exchange Note had a conversion price of $3.00 per share, which was lower than the Investor Warrant per share exercise price of $3.25, the number of shares of the Company’s common stock issuable to the Investor pursuant to the Investor Warrant was increased from 1,892,972 to 2,050,720 and the per share exercise price of the Investor Warrant was decreased from $3.25 to $3.00. As of December 31, 2017, the Investor had elected, in a cashless transaction, to exercise the Investor Warrant to purchase 1,715,006 shares of common stock and also paid the Company the sum of $977,142 to exercise the Investor Warrant for an additional 325,714 shares of common stock. On November 21, 2017 in conjunction with the Fourth Amendment and Exchange Agreement, the remaining 10,000 shares of common stock subject to the Investor Warrant were exchanged for a new warrant (the “Exchange Warrant”). The Exchange Warrant is in substantially the form of the Investor Warrant, except that:

● The Exchange Warrant has an exercise price of $14.31.

● The expiration date of the Exchange Warrant is November 21, 2022.

● The Exchange Warrant may not be exercised for the purchase of shares of common stock unless the stockholders of the Company approve the issuance in compliance with the rules and regulations of the Nasdaq Capital Market, which stockholder approval was obtained at a special meeting of the Company’s stockholders in October 2017.

● The Exchange Warrant is subject to redemption, refund or alternate cashless exercise after the August Note is no longer outstanding (or on or after February 16, 2018 if the Company fails to remain current in its filings or an event of default under the August 2017 Notes occurs).

In exchange for the Company’s receipt of the waivers described above, including without limitation, the Additional Offering Prohibition Waiver, the Company and the holder of the Exchange Warrant agreed that after the Adjustment Time, one of the following shall occur:

(i) if the net proceeds from the sale of shares of common stock issuable upon conversion of the Remaining August Note by the holder of the Exchange Warrant exceeds $18.1 million (subject to reduction for any cash payment of the Remaining August Note), the Company will receive up to the first $5 million in excess of such amount;

(ii) if the net proceeds from the sale of shares of common stock issuable upon conversion of the Remaining August Note by the holder of the Exchange Warrant is less than $18.1 million (subject to reduction for any cash payment of the Remaining August Note) (such difference, the “Redemption Maximum Amount”), either of the following may occur:

● If the Stockholder Approval has been obtained, the holder of the Exchange Warrant may request to affect an alternate cashless exercise of the Exchange Warrant, in whole or in part, pursuant to which, in lieu of the shares of common stock issuable upon exercise of the Exchange Warrant, the holder would receive up to the Redemption Maximum Amount in shares of common stock at the Alternate Cashless Exercise Price (as defined below) (an “Alternate Cashless Exercise”); or

● The holder of the Exchange Warrant may request a redemption in cash of all, or any part, of the Exchange Warrant at a price equal to such difference; provided, that if certain equity conditions are met (including obtaining the Stockholder Approval), the Company may elect to pay such redemption price in shares of common stock in an Alternate Cashless Exercise.

The Alternate Cashless Exercise Price is defined as that price which shall be the greater of (x) $2.86 and (y) the lowest of (i) the applicable exercise price as in effect on the applicable exercise date, (ii) 85% of the VWAP of the shares of common stock as of the trading day immediately preceding the trading day of delivery of the applicable exercise notice, and (iii) 85% of the lowest VWAP of the shares of common stock on any trading day during the 2 trading day period commencing on, and including, the trading day of the delivery of the applicable exercise notice.

In March 2018, the Investor converted the entire Exchange Warrant into 3,265,186 shares of our common stock at pursuant to an Alternate Cashless Exercise.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

With the issuance of the Exchange Warrant, the resulting cash flows of the remaining Investor Warrant were considered to be significantly modified within the context of ASC 470. Accordingly, the incremental change in fair value between the Investor Warrant and the Exchange Warrant is calculated as $12,878,864 and recorded as interest expense. In March of 2018 the Investor exercised the Exchange Warrant by means of a cashless exercise into 4,353,581 shares of common stock and a cash payment from the Company of $779,219, resulting in a reduction of the warrant liability and corresponding adjustment to Additional Paid in Capital.

On November 7, 2017, the Company issued two Senior Secured Convertible Notes in the aggregate principal amount of $100,000,000 (collectively, the “November 2017 Notes”) to institutional investors. The November Notes consist of a Senior Secured Convertible Note in the amount of $5,000,000 (the “November Initial Note”) and a Senior Secured Convertible Note in the amount of $95,000,000 (the “November Additional Note”) in exchange for an upfront cash payment of $5,000,000 and a senior secured promissory note of $95,000,000 (the “November 2017 Investor Note”). As of December 31, 2017, purchasers of the November 2017 Notes prepaid $15,650,000 of the November 2017 Investor Note with the remaining principal being subject to master netting agreements between the Company and such holders. In conjunction with the prepayment, the Company was also obligated to pay the holders interest which would have accrued with respect to the outstanding balance for the period from the redemption date through the maturity date (the “Make-Whole Interest”). The Company elected to defer payment of the Make-Whole Interest by capitalizing the full balance under the same terms as the original November 2017 Notes. As of December 31, 2017 the outstanding balance owed on the Make-Whole Interest was $2,943,069. On January 2, 2018, an additional $646,263 of interest was capitalized and added to the principal balance of the note and on January 26, 2018 investors redeemed principal of $2,894,062 in exchange for cash. The November 2017 Notes have a maturity date of November 7, 2019. As of December 31, 2017, the contracted conversion price for the November 2017 Notes, which include both the November Initial Note and November Additional Note, was $12.06. As of December 31, 2017, the Investors had converted $0 of the November 2017 Notes into shares of the Company’s common stock. On any unfunded principal balance of the November 2017 Investor Notes the Company owed to the Investors a 5.25% interest obligation which is due quarterly and calculated on a 360-day basis. For the funded portion of the November 2017 Notes the Company has a 10% interest obligation. For the three months ended March 31, 2018, the Company had $1,394,169 of interest expense pertaining to the November 2017 Notes and $1,394,169 accrued at March 31, 2018.

On January 23, 2018, pursuant to a securities purchase agreement (the “SPA”) entered into by the Company and an institutional investor (the “Buyer”), the Company sold and issued senior convertible notes in the aggregate principal amount of $60,000,000 (each, a “Note” and collectively, the “Notes”), consisting of (i) a Series A-1 Senior Bridge Subordinated Convertible Note in the aggregate principal amount of $25,000,000 (the “Series A-1 Note”) and (ii) a Series B-1 Senior Secured Bridge Convertible Note in the aggregate principal amount of $35,000,000 (the “Series B-1 Note”) for consideration consisting of (i) a cash payment in the aggregate amount of $25,000,000 (the “Cash Amount”), and (ii) a secured promissory note payable by the Buyer to the Company (the “Investor Note”) in the aggregate principal amount of $35,000,000 (the “Financing”). The date on which the Notes were issued is referred to as the “Closing Date.”

Unless earlier converted or redeemed, the Notes will mature on the second anniversary of the Closing Date. The Company is required to redeem the Notes (i) at the option of the Buyer from and after June 7, 2018; (ii) at the option of the Buyer if the Company completes a subsequent public or private offering of debt or equity securities, including equity-linked securities (subject to certain excluded issuances); (iii) upon the occurrence of an Event of Default, including a Bankruptcy Event of Default (each, as defined in the Notes); or (iv) in the event of a Change of Control (as defined in the Notes). With the exception of a redemption required by an Event of Default, which may be paid with cash or shares of the Company’s common stock at the election of the Buyer, the Company will be required to redeem the Notes with cash. The Notes and the shares of common stock into which the Notes may be converted (collectively, the “Conversion Shares”) are sometimes referred to in this report as the “Securities.” All amounts outstanding under the Notes will be secured by the Investor Note and all proceeds therefrom. The Notes will not be secured by, and the Investors will not have a lien on, any assets of the Company other than the Investor Note.

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Notes to Condensed Consolidated Financial Statements

MoviePass Inc. has guaranteed the obligations arising under the Notes in accordance with the terms of a Guaranty (the “MoviePass Guaranty”).

In accordance with the terms of the SPA, the Company is obligated to convene a special meeting of its stockholders on or prior to June 1, 2018, for the purpose of approving the issuance of all Securities that may be issued in connection with the Financing.

Provided there has been no Equity Conditions Failure (as defined in the Notes) and, as to the Series A-1 Note, no senior secured convertible notes issued by the Company on August 16, 2017 (the “August Notes”) or senior convertible bridge notes issued by the Company on November 7, 2017 (the “November Notes”) remain outstanding, and as to the Series B-1 Note, no August Notes, November Notes, Series A-1 Note or Series B-1 Note with any Unrestricted Principal remain outstanding, the Company will have the right to redeem all, but not less than all, of the Outstanding Amount remaining unpaid under the Notes. The portion of the Notes subject to redemption can be redeemed by the Company in cash at a price equal to 115% of the amount being redeemed. Under the Series B-1 Note, the Company may reduce, on a dollar for dollar basis, the Restricted Principal by the surrender for cancellation of such portion of the corresponding Investor Note equal to the amount of Restricted Principal included in the redemption.

The Buyer has the right to require the Company to redeem the Notes (i) at the option of the Buyer from and after June 7, 2018; (ii) if the Company completes a Subsequent Placement, as defined in the SPA; (iii) upon the occurrence of an Event of Default, including a Bankruptcy Event of Default (as defined in the Notes); or (iv) in the event of a Change of Control. With the exception of a redemption required by an Event of Default, which may be paid with cash or shares of the Company’s common stock at the election of the Buyer, the Company will be required to redeem the Notes with cash.

On February 13, 2018, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Canaccord Genuity Inc., on behalf of itself and as representative of the underwriters named therein (the “Underwriters”), pursuant to which the Company agreed to issue and sell to the Underwriters in a best-efforts underwritten public offering (the “Offering”) up to approximately $105 million in gross proceeds of securities of the Company including (A) 7,425,000 Series A-1 units (the “Series A-1 Units”), with each Series A-1 Unit consisting of (i) one share (a “Share”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”), and (ii) one Series A-1 warrant to purchase one share of Common Stock (a “Series A-1 Warrant”); and for those purchasers whose purchase of Series A-1 Units would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 9.99% of the Company’s outstanding Common Stock following the consummation of the Offering, (B) 11,675,000 Series B-1 units (the “Series B-1 Units”, and together with the “Series A-1 Units”, the “Units”), consisting of (i) one pre-funded Series B-1 warrant to purchase one share of Common Stock (a “Series B-1 Warrant”; and the Series B-1 Warrants, together with the Series A-1 Warrants, the “Warrants”) and (ii) one Series A-1 Warrant. The Units were sold at a price to the public equal to $5.50 per Unit.

Each Warrant is exercisable at any time on or after the issuance date until the five-year anniversary of the issuance date. Each Series A-1 Warrant is exercisable at a price of $6.50 per share of Common Stock. Each Series B-1 Warrant has an aggregate exercise price of $5.50 per share of Common Stock, all of which will be pre-funded except for a nominal exercise price of $0.001 per share of Common Stock. The Warrants will not be listed on The NASDAQ Capital Market or any other securities exchange. As of the date of this report, all Series B-1 Warrants have been exercised.

The Company received approximately $96,923,231 in net proceeds from the sale of the Units, after deducting underwriting discounts and commissions equal to $5,882,800 and estimated offering expenses of approximately $450,000, not taking into account any exercise of the Warrants.

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Notes to Condensed Consolidated Financial Statements

The Placement Agent Notes and Warrants

The Company entered into an agreement with a placement agent (the “Placement Agent”) for assistance with the placement of the February 2017 Notes. The Placement Agent accepted from the Company a 5-year warrant (each a “February Placement Agent Warrant”) as partial payment for the Placement Agent’s services. The February Placement Agent Warrants allow the purchase of up to 8% of the number of shares of the Company’s common stock into which the unrestricted principal of the February 2017 Notes may be converted. Through the first nine months of 2017, the Company received $5,000,000 of cash payments for the February 2017 Notes, resulting in the issuance of February Placement Agent Warrants for the purchase of 133,334 shares of common stock at an exercise price of $3.00 per share. As of March 31, 2018 the Placement Agent has not elected to exercise any February Placement Agent Warrants.

The Company entered into an agreement with the Placement Agent for assistance with the placement of the August 2017 Notes and Investor Warrant. The Placement Agent accepted from the Company a 5-year warrant (each, an “August Placement Agent Warrant”) as partial payment for the Placement Agent’s services. The August Placement Agent Warrant allows the purchase of up to 8% of the number of shares of the Company’s common stock into which the unrestricted principal of the Additional Series A Note and the Series B Note in the combined principal amount of $9,050,000 becomes convertible at an exercise price equal to the greater of the exercise price of the August 2017 Notes and the consolidated closing bid price of the Company’s common stock on the date that the Placement Agent becomes entitled to the August Placement Agent Warrant. During the period ended December 31, 2017, the Company received $8,800,000 of cash payments in conjunction with the August 2017 Notes and issued August Placement Agent Warrants for the purchase of 176,000 shares of common stock at exercise prices of $3.00 and $14.27 per share. As of March 31, 2018, the Placement Agent has not elected to exercise any August Placement Agent Warrants.

The Company entered into an agreement with the Placement Agent for assistance with the placement of the November 2017 Notes. The Placement Agent accepted from the Company a 5-year warrant (each, a “November Placement Agent Warrant”) as partial payment for the Placement Agent’s services. The November Placement Agent Warrant allows the purchase of up to 8% of the number of shares of the Company’s common stock into which the unrestricted principal of the November Series A Note and the November Series B Note in the combined principal amount of $100,000,000 becomes convertible at an exercise price equal to the greater of the exercise price of the November 2017 Notes and the consolidated closing bid price of the Company’s common stock on the date that the Placement Agent becomes entitled to the November Placement Agent Warrant. During the period ended March 31, 2018, the Company received no cash payments for the November 2017 Notes resulting in no issuances of warrants at an exercise prices of $12.06 per share. As of March 31, 2018, the Placement Agent has not elected to exercise any November Placement Agent Warrants.

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Notes to Condensed Consolidated Financial Statements

Note Activity:

Senior Secured Convertible Notes consist of the following:

March 31, 2018 December 31, 2017 August 2017 Notes $ - $ 2,061,072 November 2017 Notes 641,206 1,550,555 $ 641,206 $ 3,611,627

Under ASC 210-20-45-1, management offset the Notes by the Investor Notes yet to be funded. As of March 31, 2018, there was no unfunded portion of the Investor Note remaining.

The carrying value of the Senior Secured Convertible Notes is comprised of the following:

March 31, 2018 December 31, 2017 August 2017 Notes $ - $ 4,505,440 November 2017 Notes 695,270 2,943,069 Unamortized discounts (54,064 ) (3,836,882 ) $ 641,206 $ 3,611,627

During the three months ended March 31, 2018, the Investor has converted a total of $4,640,773 in principal and $37,126 in interest into 1,169,475 shares of the Company’s common stock.

Warrant Activity:

The following is a summary of the Company’s warrant activity during the three months ended March 31, 2018:

Warrant Shares Weighted Average Exercise Price Weighted

Average

Remaining

Contractual

Life Years Outstanding/exercisable – December 31, 2017 9,631,588 $ 6.04 4.86 Granted 30,949,826 6.15 4.88 Exercised (10,860,000 ) 5.51 4.88 Outstanding/exercisable – March 31, 2018 29,721,414 $ 5.99 4.88

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

11. Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the Company’s consolidated balance sheets as of March 31, 2018 and December 31, 2017:

Amount at Fair Value Measurement Using Fair Value Level 1 Level 2 Level 3 March 31, 2018 Liabilities Derivative liability – warrants $ 70,030,200 $ - $ - $ 70,030,200 Derivative liability – conversion feature 699,900 - - 699,900 Total $ 70,730,100 $ - $ - $ 70,730,100 December 31, 2017 Liabilities Derivative liability – warrants $ 67,288,800 $ - $ - $ 67,288,800 Derivative liability – conversion feature 4,834,462 - - 4,834,462 Total $ 72,123,262 $ - $ - $ 72,123,262

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2018:

Amount Balance at December 31, 2017 $ 72,123,262 Purchases, issuances and settlements 181,553,655 Conversions to paid in capital (78,033,527 ) Extinguishment of convertible note (2,707,712 ) Change in fair value of warrant liabilities (93,608,200 ) Change in fair value of derivative liabilities (8,597,378 ) Balance at March 31, 2018 $ 70,730,100

The fair value of the derivative conversion features and warrant liabilities as of March 31, 2018 and December 31, 2017 were calculated using a Monte Carlo option model valued with the following weighted average assumptions:

March 31, 2018 December 31, 2017 Amount Amount Dividend yield 0 % 0 % Expected volatility 140 % - 150 % 45 % - 270 % Risk free interest rate 1.50 % - 2.67 % 1.06 % - 2.20 % Contractual term (in years) 0.15 - 5.00 0.19 - 5.00 Exercise price $ 3.000 $ - $ 12.060 $ 0.001 - $ 14.310

Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input (probability of a down round event) used in the fair value measurement is the estimation of the likelihood of the occurrence of a change in the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

12. Stock Based Compensation

The Company has a stock-based compensation plan, which is described as follows:

On March 3, 2014, the Board of Directors approved and adopted the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan (the “2014 Plan”) which the Company’s stockholders approved at the annual stockholders meeting on May 5, 2014. The 2014 Plan as amended set aside and reserved 3,000,000 shares of the Company’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the 2014 Plan include employees (including officers and directors) of the Company and its affiliates, consultants who provide significant services to the Company or its affiliates, and directors who are not employees of the Company or its affiliates (the “Participants”). The 2014 Plan permits the Company to issue to Participants qualified and/or non-qualified options to purchase the Company’s common stock, restricted common stock, performance units, and performance shares. The 2014 Plan will terminate on March 3, 2024. The Company’s Board of Directors is responsible for administration of the 2014 Plan and has the sole discretion to determine which Participants will be granted awards and the terms and conditions of the awards granted. The 2014 Plan also provides for an annual automatic increase in the number of shares of common stock authorized for issuance thereunder by the lesser of (A) 3,000,000 shares of the Company’s common stock or the equivalent of such number of shares after the administrator of the 2014 Plan, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction; (B) a number of shares of common stock equal to 5% of the Company’s common stock outstanding on January 2nd of each year, and (C) an amount determined by the Company’s Board of Directors. A total of 2,610,000 shares of common stock remained available for issuance as of March 31, 2018.

As of March 31, 2018 there have not been any stock option grants made pursuant to the 2014 Plan.

From time to time the Board of Directors has also authorized the issuance of shares of common stock outside of the 2014 Plan to consultants and employees for services rendered. During the three months ended March 31, 2018 the Company awarded 481,688 shares to consultants who provided services to the Company. In connection with such awards (including awards granted in 2017) the Company recorded stock compensation expense of $3,747,851 which is included in selling, general and administrative expenses in the three months ended March 31, 2018. Unamortized stock compensation costs related to these awards of $2,054,341 will be recognized over the anticipated service period in 2018. During the three months ended March 31, 2018, the Company issued 1,202,167 shares of common stock to employees and consultants for services provided during 2017. The Company recognized expense of $11,066,605, in the fourth quarter of 2017, with respect to such awards, and also recorded a liability on the balance sheet at December 31, 2017, related to these costs which were settled in shares.

The shares historically issued both pursuant to the 2014 Plan and outside the 2014 Plan have been fully vested in certain cases and subject to vesting conditions in other cases; they generally contain resale or transfer restrictions pursuant to lock up agreements ranging from 18 to 24 months from the award date.

The Company generally recognizes stock compensation expense on the grant date and over the period of vesting or period that services will be provided. Compensation associated with shares issued or to be issued to consultants and other non-employees is recognized over the expected service period beginning on the measurement date which is generally the time the Company and the service provider enter into a commitment whereby the Company agrees to grant shares in exchange for the services to be provided.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

MoviePass, Inc.

MoviePass maintained the 2011 Equity Incentive Plan (the “2011 Plan”) during the three months ended March 31, 2018. The 2011 Plan provides for the grant of up to 95,000,000 shares of common stock for issuance as non-statutory or incentive stock options, stock appreciation rights, restricted stock and restricted stock units to the employees, officers, directors, or consultants of MoviePass. The 2011 Plan is administered by the Board of Directors of MoviePass, which selects the individuals to whom options will be granted, and determines the number of options to be granted and the term and exercise price of each option. Stock options granted pursuant to the terms of the 2011 Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of grant. The term of the options granted under the 2011 Plan cannot be greater than 10 years. Options vest at varying rates generally over three to five years along with performance-based options.

For the three months ended March 31, 2018 MoviePass granted 39,809,175 stock options at an exercise price of $0.43 (43 cents) per share.

The following table summarizes stock option activity under the MoviePass share-based plan for the three months ended March 31, 2018:

Weighted Average Options for Remaining Aggregate Common Shares Exercise Price Contractual Term Intrinsic Value Outstanding as of December 31, 2017 28,396,428 $ 0.14 9.13 $ 8,313,684 Granted 39,809,175 $ 0.43 Exercised - - Forfeited, cancelled, expired - - Outstanding as of March 31, 2018 68,205,603 $ 0.31 9.44 $ 6,117,060 Vested and exercisable at March 31, 2018 16,249,800 0.13 8.91 3,556,413

The weighted average grant date fair value per share of stock options granted during the three months ended March 31, 2018 was $0.16. No options were exercised during the three months ended March 31, 2018 and March 31, 2017.

The Company recognized share-based payment expense associated with stock options of $1,996,312 and $44,450 for the three months ended March 31, 2018 and March 31, 2017, respectively.

The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees:

Three Months Ended March 31, 2018 Risk-free interest rate 2.50 % Expected life of options – years 5.79 Expected stock price volatility 37.20 % Expected dividend yield 0.00 %

There were no options granted to the Company’s board of directors or third parties during the three months ended March 31, 2018.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

13. Concentration of Credit Risk

Consulting

For the three months ended March 31, 2018 and March 31, 2017, respectively, 4 customers accounted for 94.7% and 87.0% of consulting revenues.

As of March 31, 2018 and December 31, 2017, respectively, 5 customers accounted for 90.5% and 4 customers accounted for 62.6% of consulting accounts receivables.

As of March 31, 2018 and December 31, 2017, respectively, 5 vendors accounted for 98.4% and 3 vendors accounted for 82.7% of consulting accounts payables.

Technology

As of March 31, 2018 and December 31, 2017, respectively, 1 vendor accounted for 68.7% and 3 vendors accounted for 60.8% of technology accounts payables.

Subscription and Marketing and Promotional Services

As of March 31, 2018 and December 31, 2017, respectively, 3 customers accounted for 98.4% of subscription accounts receivables and 2 customers accounted for 100.0% for subscription accounts receivables.

As of March 31, 2018 and December 31, 2017, respectively, 7 vendors accounted for 73.7% subscription accounts payables and 1 vendor accounted for 41.0% of subscription accounts payables.

14. Commitments and Contingencies

The Company’s operating lease commitments at March 31, 2018 are comprised of the following:

Payments due by period Less than 1 year $ 295,730 1 to 3 years 532,933 3 to 5 years 289,988 Thereafter - Total $ 1,118,651

The Company’s executive office is located at the Empire State Building, 350 Fifth Avenue, Suite 7520, New York, New York 10118. The Company’s executive office is located in a leased facility with a term expiring on June 30, 2022. Zone rents two offices on a monthly basis through WeWork. The offices are located at 350 Lincoln Road, Miami Beach, Florida. In addition, the Company’s Indian subsidiary has an office in Bangalore, India at a leased facility located at 3rd Floor, Beta Block, Number 7 Sigma Tech Park, Varthur Kodi, Bangalore 560066. This lease was amended on September 26, 2017 to extend the duration of the lease until September 30, 2019.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

The Company’s executive office lease is subject to escalations based on increases in real estate taxes and operating expenses, all of which are charged to rent expense. The lease agreement expires in June 2022. Rent expense for the three months ended March 31, 2018 and 2017 was approximately $213,345 and $47,800, respectively.

In April 2017, Zone signed a three-year lease agreement for office space in Miami. The lease term began in May 2017 and expires in April 2020 and requires a monthly rent payment of $5,026 for the first 12 months, $5,177 for the next 12 months, and $5,332 for the last 12 months of the lease.

As of March 31, 2018, the Company does not have any “Off Balance Sheet Arrangements”.

Legal Proceeding:

On February 23, 2018, MoviePass filed a patent infringement complaint against Sinemia, Inc.in United States District Court, Central District of California. MoviePass’s complaint asserts infringement of two U.S. patents, U.S. Patent Nos. 8,484,133 (“Secure targeted personal buying/selling method and system”) and 8,612,325 (“Automatic authentication and funding method”) by Sinemia’s movie-ticket subscription service. MoviePass’s complaint requests damages and an injunction. As of the date of this report, Sinemia has not yet responded to the complaint due to an extension granted by MoviePass.

The Company is party to routine litigation and administrative complaints incidental to its business. The Company does not believe that the resolution of any or all of such current routine litigation and administrative complaints is likely to have a material adverse effect on the Company’s financial condition or results of operations.

There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.

15. Transactions with Related Parties

Gadiyaram Consulting Agreement

On October 5, 2017, the Company entered into a consulting agreement (the “Consulting Agreement”) with Mr. Muralikrishna Gadiyaram (the “Consultant”), a director of the Company, for a period of two years from the agreement date (the “Consulting Term”). The Consulting Agreement formalized on a compensatory basis the arrangement that was in place for performance without compensation by the Consultant of consulting services since the acquisition of Zone in November of 2016. Mr. Gadiyaram will continue to provide guidance to the Company and Zone relating to the further development of their respective businesses and technologies. In addition to the aforementioned services, if requested by the Company, Mr. Gadiyaram will provide guidance with respect to the development of any businesses or technologies that the Company or Zone may acquire during the Consulting Term, including, but not limited to, MoviePass. Pursuant to the Consulting Agreement, the Consultant will receive fees in the amount of $18,750 per month in cash. Such fees have been accrued and paid by the Company since January 1, 2017. Following the execution of the Consulting Agreement, the Company paid the consultant the accrued consulting fees for the period January 1, 2017 through November 30, 2017. The amount payable to Mr. Gadiyaram as of March 31, 2018 was approximately $18,750.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

16. Provision for Income Taxes

The Company had a tax provision for the three months ended March 31, 2018 and 2017 of $7,951 and $30,484, respectively. Tax for both the three months ended March 31, 2018 and 2017 was comprised of minimum state taxes and a provision for tax within respect to taxes incurred by the Company’s Indian subsidiary.

The Company’s provision for income taxes for the three months ended March 31, 2018 and 2017 is based on the estimated annual effective tax rate method prescribed by ASC 740-270, plus discrete items. The difference between the Company’s effective tax rates for the three months ended March 31, 2018 and 2017 and the US statutory tax rates of 21% and 35%, respectively, primarily relates to changes in the valuation allowances against deferred tax assets, non-deductible expenses, state income taxes (net of federal income tax benefit), the effect of taxes on foreign earnings, and changes to provisional amounts recorded for certain aspects of the Act.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that either some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, tax-planning strategies, and available carry-back capacity in making this assessment, therefore, the Company has recorded a valuation allowance on its net domestic deferred tax assets, excluding deferred tax liabilities that are not expected to serve as a source of income for the recognition of deferred tax assets due to their indefinite reversal period (tax amortization of goodwill).

As of March 31, 2018, the Company did not record any tax liabilities for uncertain income tax positions and concluded that all of its tax positions are either certain or are not material to the Company’s financial statements. The Company is currently not under audit in any jurisdiction in which it conducts business.

17. Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision–making group is composed of the Chief Executive Officer and Chief Financial Officer. The Company operates in three segments, Consulting, Technology, and Subscription and Marketing and P