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: June 30, 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 August 14, 2018, there were 636,867,521 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 June 30, 2018 (unaudited) and December 31, 2017 (audited) 1 Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited) 2 Condensed Consolidated Statement of Change in Stockholders’ Deficit for the Six Months Ended June 30, 2018 (unaudited) 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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 40 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 47 ITEM 4. Controls and Procedures 47 PART II OTHER INFORMATION ITEM 1. Legal Proceedings 48 ITEM 1A. Risk Factors 48 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 50 ITEM 3. Defaults upon Senior Securities 50 ITEM 4. Mine Safety Disclosures 50 ITEM 5. Other Information 50 ITEM 6. Exhibits 51 SIGNATURES 53 EXHIBIT INDEX

i

Part I. Financial Information

Item I. Financial Statements

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30,

2018 December 31,

2017 (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 15,512,810 $ 24,949,393 Accounts receivable - less allowance for doubtful accounts of $58,615 and $72,335 at June 30, 2018 and December 31, 2017, respectively 28,651,739 27,470,219 Prepaid expenses and other current assets 9,362,755 3,557,811 Total current assets 53,527,304 55,977,423 Property and equipment, net of accumulated depreciation of $310,190 and $274,587 at June 30, 2018 and December 31, 2017, respectively 369,530 234,035 Intangible assets, net 31,462,246 28,536,782 Goodwill 87,672,135 79,137,177 Investment in films, net 2,052,882 - Deposits and other assets 209,492 147,171 Total assets $ 175,293,589 $ 164,032,588 LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) Current liabilities: Accounts payable and accrued expenses $ 21,262,591 $ 13,144,003 Deferred revenue 65,371,837 54,425,630 Liabilities to be settled in stock 5,988,363 21,320,705 Convertible notes payable, net of debt discount of $0 and $2,444,368, respectively - 2,061,072 Warrant liability 4,266,100 67,288,800 Derivative liability 41,537,054 4,834,462 Total current liabilities 138,425,945 163,074,672 Convertible notes payable, net of current portion and debt discount of $25,515,482 and $1,392,514, respectively 311,705 1,550,555 Total liabilities 138,737,650 164,625,227 Commitments and contingencies Stockholders’ equity/(deficit): Preferred stock, $0.01 par value; 2,000,000 shares authorized; 20,500 and 0 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively 205 - Common stock, $0.01 par value; 500,000,000 shares authorized; 999,482 issued and outstanding as of June 30, 2018; 100,000,000 shares authorized; 95,925 issued and outstanding as of December 31, 2017 9,994 959 Paid-in capital 302,190,038 150,595,611 Accumulated other comprehensive loss - foreign currency translation (132,700 ) (103,980 ) Accumulated deficit (247,654,083 ) (189,495,185 ) Total Helios and Matheson Analytics Inc. stockholders’ equity/(deficit) 54,413,454 (39,002,595 ) Noncontrolling interest (17,857,515 ) 38,409,956 Total stockholders’ equity/(deficit) 36,555,939 (592,639 ) Total liabilities and stockholders’ equity/(deficit) $ 175,293,589 $ 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

June 30, Six Months Ended

June 30, 2018 2017 2018 2017 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues: Consulting $ 829,606 $ 1,140,951 $ 1,669,109 $ 2,499,013 Subscription 72,403,640 - 119,566,087 - Marketing and promotional services 935,488 - 2,376,398 - Total revenues 74,168,734 1,140,951 123,611,594 2,499,013 Cost of revenue 178,766,719 917,564 314,735,695 2,023,049 Gross (loss)/profit (104,597,985 ) 223,387 (191,124,101 ) 475,964 Operating expenses: Selling, general & administrative 20,508,528 1,635,710 40,218,359 5,780,446 Research and development 154,693 897,905 379,464 933,341 Depreciation & amortization 1,377,653 433,671 2,648,928 864,596 Total operating expenses 22,040,874 2,967,286 43,246,751 7,578,383 Loss from operations (126,638,859 ) (2,743,899 ) (234,370,852 ) (7,102,419 ) Other income/(expense): Change in fair market value - derivative liabilities 4,647,666 (301,479 ) 13,245,044 680,852 Change in fair market value – warrant liabilities 96,231,888 - 189,840,088 - Gain on the extinguishment of debt - - 15,007,699 Gain on exchange of warrants 301,487 - 301,487 Interest expense (58,195,051 ) (2,184,374 ) (93,729,950 ) (5,293,206 ) Interest income 6,286 19,309 21,627 37,259 Total other income/(expense) 42,992,276 (2,466,544 ) 124,685,995 (4,575,095 ) Loss before income taxes (83,646,583 ) (5,210,443 ) (109,684,857 ) (11,677,514 ) Provision for income taxes 28,719 11,373 36,670 41,857 Net loss (83,675,302 ) (5,221,816 ) (109,721,527 ) (11,719,371 ) Net loss attributable to the noncontrolling interest 20,340,529 - 51,562,629 - Net loss attributable to Helios and Matheson Analytics Inc. (63,334,773 ) (5,221,816 ) (58,158,898 ) (11,719,371 ) Other comprehensive (loss)/income – foreign currency adjustment (21,570 ) 466 (28,720 ) 1,289 Comprehensive loss $ (63,356,343 ) $ (5,221,350 ) $ (58,187,618 ) $ (11,718,082 ) Basic and diluted loss per share: Net loss per share attributable to common stockholders – basic and diluted $ (132.47 ) $ (198.68 ) $ (189.33 ) $ (491.80 ) Weighted average shares – basic and diluted 478,105 26,283 307,178 23,830

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’ EQUITY/(DEFICIT)

(UNAUDITED)

Preferred Stock Common Stock Additional Paid-In Accumulated other comprehensive Accumulated Noncontrolling Total Shareholders’ Equity Shares Amount Shares Amount Capital Income Deficit Interest (Deficit) Balance at December 31, 2017 - $ - 95,925 $ 959 $ 150,595,611 $ (103,980 ) $ (189,495,185 ) $ 38,409,956 $ (592,639 ) Settlement of warrant liability for March warrant exchange - - 18,186 182 12,893,983 - - - 12,894,165 Settlement of warrant liability for June warrant exchange - - 90,472 905 5,201,195 - - - 5,202,100 Warrant liability which ceases to exist - - - - 53,998,650 - - - 53,998,650 Conversion of convertible notes and interest to shares of common stock - - 251,547 2,515 34,570,806 - - - 34,573,321 Shares issued for settlement of liabilities - - 4,909 49 15,670,637 - - - 15,670,686 MoviePass shares issued in exchange for services - - - - 324,369 - - - 324,369 Share-based compensation - - 4,527 45 6,009,116 - - - 6,009,161 Derivative liability which ceases to exist - - - - 24,313,054 - - - 24,313,054 Equity raise, net of transaction fees - - 403,315 4,033 51,866,786 - - - 51,870,819 Shares issued for February public offering - - 76,400 764 96,911,617 - - - 96,912,381 Reclassification of February public offering to warrant liability - - - - (158,944,798 ) - - - (158,944,798 ) Shares issued for April public offering - - 44,000 440 27,699,373 - - - 27,699,813 Reclassification of April public offering to warrant liability - - - - (33,997,600 ) - - - (33,997,600 ) Preferred shares issued in conjunction with June notes 20,500 205 - - 2,773,041 - - - 2,773,246 Shares issued in connection with Moviefone acquisition - - 10,201 102 7,599,356 - - - 7,599,458 Adjustment of noncontrolling interest in connection with the MoviePass acquisition - - - - 4,704,842 - - (4,704,842 ) - Net loss - - - - - - (58,158,898 ) (51,562,629 ) (109,721,527 ) Foreign exchange translation - - - - - (28,720 ) - - (28,720 ) Balance at June 30, 2018 20,500 $ 205 999,482 $ 9,994 $ 302,190,038 $ (132,700 ) $ (247,654,083 ) $ (17,857,515 ) $ 36,555,939

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

June 30, 2018

For the Six Months Ended

June 30, 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (109,721,527 ) $ (11,719,371 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,648,928 864,596 Gain on exchange of warrants (301,487 ) - Change in fair market value - derivative liabilities (13,245,044 ) (599,941 ) Change in fair market value - warrant liabilities (189,840,088 ) (80,911 ) Gain on extinguishment of debt (15,007,699 ) - Provision for doubtful accounts (13,721 ) 2,005 Non-cash interest expense 83,358,460 4,553,566 Share based compensation in exchange for services 8,768,450 1,896,400 Amortization of film costs 2,158,118 - Amortization of deferred revenue (9,127,782 ) - Shares issued in advance of services 324,369 - Change in operating assets and liabilities: Accounts receivable (1,167,799 ) 50,476 Unbilled receivables - - Prepaid expenses and other current assets (8,550,256 ) (106,445 ) Investment in films (4,211,000 ) - Accounts payable and accrued expenses 14,707,327 271,124 Deferred revenue 20,073,989 - Deposits and other assets (62,321 ) (70,541 ) Net cash used in operating activities (219,209,083 ) (4,939,042 ) CASH FLOWS FROM INVESTING ACTIVITIES: Sale of property and equipment - 958 Purchases of equipment (171,098 ) (101,322 ) Trendit Ltd patent acquisition - (195,143 ) Payment for acquisition of business (1,000,000 ) - Net cash used in investing activities (1,171,098 ) (295,507 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable 50,077,889 4,000,000 Proceeds from February public offering, net of transaction fees 96,931,481 - Note repayment (27,894,062 ) (80,000 ) Payment of deferred financing fees (2,170,328 ) - Payment of Make-Whole Interest (5,000,000 ) - Proceeds from April public offering, net of transaction fees 27,699,813 - Proceeds from equity raises, net of transaction fees 51,870,819 - Proceeds from issuance of June notes and preferred shares, net of transaction fees 20,235,925 - Settlement of warrant liability (779,219 ) - Net cash provided by financing activities 210,972,318 3,920,000 Net change in cash (9,407,863 ) (1,314,549 ) Effect of foreign currency exchange rate changes on cash and cash equivalents (28,720 ) 1,289 Cash, beginning of period 24,949,393 2,747,240 Cash, end of period $ 15,512,810 $ 1,433,980 Supplemental disclosure of cash and non-cash transactions: Cash paid during the period for interest $ 10,371,490 $ 253,407 Cash paid for income taxes $ - $ 5,975 Non-cash investing and financing activities Conversion of convertible notes and interest to shares of common stock $ 34,573,321 $ (6,699,402 ) Settlement of warrants $ 18,096,265 $ - Warrant liability which ceases to exist $ 53,998,650 $ - Debt discount for derivative and warrant liability $ 65,341,847 $ - Derivative ceases to exist - reclassified to paid in capital $ 23,313,054 $ (1,868,628 ) Increase in debt for new original issue discount $ 24,600,000 $ 1,640,659 Reclassification of warrant from public offering to derivative liability $ (192,942,398 ) $ - Non-cash fees relating to public offering $ (19,100 ) $ - Non-cash consideration for Moviefone acquisition $ (13,074,958 ) $ - Original issue discount and preferred stock for debt discount $ 7,137,321 $ - Interest capitalized as debt $ 2,162,515 $ -

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”, “HMNY” 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 movie titles in theaters, 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 company (“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.

In April 2018, the Company acquired the Moviefone brand and related assets (“Moviefone”). Moviefone is an entertainment information and marketing service which provides its users with access to the entire entertainment ecosystem. Moviefone delivers movie show times and tickets, trailers, TV schedules, streaming information, cast and crew interviews, photo galleries and more. Moviefone’s editorial coverage includes up-to-date entertainment news, trailers and clips, red-carpet coverage and celebrity features.

On May 15, 2018 the Company formed MoviePass Films LLC, a Delaware limited liability company (“MoviePass Films”) to focus on studio-driven content and new film production for theatrical release and other distribution channels. On May 23, 2018, the Company executed a binding letter of intent (the “LOI”) with Emmett Furla Oasis Films LLC (“EFO”) pursuant to which EFO acquired a 49% membership interest in MoviePass Films.

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 equity interests 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, Moviefone as of April 4, 2018, MoviePass Ventures as of January 2018 and MoviePass Films as of May 15, 2018.

Reverse Stock-Split

On July 24, 2018, the Company effected a reverse stock-split of its issued and outstanding common stock at a ratio of one-for-250 (“Reverse Stock Split”). The Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware effecting the Reverse Stock Split. The Reverse Stock Split did not affect the number of authorized shares of common stock, which, following the increase in authorized shares effected on July 23, 2018 discussed in Note 11, remains at 5,000,000,000 shares. A proportionate adjustment was made to (i) the per share exercise price and the number of shares issuable upon the exercise or conversion of the Company’s outstanding equity awards, options and warrants to purchase shares of common stock and outstanding convertible notes and (ii) the number of shares reserved for issuance pursuant to the Company’s 2014 Equity Incentive Plan. The accompanying condensed consolidated financial statements and notes give retroactive effect to the Reverse Stock Split for all periods presented.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

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 liabilities, 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

ASC 606 Revenue from Contracts with Customers (“ASC 606”)

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 605.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

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

June 30, Six Months Ended

June 30, 2018 2017 2018 2017 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues: Consulting $ 829,606 $ 1,140,951 $ 1,669,109 $ 2,499,013 Subscription 72,403,640 - 119,566,087 - Marketing and promotional services 935,488 - 2,376,398 - Total revenues $ 74,168,734 $ 1,140,951 $ 123,611,594 $ 2,499,013

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

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.

Subscription Revenue

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 subscription services can be used by 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.

Marketing and Promotional Services

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. Revenue from our participation in the theatrical release of feature films is recognized as earned based on our share of the ultimate expected revenue.

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.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

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 the Company’s 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 and six months ended June 30, 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 on the straight-line method over their useful lives ranging from three to twelve years.

The Company recorded amortization expense of $1,357,467 and $426,651 for the three months ended June 30, 2018 and 2017, respectively, and $2,613,326 and $853,302 for the six months ended June 30, 2018 and 2017, respectively.

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 because the carrying value is greater than the projected undiscounted cash flows, 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 the assets’ fair 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 and six months ended June 30, 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 Topic 718, Stock Compensation (“ASC 718”) and the provisions of ASC Topic 505, Equity (“ASC 505”) for stock-based transactions with non-employees. Stock based compensation expense for employees is recognized over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. 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. Stock-based compensation for non-employee stock options is recorded over the vesting period and remeasured at fair value until they vest.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

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, including pricing models, discounted cash flow methodologies, or similar techniques.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value because of the short-term maturity of these financial instruments.

The liabilities in connection with the conversion and make-whole features included within certain of the Company’s convertible notes payable and warrants are each classified as a level 3 liability.

Derivative Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates its convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Paragraph 815-10-05-4 of the FASB ASC and Paragraph 815-40-25 of the Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current to correspond with its host instrument.

The Company marks to market the fair value of the embedded derivatives at each balance sheet date and records the change in the fair value of the embedded derivatives as other income or expense in the statements of operations.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

The Company utilizes a Monte Carlo Method that values the liability of the debt conversion feature derivative financial instruments and derivative warrants based on a probability of a down round event. The reason the Company selected the lattice binomial model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models.

Warrant Liability

The Company evaluates its warrants to determine if those contracts qualify as liabilities in accordance with ASC 480-10 and ASC 815-40. The result of this accounting treatment is that the fair value of the warrant liability is marked-to-market each balance sheet date and recorded as a liability, with the change in fair value recorded in the statements of operations as other income or expense. Upon conversion or exercise of a warrant liability, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

For warrants with a fixed conversion price and a fixed number of shares, the Company utilizes a Black Scholes model for valuation. For warrants with variability in the number of shares or conversion price (such as a down round feature), the Company utilizes the Monte Carlo Method to value the warrant liability. The reason the Company selected the lattice binomial model is that in many cases there may be multiple embedded features or the features may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models.

Accounting for Film Costs

We capitalize costs of acquiring participation rights to films. The costs for an individual film are amortized to direct operating expenses in the proportion that current year’s revenues bear to management’s estimates of the ultimate revenue at the beginning of the current year expected to be recognized from the distribution, exhibition or sale of such film. Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release of the motion picture. For participation rights previously released films acquired as part of a library, ultimate revenue includes estimates over a period not to exceed twenty years from the date of acquisition.

Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates may differ from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business, some films and titles are more successful or less successful than anticipated. Management regularly reviews and revises when necessary its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and/or write-down of all or a portion of the unamortized costs of the film to its estimated fair value. Management estimates the ultimate revenue based on experience with similar titles or title genre, the general public appeal of the cast, actual performance (when available) at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not control and which may change.

An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less film amortization expense, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher film amortization expense, and could also periodically result in an impairment requiring a write-down of the film cost to the title’s fair value. These write-downs are included in amortization expense within cost of revenues in our consolidated statements of operations.

Investment in films is stated at the lower of amortized cost or estimated fair value. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films may be required as a consequence of changes in our future revenue estimates.

Recent Accounting Pronouncements

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

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases, (“ASU 2016-02”), 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. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases), and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provide (i) narrow amendments to clarify how to apply certain aspects of the new lease standard, (ii) entities with an additional transition method to adopt the new standard, and (ii) lessors with a practical expedient for separating components of a contract. 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.

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Notes to Condensed 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 (“ASU 2017-11”), Earnings Per Share (“ASC 260”), Distinguishing Liabilities from Equity (“ASC 480”), and Derivatives and Hedging (“ASC 815”). ASU 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 2017-11 is effective for the Company on January 1, 2019. The Company is currently evaluating the potential impact of ASU 2017-11 on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2018-07 on the Company’s consolidated financial statements.

4. Going Concern Analysis

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 twelve months after the Company’s interim financial statements were issued (August 14, 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 August 14, 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 June 30, 2018, the Company had an accumulated deficit of $247,654,083, a loss from operations for the three and six months ended June 30, 2018 of $126,638,859 and $234,370,852, respectively, and net cash used in operating activities for the six months ended June 30, 2018 of $219,209,083.

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

The Company expects to continue to incur net losses and have significant cash outflows for at least the next twelve months. As of June 30, 2018, the Company had cash and a working capital deficit of $15,512,810 and $84,898,641, respectively, compared to $24,949,393 and $107,097,249 as of December 31, 2017. Of the working capital deficit at June 30, 2018, $45,803,154 pertained to warrant and derivative liabilities classified on the balance sheet within current 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 the Company’s 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 June 30, 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. Additionally, during May and June of 2018, the Company received $25,077,889 in gross proceeds related to the convertible debt financing obtained on November 7, 2017.

On June 26, 2018, the Company obtained preferred stock and convertible debt financing for up to $139,400,000 in gross proceeds, of which the Company had received $20,500,000 in gross proceeds as of June 30, 2018, which the Company used for general corporate purposes and transaction expenses. The Company may also use the proceeds to make other acquisitions.

As of June 30, 2018 the Company had $0 and $352,188 of make-whole principal balance outstanding under the Senior Convertible Notes issued to institutional investors on November 7, 2017 and January 23, 2018, respectively, and there remained $228,672,111 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 SEC on February 9, 2018, which allows the Company to offer and sell up to $400,000,000 of its equity or equity-linked securities. 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 February 2018 public offering were $96.9 million. The Company also completed an underwritten public offering of common stock and warrants for gross proceeds of approximately $30.3 million on April 23, 2018. The total net proceeds to the Company from the April 2018 public offering were approximately $27.5 million.

On April 18, 2018, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with Canaccord Genuity LLC (“Canaccord”) under which the Company may offer and sell under the shelf registration statement up to $150 million of its common stock at prevailing market prices in a continuous at-the market offering (the “ATM Offering”) through its sales agent Canaccord. The Company may use the net proceeds from the ATM Offering to increase the Company’s ownership stake in MoviePass and to support the operations of MoviePass and MoviePass Ventures, to satisfy a portion or all of any amounts due and payable in connection with the convertible notes issued on November 7, 2017, January 23, 2018 and June 26, 2018, and for general corporate purposes and transaction expenses. The proceeds may also be used for acquisitions. As of June 30, 2018, the Company has sold 0.4 million shares (100.8 million pre-split), and received net proceeds of $52.7 million, pursuant to the ATM Offering.

Without raising additional capital, there is substantial doubt about the Company’s ability to continue as a going concern through August 14, 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.

Notice of Potential Delisting from NASDAQ

On June 21, 2018, the Company received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the prior 30 consecutive business days, the closing bid price for the Company’s common stock has closed below a minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”). The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on the Nasdaq under the symbol “HMNY” at this time.

In accordance with Nasdaq Listing Rule 5810(b), the Company has been given 180 calendar days, or until December 18, 2018 to regain compliance with Rule 5550(a)(2). The Company intends to monitor the closing bid price of its common stock and consider its available options to resolve its noncompliance with Rule 5550(a)(2).

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Notes to Condensed Consolidated Financial Statements

5. Acquisitions of MoviePass and Moviefone and the Formation of MoviePass Films

Acquisition of Controlling Interest in MoviePass Inc.

On December 11, 2017, the Company completed its acquisition of a 62.41% majority interest in MoviePass (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 16,000 (4,000,000 pre-split) 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. Of that amount, 2,667 (666,667 pre-split) 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 Transaction 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.

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Notes to Condensed Consolidated Financial Statements

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

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 the 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 Emerging Issues Task Force (“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 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.

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Notes to Condensed Consolidated Financial Statements

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.

From February 27, 2018 through April 12, 2018, the Company advanced a total of $35,000,000 to MoviePass (the “Second Advance”). On April 16, 2018, the Company entered into an additional Subscription Agreement with MoviePass (the “April 2018 Agreement”), pursuant to which, in lieu of repayment of the Second Advance, MoviePass agreed to sell to the Company an amount of shares of common stock of MoviePass equal to 10.6% of the total then outstanding MoviePass common stock (excluding shares underlying MoviePass options and warrants) (the “April 2018 MoviePass Purchased Shares”), based on a pre-money valuation of MoviePass of $295,525,000 as of March 31, 2018. Pursuant to the April 2018 Agreement, MoviePass also agreed to issue to the Company, in addition to the April 2018 MoviePass Purchased Shares, without payment of additional consideration by the Company, for purposes of anti-dilution, an amount of shares of common stock of MoviePass that caused the Company’s total ownership of the outstanding shares of common stock of MoviePass (excluding shares underlying MoviePass options and warrants), together with the April 2018 MoviePass Purchased Shares, to equal 91.8% as of April 12, 2018.

In addition, from April 16, 2018 through June 30, 2018 the Company has advanced MoviePass, $112,731,000 for operational funding. Such amount remains payable to the Company by MoviePass and has been eliminated in consolidation for financial reporting purposes.

The Company has accounted for the March 2018 MoviePass Purchased Shares and the April 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 and April 12, 2018 was reduced respectively, 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.

Acquisition of Moviefone Brand

On April 4, 2018, the Company entered into an Asset Purchase Agreement (the “Moviefone Purchase Agreement”) with Oath Inc. (formerly, AOL Inc.), a Delaware corporation and subsidiary of Verizon Communications and certain of its subsidiaries (“Oath”), pursuant to which the Company completed the acquisition from Oath of certain products, rights, technology, contracts, data and other assets related to the Moviefone brand (the “Moviefone Assets”). The acquisition of Moviefone has been accounted for as the acquisition of a business. The historical operational results of Moviefone were not significant for purposes of providing pro forma financial information. The purchase price for the Moviefone Assets consisted of the following: (i) $1.0 million in cash, (ii) the issuance of 10,201 (2,550,154 pre-split) shares of common stock of the Company with a market value of $7.6 million as of the closing date, and (iii) the issuance of warrants to purchase 10,201 (2,550,154 pre-split) shares of common stock of the Company at an exercise price of $1,375 ($5.50 pre-split) per share. In addition, and pursuant to the Moviefone Purchase Agreement, the Company assumed certain specified liabilities incurred after the acquisition date and retained certain employees of Moviefone.

The Company determined the provisional fair value of the acquired intangible assets through a combination of the market approach, cost and the income approach. The significant assumptions used in certain valuations associated with the Moviefone transaction include discount rates ranging from 9.0% to 22.1%. In determining the value of tradenames and trademarks the Company observed royalty rates ranging from 0.0% to 100.0% and utilized a 10.0% rate for Moviefone’s aggregated tradenames and trademarks. Additionally, the Company utilized a cost approach for Moviefone’s technology assets acquired based on man hours to construct in determining the fair value of the acquired technology. The non-compete agreements were analyzed and found to have a de minimis value.

The estimated useful lives of acquired intangible assets are 20 years for tradenames and trademarks, 7 years for customer relationships and 3 years for technology.

The following table summarizes the consideration paid for Moviefone by the Company, and the amounts of assets acquired, and liabilities assumed and recognized at the acquisition date:

Purchase consideration: Moviefone Cash $ 1,000,000 Common shares issued 7,599,458 Warrants for common shares issued 5,475,500 Fair value of consideration transferred $ 14,074,958 Trade names and trademarks $ 4,640,000 Technology 340,000 Customer relationships 560,000 Goodwill 8,534,958 Total purchase price allocation $ 14,074,958

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Notes to Condensed Consolidated Financial Statements

MoviePass Films

On May 23, 2018 the Company entered into the LOI with EFO, pursuant to which EFO acquired a 49% membership interest in MoviePass Films. Pursuant to the LOI, the Company capitalized MoviePass Films with an initial capital contribution of $2,000,000 in cash and retained a 51% interest in MoviePass Films. EFO has assigned its rights in a film output agreement of EFO to MoviePass Films. MoviePass Films has begun operations, and the Company and EFO are finalizing the long form agreements that will further define the relative rights and duties of the Company and EFO with respect to MoviePass Films. In accordance with the LOI as of June 30, 2018, the Company is committed to contribute to MoviePass Films an additional $3,000,000 in cash and 16,000 (4,000,000 pre-split) shares for the acquisition of ownership and economic interests in films.

The Company has not performed the valuation studies required to value film output agreement assigned to MoviePass Films by EFO.

The Company has a 51% membership interest in MoviePass Films and the right to designate three out of five of the members of its board of managers and accordingly has consolidated the results of MoviePass Films with those of the Company.

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 ASC. 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 following table shows the outstanding dilutive common shares excluded from the diluted net loss per share attributable to common stockholder’s calculation as they were anti-dilutive:

June 30, December 31, 2018 2017 Warrants 66,821 38,526 Conversion features on convertible notes 336,425 5,482 Total potentially dilutive shares 403,246 44,008

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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 as of June 30, 2018 and December 31, 2017:

June 30,

2018 December 31, 2017 Vendor deposits $ 8,083,907 $ 147,533 Tax - 108,433 Deposits - 230,711 Insurance 78,719 86,181 Professional fees and services 93,571 33,333 Deferred stock compensation 464,335 2,885,278 Rent - 52,650 Other 642,223 13,692 Total prepaid expenses and other current assets $ 9,362,755 $ 3,557,811

8. Intangible Assets, net and Goodwill

The following table sets forth the major categories of the Company’s intangible assets and the estimated useful lives as of June 30, 2018 and December 31, 2017 for those assets that are not already fully amortized:

June 30, 2018 Useful Life (Years) Gross

Carrying Amount Acquisitions Accumulated Amortization Impairments Net Book Value Customer relationships 7 $ 2,560,000 $ 560,000 $ (222,613 ) $ - $ 2,897,387 Technology 3 8,070,000 340,000 (3,071,620 ) - 5,338,380 Tradenames and trademarks 10-20 19,873,224 4,640,000 (1,466,836 ) - 23,046,388 Broker relationships 5 - - - - - Patents 12 196,353 - (16,262 ) - 180,091 $ 30,699,577 $ 5,540,000 $ (4,777,331 ) $ - $ 31,462,246 December 31, 2017 Estimated

Useful Life (Years) Gross

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 10 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 $1,357,467 and $426,651 for the three months ended June 30, 2018 and 2017, respectively, and $2,613,574 and $853,302 for the six months ended June 30, 2018 and 2017, respectively.

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

June 30, Remaining 2018 $ 2,726,155 2019 5,246,717 2020 3,957,471 2021 2,678,569 2022 2,648,976 Thereafter 14,204,358 $ 31,462,246

Goodwill represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Goodwill and indefinite lived intangible assets are tested for impairment annually as of December 31st and more often if a triggering event occurs, by comparing the fair value of each reporting unit to its carrying value.

Balance as of December 31, 2017 $ 79,137,177 Acquisitions 8,534,958 Impairments - Balance as of June 30, 2018 $ 87,672,135

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Notes to Condensed Consolidated Financial Statements

9. Accounts Payable and Accrued Expenses

As of June 30, 2018 and December 31, 2017, accounts payable and accrued expenses consisted of the following:

June 30,

2018 December 31,

2017 Accounts payable $ 5,619,294 $ 5,087,060 Accrued ticket expense 7,177,764 4,743,582 Accrued professional fees 1,084,624 597,187 Accrued credit card fees - 782,670 Accrued payroll expense 1,341,900 312,149 Accrued other expense 4,773,922 852,840 Accrued interest 1,265,087 768,515 Total $ 21,262,591 $ 13,144,003

10. Senior Secured Convertible Notes and Warrants and Unit Offerings

February 2017 Notes

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 principal balance of $681,818 of the February 2017 Notes was accounted for as an original issuance discount and accreted into interest expense over the life of the February 2017 Notes. As cash is received from the February 2017 Investor Note, and the related principal amount of the February 2017 Notes increases accordingly, a derivative liability related to the conversion feature embedded within the February 2017 Notes is recorded as a debt discount, and accreted into interest expense over the life of the February 2017 Notes using the effective interest method, and any excess value over the amount of cash received is expensed immediately to interest expense. In addition, February Placement Agent Warrants were also issued (See The Placement Agent Notes and Warrants below), recognized as liabilities pursuant to their terms and recorded as a debt discount, and accreted into interest expense over the life of the February 2017 Notes using the effective interest method, and any excess value over the amount of cash received is expensed immediately to interest expense. The February 2017 Notes had a maturity date of October 8, 2017.

As of December 31, 2017, the Investor had fully funded the February 2017 Investor Note and had subsequently converted the aggregate principal amount due under the February 2017 Notes and approximately $49,000 of interest into 7,411 (1,852,886 pre-split) 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 and six months ended June 30, 2017, the Company had interest expense of $81,023 and $131,213, respectively. 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 3,365 (841,250 pre-split) 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 was in a principal amount equal to the product of the prepayment amount ($2,500,000) multiplied by a fraction, the numerator of which was the number of the aggregate shares being tendered to the Company in the Share Exchange and the denominator of which was 3,365 (841,250 pre-spilt). 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 $1,125 ($4.50 pre-split), 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) $1,125 ($4.50 pre-split) and (ii) the greater of (I) $1,000 ($4.00 pre-split) 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) $750 ($3.00 pre-split) 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 $750 ($3.00 pre-split) through October 4, 2017 and $125 ($0.50 pre-split) 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 3,789 (947,218 pre-split) shares of common stock (the “New Exchange Shares”) and rights (the “Rights”) to receive 2,211 (552,782 pre-split) 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, valued at $19,950,000 based on the trading price of the Company’s stock on the date of the Third Exchange Agreement and recorded as interest expense.

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Notes to Condensed Consolidated Financial Statements

August 2017 Notes

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 7,572 (1,892,972 pre-split) shares of the Company’s common stock at an exercise price of $812.50 ($3.25 pre-split) 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 had a maturity date of April 16, 2018 and the Investor Warrant had an expiration date of 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, which was determined to be a liability, 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 initial principal balance was recorded as a debt discount and 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 included an Initial Series A Note, an Additional Series A Note and the Series B Note, were $1,000 ($4.00 pre-split) for the Initial Series A Note and the Additional Series A Note and $750 ($3.00 pre-split) for the Series B Note. As of December 31, 2017, the Investor had fully prepaid the August 2017 Investor Note and converted $5,794,560 in principal amount, plus accrued interest, of the August 2017 Notes into 5,931 (1,482,639 pre-split) shares of the Company’s common stock. 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 and six months ended June 30, 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 4,678 (1,169,475 pre-split) shares of the Company’s common stock on February 20, 2018. As of June 30, 2018, the unpaid principal amount of the August 2017 Notes owed to the Investor was $0.

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”) in September 2017. Because the Exchange Note had a conversion price of $750 ($3.00 pre-split) per share, which was lower than the Investor Warrant per share exercise price of $812.50 ($3.25 pre-split), the number of shares of the Company’s common stock issuable to the Investor pursuant to the Investor Warrant was increased from 7,572 (1,892,972 pre-split) to 8,203 (2,050,720 pre-split) and the per share exercise price of the Investor Warrant was decreased from $812.50 ($3.25 pre-split) to $750 ($3.00 pre-split). As of December 31, 2017, the Investor had elected, in a cashless transaction, to exercise the Investor Warrant to purchase 6,860 (1,715,006 pre-split) shares of common stock and also paid the Company the sum of $977,142 to exercise the Investor Warrant for an additional 1,303 (325,714 pre-split) shares of common stock. On November 21, 2017 in conjunction with the Fourth Amendment and Exchange Agreement entered into between the Investor and the Company, the remaining 40 (10,000 pre-split) shares of common stock subject to the Investor Warrant were exchanged for a new warrant (the “Exchange Warrant”). The Exchange Warrant, which was determined to be a liability and was recorded at fair value, was in substantially the form of the Investor Warrant, except that:

● The Exchange Warrant had an exercise price of $3,578 ($14.31 pre-split).

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

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

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Notes to Condensed Consolidated Financial Statements

In March 2018, the Investor exercised the Exchange Warrant by means of a cashless exercise into 17,414 (4,353,581 pre-split) 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.

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 was calculated as $12,878,864 and recorded as interest expense.

November 2017 Notes

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 2017 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”). As cash is received from the November 2017 Investor Note, and the related principal amount of the November 2017 Notes increases accordingly, a derivative liability related to the conversion feature and Make-Whole Interest feature embedded within the November 2017 Notes is recorded as a debt discount , and accreted into interest expense over the life of the November 2017 Notes using the effective interest method, and any excess value over the amount of cash received is expensed immediately to interest expense. In addition, November Placement Agent Warrants are also issued (See The Placement Agent Notes Warrants below), recognized as liabilities pursuant to their terms and recorded as a debt discount, and accreted into interest expense over the life of the November 2017 Notes using the effective interest method, and any excess value over the amount of cash received is expensed immediately to interest expense.

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. On January 2, 2018, an additional $646,263 of interest was capitalized and added to the principal balance of the November 2017 Notes and on January 26, 2018, investors redeemed principal of $2,894,062 in exchange for cash. On April 2, 2018, an additional $1,028,730 of interest was capitalized and added to the principal balance of the note. As of June 30, 2018, the entire capitalized balance was converted to shares of the Company’s common stock and the outstanding balance owed on the capitalized Make-Whole Interest was $0.

The November 2017 Notes have a maturity date of November 7, 2019. 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. The initial conversion price for the November 2017 Notes, which includes both the November Initial Note and November Additional Note, was $3,015 ($12.06 pre-split). However, the conversion price may be adjusted upon obtaining stockholder approval in accordance with Nasdaq Listing Rule 5635(d) of the issuance of our common stock at any conversion price below $3,015, which may result from full ratchet conversion price adjustments required by the November 2017 Notes in the event of certain issuances below the initial conversion price. As a result, during the second quarter of 2018, in conjunction with the April 2018 Offering and the sale of shares in the ATM Offering at prices lower than the initial conversion price, the conversion price for the November 2017 Notes has been reduced, and as of June 30, 2018 and August 13, 2018, the conversion price was $0.345 and $0.05, respectively.

During the second quarter of 2018, the Company received cash payments on the November 2017 Notes of $25,077,889, of which $24,202,889 of principal and $3,704,867 of accrued interest, were converted into 235,622 (58,905,544 pre-split) shares of the Company’s common stock during the six months ended June 30, 2018. As of June 30, 2018, the outstanding principal amount of the November 2017 Notes was $875,000. For the three and six months ended June 30, 2018, the Company recognized $4,677,484 and $5,733,114 of interest expense pertaining to the November 2017 Notes and had $698,662 of accrued interest as of June 30, 2018.

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Notes to Condensed Consolidated Financial Statements

On June 1, 2018, the Company entered into an amendment to the securities purchase agreement between the Company and the institutional investors holding the November 2017 Notes to reduce the number of shares of common stock required to be reserved for issuance under the November 2017 Notes from 200% to 110% of the maximum number of shares of common stock issuable upon conversion of the November 2017 Notes until the earlier of the January 2018 Notes Stockholder Approval Date (as defined below) and August 1, 2018. After such date, the required reserve amount will be increased back to 200%.

January 2018 Notes

On January 23, 2018, pursuant to a securities purchase agreement (the “January Securities Purchase Agreement”) entered into by the Company and an institutional investor the Company sold and issued senior convertible notes in the aggregate principal amount of $60,000,000 (collectively, the “January 2018 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, and (ii) a secured promissory note payable by the buyer to the Company (the “January 2018 Investor Note”) in the aggregate principal amount of $35,000,000 which is subject to a master netting agreement between the Company and the buyer (collectively, the “January 2018 Financing”). In conjunction with the prepayment, of the January 2018 Investor Note the Company was also obligated to pay the buyer interest which would have accrued with respect to the outstanding balance for the period from the redemption date through the maturity date (the “January Make-Whole Interest”). As cash is received from the January 2018 Investor Note, and the related principal amount of the January 2018 Notes increases accordingly, a derivative liability related to the conversion feature and the January Make-Whole Interest feature embedded within the January 2018 Notes is recorded as a debt discount and any excess value over the amount of cash received is expensed immediately to interest expense. In addition, January Placement Agent Warrants were also issued (See The Placement Agent Notes and Warrants below), recognized as liabilities pursuant to their terms and recorded as a debt discount, and accreted into interest expense over the life of the January 2018 Notes using the effective interest method, and any excess value over the amount of cash received was expensed immediately to interest expense.

The Company elected to defer payment of the January Make-Whole Interest by capitalizing the full balance under the same terms as the original January 2018 Notes. On April 2, 2018, $352,187 of interest was capitalized and added to the principal balance of the note. As of June 30, 2018, the entire capitalized balance of $352,187 remained outstanding.

Unless earlier converted or redeemed, the January 2018 Notes have a maturity date of January 23, 2020. The Series A-1 Note bears interest at a rate of 10% per annum. Upon issuance, the Series B-1 Note initially consisted entirely of “Restricted Principal” which is defined as that portion of the principal amount of a Series B-1 Note that equals the outstanding principal amount of the corresponding January 2018 Investor Note. The principal amount of the January 2018 Investor Note is subject to reduction through prepayments by the buyer of the January 2018 Investor Note given by the buyer to the Company or, upon maturity or redemption of the Series B-1 Note, by netting the amount owed by the buyer under the January 2018 Investor Note against a corresponding amount of principal to be canceled under the buyer’s Series B-1 Note. Each prepayment under the January 2018 Investor Note will convert a corresponding amount of Restricted Principal under the Series B-1 Note into “Unrestricted Principal” that may be converted into common stock.

The January 2018 Notes have an initial conversion price of $2,860 ($11.44 pre-split) per share. However, pursuant to the January Securities Purchase Agreement, the Company was required to seek stockholder approval in accordance with Nasdaq Listing Rule 5635(d) of the issuance of our common stock at a conversion price per share as low as $1.83 following the occurrence of an event of default or otherwise at any conversion price below $2,860 which may result from full ratchet conversion price adjustments required by the January 2018 Notes in the event of certain issuances below the initial conversion price. Such stockholder approval was obtained on July 23, 2018. As a result, in conjunction with the April 2018 Offering and the sale of shares in the ATM Offering at prices lower than the initial conversion price, the conversion price for the January 2018 Notes has been reduced, and as of August 13, 2018, the conversion price was $0.05.

The Company is required to redeem the January 2018 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 January 2018 Notes); or (iv) in the event of a Change of Control (as defined in the January 2018 Notes). With the exception of a redemption required by an Event of Default (as defined in the January 2018 Notes), 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 January 2018 Notes with cash. All amounts outstanding under the January 2018 Notes will be secured by the January 2018 Investor Note and all proceeds therefrom. The January 2018 Notes are not be secured by, and the buyer does not have a lien on, any assets of the Company other than the January 2018 Investor Note.

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Notes to Condensed Consolidated Financial Statements

MoviePass has guaranteed the obligations arising under the January 2018 Notes.

In accordance with the terms of the January Securities Purchase Agreement, as amended, the Company was obligated to convene a special meeting of its stockholders on or prior to July 23, 2018, for the purpose of approving the issuance of all securities that may be issued in connection with the January 2018 Financing, which stockholder approval was obtained on July 23, 2018.

Provided there has been no Equity Conditions Failure (as defined in the January 2018 Notes) and, as to the Series A-1 Note, no August 2017 Notes or November 2017 Notes remain outstanding, and as to the Series B-1 Note, no August 2017 Notes, November 2017 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 (as defined in the January 2018 Notes) remaining unpaid under the January 2018 Notes. The portion of the January 2018 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 January 2018 Investor Note equal to the amount of Restricted Principal included in the redemption.

During the second quarter of 2018, the Company did not receive any cash payments on the January 2018 Notes, therefore, the outstanding principal balance as of June 30, 2018 is $0. For the three and six months ended June 30, 2018, the Company recognized $457,775 and $809,963 of interest expense pertaining to the January 2018 Notes and had $457,775 of accrued interest as of June 30, 2018.

On June 1, 2018, the Company and the buyer entered into an amendment to the January Securities Purchase Agreement and the January 2018 Notes to reduce the number of shares of common stock required to be reserved for issuance under the January 2018 Notes from 200% to 100% of the maximum number of shares of common stock issuable upon conversion of the January 2018 Notes until the earlier of (1) the date stockholders approve resolutions providing for the issuance of the January 2018 Notes and the shares of common stock issuable upon conversion of the January 2018 Notes (the “January 2018 Notes Stockholder Approval” and the date the Stockholder Approval is obtained, the “January 2018 Notes Stockholder Approval Date”) and (2) August 1, 2018. After such date, the required reserve amount will be increased back to 200%. The amendment to the January Securities Purchase Agreement also extended the date by which the Company must hold the special meeting to obtain the January 2018 Notes Stockholder Approval from June 1, 2018 to August 1, 2018.

February 2018 Units Offering

On February 13, 2018, the Company sold an aggregate of approximately $105 million worth of units (the “Units”) of the Company’s securities to Canaccord Genuity Inc., on behalf of itself and as representative of the underwriters (the “Underwriters”), pursuant to which the Company issued and sold to the Underwriters in a best-efforts underwritten public offering (the “Offering”) at a purchase price of $5.192 per Unit with each Unit consisting of (A) 7,425,000 Series A-1 units (the “Series A-1 Units”), with each Series A-1 Unit consisting of (i) 0.004 (one pre-split) share of the Company’s common stock, and (ii) 0.004 (one pre-split) Series A-1 warrant to purchase 0.004 (one pre-split) share of the Company’s common stock (a “Series A-1 Warrant”); and (B) 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, 11,675,000 Series B-1 units (the “Series B-1 Units”), consisting of (i) 0.004 (one pre-split) pre-funded Series B-1 warrant to purchase 0.0004 (one pre-split) 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) 0.004 (one pre-split) Series A-1 Warrant.

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Notes to Condensed Consolidated Financial Statements

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 $1,625 ($6.50 pre-split) per share of common stock. Each Series B-1 Warrant has an aggregate exercise price of $1,375 ($5.50 pre-split) per share of common stock, all of which were pre-funded except for a nominal exercise price of $0.001 per share of common stock. All Series B-1 Warrants were exercised.

The Company received approximately $96.9 million in net proceeds from the sale of the Units, after deducting underwriting discounts and commissions equal to $5.9 million and estimated offering expenses of approximately $0.5 million, not taking into account any exercise of the Warrants. In addition, Palladium Capital Advisors, LLC acted as financial advisor in connection with the Offering and received a financial advisory fee equal to $1.9 million.

The Warrants were recorded as liabilities and initially recorded at fair value with the residual amount received allocated to the Company’s common stock. The exercise price of and number of shares of the Company’s common stock underlying the Warrants are subject to adjustment upon the issuance by the Company of stock dividends, stock splits, and similar proportionately applied changes affecting the Company’s outstanding common stock. In addition, the Series A-1 Warrants are subject to adjustment of the applicable exercise price then in effect, if, as of December 17, 2018 (the “Adjustment Date”), the quotient determined by dividing the (x) sum of the VWAP (as defined in the Series A-1 Warrant) of the common stock for each trading day during the 10 consecutive trading day period ending and including the trading day immediately preceding the Adjustment Date, divided by (y) 0.4 (10 pre-split) (all such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period) (the “Adjustment Price”), is less than the applicable exercise price. If the Adjustment Price is less than the applicable exercise price as of the Adjustment Date, then the exercise price shall be automatically adjusted to be equal to the Adjustment Price.

If the Company consummates any merger, consolidation, sale or other reorganization event in which its common stock is converted into or exchanged for securities, cash or other property (“Fundamental Transaction”), then the Company shall pay at the Warrants holder’s option, exercisable at any time commencing on the occurrence or the consummation of a Fundamental Transaction and continuing for 90 days, an amount of cash equal to the value of the remaining unexercised portion of the warrant as determined in accordance with the Black-Scholes option pricing model on the date of such Fundamental Transaction.

April 2018 Units Offering

On April 23, 2018, the Company sold an aggregate of approximately $30 million worth of units (the “April 2018 Units”) of the Company’s securities to Canaccord Genuity Inc., on behalf of itself and as representative of the underwriters (the “April Offering Underwriters”), pursuant to which the Company issued and sold to the April Offering Underwriters in a best-efforts underwritten public offering (the “April 2018 Offering”) at a purchase price of $2.59875 per April 2018 Unit with each April 2018 Unit consisting of (A) 10,500,000 Series A-2 units (the “Series A-2 Units”), with each Series A-2 Unit consisting of (i) 0.004 (one pre-split) share (an “April Share”) of the Com