Helios and Matheson Analytics ( (HMNY) ) stock took a huge ride on deal news, but the ride was nothing compared to the alternating skyrocket and anvil rides it took on other news in October. The company revealed a $100 million capital raising deal on Monday, Nov. 6, but it will be receiving nowhere near that right off the bat.
It's rare that a company whose financials carry a going-concern warning can borrow $100 million.
In essence, the company is receiving about $20 million, and the investor has what amounts to a call option on the rest. If the convertible debt in the deal is issued in its entirety, it would cause massive dilution.
About $5 million would go towards acquiring the remaining interest in unprofitable MoviePass, a movie theater subscription founded by Netflix co-founder Mitch Lowe. MoviePass subscriptions, at $50 per month, allow users to view one movie every day in most theaters for $9.99 per movie. The service can't be used online, and each subscriber must buy his or her own ticket.
Some investors hope the company will be able to turn a profit by selling customers' data.
The service has been around since 2011, but his not blown the doors off the industry. Whether it does is the $64 question for Helios investors. If it doesn't, investors at current levels will get crushed.
MoviePass news can apparently move mountains, or at least Helios' stock price.
It's worth noting that over 80% of Helios float is being shorted as of Tuesday, Nov. 7, according to Shortsqueeze.com.
New York-based Helios, which also has an office in Bangalore, India, provides predictive analytics and data visualization services. In November the company completed the acquisition of Zone Technologies Inc., which provides crime mapping services. The company's RedZone Map application combines GPS location with real-time crime data so that users can make traveling safer.
The company's last private-investment-in-public-equity raise was more modest -- $6 million at the end of last year when it acquired Zhone Techologies.
The new financing involves $5 million in 10% Series A bridge notes and $95 million in new Series B bridge notes bearing interest of 5.25% on restricted principal and 10% on unrestricted principal.
The company will immediately receive the $5 million from the Series A notes and $16.65 million from the other series incrementally over seven weeks.
The notes convert at $12.06, a discount to the $14.20 close on Nov. 6. However, the notes feature a make-whole premium that will also be convertible, lowering the effective conversion price.
MoviePass is guaranteeing payments on the notes.
At Helios' current prices, conversion of $100 million of the notes would nearly double the company's market cap, causing proportionate dilution.
Given the stock's reactivity, it's hard to tell how investors would respond to such dilution.
Helios' stock rose 47% Nov. 6 on news of the financing.
To put that in perspective, the $14.20 close on Nov. 6 represents a 63.46% loss from the company's 52-week intraday high of $38.86 on Oct. 11.
The Oct. 11 price reflects a spectacular 1,377% increase from the close before previous MoviePass news sent the market on a tear.
Short seller Andrew Left of Citron Research tweeted that the stock was due for a fall, and it did though not immediately after the tweet.
Through all this volatility, the company has seen little in the way of earnings.
In its March quarter, Helios posted a $6.47 million loss on revenues of $1.36 million.
At the end of the June quarter it posted a loss of $5.22 million on revenues of $1.14 million.
The company's September quarter has not been posted.
The upcoming quarter should indicate how much its partial stake in MoviePass affects the bottom line.
It may be a negative effect, given that MoviePass is not profitable.