HMNY Helios and Matheson Analytics Inc (CE)

RISK FACTORS

Investing in our securities involves a high degree of risk. Please see the risk factors set forth in Part I, Item 1A of our most recent Annual Report on Form 10-K and in Part II, Item 1A of our Quarterly Reports on Form 10-Q and other filings we make with the SEC, which are incorporated by reference into this prospectus supplement, as well as the other risk factors listed in this prospectus supplement and underlying prospectus. Before making an investment decision, you should carefully consider these risks as well as other information we include or incorporate by reference in this prospectus supplement. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. These risks could materially affect our business, results of operations or financial condition and cause the value of our securities to decline.

Risks Related to our MoviePass Business

We have a limited operating history and our businesses have a history of net losses, and it is likely that we will experience net losses for the foreseeable future.

We have experienced significant net losses since inception and our businesses have a history of net losses. Given the significant operating and capital expenditures associated with our business plans, we anticipate continuing to incur net losses and significant negative cash flows for the foreseeable future. If we ever do achieve profitability, of which no assurances can be given, we may be unable to sustain or increase such profitability.

To achieve and sustain profitability, we will need to accomplish numerous objectives, including substantially increasing the number of paying subscribers to MoviePass’ service and securing additional sources of revenue and economies of scale. There is a significant risk that we will be unable to achieve these objectives, which would damage our business.

MoviePass currently spends more to retain a subscriber than the revenue derived from that subscriber, and there is no assurance that we or MoviePass will be able to increase other sources of revenue to offset the losses or achieve a positive gross profit margin.

MoviePass currently spends more to retain a subscriber than the revenue derived from that subscriber, and other sources of revenue are currently inadequate to offset or exceed the costs of subscriber retention. This results in a negative gross profit margin. We expect MoviePass’ negative gross profit margin to remain significant until it can sufficiently increase our other sources of revenues to offset the losses or achieve substantial economies of scale. There is no assurance that MoviePass or we will be able to sufficiently increase our other sources of revenue or be able to achieve economies of scale that would reduce the cost of revenue sufficiently to generate a positive gross profit margin. Failure to achieve positive gross profit margin in the foreseeable future could materially and adversely impact our results of operations.

Due to recent changes to MoviePass’ subscription plans, the number of its subscribers has decreased, and it may continue to lose subscribers or fail to attract new subscribers.

In an effort to reduce its monthly deficit and improve profitability, MoviePass changed its monthly subscription plan to a three-movies-per-month plan, at a price of $9.95 per month and limited the available movies to those listed on a schedule. In August 2018, MoviePass began to convert subscribers on an annual subscription plan to a three-movies-per-month subscription plan, by giving annual subscribers the option to either cancel their annual subscription plan and receive a pro-rated refund or continue on the new three-movies-per-month subscription plan. As a result of these changes, MoviePass has experienced subscriber losses. MoviePass may continue to lose subscribers, or fail to attract new subscribers, and our business and operating results could be adversely affected.

In January 2019, MoviePass made available updated pricing plans, featuring a three-tier pricing structure. Under the “Select” plan, subscribers will be able to see up to three movies a month at some point during their theatrical run, other than opening weekends, based on a programming schedule; under the “All Access” plan, subscribers will be able to see up to three movies of their choice per month at any time during their theatrical run in standard 2D format; and under the “Red Carpet” plan, subscribers will be able to see up to three movies of their choice per month at any time during their theatrical run, and may choose to use one of their allotted three movies for IMAX 2D, IMAX 3D or supported Premium Large Format screenings, including RealD 3D. Prices for each plan vary based on geographic areas designed to reflect the difference in average ticket prices in different areas of the country. Subscribers may purchase plans for three-, six- and twelve-month terms, and receive discounts for buying multiple subscription plans. In December 2018, MoviePass also announced two limited-time holiday offers to offer the “All Access” and “Red Carpet” plans at a reduced rate for twelve months.

On March 19, 2019, MoviePass announced a new version of its uncapped subscription plan, called MoviePass Uncapped. Under the new MoviePass Uncapped subscription plan, subscribers can see an uncapped number of 2D movies in MoviePass’ theater network, subject to managing network demand and availability as set forth in its new terms of use, at most theaters nationwide for a fixed price, which varies depending on whether the subscriber chooses to pay monthly or annually. Under its new terms of use, MoviePass may limit the availability of movies for an individual subscriber if such subscriber’s use adversely impacts MoviePass’ system-wide capacity or availability for other subscribers, and a subscriber cannot see a particular movie more than once. MoviePass will allow subscribers under its previous “Select”, “All Access” and “Red Carpet” plans, which allow subscribers to see up to three movies a month, at most theaters nationwide for a fixed price, which varies depending on the subscription plan selected by the subscriber, and additional movies at a discounted price, to remain on such plans. However, the “Select”, “All Access” and “Red Carpet” plans will no longer be available for purchase.

These changes and future changes to MoviePass’ subscription plan may not be favorably received by customers and MoviePass may not be able to attract or retain subscribers, and as a result, our revenue and results of operations may be affected adversely. The number of recent changes to MoviePass’ subscription plans may also make competitors’ subscription plans more attractive to customers, and MoviePass may be unable to successfully compete with current and new competitors.

Increased monthly usage by MoviePass’ subscribers may cause MoviePass to incur losses and negative cash flow.

MoviePass’ new MoviePass Uncapped subscription plan allows subscribers to see an uncapped number of 2D movies in MoviePass’ theater network, subject to managing network demand and availability, at most theaters nationwide for a fixed price, which varies depending on whether the subscriber chooses to pay monthly or annually. MoviePass’ will also continue to allow subscribers on its previous “Select”, “All Access” and “Red Carpet”, which allow subscribers to see up to three movies per month for a fixed price, which varies depending on the subscription plan selected by the subscriber, and additional movies at a discounted price, to remain on such plans. In most cases, MoviePass pays, and expects to continue to pay, the theaters the full cost for each movie ticket that a subscriber uses. Accordingly, even though MoviePass’ new terms of use contains features that allow MoviePass to manage network demand and availability and prevent abuse of its service, including the ability to limit the availability of movies for an individual subscriber if such subscriber’s use adversely impacts MoviePass’ system-wide capacity or availability for other subscribers, increased movie viewing by subscribers may result in significant and increasing losses per subscriber and negative cash flow and adversely affects our financial condition and results of operations.

If MoviePass is not able to manage its growth, its business could be affected adversely.

On March 19, 2019, MoviePass announced a new version of its uncapped subscription plan, called MoviePass Uncapped. Under the new MoviePass Uncapped subscription plan, subscribers can see an uncapped number of 2D movies in MoviePass’ theater network, subject to managing network demand and availability as set forth in its new terms of use, at most theaters nationwide for a fixed price, which varies depending on whether the subscriber chooses to pay monthly or annually. When MoviePass announced a similar uncapped plan in August 2017, MoviePass’ subscriber base expanded rapidly, which placed significant demands on its managerial, operational, administrative and financial resources.

MoviePass may not be able, for many reasons, including lack of financing or adequate personnel resources, to meet the demand to timely deliver MoviePass cards to its subscribers or otherwise service its business in the event of another rapid expansion of its subscriber base. As such, MoviePass could experience a significant slowdown or stoppage as it attempts to serve the expanding subscriber base.

MoviePass anticipates that further expansion of its operations will be required to address any significant growth in its subscriber base and to take advantage of favorable market opportunities. Any future expansion will likely place significant demands on its managerial, operational, administrative and financial resources. If it is not able to respond effectively to new or increased demands that arise because of MoviePass’ growth, or, if in responding, MoviePass’ management is materially distracted from current operations, MoviePass’ business may be affected adversely.

Any reduction in anticipated spending by advertisers could harm our business.

Future advertising revenues are critical to MoviePass’ business model and if advertisers’ spending on online or mobile advertising is significantly reduced due to any political, economic, social or technological change or any other reason, our financial condition could be adversely affected.

The MoviePass business depends on mobile technology and continued, unimpeded access to internet and wireless services. Adverse changes to that access could harm our business.

A few large companies provide wireless services to consumers. If MoviePass’ users’ access to Internet and wireless services is interfered with or limited due to any political, economic, social or technological reason, MoviePass may not be able to make the MoviePass application readily available to its users or may not be able to do so in an effective manner, including ensuring that the MoviePass application will remain accessible within an acceptable load time. Failure to provide the MoviePass subscription service in a timely manner without interruption could generate consumer complaints and adversely affect our business.

MoviePass’ failure or inability to protect its intellectual property rights could diminish the value of its brand and weaken its competitive position.

MoviePass relies on a combination of trademark, trade secret and unfair competition laws, as well as confidentiality agreements and procedures and licensing arrangements, and where appropriate, patents and copyright to establish and protect its intellectual property rights. There is a risk that the steps taken by MoviePass to protect its intellectual property rights will be inadequate to prevent infringement of such rights by others, including imitation of its services and misappropriation of its brand. Additionally, the process of obtaining patent or trademark protection is expensive and time-consuming, and we and MoviePass may not be able to prosecute all necessary or desirable patent applications or apply for all necessary or desirable trademark applications at a reasonable cost or in a timely manner.

Moreover, costly and time-consuming litigation could be necessary to enforce and determine the scope of MoviePass’ proprietary rights, and the failure or inability to obtain or maintain trade secret protection or otherwise protect our proprietary rights could adversely affect our business. MoviePass may be subject to intellectual property-related lawsuits in various jurisdictions, and there is a risk that its products or activities violate the patents, trademarks, or other intellectual property rights of third-party claimants. We or MoviePass may also need to institute litigation to protect MoviePass’ intellectual property from third party infringers. Costs of supporting such litigation and disputes may be considerable, and there can be no assurances that a favorable outcome will be obtained. Patent infringement, trademark infringement, trade secret misappropriation and other intellectual property claims and proceedings brought against or by us or MoviePass, whether successful or not, could result in substantial costs, harm to our brand and the MoviePass brand, and have an adverse effect on our business.

Risks Related to the Business of MoviePass Films

MoviePass Films’ content production business requires a substantial investment of capital, and failure to access sufficient capital while awaiting delayed revenues will have a material adverse effect on our results of operation.

The production, acquisition and distribution of film and other content requires significant capital. In addition, if a distributor does not provide the funds for the distribution and marketing of our film, MoviePass Films will require additional capital to distribute and market the film. A significant amount of time may elapse between MoviePass Films’ expenditure of funds and the receipt of revenues from MoviePass Films’ productions. MoviePass Films does not have a traditional credit facility with a financial institution on which to depend for its liquidity needs, and a time lapse may require us to fund a significant portion of MoviePass Films’ capital requirements through loans and additional issuances of our common stock, securities convertible into our common stock, debt securities or a combination of such financing alternatives. There can be no assurance that any additional financing will be available to MoviePass Films as and when required, or on terms that will be acceptable to MoviePass Films. MoviePass Films’ inability to raise capital necessary to sustain its operations while awaiting delayed revenues would have a material adverse effect on our liquidity and results of operations.

MoviePass Films’ success is highly dependent on audience acceptance of its films and acquired content, which is extremely difficult to predict and, therefore, inherently risky.

We cannot predict the economic success of any of films or acquired content of MoviePass Films or because the revenue derived from the distribution of a film (which does not necessarily directly correlate with the production or distribution costs incurred) or other acquired content depends primarily upon its acceptance by the public, which cannot be accurately predicted. The economic success of a film or other acquired content also depends upon the public’s acceptance of competing films and content, the availability of alternative forms of entertainment and leisure-time activities, general economic conditions and other tangible and intangible factors, all of which can change and cannot be predicted with certainty.

The economic success of a film is largely determined by MoviePass Films’ ability to produce content and develop stories and characters that appeal to a broad audience and by the effective marketing of the film. The theatrical performance of a film is a key factor in predicting revenue from post-theatrical markets. If we are unable to accurately judge audience acceptance of MoviePass Films’ film content or to have the film effectively marketed, the commercial success of the film will be in doubt, which could result in costs not being recouped or anticipated profits not being realized. Moreover, we cannot assure you that any particular feature film will generate enough revenue to offset its distribution, fulfillment services and marketing or acquisition costs, in which case MoviePass Films would not receive any revenues for such film.

We may incur significant write-offs if MoviePass Films’ feature films and other projects do not perform well enough to recoup production, marketing, distribution, acquisition and other costs.

We are required to amortize capitalized production costs over the expected revenue streams as we recognize revenue from MoviePass Films’ films or other projects. The amount of production costs that will be amortized each quarter depends on, among other things, how much future revenue we expect to receive from each project. Unamortized production costs are evaluated for impairment each reporting period on a project-by-project basis. If estimated remaining revenue is not sufficient to recover the unamortized production costs, the unamortized production costs will be written down to fair value. In any given quarter, if we lower our previous forecast with respect to total anticipated revenue from any individual feature film or other project, we may be required to accelerate amortization or record impairment charges with respect to the unamortized costs, even if we have previously recorded impairment charges for such film or other project. Such impairment charges could have a material adverse impact on our business, operating results and financial condition.

MoviePass Films is substantially dependent upon the success of a limited number of film releases and other productions, if any, in any given year and its inability to release any film or other productions or the unexpected delay or commercial failure of any one of them could have a material adverse effect on our financial results and cash flows .

The content production business of MoviePass Films is currently substantially dependent upon the success of a limited number of film releases and other productions in any given year. The unexpected delay in release or commercial failure of just one of these films or productions, or MoviePass Films’ inability to release any productions at all, could have a significant adverse impact on our results of operations and cash flows in both the year of release and in the future. Historically, feature films that are successful in the domestic theatrical market are generally also successful in the international theatrical and ancillary markets, although each film is different and there is no way to guarantee such results. If MoviePass Films’ films fail to achieve domestic box office success, their success in the international box office and ancillary markets and our business, results of operations and financial condition could be adversely affected. Further, we can make no assurances that the historical correlation between results in the domestic box office and results in the international box office and ancillary markets will continue in the future. If MoviePass Films is unable to release any film or other productions in a given year, or if the feature films it releases do not perform well in the domestic or international theatrical markets and ancillary markets, or its other productions do not perform as anticipated, the failure to release any productions, or the failure of any one of the productions it releases, could a material adverse effect on our financial results and cash flows.

Delays, cost overruns, cancellation or abandonment of the completion or release of MoviePass Films’ films may have an adverse effect on our business.

There are substantial financial risks relating to production, completion and release of films. Actual costs may exceed their budgets due to factors such as labor disputes, unavailability of a star performer, equipment shortages, disputes with production teams or adverse weather conditions, any of which may cause cost overruns and delay or hamper film completion. MoviePass Films is typically responsible for paying all production costs in accordance with a budget and receive a fixed producer’s fee for its services plus a portion of any project income. However, to the extent that delays or cost overruns result in MoviePass Films not completing the film within budget, there may not be enough funds left to pay MoviePass Films’ producer’s fee, to generate any project income or complete the project at all. If this were to occur, it would significantly and adversely affect our revenue and results of operations.

MoviePass Films will rely on third party distributors to distribute its films and their failure to perform or promote its films could negatively impact our ability to generate revenues and have a material adverse effect on our operating results.

MoviePass Films’ films will be primarily distributed and marketed by third party distributors. If any of these third-party distributors fails to perform under their respective arrangements, such failure could negatively impact the success of MoviePass Films’ films and have a material adverse effect on our business, reputation and ability to generate revenues.

MoviePass Films generally will not control the timing and manner in which its distributors distribute its films; the distributors decisions regarding the timing of release and promotional support are important in determining success. Any decision by those distributors not to distribute or promote one of MoviePass Films’ films or to promote a competitors’ films or related products to a greater extent than they promote MoviePass Films’ could have a material adverse effect on our business, cash flows and operating results. Additionally, because third parties are the principal distributors of MoviePass Films’ movies, the amount of revenue that is recognized from films in any given period is dependent on the timing, accuracy and sufficiency of the information received from its distributors. As is typical in the film industry, MoviePass Films’ distributors may make adjustments in future periods to information previously provided to it that could have a material impact on our operating results in later periods.

The popularity and commercial success of MoviePass Films’ films and acquired content are subject to numerous factors, over which we may have limited or no control.

The popularity and commercial success of MoviePass Films’ films and acquired content depends on many factors including, but not limited to, the key talent involved, the timing of release, the promotion and marketing of the film, the quality and acceptance of other competing productions released into the marketplace at or near the same time, the availability of alternative forms of entertainment, general economic conditions, the genre and specific subject matter of the film, its critical acclaim and the breadth, timing and format of its initial release. We cannot predict the impact of such factors on any film or other acquired content, and many are factors that are beyond our control. As a result of these factors and many others, MoviePass Films’ films and acquired content may not be as successful as we anticipate, and as a result, our results of operations may suffer.

MoviePass Films must successfully respond to rapid technological changes and alternative forms of delivery or storage to remain competitive.

The entertainment industry continues to undergo significant developments as advances in technologies and new methods of product delivery and storage, and certain changes in consumer behavior driven by these developments emerge. New technologies affect the demand for MoviePass Films’ content, the manner in which its content is distributed to consumers, the sources and nature of competing content offerings and the time and manner in which consumers acquire and view its content. MoviePass Films and its distributors must adapt their businesses to shifting patterns of content consumption and changing consumer behavior and preferences through the adoption and exploitation of new technologies. If MoviePass Films cannot successfully exploit these and other emerging technologies, it could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

MoviePass Films’ business may be affected by changes in consumer discretionary spending in the U.S. or internationally.

MoviePass Films’ success depends on its ability to distribute or otherwise generate income from its current and future motion pictures and other acquired content. MoviePass Films’ industry is subject to discretionary consumer spending, which is influenced by general economic conditions, consumer confidence and the availability of discretionary income. Changes in economic conditions affecting potential distributors or viewers of motion pictures could reduce MoviePass Films’ ability to generate income from motion pictures. Furthermore, weak economic conditions and geopolitical and economic uncertainties in international regions and countries where MoviePass Films’ movie productions are distributed could lead to lower consumer spending for its content, which could have a material adverse effect on our financial condition and results of operations.

If MoviePass Films is unable to compete effectively, our business will be affected adversely.

The business in which MoviePass Films engages is highly competitive. Its primary business operations are subject to competition from companies which, in many instances, have greater development, production and distribution and capital resources than MoviePass Films. MoviePass Films competes for the services of writers, producers, directors, actors and other artists to produce its motion picture content, as well as for advertisement dollars. Larger companies have a broader and more diverse selection of scripts than MoviePass Films does, which translates to a greater probability that they will be able to more closely fit the demands and interests of advertisers than MoviePass Films can.

As a small independent producer, MoviePass Films competes with major U.S. and international studios. Most of the major U.S. studios are part of large diversified corporate groups with a variety of other operations that can provide both the means of distributing their products and stable sources of earnings that may allow them better to offset fluctuations in the financial performance of their film and other operations. In addition, the major studios have more resources with which to compete for ideas, storylines and scripts created by third parties, as well as for actors, directors and other personnel required for production. Such competition for the industry’s talent and resources may negatively affect MoviePass Films’ ability to acquire, develop, produce, advertise and distribute motion picture content.

As a new entrant into film distribution, MoviePass Films will have competitors with longer operating histories in the distribution of independent films, deeper ties with industry executives and film producers, and greater financial, marketing and other resources than MoviePass Films. MoviePass Films will also face competition from larger film distributors which focus on higher budget film production and distribution.

MoviePass Films may be adversely affected by union activity.

MoviePass Films retains the services of actors who are covered by collective bargaining agreements with Screen Actors Guild – American Federation of Television and Radio Artists, and it may also become signatories to certain guilds such as Directors Guild of America and Writers Guild of America in order to allow it to hire directors and talent for its productions. Collective bargaining agreements are industry-wide agreements, and MoviePass Films lacks practical control over the negotiations and terms of these agreements.

In addition, if negotiations to renew expiring collective bargaining agreements are not successful or become unproductive, the union could take actions such as strikes, work slowdowns or work stoppages. Strikes, work slowdowns or work stoppages or the possibility of such actions could result in delays in production of MoviePass Films’ films. MoviePass Films could also incur higher costs from such actions, new collective bargaining agreements or the renewal of collective bargaining agreements on less favorable terms. Depending on their duration, union activity or labor disputes could have an adverse effect on our results of operations.

MoviePass Films may be unable to recoup advances paid to secure exclusive distribution rights . 

MoviePass Films’ most significant costs and cash expenditures relate to acquiring content for exclusive distribution. Most agreements to acquire content require upfront advances against royalties or net profits participations expected to be earned from future distribution. The amount MoviePass Films is willing to advance is derived from its estimate of net revenues that will be realized from its distribution of the title. Although these estimates are based on management’s knowledge of competitive title performance, current events and actions management may undertake in the future, actual results will differ from those estimates. If sales do not meet our original estimates, MoviePass Films may (i) not recognize the expected gross margin or net profit, (ii) not recoup its advances or (iii) record accelerated amortization and/or fair value write-downs of advances paid.

MoviePass Films’ inability to maintain relationships with its program suppliers and vendors may adversely affect its business .  

MoviePass Films receives a significant amount of its revenues from the distribution of content for which it already has exclusive agreements with program suppliers. However, titles which have been financed by MoviePass Films may not be timely delivered as agreed or may not be of the expected quality. Delays or inadequacies in delivery of titles, including rights clearances, could negatively affect the performance of any given quarter or year. In addition, results of operations and financial condition may be materially adversely affected if:

Others may assert intellectual property infringement claims or liability claims for film content against MoviePass Films which may force us to incur substantial legal expenses.

There is a possibility that others may claim that MoviePass Films’ productions and production techniques misappropriate or infringe the intellectual property rights of third parties with respect to its previously developed web series, films, stories, characters, other entertainment or intellectual property. In addition, as distributors of film content, MoviePass Films may face potential liability for such claims as defamation, invasion of privacy, negligence, copyright or trademark infringement or other claims based on the nature and content of the materials distributed. If successfully asserted, our insurance may not be adequate to cover any of the foregoing claims. Irrespective of the validity or the successful assertion of such claims, we could incur significant costs and diversion of resources in defending against them, which could have a material adverse effect on our operating results.

If MoviePass Films fails to protect its intellectual property and proprietary rights adequately, our business could be adversely affected.

MoviePass Films’ ability to compete depends, in part, upon successful protection of its respective intellectual property. MoviePass Films attempt to protect proprietary and intellectual property rights to its productions and acquired content through available copyright and trademark laws and distribution arrangements with companies for limited durations. Unauthorized parties may attempt to copy aspects of its intellectual property or to obtain and use property that MoviePass Films regards as proprietary. We cannot assure you that MoviePass Films’ means of protecting its proprietary rights will be adequate. In addition, the laws of some foreign countries do not protect these proprietary rights to as great an extent as the laws of the United States. Intellectual property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to steal MoviePass Films’ intellectual property. The failure to protect adequately MoviePass Films’ intellectual property and proprietary rights could adversely affect our business and results of operations.

Risks Related to the Moviefone Assets

Our focus on our online advertising-supported business model involves significant risks.

Growth in Moviefone’s advertising revenues depends on its ability to maintain and expand its existing relationships with advertisers and publishers and its ability to develop new relationships with other advertisers and publishers. Growth in its advertising revenues also depends on its ability to continue offering effective products and services for advertisers and publishers. As the advertising market generates and develops new concepts and technology, Moviefone may incur additional costs to implement more effective products and services. As programmatic advertising gains traction with more advertisers and publishers, we continue to invest in and focus on Moviefone’s end-to-end open technology and programmatic platforms. Continuing to develop and improve these products and services may require significant time and additional investment. If Moviefone cannot continue to develop and improve its advertising products, services and technologies in a timely and cost-effective fashion, its competitive position and results of operations could be adversely affected.

The commercial attractiveness of the programmatic advertising solutions that Moviefone offers to publishers and advertisers depends on a variety of complex and evolving factors, among them the continued effective functioning and improvement of Moviefone’s proprietary learning algorithms, the continued ability to access and utilize relevant data about consumers and their consumption habits across multiple devices and, with respect to programmatic advertising exchange-related activities, continued automated access to the advertising inventory and application programming interfaces of publishers as well as continued robust relationships with brand advertisers and agencies.

Moviefone’s programmatic advertising solutions may become less attractive, and our results of operations may suffer, as a result of changes in laws and regulations and changes in industry standards generally. In addition, the following factors may further diminish the appeal of Moviefone’s programmatic advertising solutions and thereby negatively affect our results of operations: with respect to the availability of consumer data, changes in consumer choices; with respect to the functioning of Moviefone’s algorithms, the failure or inability to access, collect or analyze relevant data (for technological reasons or otherwise); and with respect to programmatic exchange activities, access to publisher inventory and relationships with advertisers and agencies, technological limitations or restrictions imposed by advertisers and publishers themselves.

Additionally, advertising revenues are unpredictable and variable, and are more likely to be adversely affected during economic downturns, as spending by advertisers tends to be cyclical in line with general economic conditions.

The Moviefone service faces intense competition in all aspects of its business.

The internet industry, with its low barriers to entry and rapidly shifting consumer tastes, is dynamic and rapidly evolving. Competition among internet companies offering online content, products and services, as well as with traditional offline content and advertising companies which are increasingly offering their own online content, products and services, is intense both domestically and globally and new competitors can quickly emerge. Additionally, as the use of programmatic advertising continues to increase, we compete with companies that have also invested in programmatic platform offerings. As companies integrate into larger, more comprehensive programmatic platforms, new competitors may arise and our business could be adversely affected if Moviefone does not continue to invest in, develop and improve our programmatic products and services.

As consumers increasingly use mobile devices and as the demand for video content and advertising increases, Moviefone competes with other companies in developing and offering mobile and video content and advertising products and services. If consumers, advertisers and publishers do not widely adopt Moviefone’s mobile and video offerings or if it does not generate sufficient revenue from its mobile or video offerings, Moviefone’s competitive position could be adversely affected.

In addition, companies offering services to advertisers are increasingly seeking to track individual consumer usage across devices through the use of tracking and data correlation technologies. To the extent companies with a larger audience reach than Moviefone’s are able to track individual consumer usage in this way and gather data about consumers that is valuable to advertisers, those companies will have a competitive advantage. If Moviefone cannot develop and offer effective tracking and data correlation technologies or it does not have access to a sufficient consumer audience, its advertising products and services may not be as valuable to advertisers and publishers and its competitive position and our results of operations may be harmed.

Additionally, Moviefone could be at a competitive disadvantage in the long term if it is not able to capitalize on international opportunities, especially as compared to a number of its competitors who maintain an expansive global presence. If Moviefone’s competitors are more successful than it in developing compelling content, products and services or in attracting and retaining consumers, advertisers, publishers and subscribers domestically and internationally, our business could be adversely affected.

If Moviefone does not continue to develop and offer compelling content, products and services and attract new users or maintain the engagement of its existing users, its advertising revenues could be adversely affected.

In order to attract users and maintain or increase engagement on Moviefone, we believe Moviefone must offer compelling content, products and services across all devices, including mobile. Acquiring, developing and offering new content, products and services, as well as new functionality, features and enhanced performance of Moviefone’s existing content, products and services, may require significant investment and time to develop. In addition, consumer tastes are difficult to predict and subject to rapid change.

If Moviefone cannot effectively distribute its content, products and services, its ability to attract new users and maintain the engagement of existing users could be adversely affected.

As the behavior of internet consumers continues to change, distribution of Moviefone’s content, products and services via traditional methods may become less effective, and new distribution strategies may need to be developed. Consumers are increasingly using social networking sites to communicate and to acquire and disseminate information rather than through instant messaging, electronic mail and portals. As consumers migrate towards social networks, Moviefone continues to build social elements into its content, products and services in order to make them available on social networks and to attract and engage consumers on Moviefone’s properties, for example by allowing consumers to contribute comments or their own original content. There is no guarantee that we will be able to successfully integrate Moviefone’s content with such social networking or other new consumer trends. Even if Moviefone is able to distribute its content, products and services effectively through social networking or other new or developing distribution channels, this does not assure that it will be able to attract new consumers.

If Moviefone is unable to grow organically by attracting new consumers directly to its content, products and services or if traffic to Moviefone’s portals declines, Moviefone may need to rely on distribution channels that require Moviefone to pay significant fees to third parties such as operators of third-party websites, online networks, software companies, device manufacturers, and others to promote or supply Moviefone’s services to their users.

To the extent that we cannot generate consumer and advertiser awareness and adoption of our mobile applications, content, products and services, including new forms of internet advertising for mobile and other internet enabled devices, our business could be adversely impacted.

Global consumers are increasingly accessing and using the internet through devices other than personal computers, such as smartphones, tablets and televisions. As consumer usage shifts away from personal computers and laptops, we expect that Moviefone’s ability to grow advertising revenue will become increasingly dependent on its ability to generate revenue from ads on mobile and other internet enabled devices such as set-top boxes (e.g., Roku, Amazon Fire TV). In order for consumers to access and use Moviefone’s content, products and services via these devices, it must continue to ensure that its content, products and services are compatible with such devices. Moviefone needs to continue to secure arrangements with device manufacturers and carriers to promote prominent and effective distribution of its content, products and services. In addition to placement agreements with wireless carriers and device manufacturers, currently Moviefone offer applications directly to consumers for download from the Apple App Store, the Google Play Store, or through other distribution channels. Moviefone is dependent on the interoperability of its products with popular mobile operating systems that we do not control, such as Android and iOS. To the extent a manufacturer or access provider makes any changes in these systems or terms of service that decreases Moviefone’s products’ functionality, gives preferential treatment to competitive products, or prevents Moviefone’s ability to show ads, this could adversely affect Moviefone’s usage and revenue on mobile devices.

The amount of revenues earned in connection with mobile and other internet enabled devices is currently small relative to total advertising revenues. Also, business models in the marketplace seem to be undergoing experimentation and rapid change.

A disruption or failure of our networks and information systems, the internet or other technology may disrupt the Moviefone service.

The Moviefone service is heavily dependent on the availability of network and information systems and services, other technologies, including those owned or licensed by third parties, and the internet. Shutdowns or service disruptions caused by events such as criminal activity, sabotage or espionage, computer viruses, hacking and other cyber-security attacks, router disruption, automated attacks such as denial of service attacks, power outages, natural disasters, accidents, terrorism, equipment failure or other events within or outside our control could adversely affect Moviefone and its consumers, including loss or compromise of data, service disruption, damage to equipment and data and excessive call volume to call centers. Furthermore, such attacks are not always able to be immediately detected, which means that we may not be in a position to promptly address the attacks or to implement adequate preventative measures. Such events could result in large expenditures necessary to recover data, or repair or replace such networks or information systems or to protect them from similar events in the future. As not all of our systems are fully redundant, some data or systems might not be recoverable after such events. In addition, not all of our systems operate in the same data centers. Significant incidents could result in a disruption of parts of our business, consumer dissatisfaction, damage to Moviefone’s brands, legal costs or liability, and a loss of consumers or revenues.

If our network and data security measures are breached, Moviefone’s products and services may be perceived as not being secure, consumers and customers may curtail or stop using Moviefone’s products and services and we may incur significant legal and financial costs.

Moviefone’s products and services involve the storage and transmission of Moviefone’s consumers’ and customers’ personal and proprietary information in our facilities and on our equipment, networks and corporate systems. Network and data security breaches expose us to a risk of loss of this information, government enforcement actions and private litigation, remediation costs, increased costs for security measures, loss of revenue, damage to Moviefone’s reputation and potential liability. Network and data security breaches or unauthorized access have resulted in, and may in the future result in, a combination of significant legal and financial costs, increased remediation and other costs, damage to Moviefone’s reputation and a loss of confidence in the security of Moviefone’s products, services and networks that could have an adverse effect on our business. We take steps to prevent unauthorized access to our network and consumer and customer data and corporate systems, however, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a triggering event, we may be unable to anticipate these techniques or implement adequate preventative measures. In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise network and data security. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our team members and contractors. We can give no assurance that a future incident could not be caused by events such as criminal activity, sabotage or espionage, computer viruses, hacking and other cyber-security attacks, router disruption, automated attacks such as denial of service attacks, power outages, natural disasters, accidents, terrorism, equipment failure, malware in advertisements, or other events within or outside our control which could adversely affect us and Moviefone’s consumers.

If we cannot continue to enforce and protect Moviefone’s intellectual property rights, our business could be adversely affected.

We rely on patent, copyright, trademark, domain name and trade secret laws in the United States and similar laws in other countries, as well as licenses and other agreements with our employees, consumers, content providers, suppliers and other parties, to establish and maintain our intellectual property rights in the technology, content, products and services related to the Moviefone brand. These laws and agreements may not guarantee that our intellectual property rights will be protected and our intellectual property rights could be challenged or invalidated. Amendments to or interpretations of U.S. patent laws or new rulings around U.S. patent laws may adversely impact our ability to protect our new technologies, content, products and services and to defend against claims of patent infringement. In addition, such intellectual property rights may not be sufficient to permit us to take advantage of current industry trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of offerings, decreased traffic and associated revenue or otherwise adversely affect our business. As Moviefone publishes more original content, our intellectual property may be increasingly subject to misappropriation by others, and the costs to protect and enforce our intellectual property rights may increase.

We have been, and may in the future be, subject to claims of intellectual property infringement or tort law violations that could adversely affect our business.

Many companies (including patent holding companies) and individuals own patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As Moviefone develops and offers new products, services, and technologies through various distribution channels we may experience an increase in the number of intellectual property claims against us. These claims, whether meritorious or not, may result in litigation, may be time-consuming and costly to resolve, and may require expensive changes in our methods of doing business and/or our content, products and services. These intellectual property infringement claims may require us to enter into royalty or licensing agreements on unfavorable terms or to incur substantial monetary liability. Additionally, these claims may result in our being enjoined preliminarily or permanently from further use of certain intellectual property and/or Moviefone content, products and services, or may require us to cease or significantly alter certain of operations related to the Moviefone brand. The occurrence of any of these events as a result of these claims could result in substantially increased costs, could limit or reduce the number of Moviefone’s offerings to consumers, advertisers and publishers, could stifle innovation or otherwise adversely affect our business.

Some of our commercial agreements may require us to indemnify third parties against intellectual property infringement claims, which may require us to use substantial resources to defend against or settle such claims or, potentially, to pay damages. These third parties may also discontinue the use of Moviefone’s products, services, and technologies, as a result of injunctions or otherwise, which could result in loss of revenues and adversely impact our business. Additionally, we may be exposed to liability or substantially increased costs if a commercial partner does not honor its contractual obligation to indemnify us for intellectual property infringement claims made by third parties or if any amounts received are not adequate to cover our liabilities or the costs associated with defense of such claims. The occurrence of any of these events could adversely affect our business.

As a publisher of original content and aggregator of third party content, we also face risks of periodic tort claims such as defamation or improper use of publicity rights, as well as infringement claims such as plagiarism. Whether or not they have merit, these claims may be time-consuming or costly to resolve.

The misappropriation, release, loss or misuse of consumer or other data could adversely affect our business.

Moviefone utilizes significant amounts of data about our business and consumers and Moviefone’s advertising and publishing partners in order to deliver Moviefone’s content, products and services and advertising solutions. Although we take measures to protect against unauthorized intrusion into such data, the misappropriation, release, loss or misuse of this data, whether by accident, omission or as the result of criminal activity, sabotage or espionage, hacking, computer viruses, natural disasters, terrorism, equipment failure or other events, could lead to negative publicity, harm to Moviefone’s reputation, customer dissatisfaction, regulatory enforcement actions or individual or class-action lawsuits or significant expenditures to recover the data or protect data from similar releases in the future, and may otherwise adversely affect our business.

Failure to comply with federal, state or international privacy laws or regulations, or the expansion of current or the enactment of new privacy laws or regulations, could adversely affect our business.

A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. In addition to the potentially differing interpretations of existing law, the present landscape of public policy and privacy creates uncertainty for business planning. In such an uncertain environment, it is difficult to make informed long-term business planning decisions about data use, notice, storage, access, retention or choice. The existing privacy-related laws and regulations as well as industry self-regulatory principles are evolving and subject to potentially differing interpretations. There is a possibility that these laws may be interpreted in a way that is inconsistent with our practices. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding data protection and privacy matters. We have posted privacy policies and practices concerning the collection, use and disclosure of user data on our Moviefone website. Any failure, or perceived failure, by us to comply with Moviefone’s posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, or could result in us having to change Moviefone’s data collection practices, which could adversely affect our business. In addition, a failure or perceived failure to comply with industry standards or with Moviefone’s own privacy policies and procedures could result in a loss of consumers or advertisers and adversely affect our business.

Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of cookies and a variety of other data correlation technologies for advertising and measurement. Our data management platform is designed to be a comprehensive suite of advertising technologies that will deploy tracking and data correlation technologies, the regulation of which could adversely affect our business.

Risks Related to this Offering and our Series B Preferred Stock, Common Stock and Warrants

The proceeds from this offering, along with our cash and cash equivalents, may not be sufficient to fund our operations for the near future and we may not be able to obtain additional financing.

As of March 21, 2019, we had approximately $2.8 million in available cash and approximately $13.1 million on deposit with our merchant and fulfillment processors related to subscription revenues. The funds held by these processors represent a portion of the payments received for annual and other extended term MoviePass subscription plans and future ticket fulfillment, which we classify as current assets on our balance sheet and which we expect to be disbursed to us or utilized during 2019. Historically, our monthly cash deficit has been significant, and our monthly cash deficit will continue to increase in the coming months.

The anticipated proceeds from this offering, along with our cash and cash equivalents, may not be sufficient to fund our operations for the near future and we may not be able to obtain additional financing. We will continue to require significant proceeds from sales of our debt or equity securities, among other sources of capital. However, we no longer have access to funds from the sale of shares of common stock in an at-the-market offering, and we will need to seek other sources of capital, of which there can be no assurance. Furthermore, to the extent we use any net proceeds from sales of our securities for acquisitions of other businesses or financial interests in additional movies (through MoviePass Films), we will need additional capital to offset our monthly cash deficit to the extent resulting from those further investments.

We will continue to require significant proceeds from sales of our debt or equity securities, each of which may have a significant dilutive effect on our stockholders. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned growth or otherwise further alter our business model, objectives and operations, which could harm our business, financial condition and operating results.

Our common stock was delisted from the Nasdaq Capital Market, which could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity and could limit our ability to raise additional capital.

Effective at the open of business on February 13, 2019, our common stock was suspended and delisted from the Nasdaq Capital Market and began trading on the OTC Pink Market operated by OTC Markets Group Inc. The delisting was the result of our non-compliance with Nasdaq Listing Rule 5550(a)(2), which requires that we maintain a minimum closing bid price of $1.00 per share for continued listing on the Nasdaq Capital Market.

Our delisting from the Nasdaq Capital Market could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without the Nasdaq Capital Market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock will likely be made more difficult and the trading volume and liquidity of our stock could decline. Our delisting from the Nasdaq Capital Market could also result in additional negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely impact the acceptance of our common stock as currency or the value accorded by other parties. Further, following our delisting, we will also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.

Now that our common stock is traded on an over-the-counter quotation system, an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock.

We have identified material weaknesses in our internal control over financial reporting, which resulted in the need to restate our consolidated financial statements. If we do not remediate the material weaknesses in our internal control over financial reporting, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our common stock.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness of our internal control over financial reporting. Our management assessed our internal control over financial reporting as of December 31, 2017. Based on such assessment, we concluded that our internal control over financial reporting was not effective as of December 31, 2017 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness we have identified is as follows:

On March 11, 2019, our board of directors and the audit committee of our board of directors, following discussions with management, determined that our previously issued quarterly and year-to-date unaudited consolidated financial statements for September 30, 2018 should no longer be relied upon. In addition, we determined that related press releases, earnings releases, and investor communications describing our financial statements for these periods should no longer be relied upon. The errors primarily relate to the overstatement of subscription revenues in the third quarter of 2018 due to (1) the erroneous recognition of approximately $0.7 million of revenue from MoviePass subscriptions that had been terminated through refunds of subscriptions by Costco Wholesale Corporation; and (2) the erroneous recognition of approximately $5.9 million of revenue from certain MoviePass subscriptions that were in a suspended state due to changes made to the MoviePass subscription service that had not yet been consented to by the applicable subscribers. In addition, we identified a non-cash error related to the accounting for derivative liabilities, which resulted in an additional understatement of net loss of approximately $2.9 million. We also identified the erroneous omission of a $1.6 million investment in the film Axis Sally , offset by a $1.6 million note payable, as well as the related party disclosures associated with the production of the film Axis Sally . Accordingly, we restated the quarterly and year-to-date unaudited consolidated financial statements for September 30, 2018. We completed the restatement by filing an amendment to the Quarterly Report on Form 10-Q for the period ended September 30, 2018 with the SEC on March 29, 2019.

We determined that the aggregate impact of these errors on consolidated total revenues, loss from operations, net loss and loss per share, calculated in accordance with accounting principles generally accepted in the U.S., to be as follows:

In connection with the restatement, management also determined that a material weakness relating to subscription management existed in our internal control over financial reporting as of September 30, 2018 and through December 31, 2018. Our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of September 30, 2018 and December 31, 2018, and our management has concluded that our internal control over financial reporting was not effective as of December 31, 2018. Effective January 1, 2019, we have implemented a new software solution to automate and provide real-time information for managing and accounting for subscriptions.

Although we plan to complete the remediation processes for these material weaknesses and associated evaluations and testing as quickly as possible, we may not be able to do so and our initiatives may prove not to be successful. Our remediation efforts may not remediate our material weaknesses in a timely manner, or at all, or prevent restatements of our financial statements in the future. If we are unable to successfully remediate our material weaknesses, or identify any future significant deficiencies or material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, and the market price of our common stock may decline as a result. We also could become subject to investigations by the SEC or other regulatory authorities.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Our internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. If we are not able to comply with the requirements of Section 404 in a timely manner, if we do not remedy the current material weaknesses identified above or if we identify additional material weaknesses in our internal controls, investors could lose confidence in the reliability of our financial statements, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.

The restatement of certain of our financial statements may subject us to additional risks and uncertainties, including the increased possibility of legal proceedings.

As a result of the restatement of our previously issued quarterly and year-to-date unaudited consolidated financial statements for September 30, 2018, we may become subject to additional risks and uncertainties, including, among others, the increased possibility of legal proceedings or a review by the SEC and other regulatory bodies, which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties, shareholder class actions or derivative actions. We could face monetary judgments, penalties or other sanctions that could have a material adverse effect on our business, financial condition and results of operations and could cause our stock price to decline.

We do not believe that we will be able to file our Form 10-K for the year ended December 31, 2018 with the SEC when it is due, and as a result, at such time we will be delinquent in our SEC reports, which could limit the liquidity of our common stock.

Because the market value of our common stock held by non-affiliates exceeded $75 million, as of the last trading day of our fiscal quarter ended June 30, 2018, we are subject to the requirement to include in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, the auditor’s attestation report on its assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Because the market value of our common stock held by non-affiliates was less than $250 million, we will continue to be a “smaller reporting company” as defined by the SEC’s revised rules.

We do not believe that we will be able to file our Form 10-K for the year ended December 31, 2018 with the SEC when it is due because we require additional time to provide our auditor with the information and documentation regarding our assessment of our internal control over financial reporting to enable our auditor to provide the required attestation report. If we are unable to obtain the auditor attestation by the due date of our Form 10-K for the year ended December 31, 2018, our Form 10-K will be considered delinquent and not timely filed, which could limit the liquidity of our common stock. The inability of our auditor to timely provide its attestation could result in lost investor confidence in the accuracy, reliability, and completeness of our financial reports.

We expect that our compliance with this increased reporting requirement will require management to expend additional time while also condensing the time frame available to comply with certain requirements, which may further increase our legal and financial compliance costs.

The sale of a substantial amount of our common stock in the market and the issuance of shares reserved for issuance to consultants and upon conversion of convertible instruments, including the shares issuable upon conversion of the Series B Preferred Stock (including the Warrant Preferred Shares), could adversely affect the prevailing market price of our common stock.

As of March 20, 2019, we had 2,001,541,260 shares of common stock issued and outstanding and the closing sale price of our common stock on March 22, 2019 was $0.012.

We may engage in transactions to issue convertible debt and warrants to purchase common stock, as we have in the past, which transactions may include registration rights. The registration of such additional securities and the potential for high volume trades of our common stock in connection with these financings may have a downward effect on our market price. Future issuance of our common stock upon exercise of these warrants may have a further negative impact on our stock price.

Further, as of March 20, 2019, we have reserved for issuance, but not yet issued, a substantial amount of additional shares that are included in “Summary––The Offering––Common stock outstanding after the offering.” In connection with this offering, we will enter into amendments with holders of certain of our outstanding warrants to purchase an aggregate of 666,666,668 shares of common stock, to reduce the exercise price of each such warrants from $0.0163 to $0.01 per share of common stock. The issuance of shares we are obligated to issue, which may increase dilution of existing investors and further depress the market price of our common stock, which may negatively affect our stockholders’ equity and our ability to raise capital on terms acceptable to us in the future.

The price of our common stock has been volatile, and the market price of our common stock may decrease.

The per share price of our common stock has been volatile. Since July 25, 2018, the day after we effected the Reverse Stock Split, the per share closing price of our common stock has been as low as $0.0069 on February 20, 2019, and as high as $10.60 on July 25, 2018. The factors that may cause the market price of our common stock to fluctuate include, but are not limited to: 

In addition, the equity markets have experienced significant price and volume fluctuations that have affected the market prices for the securities of technology companies for a number of reasons, including reasons that may be unrelated to our business or operating performance. These broad market fluctuations may result in a material decline in the market price of our common stock and you may not be able to sell your shares at prices you deem acceptable. In the past, following periods of volatility in the equity markets, securities class action lawsuits have been instituted against public companies. Such litigation, if instituted against us, could result in substantial cost and the diversion of management attention. In addition, our common stock is quoted on the OTC Pink Market operated by OTC Markets Group Inc., which may increase price quotation volatility and could limit liquidity, all of which may adversely affect the market price of our shares.

There is not now, and there may not ever be, an active market for shares of our common stock, which trades in the over-the-counter market.

We do not now meet the initial listing standards of the Nasdaq Capital Market or any other national securities exchange. We presently anticipate that our common stock will continue to be quoted on the OTC Pink Market operated by OTC Markets Group Inc. or another over-the-counter quotation system. In those venues, our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our common stock, and may find few buyers to purchase their stock and few market makers to support its price. As a result, investors must bear the economic risk of holding their shares of our common stock for an indefinite period of time.

“Penny stock” rules may make buying or selling our common stock difficult.

Following the delisting of our common stock, our common stock now falls within the definition of a “penny stock” as defined in the Exchange Act. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities.

Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. These FINRA requirements make it more difficult for broker-dealers to recommend that at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect on the market for our shares.

If you purchase securities in this offering, assuming conversion of the Series B Preferred Stock into shares of our common stock, you will incur immediate and substantial dilution in your investment.

Because the effective price per share of our Series B Preferred Stock being offered will be higher than the book value per share of our common stock, you will suffer substantial dilution in the net tangible book value between the offering price per share of the Series B Preferred Stock you purchase in this offering and the net tangible book value per share of our common stock after this offering, assuming conversion of the Series B Preferred Stock into shares of our common stock. In the event Series F Warrants are exercised by holders into Warrant Preferred Shares, which are subsequently converted into shares of our common stock, you will experience additional dilution to the extent that the conversion price of such Warrant Preferred Shares is higher than the book value per share of our common stock. See the section titled “Dilution” below for a more detailed discussion of the dilution you will incur if you purchase Series B Preferred Stock in this offering.

The Series F Warrants may never have any value.

The Series F-1 Warrants in this offering have an exercise price of $100.00 per share of Series B Preferred Stock and will be exercisable at any time on or after the issuance date until the five-year anniversary of such initial exercise date. The Series F-2 Warrants in this offering have an exercise price of $100.00 per share of Series B Preferred Stock and will be exercisable at any time on or after the date on which we obtain stockholder approval for a reverse stock split or to increase our authorized common stock to allow for the reservation in full of all shares of common stock issuable upon conversion of the Warrant Preferred Shares issuable upon exercise of the Series F-2 Warrants until the five-year anniversary of such initial exercise date.

In the event the price per share of our common stock does not exceed the per share conversion price of the Warrant Preferred Shares during the period when the Series F Warrants are exercisable, the Series F Warrants will not have any value. Additionally, a holder of Series F Warrants who exercises Series F Warrants into Warrant Preferred Shares will be prohibited from converting such Warrant Preferred Shares into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own more than 9.99% of the total number of shares of our common stock then issued and outstanding after giving effect to such conversion. Upon at least 61 days’ prior notice, a holder of Warrant Preferred Shares may increase or decrease the holder’s amount of ownership of outstanding shares of common stock after converting the holder’s Warrant Preferred Shares to up to 9.99% of the number of shares of our common stock outstanding immediately after giving effect to such conversion, as such percentage ownership is determined in accordance with the terms of the Certificate of Designation of Series B Preferred Stock (the “Certificate of Designation”). Further, if we do not obtain stockholder approval of a reverse stock split or an increase in our authorized common stock, the Series F-2 Warrants will not be exercisable. There is no assurance that we will be able to obtain such stockholder approval.

There is no public market for the Series B Preferred Stock or the Series F Warrants being offered in this offering.

There is no public trading market for the Series B Preferred Stock or the Series F Warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the Series B Preferred Stock or the Series F Warrants or the underlying shares of our common stock on any national securities exchange or other nationally recognized trading system. Without an active market, the liquidity of the Series B Preferred Stock or the Series F Warrants will be limited, and you may not be able to resell your shares of Series B Preferred Stock or the Series F Warrants. If your shares of Series B Preferred Stock or the Series F Warrants cannot be resold, you will have to depend upon any appreciation in the value of our common stock over the conversion price of the Series B Preferred Stock in order to realize a return on your investment in the shares of Series B Preferred Stock or the Series F Warrants.

We do not plan to pay cash dividends in the foreseeable future.

We currently intend to retain all future earnings for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.

Except as otherwise provided in the Series F Warrants, holders of our Series F Warrants will not have the rights or privileges of a holder of our common stock or holder of Series B Preferred Stock, including any voting rights, until such holders exercise their Series F Warrants for Warrant Preferred Shares or convert such Warrant Preferred Shares and acquire our common stock, as applicable.

Except as otherwise provided in the Series F Warrants, holders of shares of our Series F Warrants will not have the rights or privileges of a holder of our common stock or holder of Series B Preferred Stock, including any voting rights, until such holders exercise their Series F Warrants for Warrant Preferred Shares or convert such Warrant Preferred Shares and acquire our common stock, as applicable. As a result, absent exercise of the Series F Warrants for Warrant Preferred Shares or a conversion of such Warrant Preferred Shares into shares of our common stock, holders of shares of our Series F Warrants will not have the ability to vote their shares underlying their Series F Warrants, which may limit the influence that investors in our offering may have over the outcome of matters submitted to our stockholders for a vote.

Because our management will have broad discretion and flexibility in how the net proceeds from this offering are used, we may use the net proceeds in ways in which you disagree.

We currently intend to use the net proceeds from this offering for general corporate purposes of the Company and its subsidiaries; to satisfy $870,000 of the amounts payable in connection with the senior non-convertible notes issued by the Company on October 4, 2018 and December 18, 2018; and for transaction expenses including placement agent fees. We have not allocated specific amounts of the net proceeds from this offering for any of the foregoing purposes other than the payment of a portion of the senior non-convertible notes and transaction expenses. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.

This offering is being conducted on a “best efforts” basis.

We have retained H.C. Wainwright & Co., LLC as our exclusive placement agent in connection with the securities offered by this prospectus supplement and the accompanying prospectus. The placement agent has agreed to use its reasonable best efforts to solicit offers to purchase the securities offered by this prospectus supplement and the accompanying prospectus. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. As a “best efforts” offering, there can be no assurance that the offering contemplated hereby will ultimately be consummated.

The conditions to the completion of the creation of MoviePass Entertainment Holdings Inc. , or “MoviePass Entertainment,” and the distribution of shares of MoviePass Entertainment to our security holders may not be satisfied, and we may not have the required surplus or cash flow solvency under Delaware law to effect a distribution of shares of MoviePass Entertainment to our security holders.

On October 23, 2018, we issued a press release announcing that our board of directors preliminarily approved a plan to create a new subsidiary named MoviePass Entertainment Holdings Inc. that would take ownership of the shares of MoviePass and other film related assets held by the Company, including our equity interests in MoviePass Films and MoviePass Ventures and the Moviefone brand and related assets. If permitted under Delaware law and subject to other conditions, we plan to distribute a minority of the outstanding shares of MoviePass Entertainment common stock as a dividend to holders of common stock and certain warrants of the Company as of a record date that is yet to be determined, with the Company retaining control of MoviePass Entertainment upon any such distribution, which we refer to as the “Spin-Off Transaction.” Following the Spin-Off Transaction, MoviePass Entertainment would become a separate publicly traded company.

The Spin-Off Transaction is subject to numerous conditions, including MoviePass Entertainment completing the necessary audited financial statements and having a registration statement on Form S-1 declared effective by the Securities and Exchange Commission, and the approved listing of MoviePass Entertainment’s common stock on Nasdaq or an alternative trading market.

Additionally, we may not have the required surplus or cash flow solvency under Delaware law to effect the Spin-Off Transaction. No assurance can be given that the Spin-Off Transaction will occur, or if it occurs that it will occur on the terms described in this prospectus supplement. In addition to the conditions to the Spin-Off Transaction described herein (certain of which may be waived by our board of directors in its sole discretion), our board of directors may abandon the Spin-Off Transaction at any time prior to the distribution date for any reason or for no reason.

We may not realize the potential benefits from the Spin-Off Transaction in the near term or at all.

We believe that the Spin-Off Transaction will better position MoviePass Entertainment and us to take advantage of certain business opportunities and financing strategies that more closely align to MoviePass Entertainment’s and our business goals. However, no assurance can be given that any investment or other strategic opportunities will become available to us or MoviePass Entertainment following the Spin-Off Transaction on terms that we or MoviePass Entertainment find favorable or at all. Given the added costs associated with the completion of the Spin-Off Transaction, including the separate accounting, legal and other compliance costs of MoviePass Entertainment being a separate public company, we and MoviePass Entertainment may fail to realize the anticipated benefits of the Spin-Off Transaction in the near term or at all, which could have a material adverse effect on our business, financial condition, operating results and cash flow, and our results of operations.

RISK FACTORS

Investing in our securities involves a high degree of risk. Please see the risk factors set forth in Part I, Item 1A of our most recent Annual Report on Form 10-K and Part II, and other filings we make with the SEC, which are incorporated by reference in this prospectus. Additional risk factors may be included in a prospectus supplement relating to a particular offering of securities. Before making an investment decision, you should carefully consider these risks as well as other information we include or incorporate by reference in this prospectus. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. These risks could materially affect our business, results of operations or financial condition and cause the value of our securities to decline.