MoviePass parent company Helios & Matheson Analytics Inc. admitted in a Securities and Exchange Commission filing last week that they erroneously reported subscription revenue in their third quarter of 2018, for the period ended September 30, 2018. MoviePass reported $5.9 million in revenue from suspended subscriptions from subscribers who had not yet re-upped, as well as $700,000 in subscription revenue that Costco refunded to subscribers who had terminated their MoviePass movie subscriptions.
“On March 11, 2019, the Board of Directors (the ‘Board’) of Helios and Matheson Analytics Inc. (the ‘Company’) and the audit committee, following discussions with management, determined that the Company’s previously issued quarterly and year-to-date unaudited consolidated financial statements for September 30, 2018, should no longer be relied upon. Similarly, related press releases, earnings releases, and investor communications describing the Company’s financial statements for these periods should no longer be relied upon,” said Helios & Matheson in their March 11 Form 8-K filing with the SEC.
“The errors primarily relate to the overstatement of subscription revenues in the third quarter of 2018 due to (1) the erroneous recognition of up to 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 up to 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,” said Helios & Matheson. “These errors resulted in an understatement of the net loss by approximately $6.6 million.”
The company also found a non-cash error which further understated their net loss of $2.9 million. The company reported the following updated financials, along with the percentage change from what was originally reported to the new figures.
For Q3 Ended
For Q3 Ended
Loss from Operations
Basic & diluted loss per share
The company said that their disclosure controls and procedures were not adequate to ensure effective financial reporting for the third of fourth quarters of 2018. As of January 1, they have implemented new software for better management of and accounting for subscriptions, regardless of status (i.e., terminated or suspended). Helios & Matheson said it will file an amended 10-Q as soon as possible.
Two days after the filing executive vice president Khalid Itum, who was responsible for MoviePass’s day-to-day operations, has left the company. A spokesperson said in a statement to Business Insider that he was leaving to explore “entrepreneurial and travel pursuits.” In February, Variety reported that Itum had been charged in 2010 with stealing thousands of dollars from a previous employer.
In addition, three fellow executives have resigned their positions at MoviePass, reports Business Insider: Bernadette McCabe, senior VP of exhibitor relations, Joey Adarkway, chief technology officer, and Jake Petersen, a senior VP in HR. Adarkway and Petersen will serve as consultants instead.
Just when we thought MoviePass couldn’t sink any lower, we learn of erroneous financial reporting that puts their credibility into question once again. This is just another example of mismanagement and lack of oversight, and it comes two weeks after MoviePass reports a new business strategy that they are confident will put them on a path toward profitability. All the subscription and promotional plans in the world can’t save MoviePass from itself. Until the company resolves its conflict from within, and tells a true and honest story to investors and potential subscribers, it has no future.