Helios & Matheson North America (HMNY) Risk Analysis

On June 21, 2018, we received a deficiency letter from the Nasdaq Listing Qualifications Department notifying us that, for the prior thirty consecutive business days, the closing bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market pursuant to the Minimum Bid Price Requirement. In accordance with Nasdaq Listing Rules, we have been given 180 calendar days, or until December 18, 2018 to regain compliance with the Minimum Bid Price Requirement. If we are not in compliance with the Minimum Bid Price Requirement by December 18, 2018, we may be afforded a second 180 calendar day grace period. To qualify, we would be required to meet the continued listing requirements for market value of publicly held shares and all initial listing standards for The Nasdaq Capital Market, except for the Minimum Bid Price Requirement. In addition, we would be required to notify Nasdaq of our intent to cure the deficiency during the second compliance period, which may include, if necessary implementing a reverse stock split. To regain compliance with the Minimum Bid Price Requirement, effective July 23, 2018, we effected the Reverse Stock Split of our common stock at a ratio of 1 share-for-250 shares. However, since the effectiveness of the Reverse Stock Split, the per share market price of our common stock has fallen below $1.00 and as of November 14, 2018, the closing price was $0.017. As a result, we are not in compliance with the Minimum Bid Price Requirement Further, the Special Meeting of Stockholders scheduled to be held on November 14, 2018 to provide stockholders with an opportunity to vote on the proposed reverse stock split in a ratio of 1 share-for-2 shares up to a ratio of 1 share-for-500 shares has been cancelled. The Company was presenting the reverse stock split proposal in an effort to regain compliance with the Minimum Bid Price Requirement. Since the Company will not be able to effect a reverse stock split ten business days prior to December 18, 2018, absent an extension by The Nasdaq Capital Market (of which there can be no assurance) the Company believes that our common stock will be subject to delisting from The Nasdaq Capital Market, which would adversely impact the liquidity and marketability of our common stock. If we do not regain compliance with the Minimum Bid Price Requirement by December 18, 2018 and we are not eligible for an additional compliance period at that time, the Staff will provide written notification to us that our common stock may be delisted. At that time, we may appeal the Staff's decision to the Panel. We would remain listed pending the Panel's decision. There can be no assurance that, if we do appeal a subsequent delisting determination by the Staff to the Panel, that such an appeal would be successful. On August 25, 2018, Carl J. Schramm resigned from the Board of Directors of the Company and each committee of the Board of Directors which he was a member, including the Audit Committee. As a result, the Company is no longer compliant with Nasdaq Listing Rule 5605(b)(1), which requires that a majority of the Board of Directors of the Company be independent, and Nasdaq Listing Rule 5605(c)(2)(A), which requires that the Audit Committee have at least three independent directors. In accordance with Nasdaq Listing Rules, on August 27, 2018, the Company notified Nasdaq of Mr. Schramm's resignation and non-compliance with the above Nasdaq Listing Rules. Nasdaq responded on September 6, 2018 with a notification letter confirming the Company's non-compliance with Nasdaq's independent director and audit committee requirements as set forth above. Nasdaq advised that, pursuant to Nasdaq Listing Rules 5605(b)(1)(A) and 5605(c)(4), the Company will have until the following to cure the deficiencies caused by Mr. Schramm's departure: - until the earlier of the Company's next annual shareholders' meeting or August 25, 2019; or         - if the next annual shareholders' meeting is held before February 21, 2019, then the Company must evidence compliance no later than February 21, 2019. The Board of Directors of the Company intends to appoint a new independent director who satisfies the applicable requirements of the Nasdaq Listing Rules to serve on the Company's Board of Directors and Audit Committee prior to the expiration of the cure period, but no assurances can be given that the Company will appoint a new independent director who satisfies the applicable requirements of the Nasdaq Listing Rules to serve on the Company's Board of Directors and Audit Committee prior to the expiration of the cure period. If we are not able to regain compliance with the Minimum Bid Price Requirement or appoint a new independent director who satisfies the applicable requirements of the Nasdaq Listing Rules to serve on the Company's Board of Directors and Audit Committee prior to the expiration of the cure period, our common stock could be traded on the over the counter market maintained by OTC Markets Group, Inc. In such event, it would become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely be a reduction in our coverage by security analysts and the news media, which could cause the price of our common stock to decline further. Additionally, the sale or purchase of our common stock would likely be made more difficult and the trading volume and liquidity of our common stock would likely decline. A delisting from The Nasdaq Capital Market would also result in negative publicly and would negatively impact our ability to raise capital in the future.

The report of our independent auditors on our consolidated financial statements for the year ended December 31, 2017 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors' doubts are based on our incurring significant net losses and our working capital position. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to continue the development and integration of our MoviePass business.

The Company has goodwill of approximately $40.6 million, related to the acquisition of MoviePass in December 2017 and $8.5 million related to the acquisition of Moviefone in April 2018, which is included in the Subscription and Marketing, Promotional Services, and Films operating segment, which may be susceptible to impairment as a result of changes in various factors or conditions. Other identifiable intangible assets, including customer relationships, technology and tradenames and trademarks, aggregating to approximately $30.1 million, are amortized on a straight-line basis over their estimated useful lives. The Company assesses the potential impairment of goodwill and our finite-lived intangible assets on an annual basis, as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As of September 30, 2018, the Company evaluated whether any triggering events for goodwill, as defined in ASC 350-35-3C, were deemed to be more likely than not and determined that as of September 30, 2018 they were. During the third quarter of 2018, due to a significant decline in its MoviePass subscribers resulting primarily from changes made to our service offerings substantially during the third quarter, the Company deemed it more appropriate to assess goodwill impairment of the MoviePass reporting unit as of September 30, 2018. In conjunction with the events occurring in the third quarter of 2018, the Company updated its long-term business plan, which was used as the basis for estimating the future cash flows of its reporting units. That plan considered then current economic conditions and trends, estimated future operating results, the Company's views of growth rates and then-anticipated future economic and regulatory conditions. The Company determined that the fair value of the MoviePass reporting unit was below its carrying value. Therefore, the Company conducted step two of the impairment test for the MoviePass reporting unit and determined the carrying value of goodwill in the MoviePass reporting unit exceeded its implied fair value, resulting in an impairment charge of $38.5 million. This was as a result of reduced financial projections for the MoviePass reporting unit, due to, among other things, lower than expected actual financial results from this business due to a lower number of subscribers resulting from changes in the MoviePass service offering, which resulted in diminished financial performance relative to its original expectations. Given the foregoing, the Company determined there was greater uncertainty in achieving its prior financial projections and so applied a slightly higher discount rate for purposes of its goodwill impairment analysis. Additionally, modifications of certain cashflow assumptions to reflect the current economic conditions as well as market participant levels were made. These assumptions along with a higher discount rate negatively affected the fair value of the MoviePass reporting unit. The Company has implemented several changes to the services offered under the MoviePass subscription plans with the goal of reducing the costs associated with providing the related services. The Company expects to continue raise capital to support these initiatives. Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact our results of operations and financial position in the reporting period identified.

As of November 12, 2018, we had approximately $6.2 million in available cash and approximately $23.3 million on deposit with our merchant processors for a total of approximately $29.5 million. 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 2018. Historically, our monthly cash deficit has been significant, and as we continue to fund MoviePass' operations, and increase our investments in movies through MoviePass Ventures and MoviePass Films, and make other acquisitions, our monthly cash deficit will continue to increase in the coming months. 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, However, we no longer have access to funds from the sale of shares of common stock in the ATM 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 our subsidiaries, MoviePass Ventures or 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, including conversions of unrestricted principal and make-whole interest under our outstanding convertible notes following payments by investors under investor notes payable to us, each of which will continue to 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.

Since the completion of our acquisition of a majority of the ownership interest of MoviePass Inc., we have primarily focused our resources and business activities towards the integration and development of the MoviePass business. It is possible that we may not achieve profitability with our MoviePass business.

MoviePass' subscriber base has expanded rapidly since August 15, 2017, when it announced its new subscription price of $9.95 per month. 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. 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.

We rely upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license intellectual property, but there can be no assurance that the steps we take in this regard will be adequate to deter misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights.

Should any of those providers discontinue providing data to us or we otherwise experience disruption in that pipeline, our operations may be adversely affected. If any of those providers require us to pay a much higher fee to use their data in the future that could substantially drive up the costs of our services.

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