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The Story Of Helios And Matheson That No One Talks About

|Includes: Helios and Matheson Analytics, Inc. (HMNY)

Summary

HMIT Ltd., the former parent company of Helios & Matheson prior to 2016, has a long history of fraud.

The new guy running Helios & Matheson, Ted Fansworth, has a long history of "pump and dump".

Some of the people closely associated with HMIT Ltd. are still on Helios & Matheson's payroll.

A lot has been written about the business model of MoviePass, and I believe that part of the story has been beaten to death. But there doesn't seem to be many people talking about the sketchy history of Helios And Matheson (HMNY) and Ted Fansworth. After first writing about it in a long comment, I decided it may be useful to others if I write a slightely more detailed treatment of the convoluted history of HMNY and the Indian connection that no one seems to talk about.

The information in this article is only to the best of my knowledge, which is by no means complete on this matter. You are encouraged to do your own research, and I can assure you that there is so much more that can be dug out.

Morphing of names and the Indian connection

The company we now know today as Helios and Matheson North America Inc. (HMNY) was incorporated in New York in February 1983 under the name “Software Ben-Tov Incorporated”, but was promptly changed to “The A Consulting Team Incorporated” in April 1983. In August 1997, it IPO'd on NASDAQ under the ticker TACX.

In 2006, Helios and Matheson Information Technology Limited (HMIT Ltd.), a supposedly IT service company based and founded in India in 1991, bought a majority stake in TACX, and in Feb 2007 changed the name of the company from “The A Consulting Team Incorporated” to “Helios and Matheson North America Incorporated”, with new ticker HMNA.

On 2 May 2011, “Helios and Matheson North America Incorporated” changed its name to “Helios and Matheson Information Technology Incorporated”. The only difference between the new name and the name of the parent company was “Incorporated” (Inc.) versus “Limited” (Ltd.). The ticker was also changed from HMNA to HMNY.

The last name-change came in May 2013, when the name we all recognize today was born:  “Helios and Matheson Analytics Incorporated”.

The fraud that is HMIT Ltd.

Helios and Matheson Information Technology Limited (HMIT Ltd.), the former parent company of HMNY, was nothing more than an Indian fraud stock scheme. As early as 2007, their name was already entangled in a fraud case in Mauritius. And by 2015, they had become notorious in India for defrauding investors through their company fixed deposits (a kind of corporate debt instrument, like bonds, common in India). 

In January 2016, Madras High Court (India) indicted HMIT Ltd. of fraud and appointed an official liquidator to take over affairs to prevent the company from further siphoning funds from investors. Also, trading of HMIT Ltd. shares was suspended in India. It was in these dangerous days in 2016 that Ted appeared on the scene with his own company, Zone Technologies, and reverse-merged with HMNY.

Theodore Farnsworth Takes Command

Zone Technologies was incorporated in 2015, and Ted Fansworth was the founder, CEO and sole shareholder of the company. In December 2015, the company launched RedZone Maps, a mobile app that scans the map of a city based on its various concentrations of crime reports in real-time to alert users of potentially dangerous areas.

On 6 June 2016, HMNY announced its plans to merge with Zone Technologies, and the stock price spiked by 1,430% that day. Could there have been some kind of price manipulation involved, something like wash trading? Who knows?

Wash trading comes to mind because that was the kind of manipulation used for Longfin Corp (OTCPK:LFIN), whose insiders were charged by the SEC with securities fraud in April 2018 just after their stock price spiked 250% for no worthy reason.

For the merger, HMNY created a new wholly-owned subsidiary named Zone Acquisition, and Zone Technology merged with that subsidiary. Zone Technology survived the merger and became a wholly owned subsidiary of HMNY.

After the merger, Ted Farnsworth owned 29.7% of shares outstanding of HMNY, Muralikrishna Gadiyaram (co-founder and a majority shareholder of HMIT) owned 29.7%, and HMIT owned 29.7%. The three entities together controlled 89.1% of the shares outstanding of HMNY. Ted became chairman of HMNY, and shortly after became CEO. By April 2018, Gadiyaram's control of the company had dropped to 4.4% (including shares he indirectly controlled through his control of HMIT Ltd.).

The Indian connection lingers

The current leadership of HMNY continues to harbor personnel closely associated with HMIT Ltd. Yes, some of the scammers that were running HMNY and HMIT Ltd., prior to the reverse merger with Zone Technologies in 2016, are still on the company's payroll.

As of May 2018, Muralikrishna Gadiyaram remains a member of the Board and continues to receive cash and stock-based compensations, in part due to a consulting agreement that will last for 2 years from 15 Oct 2017. As of June 2018, Viraj Patel (another insider from the HMIT days) is still an advisor to the Board according to Bloomberg, and the 10-K for fiscal 2016 disclosed that he assisted three new members of the Board in assuming their roles as directors. There is also Parthasarathy Krishnan (the Chief Technology Officer of HMIT Ltd.), who until just November 2017 was on HMNY's payroll.

"Truthful Ted": The greatest oxymoron

Ted has repeatedly misrepresented the truth to the media, so much that bulls, even many here on SA, no longer believe a word he says. The time he claimed of a $300-million "line of credit", it was Mitch that had to go on record to say that there was no line of credit and explained that it was a mere ATM offering.

Ted also claimed that the utilization of MoviePass was 1.8 (i.e. the average number of visits per month per subscriber), but the Q1 2018 earnings report showed that it was around 2.88, which was in line with AMC's claim of 2.75.

The list of misrepresentations is at least a few more counts longer.

If it's still not clear to you how Ted rolls, then just look at his history of destroying shareholders with pump and dump schemes: Xstream Beverage Network in 2007, Purple Beverage in 2009, and LTS Nutraceuticals in 2012. With Purple Beverage, Ted almost entirely financed the operating expenses by diluting shareholders. 

My own conclusion

The bottom line is that with Ted in control, there is no hope. He has a history of pulverizing shareholders; moreover, the company continues to harbor sketchy individuals who had ties to HMIT Ltd.

What we have here is a tried-and-tested vehicle for transporting cash from shareholders to insiders; but this bogus vehicle also happens to control 92% of MoviePass (as of April 2018), a company that is almost certainly legit (at least no history of fraud). A real conundrum for a market participant that wants to bullishly speculate on MoviePass.

I do not expect HMNY to survive this year, although I hope it does, as I'll hate to see MoviePass die along with it. I believe the MoviePass business model, although faced with nearly insurmountable challenges, has a real chance at survival, especially under the leadership of Mitch Lowe. But given the kind of folks running HMNY, I think anyone that wants to touch it, should not throw any serious money at it.