We expect to use the 2014 Plan as our primary means of offering equity awards to our employees. The 2014 Plan also allows us to utilize a broad array of equity incentives and performance cash incentives to secure and retain the services of our employees and to provide long term incentives that align the interests of our employees with the interests of our stockholders. On January [●], 2018, the closing price of our common stock as reported by the Nasdaq Stock Market was $[●].

Securities Authorized For Issuance Under Equity Compensation Plans

The following table illustrates, as of December 31, 2016, compensation plans pursuant to which our equity securities are authorized for issuance.

Individual Employee Benefit Plans

On January 19, 2017, the Compensation Committee approved, and on January 20, 2017 the Board approved, individual employee benefit plans (the “Executive Plans”) for Theodore Farnsworth, Pat Krishnan and Muralikrishna Gadiyaram (the “Executives”). Stockholder approval of the Executive Plans was obtained on October 27, 2017. Pursuant to the Executive Plans, we intend to issue 250,000 unregistered shares of our common stock to each of the Executives as a bonus for exceptional services provided in connection with the merger transaction with Zone.

Also on January 20, 2017 the Board approved individual employee benefit plans (the “Consultant Plans”) for two consultants. Pursuant to the Consultant Plans, each of the Consultants received 200,000 unregistered shares of the Company’s common stock as a bonus for exceptional services provided in connection with the Company’s merger transaction with Zone. The Consultant Plans were approved by the Company’s stockholders on January 22, 2017.

Vote required to pass Proposal 1.

Proposal 1will be approved if a quorum is present at the Special Meeting and a majority of the shares of common stock present or represented by proxy and entitled to vote at the Special Meeting are voted “for” such approval. Abstentions will have the effect of a vote against Proposal 2. Broker non-votes will not count as votes for or against Proposal 1 and will have no effect on the outcome.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT TO THE COMPANY’S 2014 EQUITY INCENTIVE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE THEREUNDER BY 1,875,000 TO AN AGGREGATE OF 3,000,000 SHARES ANDaccount for an annual automatic increase in the number of shares of common stock authorized for issuance thereunder by the lesser of (A) 3,000,000 shares of the Company’s common stock or the equivalent of such number of shares after the administrator of the 2014 Plan, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction; (B) A NUMBER OF SHARES EQUAL TO 5% of the Company’s common stock outstanding AS OF JANUARY 2ND OF EACH YEAR; and (C) an amount determined by the Board.

Executive Compensation

Set forth in the table below is the compensation paid to our executive officers during the years ended December 31, 2016 and 2015.

Option Exercises for 2016

No options were exercised by the named executive officers during 2016.

Outstanding Equity Awards at 2016 Fiscal Year End

The named executive officers did not hold equity compensation awards as of December 31, 2016.

Employment Agreements

Employment Agreement with Theodore Farnsworth

On December 11, 2017 (the “Effective Date”), we entered into an employment agreement (the “Farnsworth Agreement”) with Theodore Farnsworth, our Chief Executive Officer and Chairman of the Company’s Board of Directors (the “Board”). The Farnsworth Agreement has an initial term of five years and, following the expiration of the initial term, will be automatically renewed for additional consecutive terms of one year, unless either we or Mr. Farnsworth object to the renewal upon at least ninety days prior to the commencement of the renewal term.

Compensation

Each grant of common stock discussed below is subject to approval by our stockholders to the extent required by the Listing Rules of The Nasdaq Stock Market, including Listing Rule 5635(c). We anticipate seeking such stockholder approval during the first half of 2018.

Base Salary. Pursuant to the Farnsworth Agreement, Mr. Farnsworth’s base salary will be $325,000 per year and will be increased on each anniversary of the Effective Date in an amount to be determined by the Board, but in no event less than $15,000.

Annual Bonus. For 2017, Mr. Farnsworth received a year-end cash bonus in the amount of $350,000 and an award of 53,255 shares of our common stock which shall vest on February 15, 2019, which have a value of $450,000, as determined by the last closing price of the common stock preceding the grant date (December 10, 2017). For each subsequent year of the term, Mr. Farnsworth will receive an annual bonus, made up of cash and shares of our common stock, as determined in the sole discretion of the Board based on its assessment of Company and individual performance in relation to performance targets, a subjective evaluation of Mr. Farnsworth’s performance or such other criteria as may be established by the Board. The annual cash target bonus will be 25% of Mr. Farnsworth’s base salary and the annual award of shares of our common stock will have a value equal to 200% of his base salary, also determined by the closing price of the common stock on the grant date. Shares of common stock granted to Mr. Farnsworth in each subsequent year of the term will vest ratably at the end of each of the six calendar quarters subsequent to the calendar quarter in which the grant is made.

Market Capitalization Milestone Bonus. Mr. Farnsworth will receive a stock bonus based upon our achievement of certain market capitalization milestones during the term of the Farnsworth Agreement, as set forth in the table below. Each award of common stock pursuant to a market capitalization milestone will vest upon the later of February 15, 2019 and the end of the applicable three-month period following the applicable date of the grant. Our market capitalization for each applicable milestone and measurement period will be determined based on the market capitalization reported by Bloomberg LP.

Each milestone above is a separate milestone for which Mr. Farnsworth may earn the applicable percentage. Mr. Farnsworth will be entitled to earn the applicable percentage for each milestone only once.

Capital Raise Bonus. Mr. Farnsworth will receive a one-time bonus of $1,000,000, payable no later than December 29, 2017, for his efforts in bringing capital sources that have been critical to our needs during 2017. Mr. Farnsworth may, in his sole discretion, subject to the Company’s and Mr. Farnsworth’s compliance with applicable legal and regulatory requirements, elect to accept unregistered shares of our common stock in lieu of the cash bonus described above, valued based on the last closing price of the common stock on the Nasdaq Capital Market preceding the execution of the Farnsworth Agreement.

Grant of Common Stock. In approving the agreement, the Board approved the issuance of 2,000,000 shares of common stock to Mr. Farnsworth, which have a market value of $16,900,000 based on the last closing price of the common stock preceding the grant date (December 10, 2017). The shares will vest in their entirety on February 15, 2019, which is 18 months following August 15, 2017, the date on which we entered into a Securities Purchase Agreement with MoviePass Inc. (as amended, the “MoviePass SPA”). Pursuant to the terms of the MoviePass SPA, we were required to enter into a 5-year employment agreement with Mr. Farnsworth prior to the closing of the acquisition transaction contemplated by the MoviePass SPA, which occurred on December 11, 2017.

Other Benefits

Life Insurance. We will pay the premiums of an insurance policy insuring Mr. Farnsworth’s life, providing coverage in the amount of $3,000,000, payable to a beneficiary chosen by Mr. Farnsworth.

Automobile Allowance. Mr. Farnsworth will receive an automobile allowance of $750 per month.

Company Benefits. Mr. Farnsworth will be entitled to participate in all pension, savings and retirement plans, welfare and insurance plans, practices, policies, programs and perquisites of employment applicable generally to our other senior executives.

Termination Provisions

We may terminate the Farnsworth Agreement as a result of the death or disability of Mr. Farnsworth or for “cause” as defined in the Farnsworth Agreement. Mr. Farnsworth may terminate the Farnsworth Agreement upon 30 days’ notice to us or for “good reason,” as defined in the Farnsworth Agreement. If the Farnsworth Agreement is terminated by Mr. Farnsworth for any reason other than good reason, terminated by us for cause, or expires by its terms, Mr. Farnsworth will receive earned but unpaid base salary, unpaid expense reimbursements, any earned but unpaid annual bonus, and the value of any accrued and unused vacation days (collectively, the “Accrued Obligations”).

If the Farnsworth Agreement is terminated due to his death or disability, Mr. Farnsworth will receive the Accrued Obligations; a pro-rata portion of the annual bonus, if any, for the fiscal year in which the termination occurs; accelerated vesting of any equity-incentive awards; reimbursement of health insurance premiums, for himself or his dependents in the event of his death, for a period of 18 months; and, in the event of his disability, continuation of the base salary until the earlier of (A) the 12 month anniversary of the termination date of his employment and (B) the date Mr. Farnsworth is eligible to commence receiving payments under the Company’s long-term disability policy.

If Mr. Farnsworth’s employment is terminated due to a Change in Control, as defined in the Farnsworth Agreement, without cause by us or for good reason by Mr. Farnsworth, he will receive the Accrued Obligations; severance in a single lump sum installment in an amount equal to 2 times the sum of (A) the base salary plus (B) an amount equal to 2 times the maximum annual bonus for which he is eligible in the fiscal year in which the termination of his employment occurs, or if there is no annual bonus for which he is eligible in that year, then 2 times the annual bonus most recently paid to him; a pro-rata portion of the annual bonus, if any, for the fiscal year in which the termination occurs; accelerated vesting of any equity-incentive awards; and reimbursement of health insurance premiums for a period of 18 months.

If, as of the date of a Change in Control, Mr. Farnsworth holds equity awards that are not vested and, if applicable, exercisable, such equity awards will become fully vested and, if applicable, exercisable, as of the date of the Change in Control if the acquirer does not agree to assume the awards or substitute equivalent equity awards.

In conjunction with the execution of the Farnsworth Agreement, the Board renounced on behalf of the Company and its stockholders all interest and expectancy to (or being offered any opportunity to participate in) any opportunity presented to Mr. Farnsworth that may be considered a corporate opportunity of the Company, except with respect to opportunities in which we would be interested in the ordinary course of our business and which are presented to Mr. Farnsworth in his capacity as a director or as our executive officer.

The Farnsworth Agreement includes standard provisions relating to maintaining the confidentiality of our confidential information, non-solicitation of our employees and indemnification.

Employment Agreement with Parthasarathy Krishnan

On April 7, 2016 we entered into an at-will employment agreement with Mr. Krishnan whereby, in exchange for his services as Chief Executive Officer, President and Interim Chief Financial Officer, we agreed to pay him compensation of $175,000 a year. On November 9, 2016, Mr. Krishnan’s annual compensation was increased to $225,000. Pursuant to the employment agreement, Mr. Krishnan must provide us with at least 10 days’ notice before terminating his employment. The agreement also includes a confidentiality provision and non-complete and non-solicitation provisions that continue for a period of one year following his separation from service. Mr. Krishnan resigned his positions as Chief Executive Officer, President and Interim Chief Financial Officer on January 20, 2017, when he was appointed as our Chief Innovation Officer.

Director Compensation

The following table sets forth certain information regarding compensation for services rendered by our non-employee directors during the year ended December 31, 2016. During the year ended December 31, 2016, we did not grant any equity awards to directors. Reimbursable expenses such as travel-related expenses are not included in the table below.

PROPOSAL 2

TO THE EXTENT REQUIRED BY NASDAQ LISTING RULE 5635, TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK OF THE COMPANY UPON CONVERSION OR EXERCISE OR OTHERWISE PURSUANT TO THE TERMS OF THE NOTES TO INSTITUTIONAL INVESTORS ISSUED ON NOVEMBER 7, 2017

Why we are seeking stockholder approval.

On December 11, 2017, we completed our acquisition of a majority interest in MoviePass Inc. (“MoviePass”), the nation’s premier movie theater subscription service (such acquisition, the “MoviePass Transaction”), pursuant to the previously announced Securities Purchase Agreement, dated as of August 15, 2017, between us and MoviePass (as amended, the “MoviePass SPA”), and the Investment Option Agreement, dated October 11, 2017, between us and MoviePass (the “MoviePass Option Agreement”). In order to (1) fund the MoviePass Transaction; (2) allow us to increase our ownership stake in MoviePass under the Movie Pass Option Agreement; (3) satisfy certain indebtedness; and (4) provide general working capital funds, on November 7, 2017 (the “Closing Date”), pursuant to the November 2017 SPA that we entered into on November 6, 2017 (the “Subscription Date”) with certain institutional investors (the “Buyers”), we sold and issued senior convertible notes (also referred to herein as the “Notes”) to the Buyers in the aggregate principal amount of $100,000,000, which are convertible into shares of our common stock (the “Conversion Shares”), of which $20.65 million has been funded to us as of December 14, 2017. Upon conversion of the Notes, the number of shares of common stock issuable will exceed 20% of the number of shares of common stock outstanding before the issuance of the Notes.

As more fully described below, because our common stock is listed on the Nasdaq Capital Market, we are subject to Nasdaq’s rules and regulations. In certain circumstances, if we issue common stock or securities convertible into common stock, that has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common stock, or the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the securities, we are required to obtain stockholder approval. As of December 14, 2017, the Buyers have funded an aggregate of $20.65 million in connection with the sale of the Notes, and the Buyers may fund up to an additional $79.35 million under the terms of the Notes.

If we receive approval from our stockholders of this Proposal 2, we will have the option, in our sole discretion, to use up to the entire remaining $79.35 million in proceeds that we may receive from prepayments under the terms of the Notes to increase our ownership of MoviePass or fund MoviePass operations. However, if we fail to receive approval from our stockholders of this Proposal 2, we will be limited to using a total of $22 million of the proceeds from the sale of the Notes and prepayments under the Investor Notes for this purpose.The Buyers are not required to provide additional funding under the current terms of the Notes, therefore, if we do not obtain stockholder approval for the issuance of the Conversion Shares under this Proposal 2, the Buyers may decide not to provide additional funding under the Notes. If we do not have not have access to the funds we need to maintain or increase our ownership interest in MoviePass, the market value of our common stock may be negatively affected and MoviePass may not have the access to capital that it needs to sustain or grow its business, which could negatively affect the value of MoviePass and thereby negatively affect the market value of our common stock.

Nasdaq Listing Rules

Nasdaq Listing Rule 5635(a)

Nasdaq Listing Rule 5635(a) requires stockholder approval prior to the issuance of securities in connection with the acquisition of the stock of another company if, as a result of that issuance of common stock or securities convertible into common stock, the common stock has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common stock, or the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the securities. In addition, Nasdaq Listing Rule 5635(a) limitsthe total amount of cash proceeds that we may use from the sale of the Notes towards funding the MoviePass Transaction or increasing our ownership stake to an amount which will result in no more than 19.99% of our common stock being issued upon conversion of the Notes unless stockholder approval is received. On November 5, 2017, the date immediately prior to the Subscription Date, we had 11,125,442 shares of common stock outstanding. The cash proceeds from the sale of the Notes equal to $22 million plus the maximum make whole interest amount of $4.4 million is equal to approximately $26.4 million of outstanding indebtedness evidenced by the Notes, which would be convertible into approximately 2,189,054 shares of our common stock at a conversion price of $12.06, representing approximately 19.7% of our outstanding shares of common stock on November 5, 2017. Accordingly, we cannot use more than $22 million of the cash proceeds from the sale of the Notes to increase our ownership of MoviePass or support its operations unless we obtain stockholder approval of the issuance of the Conversion Shares pursuant to the Notes. As of December 14, 2017, we used approximately $20.15 million of the proceeds from the sale of the Notes to increase our ownership of MoviePass.

Specifically, we used the net proceeds from the sale of the Notes (i) to pay the $5 million balance that we owed to MoviePass, subject to certain conditions, under a promissory note that we gave to MoviePass upon the closing of the transactions contemplated by the MoviePass SPA on December 11, 2017; (ii) to increase our ownership stake in MoviePass by paying MoviePass $15.15 million pursuant to that certain Investment Option Agreement, dated October 11, 2017; (iii) to satisfy certain indebtedness, including a demand note in the principal amount of $750,000 issued to one of the Buyers on November 2, 2017; and (iv) for general corporate purposes and transaction expenses. The Company may also use the proceeds to make other acquisitions, although a specific acquisition target has not yet been identified.

Nasdaq Listing Rule 5635(d)

Nasdaq Listing Rule 5635(d) also requires stockholder approval prior to the issuance of securities in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. The Notes have an initial conversion price of $12.06 per share, which was greater than the market value of our common stock as of November 5, 2017, the day before we entered into the November 2017 SPA. However, pursuant to the November 2017 SPA, we agreed to seek stockholder approval in accordance with Nasdaq Listing Rule 5635(d) to approve the issuance of our common stock at a conversion price per share as low as $1.928 following the occurrence of an event of default (the “Default Floor Price”). The Default Floor Price is lower than the market value of our common stock on November 5, 2017 and the conversion of the Notes could result in the issuance of 20% or more of our common stock outstanding on November 5, 2017. Without stockholder approval, the Default Floor Price is not effective.

If we do not obtain stockholder approval of the issuance of shares pursuant to the Notes at the Default Floor Price, the Buyers may be unwilling to further fund our business by making prepayments under the Investor Notes, which could materially and adversely affect our available operating capital. If we are unable to access other sources of capital on acceptable terms, our operating capital may be materially reduced, which could materially and adversely affect our results of operations, and in particular, the results of operations of MoviePass. Any negative impact on our results of operations or the results of operations of MoviePass due to our having reduced operating capital could negatively affect the market value of our common stock.

Moreover, pursuant to the terms of the November 2017 SPA, we are obligated to seek stockholder approval of the issuance of shares of common stock upon conversion or exercise or otherwise pursuant to the terms of the Notes at a special meeting of our stockholders to be held not later than February 5, 2018. If stockholder approval is not obtained at this Special Meeting, we will be required to call another special meeting to be held on or prior to March 31, 2018. If we again fail to obtain stockholder approval at that special meeting, we will be required to hold a special meeting semi-annually until stockholder approval is obtained. Calling and holding a special meeting, along with obtaining a brokers search and preparing, printing and mailing proxy statements and proxy cards, are expensive and time consuming.

Effect of approval of Proposal 2 on our stockholders.

Our ability to successfully implement our business plans and ultimately generate value for our stockholders is dependent on our ability to maximize capital raising opportunities. If Proposal 2 is approved, we will have the option to use any remaining cash proceeds that we may receive from prepayments under the Investor Notes to increase our ownership of MoviePass. In addition, if Proposal 2 is approved, the Buyers will be more likely to further fund our business by prepaying the principal amount remaining under the Investor Notes, which would maximize our potential to obtain up to $79.35 million in additional cash from the Note Financing. Such additional funding would provide us with significant working capital, strengthen our balance sheet (to the extent the Notes are converted) and provide us with additional capital for potential future business opportunities. If Proposal 2 is not approved, then we will need to hold another stockholder meeting on or prior to March 31, 2018. If stockholder approval is not obtained after such subsequent stockholder meetings, we will need to schedule stockholder meetings semi-annually thereafter until stockholder approval is obtained for this proposal. Any additional meetings and proxy solicitations will result in significant additional costs and distract our management and other employees from our business operations.

Notwithstanding what we to believe to be benefits that outweigh risks, there are certain risks involved with approval of Proposal 2. If an event of default occurs under the Notes, and assuming that the Buyers converted all of the principal and interest outstanding under the Notes at the Default Floor Price on November 7, 2019, the maturity date, excluding any interest that may accrue at a higher rate in connection with the continuance an event of default, we would be required to issue 50,721,783 shares of common stock to the Buyers. This issuance, together with additional issuances of common stock that could be made pursuant to the Notes, for example as a result of an increase in the interest rate of the Notes in connection with an event of default, may cause significant dilution to our stockholders’ ownership, voting power and right to participate in dividends or other payments from future earnings, if any, and may cause a decline in the market price of our common stock. A decline in our market price could impair our ability to raise funds in additional equity or debt financings.

In addition to the foregoing, the increase in the number of shares of common stock issued in connection with the conversion of the Notes may have an incidental anti-takeover effect in that the additional shares of common stock issued could dilute the stock ownership of parties seeking to obtain control of the Company. The increased number of issued shares could discourage the possibility of, or render more difficult, certain mergers, tender offers, proxy contests or other change of control or ownership transactions. However, we currently know of no specific effort to accumulate our securities or to gain control of the Company by means of a merger, tender offer, solicitation in opposition to management or otherwise.

Rule 144 and the Structure of the Note Financing

The Note Financing was structured in order to comply with the holding period requirements of Rule 144(d)(1)(i) and 144(d)(2) so that shares of common stock issuable upon conversion of the Notes could, absent registration, be resold pursuant to Rule 144(d)(1)(i) commencing six months after the issuance of the Notes, if the other requirements of Rule 144 are satisfied, including Rule 144(d)(1)(iii).

Rule 144(d)(1)(iii) provides that the holding period of purchased securities shall not begin until the full purchase price or other consideration is paid or given by the person acquiring the securities from the issuer.

Rule 144(d)(2) provides that giving the issuer a promissory note shall not be deemed full payment of the purchase price unless the promissory note (i) provides for full recourse against the purchaser of the securities, (ii) is secured by collateral, other than the securities purchased, having a fair market value at least equal to the purchase price of the securities purchased, and (iii) shall have been discharged by payment in full prior to the sale of the securities.

The Investor Notes (i) state at Section 8(a) that they are full recourse obligations of the Buyers; (ii) are secured by cash, cash equivalents, any Group of Ten (“G10”) currency and any notes or other securities issued by any G10 country held by each Buyer in a bank or brokerage account set forth on Schedule I of the Investor Note; and (iii) upon conversion of all or part of the principal amount of the Series B Notes into shares of common stock, the Buyer holding the Series B Note will pay the Company an equivalent amount of the balance of such Buyer’s Investor Note in cash, such that the Investor Note shall have been discharged by payment in full as to any shares of common stock to be sold by the Buyer prior to such sale. Therefore, pursuant to Rule 144(d)(2), the Buyer paid the full purchase price for the Notes on the Closing Date. Accordingly, the holding period of shares of common stock issuable upon conversion of the Notes will be deemed to have commenced on the Closing Date, pursuant to Rule 144(d)(3)(ii).

Assuming that we meet the requirements of a mandatory prepayment event as described below under the heading “Investor Notes”, we expect to receive the full $95,000,000 due under the Investor Notes.

Description of the Note Financing.

The following does not purport to be a complete description of the November 2017 SPA, the Notes, the Investor Notes, the Voting and Lockup Agreements, and the Placement Agent Warrant described in this proxy statement and each is qualified in its entirety by reference to the full text of such document, all of which are attached as exhibits to our Current Reports on Form 8-K that we filed with the Commission on November 6, 2017 and November 13, 2017, respectively.

The Notes

The Notes included (i) Series A Senior Bridge Convertible Notes in the aggregate principal amount of $5,000,000 (the “Series A Notes”) and (ii) Series B Senior Secured Bridge Convertible Notes in the aggregate principal amount of $95,000,000 (the “Series B Notes”). The consideration provided by the Buyers for the purchase of the Notes on the Closing Date consisted of (i) cash payments in the aggregate amount of $5,000,000, and (ii) secured promissory notes payable by the Buyers to us (each an “Investor Note” and collectively, the “Investor Notes”) in the aggregate principal amount of $95,000,000. We receive cash as each of the Buyers prepays its Investor Note.

On December 14, 2017, each Buyer provided to the Company a notification (the “Redemption Notification”) of the exercise of its right to require the Company to redeem, on or before December 20, 2017, the principal, interest and Make-Whole Amounts, as defined in the Notes, of the amounts advanced to the Company pursuant to the Investor Notes. Subsequent to the Company’s receipt of the Redemption Notifications, the Company elected to capitalize the Make-Whole Amounts attributable to the Series B Notes. As a result of the election by the Buyers, the Company paid to the Buyers, on a pro-rata basis, a total of $5,000,000 in principal of the Series A Notes, $59,722.22 in interest accrued on the Series A Notes, $940,277.78 in Make-Whole Amounts attributable to the Series A Notes, $15,649,999.98 in principal of the Series B Notes and $137,784.59 in interest accrued on the Series B Notes. The Company capitalized $2,943,069.44 in Make-Whole Amounts attributable to the Series B Notes, which amount has been added to the principal of the Series B Notes, on a pro-rata basis.

Series A Notes

On the Closing Date, we issued the Series A Notes to the Buyers upon the delivery of the $5 million aggregate payment from the Buyers. The aggregate principal amount of the Series A Notes was $5,000,000, bearing interest at a rate of 10% per annum. As noted above, we paid the Series A Notes in full on December 19, 2017. Therefore, the Series A Notes are no longer outstanding.

Series B Notes

On the Closing Date, we issued the Series B Notes to the Buyers in consideration of the Investor Notes. The aggregate principal amount of the Series B Notes is $95,000,000. Upon issuance, the Series B Notes consisted entirely of “Restricted Principal” which is defined as that portion of the principal amount of a Series B Note that equals the outstanding principal amount of a corresponding Investor Note. The principal amount of the Investor Notes is subject to reduction through prepayments by the applicable Buyer of the Investor Note given by the Buyer to the Company or, upon maturity or redemption of the Series B Notes, by netting the amount owed by the Buyer under such Investor Note against a corresponding amount of principal to be canceled under the Buyer’s Series B Note. Each prepayment under the Investor Notes will convert a corresponding amount of Restricted Principal under the Series B Notes into “Unrestricted Principal” that may be converted into common stock.The Investor Notes include a mandatory prepayment obligation in the aggregate amount of $15,650,000. The Buyers were obligated to make these prepayments on a pro rata basis in equal weekly installments over a period of seven weeks from the Closing Date beginning on November 13, 2017 and ending on December 26, 2017 (collectively, the “Note Financing”). The Buyers made all the mandatory prepayments prior to December 14, 2017, including the prepayments that they were obligated to make on December 18, 2017 and December 26, 2017.

The Series B Notes bear interest at a rate of (i) 5.25% per annum with respect to any Restricted Principal, and (ii) 10% per annum with respect to any Unrestricted Principal.

As noted above, the outstanding principal and accrued interest payable under the Series B Notes (excluding the Make-Whole Amounts) were paid on December 19, 2017 and the Make-Whole Amounts payable under the Series B Notes were capitalized.

Payment of Interest

Interest on the Notes will be capitalized on each quarterly interest payment date starting January 1, 2018 by adding the interest to the then outstanding principal amount of the Notes. Interest may also be paid by inclusion in the Outstanding Amount, which is defined in the Notes as the principal amount to be converted or redeemed, accrued and unpaid interest with respect to such principal amount, accrued and unpaid late charges, if any, and the “Make-Whole Amount.” The “Make-Whole Amount” is defined as the amount of any interest that, but for a conversion or redemption, would have accrued with respect to the Outstanding Amount of principal being redeemed or converted under the Series A Notes and Unrestricted Principal under the Series B Notes, for the period from the applicable date of conversion or redemption date through the maturity date of the Notes. No Make-Whole Amount will be payable under the Series B Notes with respect to any portion of Restricted Principal after the cancellation of such Restricted Principal pursuant to netting under the Series B Notes, the Investor Notes or the Master Netting Agreement (as defined below), as applicable. In the event of an event of default, interest under the Notes may be increased to 15% during the first 30 days following the occurrence and continuance of an event of default and to 18% thereafter.

Conversion of the Notes

The Buyers may, at any time, elect to convert the Notes into shares of the Company’s common stock at the Conversion Price, subject to certain beneficial ownership limitations described below. The “Conversion Price” is $12.06 per share (subject to anti-dilution adjustment as described in the Notes).

Beneficial Ownership Limitations on Conversion and Issuance

The Notes may not be converted and shares of the Company’s common stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the Buyer together with its affiliates would beneficially own in excess of 4.99% or 9.99%, as elected by the Buyer, of the Company’s outstanding shares of common stock. At a Buyer’s option, the ownership limitation blocker may be raised or lowered to any other percentage not in excess of 4.99% or 9.99%, as elected by the Buyer, except that any raise will only be effective upon 61-days’ prior notice to the Company.

Redemption of the Notes

Provided there has been no Equity Conditions Failure (as defined in the Notes) and, as to the Series A Notes, no Senior Secured Convertible Notes issued by the Company on August 16, 2017 (the “August Notes”) remain outstanding, and as to the Series B Notes, no August Notes, Series A Notes or Series B Notes with any Unrestricted Principal remain outstanding, the Company will have the right to redeem all, but not less than all, of the Outstanding Amount remaining unpaid under the Notes. The portion of the Notes subject to redemption can be redeemed by the Company in cash at a price equal to 115% of the amount being redeemed. Under the Series B Notes, the Company may reduce, on a dollar for dollar basis, the Restricted Principal by the surrender for cancellation of such portion of the corresponding Investor Note equal to the amount of Restricted Principal included in the redemption.

Each Buyer has the right to require the Company to redeem the Notes (i) at the option of the Buyer upon seven months following the Closing Date; (ii) if the Company completes a Subsequent Placement, as defined in the November 2017 SPA; (iii) upon the occurrence of an event of default, including a Bankruptcy Event of Default (as defined in the Notes); or (iv) in the event of a Change of Control. With the exception of a redemption required by an event of default, which may be paid with cash or shares of the Company’s common stock at the election of the Buyer, the Company will be required to redeem the Notes with cash.

Events of Default

The Notes contain customary events of default including but not limited to: (i) a suspension from trading or a failure to maintain the listing of the Company’s common stock for a period of 5 trading days; (ii) after a conversion by an Investor, the failure by the Company to deliver the common stock for a period of 5 trading days; (iii) the failure to reserve a number of shares of the Company’s common stock to permit a Buyer to fully convert the principal, interest, late charges, if any, and Make-Whole Amounts under the Notes; (iv) the failure by the Company or any subsidiary to make payments when due under the Notes; (v) upon a conversion by a Buyer, the failure by the Company to remove a restrictive legend from shares of the Company’s common stock if permitted by the applicable securities laws; (vi) breaches of covenants; (vii) bankruptcy or insolvency; (viii) the failure to pay indebtedness when due; and (ix) the failure of the grant of the security interest in the Investor Notes to create a first priority lien against the Investor Notes.

As indicated above, following an event of default, the Buyer may require the Company to redeem all or any portion of the Notes. The redemption amount may be paid in cash or with shares of the Company’s common stock, at the election of the Buyer, at a price equal to the Event of Default Redemption Price (as defined in the Notes).

The Company must immediately redeem the Notes in cash upon the occurrence of a Bankruptcy Event of Default (as defined in the Notes).

The Event of Default Redemption Price will be computed as a price equal to the greater of (i) 125% of the Outstanding Amount to be redeemed and (ii) the product of (X) the Outstanding Amount to be redeemed divided by the Conversion Price multiplied by (Y) the product of (1) 125% multiplied by (2) the greatest closing sale price of the Company’s common stock on any trading day during the period commencing on the date preceding such event of default and ending on the date the Company makes the entire payment required to be made under the Notes.

In addition, following an event of default, the Buyer will have the right to convert the Notes at the “Alternate Conversion Event of Default Price” which means, with respect to each such conversion, that price which shall be the lowest of (i) the applicable Conversion Price as in effect on the date of the conversion, and (ii) the greater of (A) the Default Floor Price (which means (i) at any time prior to the date the Financing Transaction is approved by our stockholders (the “Stockholder Approval Date”), the Floor Price (initially, $12.06) or (ii) at any time on or after the Stockholder Approval Date, $1.928 (or such lower price as mutually determined by the Company and the Buyer in writing, subject to the prior consent of the Nasdaq Stock Market)), and (B) 75% of the lowest volume weighted average price of the Company’s common stock for each of the 30 consecutive trading days ending and including the trading day of delivery or deemed delivery of the applicable notice of conversion.

Fundamental Transactions

The Notes will prohibit the Company from entering into specified transactions involving a change of control unless the successor entity, which must be a publicly traded corporation whose common stock is quoted on or listed for trading on an eligible market, assumes in writing all of the Company’s obligations under the Notes.

Rights Upon Issuance of Other Securities

After the six month anniversary of the Subscription Date, if and whenever the Company issues or sells, or is deemed to have issued or sold, any shares of common stock (including options and convertible securities but excluding any Excluded Securities, as defined in the November 2017 SPA) for a consideration per share less than a price equal to the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (the “New Issuance Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price, in no event less than the Floor Price (initially, $12.06, provided that the Floor Price will not apply from and after the Stockholder Approval Date).

Subsequent Placement Optional Redemption

Following a “Subsequent Placement,” as defined in the Notes, the Buyers may require the Company to redeem all or any portion of the outstanding amount of the Notes not in excess of the Buyer’s pro rata amount of the gross proceeds (less any reasonable placement agent, underwriter and/or legal fees and expenses) of the Subsequent Placement by delivering written notice to the Company of such election. On or about December 14, 2017, each Buyer provided notice to the Company of its election to require us to redeem all of the then outstanding unrestricted principal, interest and Make-Whole Amounts under the Notes as a result of the Subsequent Placement of $60 million of our common stock and warrants in an underwritten public offering that we announced on December 13, 2017.

Investor Notes

The Investor Notes will be payable in full on the second anniversary of the Closing Date, although each Buyer may prepay the Investor Note in whole or in part, without premium or penalty, at any time. The Investor Notes accrue interest at an annual rate of 0.61%. Each Investor’s obligation to pay the Company the principal amount of the Investor Note is to be secured with cash, cash equivalents, any G10 currency and any notes or other securities issued by any G10 country having a value equal to the principal amount of the Investor Note. The Investor Notes are also subject to mandatory prepayment, in whole or in part, upon the occurrence of the following mandatory prepayment events:

(1) Mandatory Prepayment upon Conversion of Notes – At any time (i) if the Company receives a conversion notice from the Buyer in which all or any part of the principal of the Series B Note to be converted includes any Restricted Principal and (ii) the Buyer receives a confirmation from the Company’s transfer agent that it has been irrevocably instructed by the Company to deliver to the Buyer the shares of the Company’s common stock to be issued pursuant to the conversion notice.

(2) Mandatory Prepayment on Certain Dates – Provided no event of default, as defined in the Series B Notes, has occurred or is continuing, each Buyer agreed to prepay its pro-rata portion of $2,235,714.29 on November 13, 20 and 27, 2017 and December 4, 11, 18 and 26, 2017 (each such date, a “Payment Date”, and such payments, “Mandatory Prepayments”); provided, however, if the Buyer has effected a prepayment by delivering a conversion notice to the Company, the Buyer may reduce all or any part of the prepayment due on such payment date on a dollar-for-dollar basis in an amount not to exceed the prior prepayments. All of the Mandatory Prepayments were made by December 14, 2017.

The Investor Note also contains certain optional “netting” rights of the Buyer which, if exercised, would reduce the amount outstanding under the Notes and the Investor Note by the same amount and, accordingly, the cash proceeds received by the Company from the Buyer pursuant to the Note Financing. These netting rights include (i) the right of the Buyer, on or after December 31, 2017, with respect to any portion of principal subject to Mandatory Prepayments under the Buyer’s Investor Note (“Mandatory Prepayment Principal), or, November 30, 2017, with respect to any other portion of principal under the Buyer’s Investor Note, if an Equity Conditions Failure exists, to net against any obligations of the Company remaining under the Series B Note an equal amount of the obligations of the Buyer remaining under the Buyer’s Investor Note, provided, that no netting will occur with respect to any Mandatory Prepayment Principal that the Buyer fails to properly prepay under the Buyer’s Investor Note; (ii) the right of the Buyer, on the maturity date of the Series B Note, to net against any obligations remaining under the Series B Note an equal amount of the obligations remaining under the Investor Note; (iii) the right of the Buyer to net against any obligations remaining under the Series B Note an equal amount of the obligations remaining under the Investor Note if an event of default occurs and is not cured; (iv) the right of the Buyer to net against the unpaid principal amount of the Series B Note an equal amount of the unpaid principal of the Investor Note upon a Bankruptcy Event of Default; and (v) an automatic netting of obligations under the Series B Note equal to 75% of the Restricted Principal in exchange for the cancellation of the principal amount of the Investor Note outstanding on the date of a transfer by the Company of the Investor Note to any person without the consent of the Buyer.

Guaranty

MoviePass provided a Guaranty to each of the Buyers pursuant to which it (i) guaranteed the punctual payment of all obligations under the Notes, including all interest, Make-Whole Amounts and other amounts that accrue after the commencement of any insolvency proceeding of the Company, whether or not the payment of such obligations are enforceable or allowable in the insolvency proceeding, and all fees, interest, premiums, penalties, causes of actions, costs, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under any of the Note Financing documents, and (ii) agreed to pay any and all costs and expenses (including counsel fees and expenses) incurred by any Investor in enforcing any rights under the Guaranty or any other Note Financing document.

Voting and Lockup Agreements

As a condition to closing the Note Financing, Theodore Farnsworth, our Chief Executive Officer and Chairman of our Board of Directors, and Helios and Matheson Information Technology Ltd. (“HMIT”), of which Muralikrishna Gadiyaram, a director of the Company, is the chief executive officer, and its wholly-owned subsidiary, Helios & Matheson Inc. (collectively, the “Principal Stockholders”), who collectively owned approximately 31.3% of the Company’s issued and outstanding common stock as of the Closing Date, executed voting and lockup agreements with the Company. Pursuant to the Voting and Lockup Agreements, the Principal Stockholders agreed to vote in favor of or consent to the Company’s issuance of the Notes at any meeting of stockholders or written consent of stockholders for such purpose. The Voting and Lockup Agreements also require that, for a period beginning on the Closing Date and ending on the initial date when all of the principal outstanding under the Notes issued to the Buyers consists of Restricted Principal thereunder, the Principal Stockholders will not (i) dispose of or agree to dispose of, directly or indirectly, any securities of the Company (except that shares underlying equity awards granted to Mr. Farnsworth may be sold between April 1 to April 15 of any given year, not to exceed a total of 262,500 shares, in connection with the full or partial payment of applicable taxes or tax withholding obligations arising from the issuance of an award of common stock or options to purchase common stock granted to Mr. Farnsworth pursuant to an Approved Stock Plan, as defined in the November 2017 SPA), or establish or increase a put equivalent position or liquidate or decrease a call equivalent position or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any securities of the Company owned directly by the Principal Stockholders (including holding as a custodian) or (iii) permit to exist any security interest, lien, claim, pledge, option, right of first refusal, agreement, or limitation on the Principal Stockholders’ voting rights, charge or other encumbrance of any nature with respect to the Principal Stockholders’ securities in the Company or (iv) engage in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Principal Stockholders’ securities in the Company or (v) directly or indirectly initiate, solicit or encourage any person to take actions which could reasonably be expected to lead to the occurrence of any of the foregoing, provided that 170,000 of shares formerly owned by HMIT were not subject to the restriction on transfer under its Voting and Lockup Agreement.

Financing Fees

Canaccord Genuity, Inc. acted as the placement agent for the Note Financing and (i) with respect to the initial $25 million raised in connection with the sale of the Notes was entitled to a cash fee equal to 4% of gross proceeds raised by one of the Buyers and 7% of gross proceeds raised from the remaining Buyers and (ii) with respect to any amounts received in excess of $25 million following each prepayment of the Investor Notes, 3.5% on such amount of aggregate gross proceeds received by the Company.

Palladium Capital Advisors LLC received a tail payment pursuant to its engagement agreement, dated August 2016, as amended, on the investment made by the Buyer that holds the August 2016 Notes equal to (i) 4% of the gross cash proceeds actually received by the Company pursuant to the Notes purchased by such Buyer, as and when received; plus (ii) a warrant to purchase 8% of the number of shares of common stock into which the Series A Notes purchased by such Buyer are initially convertible at the Conversion Price in effect as of the Closing Date and 8% of the number of shares of common stock into which any Unrestricted Principal of the Series B Notes purchased by such Buyer is initially convertible at the Conversion Price in effect as of the Closing Date, at an exercise price equal to the Conversion Price of the Notes in effect as of the Closing Date, without regard to any adjustment of the Conversion Price resulting from the anti-dilution provision of the Notes, other than proportionate adjustments to the Conversion Price resulting from stock splits or combinations or similar proportionately applied changes to the Company’s outstanding common stock.

Vote required to pass Proposal 2.

Proposal 2 will be approved if a quorum is present at the Special Meeting and a majority of the shares of common stock present or represented by proxy and entitled to vote at the Special Meeting are voted “for” such approval. Abstentions will have the effect of a vote against Proposal 2. Broker non-votes will not count as votes for or against Proposal 2 and will have no effect on the outcome.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2 TO APPROVE, TO THE EXTENT REQUIRED BY NASDAQ LISTING RULE 5635,the issuance of shares of our common stock upon conversion OR EXERCISE OR OTHERWISE PURSUANT TO THE TERMSof the Notes.

PROPOSAL 3

TO THE EXTENT REQUIRED BY NASDAQ LISTING RULE 5635(D), TO APPROVE THE ISSUANCE OF THE EXCHANGE WARRANT AND THE EXCHANGE WARRANT SHARES

Why we are seeking stockholder approval.

On November 21, 2017, we entered into a Fourth Amendment and Exchange Agreement (the “Exchange Agreement”) with an institutional investor (the “Investor”) for the purpose of, among other things, amending the Notes discussed in Proposal 2 (the “November 2017 Notes”) and the senior secured convertible notes we issued to the Investor on August 16, 2017 (the “August 2017 Notes”) and waiving certain provisions in connection with the November 2017 and August 2017 Notes to allow us to amend the terms of the MoviePass SPA to facilitate an expedited closing of the MoviePass Transaction. As consideration for such amendments and waivers, we also agreed to exchange a portion of a warrant issued to the Investors in connection with the Investor’s purchase of the August 2017 Notes (the “August Warrant”), pursuant to which the Investor could purchase 10,000 shares of our common stock, for a new warrant (the “Exchange Warrant”). As more fully described below, the Exchange Warrant includes certain redemption provisions which we are required to satisfy in cash unless we receive stockholder approval for the payment of the applicable redemption amount in shares of our common stock as described in this Proposal 3. If we are required to repay any redemption amounts due under the Exchange Warrant in cash, our available operating capital may be significantly reduced, which could materially and adversely affect our results of operations, and in particular, the results of operations of MoviePass. Any negative impact on our results of operations or the results of operations of MoviePass due to our having reduced operating capital could negatively affect the market value of our common stock.

 As noted above in Proposal 2, Nasdaq Listing Rule 5635(d) requires stockholder approval prior to the issuance of securities in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

 The terms of the Exchange Agreement provided us with:

(i)        the right to amend the MoviePass SPA so that we would be able to issue to MoviePass, upon the closing of the transactions contemplated by the MoviePass Securities Purchase Agreement, in lieu of shares of common stock, one or more promissory notes convertible into or exchangeable for up to an aggregate of 4,000,001 shares of common stock subject to obtaining approval of the Nasdaq Stock Market, pursuant to Listing Rule 5635, of the issuance of such shares of common stock (the “Modified MP Transaction”) and

(ii)       a waiver such that neither the Modified MP Transaction nor any other transactions contemplated by the MoviePass SPA (as it may be amended to effect the Modified MP Transaction) or the MoviePass Option Agreement will be deemed to be a Fundamental Transaction (as defined in the November 2017 Notes and the August 2017 Notes) or a transaction that would trigger a redemption of the August Warrant.

In addition, the Investor also:

(A)       waived any right that the holders of the November 2017 Notes may have to adjust the Conversion Price (as defined in the November 2017 Notes) as a result of the issuance of the Exchange Warrant or any of the shares issued pursuant to the Exchange Warrant (the “Exchange Warrant Shares”);

(B)       waived any right that the holders of the August Warrant may have to adjust the Exercise Price and the number of August Warrant Shares (each as defined in the August Warrant) as a result of the issuance of the Exchange Warrant or any of the Exchange Warrant Shares;

(C)       waived the Investor’s right to substitute the Variable Price (as defined in the August 2017 Notes) of the Exchange Warrant for the Conversion Price (as defined in the August 2017 Notes) and to waive the Investor’s right to substitute the Variable Price (as defined in the August Warrants) of the Exchange Warrant for the Exercise Price (as defined in the August Warrants);

(D)       waived any prohibition that may exist under any provision of the Transaction Documents (as defined in the August Securities Purchase Agreement) and the Transaction Documents (as defined in the November Securities Purchase Agreement) with respect to the issuance of the Exchange Warrant and any of the Exchange Warrant Shares and with respect to any cash payments that we may make pursuant to the Exchange Warrant;

(E)       amended the definition of Permitted Indebtedness set forth in the August 2017 Notes and the November 2017 Notes to include the Exchange Warrant, to the extent the Exchange Warrant is deemed to constitute Indebtedness (as defined in the August 2017 Notes and the November 2017 Notes); and

(F)       effective as of the 5th trading day after the registration statement registering the common stock to be issued upon conversion of the August 2017 Notes and the exercise of the August Warrant is declared effective (the “Resale Registration Statement”), the August Securities Purchase Agreement, the August 2017 Notes, the November SPA and the November 2017 Notes will be amended and restated, automatically without any further action on the part of the Company or the Investor required, to intentionally omit or to delete the provisions (i) prohibiting the filing of additional registration statements by us and (ii) prohibiting the issuance of additional securities by us without the consent of the Investor. The Resale Registration Statement was declared effective on December 4, 2017.

 The Exchange Warrant is in substantially the form of the August Warrant, except that:

In exchange for our receipt of the right to amend the MoviePass SPA and the additional waivers provided by the Investor, we and the Investor agreed that after the Adjustment Time, one of the following shall occur:

(i)            if the net proceeds from the sale of shares of common stock issuable upon conversion of the Remaining August Note by the holder of the Exchange Warrant exceeds $18.1 million (subject to reduction for any cash payment of the Remaining August Note), we will receive up to the first $5 million in excess of such amount;

(ii)           if the net proceeds from the sale of shares of common stock issuable upon conversion of the Remaining August Note by the holder of the Exchange Warrant is less than $18.1 million (subject to reduction for any cash payment of the Remaining August Note) (such difference, the “Redemption Maximum Amount”), either of the following may occur:

(A)      If the Stockholder Approval has been obtained, the holder of the Exchange Warrant may request to effect an alternate cashless exercise of the Exchange Warrant, in whole or in part, pursuant to which, in lieu of the shares of common stock issuable upon exercise of the Exchange Warrant, the holder would receive up to the Redemption Maximum Amount in shares of common stock at the Alternate Cashless Exercise Price (as defined below) (an “Alternate Cashless Exercise”); or

(B)       The holder of the Exchange Warrant may request a redemption in cash of all, or any part, of the Exchange Warrant at a price equal to such difference; provided, that if certain equity conditions are met (including obtaining the Stockholder Approval), we may elect to pay such redemption price in shares of common stock in the Alternate Cashless Exercise Price.

The Alternate Cashless Exercise Price is defined as that price which shall be the greater of (x) $2.86 and (y) the lowest of (i) the applicable exercise price as in effect on the applicable exercise date, (ii) 85% of the volume weighted average price, or VWAP, of the shares of common stock as of the trading day immediately preceding the trading day of delivery of the applicable exercise notice, and (iii) 85% of the lowest VWAP of the shares of common stock on any trading day during the 2 trading day period commencing on, and including, the trading day of the delivery of the applicable exercise notice.

We are seeking approval of the issuance of the Exchange Warrant and the Exchange Warrant Shares that the Investor could receive pursuant to the Exchange Warrant if the net proceeds from the sale of shares of common stock issuable upon conversion of the Remaining August Note by the holder of the Exchange Warrant is less than $18.1 million. In that case, under the Alternate Cashless Exercise Price, we could be required to issue a number of shares of common stock that may exceed the number of shares of common stock permitted under the Nasdaq 20% Rule. If we do not receive stockholder approval of this Proposal 3, we will be required to pay the redemption price of the Exchange Warrant in cash in the event the holder exercises its right to require us to redeem the Exchange Warrant.

Effect of approval of Proposal 3 on our stockholders.

If we are able to satisfy the redemption price of the Exchange Warrant in shares of our capital stock on a cashless basis then we will be able to conserve our cash resources for operating capital which we believe will have a more favorable impact on our results of operations and the results of operations of MoviePass. If we are required to satisfy the redemption price with cash, rather than having the Exchange Warrant exercised for shares on a cashless basis, our available operating capital may be significantly reduced, which could materially and adversely affect our results of operations, and in particular, the results of operations of MoviePass. Any negative impact on our results of operations or the results of operations of MoviePass due to our having reduced operating capital could negatively affect the market value of our common stock more than any negative impact that may result from the issuance of shares pursuant to a cashless exercise of the Exchange Warrant.

Notwithstanding the foregoing, approval of Proposal 3 does involve certain risks.Like the issuance of common stock upon conversion of the November 2017 Notes discussed in Proposal 2, the issuance of the Exchange Warrant Shares may cause significant dilution to our stockholders’ ownership, voting power and right to participate in dividends or other payments from future earnings, if any, and may cause a decline in the market price of our common stock. As also noted in Proposal 2, a decline in our market price could impair our ability to raise funds in additional equity or debt financings.

Furthermore, like the issuance of the shares of common stock issued upon conversion of the November 2017 Notes, the issuance of the Exchange Warrant Shares may have an incidental anti-takeover effect in that the additional shares of common stock issued could dilute the stock ownership of parties seeking to obtain control of us. The increased number of issued shares could discourage the possibility of, or render more difficult, certain mergers, tender offers, proxy contests or other change of control or ownership transactions. However, as stated in Proposal 2 we currently know of no specific effort to accumulate our securities or to gain control of the Company by means of a merger, tender offer, solicitation in opposition to management or otherwise.

Vote required to pass Proposal 3.

Proposal 3 will be approved if a quorum is present at the Special Meeting and a majority of the shares of common stock present or represented by proxy and entitled to vote at the Special Meeting are voted “for” such approval. Abstentions will have the effect of a vote against Proposal 3. Broker non-votes will not count as votes for or against Proposal 3 and will have no effect on the outcome.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 3 TO THE EXTENT REQUIRED BY NASDAQ LISTING RULE 5635(D), TO APPROVE THE ISSUANCE OF THE EXCHANGE WARRANT AND THE EXCHANGE WARRANT SHARES.

PROPOSAL 4

TO APPROVE AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION, AS AMENDED, TO INCREASE THE NUMBER OF AUTHORIZED SHARESEFFECT A REVERSE SPLIT OF THE COMPANY’S COMMON STOCK

The Company proposes to amend its Certificate of Incorporation, as amended to increase (the number of authorized shares of the Company’s common stock from 100,000,000 shares to 500,000,000 shares.Reverse Split Proposal)

The Board has unanimously adopted a resolution authorizing, approving, declaring advisable and recommending to the Company’s stockholders for their approval an amendment (the “Share Increase Amendment”), which amends paragraph one (1) of Article Fourth ofto the Company’s Certificate of Incorporation to effect a reverse stock split of the increaseoutstanding and treasury shares of the Company’s common stock in a ratio of 1 share-for-2 shares up to a ratio of 1 share-for-1,000 shares (the “Reverse Split Amendment”), which ratio will be selected by the Board following stockholder approval and prior to the numbertime of authorized sharesfiling of common stock.a Certificate of Amendment with the Delaware Secretary of State and set forth in a public announcement. The Company previously sought stockholder approval of an amendment similar to the Reverse Split Amendment, as described in the proxy materials filed with the Commission on September 26, 2018 and January 29, 2019, but such approval was not obtained and the proposed reverse stock split was not effected. The Company now resubmits the proposal for the reasons described below. The form of Share IncreaseReverse Split Amendment is attached to this proxy statement as Annex B. If the Share Increase Amendment is approved by the Company’s stockholders, the Company intends to file the Share Increase Amendment with the Secretary of State of the State of Delaware promptly following the Special Meeting.

OverviewA.

The CertificateBoard believes that a reverse stock split is necessary to satisfy its obligations under the Stock Purchase Agreements entered into in March 2019, to facilitate the Company’s stock being quoted on OTCQB® Venture Market or a national securities exchange and to make the Company’s stock more attractive to a broader range of Incorporation currently authorizesinstitutional and other investors, as described below.

To alleviate the issuancepotential dilutive effect of 100,000,000 sharesthe Reverse Split Amendment, following which the ratio of authorized common stock par value $0.01 per share,to issued and 2,000,000 shares of preferredoutstanding common stock par value $0.01 per share. The Board approvedwill be higher than prior to the Share IncreaseReverse Split Amendment, which amends Article FOURTHthe Company is also seeking approval of the Certificate of IncorporationAuthorized Shares Reduction Proposal to increasedecrease the number of authorized shares of common stock from 100,000,000 shares5,000,000,000 to 500,000,000 shares and, correspondingly, to increase2,000,000,000. As a result, if Proposal 2 is approved by stockholders, the total number of shares of all classescommon stock authorized for future issuance following the Reverse Split Amendment will be limited to a total of capital stock that the Company has authority to issue from 102,000,000 to 502,000,0002,000,000,000 shares.

The proposed Share Increase Amendment would amend paragraph one (1) of Article Fourth of the Certificate of Incorporation to read in its entirety as follows:

“The total number of shares of stock which the corporation shall have authority to issue is five hundred two million (502,000,000), of which two million (2,000,000) shares with a par value of one cent ($0.01) per share shall be designated as “Preferred Stock” and five hundred million (500,000,000) shares with a par value of one cent ($0.01) per share shall be designated as “Common Stock.”

As of December 26, 2017, there were:April 3, 2019, 3,001,394,590 shares of common stock were outstanding. If Proposal 1 is approved at the Special Meeting, the Company may issue the shares of common stock that would become available for issuance upon completion of any reverse stock split (i) pursuant to future securities offering transactions, (ii) pursuant to future acquisition transactions involving payment of consideration in equity securities of the Company, (iii) other general corporate purposes, and (iv) as of April 3, 2019, upon conversion or exercise of securities of the Company that are convertible into or exercisable for common stock, as described below:

As a result,

In addition, as described below under “Reasons for the Reverse Stock Split,” if stockholder approval of the Reverse Split Proposal is obtained, Series F-2 Preferred Stock Purchase Warrants (the “Series F-2 Warrants”) and assuming Proposal 1 is approved by our stockholders, approximately [●]placement agent warrants to purchase an aggregate of 65,040 shares of the Company’s 100,000,000Series B Preferred Stock, which are convertible into an aggregate of 1,084,021,680 shares of common stock, will become exercisable.

The lack of adequate authorized shares of common stock available to issue upon conversion of the Series B Preferred Stock issuable upon exercise of certain warrants and for future equity financings could materially limit or delay the Company’s ability to obtain capital as and when needed or consummate future acquisitions involving the payment of consideration in shares of our common stock. Effecting the Reverse Split Amendment would enable the Company to satisfy its reserve requirements under the warrants and create additional unreserved shares available for future equity financings and acquisitions.

If the Board determines to implement the Reverse Split Amendment, the Company would communicate to the public, prior to the effective time of the Reverse Split Amendment, additional details regarding the Reverse Split Amendment (including the final reverse stock split ratio, as determined by the Board). The Board reserves the right to elect not to proceed with the Reverse Split Amendment if it determines, in its sole discretion, that the Reverse Split Amendment is no longer in the best interests of the Company or its stockholders.

In determining which reverse stock split amendment to implement, if any, following receipt of stockholder approval of this Proposal 1, the Board may consider, among other things, various factors, such as:

The failure of stockholders to approve this Proposal 1 would prevent the Company from having its common stock quoted on higher tier over-the-counter markets maintained by OTC Markets Group Inc. (“OTC”), thereby adversely impacting the liquidity of our common stock and our stockholders’ ability to liquidate it. As discussed below, Nasdaq delisted our common stock effective at the open of business on February 13, 2019. As a result, our common stock trades on the OTC Pink, which does not have been issuedthe substantial corporate governance or are (orquantitative listing requirements for continued trading that Nasdaq has or even the requirements for continued trading that OTCQB® Venture Market has.

Reasons for the Reverse Stock Split

To satisfy the requirements of the Stock Purchase Agreements.

On March 25, 2019, the Company entered into Stock Purchase Agreements with certain institutional investors for the issuance and sale of securities in the aggregate gross offering price of $6,000,000.00 (the “Offering”), consisting of (A) 60,000 shares of Series B Preferred Stock (each, a “Preferred Share”), with each Preferred Share convertible into 16,667 shares of the Company’s common stock, provided that the holder will be prohibited from converting 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, (B) Series F-1 Warrants to purchase an aggregate of 59,760 Preferred Shares and (C) Series F-2 Warrants (the Series F-2 Warrants together with the Series F-1 Warrants, collectively, the “Warrants”) reservedto purchase an aggregate of 60,240 Preferred Shares.

Under the terms of the Stock Purchase Agreements, the Company is required to hold this Special Meeting on or before May 31, 2019 for issuance and, accordingly, fewpurposes of obtaining approval of the Reverse Split Proposal. If the Company does not obtain stockholder approval of the Reverse Split Proposal at the Special Meeting, the Company will be required to call a meeting every four months thereafter to seek such approval as long as any Series B Preferred Stock remains outstanding. If stockholder approval of the Reverse Split Proposal is obtained, the Series F-2 Warrants to purchase an aggregate of 60,240 shares of Series B Preferred Stock, which are availableconvertible into an aggregate of 1,004,020,080 shares of common stock, will become exercisable. Further, the warrants that were issued to the Company for useplacement agent or its affiliates in connection with the Offering (the “Placement Agent Warrants”) to purchase an aggregate of 4,800 shares of Series B Preferred Stock, which are convertible into an aggregate of 80,001,600 shares of common stock, will become exercisable.

The exercise price of the Series F-2 Warrants is $100.00 per Preferred Share. The Series F-2 Warrants 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 Preferred Shares issuable upon exercise of the Series F-2 Warrants, and until the five-year anniversary of the initial exercise date. The exercise price of the Series F-2 Warrants will be adjusted as follows:

The terms of the Placement Agent Warrants are the same as the Series F-2 Warrants, but the Placement Agent Warrants have an exercise price equal to $125.00 per Preferred Share and do not contain the above potential adjustments to the exercise price.

To quote our common stock on OTCQB® Venture Market.

An additional reason for implementing a reverse stock split would be to increase the per share market price of our common stock in an attempt to quote our stock on OTCQB® Venture Market. On June 21, 2018, we received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) notifying us that the bid price of our common stock had closed below the required $1.00 per share for 30 consecutive trading days, and, accordingly, that we did not comply with Nasdaq’s $1.00 minimum bid price requirement (the “Minimum Bid Price Requirement”). On December 19, 2018, we received a written notice from the Staff that we had not regained compliance with the Minimum Bid Price Requirement and were not eligible for a second 180-day period because the Staff determined that we would not be able to cure the deficiency. Although the Company timely appealed the Staff’s determination and requested a hearing before the Nasdaq Hearings Panel (the “Panel”), the Panel determined on February 11, 2019 to delist the Company’s common stock from The Nasdaq Capital Market. The suspension of trading in the Company’s common stock on the Nasdaq Capital Market became effective at the open of business on February 13, 2019.

The Company’s shares are currently quoted on the OTC Pink Market operated by OTC Markets Group Inc., under the symbol “HMNY.” The Board believes that it is in the best interests of the Company and its stockholders to have its common stock quoted on the OTCQB® Venture Market because this market is generally considered to be more efficient and more widely followed than the OTC Pink Market, leading to potentially greater liquidity of our stock.

We believe that the Reverse Stock Split would increase the likelihood that our common stock could be quoted on the OTCQB® Venture Market or listed in the future financingon a national securities exchange. The listing rules of the OTCQB® Venture Market require, among other things, that issuers maintain a minimum closing bid price of at least $0.01 per share. By potentially increasing the market price of the Common Stock as a result of the Reverse Split Amendment, the Company would be more likely to qualify for the OTCQB® Venture Market designation.

To potentially improve the liquidity of our common stock.

A reverse stock split could allow a broader range of institutions to invest in our common stock (namely, funds that are prohibited from buying stocks whose price is below a certain threshold), potentially increasing trading volume and liquidity of our common stock and potentially decreasing the volatility of our common stock if institutions become long-term holders of our common stock. A reverse stock split could help increase analyst and broker interest in our common stock as their policies can discourage them from following or recommending companies with low stock prices. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, a low average price per share of common stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were higher.

Certain Risks Associated with a Reverse Stock Split

Following any reverse stock split, we will have additional shares available to issue upon conversion or exercise of securities of the Company that are convertible into or exercisable for common stock, including the 1,084,021,680 shares of common stock issuable upon conversion of the Series B Preferred Stock issuable upon exercise of the Series F-2 Warrants and the Placement Agent Warrants that will become exercisable upon approval of the Reverse Split Proposal. In addition, we will continue to require significant proceeds from sales of our debt or equity securities to fund our operations for the near future, which will cause further dilution to stockholders. The issuance of a substantial amount of shares of common stock or securities convertible into or exercisable for common stock in the future could cause downward pressure on the price of our common stock and there is no assurance that the market price for the common stock will remain at a level sufficient to satisfy the minimum bid price requirement of the OTCQB® Venture Market.

Moreover, the total market capitalization of the common stock after the reverse stock split may be lower than the total market capitalization before the reverse stock split. On the trading day immediately before the July 2018 Reverse Stock Split, our market capitalization was $37.9 million, with 421,299,736 shares of common stock outstanding. Immediately after giving effect to the July 2018 Reverse Stock Split, we had 1,750,979 shares issued and outstanding. As of April 3, 2019, our market capitalization was $13.5 million, notwithstanding that we had approximately 3 billion shares outstanding as of that date.

There can be no assurance that the reverse stock split will increase the market price of the common stock and have the desired effect of enabling compliance with the minimum bid price requirements of the OTCQB® Venture Market. The Board believes that a reverse stock split has the potential to increase the market price of the common stock so that the Company may be able to satisfy such requirements. However, the long- and near-term effect of the reverse stock split upon the market price of the common stock cannot be predicted with any certainty. For instance, the July 2018 Reverse Stock Split did not enable the Company to regain compliance with Nasdaq’s Minimum Bid Price Requirement, and the history of similar reverse stock splits for companies in like circumstances is varied, particularly since investors may view a reverse stock split negatively.  There can be no assurance that another reverse stock split will increase the market price of the common stock so that the Company’s common stock may become eligible for quotation on the OTCQB® Venture Market tier.

Further, the reverse stock split may not result in a per share price that would attract brokers and investors who do not trade in lower priced stocks.

Impact of a Reverse Stock Split if Implemented

A reverse stock split would affect all of our common stockholders uniformly and would not affect any stockholder’s percentage ownership interests or proportionate voting power. The other corporate needs. The lackprincipal effects of the reverse stock split will be that:

Although the number of outstanding shares of common stock would decrease following the Reverse Split Amendment, the Board does not intend for a reverse split to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.

The following table reflects the number of shares of common stock that would be outstanding as a result of the effectiveness of the Authorized Shares Reduction Amendment and the Reverse Split Amendment and the approximate percentage reduction in the number of outstanding shares based on 3,001,394,590 shares of common stock issued and outstanding as of April 3, 2019. As of April 3, 2019, we had 1,998,605,410 shares of common stock available for issuance could unnecessarily limitand were required to reserve for issuance upon conversion or delayexercise of convertible securities an additional 3,107,012,375 shares, including 1,084,021,680 shares issuable upon conversion of the Company’s ability to pursue future financings, acquisitionsSeries F-2 Warrants and other transactions.the Placement Agent Warrants that would become exercisable upon stockholder approval of Proposal 1. The Company couldfollowing table also shows the shares of our common stock that would be limited in its ability to effectuate future stock splits or stock dividends.unreserved and available for issuance if the Reverse Split Amendment and the Authorized Shares Reduction Amendment are effected.

BackgroundEffect of Reverse Stock Split and Purpose of the Share Increase AmendmentPotential Anti-Takeover Effect

The Board believes it is inManagement does not anticipate that our financial condition, the Company’spercentage ownership of common stock by management, the number of our stockholders, or any aspect of our business will materially change as a result of the Reverse Split Amendment. Because the Reverse Split Amendment will apply to all issued and outstanding shares of common stock and outstanding rights to purchase common stock or to convert other securities into common stock, the Company’s stockholders’ best interest to increaseproposed Reverse Split Amendment will not alter the relative rights and preferences of existing stockholders. However, the number of shares of common stock outstanding will be decreased, while the number of authorized shares of common stock to 500,000,000 in order to ensure that additional shares of common stock are available for general corporate purposes, which may include:

Other than as described above, the Company does not have any current intention or plan to issue shares of common stock. The Board believes the additional authorized shares of common stock shouldissuance will be available for financing and other corporate purposes, without the potential expense and delay incident to obtaining stockholder approval for a particular financing or other issuance.

Effects of the Proposed Share Increase Amendmentincreased.

The additional shares ofManagement does not currently plan to use the increase in our available authorized common stock would be identical to the shares of common stock now authorized and outstanding, and the Share Increase Amendment would not affect the rights of current holders of common stock. Any issuances of additional shares of common stock, however, could adversely affect the existing holders of shares of common stock by diluting their ownership, voting power and earnings per share and book value per share with respect to such shares. The current holders of common stock do not have preemptive rights to purchase any shares of common stock that may be issued and the Board has no plans to grant such rights with respect to any such shares. The Company is currently authorized to issue up to 2,000,000 shares of preferred stock, none of which is issued or outstanding. The Board has the authority to determine the price, rights, preferences, privileges and restrictions, including voting rights and the right to convert any preferred stock into shares of common stock, of thebut unissued shares that will result from the Reverse Split Amendment to make it more difficult or to discourage a future merger, tender offer or proxy contest or the removal of preferred stock without any further voteincumbent management. This Proposal 1 is not the result of management’s knowledge of an effort to accumulate our securities or action by the stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any preferred stock that may be issued in the future. The proposed Share Increase Amendment will not affect this authorization.

As a general matter, the Board would be able to issue or reserve for issuance the additional shares of common stock in its discretion from time to time, without further action or approval of the Company’s stockholders, subject to and as limited by applicable law, regulation and the rules or listing requirements of any then applicable securities exchange.

Possible Anti-Takeover Effects of the Share Increase Amendment

The Board is unaware of any specific effort to obtain control of the Company and has no present intentionby means of using the proposed increasea merger, tender offer, solicitation or otherwise.

Summarized in the numberfollowing paragraphs are provisions included in our Certificate of authorizedIncorporation, as amended, and our bylaws that may have the effect of discouraging, delaying or preventing a change in control or an unsolicited acquisition proposal that a stockholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by our stockholders.

Effects of common stock as an anti-takeover device. However, the Company’s authorized but unissued common stock could (withinand blank check preferred stock.One of the limits imposedeffects of the existence of authorized but unissued common stock and undesignated preferred stock may be to enable our Board to make more difficult or to discourage an attempt to obtain control of the Company by applicable law, regulationmeans of a merger, tender offer, proxy contest or otherwise, and thereby to protect the rules or listing requirementscontinuity of any then applicable securities exchange)management. If the Board were to determine that a takeover proposal was not in our best interest, such shares could be issued by the Board without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, by putting a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.

In addition, our Certificate of Incorporation grants our Board broad power to establish the rights and preferences of authorized and unissued shares of additional series of preferred stock. The creation and issuance of one or more additional series of preferred stock could makedecrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance also may adversely affect the rights and powers, including voting rights, of those holders and may have the effect of delaying, deterring or preventing a change in control of control much more difficultthe Company.

Cumulative Voting. Our Certificate of Incorporation does not provide for cumulative voting in the election of directors which would allow holders of less than a majority of the voting stock to elect some directors.

Vacancies.Section 223 of the Delaware General Corporation Law and therefore more unlikely.our bylaws provide that all vacancies, including newly created directorships, may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.

Special Meeting of Stockholders. A special meeting of stockholders may be called by our Board or the Chairman of our Board and must be called by our Secretary at the request in writing of holders of record of a majority of our outstanding capital stock entitled to vote. The additional authorizedrequirement that a majority of our outstanding capital stock is required to call a special meeting means that small stockholders will not have the power to call a special meeting to, for example, elect new directors.

Fractional Shares

If the reverse stock split ratio determined to be implemented by the Board, if any, will result in fractional shares, the Company will not issue fractional shares. Instead the Company will, at the discretion of the Board, determine (i) whether to effect an issuance of shares to holders that would otherwise be entitled to a fractional share such that any fractional shares will be rounded up to the nearest whole number or (ii) whether the Company will pay cash in an amount equal to the fair value of the fractions.

Procedure for Effecting Reverse Stock Split

If the Board decides to implement a reverse stock split, the reverse stock split will become effective on the date the Reverse Split Amendment is filed with the Secretary of State of the State of Delaware. The time of such filing, if any, will be determined by the Board in its sole discretion. Beginning on the effective time of the Reverse Split Amendment, each certificate representing pre-reverse stock split shares of common stock couldwill be useddeemed for all corporate purposes to discourage persons from attempting to gain controlevidence ownership of the Company by diluting the voting powerpost-reverse stock split shares of shares then outstanding or increasing the voting power of persons who would support the Board in a potential takeover situation, including preventing or delaying a proposed business combination that is opposed by the Board, although perceived to be desirable by some stockholders.common stock.

No Appraisal RightsCertain U.S. Federal Income Tax Consequences of the Reverse Stock Split

StockholdersThe following discussion is a general summary of certain U.S. federal income tax consequences of the reverse stock split that may be relevant to U.S. Holders (as defined below) of our common stock, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder (the “Treasury Regulations”), judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (“IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of our common stock. We have not sought and will not have dissenters’seek an opinion of counsel or appraisal rights under Delaware corporate lawany rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the reverse stock split.

This discussion is limited to holders that hold our common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income tax consequences relevant to such holders’ particular circumstances, including the impact of the tax on net investment income imposed by Section 1411 of the Code. In addition, it does not address consequences relevant to holders subject to particular rules, including, without limitation:

If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. HOLDERS OF OUR COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

For purposes of the discussion below, a “U.S. Holder” is a beneficial owner of shares of our common stock that for U.S. federal income tax purposes is or is treated as: (1) an individual who is a citizen or resident of the United States; (2) a corporation created or organized under the Company’s Certificatelaws of Incorporationthe United States, any state thereof, or the District of Columbia; (3) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (4) a trust that (a) is subject to the primary supervision of a U.S. court and the control of one of more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (b) has a valid election in connectioneffect to be treated as a United States person for U.S. federal income tax purposes. 

A reverse stock split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of our common stock. A U.S. Holder’s aggregate tax basis in the proposed Share Increase Amendment.shares of our common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of our common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of our common stock), and such U.S. Holder’s holding period in the shares of our common stock received should include the holding period in the shares of our common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered to the shares of our common stock received pursuant to the reverse stock split. Holders of shares of our common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

Information Reporting and Backup Withholding.A U.S. Holder (other than corporations and certain other exempt recipients) may be subject to information reporting and backup withholding when such holder receives cash in lieu of a fractional share of our common stock pursuant to the reverse stock split. A U.S. Holder will be subject to backup withholding if such holder is not otherwise exempt and such holder does not provide its taxpayer identification number in the manner required or otherwise fails to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the U.S. Holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.

Vote required to pass Proposal 4.1

Proposal 41 will be approved if a quorum is present at the Special Meeting and the holders of (i) a majority of the voting power of the outstanding shares of common stock issued and outstandingany Preferred Stock, voting together as a single class, voted “for” such approval, (ii) a majority of the record date are votedvoting power of the outstanding shares of the Series A Preferred Stock, voting separately as a single class, vote “for” such approval, and (iii) a majority of the voting power of the outstanding shares of the Series B Preferred Stock, voting separately as a single class, vote “for” such approval. Abstentions and broker non-votes will have the effect of a vote against Proposal 4. Proposal 4 is not conditioned upon approval of any other proposal contained in the proxy statement.1. If Proposal 41 is approved and the Company intendsBoard decides to fileimplement the Share IncreaseReverse Split Amendment, promptly following the Special Meeting.Reverse Split Amendment will become effective on the date that the Reverse Split Amendment is filed with the Secretary of State of the State of Delaware, which time, if at all, will be determined by the Board in its sole discretion. The Board reserves the right at any time before the effective datetime of the amendment to the Certificate of Incorporation,Reverse Split Amendment, notwithstanding approval of the proposalProposal 1 by the Company’s stockholders, to abandon the proposed amendment without further action by the stockholders. If the proposalProposal 1 is not approved, the Share IncreaseReverse Split Amendment will not be filed with the Secretary of State of the State of Delaware.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSAL 4 TO AMEND THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.

PROPOSAL 5

ADJOURNMENT PROPOSAL

The Board believes that if the number of shares of our voting stock present in person or represented by proxy at the Special Meeting and voting in favor of the proposals is insufficient to approve such proposals, it is in the best interests of the stockholders to enable the Board to continue, for up to 30 days, to seek to obtain a sufficient number of additional votes to approve the proposals.

In Proposal 5, we are asking stockholders to authorize the holder of any proxy solicited by our Board to vote in favor of adjourning or postponing the Special Meeting or any adjournment or postponement thereof. If our stockholders approve this proposal, we could adjourn or postpone the Special Meeting for up to 30 days, to use the additional time to solicit additional proxies in favor of the proposals.

Additionally, approval of Proposal 5 could mean that, in the event we receive proxies indicating that the votes cast against exceed the votes cast for the proposals, we could adjourn or postpone the Special Meeting without a vote on either proposal and use the additional time to solicit the holders of those shares to change their votes in favor of these proposals.

Vote required to pass Proposal 5.

The affirmative vote of a majority of the votes cast at the Special Meeting, regardless of the presence of a quorum, is required to approve the adjournment of the Special Meeting in order to allow more time to solicit additional proxies.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSAL 5.THE REVERSE SPLIT AMENDMENT. 

PROPOSAL 2

TO APPROVE AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION, AS AMENDED,
TO EFFECT A DECREASE IN THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY’S COMMON STOCK
IF THE REVERSE SPLIT PROPOSAL IS APPROVED

(the Authorized Shares Reduction Proposal)

The Company proposes to amend its Certificate of Incorporation, as amended to decrease the number of authorized shares of the Company’s common stock from 5 billion (5,000,000,000) to 2 billion (2,000,000,000) shares and to decrease the total number of authorized shares of capital stock from 5,002,000,000 to 2,002,000,000.

The Board has unanimously adopted a resolution authorizing, approving, declaring advisable and recommending to the Company’s stockholders for their approval an amendment to the Company’s Certificate of Incorporation (the “Authorized Shares Reduction Amendment”), which amends paragraph one (1) of Article Fourth of the Certificate of Incorporation, to effect a reduction to the number of authorized shares of common stock and the total number of authorized shares of capital stock. The form of Authorized Shares Reduction Amendment is attached to this proxy statement as Annex A. If the Authorized Shares Reduction Amendment is approved by the Company’s stockholders, the Company intends to file the Authorized Shares Reduction Amendment with the Secretary of State of the State of Delaware promptly following the Special Meeting.

The Board has determined that together the Reverse Split Amendment and the Authorized Shares Reduction Amendment are in the best interests of the Company and its stockholders. Because the amendments are designed to work together, the implementation of Proposal 2 is contingent upon stockholder approval of the Reverse Split Amendment in Proposal 1 and actual implementation of the reverse stock split. Accordingly, unless Proposal 1 is approved and the reverse stock split is actually implemented, Proposal 2 will not be implemented regardless of the outcome of the vote thereon.

Overview

The Certificate of Incorporation currently authorizes the issuance of 5,000,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of preferred stock, par value $0.01 per share. 20,500 shares of preferred stock have been designated Series A Preferred Stock and 60,000 shares of preferred stock have been designated as Series B Preferred Stock. The Board approved the Authorized Shares Reduction Amendment, which amends Article FOURTH of the Certificate of Incorporation to decrease the number of authorized shares of common stock from 5,000,000,000 shares to 2,000,000,000 and, correspondingly, to decrease the total number of shares of all classes of capital stock that the Company has authority to issue from 5,002,000,000 shares to 2,002,000,000 shares.

The proposed Authorized Shares Reduction Amendment would amend paragraph one (1) of Article Fourth of the Certificate of Incorporation to read in its entirety as follows:

“The total number of shares of stock which the corporation shall have authority to issue is 2,002,000,000, of which two million (2,000,000) shares with a par value of one cent ($0.01) per share shall be designated as “Preferred Stock” and two billion (2,000,000,000) shares with a par value of one cent ($0.01) per share shall be designated as “Common Stock.”

Background and Purpose of the Authorized Shares Reduction Amendment

The main purpose of Proposal 2 is to alleviate the effect of the Reverse Split Amendment described in Proposal 1, following which the ratio of authorized common stock to issued and outstanding common stock will be higher than prior to the Reverse Split Amendment if this Proposal 2 is not implemented. This means that, without implementing Proposal 2, the Company would have authority, without further stockholder approval, to issue a greater number of shares of common stock, or proportionately more common stock, with a greater dilutive effect on existing stockholders than prior to the Reverse Split Amendment.

Additionally, the Board believes it is in the Company’s and the Company’s stockholders’ best interest to decrease the number of authorized shares of common stock because such reduction may enable us to reduce the amount of the Company’s annual franchise tax in the State of Delaware. Each year, we are required to make franchise tax payments to the State of Delaware in an amount determined, in part, by the total number of shares of stock we are authorized to issue. Accordingly, by reducing the number of authorized shares of Common Stock, we may be able to reduce the amount of the franchise tax for which we will be liable.

Certain Risks and Potential Disadvantages Associated with the Decrease in Authorized Common Stock

The proposed decrease in the authorized number of shares of our Common Stock could have an adverse effect on us because the Board will have less ability to issue shares of Common Stock in connection with a potential merger or acquisition, or capital raising transaction.

Effective Time of Decrease in Authorized Shares of Common Stock

Following stockholder approval of Proposals 1 and 2, the decrease in authorized shares of Common Stock would become effective upon the filing of a certificate of amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware, or such later effective time as is specified in such certificate of amendment as permitted under Delaware law. The exact timing of the amendment will be determined by our Board based on its evaluation as to when effecting the reverse split and concurrent decrease in our authorized shares will be the most advantageous to us and our stockholders.

Vote required to pass Proposal 2.

Proposal 2 will be approved if a quorum is present at the Special Meeting and the holders of (i) a majority of the voting power of the outstanding shares of common stock and the Preferred Stock, voting together as a single class, voted “for” such approval, (ii) a majority of the outstanding shares of common stock, voting separately as a single class, voted “for” such approval, (iii) a majority of the outstanding shares of Series A Preferred Stock, voting separately as a single class, voted “for” such approval and (iv) a majority of the outstanding shares of Series A Preferred Stock, voting separately as a single class, voted “for” such approval. Abstentions will have the effect of a vote against Proposal 2.

Proposal 2 is expressly conditioned upon approval of the Reverse Split Proposal. If Proposal 1 and Proposal 2 are approved, the Company intends to file the Authorized Shares Reduction Amendment concurrently with the Reverse Split Amendment. Accordingly, even if this Proposal 2 is approved by stockholders at the Annual Meeting, it will not be implemented unless Proposal 1 is also approved by stockholders at the Special Meeting. If proposals 1 and 2 are not approved, the Authorized Shares Reduction Amendment will not be filed with the Secretary of State of the State of Delaware.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR”
THEAuthorized Shares Reduction Proposal.

PROPOSAL 3

ADJOURNMENT PROPOSAL

We are asking our stockholders to approve a proposal to approve one or more adjournments of the Special Meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the Authorized Shares Reduction Proposal or the Reverse Split Proposal at the time of the Special Meeting or if we do not have a quorum at the Special Meeting. If our stockholders approve the Adjournment Proposal, we could adjourn the Special Meeting and any reconvened session of the Special Meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders that have previously returned properly executed proxies voting against approval of any of the proposals. Among other things, approval of the Adjournment Proposal could mean that, even if we had received proxies representing a sufficient number of votes against approval of the Authorized Shares Reduction Proposal or the Reverse Split Proposal such that one or both of the proposals would be defeated, we could adjourn the Special Meeting without a vote on the approval of such proposal and seek to convince the holders of those shares to change their votes to votes in favor of approval of such proposal. Additionally, we may seek to adjourn the Special Meeting if a quorum is not present at the Special Meeting.

Our Board of Directors believes that it is in the best interests of our Company and our stockholders to be able to adjourn the Special Meeting to a later date or dates if necessary or appropriate for the purpose of soliciting additional proxies in respect of the approval of the Authorized Shares Reduction Proposal or the Reverse Split Proposal if there are insufficient votes to approve such proposal at the time of the Special Meeting or in the absence of a quorum.

Vote and Recommendation

The affirmative vote of the holders of a majority of the common stock and Preferred Stock, voting together as a single class, entitled to vote on, and that voted for or against or expressly abstained with respect to this proposal at a meeting of stockholders at which a quorum is present, will be required for approval of this proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ADJOURNMENT PROPOSAL.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The following table sets forth the number of shares of the Company’s common stock beneficially owned as of December 7, 2017 by each person known byMarch 25, 2019 (prior to the Company to own beneficially more than 5% of the common stock or to be a director or named executive officer of the Company. As of December 7, 2017, 14,250,484 shares of the Company’s common stock were outstanding.proposed Reverse Stock Amendment) by:

*Less than 1%.

We do not know of any arrangements which may, at a subsequent date, result in a change-in-control.

WHERE YOU CAN FIND MORE INFORMATION REQUIREMENTS FOR ADVANCE NOTIFICATION OF NOMINATIONS AND STOCKHOLDER PROPOSALS

We are subjectStockholder proposals submitted to us pursuant to Rule 14a-8 promulgated under the reportingExchange Act for inclusion in our proxy statement and form of proxy for our 2019 Annual Meeting of Stockholders must be received by us no later than August 12, 2019, which is 120 calendar days before the one-year anniversary of the date on which the Company first mailed the proxy statement for its 2018 Annual Meeting of Stockholders, and must comply with the requirements of the Exchange Act, and we file annual, quarterly, and current reports, proxy statements and other information withrules promulgated by the SEC. You may read and copy these reports, proxy statements, and other information that we fileThe Company must receive notice of any stockholder proposal to be submitted at the SEC’s Public Reference Room at 100 F Street N.E., Room 1580, Washington D.C. 20549 at prescribed rates. Information on2019 Annual Meeting of Stockholders, but not required to be included in our proxy statement, no later than October 26, 2019, which is 45 calendar days before the operationone-year anniversary of the Public Reference Room maydate on which the company first mailed the proxy statement for the 2018 Annual Meeting of Stockholders. Stockholder proposals should be obtained by calling the SECaddressed to our Secretary at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy,Helios and information statements, and other information regarding issuers that file electronically with the SEC. Our filings are also available free of charge at the SEC’s website at http://www.sec.gov.Matheson Analytics Inc., Empire State Building, 350 5th Avenue, Suite 7520, New York, NY 10118, Attn: Robert Damon, Secretary.

We also maintain a website at http://www.hmny.com, throughRecommendations from stockholders which you can access our SEC filings. The information set forth on, or accessible from, our website isare received after the deadline likely will not part of this proxy statement.be considered timely for consideration by the Governance Committee for next year’s Annual Meeting.

OTHER MATTERS

The Company does not intend to bring any other matters before the Special Meeting and has no reason to believe any other matters will be presented. If any other matters properly come before the Special Meeting, it is the intention of the persons named in the proxy card to vote the common stock they represent as the Board may recommend. Discretionary authority with respect to such other matters is granted by the execution of the proxy, whether through telephonic or internet voting or, alternatively, by using a paper copy of the proxy card that has been requested.

It is important that your shares be represented at the Special Meeting, regardless of the number of shares that you hold. You are, therefore, urged to vote by telephone or by using the internet as instructed on the proxy card or, if so requested, by executing and returning, at your earliest convenience, the requested proxy card in the envelope that will have been provided.

THE BOARD OF DIRECTORS

New York, New York

April [●], 2018    ], 2019

ANNEXAnnex A

AMENDMENT NO. 2 TO THE

HELIOS AND MATHESON ANALYTICS INC.Authorized Shares Reduction Amendment and Reverse Split Amendment

2014 EQUITY INCENTIVE PLAN

WHEREAS, on March 3, 2014 the Board of Directors (the “Board”) of Helios and Matheson Analytics Inc. (the “Company”) adopted the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan (the “Plan”) for the purpose of encouraging ownership of the Company’s common stock, $0.01 par value (the “Common Stock”) on the part of employees, consultants and directors and to further the growth and profitability of the Company; and

WHEREAS, the Plan originally provided for an aggregate of 400,000 shares of Common Stock to be reserved and set aside for awards to be made pursuant to the Plan; and

WHEREAS, in conjunction with the merger of Zone Technologies, Inc. with and into Zone Acquisition, Inc., the Board amended the Plan to increase the number of shares of Common Stock to be reserved and set aside for awards from the Plan to an aggregate of 1,125,000 shares of Common Stock; and

WHEREAS, Section 11 of the Plan states in pertinent part, “The Board, in its sole discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason.”; and

WHEREAS, the Board has determined that it is in the best interests of the Company and its stockholders to (i) increase the number of shares of Common Stock to be reserved and set aside for awards from the Plan by 1,875,000 shares, for an aggregate of 3,000,000 shares of Common Stock and (ii) account for an annual automatic increase in the number of shares of common stock authorized for issuance thereunder by the lesser of (A) 3,000,000 shares of the Company’s common stock or the equivalent of such number of shares after the administrator of the 2014 Plan, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction; (B) a number of shares equal to 5% of the Company’s common stock outstanding as of January 2nd of each year; and (C) an amount determined by the Board.

THEREFORE, the first sentence of Section 4, paragraph 4.1 of the Plan, as amended, which currently states:

“4.1 Number of Shares. Subject to adjustment as provided in Section 4.2 below, the total number of Shares available for grant under the Plan shall be 1,125,000 Shares and will include Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but forfeited or repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued.”

shall be amended to state:

“4.1 Number of Shares.

(a) Subject to adjustment as provided in Section 4.2 below, the total number of Shares available for grant under the Plan shall be 3,000,000 Shares and will include Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but forfeited or repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued.

(b) Notwithstanding Section 4.1(a) above, on the first day of each fiscal year of the Company during the period beginning on the second day of fiscal year 2019, and ending on the second day of fiscal year 2024, the total number of Shares available for grant under the Plan shall be increased by the lesser of (A) 3,000,000 shares of the Company’s common stock or the equivalent of such number of shares after the administrator of the 2014 Plan, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction; (B) a number of shares equal to 5% of the Company’s common stock outstanding on such date; and (C) an amount determined by the Board.”

In all other respects the Plan shall remain the same.

This Amendment No. 2 to the Helios and Matheson Analytics Inc. 2014 Equity Plan was adopted by the Board of Directors of Helios and Matheson Analytics Inc. on ____, 201_.

ANNEX B

Certificate of Amendment
of

Certificate of Incorporation
of

Helios and Matheson Analytics Inc.

Under Section 242 of the Delaware General Corporation Law

Helios and Matheson Analytics Inc., a corporation organized and existing under the laws of the state of Delaware (the “Corporation”), hereby certifies as follows:

The Certificate of Incorporation of the Corporation is hereby amended as follows:

Paragraphparagraph one (1) of Article Fourth is hereby amendedof the Certificate of Incorporation to read in its entirety as follows:

“The total number of shares of stock which the corporation shall have authority to issue is five hundred two million (502,000,000),2,002,000,000, of which two million (2,000,000) shares with a par value of one cent ($0.01) per share shall be designated as “Preferred Stock” and five hundred million (500,000,000)two billion (2,000,000,000) shares with a par value of one cent ($0.01) per share shall be designated as “Common Stock.”

Paragraph one (1) of Article Fourth is hereby amended to add the following paragraph thereto:

Reverse Split. Upon this Certificate of Amendment becoming effective pursuant to the General Corporation Law of the State of Delaware (the “Second Effective Time”), each share of Common Stock issued and outstanding immediately prior to the Second Effective Time (the “Second Old Common Stock”) shall be automatically reclassified as and converted into [1/2 to 1/1,000] of a fully paid and nonassessable share of Common Stock (the “Second New Common Stock”). No fractional shares of the Second New Common Stock shall be issued in connection with the Second Reverse Stock Split. In lieu of any fractional shares of the Second New Common Stock that would be issued in connection with the Second Reverse Stock Split, the Board may elect to effect an issuance of shares of the Second New Common Stock to holders of any fractional shares of the Second New Common Stock resulting from the Second Reverse Stock Split such that any fractional share otherwise issuable to any such holder shall be rounded up to the next highest whole share, or to pay cash in lieu of any fractional shares. Any stock certificate that, immediately prior to the Second Effective Time, represented shares of the Second Old Common Stock, shall from and after the Second Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Second New Common Stock into which such shares of Second Old Common Stock shall have been reclassified pursuant to this Certificate of Amendment.

The forgoing amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the vote of a majority of each class of outstanding stock of the corporation entitled to vote thereon.

IN WITNESS WHEREOF, I have signedthe Corporation has caused this certificate to be executed by its duly authorized officer this ____ day of _______ 201_.2019.

Proxy Card