Attached files
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EX-23.2 - EX-23.2 - Helios & Matheson Analytics Inc. | c14213exv23w2.htm |
EX-31.2 - EX-31.2 - Helios & Matheson Analytics Inc. | c14213exv31w2.htm |
EX-32.2 - EX-32.2 - Helios & Matheson Analytics Inc. | c14213exv32w2.htm |
EX-31.3 - EX-31.3 - Helios & Matheson Analytics Inc. | c14213exv31w3.htm |
EX-32.1 - EX-32.1 - Helios & Matheson Analytics Inc. | c14213exv32w1.htm |
EX-31.1 - EX-31.1 - Helios & Matheson Analytics Inc. | c14213exv31w1.htm |
EX-32.3 - EX-32.3 - Helios & Matheson Analytics Inc. | c14213exv32w3.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One):
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-22945
HELIOS AND MATHESON NORTH AMERICA INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 13-3169913 | |
State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization | ||
200 Park Avenue South | (212) 979-8228 | |
New York, New York 10003 | (Registrants Telephone Number, | |
(Address of Principal Executive Offices) | Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Class | Name of Exchange on which Registered | |
Common Stock, par value $.01 per share | NASDAQ Capital Market |
Securities registered pursuant to Section 12(g) of the Act:
None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting Company. See definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the
registrant was approximately $721,220 based on the average of the bid and asked prices of the
registrants common stock on the NASDAQ Capital Market on the last business day of the registrants
most recently completed second fiscal quarter.
As of March 10, 2011, there were 5,826,088 shares of the registrants common stock, $.01 par value
per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive Proxy Statement for the 2011 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report. See Item 15 for a
list of other exhibits incorporated by reference into this Report.
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EX-32.3 |
Table of Contents
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 throughout and in
particular in the discussion at Item 7 titled Managements Discussion and Analysis of Financial
Condition and Results of Operation. These are statements regarding financial and operating
performance and results and other statements that are not historical facts. The words expect,
project, estimate, believe, anticipate, intend, plan, forecast, and similar
expressions are intended to identify forward-looking statements. Certain important risks,
including those discussed in the risk factors set forth in Item 1A of this report, could cause
results to differ materially from those anticipated by some of the forward-looking statements.
Some, but not all, of these risks include, among other things:
| our lack of capital and whether or not we will be able to raise capital when we
need it; |
||
| changes in local, state or federal regulations that will adversely affect our
business; |
||
| our ability to market and distribute or sell our products; |
||
| whether we will continue to receive the services of certain officers and
directors; |
||
| our ability to protect our intellectual property and operate our business
without infringing upon the intellectual property rights of others; and |
||
| other uncertainties, all of which are difficult to predict and many of which are
beyond our control. |
We do not intend to update forward-looking statements. You should refer to and carefully
review the information in future documents we file with the Securities and Exchange Commission.
Table of Contents
PART I
ITEM 1. | BUSINESS |
General
Helios and Matheson North America Inc. (Helios and Matheson or the Company) was
incorporated in the state of New York in February of 1983 and became a public company in August of
1997. In October of 2009, Helios and Matheson changed its state of incorporation from New York to
Delaware. The Company is headquartered in New York City, New York and has a subsidiary in
Bangalore, India. The Company provides a wide range of high quality information technology (IT)
consulting solutions and custom application development services to Fortune 1000 companies and
other large organizations. The Companys shares are listed on The NASDAQ Capital Market (NASDAQ)
under the symbol HMNA.
Helios and Matheson Information Technology Ltd. (Helios and Matheson Parent), an IT services
organization with corporate headquarters in Chennai, India, owns approximately 84% of the Companys
outstanding common stock.
Controlled Company
The Board of Directors has determined that Helios and Matheson meets the definition of a
Controlled Company as defined by Rule 5615(c) of the NASDAQ Listing Rules. A Controlled
Company is defined in Rule 5615(c) as a company of which more than 50% of the voting power for the
election of directors is held by an individual, group or another company. Certain NASDAQ
requirements do not apply to a Controlled Company, including requirements that: (i) a majority of
its Board of Directors must be comprised of independent directors as defined in NASDAQs rules;
and (ii) the compensation of officers and the nomination of directors be determined in accordance
with specific rules, generally requiring determinations by committees comprised solely of
independent directors or in meetings at which only the independent directors are present.
Industry Background
Rapid technological advances, and the wide acceptance and use of the Internet as a driving
force in commerce, accelerated the growth of the IT industry. These advances, including more
powerful and less expensive computer technology, fueled the transition from predominantly
centralized mainframe computer systems to open and distributed computing environments and the
advent of capabilities such as relational databases, imaging, software development productivity
tools, and web-enabled software. These advances expand the benefits that users can derive from
computer-based information systems and improve the price-to-performance ratios of such systems. As
a result, an increasing number of companies are employing IT in new ways, often to gain competitive
advantages in the marketplace, and IT services have become an essential component of many
companies long-term growth strategies. The same advances that have enhanced the benefits of
computer systems rendered the development and implementation of such systems increasingly complex,
popularizing the partnering with IT service providers like the Company for application development,
support and related services. Accordingly, organizations turn to external IT services
organizations such as Helios and Matheson to develop, support and enhance their internal IT
systems.
Strategy
Helios and Matheson endeavors to provide peerless, technology enabled, consulting solutions to
its client base through an integrated suite of high-quality, value-based offerings, customer
alignment and outstanding service delivery in the areas of Application Value Management,
Application Development, Integration, Independent Validation, Infrastructure and Information
Management services. The Company believes that a philosophy of intense focus on client
satisfaction, business aware solutions and guaranteed delivery provides tangible business value to
its client base across banking, financial services, insurance, pharmaceutical and
manufacturing/automotive verticals.
The Companys goal is to realize consistent growth and competitive advantage through the
following strategic initiatives:
Expand Existing Client Market Share. The Company endeavors to expand its penetration and
market share within its existing client base through client focused sales and marketing initiatives
allowing the Company to offer existing clients a broad suite of technology services. The Companys relationships with
current clients provide opportunities to market additional services in current and new geographical
markets.
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Expand Client Base. The Company endeavors to expand its client base particularly in the
financial services sector. The Company endeavors to broaden the geography of its client base by
offering services to many of its existing clients in their offices outside New York and New Jersey
and using such contacts as a gateway into new geographies.
Global Delivery. The Company is dedicated to providing Flexible Delivery Model to its clients,
which allows for dynamically configurable right shoring of service delivery based on client
needs.
Operational Efficiency. The Company is keeping a tight rein on discretionary expenditure and
SG&A to enhance its competitiveness.
Helios and Matheson Operations
Service Lines. Helios and Matheson provides a wide range of high quality consulting
solutions, through an integrated suite of market driven Service Lines in the areas of Application
Value Management, Application Development, Integration, Independent Validation, Infrastructure and
Information Management services for Fortune 1000 companies and other large organizations. These
services account for approximately 88% of the Companys revenues. The Companys solutions are
based on an understanding of each clients enterprise model. The Companys accumulated knowledge
may be applied to new projects such as planning, designing and implementing enterprise-wide
information systems, database management services, performance optimization, migrations and
conversions, strategic sourcing, outsourcing and systems integration.
Software. Helios and Matheson markets and distributes software products developed by
independent software developers. During 2010, software revenue was approximately 4.5% of the
Companys total revenues.
Clients
The Companys clients consist primarily of Fortune 1000 companies and other large
organizations. The Companys clients operate in a diverse range of industries with a concentration
in the financial services, pharmaceutical and manufacturing/automotive industries. Eight of the
Companys top ten clients measured by revenue for the year ended December 31, 2010 have been
clients for over five years. For the twelve months ended December 31, 2010, the Companys three
largest customers represented approximately 22%, 21% and 21% of total revenues respectively.
Besides these customers, no other customer represented greater than 10% of the Companys revenues.
During 2011, the Company expects that a significant portion of its revenues will continue to come
from these clients. As indicated above, the Company is also attempting to expand its client base
by offering services to many of its existing clients in their offices outside New York and New
Jersey and using such contacts as a gateway into new geographies. We hope to get a foothold in
these geographic markets by offering to provide services to the branch offices of our existing
clients.
Approximately,
100% of all of the Companys revenues were derived from clients within the
United States for each of the years ended December 31, 2010 and 2009.
Sales and Marketing
The Companys marketing strategy is to develop long-term mutually beneficial relationships
with existing and new clients that will lead to the Company becoming a preferred provider of IT
services. The Company seeks to employ a cross selling approach where appropriate to expand the
number of services utilized by a single client. Other sales and marketing methods include client
referrals, networking, and attendance at conferences.
Competition
The market for IT consulting services is intensely competitive, affected by rapid
technological advances and includes a large number of competitors. The Companys competitors
include the current or former consulting divisions of the Big Four accounting firms, major
offshore outsourcing companies, systems consulting and implementation firms, application software
development firms, management consulting firms, divisions of large hardware and software companies,
and niche providers of IT services. Many of these competitors have significantly greater financial,
technical and marketing resources than the Company. Competition imposes significant pricing
pressures on the Company. Given the substantial improvement in operations during the 2010
fiscal year, the Company expects to improve its competitive presence in the IT Industry going
forward.
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The Company believes that the principal competitive factors in the IT services market include
breadth of services offered, industry and technology knowledge, expertise, cost competitiveness,
quality of service and responsiveness to client needs. A critical component of the Companys
ability to compete in the marketplace is its ability to attract, develop, motivate and retain
skilled professionals.
Human Resources
At December 31, 2010, the Company had 37 employees, of whom 29 were client consultants, 2
provided recruiting services, 1 provided sales and marketing services, 1 provided technical and
customer service and 4 were executive, financial and administrative personnel. None of the
Companys employees are represented by a labor union, and the Company has never incurred a work
stoppage. In addition to these employees , the Company was utilizing the services of 51
independent contractors at December 31, 2010. These independent contractors act as consultants and
they are not employees of the Company.
Long-Lived Assets
Substantially all of the Companys long-lived assets were located in the United States for the
years ended December 31, 2010 and 2009, respectively.
Intellectual Property Rights
The Company relies upon a combination of nondisclosure and other contractual arrangements and
trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary
rights of third parties from whom the Company licenses intellectual property, but there can be no
assurance that the steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights. In addition, the
Company is subject to the risk of litigation alleging infringement of third-party intellectual
property rights. Any such claims could require the Company to spend significant sums in
litigation, pay damages, develop non-infringing intellectual property or acquire licenses to the
intellectual property which is the subject of the asserted infringement.
Effective as of January 30, 2007, the Company changed its name from The A Consulting Team,
Inc. to Helios and Matheson North America Inc. The name change reflects the Companys desire to
develop long term, mutually beneficial opportunities both in the United States and globally through
its association with Helios and Matheson Parent, an information technology services organization
with corporate headquarters in Chennai, India and the owner of approximately 84% of the Companys
outstanding common stock. Helios and Matheson Parent has granted the Company a non-exclusive right
to use the name Helios and Matheson and related trademarks, service names and service marks.
Helios and Matheson Parent has the right to terminate the Companys right to use such name and
related trademarks and service marks upon each of the following events: (i) the Company duly and
properly effectuates a change of the Companys corporate name which change is not consented to or
approved by Helios and Matheson Parent; (ii) the Company consummates a business combination or
merger, pursuant to which the Company is not the surviving corporation, or the Company consummates
a sale of all or substantially all of its assets without the consent or approval of Helios and
Matheson Parent and (iii) the Company files, or becomes a debtor subject to, a bankruptcy
proceeding which proceeding or filing was not commenced by Helios and Matheson Parent or consented
to by Helios and Matheson Parent. The Company could be materially adversely affected if Helios and
Matheson Parent terminated the Companys rights to use such name and the related trademarks and
service marks as the Company would be forced to change its name, commence marketing under a new
name and would not be able to enjoy the benefits of the Companys marketing efforts under the name
Helios and Matheson. Additionally, the Company is reliant upon Helios and Matheson Parent to
protect Helios and Mathesons trademarks, trade names, service marks and service names.
All ownership rights to software developed by the Company in connection with a client
engagement are typically assigned to the client. In limited situations, the Company may retain
ownership or obtain a license from its client, which permits the Company or a third party to market
the software for the joint benefit of the client and the Company or for the sole benefit of the
Company.
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Table of Contents
Seasonality
The Companys business has not been affected by seasonality.
ITEM 1A. | RISK FACTORS |
Uncertain Economic Environment
Spending on IT consulting services is largely discretionary and will decline during economic
downturns or periods of economic uncertainty when the Companys clients are operating under reduced
budgets, including during the current period. A significant portion of the Companys revenues is
derived from sales to customers in the financial services, pharmaceutical and
manufacturing/automotive industries. Many of the Companys major customers in the financial
services industry came under significant financial pressure as a result of the recent economic
crisis. If the period of economic uncertainty continues or if the economic environment worsens it
could further erode the Companys ability to sell future projects.
Volatility of Stock Price
The
Companys stock was traded on 156 days during 2010 and may be subject to wide fluctuations
in price in response to variations in quarterly results of operations and other factors, including
financings, technological innovations and general economic or market conditions. Stock markets have
experienced extreme price and volume trading volatility in the recent past. This volatility had a
substantial effect on the market price of many technology companies that has often been unrelated
to the operating performance of those companies. This volatility may adversely affect the market
price of the Companys common stock.
Rapid Industry Change
The Companys business is subject to rapid technological change and is dependent on new
solutions. The Companys success will depend in part on its ability to develop information
technology solutions to meet client expectations, and offer services and solutions that keep pace
with continuing changes in information technology, evolving industry standards and changing client
preferences.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not Required.
ITEM 2. | PROPERTIES |
The Companys executive office is located at 200 Park Avenue South, New York, New York 10003.
The Companys executive office is approximately 6,000 square feet and is located in a leased
facility with a term expiring on July 31, 2012. In addition, the Company has offices in Bangalore,
India and pays a facilities fee that is based on the utilization. The Company is currently using
such facilities under a Statement of Work which expires July 31, 2011.
ITEM 3. | LEGAL PROCEEDINGS |
See Note 13 Legal Proceedings included in the Companys financial statements which are
included at Item 15 (a) of Part IV of this report.
ITEM 4. | RESERVED |
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PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Price Range of Common Stock
The Companys common stock is currently listed on The NASDAQ Capital Market under the symbol
HMNA. The Company completed an initial public offering of its common stock on August 8, 1997 and
was listed on The NASDAQ National Market. In August 2002, the Companys common stock transitioned
to The NASDAQ Capital Market.
The following table sets forth the quarterly range of high and low sale prices of the
Companys common stock since January 1, 2009 as reported by NASDAQ:
2009 | High | Low | ||||||
First Quarter |
$ | 0.68 | $ | 0.20 | ||||
Second Quarter |
0.60 | 0.15 | ||||||
Third Quarter |
0.55 | 0.25 | ||||||
Fourth Quarter |
2.18 | 0.25 |
2010 | High | Low | ||||||
First Quarter |
$ | 4.05 | $ | 0.57 | ||||
Second Quarter |
1.60 | 0.73 | ||||||
Third Quarter |
0.93 | 0.65 | ||||||
Fourth Quarter |
1.19 | 0.55 |
Dividends
During the last two fiscal years, the Company has not paid any cash dividends on its common
stock.
Holders
There were approximately 15 registered holders of record of the Companys common stock as of
March 3, 2011.
Share Repurchases
None.
Equity Compensation Plan
For information about the Companys equity compensation plan, please see Item 12 of this
report.
ITEM 6. | SELECTED FINANCIAL DATA |
Not Required.
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of significant factors affecting the Companys operating
results and liquidity and capital resources should be read in conjunction with the accompanying
Consolidated Financial Statements and related Notes.
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Table of Contents
Overview
Helios and Matheson North America Inc. (Helios and Matheson or the Company) was
incorporated in the state of New York in February of 1983 and became a public company in August of
1997. In October of 2009, Helios and Matheson changed its state of incorporation from New York to
Delaware. The Company is headquartered in New York City, New York and has a subsidiary in
Bangalore, India. The Company provides a wide range of high quality information technology (IT)
consulting solutions and custom application development services to Fortune 1000 companies and
other large organizations. The Companys shares are listed on The NASDAQ Capital Market (NASDAQ)
under the symbol HMNA.
The Companys services include Application Value Management, Application Development,
Integration, Independent Validation, Infrastructure and Information Management services. The
Company believes that a philosophy of intense focus on client satisfaction, business aware
solutions and guaranteed delivery provides tangible business value to its client base across
banking, financial services, insurance, pharmaceutical and manufacturing/automotive verticals.
The Company is dedicated to providing a Flexible Delivery Model to its clients, which allows
for dynamically configurable right shoring of service delivery based on client needs.
For the three and twelve months ended December 31, 2010, approximately 93% and 88%
respectively, of the Companys consulting services revenues were generated from clients under time
and materials engagements, with the remainder generated under fixed-price engagements as compared
to 76% and 71% for the three and twelve months ended December 31, 2009, respectively. The Company
has established standard-billing guidelines for consulting services based on the types of services
offered. Actual billing rates are established on a project-by-project basis and may vary from the
standard guidelines. The Company typically bills its clients for time and materials services on a
weekly and monthly basis. Arrangements for fixed-price engagements are made on a case-by-case
basis. Consulting services revenues generated under time and materials engagements are recognized
as those services are provided. Revenues from fixed fee contracts are recorded when work is
performed on the basis of the proportionate performance method, which is based on costs incurred to
date relative to total estimated costs.
The Companys most significant operating cost is its personnel cost, which is included in cost
of revenues. For the twelve months ended December 31, 2010 and 2009, gross margin was 20.7% and
24.8% respectively. The decrease in gross margin is primarily a result of a decrease in higher
margin project revenue and software revenue. Large portions of the Companys engagements are on a
time and materials basis. While most of the Companys engagements allow for periodic price
adjustments to address, among other things, increases in personnel costs, the current economic
conditions does not allow much flexibility in the same.
Helios and Matheson actively manage its personnel utilization rates by monitoring project
requirements and timetables. Helios and Mathesons utilization rate for the three and twelve
months ending December 31, 2010, was approximately 89% and 91%, respectively as compared to 88% and
85% for the three and twelve months ending December 31, 2009, respectively. As projects are
completed, consultants either are re-deployed to new projects at the current client site or to new
projects at another client site or are encouraged to participate in Helios and Mathesons training
programs in order to expand their technical skill sets.
Investments
On March 30, 2006, Helios and Matheson Parent, an IT services organization with its corporate
headquarters in Chennai, India, purchased 1,024,697 shares of the Companys common stock from Mr.
Shmuel BenTov, the Companys former Chairman, Chief Executive Officer and President and his family
members, which represented approximately 43% of the Companys outstanding common stock. In 2006,
2007, 2008, 2009 and 2010 Helios and Matheson Parent purchased additional shares of the Companys
common stock. Helios and Matheson parent owns 4,882,594 shares of common stock, representing
approximately 84% of the shares of the common stock currently outstanding. Helios and Matheson
Parent is a publicly listed company on three stock exchanges in India, the National Stock Exchange
(NSE), the Stock Exchange, Mumbai (BSE) and Madras Stock Exchange (MSE).
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Critical Accounting Policies
The methods, estimates and judgments the Company uses in applying its most critical accounting
policies have a significant impact on the results the Company reports in its consolidated financial
statements. The Company
evaluates its estimates and judgments on an on-going basis. Estimates are based on historical
experience and on assumptions that the Company believes to be reasonable under the circumstances.
The Companys experience and assumptions form the basis for its judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources. Actual results may
vary from what is anticipated and different assumptions or estimates about the future could change
reported results. The Company believes the following accounting policies are the most critical to
it, in that they are important to the portrayal of its consolidated financial statements and they
require the most difficult, subjective or complex judgments in the preparation of the consolidated
financial statements.
Revenue Recognition
Consulting revenues are recognized as services are provided. The Company primarily provides
consulting services under time and material contracts, whereby revenue is recognized as hours and
costs are incurred. Customers for consulting revenues are billed on a weekly, semi-monthly or
monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis
of the proportionate performance method, which is based on costs incurred to date relative to total
estimated costs. Any anticipated contract losses are estimated and accrued at the time they become
known and estimable. Unbilled receivables represent amounts recognized as revenue based on
services performed in advance of customer billings. Revenue from sales of software licenses is
recognized upon delivery of the software to a customer because future obligations associated with
such revenue are insignificant.
Allowance for Doubtful Accounts
The Company monitors its accounts receivable balances on a monthly basis to ensure that they
are collectible. On a quarterly basis, the Company uses its historical experience to accurately
determine its accounts receivable reserve. The Companys allowance for doubtful accounts is an
estimate based on specifically identified accounts as well as general reserves. The Company
evaluates specific accounts where it has information that the customer may have an inability to
meet its financial obligations. In these cases, management uses its judgment, based on the best
available facts and circumstances, and records a specific reserve for that customer, against
amounts due, to reduce the receivable to the amount that is expected to be collected. These
specific reserves are reevaluated and adjusted as additional information is received that impacts
the amount reserved. The Company also establishes a general reserve for all customers based on a
range of percentages applied to aging categories. These percentages are based on historical
collection and write-off experience. If circumstances change, the Companys estimate of the
recoverability of amounts due the Company could be reduced or increased by a material amount. Such
a change in estimated recoverability would be accounted for in the period in which the facts that
give rise to the change become known.
Valuation of Deferred Tax Assets
Deferred tax assets are reduced by a valuation allowance when, in the opinion of the Company,
it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The Company assesses the recoverability of deferred tax assets at least annually based
upon the Companys ability to generate sufficient future taxable income and the availability of
effective tax planning strategies.
Stock Based Compensation
The Company uses the modified prospective application method as specified by the FASB whereby
compensation cost is recognized over the remaining service period based on the grant-date fair
value of those awards as calculated for pro forma disclosures as originally issued.
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Results of Operations
The following table sets forth the percentage of revenues of certain items included in the
Companys Statements of Operations:
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Revenues |
100.0 | % | 100.0 | % | ||||
Cost of revenues |
79.3 | % | 75.2 | % | ||||
Gross profit |
20.7 | % | 24.8 | % | ||||
Operating expenses |
27.8 | % | 38.6 | % | ||||
Loss from operations |
(7.1 | )% | (13.8 | )% | ||||
Net loss |
(7.1 | )% | (13.9 | )% | ||||
Comparison of Year Ended December 31, 2010 to Year Ended December 31, 2009
Revenues. Revenues of the Company decreased by $1.6 million or 10.8% from $14.9 million for
the twelve months ended December 31, 2009 to $13.3 million for the twelve months ended December 31,
2010. The decrease was primarily attributable to (a) decline in consulting revenue due to
difficulty in replacing completed projects and a pushback of new assignments from existing clients
primarily as a result of the continuing economic uncertainty still adversely affecting spending on
IT services and (b) reduction of software revenue due to the termination of the contract by Cogito
Ltd.
Gross Profit. The resulting gross profit for the twelve months ended December 31, 2010 was
$2.8 million, a decrease of $942,000 or 25.5% from the 2009 comparable period amount of $3.7
million. As a percentage of total revenue, gross margin for the twelve months ended December 31,
2010 was 20.7%, a decrease of 4.1% from the 2009 level of 24.8%. The gross margin has decreased
primarily as a result of a decrease in higher margin project revenue and software revenue.
Operating Expenses. Operating expenses are comprised of Selling, General and Administrative
(SG&A) expenses and depreciation and amortization. SG&A expenses decreased by $2,000,000, or
35.8% from $5.6 million for the twelve months ended December 31, 2009 to $3.6 million for the
twelve months ended December 31, 2010. The decrease in SG&A was associated with various cost
reduction initiatives including, but not limited to, renegotiation with major vendors and process
restructuring, leading to higher efficiency.
Taxes. Taxes decreased by $17,500 from $22,000 for the twelve months ended December 31, 2009
to $4,500 for the twelve months ended December 31, 2010. For the twelve months ended December 31,
2010, the Company recorded a tax provision of $18,000 for minimum state taxes, and provision to
return adjustments of ($13,500) from the filing of state and federal tax returns. In addition,
deferred taxes were not impacted by the pre-tax net loss since such amounts were fully reserved as
of December 31, 2010 and 2009, respectively.
Net Loss. As a result of the above, the Company had a net loss of ($940,000) or ($0.22) per
basic and diluted share for the twelve months ended December 31, 2010 compared to a net loss of
($2.1) million or ($0.84) per basic and diluted share for the twelve months ended December 31,
2009.
Liquidity and Capital Resources
The Company believes that its business, operating results and financial condition have been
affected by the recent economic crisis and ongoing economic uncertainty which continue to impact
the IT spending of its clients. A significant portion of the Companys major customers are in the
financial services industry and came under considerable pressure as a result of the unprecedented
economic conditions in the financial markets. Spending on IT consulting services is largely
discretionary, and the Company has experienced a pushback of new assignments and high margin
projects from existing clients. Yet, the Company more than halved its losses during 2010 as
compared to 2009. The Company had an operating loss of approximately ($941,000) and a net loss of
approximately ($940,000) for the twelve months ended December 31, 2010. During the twelve months ended
December 31, 2009, the Company had an operating loss and net loss of approximately ($2.1) million.
8
Table of Contents
The Companys cash balances were approximately $1.7 million at December 31, 2010, which
included a $2.0 million cash infusion resulting from the Purchase Agreement with Helios and
Matheson Parent, as compared to $1.4 million at December 31, 2009. Net cash used in operating
activities for the twelve months ended December 31, 2010 was approximately $1.7 million compared to
net cash used in operating activities of approximately $535,000 for the twelve months ended
December 31, 2009.
The Companys accounts receivable, less allowance for doubtful accounts, at December 31, 2010
and December 31, 2009 were $2.2 million and $2.5 million, respectively, representing 61 days of
sales outstanding (DSO) for both years. The Company believes that stable DSO of 61 days in 2010
and 2009 is consistent with favorable resolutions of a limited number of dated client disputes.
The accounts receivable at December 31, 2010 and 2009 included $0 and $184,000 of unbilled revenue
respectively. The Company has provided an allowance for doubtful accounts at the end of each of
the periods presented. After giving effect to this allowance, the Company does not anticipate any
difficulty in collecting amounts due.
For the twelve months ended December 31, 2010, revenues from the Companys three largest
customers represented 22%, 21% and 21% of revenues. For the twelve months ended December 31, 2009,
the Company had revenues from two customers, which represented 23% and 10% of revenues,
respectively. No other customer represented greater than 10% of the Companys revenues for such
periods.
Net cash provided by/(used in) investing activities was approximately ($13,000) and $3,000,
for the twelve months ended December 31, 2010 and 2009, respectively. In 2010, this included
addition to property and equipment of $22,000 for purchasing a leased vehicle, and $3,000 in 2010
and $13,000 in 2009, consisting primarily of upgrades to systems and servers. During 2010,
additions were offset by disposals totaling $12,000.
Net cash provided by financing activities was approximately $2,000,000 (which included a $2.0
million cash infusion from Helios and Matheson Parent) and $980,000 (which included a $1.0 million
cash infusion from Helios and Matheson Parent) for the twelve months ended December 31, 2010 and
2009 respectively.
In managements opinion, cash flows from operations combined with cash on hand will provide
adequate flexibility for funding the Companys working capital obligations for the next twelve
months.
For the twelve months ended December 31, 2010 and 2009, there were no shares of common stock
issued pursuant to the exercise of options issued under the Companys stock option plan.
Going Concern
See Going Concern in Note 1 of the Companys financial statements which are included at Item
15 (a) (1) and (2) of Part IV of this report.
Off-Balance Sheet Arrangements
The Company did not have any Off Balance Sheet Arrangements during the twelve months ended
December 31, 2010 and 2009, respectively.
Contractual Obligations
The Company has the following contractual obligations as of December 31, 2010:
Payments Due by Period | ||||||||||||||||||||
More Than 5 | ||||||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | Years | |||||||||||||||
Operating Lease Obligations |
||||||||||||||||||||
Rent (1) |
450,037 | 284,234 | 165,803 | | | |||||||||||||||
Total |
$ | 450,037 | $ | 284,234 | $ | 165,803 | $ | | $ | | ||||||||||
(1) | The Company has a New York facility with a lease term expiring July 31, 2012. |
9
Table of Contents
Recent Accounting Pronouncements
None.
Inflation
The Company has not suffered material adverse affects from inflation in the past. However, a
substantial increase in the inflation rate in the future may adversely affect customers purchasing
decisions, and consequently impact the Companys margins and overall cost structure.
Nasdaq
Refer to the Current Report on Form 8-K filed with the SEC on July
26, 2010 and the Current Report on Form 8-K filed with the SEC on January 24, 2011. We
appealed NASDAQs decisions on February 24, 2011 and we are currently awaiting the panels decision
on our appeal.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not Required.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See the Companys financial statements which are included at Item 15 (a) (1) and (2) of Part
IV of this report.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management under the supervision of and with the participation of our President and Chief
Executive Officer, Chief Operating Officer and Principal Financial Officer, conducted an
evaluation, of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act) as of December 31, 2010. Disclosure controls and procedures are
designed to ensure that information required to be disclosed in the reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer, Chief Operating Officer and Principal Financial
Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, our
Chief Executive Officer, Chief Operating Officer and Principal Financial Officer have concluded
that, as of December 31, 2010, our disclosure controls and procedures were effective.
Managements Responsibility for Financial Statements
Our management is responsible for the integrity and objectivity of all information presented
in this annual report. The consolidated financial statements were prepared in conformity with
accounting principles generally accepted in the United States of America and include amounts based
on managements best estimates and judgments. Management believes the consolidated financial
statements fairly reflect the form and substance of transactions and that the financial statements
fairly represent the Companys financial position and results of operations.
The Audit Committee of the Board of Directors, which is composed solely of independent
directors, meets regularly with the Companys independent registered public accounting firm and
representatives of management to review accounting, financial reporting, internal control and audit
matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible
for the engagement of the independent registered public accounting firm. The independent registered
public accounting firm has free access to the Audit Committee.
10
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Management Report on Internal Control Over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the reliability of the
Companys financial reporting and the preparation of the financial statements for external purposes
in accordance with U.S. generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that
(i) | Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company; |
(ii) | Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and |
(iii) | Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a material effect
on the financial statements. |
Management assessed the Companys internal control over financial reporting as of December 31,
2010, the end of the Companys fiscal year. Management based its assessment on criteria
established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on the managements assessment, management has concluded that the Companys internal
control over financial reporting was effective as of December 31, 2010. Management has reviewed the
results of the assessment of the Companys internal controls over financial reporting with the
Audit Committee of the Companys Board of Directors.
Inherent Limitations on Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect all misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls
During the period covered by this report, there was no change in our internal control over
financial reporting for the quarter (as defined in Rule 13a-15(f) of the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. | OTHER INFORMATION |
None
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information concerning the Companys Code of Ethics is set forth below in this Item 10.
All other information required by this item is incorporated by reference to the Companys Proxy
Statement for the 2011 Annual Meeting of Shareholders.
11
Table of Contents
Code of Ethics
The Board of Directors has adopted a code of ethics designed, in part, to deter wrongdoing and
to promote honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships, full, fair, accurate, timely
and understandable disclosure in reports and documents that the Company files with or submits to
the Securities and Exchange Commission and in the Companys other public communications, compliance
with applicable governmental laws, rules and regulations, the prompt internal reporting of code
violations to an appropriate person or persons, as identified in the code and accountability for
adherence to the code. The code of ethics applies to all directors, executive officers and
employees of the Company. The Company will provide a copy of the code to any person without
charge, upon request to Ms. Jeannie Lovastik, Human Resources Manager by calling 212-979-8228 or
writing to Ms. Lovastiks attention at Helios and Matheson North America Inc., 200 Park Avenue
South, Suite 901, New York, New York, 10003.
The Company intends to disclose any amendments to or waivers of its code of ethics as it
applies to directors or executive officers by filing them on Form 8-K.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item is incorporated by reference to the Companys Proxy
Statement for the 2011 Annual Meeting of Shareholders.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS |
The information concerning the Companys equity compensation plan is set forth below in this
Item 12. All other information required by this item is incorporated by reference to the Companys
Proxy Statement for the 2011 Annual Meeting of Shareholders.
Equity Compensation Plan Information
The Equity Compensation Plan Information as of December 31, 2010 was as follows:
Number of securities | ||||||||||||
remaining available for future | ||||||||||||
issuance under equity | ||||||||||||
compensation plans | ||||||||||||
Number of securities to be | Weighted-average exercise | (Excluding securities to be | ||||||||||
issued upon exercise of | price of outstanding | issued upon exercise of | ||||||||||
outstanding options, | options, warrants and | outstanding options, warrants | ||||||||||
warrants and rights as of | rights as of December 31, | and rights as of December 31, | ||||||||||
Plan Category | December 31, 2010 | 2010 | 2010) | |||||||||
Equity compensation plans
approved by
security holders |
34,250 | $ | 4.74 | 425,750 | ||||||||
Equity compensation
plans not
approved by
security holders |
| | | |||||||||
Total |
34,250 | $ | 4.74 | 425,750 | ||||||||
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated by reference to the Companys Proxy
Statement for the 2011 Annual Meeting of Shareholders.
12
Table of Contents
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated by reference to the Companys Proxy
Statement for the 2011 Annual Meeting of Shareholders.
PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
15(a) (1) Financial Statements
The Consolidated Financial Statements filed as part of this report are listed and indexed in
the table of contents. Schedules other than those listed in the index have been omitted because
they are not applicable or the required information has been included elsewhere in this report.
15(a) (2) Consolidated Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts are included in this report.
15 (a) (3) Exhibits
The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index
immediately preceding the exhibits. The Company has identified in the Exhibit Index each management
contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response
to Item 15(a) (3) of Form 10-K.
Exhibit | ||||
Number | Description of Exhibits | |||
3.1 | Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1
to the form 10-K, as previously filed with SEC on March 31, 2010. |
|||
3.2 | Bylaws of Helios and Matheson North America Inc. , incorporated by reference to Exhibit
3.2 to the form 10-K, as previously filed with SEC on March 31, 2010. |
|||
4.1 | Specimen common stock certificate, incorporated by reference to Exhibit 4.1 to the form
10-K, as previously filed with SEC on March 31, 2010. |
|||
10.1 | Securities Purchase Agreement between the Company and Helios and Matheson Information
Technology Ltd. dated as of August 4, 2010, incorporated by reference to Exhibit 10.1 on
Form 8-K, as previously filed with the SEC on August 6, 2010. |
|||
10.1.1 | Amended and Restated 1997 Stock Option and Reward Plan, incorporated by reference to Annex
J to the Companys Definitive Proxy Statement, as previously filed with the SEC on June 27,
2005. |
|||
10.1.2 | Amendment No. 1 to the Registrants Amended and Restated 1997 Stock Option and Award Plan,
incorporated by reference to Exhibit 10.2 on Form 8-K, as previously filed with the SEC on
June 9, 2006. |
|||
10.1.3 | Amendment No. 2 to the Registrants Amended and Restated 1997 Stock Option and Award Plan,
incorporated by reference to Exhibit 10.1.3 to the Form 10-K for the period ended December
31, 2006, as previously filed with the SEC on March 29, 2007. |
|||
10.1.4 | Form of Restricted Stock Award Grant and Notice Agreement between the Registrant and each
of its Non-Employee Directors, incorporated by reference to Exhibit 10.9 to the Form 10-Q for
the nine months ended September 30, 2005, as previously filed with the SEC on November 14,
2005. |
|||
10.1.5 | Form of Non-Qualified Stock Option Agreement between the Registrant and each of its
Non-Employee Directors incorporated by reference to Exhibit 10.10 to the Form 10-Q for the
nine months ended September 30, 2005, as previously filed with the SEC on November 14, 2005.
|
13
Table of Contents
Exhibit | ||||
Number | Description of Exhibits | |||
10.2 | Memorandum of Understanding, dated as of September 22, 2010, between the Registrant and
Helios and Matheson Information Technology Limited, incorporated by reference to Exhibit 10.2
to Form 10-Q for the nine months ended September 30, 2010, as previously filed with the SEC
on November 15, 2010. |
|||
10.3 | Form of Indemnification Agreement between the Registrant and certain of its Directors and
its Chief Executive Officer, incorporated by reference to Exhibit 10.12 to the Form 10-Q for
the period ended September 30, 2003 as previously filed with the SEC on November 14, 2003. |
|||
10.4 | Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as
of August 1, 2010, incorporated by reference to Exhibit 10.1 to the Form 10-Q as previously
filed with the SEC on November 15, 2010. |
|||
21 | Helios and Matheson North America, Inc. List of Subsidiaries, incorporated by reference to
Exhibit 21 to the Form 10-K for the period ended December 31, 2009, as previously filed with
SEC on March 31, 2010. |
|||
23.2 | Consent of Mercadien, P.C., Certified Public Accountants. |
|||
31.1 | Certification
of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002. |
|||
31.2 | Certification
of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002. |
|||
31.3 | Certification
of Chief Operating Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002. |
|||
32.1 | Certification
of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification
of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.3 | Certification
of the Chief Operating Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Management contract or compensation plan. |
14
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HELIOS AND MATHESON NORTH AMERICA INC. |
||||
By: | /s/ Divya Ramachandran | |||
Divya Ramachandran | ||||
President and Chief Executive Officer | ||||
By: | /s/ Umesh Ahuja | |||
Umesh Ahuja | ||||
Chief Financial Officer | ||||
By: | /s/ Suparna NR | |||
Suparna NR | ||||
Chief Operating Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature | Title | Date | ||
/s/ Divya Ramachandran
|
President, Chief Executive Officer and Director (Principal Executive Officer) | March 15, 2011 | ||
/s/ Shri S. Jambunathan
|
Chairman and Director | March 15, 2011 | ||
/s/ Daniel L. Thomas
|
Director | March 15, 2011 | ||
/s/ Kishan Grama Ananthram
|
Director | March 15, 2011 | ||
/s/ Suparna NR
|
Chief Operating Officer | March 15, 2011 | ||
/s/ Umesh Ahuja
|
Chief Financial Officer (Principal Financial Officer) | March 15, 2011 |
15
Table of Contents
ITEM 15 (a) (1) and (2)
HELIOS AND MATHESON NORTH AMERICA INC.
The following consolidated financial statements and financial statement schedule of Helios and
Matheson North America Inc. are included in Item 8:
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
S-1 |
All other schedules for which provision is made in the applicable accounting regulation of the SEC
are not required under the related instructions or are inapplicable and therefore have been
omitted.
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Helios and Matheson North America Inc.
Helios and Matheson North America Inc.
We have audited the accompanying consolidated balance sheets of Helios and Matheson North America
Inc. and Subsidiary, (the Company) as of December 31, 2010 and 2009, and the related consolidated
statements of operations and comprehensive income, shareholders equity, and cash flows for the
each of the two years in the period ended December 31, 2010. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Helios and Matheson North America Inc. and Subsidiary as of
December 31, 2010 and 2009, and the results of its operations and its cash flows for the each of
the two years in the period ended December 31, 2010, in conformity with U.S. generally accepted
accounting principles.
We were not engaged to examine managements assertion about the effectiveness of Helios and
Matheson North America Inc.s internal control over financial reporting as of December 31, 2010
included in Item 9A(T) on the Form 10-K entitled Management Report on Internal Control Over
Financial Reporting and, accordingly, we do not express an opinion thereon.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements
taken as a whole. The Schedule II listed in the index of financial statements is presented for
purposes of additional analysis and is not a required part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Mercadien, P.C., Certified Public Accountants
|
Mercadien, P.C., Certified Public Accountants
Hamilton, New Jersey
March 15, 2011
Hamilton, New Jersey
March 15, 2011
F-2
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC.
CONSOLIDATED BALANCE SHEETS
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 1,656,456 | $ | 1,354,989 | ||||
Accounts receivable- less allowance for doubtful accounts of $212,624 at
December 31, 2010, and $220,879 at December 31, 2009 |
2,223,452 | 2,471,705 | ||||||
Unbilled receivables |
| 184,229 | ||||||
Prepaid expenses and other current assets |
1,069,646 | 178,879 | ||||||
Total current assets |
4,949,554 | 4,189,802 | ||||||
Property and equipment, net |
44,613 | 79,952 | ||||||
Deposits and other assets |
139,703 | 154,703 | ||||||
Total assets |
$ | 5,133,870 | $ | 4,424,457 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 1,449,132 | $ | 1,630,054 | ||||
Deferred revenue |
19,504 | 184,904 | ||||||
Total current liabilities |
1,468,636 | 1,814,958 | ||||||
Shareholders equity: |
||||||||
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and
outstanding as of December 31, 2010, and December 31, 2009 |
| | ||||||
Common stock, $.01 par value; 30,000,000 shares authorized; 5,826,088 issued and outstanding as of December 31, 2010 and 3,086,362 issued and outstanding as
of December 31, 2009 |
58,261 | 30,864 | ||||||
Paid-in capital |
37,820,783 | 35,840,669 | ||||||
Accumulated other comprehensive (loss)/income foreign currency translation |
(9,862 | ) | 2,084 | |||||
Accumulated deficit |
(34,203,948 | ) | (33,264,118 | ) | ||||
Total shareholders equity |
3,665,234 | 2,609,499 | ||||||
Total liabilities and shareholders equity |
$ | 5,133,870 | $ | 4,424,457 | ||||
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Revenues |
$ | 13,279,555 | $ | 14,890,970 | ||||
Cost of revenues |
10,532,901 | 11,201,957 | ||||||
Gross profit |
2,746,654 | 3,689,013 | ||||||
Operating expenses: |
||||||||
Selling, general and administrative |
3,639,720 | 5,623,108 | ||||||
Depreciation and amortization |
48,318 | 124,662 | ||||||
Impairment of goodwill |
| | ||||||
3,688,038 | 5,747,770 | |||||||
Loss from operations |
(941,384 | ) | (2,058,757 | ) | ||||
Interest income |
6,026 | 5,011 | ||||||
Loss before income taxes |
$ | (935,358 | ) | $ | (2,053,746 | ) | ||
Provision for income taxes |
4,472 | 21,931 | ||||||
Net loss |
(939,830 | ) | (2,075,677 | ) | ||||
Other comprehensive (loss)/income foreign currency adjustment |
(11,946 | ) | (4,779 | ) | ||||
Comprehensive loss |
$ | (951,776 | ) | $ | (2,080,456 | ) | ||
Basic and diluted loss per share |
$ | (0.22 | ) | $ | (0.84 | ) | ||
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Additional | Accumulated | |||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Other Comp | Accumulated | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income | Deficit | Total | |||||||||||||||||||||||||
Balance, December 31, 2007 |
| $ | | 2,396,707 | $ | 23,967 | $ | 34,758,266 | $ | 1,655 | $ | (28,264,093 | ) | $ | 6,519,795 | |||||||||||||||||
Net Loss |
| | | | | | (2,924,348 | ) | (2,924,348 | ) | ||||||||||||||||||||||
Stock based compensation expense |
| | | | 64,470 | | | 64,470 | ||||||||||||||||||||||||
Foreign Exchange Translation |
| | | | | 5,208 | | 5,208 | ||||||||||||||||||||||||
Balance, December 31, 2008 |
| $ | | 2,396,707 | $ | 23,967 | $ | 34,822,736 | $ | 6,863 | $ | (31,188,441 | ) | $ | 3,665,125 | |||||||||||||||||
Net Loss |
| | | | | | (2,075,677 | ) | (2,075,677 | ) | ||||||||||||||||||||||
Sale of stock |
| | 689,655 | 6,897 | 993,103 | | | 1,000,000 | ||||||||||||||||||||||||
Stock based compensation expense |
| | | | 24,830 | | | 24,830 | ||||||||||||||||||||||||
Foreign Exchange Translation |
| | | | | (4,779 | ) | | (4,779 | ) | ||||||||||||||||||||||
Balance, December 31, 2009 |
| $ | | 3,086,362 | $ | 30,864 | $ | 35,840,669 | $ | 2,084 | $ | (33,264,118 | ) | $ | 2,609,499 | |||||||||||||||||
Net Loss |
| | | | | | (939,830 | ) | (939,830 | ) | ||||||||||||||||||||||
Sale of stock |
| | 2,739,726 | 27,397 | 1,972,603 | | | 2,000,000 | ||||||||||||||||||||||||
Stock based compensation expense |
| | | | 7,511 | | | 7,511 | ||||||||||||||||||||||||
Foreign Exchange Translation |
| | | | | (11,946 | ) | | (11,946 | ) | ||||||||||||||||||||||
Balance, December 31, 2010 |
| $ | | 5,826,088 | $ | 58,261 | $ | 37,820,783 | $ | (9,862 | ) | $ | (34,203,948 | ) | $ | 3,665,234 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (939,830 | ) | $ | (2,075,677 | ) | ||
Depreciation and amortization |
48,318 | 124,662 | ||||||
Impairment of goodwill |
| | ||||||
Provision for doubtful accounts |
(36,320 | ) | 60,000 | |||||
Stock based compensation |
7,511 | 24,830 | ||||||
Write down of investment |
| | ||||||
Reduction of capital lease obligation |
| | ||||||
Amortization of deferred financing cost |
| 8,883 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
284,573 | 1,314,650 | ||||||
Unbilled receivables |
184,229 | (150,021 | ) | |||||
Prepaid expenses and other current assets |
(890,767 | ) | 148,113 | |||||
Deposits |
15,000 | 1,750 | ||||||
Accounts payable and accrued expenses |
(180,922 | ) | (17,668 | ) | ||||
Deferred revenue |
(165,401 | ) | 25,118 | |||||
Net cash used in operating activities |
(1,673,609 | ) | (535,360 | ) | ||||
Cash flows from investing activities: |
||||||||
(Purchase)/Sale of property and equipment |
(12,978 | ) | 2,856 | |||||
Net cash provided by/(used in) investing activities |
(12,978 | ) | 2,856 | |||||
Cash flows from financing activities: |
||||||||
Proceeds from the sale of stock |
2,000,000 | 1,000,000 | ||||||
Payment of deferred financing cost |
| (20,000 | ) | |||||
Net cash provided by financing activities |
2,000,000 | 980,000 | ||||||
Effect of foreign currency exchange rate changes on cash and cash equivalents |
(11,946 | ) | (4,779 | ) | ||||
Net increase/(decrease) in cash and cash equivalents |
301,467 | 442,717 | ||||||
Cash and cash equivalents at beginning of period |
1,354,989 | 912,272 | ||||||
Cash and cash equivalents at end of period |
$ | 1,656,456 | $ | 1,354,989 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for interest |
$ | | $ | | ||||
Cash paid during the period for income taxes, net of refunds |
$ | 446 | $ | (64,018 | ) | |||
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
Helios and Matheson North America Inc. (formerly The A Consulting Team, Inc.) (Helios and
Matheson or the Company) was incorporated in the state of New York in February of 1983 and
became a public company in August of 1997. In October of 2009, Helios and Matheson changed its
state of incorporation from New York to Delaware. The Company is headquartered in New York, New
York and has offices in New York and Bangalore, India. The Company provides a wide range of
information technology (IT) consulting, custom application development and solutions to Fortune
1000 companies and other large organizations. The Company supports all major computer technology
platforms and supports client IT projects by using a broad range of third-party software
applications.
Principles of Consolidation
The consolidated financial statements include the accounts of Helios and Matheson North
America Inc. and its 100% owned subsidiary Helios and Matheson Global Services Private Limited
(HMGS) from its date of acquisition on September 30, 2005. All material inter-company accounts
and transactions have been eliminated.
Certain amounts reported in previous years have been reclassified to conform to the fiscal
2010 presentation. Such reclassifications were immaterial.
Accounting Standards Codification
The Financial Accounting Standards Board (FASB) issued a new standard known as the FASB
Accounting Standards Codification (ASC), which became the source of authoritative accounting and
reporting standards in the United States, in addition to guidance issued by the Securities and
Exchange Commission (SEC). The ASC is a restructuring of accounting and reporting standards
designed to simplify user access to all authoritative U.S. Generally Accepted Accounting Principles
(GAAP) by modifying the GAAP hierarchy to include only two levels of GAAP: authoritative and
non-authoritative. The Company has adopted the disclosure and hierarchy requirements of this
standard.
Accounting for Income Taxes
The Company adopted a FASB provision relating to Uncertainty in Income Taxes. As a result of
the implementation, there has been no material change to the Companys tax position as the Company
has not paid any corporate income taxes due to operating losses. All tax benefits will likely not
be recognized due to the substantial net operating loss carry-forwards. With no tax due for the
foreseeable future, the Company has determined that a policy to determine the accounting for
interest or penalties related to the payment of tax is not necessary at this time.
Deferred income tax assets and liabilities are determined based on differences between the
financial statement reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws in effect when the differences are expected to reverse. The measurement
of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax
benefits, which are not expected to be realized. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in the period that such tax rate changes are
enacted.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains
and losses that are recorded as an element of shareholders equity but are excluded from net income
(loss). The Companys other comprehensive income (loss) is comprised of foreign currency
translation adjustments.
F-7
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
Assets and liabilities denominated in non-U.S. currencies are translated at the rate of
exchange prevailing on the date of the consolidated statement of financial condition and revenues
and expenses are translated at average rates of exchange for the period. Gains (losses) on
translation of the consolidated financial statements are from the Companys subsidiary where the
functional currency is not the U.S. dollar. Translation gains (losses) are reflected as a
component of accumulated other comprehensive income (loss). Gains (losses) on foreign currency
transactions are included in the consolidated statements of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Going Concern
The Companys financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and satisfaction of liabilities in the normal
course of business. At December 31, 2010, the Company had $1,656,456 of cash and cash equivalents
on hand, which included a $2.0 million cash infusion resulting from a securities purchase agreement
between the Company and Helios and Matheson Parent, as compared to $1,354,989 of cash and cash
equivalents at December 31, 2009. For the year ended December 31, 2010 the Company reported a net
loss of approximately ($940,000). For the year ended December 31, 2009 the Company reported a net
loss of approximately ($2,076,000). Based upon the Companys net losses, the ability of the Company
to continue as a going concern is dependent on the Company achieving profitable operations in
future.
Earnings Per Share
The Company calculates earnings per share as specified by the FASB. Basic earnings per share
is calculated by dividing net earnings available to common shares by weighted average common shares
outstanding. Diluted earnings per share is calculated similarly, except that it includes the
dilutive effect of the assumed exercise of securities except when it is anti-dilutive, including
the effect of shares issuable under the Companys incentive plans.
Cash Equivalents
The Company considers all highly liquid financial instruments with original maturity of three
months or less when purchased to be cash equivalents.
Fair Value of Financial Instruments
The carrying value of financial instruments (principally consisting of cash, cash equivalents,
accounts receivable, long term debt and capital leases) approximates fair value because of their
short maturities.
Property and Equipment
Property and equipment are depreciated using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years.
Long-Lived Assets
When impairment indicators are present, the Company reviews the carrying value of its assets
in determining the ultimate recoverability of their unamortized values using analyses of future
undiscounted cash flows expected to be generated by the assets. If such assets are considered
impaired, the impairment recognized is
measured by the amount by which the carrying amount of the asset exceeded its fair value.
Assets to be disposed of are reported at the lower of the carrying amount or fair value, less cost
to sell.
F-8
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Consulting revenues are recognized as services are provided. The Company primarily provides
consulting services under time and material contracts, whereby revenue is recognized as hours and
costs are incurred.
Customers for consulting revenues are billed on a weekly, semi-monthly and monthly basis.
Revenues from fixed fee contracts are recorded when work is performed on the basis of the
proportionate performance method, which is based on costs incurred to date relative to total
estimated costs. Any anticipated contract losses are estimated and accrued at the time they become
known and estimable. Unbilled receivables represent amounts recognized as revenue based on
services performed in advance of customer billings. A liability for deferred revenue is
established for customer collections in excess of amounts earned under each contract. Revenue from
sales of software licenses is recognized upon delivery of the software to a customer because future
obligations associated with such revenue are insignificant.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful
accounts. The Company monitors its accounts receivable balances on a monthly basis to ensure that
they are collectible. On a quarterly basis, the Company uses its historical experience to
determine its accounts receivable reserve. The Companys allowance for doubtful accounts is an
estimate based on specifically identified accounts as well as general reserves. The Company
evaluates specific accounts where it has information that the customer may have an inability to
meet its financial obligations. In these cases, management uses its judgment, based on the best
available facts and circumstances, and records a specific reserve for that customer against amounts
due to reduce the receivable to the amount that is expected to be collected. These specific
reserves are reevaluated and adjusted as additional information is received that impacts the amount
reserved. The Company also establishes a general reserve for all customers based on a range of
percentages applied to aging categories. These percentages are based on historical collection and
write-off experience. If circumstances change, the Companys estimate of the recoverability of
amounts due the Company could be reduced or increased by a material amount. Such a change in
estimated recoverability would be accounted for in the period in which the facts that give rise to
the change become known.
Segment Information
The disclosure of segment information is not required as the Company operates in only one
business segment.
Stock-Based Compensation
No non-employee equity instruments were granted in 2010 or 2009.
At December 31, 2010, the Company has a stock based compensation plan, which is described as
follows:
The Company adopted a Stock Option Plan (the Plan) that provides for the grant of stock
options that are either incentive or non-qualified for federal income tax purposes. The Plan
provides for the issuance of a maximum of 460,000 shares of common stock (subject to adjustment
pursuant to customary anti-dilution provisions). Stock options vest over a period between one to
four years.
The exercise price per share of a stock option is established by the Compensation Committee of
the Board of Directors in its discretion, but may not be less than the fair market value of a share
of common stock as of the date of grant. The aggregate fair market value of the shares of common
stock with respect to which incentive stock options first become exercisable by an individual to
whom an incentive stock option is granted during any calendar year may not exceed $100,000.
Stock options, subject to certain restrictions, may be exercisable any time after full vesting
for a period not to exceed ten years from the date of grant. Such period is to be established by
the Company in its discretion on the date of grant. Stock options terminate in connection with the
termination of employment.
F-9
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company uses the modified prospective application method as specified by the
FASB whereby compensation cost is recognized over the remaining service period based on the
grant-date fair value of those awards
as calculated for pro forma disclosures as originally issued. For the three and twelve
months ended December 31, 2010, the Company recorded stock based compensation expense of $0 and
$7,512, respectively. For the three and twelve months ended December 31, 2009, the Company
recorded stock based compensation expense of $6,256 and $24,830, respectively.
The fair value of options at the date of grant was estimated using the Black-Scholes model with the
following assumptions:
2010 | 2009 | |||||||
Expected life (years) |
4.00 | 4.00 | ||||||
Risk free interest rate |
1.45 | % | 1.62 | % | ||||
Expected volatility |
1.18 | 1.72 | ||||||
Weighted average fair value per option |
$ | 0.00 | (1) | $ | 0.00 | (1) |
(1) | There were no options granted by the Company for the 12 months ended Decmber 31, 2010 and
2009. |
2. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per
share for the years ended December 31, 2010 and 2009.
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Numerator for basic net loss per share |
||||||||
Net loss |
$ | (939,830 | ) | $ | (2,075,677 | ) | ||
Net loss available to
common stockholders |
$ | (939,830 | ) | $ | (2,075,677 | ) | ||
Numerator for diluted net loss per share |
||||||||
Net loss available to common
stockholders & assumed conversion |
$ | (939,830 | ) | $ | (2,075,677 | ) | ||
Denominator: |
||||||||
Denominator for basic and diluted loss
per share weighted-average shares |
4,212,277 | 2,476,065 | ||||||
Basic and diluted loss per share: |
||||||||
Net loss per share |
$ | (0.22 | ) | $ | (0.84 | ) | ||
All options and warrants outstanding during 2010 and 2009 were not included in the
computation of net loss per share because the effect would be ant dilutive.
F-10
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Equipment and leaseholds |
$ | 218,045 | $ | 226,475 | ||||
Software |
166,705 | 166,705 | ||||||
Furniture and fixtures |
91,305 | 111,984 | ||||||
Automobiles |
21,889 | 20,990 | ||||||
497,944 | 526,154 | |||||||
Less accumulated depreciation and amortization |
453,332 | 446,202 | ||||||
$ | 44,612 | $ | 79,952 | |||||
4. CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company has the following commitment as of December 31, 2010: operating lease obligations. The
Company has one operating lease for its corporate headquarters located in New York. As of December
31, 2010, the Company does not have any Off Balance Sheet Arrangements.
The Companys contractual obligations at December 31, 2010, are comprised of the following:
Payments Due by Period | ||||||||||||||||||||
More Than 5 | ||||||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | Years | |||||||||||||||
Operating Lease Obligations |
||||||||||||||||||||
Rent (1) |
450,037 | 284,234 | 165,803 | | | |||||||||||||||
Total |
$ | 450,037 | $ | 284,234 | $ | 165,803 | $ | | $ | | ||||||||||
(1) | The Company has a New York facility with a lease term expiring July 31, 2012. The
Company did not renew the lease for the Massachusetts facility and New Jersey facility. |
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Accounts payable |
$ | 770,935 | $ | 424,010 | ||||
Payroll |
632,973 | 808,366 | ||||||
Other accrued expenses |
45,224 | 397,678 | ||||||
$ | 1,449,132 | $ | 1,630,054 | |||||
6. INCOME TAXES
The Company accounts for income taxes using the liability method.
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes.
F-11
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and (liabilities) consist of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Licensing revenues |
$ | (25,000 | ) | $ | 29,000 | |||
Accounts receivable reserve |
107,000 | 111,000 | ||||||
Depreciation and amortization |
270,000 | 274,000 | ||||||
Investments |
928,000 | 928,000 | ||||||
Other |
210,000 | 247,000 | ||||||
Net operating losses |
5,351,000 | 4,739,000 | ||||||
6,841,000 | 6,328,000 | |||||||
Valuation allowance |
(6,841,000 | ) | (6,328,000 | ) | ||||
$ | | $ | | |||||
Internal Revenue Code Section 382 places a limitation on the utilization of Federal net
operating loss and other credit carry-forwards when an ownership change, as defined by the tax law,
occurs. Generally, this occurs when a greater than 50 percentage point change in ownership occurs.
On September 5, 2006, Helios and Matheson Parent acquired a greater than 50 percent ownership of
the Company. Accordingly, the actual utilization of the net operating loss carry-forwards for tax
purposes are limited annually under Code Section 382 to a percentage (currently about four and a
half percent) of the fair market value of the Company at the date of this ownership change.
At December 31, 2010, the Company has federal net operating loss carry-forwards of
approximately $15.3 million which will begin to expire in 2020. The New Jersey net operating loss
carry-forwards of approximately $2.5 million will begin to expire in 2020. The full utilization of
the deferred tax assets in the future is dependent upon the Companys ability to generate taxable
income; accordingly, a valuation allowance of an equal amount has been established. During the
year ended December 31, 2010, the valuation allowance increased by approximately $513,000 and
during the year ended December 31, 2009, the valuation allowance decreased by $415,000,
respectively.
Significant components of the provision for income taxes are as follows:
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Current: |
||||||||
Federal |
$ | | $ | | ||||
State and local |
4,472 | 21,931 | ||||||
Total Current |
$ | 4,472 | $ | 21,931 | ||||
Deferred: |
||||||||
Federal |
| | ||||||
State and local |
| | ||||||
Total Deferred |
| | ||||||
Total |
$ | 4,472 | $ | 21,931 | ||||
F-12
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the federal statutory rate and the effective income tax rate for
the years ended December 31, 2010 and 2009 is as follows:
2010 | 2009 | |||||||
Federal statutory rate |
(34.0 | )% | (34.0 | )% | ||||
State and local taxes net of federal tax benefit |
0.3 | 0.7 | ||||||
Non-deductible expenses |
(0.7 | ) | (0.1 | ) | ||||
Provision to return adjustments |
| | ||||||
Change in valuation allowance |
34.88 | 34.47 | ||||||
Total |
0.48 | % | 1.07 | % | ||||
7. RETIREMENT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue
Code for its employees. Participants can make elective contributions subject to certain
limitations. Under the plan, the Company can make matching contributions on behalf of all
participants. There were no such contributions made by the Company in 2010 and 2009.
8. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations of credit risk,
consist primarily of cash and accounts receivable. The Company maintains its cash balances on
deposit with a limited number of financial institutions in amounts which may exceed federally
insured limits. Historically, the Company has not experienced any related cash-in-bank losses.
For the twelve months ended December 31, 2010, the Company had three customers which accounted for
22%, 21% and 21% of revenues, respectively. For the twelve months ended December 31, 2009 the
Company had two customers which accounted for 23% and 10% of revenues, respectively. Besides these
customers, no other customer represented greater than 10% of the Companys revenues. Two customers
represented approximately 24% each and one represented 19% of accounts receivable as of December
31, 2010. Two customers represented approximately 21% each of accounts receivable as of December
31, 2009
9. LEASES
The Company leases office space under a non-cancelable operating lease. The future minimum
payments for all non-cancelable operating leases as of December 31, 2010 are as follows:
2011 |
$ | 284234 | ||
2012 |
165,803 | |||
Total minimum future lease payments |
$ | 165,803 | (1) | |
(1) | The Company has a New York facility with a lease term expiring July 31,
2012. |
Office leases are subject to escalations based on increases in real estate taxes and operating
expenses, all of which are charged to rent expense. Rent expense for the years ended December 31,
2010 and 2009, was approximately $384,488 and $440,103, respectively.
10. STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the Plan) that provides for the grant of stock
options that are non-qualified for federal income tax purposes. The Plan provides for the
issuance of a maximum of 460,000 shares of common stock (subject to adjustment pursuant to
customary anti-dilution provisions). Stock options vest over a period between one to four years.
The exercise price per share of a stock option is established by the Compensation Committee of
the Board of Directors in its discretion, but may not be less than the fair market value of a share
of common stock as of the date of grant. The aggregate fair market value of the shares of common
stock with respect to which incentive stock options first become exercisable by an individual to
whom an incentive stock option is granted during any calendar year may not exceed $100,000.
F-13
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock options, subject to certain restrictions, may be exercisable any time after full vesting
for a period not to exceed ten years from the date of grant. Such period is to be established by
the Company in its discretion on the date of grant. Stock options terminate in connection with the
termination of employment.
Information with respect to options under the Companys Plan is as follows:
Weighted | ||||||||
Number of | Average | |||||||
Shares | Exercise Price | |||||||
Balance December 31, 2007 |
129,000 | $ | 4.96 | |||||
Granted during 2008 |
| $ | 0.00 | |||||
Exercised during 2008 |
0 | $ | 0.00 | |||||
Forfeitures during 2008 |
(21,625 | ) | $ | 6.13 | ||||
Balance December 31, 2008 |
107,375 | $ | 4.17 | |||||
Granted during 2009 |
| $ | 0.00 | |||||
Exercised during 2009 |
| $ | 0.00 | |||||
Forfeitures during 2009 |
(71,875 | ) | $ | 3.95 | ||||
Balance December 31, 2009 |
35,500 | $ | 4.62 | |||||
Granted during 2010 |
| $ | 0.00 | |||||
Exercised during 2010 |
| $ | 0.00 | |||||
Forfeitures during 2010 |
(1,250 | ) | $ | 1.20 | ||||
Balance December 31, 2010 |
34,250 | $ | 4.74 |
No stock options were granted during the twelve months ended December 31, 2010. At
December 31, 2010 and 2009, 34,250 and 28,625, respectively, were exercisable with weighted average
exercise prices of $4.74 and $4.43, respectively.
The following table summarizes the status of the stock options outstanding and exercisable at
December 31, 2010:
Stock Options Outstanding | ||||||||||||||||
Number of | ||||||||||||||||
Weighted | Weighted- | Stock | ||||||||||||||
Exercise Price | Average | Number of | Remaining | Options | ||||||||||||
Range | Exercise Price | Options | Contractual Life | Exercisable | ||||||||||||
$0.00 - $4.80 | $ | 3.23 | 14,250 | 0.7 year | 14,250 | |||||||||||
$4.80 - $9.60 | $ | 5.82 | 20,000 | 5.6 years | 20,000 | |||||||||||
34,250 | 34,250 | |||||||||||||||
At December 31, 2010, the Company had 460,000 shares of common stock reserved in
connection with the Stock Option Plan.
F-14
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2010 and 2009.
Quarter Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
(in thousands, except per share amounts) | 2010 | 2010 | 2010 | 2010 | ||||||||||||
Revenues |
$ | 3,445 | $ | 2,961 | $ | 3,453 | $ | 3,421 | ||||||||
Gross profit |
801 | 654 | 672 | 620 | ||||||||||||
(Loss)/income from operations |
(362 | ) | (423 | ) | 2 | (158 | ) | |||||||||
Net (loss)/income |
(363 | ) | (427 | ) | 11 | (161 | ) | |||||||||
Net (loss)/income per share |
||||||||||||||||
Basic and diluted (loss)/income per share |
$ | (0.12 | ) | $ | (0.14 | ) | $ | | $ | (0.03 | ) |
Quarter Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
(in thousands, except per share amounts) | 2009 | 2009 | 2009 | 2009 | ||||||||||||
Revenues |
$ | 3,796 | $ | 3,569 | $ | 3,562 | $ | 3,964 | ||||||||
Gross profit |
953 | 912 | 795 | 1,029 | ||||||||||||
Loss from operations |
(737 | ) | (452 | ) | (536 | ) | (334 | ) | ||||||||
Net loss |
(743 | ) | (455 | ) | (540 | ) | (338 | ) | ||||||||
Net loss per share |
||||||||||||||||
Basic and diluted loss per share |
$ | (0.31 | ) | $ | (0.19 | ) | $ | (0.23 | ) | $ | (0.11 | ) |
F-15
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. TRANSACTIONS WITH RELATED PARTY
In August 2010, Helios Matheson Inc (HM, Inc.), a Delaware corporation and wholly-owned
subsidiary of Helios and Matheson Parent acquired 2,739,726 shares of the Companys common stock
for a total investment of $2,000,000.
In September 2010, the Company entered into a Memorandum of Understanding with Helios and
Matheson Parent (the HMIT MOU) pursuant to which Helios and Matheson Parent has agreed to make
available to the Company facilities of dedicated Off-shore Development Centers (ODCs) and also
render services by way of support in technology, client engagement, management and running the ODCs
for the Company. The Company has furnished Helios and Matheson Parent a security deposit of $1
million to cover any expenses, claims or damages that Helios and Matheson Parent may incur while
discharging its obligations under the HMIT MOU and also to cover the Companys payables to Helios
and Matheson Parent. Such security deposit may be increased as business operations are scaled up.
Upon termination of the HMIT MOU, such security deposit will be refunded to the Company without
interest and after adjusting such amounts towards any expenses, claims or damages and dues payable
to Helios and Matheson Parent. Amount paid to Helios and Matheson Parent for services rendered
under the HMIT MOU were $454,496 for the year ended December 31, 2010 and is included as a
component of cost of revenue. All payments to Helios and Matheson Parent under MOU is made after
collections are received from clients.
13. LEGAL PROCEEDINGS
Cogito Ltd. (Cogito), a software company whose products the Company had marketed since 1991
under an exclusive perpetual distribution agreement, terminated the agreement effective April 14,
2010. The Company disputes that there are any valid grounds for termination of the Cogito
agreement and communicated its position to Cogito.
On or about July 23, 2010 Cogito filed an action against the Company in the Supreme Court of
the State of New York (New York County) initiating claims for $282,000 for royalties allegedly owed
to Cogito by the Company and for alleged damages in amounts of over $2.0 million which was later
amended to over $4.7 million. Cogito is claiming damages for an alleged breach of contract,
tortuous interference with contracts, and tortuous interference with prospective business
relations. On July 27, 2010 the Company was restrained from any solicitations of contract renewals.
The Company strongly disputes the claim and intends to vigorously defend the action. In connection
with this case, the Company has initiated a counterclaim against Cogito in the State of New York
for $5.0 million dollars. This case is currently at the discovery stage.
In January 2011, the Company filed a complaint against the current President of Cogito North
America, for injunctive relief and compensatory and punitive damages in the Superior Court of New
Jersey. The Company is alleging that the President of Cogito breached a contractual covenant not
to compete by joining Cogito and providing the Companys confidential and proprietary information
to Cogito. The company is seeking an injunction restraining the President of Cogito from
communicating with the Companys clients and from engaging in any business or enterprise which
directly solicits business for services or goods that the Company has sold or is selling.
14. SUBSEQUENT EVENTS
Management completed an analysis of all subsequent events occurring after December 31, 2010,
the balance sheet date, through March 15, 2011, the date upon which the year-end consolidated
financial statements were issued, and determined the following disclosures to be necessary or
appropriate:
On January 19th and 20th, 2011 the Company received a letter from the NASDAQ stating that the
Company has not regained compliance with the Market Value Rule and the Minimum Bid Price Rule and
that the Companys securities will be delisted from the NASDAQ unless the Company requests a
hearing to appeal this determination. As of the date of filing, the Company has appeared for a
hearing before the NASDAQ Panel and is awaiting a decision on the matter.
F-16
Table of Contents
HELIOS AND MATHESON NORTH AMERICA INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule II Valuation and Qualifying Accounts
Col. A | Col. B | Col. C | Col. D | Col. E | ||||||||||||||||
Additions | ||||||||||||||||||||
(1) | (2) | |||||||||||||||||||
Balance at | Charged to | Charged to | ||||||||||||||||||
Beginning of | Costs and | Other Accounts | Deductions - | Balances at | ||||||||||||||||
Description | Period | Expenses | Describe | Describe | End of Period | |||||||||||||||
Reserves and allowances deducted from
asset accounts: |
||||||||||||||||||||
For the year ended December 31, 2010 Allowance for doubtful accounts |
$ | 220,879 | $ | (36,320 | ) | $ | 61,471 | $ | (33,406 | )(a) | $ | 212,624 | ||||||||
For the year ended December 31, 2009 Allowance for doubtful accounts |
$ | 209,771 | $ | 60,000 | $ | | $ | (48,892 | )(b) | $ | 220,879 | |||||||||
For the year ended December 31, 2008 Allowance for doubtful accounts |
$ | 221,970 | $ | 50,000 | $ | | $ | (62,199 | )(c) | $ | 209,771 |
(a) | Uncollectible accounts written off during 2010. |
|
(b) | Uncollectible accounts written off during 2009. |
|
(c) | Uncollectible accounts written off during 2008. |
S-1
Table of Contents
EXHIBIT INDEX
Exhibit | ||||
Number | Description of Exhibits | |||
3.1 | Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to
the form 10-K, as previously filed with SEC on March 31, 2010. |
|||
3.2 | Bylaws of Helios and Matheson North America Inc. , incorporated by reference to Exhibit 3.2
to the form 10-K, as previously filed with SEC on March 31, 2010. |
|||
4.1 | Specimen common stock certificate, incorporated by reference to Exhibit 4.1 to the form
10-K, as previously filed with SEC on March 31, 2010. |
|||
10.1 | Securities Purchase Agreement between the Company and Helios and Matheson Information
Technology Ltd. dated as of August 4, 2010, incorporated by reference to Exhibit 10.1 on Form
8-K, as previously filed with the SEC on August 6, 2010. |
|||
10.1.1 | Amended and Restated 1997 Stock Option and Reward Plan, incorporated by reference to Annex
J to the Companys Definitive Proxy Statement, as previously filed with the SEC on June 27,
2005. |
|||
10.1.2 | Amendment No. 1 to the Registrants Amended and Restated 1997 Stock Option and Award Plan,
incorporated by reference to Exhibit 10.2 on Form 8-K, as previously filed with the SEC on
June 9, 2006. |
|||
10.1.3 | Amendment No. 2 to the Registrants Amended and Restated 1997 Stock Option and Award Plan,
incorporated by reference to Exhibit 10.1.3 to the Form 10-K for the period ended December
31, 2006, as previously filed with the SEC on March 29, 2007. |
|||
10.1.4 | Form of Restricted Stock Award Grant and Notice Agreement between the Registrant and each
of its Non-Employee Directors, incorporated by reference to Exhibit 10.9 to the Form 10-Q for
the nine months ended September 30, 2005, as previously filed with the SEC on November 14,
2005. |
|||
10.1.5 | Form of Non-Qualified Stock Option Agreement between the Registrant and each of its
Non-Employee Directors incorporated by reference to Exhibit 10.10 to the Form 10-Q for the
nine months ended September 30, 2005, as previously filed with the SEC on November 14, 2005.
|
|||
10.2 | Memorandum of Understanding, dated as of September 22, 2010, between the Registrant and
Helios and Matheson Information Technology Limited, incorporated by reference to Exhibit 10.2
to Form 10-Q for the nine months ended September 30, 2010, as previously filed with the SEC
on November 15, 2010. |
|||
10.3 | Form of Indemnification Agreement between the Registrant and certain of its Directors and
its Chief Executive Officer, incorporated by reference to Exhibit 10.12 to the Form 10-Q for
the period ended September 30, 2003 as previously filed with the SEC on November 14, 2003. |
|||
10.4 | Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as
of August 1, 2010, incorporated by reference to Exhibit 10.1 to the Form 10-Q as previously
filed with the SEC on November 15, 2010. |
|||
21 | Helios and Matheson North America, Inc. List of Subsidiaries, incorporated by reference to
Exhibit 21 to the Form 10-K for the period ended December 31, 2009, as previously filed with
SEC on March 31, 2010 |
|||
23.2 | Consent of Mercadien, P.C., Certified Public Accountants. |
|||
31.1 | Certification
of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002. |
|||
31.2 | Certification of
Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley
Act of 2002. |
|||
31.3 | Certification of
Principal Operating Officer pursuant to Section 302 of Sarbanes-Oxley
Act of 2002. |
|||
32.1 | Certification
of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification
of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.3 | Certification
of the Chief Operating Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Management contract or compensation plan. |