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EX-32.2 - EXHIBIT 32.2 - Helios & Matheson Analytics Inc.ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Helios & Matheson Analytics Inc.ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Helios & Matheson Analytics Inc.ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Helios & Matheson Analytics Inc.ex32-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended: September 30, 2015

 

 

OR

 

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 ANALYTICS INC.

 (Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

13-3169913

(I.R.S. Employer Identification No.)

   

Empire State Building, 350 5th Avenue,

New York, New York 10118

(Address of Principal Executive Offices)

(212) 979-8228

(Registrant’s Telephone Number, Including Area Code)

 

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 past 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 ☒ No ☐

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☒

 

 

(Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

 

 

As of November 10, 2015, there were 2,330,438 shares of common stock, $.01 par value per share, outstanding.

 

 
1

 

 

HELIOS AND MATHESON ANALYTICS INC.

 

INDEX

 

Part I. Financial Information 3
       
 

Item 1.

Financial Statements  

3
Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014 3
Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014 4
Consolidated Statement of Cash Flows for the nine months ended September 30, 2015 and 2014 5
Notes to Consolidated Financial Statements 6
 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations  

11
 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk  

15
 

Item 4.

Controls and Procedures  

15
 

 

 

 
Part II. Other Information 15
 

 

 

 
 

Item 1.

Legal Proceedings  

15
 

Item 1A.

Risk Factors  

15
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds  

15
 

Item 3.

Defaults Upon Senior Securities  

15
 

Item 4.

Mine safety disclosure  

15
 

Item 5.

Other Information  

15
 

Item 6.  

Exhibits  

16
 

 

 

 
SIGNATURES 17

 

 
2

 

 

Part I. Financial Information 

Item 1. Financial Statements

 

HELIOS AND MATHESON ANALYTICS INC.

CONSOLIDATED BALANCE SHEET

  

   

September 30,

   

December 31,

 
   

2015

   

2014

 
    (unaudited)          
ASSETS  

 

         
Current Assets:                

Cash and cash equivalents

  $ 807,888     $ 1,225,518  

Accounts receivable- less allowance for doubtful accounts of $21,968 at September 30, 2015, and $37,711 at December 31, 2014

    1,461,854       1,082,088  

Unbilled receivables

    133,938       81,311  

Prepaid expenses and other current assets

    250,888       133,045  

Prepaid expenses and other current assets - Related Party - less allowance of $344,041 at September 30, 2015, and $0 at December 31, 2014

    -       281,745  

Total current assets

    2,654,568       2,803,707  
Property and equipment, net     47,756       53,422  

Security Deposit-Related Party- less allowance of $2,000,000 at September 30, 2015, and $0 at December 31, 2014

    -       2,000,000  
Deposits and other assets     87,556       52,347  

Total assets

  $ 2,789,880     $ 4,909,476  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current Liabilities:                

Accounts payable and accrued expenses

    967,755       899,926  

Total current liabilities

  $ 967,755     $ 899,926  
Shareholders' equity:                

Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of September 30, 2015, and December 31, 2014

    -       -  

Common stock, $.01 par value; 30,000,000 shares authorized; 2,330,438 issued and outstanding as of September 30, 2015 and December 31, 2014

    23,304       23,304  

Paid-in capital

    37,855,740       37,855,740  

Accumulated other comprehensive loss - foreign currency translation

    (145,164 )     (99,265 )

Accumulated deficit

    (35,911,755 )     (33,770,229 )

Total shareholders' equity

    1,822,125       4,009,550  
Total liabilities and shareholders' equity   $ 2,789,880     $ 4,909,476  

 

See accompanying notes to consolidated financial statements.

 

 
3

 

 

HELIOS AND MATHESON ANALYTICS INC.

CONSOLIDATED STATEMENT OF OPERATOINS AND COMPREHENSIVE LOSS

  

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2015

   

2014

   

2015

   

2014

 
   

(unaudited)

   

(unaudited)

   

(unaudited)

   

(unaudited)

 
                                 

Revenues

  $ 2,459,393     $ 2,510,393     $ 7,366,023     $ 8,246,199  

Cost of revenues

    1,713,287       1,986,430       5,390,801       6,689,648  

Gross profit

    746,106       523,963       1,975,222       1,556,551  

Operating expenses:

                               

Selling, general & administrative

    661,466       546,849       1,762,647       1,740,338  

Depreciation & amortization

    2,971       3,520       8,796       8,445  
      664,437       550,369       1,771,443       1,748,783  

(Loss)/income from operations

    81,669       (26,406 )     203,779       (192,232 )

Other income(expense):

                               

Allowance against Security Deposit - related party

    (2,000,000 )     -       (2,000,000 )     -  

Allowance for prepaid expenses and other current assets - related party

    (344,041 )     -       (344,041 )     -  

Interest income

    2,185       3,662       7,737       10,199  
      (2,341,856 )     3,662       (2,336,304 )     10,199  

Loss before income taxes

    (2,260,187 )     (22,744 )     (2,132,525 )     (182,033 )

Provision for income taxes

    3,000       3,000       9,000       9,000  

Net loss

    (2,263,187 )     (25,744 )     (2,141,525 )     (191,033 )

Other comprehensive (loss)/income - foreign currency adjustment

    (35,711 )     (21,419 )     (45,899 )     (17,499 )

Comprehensive loss

  $ (2,298,898 )   $ (47,163 )   $ (2,187,424 )   $ (208,532 )
                                 

Net loss per share

                               
Basic & Diluted   $ (0.97 )   $ (0.01 )   $ (0.92 )   $ (0.08 )

Dividend Per share

  $ -     $ -     $ -     $ 0.08  

 

See accompanying notes to consolidated financial statements.

 

 
4

 

 

HELIOS AND MATHESON ANALYTICS INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

  

    Nine Months Ended Septermber 30,  
   

2015

   

2014

 
   

(unaudited)

   

(unaudited)

 

Cash flows from operating activities:

               

Net loss

  $ (2,141,525 )   $ (191,033 )

Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:

               

Depreciation and amortization

    8,796       8,445  

Allowance against security deposit - related party

    2,000,000       -  

Allowance for prepaid receivables and other current assets

    344,041       -  

Provision for doubtful accounts

    (18,461 )     (8,710 )

Gain on sale of Fixed Asset

    -       (11 )

Changes in operating assets and liabilities:

               

Accounts receivable

    (361,307 )     868,380  

Unbilled receivables

    (52,627 )     95,506  

Prepaid expenses and other current assets

    (117,843 )     (4,572 )

Prepaid expenses and other current assets - related party

    (62,296 )     (95,557 )

Accounts payable and accrued expenses

    67,829       (70,297 )

Deposits

    (35,209 )     -  

Deferred revenue

    -       -  

Net cash provided by/(used in) operating activities

    (368,602 )     602,152  

Cash flows from investing activities:

               

Sales of Property and Equipment (net of purchases)

    (3,129 )     (14,470 )

Net cash used in investing activities

    (3,129 )     (14,470 )

Cash flows from financing activities:

               

Dividend Paid

    -       (186,435 )

Net cash used in financing activities

    -       (186,435 )

Effect of foreign currency exchange rate changes on cash and cash equivalents

    (45,899 )     (17,499 )

Net increase/(decrease) in cash and cash equivalents

    (417,630 )     383,748  

Cash and cash equivalents at beginning of period

    1,225,518       660,278  

Cash and cash equivalents at end of period

  $ 807,888     $ 1,044,026  
                 

Supplemental disclosure of cash flow information:

               

Cash paid during the period for income taxes

  $ 6,770     $ 8,189  

 

See accompanying notes to consolidated financial statements

 

 
5

 

 

HELIOS AND MATHESON ANALYTICS INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

1)

GENERAL:

 

These financial statements should be read in conjunction with the financial statements contained in Helios and Matheson Analytics Inc.’s (“Helios and Matheson” or the “Company”) Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (“SEC”) and the accompanying financial statements and related notes thereto. The accounting policies used in preparing these financial statements are the same as those described in the Company's Form 10-K for the year ended December 31, 2014. Certain amounts for December 31, 2014 balance sheet have been reclassified to conform with current year presentation.

 

2)

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 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 NASDAQ’s 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.

 

3)

INTERIM FINANCIAL STATEMENTS:

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all the adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position as of September 30, 2015, the consolidated results of operations for the three and nine month periods ended September 30, 2015 and 2014 and cash flows for the nine month periods ended September 30, 2015 and 2014.

 

The consolidated balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from these financial statements pursuant to the SEC’s rules and regulations. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Form 10-K filed by the Company for the year ended December 31, 2014.

 

For the three month period ended September 30, 2015, the Company reported a net loss of approximately ($2.26 million) and for the nine month period ended September 30, 2015, the Company reported a net loss of approximately ($2.14 million); for the three month period ended September 30, 2014, the Company reported net loss of approximately ($26,000) and for the nine month period ended September 30, 2014, the Company reported net loss of approximately ($191,000). The Company continues to focus on revenue growth by expanding its existing client market share and its client base. The Company also keeps a tight rein on discretionary expenditures and SG&A, which the Company believes will enhance its competitiveness.

 

In management's opinion, cash flows from operations combined with cash on hand will provide adequate flexibility for funding the Company's working capital obligations for the next twelve months. 

4)

STOCK BASED COMPENSATION:

 

The Company has a stock based compensation plan, which is described as follows:

 

On March 3, 2014, the Board of Directors terminated the Company’s 1997 Stock Option and Award Plan and approved and adopted the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan (the “2014 Plan”) which the Company’s shareholders approved at the annual shareholders meeting on May 5, 2014. There were no shares outstanding under the 1997 Stock Option and Award Plan. The 2014 Plan sets aside and reserves 400,000 shares of the Company’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the 2014 Plan include employees (including officers and directors) of the Company and its affiliates, consultants who provide significant services to the Company or its affiliates and directors who are not employees of the Company or its affiliates (the “Participants”). The 2014 Plan permits the Company to issue to Participants qualified and/or non-qualified options to purchase the Company’s common stock, restricted common stock, performance units and performance shares. The 2014 Plan will terminate on March 3, 2024. The Compensation Committee of the Company’s Board of Directors has been appointed as the committee responsible for administration of the 2014 Plan and has the sole discretion to determine which Participants will be granted awards and the terms and conditions of the awards granted. Through the date of filing of this Form 10-Q no awards have been granted under the 2014 Plan. 

 
6

 

 

5)

NET LOSS PER SHARE:

 

The following table sets forth the computation of basic and diluted net loss per share for the three months and nine months ended September 30, 2015 and 2014: 

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2015

   

2014

   

2015

   

2014

 
Numerator for basic net loss per share                                
                                 

Net loss available to common stockholders

  $ (2,263,187 )   $ (25,744 )   $ (2,141,525 )   $ (191,033 )
                                 
Numerator for diluted net loss per share                                

Net loss available to common stockholders & assumed conversion

  $ (2,263,187 )   $ (25,744 )   $ (2,141,525 )   $ (191,033 )
                                 
Denominator:                                

Denominator for basic and diluted loss per share - weighted-average shares

    2,330,438       2,330,438       2,330,438       2,330,438  
                                 
Basic and diluted loss per share:                                

Net loss per share

  $ (0.97 )   $ (0.01 )   $ (0.92 )   $ (0.08 )

 

6)

CONCENTRATION OF CREDIT RISK:

 

The revenues of the Company’s top four customers represented approximately 90% of the revenues for the nine month period ended September 30, 2015. The revenues of the Company’s top three customers represented approximately 82% of revenues for the same period in 2014. No other customer represented greater than 10% of the Company’s revenues for such periods. The Company continues its effort to broaden its customer base in order to mitigate this risk.

 

7)

CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

 

The Company’s commitments at September 30, 2015, are comprised of the following:

 

 

 

Payments Due by Period

 
Contractual Obligations  

Total

   

Less Than 1 Year

   

1 - 3 Years

   

3 - 5 Years

   

More Than 5

Years

 

Operating Lease Obligations

                                       

Rent (1)

    283,179       191,572       91,607       -       -  

Total

  $ 283,179     $ 191,572     $ 91,607     $ -     $ -  

 

(1) The Company has a New York facility with a lease term expiring April 30, 2017 and a Chennai facility with a lease term expiring December 31, 2015.

 

As of September 30, 2015, the Company does not have any “Off Balance Sheet Arrangements”.

 

 
7

 

 

8)

PROVISION FOR INCOME TAXES

 

The provision for income taxes as reflected in the consolidated statement of operations and comprehensive (loss)/income varies from the expected statutory rate primarily due to a provision for minimum state taxes and the recording of adjustments to the valuation allowance against deferred tax assets. Internal Revenue Code Section 382 (the “Code”) 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 percent change in ownership occurs. During 2006, Helios and Matheson Information Technology Ltd. (“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 the Code 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. The Company maintains a valuation allowance against additional deferred tax assets arising from net operating loss carry-forwards since, in the opinion of management; it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

 

9)

TRANSACTIONS WITH RELATED PERSONS

 

In September 2010, the Company entered into, and in August 2013 entered into an amendment of 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 operating the ODCs for the Company. The Company has furnished Helios and Matheson Parent a security deposit of $2 million, classified as a non-current asset on the balance sheet, to cover any expenses, claims or damages that Helios and Matheson Parent may incur while discharging its obligation under the HMIT MOU and also to cover the Company’s payable to Helios and Matheson Parent. The amount payable to Helios and Matheson Parent for services rendered under the HMIT MOU was $0 and $8,736 for the nine months ended September 30, 2015 and 2014, respectively and is included as a component of cost of revenue. All payments to Helios and Matheson Parent under the MOU are made after collections are received from clients. No amount was paid to Helios and Matheson Parent for services rendered under the HMIT MOU for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the Company has a receivable from Helios and Matheson Parent in the amount of $182,626 which represents amounts paid on behalf of Helios and Matheson Parent , which has been fully reserved for. As of September 30, 2015, the amount paid on behalf of Helios and Matheson Parent is reported as prepaid expenses and other current assets – related party, which has been fully reserved for.

 

In August 2014, the Company entered into a Professional Service Agreement with Helios and Matheson Parent (the “HMIT PSA”), which documented ongoing services provided by Helios and Matheson Parent from February 24, 2014. Pursuant to the HMIT PSA Helios and Matheson Parent hires employees in India and provides infrastructure services for those employees to facilitate the operations of those of the Company’s clients who need offshore support for their business. For the services the Company pays the cost incurred by Helios and Matheson Parent for the employee it hires to provide the services and a fixed fee for infrastructure support. Beginning October 2014, all employees were transferred to the payroll of the Company’s subsidiary, Helios and Matheson Global Services Pvt. Ltd. (HMGS), and Helios and Matheson Parent was paid only for the infrastructure support they are providing until August 2015. Beginning September 2015, HMGS leased an office and took over infrastructure support from Helios and Matheson Parent. For the nine months ended September 30, 2015, the Company’s revenue from services provided with offshore support of Helios and Matheson Parent was about $1.7 million. Amounts payable to Helios and Matheson Parent for services rendered under the HMIT PSA was about $137,000 for the nine months ended September 30, 2015. The amount paid to Helios and Matheson Parent for services rendered, including prepayment of certain expenses, under the HMIT PSA for the nine months ended September 30, 2015 was $238,000.

 

Please see the section 12, “Subsequent Event” of the notes to consolidated financial statements. 

 

10)

LEGAL PROCEEDINGS

 

None

 

11)

DIVIDEND PAID

 

On February 3, 2014 the Company’s Board of Directors declared a dividend of $0.08 per share on the Company's common stock, amounting to a total payout of $186,435. This amount represents approximately 50% of the net profits of the Company for the year ended December 31, 2013. The dividend was paid on March 5, 2014 to shareholders of record on February 18, 2014. There can be no assurance that the Company will pay dividends in the future.

 

 
8

 

 

12)

Subsequent Event

 

The Company determined to provide for a reserve in its September 30, 2015 financial statements in the amount of $2.344 million (the “Reserve Amount”) due to an uncertainty relating to the ability of Helios and Matheson Parent to immediately (i) return the security deposit, in the amount of $2 million, held by Helios and Matheson Parent in connection with the Memorandum of Understanding entered into between the Company and Helios and Matheson Parent in September 2010 and amended in August 2013 (as amended, the “MOU”), and (ii) pay approximately $344,000 in reimbursable expenses, and advances relating to the Company’s operations in India and the Professional Services Agreement entered into between the Company and Helios and Matheson Parent in August 2014 (the “PSA”).

 

Helios and Matheson Parent ceased providing services under the MOU and PSA in Q3 2015. The decision to provide for the Reserve Amount was the result of factors that included, but were not limited to, the cessation of services provided by Helios and Matheson Parent under the MOU and PSA in Q3 2015 and the ensuing conversations between the Company and Helios and Matheson Parent regarding payment of the Reserve Amount.

 

Further, the Company has ensured continued uninterrupted services to its clients by taking on infrastructure costs relating to lease and employees.The Company continues to work with Helios and Matheson Parent to resolve this matter in a manner that would allow the Company to receive its deposits and prepaid balances of $2.344 million at the earliest.

 
9

 

 

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 2 titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 which have been incorporated into this report by reference, 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 capital requirements 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 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.

 

 
10

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of significant factors affecting the Company's operating results, liquidity and capital resources should be read in conjunction with the accompanying financial statements and related notes.

 

Overview

 

Helios and Matheson provides high quality information technology (“IT”) consulting solutions, custom application development and analytics services to Fortune 1000 companies and other large organizations. The Company is headquartered in New York, New York and has a subsidiary in Bangalore, India.

 

For the nine months ended September 30, 2015 and September 30, 2014, approximately 92% of the Company's consulting services revenues were generated from clients under time and materials engagements with the remainder generated under fixed-price engagements and recruitment process outsourcing (RPO). 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 Company's most significant operating cost is its personnel cost, which is included in cost of revenues. For the nine months ended September 30, 2015 and 2014, gross margin was 26.89% and 18.9% respectively.

 

The Company actively manages its personnel utilization rates by monitoring project requirements and timetables. The Company’s utilization rate for the three months ending September 30, 2015 and September 30, 2014 was approximately 99% and 96% 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 the Company’s training programs in order to expand their technical skill sets.

 

Investments by Helios and Matheson Parent

 

On March 30, 2006, Helios and Matheson Parent, an IT services organization with its corporate headquarters in Chennai, India, purchased 409,879 shares of the Company’s common stock from Mr. Shmuel Ben Tov, the Company’s former Chairman, Chief Executive Officer and President and his family members, which represented approximately 43% of the Company’s outstanding common stock. In 2006, 2007, 2008, 2009 and 2010 Helios and Matheson Parent purchased additional shares of the Company’s common stock. Helios and Matheson Parent owns 1,743,040 shares of common stock, representing approximately 75% 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 Bombay Stock Exchange, Mumbai (BSE) and the Madras Stock Exchange (MSE). Due to the acquisition of more than 50% of our common stock by Helios and Matheson Parent, we meet the definition of a “Controlled Company” as defined by Rule 5615(c) of the NASDAQ’s rules.

 

Matters Pertaining to Helios and Matheson Parent

 

In September 2010, the Company entered into, and in August 2013 entered into an amendment of 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 operating the ODCs for the Company. The Company has furnished Helios and Matheson Parent a security deposit of $2 million, classified as a non-current asset on the balance sheet, to cover any expenses, claims or damages that Helios and Matheson Parent may incur while discharging its obligation under the HMIT MOU and also to cover the Company’s payable to Helios and Matheson Parent. The amount payable to Helios and Matheson Parent for services rendered under the HMIT MOU was $0 and $8,736 for the nine months ended September 30, 2015 and 2014, respectively and is included as a component of cost of revenue. All payments to Helios and Matheson Parent under the MOU are made after collections are received from clients. No amount was paid to Helios and Matheson Parent for services rendered under the HMIT MOU for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the Company has a receivable from Helios and Matheson Parent in the amount of $182,626 which represents amounts paid on behalf of Helios and Matheson Parent , which has been fully reserved for. As of September 30, 2015, the amount paid on behalf of Helios and Matheson Parent is reported as prepaid expenses and other current assets – related party which has been fully reserved for.

 

In August 2014, the Company entered into a Professional Service Agreement with Helios and Matheson Parent (the “HMIT PSA”), which documented ongoing services provided by Helios and Matheson Parent from February 24, 2014. Pursuant to the HMIT PSA Helios and Matheson Parent hires employees in India and provides infrastructure services for those employees to facilitate the operations of those of the Company’s clients who need offshore support for their business. For the services the Company pays the cost incurred by Helios and Matheson Parent for the employee it hires to provide the services and a fixed fee for infrastructure support. Beginning October 2014, all employees were transferred to the payroll of the Company’s subsidiary, Helios and Matheson Global Services Pvt. Ltd. (HMGS), and Helios and Matheson Parent was paid only for the infrastructure support they are providing until August 2015. Beginning September 2015, HMGS leased an office and took over infrastructure support from Helios and Matheson Parent. For the nine months ended September 30, 2015, the Company’s revenue from services provided with offshore support of Helios and Matheson Parent was about $1.7 million. Amounts payable to Helios and Matheson Parent for services rendered under the HMIT PSA was about $137,000 for the nine months ended September 30, 2015. The amount paid to Helios and Matheson Parent for services rendered, including prepayment of certain expenses, under the HMIT PSA for the nine months ended September 30, 2015 was $238,000.

 

The Company determined to provide for a reserve in its September 30, 2015 financial statements in the amount of $2.344 million (the “Reserve Amount”) due to an uncertainty relating to the ability of Helios and Matheson Parent to immediately (i) return the security deposit, in the amount of $2 million, held by Helios and Matheson Parent in connection with the Memorandum of Understanding entered into between the Company and Helios and Matheson Parent in September 2010 (the “MOU”), and (ii) pay approximately $344,000 in reimbursable expenses, and advances relating to the Company’s operations in India and the Professional Services Agreement entered into between the Company and Helios and Matheson Parent in August 2014 (the “PSA”).

 

Helios and Matheson Parent ceased providing services under the MOU and PSA in Q3 2015. The decision to provide for the Reserve Amount was the result of factors that included, but were not limited to, the cessation of services provided by Helios and Matheson Parent under the MOU and PSA in Q3 2015 and the ensuing conversations between the Company and Helios and Matheson Parent regarding payment of the Reserve Amount.

 

 
11 

 

  

Further, the Company has ensured continued uninterrupted services to its clients by taking on infrastructure costs relating to lease and employees.

 

The Company continues to work with Helios and Matheson Parent to resolve this matter in a manner that would allow the Company to receive its deposits and prepaid balances of $2.344 million at the earliest.

 

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 Company’s 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 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. Revenues from RPO services are recorded when service is performed. Unbilled accounts 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 Company’s 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 re-evaluated 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 Company’s 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 Company’s 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.

 

Results of Operations

 

The following table sets forth the percentage of revenues of certain items included in the Company’s Statement of Operations:

 

 

   

Three Months Ended

   

Nine Months Ende

 
   

September 30,

   

September 30,

 
   

2015

   

2014

   

2015

   

2014

 

Revenues

    100.0 %     100.0 %     100.0 %     100.0 %

Cost of revenues

    69.7 %     79.1 %     73.2 %     81.1 %

Gross profit

    30.3 %     20.9 %     26.8 %     18.9 %

Operating expenses

    27.0 %     21.9 %     24.0 %     21.2 %

(Loss)/Income from operations

    3.3 %     (1.0 )%     2.8 %     (2.3 )%

Allowance for assets

    95.3 %     0.0 %     31.8 %     0.0 %

Net loss

    (92.0 )%     (1.0 )%     (29.0 )%     (2.3 )%

 

 
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Comparison of the Three Months Ended September 30, 2015 to the Three Months Ended September 30, 2014

 

Revenues. Revenues for the three months ended September 30, 2015 and September 30, 2014 were at same level of $2.5 million.

 

Gross Profit. The resulting gross profit for the three months ended September 30, 2015 was $746,000 as compared to $524,000 for the three months ended September 30, 2015. As a percentage of total revenues, gross margin for the three months ended September 30, 2015 was 30.3% compared to 20.9% for the three months ended September 30, 2014. The increase in gross margin is due to an increase in high margin consulting and fixed price project revenue.

 

Operating Expenses. Operating expenses are comprised of selling, general and administrative (“SG&A”) expenses and depreciation and amortization. Operating expenses for the three months ended September 30, 2015 were $664,000 as compared to the 2014 period of $550,000 The increase is due to taking on infrastructure related costs relating to lease and employees from September 1, 2015. Till August 2015, the Company used to classify the per seat cost of employees (infrastructure support cost under the PSA) as cost of goods sold.

 

Other Income/(Expenses). Please read this section in conjunction with the one titled “Trends, Events and Uncertainties” under “Management Discussion and Analysis”.

 

Other expenses for the three months ended September 30, 2015 is comprised of the Reserve Amount of $2.344 million (comprising a reserve for security deposit of $2 million and $344,000 allowance for prepaid expenses and other current assets) offset by interest income of $2,185. The comparable 2014 period is exclusively comprised of interest income of $3,662. The Company has been operating without access to or use of the funds comprising the $2 million security deposit since such funds were deposited with Helios and Matheson Parent during September 2010 and August 2013.

 

Taxes. Tax provisions for the three months ended September 30, 2015 and nine months ended September 30, 2014 were $3,000 and are comprised exclusively of minimum state taxes.

 

Net Loss. As a result of the above, the Company had a net loss of ($2.3 million) or ($0.97) per basic and diluted share for the three months ended September 30, 2015 as compared to net loss of ($26,000) or ($0.01) per basic and diluted share for the three months ended September 30, 2014.

 

Comparison of the Nine Months Ended September 30, 2015 to the Nine Months Ended September 30, 2014

 

Revenues. Revenues for the nine months ended September 30, 2015 were $7.4 million compared to $8.2 million for the nine months ended September 30, 2014. The decrease was primarily attributable to a decrease in the number of onshore consultants, who are billed at a higher rate, offset by an increase in offshore consultants, who are billed at a lower rate.

 

Gross Profit. Gross profit for the nine months ended September 30, 2015 was $2.0 million as compared to $1.6 million for the nine months ended September 30, 2014. As a percentage of total revenues, gross margin for the nine months ended September 30, 2015 was 26.8% compared to 18.9% for the nine months ended September 30, 2014. The increase in gross margin is due to a increase in high margin consulting and fixed price project revenue.

 

Operating Expenses. Operating expenses are comprised of Selling, General and Administrative (“SG&A”) expenses and depreciation and amortization. Operating expenses for the nine months ended September 30, 2015 and nine months ended September 30, 2014 were $1.77 million and $1.74 million respectively.

 

Other Income/(Expenses). Please read this section in conjunction with the one titled “Trends, Events and Uncertainties” under “Management Discussion and Analysis”.

 

Other expenses for the nine months ended September 30, 2015 is comprised of the Reserve Amount of $2.344 million (comprising a reserve for security deposit of $2 million and $344,000 allowance for prepaid expenses and other current) assets offset by interest income of $7,337. The comparable 2014 period is exclusively comprised of interest income of $10,199. The Company has been operating without access to or use of the funds comprising the $2 million security deposit since such funds were deposited with Helios and Matheson Parent during September 2010 and August 2013.

 

Taxes. Tax provisions for the nine months ended September 30, 2015 and none months ended September 30, 2014 were $9,000 and are comprised exclusively of minimum state taxes.

 

Net Loss. As a result of the above, the Company had a net loss of ($2.14 million) or ($0.92) per basic and diluted share for the nine months ended September 30, 2015 compared to net loss of ($191,000) or $(0.08) per basic and diluted share for the nine months ended September 30, 2014.

 

 
13

 

 

Liquidity and Capital Resources

 

During the nine months ended September 30, 2015, the Company’s revenues declined by approximately 11% and the Company reported a net operating income of $204,000 and net loss of about ($2.14) million as compared to net operating loss of ($192,000) and net loss of ($191,000) during the same period in 2014. Other items: expense/(Income) of ($2.34 million) is a result of reserve for security deposit and prepaid expenses and other current assets offset by interest income. The Company determined to provide for a reserve in its September 30, 2015 financial statements in the amount of $2.344 million (the “Reserve Amount”) due to an uncertainty relating to the ability of Helios and Matheson parent to immediately return this Reserve Amount. This is explained in the section “Trends, Events and Uncertainties” below. The Company has been operating without access to or use of the funds comprising the $2 million security deposit since such funds were deposited with Helios and Matheson Parent during September 2010 and August 2013.

 

The Company's accounts receivable, less allowance for doubtful accounts, at September 30, 2015 and at December 31, 2014 were approximately $1.5 million and $1.1 million, respectively, representing 54 days and 48 days of sales outstanding (“DSO”) 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 nine months ended September 30, 2015 cash used by investing activities was ($3,000) as compared to ($14,000) of cash used by investing activities for the nine months ended September 30, 2014.

 

For the nine months ended September 30, 2015, cash used by financing activities was $0 as compared to $(186,000) for the nine months ended September 30, 2014. On February 3, 2014 the Company’s Board of Directors declared a dividend of $0.08 per share on the Company's common stock, amounting to a payout of $186,435. Cash used in financing activities in 2015 and 2014 consisted exclusively of the dividends paid to shareholders.

 

In management's opinion, cash flows from operations combined with cash on hand will provide adequate flexibility for funding the Company's working capital obligations for the next twelve months.

 

Off Balance Sheet Arrangements

 

As of September 30, 2015, the Company does not have any off balance sheet arrangements.

 

Contractual Obligations and Commitments

 

The Company’s commitments at September 30, 2015 are reflected and further detailed in the Contractual Obligation table located in Part I, Item 1, Note 7 of this Form 10-Q.

 

Inflation

 

The Company has not suffered material adverse effects from inflation in the past. However, a substantial increase in the inflation rate in the future may adversely affect customers’ purchasing decisions, may increase the costs of borrowing or may have an adverse impact on the Company’s margins and overall cost structure.

 

Trends, Events and Uncertainties

 

The Company determined to provide for a reserve in its September 30, 2015 financial statements in the amount of $2.344 million (the “Reserve Amount”) due to an uncertainty relating to the ability of Helios and Matheson Parent to immediately (i) return the security deposit, in the amount of $2 million, held by Helios and Matheson Parent in connection with the Memorandum of Understanding entered into between the Company and Helios and Matheson Parent in September 2010 (the “MOU”), and (ii) pay approximately $344,000 in reimbursable expenses, and advances relating to the Company’s operations in India and the Professional Services Agreement entered into between the Company and Helios and Matheson Parent in August 2014 (the “PSA”).

 

Helios and Matheson Parent ceased providing services under the MOU and PSA in Q3 2015. The decision to provide for the Reserve Amount was the result of factors that included, but were not limited to, the cessation of services provided by Helios and Matheson Parent under the MOU and PSA in Q3 2015 and the ensuing conversations between the Company and Helios and Matheson Parent regarding payment of the Reserve Amount.

 

Further, the Company has ensured continued uninterrupted services to its clients by taking on infrastructure costs relating to lease and employees.

 

The Company continues to work with Helios and Matheson Parent to resolve this matter in a manner that would allow the Company to receive its deposits and prepaids balances of $2.344 million at the earliest.

 

Recent Accounting Pronouncements

 

On May 28, 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 provides a robust framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. In August 2015, the FASB issued ASU 2015-14, deferring the effective date of ASU 2014-09 by one year. Now the effective date is beginning with the calendar year ended December 31, 2018. The Company has not yet assessed the impact ASU 2014-09 will have upon adoption on its financial position, results of operations or cash flows.

 

 
14

 

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires that an entity’s management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Certain disclosures are necessary in the footnotes to the financial statements in the event that conditions or events raise substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter and early application is permitted. The Company has not yet assessed the impact ASU 2014-15 will have upon adoption.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

Not required.

 

Item 4.

Controls and Procedures

 

Evaluation of disclosure controls and procedures. As of September 30, 2015, we carried out an evaluation, under the supervision of and with the participation of our Principal Executive Officer and our Principal Financial Officer, 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 (the “Exchange Act”)). 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 SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of September 30, 2015, our disclosure controls and procedures were effective.

 

Changes in internal control. During the quarter covered by this report, there was no change in our internal control over financial reporting (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.

  

Part II.

Other Information

 

Item 1.

Legal Proceedings

 

None

 

Item 1A.

Risk Factors

 

We incorporate herein by reference the risk factors included under Item 1A. of our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on March 27, 2015.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3.

Defaults Upon Senior Securities

 

None

 

Item 4.

Mine Safety Disclosure

 

Not Applicable

 

Item 5.

Other Information

 

On November 16, 2015, the Company sent a letter to Helios and Matheson Information Technology Ltd. ("Helios and Matheson Parent"), the owner of more than a majority of the Company's outstanding shares, indicating that the Company considers the Memorandum of Understanding between them dated September 22, 2010 as amended on August 30, 2013 (as amended the "MOU") to be terminated. Pursuant to the MOU, Helios and Matheson Parent was to make available to the Company off-shore development centers ("ODCs") with state of the art facilities and to render services by way of human resources, support in technology, client engagement, and management of the ODCs ("Support Services") for the Company.  During the third quarter of 2015, Helios and Matheson Parent ceased making ODCs available to the Company as also providing the Support Services.  Please see the discussion under "Trends, Events and Uncertainties" in the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I, Item 2 of this quarterly report for information regarding certain material circumstances surrounding such termination.

 

On November 16, 2015, the Company sent to Helios and Matheson Parent a notice of termination of the Professional Services Agreement between them dated August 13, 2014 (“PSA”), due to the fact that Helios and Matheson Parent ceased providing the services required under the PSA during the third quarter of 2015. The Company entered into the PSA for the purpose of receiving offshore infrastructure support for the operations of certain of the Company’s clients. While Helios and Matheson Parent has thirty days from the date of such notice to resume providing the services, the Company does not currently anticipate that Helios and Matheson Parent will do so.    

 

Please see the discussion under "Trends, Events and Uncertainties" in the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I, Item 2 of this quarterly report for information regarding certain material circumstances surrounding the termination of the MOU and the PSA. 

 

 
15

 

 

Item 6.

Exhibits

 

(a)

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 the SEC on March 31, 2010.

 

3.1.1

Certificate of Amendment to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.3 to the Form 10-Q for the period ended March 31, 2011 as filed with the SEC on May 13, 2011.

 

3.1.2

Certificate of Amendment to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.4 to the Form 10-Q for the period ended June 30, 2011 as filed with the SEC on August 15, 2011.

 

3.1

Bylaws of Helios and Matheson Analytics Inc., incorporated by reference to Exhibit 3.2 to the Form 10-K, as previously filed with the SEC on March 31, 2010.

 

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.

 

32.1

Certification of the Principal 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 Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101

The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets; (ii) consolidated statements of Operations and Comprehensive (loss)/income; (iii) consolidated statements of cash flows; and (iv) the notes to the financial statements.

 

 
16

 

 

SIGNATURES

 

Pursuant to the requirements 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 ANALYTICS INC.

 

 

 

Date: November 16, 2015

By:

/s/ Divya Ramachandran

 

 

 

Divya Ramachandran

 

 

 

Chief Executive Officer and President

 

 

 

Date: November 16, 2015

By:

/s/ Umesh Ahuja

 

 

 

Umesh Ahuja

 

 

 

Chief Financial Officer and Secretary

 

 

 

 

17