UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended: March 31, 2016

OR

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)

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.

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 May 16, 2016, there were 2,330,438 shares of common stock, with $.01 par value per share, outstanding.

HELIOS AND MATHESON ANALYTICS INC.

INDEX

Part I. Financial Information 

Item 1. Financial Statements 

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS) 

See accompanying notes to condensed consolidated financial statements. 

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 

See accompanying notes to condensed consolidated financial statements 

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 and liquidity and capital resources should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes.

Overview

Helios and Matheson provides a wide range of 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 three months ended March 31, 2016, approximately 93.2% of the Company's consulting service revenues were generated from clients under time and materials engagements, as compared to approximately 93.4% for the three months ended March 31, 2015, with the remaining revenue generated under fixed-price engagements and recruitment process outsourcing (RPO). The Company has established standard-billing guidelines for consulting services based on the type of service 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 material services on a weekly and monthly basis. Arrangements for fixed-price engagements are made on a case-by-case basis. Consulting service revenues generated under time and material engagements are recognized as those services are provided. Revenues earned 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 three months ended March 31, 2016 and 2015, gross margin was 28.3% and 24.9%, respectively.

The Company actively manages its personnel utilization rates by monitoring project requirements and timetables. The Company’s utilization rate for the three months ended March 31, 2016 was approximately 96%, as compared to 96% for the three months ended March 31, 2015. As projects are completed, consultants are either re-deployed to new projects at the current client site, re-deployed or re-assigned 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.

One of the Company’s clients has issued a notice to terminate the arrangement for use of the Offshore Development Center (ODC) provided by the Company as of May 15, 2016. This may adversely impact the Company’s revenue and margins going forward in the near term. However the Company’s subsidiary has successfully managed transition of the ODC together with all the employees working in the ODC to another company, thus ensuring that no additional expenses are incurred by the Company with respect to the ODC. For the three months ended March 31, 2016 and 2015, revenue related to this contract was approximately $613,000 and $ 578,000. For the full-year 2015 and 2014 the total revenue generated from this client was approximately $ 2.3 million and approximately $900,000 respectively. Management has plans to pursue other business opportunities to increase its revenue base but there can be no assurances that the Company will be able find other clients to make up for the annual revenue shortfall a result of the termination of this relationship.

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 BenTov, 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 beneficially 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 Stock Exchange, Mumbai (BSE) and the Madras Stock Exchange (MSE).

Critical Accounting Policies

The methods, of estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company’s 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 service 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 derived 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 the service is performed. Unbilled accounts receivable represents 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 specific customer 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 gave rise to the change became 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.

Results of Operations

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

Comparison of the Three Months Ended March 31, 2016 to the Three Months Ended March 31, 2015

Revenues. Revenues for the three months ended March 31, 2016 were approximately $2.0 million as compared to approximately $2.5 million for the three months ended March 31, 2015. The decrease was primarily attributable to a decrease in the number of onshore consultants, who are billed at a higher hourly rate, offset by an increase in offshore consultants, who are billed at a lower hourly rate.

Gross Profit. The resulting gross profit for the three months ended March 31, 2016 was approximately $574,000 as compared to approximately $621,000 for the three months ended March 31, 2015. As a percentage of total revenues, gross margin for the three months ended March 31, 2016 was 28.3% as compared to 24.9% for the three months ended March 31, 2015. The increase in gross margin is due to a decrease in low margin consulting revenue offset by 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 March 31, 2016 were approximately $723,000 as compared to approximately $566,000 for the three months ended March 31, 2015. This increase in operating expenses is primarily due to a change in the management wherein the Company incurred $75,000 in severance paid to the outgoing CEO of the Company. Also, the Company’s expenses towards rent and utilities increased by approximately $48,000 as the Company’s subsidiary maintained a leased facility in the current period for its ODC.

Taxes. Tax provision for both the three months ended March 31, 2016 and 2015 was approximately $3,000.

Net Income/(Loss). As a result of the above, the Company had a net loss of approximately ($150,000) or ($0.06) per basic and diluted share for the three months ended March 31, 2016 as compared to a net income of approximately $55,000 or $0.02 per basic and diluted share for the three months ended March 31, 2015.

Liquidity and Capital Resources

During the three months ended March 31, 2016 the Company’s revenue declined by approximately 19% and the Company reported a net loss of ($150,000) as compared to net income of $55,000 during the three months ended March 31, 2015. The net income resulted primarily from a decrease in low margin consulting revenue offset with an increase in high margin consulting and fixed price project revenue, an increase in Operating Expenses due to Change in the Management, and maintaining the leased facility for its ODC

The Company's cash balances were approximately $1.1 million at March 31, 2016 and approximately $900,000 at December 31, 2015. Net cash used by operating activities for the three months ended March 31, 2016 was approximately $199,000 compared to net cash provided by operating activities of approximately $331,000 for the three months ended March 31, 2015.

The Company's accounts receivable, less allowance for doubtful accounts, at March 31, 2016 and at December 31, 2015 were approximately $1.2 million and $1.4 million, respectively, representing 52 days and 52 days of sales outstanding (“DSO”) respectively. The Company has provided an allowance for doubtful accounts at the end of each of the period presented. After giving effect to this allowance, the Company does not anticipate any difficulty in collecting amounts due.

For the three months ended March 31, 2016, net cash used in investing activities was $1,673 as compared to $0 for the three months March 31, 2015.

For the three months period ended March 31, 2016, cash used by financing activities was $0 as compared to $0 for the three months ended March 31, 2015. 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 March 31, 2016, the Company does not have any off balance sheet arrangements.

Contractual Obligations and Commitments

The Company’s commitments at March 31, 2016 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.

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. ASU 2014-09 is effective beginning with the calendar year ended December 31, 2017. 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.

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.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently evaluating the method of adoption and the impact of adopting ASU 2016-02 on its results of operations, cash flows and financial position.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Required.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. As of March 31, 2016, the Company 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 March 31, 2016, 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 for the fiscal year ended December 31, 2015 that was filed with the Securities and Exchange Commission on March 28, 2016.

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 

None.

Item 6. Exhibits

(a)         Exhibits

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.

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