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EX-21 - EXHIBIT 21 - Helios & Matheson Analytics Inc. | c98484exv21.htm |
EX-3.2 - EXHIBIT 3.2 - Helios & Matheson Analytics Inc. | c98484exv3w2.htm |
EX-4.1 - EXHIBIT 4.1 - Helios & Matheson Analytics Inc. | c98484exv4w1.htm |
EX-3.1 - EXHIBIT 3.1 - Helios & Matheson Analytics Inc. | c98484exv3w1.htm |
EX-10.2 - EXHIBIT 10.2 - Helios & Matheson Analytics Inc. | c98484exv10w2.htm |
EX-31.1 - EXHIBIT 31.1 - Helios & Matheson Analytics Inc. | c98484exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - Helios & Matheson Analytics Inc. | c98484exv32w1.htm |
EX-10.1 - EXHIBIT 10.1 - Helios & Matheson Analytics Inc. | c98484exv10w1.htm |
EX-23.2 - EXHIBIT 23.2 - Helios & Matheson Analytics Inc. | c98484exv23w2.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, 2009
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 & MATHESON NORTH AMERICA 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.) |
|
200 Park Avenue South New York, New York 10003 (Address of Principal Executive Offices) |
(212) 979-8228 (Registrants Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Common Stock, par value $.01 per share |
Name of Exchange on which Registered NASDAQ Capital Market CM |
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 $492,137 based on the average of the bid and asked prices of the
registrants common stock on the NASDAQ Capital Market CM on the last business day of
the registrants most recently completed second fiscal quarter.
As of March 26, 2010, there were 3,086,362 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 2010 Annual Meeting of
Shareholders, which will be filed on or before April 30, 2010, 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.
TABLE OF CONTENTS
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Exhibit 10.2 | ||||||||
Exhibit 21 | ||||||||
Exhibit 23.2 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 32.1 |
Table of Contents
PART I
This Annual Report on Form 10-K contains forward-looking statements. Additional written and oral
forward-looking statements may be made by the Company from time to time in Securities and Exchange
Commission (SEC) filings and otherwise. The Company cautions readers that results predicted by
forward-looking statements, including, without limitation, those relating to the Companys future
business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income
are subject to certain risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements due to various risks and factors including
those discussed in this Report or identified from time to time in the Companys filings with the
SEC. Part I, Item 1A Risk Factors of this Annual Report discusses risk factors.
ITEM 1. BUSINESS
General
Helios & Matheson North America Inc. (Helios & 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 & Matheson changed its state of incorporation from New York to Delaware.
The Company is headquartered in New York, New York and has offices in Clark, New Jersey,
Chelmsford, Massachusetts and Bangalore, India. The Company provides a wide range of high quality,
information technology (IT) consulting solutions and custom application development 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. The Companys shares are listed on The NASDAQ Capital MarketCM (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 69% of the Companys
outstanding common stock.
Controlled Company
The Board of Directors has determined that Helios & Matheson is a Controlled Company for
purposes of NASDAQ listing requirements. A Controlled Company is 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. The Board of Directors has determined that Helios & Matheson is a
Controlled Company based on the fact that Helios and Matheson Information Technology, Ltd. holds
more than 50% of the voting power of the Company.
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 companys
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
outsourcing of IT development and services to third party IT service providers like the Company.
Many companies outsource such work because outsourcing enables companies to realize cost efficiencies.
Accordingly, organizations turn to external IT services organizations
such as Helios & Matheson to develop, support and enhance their internal IT systems.
Strategy
Helios & 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, Information
Management and Strategic Sourcing. 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 the financial services, pharmaceutical and manufacturing/automotive
verticals.
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Table of Contents
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 additional IT consulting services and software. The
Companys relationships with current clients provide opportunities to market additional services in
current and new geographical markets.
Expand Client Base. The Company is aiming to develop additional client relationships,
especially with clients 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 the tri-state region and using such contacts as a gateway into new geographic markets.
Offshore Expansion. The Company is dedicated to providing cost efficient competitive services
to its clients through its Flexible Delivery Model which allows for dynamically configurable
Onsite, Onshore or Offshore service delivery based on the needs of the clients. This capability is
made possible either through Helios and Matheson Global Services Private Limited (HMGS), the
Companys subsidiary operating in Bangalore, India or Helios and Matheson Parent.
Operational Efficiency. The Company has restructured its operations, migrated to a flexible
workforce and has optimized the cost and effectiveness of its operations by transitioning certain
non-customer facing operations offshore, minimizing the cost of non-revenue generating operations.
Helios & Matheson Operations
Service Lines. Helios & 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 and Integration, Independent Validation, Information Management
and Strategic Sourcing 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 & Matheson markets and distributes a number of software products developed
by independent software developers. The Company believes its relationships with approximately 55
software clients throughout the country provide opportunities for the delivery of additional
Company consulting and training services. The software products offered by Helios & Matheson are
developed in the United States, England and Finland and marketed primarily through trade shows,
direct mail, telemarketing, client presentations and referrals. The Company hopes to use software
sales as a means of introducing itself to potential clients. During 2009, revenue from the
software service line was 12% of the Companys total revenues.
On March 15, 2010, the Company received notice from Cogito, Ltd. (Cogito), a software
company whose products the Company markets, of Cogitos intent to terminate its agreement
with the Company effective thirty days from date of notice. Software revenue
for 2009 was approximately $1.8 million. If the Cogito Agreement is
terminated, the Company expects that future software product revenues, which the Company views as
supplemental to its core consulting business, will be significantly reduced in the short term.
However, the Company hopes to grow revenue from new software partners with whom it has recently
entered into business relationships.
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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, 2009 have been
clients for over five years. For the twelve months ended December 31, 2009, the Companys two
largest customers were BMW and Merrill Lynch (recently acquired by Bank of America), representing
approximately 23% and 10% of total revenues respectively. Besides these customers, no other
customer represented greater than 10% of the Companys revenues. During 2010, the Company expects
that a significant portion of its revenues will continue to come from these clients.
The Company is aiming to develop additional client relationships, especially with clients 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 the tri-state region and
using such contacts as a gateway into new geographic markets.
Approximately, 97%, 97% and 98% of all of the Companys revenues were derived from sources
within the United States for the years ended December 31, 2009, 2008 and 2007, respectively.
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, attendance at conferences and the use of the Companys web site at
http://www.hmna.com, which is not incorporated by reference in this report. At December 31, 2009,
the Company employed 11 sales and marketing personnel.
Competition
The market for IT consulting services is intensely competitive, is 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. In addition, the Company competes with its
clients internal resources, particularly when these resources represent an existing cost to the
client. Competition imposes significant pricing pressures on the Company.
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, 2009, the Company had 76 personnel, of whom 47 were consultants, 2 were
recruiting personnel, 11 were sales and marketing personnel, 2 were technical and customer service
personnel and 14 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 the Companys 76 personnel, the Company was utilizing the services of 47 independent
contractors at December 31, 2009. These independent contractors act as consultants and they are
not employees of the Company. While there can be no assurance that the services of a sufficient
number of consultants and independent contractors will continue to be available to the Company on
terms acceptable to the Company or with the qualifications necessary for the Company to efficiently
operate and grow its business, so far, the Company has not experienced difficulty in sourcing
required talent.
Long-Lived Assets
Substantially all of the Companys long-lived assets were located in the United States for the
years ended December 31, 2009, 2008 and 2007, respectively.
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Table of Contents
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 & 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 69% of the Companys
outstanding common stock. Helios and Matheson Parent has granted the Company a non-exclusive right
to use the name Helios & 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 & Matheson. Additionally, the Company is reliant upon Helios and Matheson Parent to protect
Helios & 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.
Seasonality
The Companys business has not been affected by seasonality.
ITEM 1A. RISK FACTORS
Factors that Could Affect Operating Results
Statements included in Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this document that do not relate to present or historical
conditions are forward-looking statements within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and in Section 21E of the Securities Exchange Act of 1934, as
amended. Additional oral or written forward-looking statements may be made by the Company from
time to time, and such statements may be included in documents that are filed with the SEC. Such
forward-looking statements involve risk and uncertainties that could cause results or outcomes to
differ materially from those expressed in such forward-looking statements. Forward-looking
statements may include, without limitation, statements made pursuant to the safe harbor provision
of the Private Securities Litigation Reform Act of 1995. Words such as believes, forecasts,
intends, possible, expects, estimates, anticipates, or plans and similar expressions
are intended to identify forward-looking statements. The Company cautions readers that results
predicted by forward-looking statements, including, without limitation, those relating to the
Companys future business prospects, revenues, working capital, liquidity, capital needs, interest
costs, and income are subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements, due to various risks and
factors, including those identified below, those identified elsewhere in this report or those
identified from time to time in the Companys filings with the SEC. Among the important factors on
which such statements are based are assumptions concerning the uncertain state of the U.S. economy,
including its impact on the Companys customers, the anticipated growth of the information
technology industry and the continued needs of current and prospective customers for the Companys
services.
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Operating Losses
The Company has incurred operating losses in 2009, 2008 and 2007. In the year ended December
31, 2009, the Company had an operating loss of ($2,059,000). In the year ended December 31, 2008,
the Company had an operating loss of ($2,953,000), which included a goodwill impairment (non-cash)
charge of $1,141,000. In the year ended December 31, 2007, the Company had an operating loss of
($1,142,000). There is no guarantee that the Company can achieve or sustain profitability on a
quarterly or annual basis in the future. The Companys recent operating results and financial
condition could impact the Companys ability to attract new clients and obtain significant project
revenue. If revenues do not increase, or if operating expenses exceed expectations or cannot be
adjusted accordingly, the Company will continue to experience operating losses and net losses and
the Companys results of operations and financial condition (including, potentially, its ability to
continue as a going concern) will be materially and adversely affected.
Going Concern and Capital Requirements
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, 2009, the Company had $1,354,989 of cash and cash equivalents
on hand, which included a $1.0 million cash infusion resulting from a securities purchase agreement
between the Company and Helios and Matheson Parent, as compared to $912,272 of cash and cash
equivalents at December 31, 2008. The Company has a line of credit up to $1.0 million with Keltic
Financial Partners, LP II (Keltic) based on the Companys eligible accounts receivable balances
which is subject to certain financial covenants that shall apply only if the Company has any
outstanding obligations to Keltic including borrowing under the facility. The combination of an
outstanding balance at the end of any fiscal quarter and earnings before taxes, depreciation and
amortization of less than $25,000 for that quarter will cause a default under the Loan Agreement and
may require the Company to obtain a waiver from Keltic or limit the Companys access to the
line of credit. The Keltic line of
credit, which was set to expire on December 31, 2009, has been extended through December 31, 2010
with no material changes in terms and conditions. For the year ended December 31, 2009, the Company
reported a net loss of ($2,076,000). For the year ended December 31, 2008 the Company reported a
net loss of ($2,924,000), which included a goodwill impairment (non-cash) charge of $1,141,000.
For the year ended December 31, 2007, the Company reported a net loss of ($838,000). Beyond December 31,
2010, there is no guarantee that the Company will be able to renew or replace its current financing
upon expiration on commercially reasonable terms or at all. Based upon the Companys reduced
liquidity and net losses, the ability of the Company to continue as a going
concern is dependent on the Company achieving profitable operations and or obtaining additional
sources of financing within the current fiscal year.
The Company may require additional financing in the future to continue to implement its
product and services development, marketing and other corporate programs. If the Company is able
to obtain additional debt financing, the terms of such financing could contain restrictive
covenants that might negatively affect its shares of common stock, such as limitations on payments
of dividends, and could reduce earnings due to interest expenses. Any further issuance of equity
securities could have a dilutive effect on the holders of the Companys shares of common stock.
The Companys business, operating results and financial condition (including, potentially, its
ability to continue as a going concern) may be materially harmed if the Company cannot obtain
additional financing.
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.
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Dependence on Limited Number of Clients
The Company derives a significant portion of its revenues from a relatively limited number of
clients primarily located in the New York/New Jersey metropolitan area of the United States. The
recent economic crisis particularly affected this region and ongoing economic uncertainty could
continue to have an adverse effect on the financial condition of the Companys clients located
there, which in turn could adversely impact the Companys ability to collect its accounts
receivable as well as its business and future growth. For the year ended December 31, 2009, the
Company had two customers which accounted for approximately 23% and 10% of revenues, respectively,
and during 2010, the Company expects that a significant portion of its revenues will continue to
come from these clients. For the year ended December 31, 2008, the Company had two customers which
accounted for approximately 18% and 12% of revenues, respectively. For the
year ended December 31, 2007, the Company had three customers which accounted for
approximately 23%, 18% and 11% of revenues, respectively. Besides these customers, no other
customer represented greater than 10% of the Companys revenues. In any given year, the Companys
ten most significant customers may vary based upon specific projects for those clients during that
year. There can be no assurance that the Companys significant clients will continue to engage it
for additional projects or do so at the same revenue levels. Clients engage the Company on an
assignment-by-assignment basis, and a client can generally terminate an assignment at any time
without penalties. The loss of any significant customer could have a material adverse effect on
the Companys business, results of operations and financial condition. A failure of the Company to
develop relationships with new customers could have a material adverse effect on the Companys
business, results of operations and financial condition.
Volatility of Stock Price
The Companys common stock is extremely illiquid, thinly traded 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.
In addition, 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. Additionally, the
Companys stock is infrequently traded on the NASDAQ Capital MarketCM where it is
listed, which further increases the stocks volatility, and there can be no assurance that a
trading market for the common stock will be sustained.
NASDAQ Listing
The NASDAQ Capital Markets continued listing requirements include requirements that a company
maintain a minimum shareholders equity of $2,500,000, a minimum bid price of $1 and that the
market value of its publicly held shares (the market value of its shares not held by officers,
directors or beneficial owners of more than 10% of the companys total shares outstanding) be at
least $1,000,000.
On August 12, 2009, the Company received a letter from NASDAQ stating that, based on the
Companys reported shareholders equity of $2,475,060 as of June 30, 2009, the Company no longer
complied with NASDAQ Listing Rule 5550(b)(1) which requires a minimum shareholders equity of
$2,500,000 and that it did not meet the alternatives of market value of listed securities or net
income from continuing operations. NASDAQ granted the Company until November 25, 2009 to regain
compliance with this listing requirement. The Companys Compliance Plan, which was submitted to
and approved by NASDAQ, included an equity financing transaction with Helios and Matheson Parent
which was completed on November 20, 2009. As a result of the equity financing transaction, the
Company regained compliance with NASDAQs minimum required shareholders equity requirement.
On September 15, 2009, the Company received two additional letters from NASDAQ, one stating
that based on the closing bid price of the Companys listed securities for the preceding 30
consecutive business days, a deficiency existed with regard to NASDAQ Listing Rule 5550(a)(2),
which requires a minimum bid price of $1.00 per share, and the other stating that for the preceding
30 consecutive trading days the Companys common stock had not maintained a minimum market value of
publicly held shares of $1,000,000 as required by NASDAQ Listing Rule 5550(a)(5). The Company had
180 calendar days from September 15, 2009 to regain compliance with the $1.00 minimum bid price
requirement and 90 calendar days from September 15, 2009 to regain compliance with the $1,000,000
minimum market value of publicly held shares requirement.
On November 16, 2009, the Company
received a letter from NASDAQ stating that since the time NASDAQ contacted the Company on September
15, 2009, the Company regained compliance with both the $1.00 minimum bid price requirement and the
minimum market value of publicly held shares requirement of $1,000,000.
On February 1, 2010, the Company received a letter from NASDAQ stating that, based on the
closing bid price of the Companys listed securities for the preceding 30 consecutive business
days, a deficiency exists with regard to NASDAQ Listing Rule 5550(a)(2), which requires a minimum
bid price of $1.00 per share. The Company has a grace period of 180 calendar days in which to
regain compliance. In order to regain compliance with this requirement, the bid price of the
Companys common stock must close at $1.00 per share or more for a minimum of ten consecutive
business days. Alternatively, the Company may be eligible for an additional 180-day grace period
if it meets the initial listing standards, with the exception of bid price, for The NASDAQ Capital
Market.
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On March 9, 2010, the Company received an additional letter from NASDAQ stating that for the
preceding 30 consecutive trading days the Companys common stock had not maintained a minimum
market value of publicly held shares of $1,000,000 as required by NASDAQ Listing Rule 5550(a)(5).
The Company has a grace period of 180 calendar days in
which to regain compliance. In order to regain compliance with this requirement, the
Companys market value of publicly held shares must close at $1,000,000 or more for a minimum of
ten consecutive business days.
On March 23, 2010, the Company received a letter from NASDAQ stating that since the time
NASDAQ contacted the Company on March 9, 2010, the Company regained compliance with both the $1.00
minimum bid price requirement and the minimum market value of publicly held shares requirement of
$1,000,000.
At the close of business on March 26, 2010, the bid price for a share of the Companys stock
was $1.47, and the Company believes the value of its publicly held shares was approximately
$1,386,936 based upon the public filings of our officers, directors and beneficial owners. As of
December 31, 2009, the Companys shareholders equity was $2,609,499.
If the Companys common stock is delisted from The NASDAQ Capital Market, the market
liquidity of the Companys common stock will likely be significantly limited, which
would reduce stockholders ability to sell the Company common stock. Additionally
any such delisting could harm the Companys ability to raise capital through alternative
financing sources on acceptable terms, if at all, and may result in the loss of confidence in
the Companys financial stability by suppliers, customers and employees. In addition,
a delisting would likely increase the price volatility of the Companys shares of
common stock and have a material adverse impact on the price of the Companys shares
of common stock.
Project Risk
The Companys projects entail significant risks. Many of its engagements involve projects
that are critical to the operations of its clients businesses and provide benefits that may be
difficult to quantify. The Companys failure or inability to meet a clients expectations in the
performance of the Companys services could result in a material adverse change to the clients
operations and therefore could give rise to claims against the Company or damage its reputation,
adversely affecting its business, results of operations and financial condition.
Billing Margins
The Companys ability to maintain billing margins is uncertain. The Company derives revenues
primarily from the hourly billing of consultants services and, to a lesser extent, from
fixed-price projects. Its most significant cost is project personnel cost, which consists of
consultant salaries and benefits as well as costs of subcontractors. Thus, the Companys financial
performance is primarily based upon billing margin (billable hourly rate less the consultants
hourly cost) and personnel utilization rates (number of days worked by a consultant during a
semi-monthly billing cycle divided by the number of billing days in that cycle). There can be no
assurance that the Companys cost containment and workforce rationalization efforts will provide
positive results in the future. Additionally, during the past three years, the Companys clients
have been adverse to increases in any costs of the Companys services and have employed Vendor
Management Organizations as a means of monitoring and controlling these costs which have negatively
impacted, and could continue to negatively impact, the Companys margins.
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Fluctuations in Quarterly Operating Results
The Companys quarterly results of operations are variable. Variations in revenues and
results of operations occur from time to time as a result of a number of factors including the size
and significance of client engagements, consultant hiring and utilization rates, the timing of
corporate expenditures and the number of business days in a quarter. Initiation or completion of
client engagements can cause significant variations in results of operations from quarter to
quarter. In addition, the Companys engagements generally are terminable by the client at any time
without penalties. Although the
number of consultants can be adjusted to correspond to the number of active engagements, the
Company must maintain a sufficient number of senior consultants to oversee existing client
engagements and to assist its sales force in securing new client assignments. An unexpected
reduction in the number of assignments could result in excess capacity of consultants and increased
selling, general and administrative expenses as a percentage of revenues. The Company has also
experienced, and may in the future experience, significant fluctuations in the quarterly results of
its software sales as a result of the variable size and timing of individual license transactions,
competitive conditions in the industry, changes in customer budgets, and the timing of the
introduction of new products or product enhancements. In the event that the Companys results of
operations for any period are below the expectation of investors, the market price of the Companys
shares of common stock could be adversely affected.
On March 15, 2010, the Company received notice from Cogito, a software company whose
products the
Company markets, of Cogitos intent to terminate its agreement with the Company
effective thirty days from date of notice. Software revenue for 2009
was approximately $1.8 million. If the Cogito Agreement is terminated, the Company expects
that future software product revenues, which the Company views as supplemental to its core
consulting business, will be significantly reduced in the short term. However, the Company hopes
to grow revenue from new software partners with whom it has recently entered into business
relationships.
Competition
The market for IT consulting services is intensely competitive, is 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. In addition, the Company competes with its
clients internal resources, particularly when these resources represent an existing cost to the
client. Competition imposes significant pricing pressures on the Company.
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.
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. The Company cannot assure investors that it will be successful in
adequately addressing information technology developments on a timely basis or that, if addressed,
the Company will be successful in the marketplace. The Company also cannot assure investors that
products or technologies developed by others will not render its services uncompetitive or
obsolete. The Companys failure to address these developments could have a material adverse effect
on its business, results of operations and financial condition.
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 & 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 69% of the Companys
outstanding common stock. Helios and Matheson Parent has granted the Company a non-exclusive right
to use the name Helios & 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 & Matheson. Additionally, the Company is reliant upon
Helios and Matheson Parent to protect the Helios & Mathesons trademarks, trade names, service marks
and service names.
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The Companys business includes the development of custom software applications in connection
with specific client engagements. All ownership rights to software developed by the Company in
connection with a client engagement are typically assigned to the client, such that the Company is
not able to benefit commercially from additional or alternative uses of such applications. 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.
NASDAQ Controlled Company
Helios and Matheson Parent holds approximately 69% of the voting power of the Company, and the
Board of Directors has determined that the Company is a controlled company for the purposes of
NASDAQ listing requirements. Therefore, the Company is not subject to NASDAQ listing requirements
that, among other things, would otherwise require that the Board of Directors have a majority of
independent directors and that 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. Accordingly, the stockholders of the Company will not have the same protection
afforded to stockholders of companies that are subject to all of the NASDAQ governance
requirements.
ITEM 1B. UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments.
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. The Company also leases approximately 7,000 square
feet in a facility in Clark, New Jersey and approximately 1,400 square feet in a facility in
Chelmsford, Massachusetts. The lease on the New Jersey facility expires on August 31, 2010 and the
lease on the Massachusetts facility expired January 31, 2010. 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, 2010.
The
Company is unlikely to renew its lease for the New Jersey facility and it is currently using the
Massachusetts facility on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. RESERVED
EXECUTIVE OFFICER OF THE REGISTRANT
The following section sets forth information as to each executive officer of Helios &
Matheson, including his age, present principal occupation, other business experience during the
last five years, directorships in other publicly-held companies, and period of service with the
Company.
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Salvatore M. Quadrino, 63, has been the Chief Financial Officer of the Company since May 1,
2006 and Secretary from April 26, 2006. In addition, on May 9, 2008, the Company offered and Mr.
Quadrino accepted the position of interim Chief Executive Officer of the Company, to serve in this
dual capacity. From January 2004 through May 1, 2006, Mr.
Quadrino served as an independent consultant providing Finance and Accounting solutions to
clients as either interim chief financial officer or project manager. From 2002 to 2004, Mr.
Quadrino served as Chief Financial Officer for Con Edison Communications, Inc. From 2000 to 2001
Mr. Quadrino served as the Chief Financial Officer for Submit Order Inc. Prior to 2000, Mr.
Quadrino served as Chief Financial Officer for Medical Logistics Inc., COVISTA Communications Inc.
and Erols Internet, Inc. From 1990 to 1996, Mr. Quadrino was employed by Suburban Propane Partners
LP, initially as Chief Financial Officer, then as President and Chief Executive Officer. In the
role of President and Chief Executive Officer, Mr. Quadrino led Suburban Propane in its successful
initial public offering and listing on the New York Stock Exchange. Mr. Quadrino is a Certified
Public Accountant.
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 MarketCM 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 CM.
The following table sets forth the quarterly range of high and low sale prices of the Companys
common stock since January 1, 2008 as reported by NASDAQ:
2008 | High | Low | ||||||
First Quarter |
$ | 2.85 | $ | 1.56 | ||||
Second Quarter |
2.40 | 1.52 | ||||||
Third Quarter |
2.24 | 1.13 | ||||||
Fourth Quarter |
1.80 | 0.01 |
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 |
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Performance Graph
The following graph depicts the performance of $100 invested on December 31, 2004 in the
Companys common stock with (i) a Peer Index of selected Information Technology and e-Services
companies and (ii) the Nasdaq® Major Market Computer and Data Processing Services Index. The Peer
Index is comprised of a list of the Companys competitors as obtained from financial websites and
is re-evaluated on an annual basis. The comparison assumes reinvestment of all dividends on a
quarterly basis for the years ended December 31, 2005, 2006, 2007, 2008 and 2009. Shareholder
returns over the indicated periods should not be considered indicative of future shareholder
returns.
Dividends
During the last two fiscal years, the Company has not paid any cash dividends on its common
stock. The Company does not anticipate declaring any dividends in 2010.
The Company is prohibited from paying dividends on its stock under the Loan and Security
Agreement dated January 1, 2010 between the Company and Keltic for so long as the Company has any
obligations to Keltic under such agreement.
Holders
There were approximately 195 holders of record of the Companys common stock as of September
22, 2009, when the Company obtained such information for purposes of a special meeting of shareholders.
Recent Sales of Unregistered Securities
On November 18, 2009, the Company entered into a private placement Securities Purchase
Agreement with Helios and Matheson Parent, pursuant to which Helios and Matheson Parent purchased
689,655 shares of the Companys common stock at a price of $1.45 per share, equal to the closing
bid price of the Companys common stock on November 20, 2009, for a total investment of $1,000,000.
The investment by Helios and Matheson Parent was part of a plan submitted by the Company to NASDAQ
to regain compliance with The NASDAQ Capital Markets minimum shareholders equity requirement.
Share Repurchases
None.
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ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain financial and operating data and is qualified by the more
detailed Consolidated Financial Statements and Notes thereto included herein. The selected
financial data in the table is derived from the Companys Consolidated Financial Statements and
Notes thereto, which includes financial data from its wholly owned subsidiaries, International
Object Technology, Inc. (IOT) (a privately owned, professional services firm that provided data
management and business intelligence solutions, technology consulting and project management
services) during 2005 and the first quarter of 2006, after which its operations were fully
integrated into the Company and HMGS from the date of acquisition on September 30, 2005. The
selected financial data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and other financial information included herein.
Selected Financial Data
(in thousands, except number of shares and per share data)
(in thousands, except number of shares and per share data)
Year Ended December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Revenues |
$ | 14,891 | $ | 19,651 | $ | 20,830 | $ | 24,940 | $ | 26,432 | ||||||||||
(Loss)/income from operations |
(2,059 | ) | (2,953 | )(3) | (1,142 | ) | 900 | (2) | (461 | )(1) | ||||||||||
Net (loss)/income |
(2,076 | ) | (2,924 | ) | (838 | ) | 852 | (484 | ) | |||||||||||
Net (loss)/income per share |
||||||||||||||||||||
Basic |
$ | (0.84 | ) | $ | (1.22 | ) | $ | (0.35 | ) | $ | 0.36 | $ | (0.22 | ) | ||||||
Diluted |
$ | (0.84 | ) | $ | (1.22 | ) | $ | (0.35 | ) | $ | 0.35 | $ | (0.22 | ) | ||||||
Weighted
average shares used in per share calculation basic |
2,476,065 | (4) | 2,396,707 | 2,391,452 | 2,380,699 | 2,285,874 | ||||||||||||||
Weighted
average shares used in per share calculation diluted |
2,476,065 | (4) | 2,396,707 | 2,391,452 | 2,404,946 | 2,285,874 | ||||||||||||||
Balance Sheet Data |
||||||||||||||||||||
Total assets |
$ | 4,424 | $ | 5,473 | (3) | $ | 8,505 | $ | 9,789 | $ | 8,493 | |||||||||
Long-term liabilities |
| | | | | |||||||||||||||
Shareholders equity |
2,609 | 3,665 | (3) | 6,520 | 7,209 | 6,205 | ||||||||||||||
Number of shares outstanding at year end |
3,086,362 | (4) | 2,396,707 | 2,396,707 | 2,382,801 | 2,361,333 |
(1) | Includes $1.2 million in pretax costs associated with a terminated transaction with Vanguard
Info-Solution Corporation for the year ended December 31, 2005. |
|
(2) | Includes net proceeds received by the Company in connection with a release of claims relating
to a terminated transaction with Vanguard Info-Solution Corporation of $881,000. |
|
(3) | Includes a goodwill impairment (non-cash) charge of $1.1 million in the fourth quarter of 2008. |
|
(4) | Includes an issuance of 689,655 shares of common stock to Helios & Matheson Parent in the
fourth quarter of 2009. |
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.
Overview
Since 1983, Helios & Matheson has provided IT services and solutions to Fortune 1000 companies
and other large organizations. In 1997, Helios & Matheson became a public company headquartered in
New York, New York. In addition, the Company has offices in Clark, New Jersey, Chelmsford,
Massachusetts and Bangalore, India. The Companys common stock is currently listed on The NASDAQ
Capital Market CM. under the symbol HMNA. Prior to January 30, 2007, the Companys
name was The A Consulting Team, Inc.
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Helios & 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 and Integration, Independent Validation, Information Management and
Strategic Sourcing 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.
The Company is dedicated to providing cost efficient competitive services to its clients
through its Flexible Delivery Model which allows for dynamically configurable Onsite, Onshore or
Offshore service delivery based on the needs of the clients. This capability is made possible
either through HMGS, the Companys subsidiary operating in Bangalore, India or Helios and Matheson
Parent. The Companys ability to blend more offshore work into its pricing should allow it to be
more price competitive. To date, any offshore work being performed through Helios and Matheson
Parent has been de minimus.
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 companys
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
outsourcing of IT development and services to third party IT service providers like the Company.
Many companies outsource such work because outsourcing enables companies to realize cost efficiencies.
Accordingly, organizations turn to external IT services organizations
such as Helios & Matheson to develop, support and enhance their internal IT systems.
The Company believes that its business, operating results and financial condition have been
harmed by the recent economic crisis and ongoing economic uncertainty. A significant portion of
the Companys major customers are in the financial services, pharmaceutical and
manufacturing/automotive industries 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. While the Company has not lost any major clients, it has experienced a
pushback of new assignments from existing clients and difficulty in replacing completed projects,
both of which have impacted revenue through the fourth quarter of 2009 and continue to impact
revenue growth through 2010 year to date.
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For the three and twelve months ended December 31, 2009, approximately 76% and 71%
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 70% and 67% for the three and
twelve months ended December 31, 2008, respectively and 57% and 59% for the three and twelve months
ended December 31, 2007, 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
semi-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. As a result, the Companys operating performance is primarily based upon billing
margins (billable hourly rate less the consultants hourly cost) and consultant utilization rates
(number of days worked by a consultant during a semi-monthly billing cycle divided by the number of
billing days in that cycle). For the twelve months ended December 31, 2009, 2008, and 2007, gross
margin was 24.8%, 22.8% and 29.5%, respectively. The increase in gross margin during 2009 was
primarily a result of the Companys decision to eliminate a number of non-billing resources, as
reflected in the increase in consultant utilization. Consultant utilization rate for the years
ended December 31, 2009, 2008 and 2007 was 85%, 76% and 75%. 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 consultant costs, to date
clients have been adverse to accepting cost increases. Additionally, during the past three years,
an increasing number of the Companys clients are outsourcing the management of their time and
material engagements to external Vendor Management Organizations (VMOs) as a means of monitoring
and controlling the costs of external service providers. The Company has been challenged with
absorbing the costs associated with the VMOs which have negatively impacted the Companys margins.
Helios & Matheson actively manages its personnel utilization rates by monitoring project
requirements and timetables. Helios & Mathesons utilization rate for the three and twelve months
ending December 31, 2009, was approximately 88% and 85%, respectively as compared to 84% and 76%
for the three and twelve months ending December 31, 2008, respectively and 79% and 75% for the
three and twelve months ending December 31, 2007, 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 & Mathesons training programs in
order to expand their technical skill sets. The Company carefully monitors consultants that are
not utilized. While the Company has established guidelines for the amount of non-billing time that
it allows before a consultant is terminated, actual terminations vary as circumstances warrant.
During 2009, the Company eliminated a number of non-billing resources.
Helios
& Matheson markets and distributes a number of software products
developed by independent software developers. The Company believes
its relationships with approximately 55 software clients throughout
the country provide opportunities for the delivery of additional
Company consulting and training services. The software products
offered by Helios & Matheson are developed in the United States,
England and Finland and marketed primarily through trade shows, direct
mail, telemarketing, client presentations and referrals.
The
Company generates revenues by selling software licenses. In addition to initial
software license fees, the Company also derives revenues from the annual renewal of software
licenses. Because future obligations associated with such revenue are insignificant, revenues from
the sale of software licenses are recognized upon delivery of the software to a customer. The
Company views software sales as ancillary to its core consulting services business. Revenue
generated from software sales will vary from period to period. During 2009, revenue from the
software service line was 12% of the Companys total revenues.
On March 15, 2010, the Company received notice from Cogito, a software
company whose products the Company markets, of Cogitos intent to terminate its agreement with the
Company effective thirty days from date of notice. Software revenue
for 2009 was approximately $1.8 million. If the Cogito Agreement is
terminated, the Company expects that future software product revenues, which the Company views as
supplemental to its core consulting business, will be significantly reduced in the short term.
However, the Company hopes to grow revenue from new software partners with whom it has recently
entered into business relationships.
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Investments
On July 19, 2002,
the Company acquired all of the common stock of IOT (a privately owned,
professional services firm that provided data management and business intelligence solutions,
technology consulting and project management
services). During the first quarter of 2006, IOTs operations were fully integrated into
Helios & Matheson. The purchase price of the acquisition exceeded the fair market value of the net
assets acquired, resulting in the recording of goodwill stated at $1,140,964. As prescribed by the
Financial Accounting Standards Board (FASB), the Company had an evaluation done of its goodwill
and intangible assets, which was performed by an independent third party. The Company tested for
impairment using the guidance for measuring impairment set forth by the FASB and it was determined
by the Company based upon the results from an independent third party that goodwill was impaired at
December 31, 2008. Therefore, the Company took an impairment charge equal to the entire amount of
goodwill and reduced 2008 earnings by $1,140,964.
On
March 30, 2006, Helios and Matheson Parent, an IT services organization with its corporate
headquarters in Chennai, India, purchased 1,024,697 share 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. On
September 5, 2006 Helios and Matheson Parent increased their ownership to approximately 52%. On
November 20, 2009 Helios and Matheson Parent increased their ownership to approximately 69% by
purchasing an additional 689,655 shares of the Companys common stock pursuant to a Securities
Purchase Agreement (the Purchase Agreement) entered into on November 18, 2009.
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).
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.
Goodwill and Intangible Assets
Goodwill acquired in a purchase and determined to have an indefinite useful life is not
amortized, but instead tested for impairment at least annually as specified by the FASB.
The Company tested for impairment for the year ended December 31, 2008 and it was determined
by the Company based upon the results from an independent third party that there was an impairment
of goodwill at December 31, 2008. Therefore, the Company took an impairment (non-cash) charge
equal to the entire amount of its goodwill and reduced 2008 earnings by $1,140,964.
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.
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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.
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, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Revenues |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of revenues |
75.2 | % | 77.2 | % | 70.5 | % | ||||||
Gross profit |
24.8 | % | 22.8 | % | 29.5 | % | ||||||
Operating expenses |
38.6 | % | 37.8 | %(1) | 35.0 | % | ||||||
Loss from operations |
(13.8 | )% | (15.0 | )% | (5.5 | )% | ||||||
Net loss |
(13.9 | )% | (14.9 | )% | (4.0 | )% | ||||||
(1) | Includes a goodwill impairment charge of $1,141,000. |
Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008
Revenues. Revenues of the Company decreased by $4.8 million or 24.2% from $19.7 million for
the twelve months ended December 31, 2008 to $14.9 million for the twelve months ended December 31,
2009. The decrease was primarily attributable to a decline in consulting revenue due to difficulty
in replacing relatively high-margin 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.
16
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Gross Profit. The resulting gross profit for the twelve months ended December 31, 2009 was
$3.7 million, a decrease of $786,000 or 17.6% from the 2008 comparable period amount of $4.5
million. As a percentage of total revenue, gross margin for the twelve months ended December 31,
2009 was 24.8%, an increase of 2% from the 2008 level of 22.8%. The increase in gross margin for
the year ended December 31, 2009 was primarily a result of a decision by the Company to eliminate a
number of non-billing resources, as reflected in the increase in consultant utilization. Consultant
utilization rate for the years ended December 31, 2009 and 2008 was 85% and 76%, respectively.
Operating Expenses. Operating expenses are comprised of Selling, General and Administrative
(SG&A) expenses and depreciation and amortization. SG&A expenses decreased by $486,000, or 7.9%
from $6.1 million for the twelve months ended December 31, 2008 to $5.6 million for the twelve
months ended December 31, 2009. The decrease in SG&A was associated with various cost reduction
initiatives including, but not limited to, a reduction in employee headcount. Depreciation and
amortization expenses decreased $53,000, from $178,000 for the twelve months ended December 31,
2008 to $125,000 for the twelve months ended December 31, 2009.
Taxes. Taxes increased $10,000 from $12,000 for the twelve months ended December 31, 2008 to
$22,000 for the twelve months ended December 31, 2009. For the twelve months ended December 31,
2009, the Company recorded a tax provision of $18,000 for minimum state taxes, and provision to
return adjustments of $4,000 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, 2009 and 2008, respectively.
Net Loss. As a result of the above, the Company had a net loss of ($2.1) million or ($0.84)
per basic and diluted share for the twelve months ended December 31, 2009 compared to a net loss of
($2.9) million or ($1.22) per basic and diluted share for the twelve months ended December 31,
2008. Net loss for the period ended December 31, 2008 included a goodwill impairment (non-cash)
charge of $1.1 million.
Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007
Revenues. Revenues of the Company decreased by $1.2 million or 5.7% from $20.8 million for the
twelve months ended December 31, 2007 to $19.7 million for the twelve months ended December 31,
2008. The decrease was primarily attributable to a decline in consulting revenue due to difficulty
in replacing relatively high-margin completed projects and a pushback of new assignments from
existing clients primarily as a result of the unprecedented crisis in the financial markets and the
economy more broadly.
Gross Profit. The resulting gross profit for the twelve months ended December 31, 2008 was
$4.5 million, a decrease of $1.7 million or 27.2% from the 2007 comparable period amount of $6.1
million. As a percentage of total revenue, gross margin for the twelve months ended December 31,
2008 was 22.8%, a decrease of 6.7% from the 2007 level of 29.5%. The decline in gross margin for
the year ended December 31, 2008 was primarily a result of a change in mix from higher margin
projects to lower margin time and material engagements, including an increase in third party
placements whereby the Company supplies resources to a third party who, in turn, supplies the
Companys resources to a client.
Operating Expenses. Operating expenses are comprised of Selling, General and Administrative
(SG&A) expenses, a goodwill impairment (non-cash) charge and depreciation and amortization. SG&A
expenses decreased by $1.0 million, or 14% from $7.1 million for the twelve months ended December
31, 2007 to $6.1 million for the twelve months ended December 31, 2008. The decrease in SG&A was
associated with various cost reduction initiatives including, but not limited to, a reduction in
employee headcount. For the twelve months ended December 31, 2008 operating expenses also included
a goodwill impairment (non-cash) charge of $1.1 million. Depreciation and amortization expenses
decreased $10,000, from $188,000 for the twelve months ended December 31, 2007 to $178,000 for the
twelve months ended December 31, 2008.
Taxes. Taxes increased $158,000 from ($147,000) for the twelve months ended December 31, 2007
to $12,000 for the twelve months ended December 31, 2008. For the twelve months ended December 31,
2008, the Company recorded a tax provision of $18,000 for minimum state taxes, which was partially
offset by a tax benefit of $6,000 resulting from provision to return adjustments 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, 2008 and 2007, respectively.
Net Loss. As a result of the above, the Company had a net loss of ($2.9) million or ($1.22)
per basic and diluted share for the twelve months ended December 31, 2008 compared to a net loss of
($838,000) or ($0.35) per basic and diluted share for the twelve months ended December 31, 2007.
Net loss for the period ended December 31, 2008 included a goodwill impairment (non-cash) charge of
$1.1 million.
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Liquidity and Capital Resources
The Company had an operating loss and a net loss of approximately ($2.1) million for the
twelve months ended December 31, 2009. During the twelve months ended December 31, 2008, the
Company had an operating loss of
approximately ($3.0) million and a net loss of approximately ($2.9) million, both of which
included a goodwill impairment (non-cash) charge of $1.1 million. The Company believes that its
business, operating results and financial condition have been harmed by the recent economic crisis
and ongoing economic uncertainty which continue to adversely affect 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 recent unprecedented economic conditions in the
financial markets. While the Company has not lost any major clients, it has experienced a pushback
of assignments from existing clients, specifically with respect to relatively high-margin projects.
Spending on IT consulting services is largely discretionary, and the Company has experienced a
pushback of new assignments from existing clients and difficulty in replacing completed projects,
both of which have impacted revenue through the fourth quarter of 2009. While the Company
continues to focus on revenue growth and cost reductions, including but not limited to eliminating
non-billing resources, outsourcing and off-shoring solutions, in an attempt to improve its
financial condition, there can be no assurance that the Company will be profitable in future
periods.
The Companys
cash balances were approximately $1.4 million at December 31, 2009, which
included a $1.0 million cash infusion resulting from the
Purchase Agreement with Helios and Matheson
Parent, as compared to $912,000 at December 31, 2008. Net cash used in operating activities for
the twelve months ended December 31, 2009 was approximately $535,000 compared to net cash used in
operating activities of approximately $2.1 million for the twelve months ended December 31, 2008
and net cash used in operating activities of approximately $722,000 for the twelve months ended
December 31, 2007.
The Companys accounts receivable, less allowance for doubtful accounts, at December 31, 2009
and December 31, 2008 were $2.7 million and $3.9 million, respectively, representing 60 and 66 days
of sales outstanding (DSO), respectively. The Company believes the decrease in DSO from 66 days
in 2008 to 60 days in 2009 is consistent with favorable resolutions of a limited number of dated
client disputes. The accounts receivable at December 31, 2009 and 2008 included $184,000 and
$34,000 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, 2009, revenues from the Companys two largest
customers represented 23% and 10% of revenues. For the twelve months ended December 31, 2008, the
Company had revenues from two customers, which represented 18% and 12% 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 $3,000, ($43,000) and
($73,000), for the twelve months ended December 31, 2009, 2008 and 2007, respectively. In each of
the three years, this included additions to property and equipment of $15,000, $43,000, and $73,000
respectively, consisting primarily of upgrades to systems and servers. During 2009, additions were
offset by disposals totaling $18,000.
Net cash provided by financing activities was approximately $980,000 (which included a $1.0
million cash infusion from Helios and Matheson Parent), $0 and $26,000 for the twelve months ended
December 31, 2009, 2008 and 2007, respectively.
The Company has entered into a Loan Agreement with Keltic. The Loan Agreement, which was set
to expire December 31, 2009, has been extended through December 31, 2010 with no material changes
in terms and conditions. Under the Loan Agreement, the Company has a line of credit up to $1.0
million based on the Companys eligible accounts receivable balances at an interest rate that is
based on the higher of prime rate plus 2.75%, 90 day LIBOR rate plus 5.25% or 7%. Availability at
December 31, 2009, was $1.0 million. The Loan Agreement has certain financial covenants that shall
apply only if the Company has any outstanding obligations to Keltic including borrowing under the
facility. The Company had no outstanding balance at
December 31, 2009, or at December 31, 2008 under the Loan Agreement.
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In managements
opinion, cash flows from operations and borrowing capacity (assuming
obtaining a commercially reasonable consent if required) 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, 2009 and 2008, there were no shares of common stock
issued pursuant to the exercise of options issued under the Companys stock option plan. For the
twelve months ended December 31, 2007, 13,906 shares of common stock were issued pursuant to the
exercise of options issued under the Companys stock option plan.
Off-Balance Sheet Arrangements
The Company did not have any Off Balance Sheet Arrangements during the twelve months ended
December 31, 2009, 2008, and 2007, respectively.
Contractual Obligations
The Company has the following contractual obligations as of December 31, 2009:
Payments Due by Period | ||||||||||||||||||||
More Than 5 | ||||||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1 3 Years | 3 5 Years | Years | |||||||||||||||
Long Term Obligations |
||||||||||||||||||||
Employment Contracts (1) |
127,250 | 127,250 | | | | |||||||||||||||
Operating Lease Obligations |
||||||||||||||||||||
Rent (2) |
824,416 | 374,379 | 450,037 | | | |||||||||||||||
Total |
$ | 951,666 | $ | 501,629 | $ | 450,037 | $ | | $ | | ||||||||||
(1) | The Company has an employment agreement with its named Executive Officer Salvatore M.
Quadrino, the Companys Interim Chief Executive Officer and Chief Financial Officer. Under
Mr. Quadrinos employment agreement, Mr. Quadrino will serve in a dual capacity as Interim
Chief Executive Officer and Chief Financial Officer at an annual salary of $220,000. |
|
(2) | The Company has a New York facility with a lease term expiring July 31, 2012, a New
Jersey facility with a lease term expiring August 31, 2010, and a Massachusetts facility
with a lease term expiring January 31, 2010. The Company did not renew the lease for the
Massachusetts facility and is currently leasing the facility on a month-to-month basis. In
addition, the Company is unlikely to renew the lease for its New Jersey facility. |
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, may increase the costs of borrowing, or may have an adverse impact on the Companys
margins and overall cost structure.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into market risk sensitive transactions required to be disclosed
under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements on pages F-1 through F-19 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A(T). CONTROLS AND PROCEDURES
Attached as exhibits to this Form 10-K is a certification from Salvatore M. Quadrino, the
Companys interim Chief Executive Officer and Chief Financial Officer, which is required in
accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange
Act). This Controls and Procedures section includes information concerning the controls and
controls evaluation referred to in the certification.
Evaluation of Disclosure Controls and Procedures
The Company conducted an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures (Disclosure Controls) as of the end of the period covered by
this Form 10-K. The Disclosure Controls evaluation was conducted under the supervision and with
the participation of management, including Salvatore M. Quadrino. Disclosure Controls are controls
and procedures designed to reasonably assure that information required to be disclosed in the
reports filed under the Exchange Act, such as this Form 10-K, is recorded, processed, summarized,
and reported within the time periods specified in the SECs rules and forms. Disclosure Controls
are also designed to reasonably assure that such information is accumulated and communicated to the
management, including Salvatore M. Quadrino, as appropriate to allow timely decisions regarding
required disclosure. The quarterly evaluation of Disclosure Controls includes an evaluation of
some components of the internal control over financial reporting, and internal control over
financial reporting is also separately evaluated on an annual basis for purposes of providing the
management report, which is set forth below.
The evaluation of the Disclosure Controls included a review of the Disclosure Controls
objectives and design, the Companys implementation of the Disclosure Controls, and their effect on
the information generated for use in this Form 10-K. In the course of the Disclosure Controls
evaluation, the Company reviewed identified data errors, control problems, or acts of fraud, if
any, and sought to confirm that appropriate corrective actions including process improvements, were
being undertaken, where applicable. This type of evaluation is performed on a quarterly basis so
that the conclusions of management, including Salvatore M. Quadrino, concerning the effectiveness
of the Disclosure Controls can be reported in the Companys periodic reports on Form 10-Q and Form
10-K. Many of the components of the Companys Disclosure Controls are also evaluated on an ongoing
basis by other personnel in the Companys Internal Finance department. The overall goals of these
various evaluation activities are to monitor the Companys Disclosure Controls, and to modify them
as necessary. The Companys intent is to maintain the Disclosure Controls as dynamic systems that
change as conditions warrant.
Based on the Disclosure Controls evaluation, Salvatore M. Quadrino has concluded that, as of
the end of the period covered by this Form 10-K, the Companys Disclosure Controls were effective
to provide reasonable assurance that information required to be disclosed in the Companys
Securities Exchange Act of 1934 reports is recorded, processed, summarized, and reported within the
time periods specified by the SEC, and that material information related to the Company and its
consolidated subsidiaries is made known to management, including Salvatore M. Quadrino.
20
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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,
2009, 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. Managements assessment included evaluation of the
design and operating effectiveness of key financial reporting controls, process documentation,
accounting policies, and the Companys overall control environment. This assessment is supported
by testing and monitoring performed by both an external independent third party serving as the
Companys internal audit organization and the Companys internal finance department.
Based on the managements assessment, management has concluded that the Companys internal
control over financial reporting was effective as of the end of the fiscal year to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with U.S. generally accepted
accounting principles. 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.
This Annual Report does not include an attestation report of Mercadien P.C., Certified Public
Accountants, the Companys registered public accounting firm, regarding internal control over
financial reporting. Managements report was not subject to attestation by the Companys
registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only managements report in this Annual Report.
Inherent Limitations on Effectiveness of Controls
The Companys management, including Salvatore M. Quadrino, does not expect that the Companys
Disclosure Controls or the Companys internal control over financial reporting will prevent or
detect all error and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control systems objectives will be met.
The design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Further, because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations include faulty
judgments and breakdowns due to simple error or mistake. Controls can also be circumvented by
individuals, by collusion, or by management override (whether such action is intentional or
unintentional). The design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with
policies or procedures. Therefore, any current evaluation of controls cannot and should not be
projected to future periods.
Changes in Internal Controls
On a quarterly basis the Company evaluates any changes to the Companys internal control over
financial reporting to determine if material changes occurred. Based upon this evaluation, the
Company has determined that there were no changes in the Companys internal control over financial
reporting that occurred during the Companys fourth fiscal quarter of 2009 that has materially
affected or is reasonably likely to materially affect the Companys internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
On November 18, 2009, the Company held a special meeting of shareholders (the Special
Meeting) for the following purpose:
Proposal 1. To approve a change of the Companys state of incorporation from New York to
Delaware by means of a merger of the Company into a newly formed, wholly-owned Delaware subsidiary.
21
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The shareholders approved the proposal to change the Companys state of incorporation from New
York to Delaware by the following number of votes:
IN FAVOR | AGAINST | ABSTAINED | ||
1,706,166
|
9,101 | 4,000 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning executive officers required by this item is contained in the
Section entitled Executive Officer of the Registrant, in Part I hereof. 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 2010
Annual Meeting of Shareholders which will be filed with the SEC on or before April 30, 2010.
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 Generalist by calling 212-979-8228 or
writing to Ms. Lovastiks attention at Helios & 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 2010 Annual Meeting of Shareholders which will be filed with the SEC on or before
April 30, 2010.
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 2010 Annual Meeting of Shareholders which will be filed with the SEC on or
before April 30, 2010.
22
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Equity Compensation Plan Information
The Equity Compensation Plan Information as of December 31, 2009 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, 2009 | 2009 | 2009) | |||||||||
Equity compensation plans
approved by security
holders |
35,500 | $ | 4.62 | 424,500 | ||||||||
Equity compensation
plans not
approved by security
holders |
| | | |||||||||
Total |
35,500 | $ | 4.62 | 424,500 | ||||||||
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 2010 Annual Meeting of Shareholders which will be filed with the SEC on or before
April 30, 2010.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the Companys Proxy
Statement for the 2010 Annual Meeting of Shareholders which will be filed with the SEC on or before
April 30, 2010.
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 on
page F-1. 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.
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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. |
|||
3.2 | Bylaws of Helios & Matheson North America Inc. |
|||
4.1 | Specimen
Common Stock Certificate. |
|||
10.1 | Securities Purchase Agreement between the Company and Helios & Matheson Information
Technology Ltd. dated as of November 18, 2009. |
|||
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 | Loan and Security Agreement between the Registrant and Keltic Financial Partners II, LP
dated December 29, 2009. |
|||
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 | Employment Agreement, dated as of May 1, 2006, between the Registrant and Salvatore M.
Quadrino, incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, as
previously filed with the SEC on May 1, 2006. |
|||
10.5 | Amended Employment Agreement, dated as of May 9, 2008, between the Registrant and Salvatore
M. Quadrino, incorporated by reference to Exhibit 10.9 to the Form
10-K, as previously filed with the SEC on March 31, 2009. |
|||
10.6 | Form of Release and Covenant Not to Sue entered into by the Registrant releasing certain
parties, incorporated by reference to Exhibit 10.1 on Form 8-K, as previously filed with the
SEC on June 2, 2006. |
|||
10.7 | Form of Release and Covenant Not to Sue entered into by the certain parties releasing the
Registrant, incorporated by reference to Exhibit 10.2 on Form 8-K, as previously filed with
the SEC on June 2, 2006. |
|||
10.8 | Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as
of August 1, 2008, incorporated by reference to Exhibit 10.1 to the Form 10-Q as previously
filed with the SEC on November 13, 2008. |
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Exhibit | ||||
Number | Description of Exhibits | |||
10.9 | Letter
from Helios and Matheson Information Technology Ltd. dated March 26, 2007,
incorporated by reference to Exhibit 10.14 to the Form 10-K for the period ended December 31,
2006, as previously filed with the SEC on March 29, 2007. |
|||
21 | Helios & Matheson North America, Inc. List of Subsidiaries. |
|||
23.2 | Consent of Mercadien, P.C., Certified Public Accountants. |
|||
31.1 | Certification of Interim Chief Executive Officer and Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of the Interim Chief Executive Officer and Chief Financial 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. |
25
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 & MATHESON NORTH AMERICA INC. | ||||||
By: | /s/ Salvatore M. Quadrino
|
|||||
Interim Chief Executive Officer and | ||||||
Chief Financial Officer | ||||||
Date: March 31, 2010 |
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/ Salvatore M. Quadrino
|
Interim Chief Executive Officer and Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer) |
March 31, 2010 | ||
/s/ Shri S. Jambunathan
|
Chairman and Director | March 31, 2010 | ||
/s/ Daniel L. Thomas
|
Director | March 31, 2010 | ||
/s/ Rabin Dhoble
|
Director | March 31, 2010 | ||
/s/ Divya Ramachandran
|
Director | March 31, 2010 | ||
26
Table of Contents
ITEM 15 (a) (1) and (2)
HELIOS & MATHESON NORTH AMERICA INC.
The following consolidated financial statements and financial statement schedule of Helios &
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 & Matheson North America Inc.
Helios & Matheson North America Inc.
We have audited the accompanying consolidated balance sheets of Helios & Matheson North America
Inc. and Subsidiaries, (the Company) as of December 31, 2009 and 2008, and the related
consolidated statements of operations and comprehensive income, shareholders equity, and cash
flows for each of the three years in the period ended December 31, 2009. 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 auditing 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 & Matheson North America Inc. and Subsidiaries as of
December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.
We were not engaged to examine managements assertion about the effectiveness of Helios & Matheson
North America Inc.s internal control over financial reporting as of December 31, 2009 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
|
||
Hamilton, New Jersey |
||
March 31, 2010 |
F-2
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
CONSOLIDATED BALANCE SHEETS
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 1,354,989 | $ | 912,272 | ||||
Accounts receivable- less allowance for doubtful accounts of $220,879 at December 31, 2009, and $209,771 at December 31, 2008 |
2,471,705 | 3,846,355 | ||||||
Unbilled receivables |
184,229 | 34,208 | ||||||
Prepaid expenses and other current assets |
178,879 | 326,992 | ||||||
Total current assets |
4,189,802 | 5,119,827 | ||||||
Property and equipment, net |
79,952 | 207,470 | ||||||
Deposits and other assets |
154,703 | 145,336 | ||||||
Total assets |
$ | 4,424,457 | $ | 5,472,633 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 1,630,054 | $ | 1,647,722 | ||||
Deferred revenue |
184,904 | 159,786 | ||||||
Total current liabilities |
1,814,958 | 1,807,508 | ||||||
Shareholders equity: |
||||||||
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of December 31, 2009, and December 31, 2008 |
| | ||||||
Common stock, $.01 par value; 30,000,000 shares authorized; 3,086,362 issued and outstanding as of December 31, 2009 and 2,396,707 issued
and outstanding as of December 31, 2008 |
30,864 | 23,967 | ||||||
Paid-in capital |
35,840,669 | 34,822,736 | ||||||
Accumulated other comprehensive income foreign currency translation |
2,084 | 6,863 | ||||||
Accumulated deficit |
(33,264,118 | ) | (31,188,441 | ) | ||||
Total shareholders equity |
2,609,499 | 3,665,125 | ||||||
Total liabilities and shareholders equity |
$ | 4,424,457 | $ | 5,472,633 | ||||
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Revenues |
$ | 14,890,970 | $ | 19,650,588 | $ | 20,830,184 | ||||||
Cost of revenues |
11,201,957 | 15,175,319 | 14,683,313 | |||||||||
Gross profit |
3,689,013 | 4,475,269 | 6,146,871 | |||||||||
Operating expenses: |
||||||||||||
Selling, general and administrative |
5,623,108 | 6,108,704 | 7,100,950 | |||||||||
Depreciation and amortization |
124,662 | 178,199 | 187,711 | |||||||||
Impairment of goodwill |
| 1,140,964 | | |||||||||
5,747,770 | 7,427,867 | 7,288,661 | ||||||||||
Loss from operations |
(2,058,757 | ) | (2,952,598 | ) | (1,141,790 | ) | ||||||
Interest income |
5,011 | 39,942 | 157,200 | |||||||||
Loss before income taxes |
(2,053,746 | ) | (2,912,656 | ) | (984,590 | ) | ||||||
Provision for income taxes |
21,931 | 11,692 | (146,795 | ) | ||||||||
Net loss |
$ | (2,075,677 | ) | $ | (2,924,348 | ) | $ | (837,795 | ) | |||
Other comprehensive (loss)/income
foreign currency adjustment |
(4,779 | ) | 5,208 | (2,294 | ) | |||||||
Comprehensive loss |
$ | (2,080,456 | ) | $ | (2,919,140 | ) | $ | (840,089 | ) | |||
Basic and diluted loss per share |
$ | (0.84 | ) | $ | (1.22 | ) | $ | (0.35 | ) | |||
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
HELIOS & 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, 2006 |
| $ | | 2,382,801 | $ | 23,828 | $ | 34,607,651 | $ | 3,949 | $ | (27,426,298 | ) | $ | 7,209,130 | |||||||||||||||||
Net Loss |
| | | | | | (837,795 | ) | (837,795 | ) | ||||||||||||||||||||||
Exercise of employee stock
options |
| | 13,906 | 139 | 41,494 | | | 41,633 | ||||||||||||||||||||||||
Stock based compensation
expense |
| | | | 109,121 | | | 109,121 | ||||||||||||||||||||||||
Foreign Exchange Translation |
| | | | | (2,294 | ) | | (2,294 | ) | ||||||||||||||||||||||
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 | |||||||||||||||||
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (2,075,677 | ) | $ | (2,924,348 | ) | $ | (837,795 | ) | |||
Depreciation and amortization |
124,662 | 178,199 | 187,711 | |||||||||
Impairment of goodwill |
| 1,140,964 | | |||||||||
Provision for doubtful accounts |
60,000 | 50,000 | 93,000 | |||||||||
Stock based compensation |
24,830 | 64,470 | 109,121 | |||||||||
Write down of investment |
| | 87,059 | |||||||||
Reduction of capital lease obligation |
| | (214,016 | ) | ||||||||
Amortization of deferred financing cost |
8,883 | 7,764 | 9,883 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
1,314,650 | (416,794 | ) | 105,921 | ||||||||
Unbilled receivables |
(150,021 | ) | (1,454 | ) | 283,402 | |||||||
Prepaid expenses and other current assets |
148,113 | (47,367 | ) | (121,840 | ) | |||||||
Deposits |
1,750 | (1,750 | ) | (43,142 | ) | |||||||
Accounts payable and accrued expenses |
(17,668 | ) | (159,311 | ) | (273,880 | ) | ||||||
Deferred revenue |
25,118 | (18,232 | ) | (107,209 | ) | |||||||
Net cash used in operating activities |
(535,360 | ) | (2,127,859 | ) | (721,785 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Sale/(Purchase) of property and equipment |
2,856 | (42,732 | ) | (73,425 | ) | |||||||
Net cash provided by/(used in) investing activities |
2,856 | (42,732 | ) | (73,425 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from the sale of stock and exercise of stock options |
1,000,000 | | 41,633 | |||||||||
Payment of deferred financing cost |
(20,000 | ) | | (15,530 | ) | |||||||
Net cash provided by financing activities |
980,000 | | 26,103 | |||||||||
Effect of foreign currency exchange rate changes on cash and cash equivalents |
(4,779 | ) | 5,208 | (2,294 | ) | |||||||
Net increase/(decrease) in cash and cash equivalents |
442,717 | (2,165,383 | ) | (771,401 | ) | |||||||
Cash and cash equivalents at beginning of period |
912,272 | 3,077,655 | 3,849,056 | |||||||||
Cash and cash equivalents at end of period |
$ | 1,354,989 | $ | 912,272 | $ | 3,077,655 | ||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid during the period for interest |
$ | | $ | | $ | | ||||||
Cash paid during the period for income taxes, net of refunds |
$ | (64,018 | ) | $ | 6,543 | $ | 163,796 | |||||
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
Helios & Matheson North America Inc. (formerly The A Consulting Team, Inc.) (Helios &
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 & Matheson changed its state
of incorporation from New York to Delaware. The Company is headquartered in New York, New York and
has offices in Clark, New Jersey, Chelmsford, Massachusetts 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 & Matheson North America
Inc., its 100% owned subsidiary International Object Technology, Inc. (IOT) during 2005 and the
first quarter of 2006, after which its operations were fully integrated into Helios & Matheson and
its 100% owned subsidiary Helios & 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
2009 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 which will most likely not
be realized prior to expiration. 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 & 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, 2009, the Company had $1,354,989 of cash and cash equivalents
on hand, which included a $1.0 million cash infusion resulting from a securities purchase agreement
between the Company and Helios and Matheson Parent, as compared to $912,272 of cash and cash
equivalents at December 31, 2008. The Company has a line of credit up to $1.0 million with Keltic
Financial Partners, LP II (Keltic) based on the Companys eligible accounts receivable balances
which is subject to certain financial covenants that shall apply only if the Company has any
outstanding obligations to Keltic including borrowing under the facility. The Keltic line of credit, which was set to expire on December 31, 2009, has been
extended through December 31, 2010 with no material changes in terms and conditions. For the year
ended December 31, 2009 the Company reported a net loss of approximately ($2,076,000). For the
year ended December 31, 2008 the Company reported a net loss of approximately ($2,924,000), which
included a goodwill impairment (non-cash) charge of $1,141,000. For the year ended December 31,
2007, the Company reported a net loss of approximately ($838,000).
Based upon the Companys reduced liquidity and
net losses, the ability of the Company to continue as a going concern is
dependent on the Company achieving profitable operations and or obtaining additional sources of
financing within the current fiscal year.
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.
F-8
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Goodwill and Intangible Assets
Goodwill acquired in a purchase and determined to have an indefinite useful life is not
amortized, but instead tested for impairment at least annually as specified by the FASB. The
Company had an evaluation done of its goodwill and intangible assets, which was performed by an
independent third party for the years ended December 31 2008 and 2007 and it was determined by the
Company based upon the results from the independent third party that there was an impairment of
goodwill at December 31, 2008. Therefore, the Company took an impairment (non-cash) charge equal
to the entire amount of goodwill and reduced 2008 earnings by $1,140,964. Goodwill was not
determined to be impaired as of December 31, 2007.
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.
F-9
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
No such non-employee equity instruments were granted in 2009, 2008 or 2007.
At December 31, 2009, 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.
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, 2009, the Company recorded stock based compensation expense of
$6,256 and $24,830, respectively. For the three and twelve months ended December 31, 2008, the
Company recorded stock based compensation expense of $12,421 and $64,470, respectively. For the
three and twelve months ended December 31, 2007, the Company recorded stock based compensation
expense of $23,040 and $109,121, respectively.
F-10
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of options at the date of grant was estimated using the Black-Scholes model with the
following assumptions:
2009 | 2008 | 2007 | ||||||||||
Expected life (years) |
4.00 | 4.00 | 4.00 | |||||||||
Risk free interest rate |
1.62 | % | 1.50 | % | 2.45 | % | ||||||
Expected volatility |
1.72 | 1.70 | 0.57 | |||||||||
Weighted average fair
value per option |
$ | 0.00 | (1) | $ | 0.00 | (1) | $ | 0.00 | (1) |
(1) | There were no options
granted by the Company for the 12 months ended December 31, 2009, 2008 and
2007. |
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, 2009, 2008 and 2007.
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Numerator for basic net loss per share |
||||||||||||
Net loss |
$ | (2,075,677 | ) | $ | (2,924,348 | ) | $ | (837,795 | ) | |||
Net loss available to
common stockholders |
$ | (2,075,677 | ) | $ | (2,924,348 | ) | $ | (837,795 | ) | |||
Numerator for diluted net loss per share |
||||||||||||
Net loss available to common
stockholders & assumed conversion |
$ | (2,075,677 | ) | $ | (2,924,348 | ) | $ | (837,795 | ) | |||
Denominator: |
||||||||||||
Denominator for basic and diluted loss
per share weighted-average shares |
2,476,065 | 2,396,707 | 2,391,452 | |||||||||
Basic and diluted loss per share: |
||||||||||||
Net loss per share |
$ | (0.84 | ) | $ | (1.22 | ) | $ | (0.35 | ) | |||
All options and warrants outstanding during 2009, 2008 and 2007 were not included in the
computation of net loss per share because the effect would be antidilutive.
F-11
Table of Contents
HELIOS & 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, | ||||||||
2009 | 2008 | |||||||
Equipment and leaseholds |
$ | 226,475 | $ | 218,459 | ||||
Software |
166,705 | 163,793 | ||||||
Furniture and fixtures |
111,984 | 107,502 | ||||||
Automobiles |
20,990 | 54,136 | ||||||
526,154 | 543,890 | |||||||
Less accumulated depreciation and amortization |
446,202 | 336,420 | ||||||
$ | 79,952 | $ | 207,470 | |||||
4. CREDIT ARRANGEMENT
The Company has entered into a Loan and Security Agreement (the Loan Agreement) with Keltic.
The Loan Agreement, which was set to expire December 31, 2009, has been extended through December
31, 2010 with no material changes in terms and conditions. Under the Loan Agreement, the Company
has a line of credit up to $1.0 million based on the Companys eligible accounts receivable
balances at an interest rate based on the higher of prime rate plus 2.75%, 90 day LIBOR rate plus
5.25% or 7%. Net availability at December 31, 2009, was $1.0 million. The Loan Agreement has
certain financial covenants that shall apply only if the Company has any outstanding obligations to
Keltic including borrowing under the facility. The Company had no outstanding balance at
December 31, 2009 and 2008, respectively, under the Loan Agreement.
5. CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company has the following commitments as of December 31, 2009: long term obligations of
certain employment contracts and operating lease obligations. The Company has two operating leases
for its corporate headquarters located in New York and its branch office in New Jersey. The
Company is also currently using a facility in Massachusetts on a month-to-month basis.
The Company is unlikely to renew its lease for the New Jersey facility.
F-12
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2009, the Company does not have any Off Balance Sheet Arrangements.
The Companys contractual obligations at December 31, 2009, 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 | |||||||||||||||
Long Term Obligations |
||||||||||||||||||||
Employment Contracts (1) |
127,250 | 127,250 | | | | |||||||||||||||
Operating Lease Obligations |
||||||||||||||||||||
Rent (2) |
824,416 | 374,379 | 450,037 | | | |||||||||||||||
Total |
$ | 951,666 | $ | 501,629 | $ | 450,037 | $ | | $ | | ||||||||||
(1) | The Company has an employment agreement with its named Executive Officer Salvatore M.
Quadrino, the Companys Interim Chief Executive Officer and Chief Financial Officer. Under
Mr. Quadrinos employment agreement, Mr. Quadrino will serve in a dual capacity as Interim
Chief Executive Officer and Chief Financial Officer at an annual salary of $220,000. |
|
(2) | The Company has a New York facility with a lease term expiring July 31, 2012, a New
Jersey facility with a lease term expiring August 31, 2010, and a Massachusetts facility
with a lease term expiring January 31, 2010. The Company did not renew the lease for the
Massachusetts facility and is currently leasing the facility on a month-to-month basis. The
Company is unlikely to renew the lease for its New Jersey facility. |
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31, | ||||||||
2009 | 2008 | |||||||
Accounts payable |
$ | 424,010 | $ | 593,430 | ||||
Payroll |
808,366 | 645,606 | ||||||
Other accrued expenses |
397,678 | 408,686 | ||||||
$ | 1,630,054 | $ | 1,647,722 | |||||
7. REINCORPORATION IN THE STATE OF DELAWARE
On
August 12, 2009 the Company received a letter from NASDAQ stating that based on the
Companys reported shareholders equity of $2,475,060 as of June 30, 2009,
the Company no longer
complied with NASDAQ Listing Rule 5550(b)(1) which requires a minimum shareholders
equity of
$2,500,000, and that it did not meet the alternatives of market value of listed securities or net
income from continuing operations. As a result, the Company submitted a plan to NASDAQ outlining
certain steps to be taken to regain compliance (the Plan). The Plan included a $1 million equity
financing transaction with Helios and Matheson Parent. In order to complete the equity financing
transaction, it was necessary for the Company to reincorporate in the State of Delaware (the
Reincorporation). On November 18, 2009, the Company held a special meeting of shareholders to
obtain approval for the Reincorporation from at least two thirds of the Companys outstanding
voting shares. The shareholders approved the Reincorporation and the equity financing transaction
closed on November 20, 2009, pursuant to which Helios and Matheson Parent purchased 689,655 shares of
the Companys common stock at a price of $1.45 per share, equal to the closing bid price of the
Companys common stock on November 20, 2009, for
a total investment of $1,000,000. The Company relied on Section 4(2) of the Securities Act of
1933, as amended, to issue the common stock inasmuch as the securities were offered and sold
without any form of general solicitation or general advertising and the offeree is an accredited
investor and, as the Companys majority stockholder, occupies a status relative to the Company that
afforded it effective access to the information registration would otherwise provide.
F-13
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Reincorporation was accounted for as a reverse acquisition in which the New York
Corporation was the accounting acquirer and the Delaware Corporation was the legal acquirer. The
management of the New York Corporation has become the management of the Delaware Corporation and
because the Reincorporation was accounted for as a reverse acquisition and not a business
combination, no goodwill was recorded in connection therewith.
8. 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.
Deferred tax assets and (liabilities) consist of the following:
December 31, | ||||||||
2009 | 2008 | |||||||
Licensing revenues |
$ | 29,000 | $ | (47,000 | ) | |||
Accounts receivable reserve |
111,000 | 107,000 | ||||||
Depreciation and amortization |
274,000 | 268,000 | ||||||
Investments |
928,000 | 928,000 | ||||||
Other |
247,000 | 214,000 | ||||||
Net operating losses |
4,739,000 | 5,273,000 | ||||||
6,328,000 | 6,743,000 | |||||||
Valuation allowance |
(6,328,000 | ) | (6,743,000 | ) | ||||
$ | | $ | | |||||
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, 2009, the Company has federal net operating loss carry-forwards of
approximately $13.9 million which will begin to expire in 2020. The New Jersey net operating loss
carry-forwards have all expired in 2009 as a result of the majority expiring due to the expiration
of the seven year carry-forward provision with the remainder expiring as a result of the Company
reincorporating in the State of Delaware. 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, 2009, the
valuation allowance decreased by approximately $415,000 and during the years ended December 31,
2008 and 2007, the valuation allowance increased by $706,000 and $253,000, respectively.
F-14
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the provision for income taxes are as follows:
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Current: |
||||||||||||
Federal |
$ | | $ | | $ | (123,486 | ) | |||||
State and local |
21,931 | 11,692 | (23,309 | ) | ||||||||
Total Current |
$ | 21,931 | $ | 11,692 | $ | (146,795 | ) | |||||
Deferred: |
||||||||||||
Federal |
| | | |||||||||
State and local |
| | | |||||||||
Total Deferred |
| | | |||||||||
Total |
$ | 21,931 | $ | 11,692 | $ | (146,795 | ) | |||||
A reconciliation between the federal statutory rate and the effective income tax rate for the
years ended December 31, 2009, 2008, and 2007.
2009 | 2008 | 2007 | ||||||||||
Federal statutory rate |
(34.0 | )% | (34.0 | )% | (34.0 | )% | ||||||
State and local taxes net of federal tax benefit |
0.7 | 0.3 | (1.6 | ) | ||||||||
Non-deductible expenses |
(0.1 | ) | 13.4 | (0.2 | ) | |||||||
Provision to return adjustments |
| | (4.8 | ) | ||||||||
Change in valuation allowance |
34.47 | 20.75 | 25.71 | |||||||||
Total |
1.07 | % | 0.40 | % | (14.91 | )% | ||||||
9. 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 2009, 2008 and 2007.
10. 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, 2009, the Company had two customers which accounted for
23% and 10% of revenues, respectively. For the twelve months ended December 31, 2008 the Company
had two customers which accounted for 18% and 12% of revenues, respectively. For the twelve months
ended December 31, 2007, the Company had three customers which accounted for 23%, 18% and 11% of
revenues, respectively. Besides these customers, no other customer represented greater than 10% of
the Companys revenues. Two customers represented approximately 21% each of accounts receivable as
of December 31, 2009. Two customers represented approximately 19% and 10% of accounts receivable
as of December 31, 2008. Three customers represented approximately 10%, 15% and 18% of accounts
receivable as of December 31, 2007.
F-15
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. LEASES
The Company leases office space under non-cancelable operating leases. The future minimum
payments for all non-cancelable operating leases as of December 31, 2009 are as follows:
2010 |
374,379 | |||
2011 |
284,234 | |||
2012 |
165,803 | |||
Total minimum future lease payments |
$ | 824,416 | (1) | |
(1) | The Company has a New York facility with a lease term expiring July 31, 2012, a
New Jersey facility with a lease term expiring August 31, 2010, and a Massachusetts facility with a
lease term that expired on January 31, 2010. The Company is unlikely to renew the lease for its New
Jersey facility. |
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,
2009, 2008, and 2007, was approximately $440,103, $432,250 and $348,695, respectively.
12. IMPAIRMENT OF GOODWILL
For the year ended December 31, 2007, the Company had goodwill stated at $1,140,964 on its
balance sheet resulting from the IOT acquisition. The Company tested for impairment using an
independent third party under the guidance for measuring impairment set forth by the FASB for the
year ended December 31, 2008. It was determined by the Company with the results from an
independent third party that goodwill was impaired at December 31, 2008. Based on the test
results, the Company took an impairment (non-cash) charge equal to the entire amount of goodwill
and reduced 2008 earnings by $1,140,964.
13. STOCK OPTION PLAN
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-16
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to options under the Companys Plan is as follows:
Weighted | ||||||||
Number of | Average | |||||||
Shares | Exercise Price | |||||||
Balance December 31, 2006 |
189,906 | $ | 4.76 | |||||
Granted during 2007 |
| $ | 0.00 | |||||
Exercised during 2007 |
(13,906 | ) | $ | 3.00 | ||||
Forfeitures during 2007 |
(47,000 | ) | $ | 4.73 | ||||
Balance December 31, 2007 |
129,000 | $ | 4.96 | |||||
Granted during 2008 |
| $ | 0.00 | |||||
Exercised during 2008 |
| $ | 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 |
No stock options were granted during the twelve months ended December 31, 2009. At December
31, 2009, 2008, and 2007, 28,625, 93,625 and 90,500, respectively, were exercisable with weighted
average exercise prices of $4.43, $3.99 and $4.89, respectively.
The following table summarizes the status of the stock options outstanding and exercisable at
December 31, 2009:
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 | $ | 3.06 | 15,500 | 1.5 years | 13,625 | |||||||||||
$4.80 $9.60 | $ | 5.82 | 20,000 | 6.3 years | 15,000 | |||||||||||
35,500 | 28,625 | |||||||||||||||
At December 31, 2009, the Company had 460,000 shares of common stock reserved in connection
with the Stock Option Plan.
F-17
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EMPLOYMENT AGREEMENT OF INTERIM CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
On May 9, 2008, the Company entered into an amended employment agreement with Mr. Quadrino
(the Amended Quadrino Agreement) whereby Mr. Quadrino continues to be employed as the Chief
Financial Officer of the Company. In addition, the Company offered and Mr. Quadrino has accepted
the position of interim Chief Executive Officer of the Company, to serve in this additional
capacity. Mr. Quadrino also serves as the Secretary of the Company.
The Amended Quadrino Agreement automatically renews for subsequent one-year terms, unless and
until terminated by either party with at least 30 days notice. The Amended Quadrino Agreement
provides Mr. Quadrino with an annual base salary, currently $220,000, for his role as interim Chief
Executive Officer and Chief Financial Officer. In addition to his annual base salary, Mr. Quadrino
is eligible to receive a performance based bonus, to continue to participate in the Companys stock
option and award plan and to continue to use a Company car.
The Amended Quadrino Agreement provides that in the event of termination by the Company
without Cause (as defined in the Amended Quadrino Agreement), death or disability or by Mr.
Quadrino for Sufficient Reason, (as defined in the Amended Quadrino Agreement), Mr. Quadrino will
receive a severance allowance in an amount equal to six months of Mr. Quadrinos then current base
salary. In the event the Company terminates Mr. Quadrino without cause within six months after the
appointment of a new Chief Executive Officer, Mr. Quadrino will receive an additional severance
allowance in an amount equal to three months of Mr. Quadrinos then current base salary. The
Quadrino Agreement includes a one-year non-compete covenant commencing on termination of
employment.
15. SUBSEQUENT EVENTS
Management completed an analysis of all subsequent events occurring after December 31, 2009,
the balance sheet date, through March 31, 2010, the date upon which the year-end consolidated
financial statements were issued, and determined the following disclosures to be
necessary or appropriate:
On March 15, 2010, the Company received notice from Cogito, Ltd. (Cogito), a software
company whose products the Company markets, of Cogitos intent to terminate its agreement with the
Company effective thirty days from date of notice. Software revenue for 2009 was approximately $1.8 million.
If the Cogito Agreement is
terminated, the Company expects that future software product revenues, which the Company views as
supplemental to its core consulting business, will be significantly reduced in the short term.
However, the Company hopes to grow revenue from new software partners with whom it has recently
entered into business relationships.
F-18
Table of Contents
HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended December
31, 2009 and 2008.
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 | ) |
Quarter Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
(in thousands, except per share amounts) | 2008 | 2008 | 2008 | 2008 | ||||||||||||
Revenues |
$ | 4,772 | $ | 4,836 | $ | 5,038 | $ | 5,005 | ||||||||
Gross profit |
985 | 864 | 1,198 | 1,428 | ||||||||||||
Loss from operations |
(845 | ) | (550 | ) | (310 | ) | (1,248 | ) | ||||||||
Net loss |
(830 | ) | (545 | ) | (301 | ) | (1,248 | ) | ||||||||
Net loss per share |
||||||||||||||||
Basic and diluted loss per share |
$ | (0.35 | ) | $ | (0.23 | ) | $ | (0.13 | ) | $ | (0.51 | ) |
F-19
Table of Contents
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,
2009 |
||||||||||||||||||||
Allowance for doubtful accounts |
$ | 209,771 | $ | 60,000 | $ | | $ | (48,892 | )(a) | $ | 220,879 | |||||||||
For the year ended December 31,
2008 |
||||||||||||||||||||
Allowance for doubtful accounts |
$ | 221,970 | $ | 50,000 | $ | | $ | (62,199 | )(b) | $ | 209,771 | |||||||||
For the year ended December 31,
2007 |
||||||||||||||||||||
Allowance for doubtful accounts |
$ | 225,741 | $ | 93,000 | $ | | $ | (96,771 | )(c) | $ | 221,970 |
(a) | Uncollectible accounts written off during 2009. |
|
(b) | Uncollectible accounts written off during 2008. |
|
(c) | Uncollectible accounts written off during 2007. |
S-1
Table of Contents
EXHIBIT INDEX
Exhibit | ||||
Number | Description of Exhibits | |||
3.1 | Certificate of Incorporation of the Registrant. |
|||
3.2 | Bylaws of Helios & Matheson North America Inc. |
|||
4.1 | Specimen
Common Stock Certificate. |
|||
10.1 | Securities Purchase Agreement between the Company and Helios & Matheson Information
Technology Ltd. dated as of November 18, 2009. |
|||
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 | Loan and Security Agreement between the Registrant and Keltic Financial Partners II, LP
dated December 29, 2009. |
|||
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 | Employment Agreement, dated as of May 1, 2006, between the Registrant and Salvatore M.
Quadrino, incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, as
previously filed with the SEC on May 1, 2006. |
|||
10.5 | Amended Employment Agreement, dated as of May 9, 2008, between the Registrant and Salvatore
M. Quadrino, incorporated by reference to Exhibit 10.9 to the Form
10-K, as previously filed with the SEC on March 31, 2009. |
|||
10.6 | Form of Release and Covenant Not to Sue entered into by the Registrant releasing certain
parties, incorporated by reference to Exhibit 10.1 on Form 8-K, as previously filed with the
SEC on June 2, 2006. |
|||
10.7 | Form of Release and Covenant Not to Sue entered into by the certain parties releasing the
Registrant, incorporated by reference to Exhibit 10.2 on Form 8-K, as previously filed with
the SEC on June 2, 2006. |
Table of Contents
Exhibit | ||||
Number | Description of Exhibits | |||
10.8 | Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as
of August 1, 2008, incorporated by reference to Exhibit 10.1 to the Form 10-Q as previously
filed with the SEC on November 13, 2008. |
|||
10.9 | Letter
from Helios and Matheson Information Technology Ltd. dated March 26, 2007,
incorporated by reference to Exhibit 10.14 to the Form 10-K for the period ended December 31,
2006, as previously filed with the SEC on March 29, 2007. |
|||
21 | Helios & Matheson North America, Inc. List of Subsidiaries. |
|||
23.2 | Consent of Mercadien, P.C., Certified Public Accountants. |
|||
31.1 | Certification of Interim Chief Executive Officer and Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of the Interim Chief Executive Officer and Chief Financial 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. |