Attached files
file | filename |
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EX-3.3 - EX-3.3 - Helios & Matheson Analytics Inc. | c17185exv3w3.htm |
EX-31.1 - EX-31.1 - Helios & Matheson Analytics Inc. | c17185exv31w1.htm |
EX-31.2 - EX-31.2 - Helios & Matheson Analytics Inc. | c17185exv31w2.htm |
EX-32.1 - EX-32.1 - Helios & Matheson Analytics Inc. | c17185exv32w1.htm |
EX-31.3 - EX-31.3 - Helios & Matheson Analytics Inc. | c17185exv31w3.htm |
EX-32.2 - EX-32.2 - Helios & Matheson Analytics Inc. | c17185exv32w2.htm |
EX-32.3 - EX-32.3 - Helios & Matheson Analytics Inc. | c17185exv32w3.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended: March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-22945
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 13-3169913 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
200 Park Avenue South New York, New York 10003 |
(212) 979-8228 | |
(Address of Principal Executive Offices) | (Registrants Telephone Number, Including Area Code) |
HELIOS AND MATHESON NORTH AMERICA INC.
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes 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 (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o
No 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 the 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 | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act) Yes o No þ
As of May 02, 2011, there were 5,826,088 shares of common stock, with $.01 par value per share,
outstanding.
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
INDEX
3 | ||||||||
3 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
11 | ||||||||
14 | ||||||||
14 | ||||||||
15 | ||||||||
15 | ||||||||
15 | ||||||||
15 | ||||||||
15 | ||||||||
15 | ||||||||
15 | ||||||||
16 | ||||||||
17 | ||||||||
EX-3.3 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-31.3 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-32.3 |
2
Table of Contents
Part I. Financial Information
Item 1. | Financial Statements |
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 1,219,465 | $ | 1,656,456 | ||||
Accounts receivable- less allowance for doubtful accounts of $233,124 at March 31, 2011, and $212,624 at December 31, 2010 |
2,218,501 | 2,223,452 | ||||||
Unbilled receivables |
106,437 | | ||||||
Security Deposit |
1,000,000 | 1,000,000 | ||||||
Prepaid expenses and other current assets |
84,376 | 69,646 | ||||||
Total current assets |
4,628,779 | 4,949,554 | ||||||
Property and equipment, net |
37,794 | 44,613 | ||||||
Deposits and other assets |
139,703 | 139,703 | ||||||
Total assets |
$ | 4,806,276 | $ | 5,133,870 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 1,239,775 | $ | 1,449,132 | ||||
Deferred revenue |
19,502 | 19,504 | ||||||
Total current liabilities |
1,259,277 | 1,468,636 | ||||||
Shareholders equity: |
||||||||
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2011, and
December 31, 2010 |
| | ||||||
Common stock, $.01 par value; 30,000,000 shares authorized; 5,826,088 issued and outstanding as of March 31, 2011 and
December 31, 2010 |
58,261 | 58,261 | ||||||
Paid-in capital |
37,820,783 | 37,820,783 | ||||||
Accumulated other comprehensive income (Loss) foreign currency translation |
(11,087 | ) | (9,862 | ) | ||||
Accumulated deficit |
(34,320,958 | ) | (34,203,948 | ) | ||||
Total shareholders equity |
3,546,999 | 3,665,234 | ||||||
Total liabilities and shareholders equity |
$ | 4,806,276 | $ | 5,133,870 | ||||
See accompanying notes to consolidated financial statements.
3
Table of Contents
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(unaudited) | (unaudited) | |||||||
Revenues |
$ | 3,249,012 | $ | 3,444,592 | ||||
Cost of revenues |
2,629,825 | 2,643,944 | ||||||
Gross profit |
619,187 | 800,648 | ||||||
Operating expenses: |
||||||||
Selling, general & administrative |
724,652 | 1,145,449 | ||||||
Depreciation & amortization |
6,818 | 16,846 | ||||||
731,470 | 1,162,295 | |||||||
Loss from operations |
(112,283 | ) | (361,647 | ) | ||||
Other income(expense): |
||||||||
Interest income-net |
773 | 3,074 | ||||||
773 | 3,074 | |||||||
Loss before income taxes |
(111,510 | ) | (358,573 | ) | ||||
Provision for income taxes |
5,500 | 4,500 | ||||||
Net loss |
(117,010 | ) | (363,073 | ) | ||||
Other comprehensive loss foreign currency adjustment |
(1,226 | ) | (614 | ) | ||||
Comprehensive loss |
$ | (118,236 | ) | $ | (363,687 | ) | ||
Net loss per share |
||||||||
Basic & Diluted |
$ | (0.02 | ) | $ | (0.12 | ) | ||
See accompanying notes to consolidated financial statements.
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HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(unaudited) | (unaudited) | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (117,010 | ) | $ | (363,073 | ) | ||
Adjustments to reconcile net loss to net cash
used in operating activities, net of acquired assets: |
||||||||
Depreciation and amortization |
6,818 | 16,846 | ||||||
Provision for doubtful accounts |
20,500 | 15,000 | ||||||
Stock based compensation |
| 5,858 | ||||||
Amortization of deferred financing cost |
| 3,750 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(15,549 | ) | 13,968 | |||||
Unbilled receivables |
(106,437 | ) | 87,280 | |||||
Prepaid expenses and other current assets |
(14,730 | ) | 38,042 | |||||
Accounts payable and accrued expenses |
(209,357 | ) | (43,623 | ) | ||||
Deferred revenue |
| (115,146 | ) | |||||
Net cash used in operating activities |
(435,765 | ) | (341,098 | ) | ||||
Cash flows from investing activities: |
||||||||
Sale/(Purchase) of Property and Equipment |
| 22 | ||||||
Net cash provided by investing activities |
| 22 | ||||||
Cash flows from financing activities: |
||||||||
Net cash provided by financing activities |
| | ||||||
Effect of foreign currency exchange rate changes on cash and
cash equivalents |
(1,226 | ) | (614 | ) | ||||
Net decrease in cash and cash equivalents |
(436,991 | ) | (341,690 | ) | ||||
Cash and cash equivalents at beginning of period |
1,656,456 | 1,354,989 | ||||||
Cash and cash equivalents at end of period |
$ | 1,219,465 | $ | 1,013,299 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for interest |
$ | | $ | | ||||
Cash paid during the period for income taxes net of refunds |
$ | 4,139 | $ | 9,028 | ||||
See accompanying notes to consolidated financial statements
5
Table of Contents
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
Notes to Consolidated Financial Statements
(Unaudited)
1) GENERAL:
These financial statements should be read in conjunction with the financial statements
contained in Helios and Matheson Information Technology Inc.s (Helios and Matheson or the
Company) Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange
Commission (SEC) and the accompanying financial statements and related notes thereto. The
accounting policies used in preparing these financial statements are the same as those described in
the Companys Form 10-K for the year ended December 31, 2010. On May 2, 2011, the Company changed
its name from Helios and Matheson North America Inc to Helios and Matheson Information Technology
Inc.
2) CONTROLLED COMPANY:
The Board of Directors has determined that Helios and Matheson meets the definition of a
Controlled Company as defined by Rule 5615(c) of the NASDAQ Listing Rules. A Controlled Company
is defined in Rule 5615(c) as a company of which more than 50% of the voting power for the election
of directors is held by an individual, group or another company. Certain NASDAQ requirements do not
apply to a Controlled Company, including requirements that: (i) a majority of its Board of
Directors must be comprised of independent directors as defined in NASDAQs rules; and (ii) the
compensation of officers and the nomination of directors be determined in accordance with specific
rules, generally requiring determinations by committees comprised solely of independent directors
or in meetings at which only the independent directors are present.
3) INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited consolidated financial statements
contain all the adjustments (consisting only of normal recurring accruals) necessary to present
fairly the consolidated financial position as of March 31, 2011, the consolidated results of
operations for the three month periods ended March 31, 2011 and 2010 and cash flows for the three
month periods ended March 31, 2011 and 2010.
The consolidated balance sheet at December 31, 2010 has been derived from the audited
financial statements at that date but does not include all the information and footnotes required
by accounting principles generally accepted in the United States of America for complete financial
statements. For further information, refer to the audited consolidated financial statements and
footnotes thereto included in the Form 10-K filed by the Company for the year ended December 31,
2010.
For the three month period ended March 31, 2011, the Company reported a net loss of
approximately $118,000 and for the three month period ended March 31, 2010, the Company reported a
net loss of approximately $363,000. The Company continues to focus on revenue growth by expanding
its existing client market share and its client base and by providing a Flexible Delivery Model to
clients, which allows for dynamically configurable right shoring of service delivery based on
client needs. The Company also keeps a tight rein on discretionary expenditure and SG&A to enhance
its competitiveness.
In managements opinion, cash flows from operations combined with cash on hand will provide
adequate flexibility for funding the Companys working capital obligations for the next twelve
months.
4) STOCK BASED COMPENSATION:
The Company has a stock based compensation plan, which is described as follows:
The Companys Stock Option Plan (the Plan) 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 of 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.
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Table of Contents
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 established by the
Company in its discretion on the date of grant. Stock options terminate in connection with the
termination of employment.
Information with respect to options under the Companys Plan is as follows:
Number of | Average | |||||||
Shares | Exercise Price | |||||||
Balance December 31, 2010 |
34,250 | $ | 4.74 | |||||
Granted during 1st Qtr 2011 |
| | ||||||
Exercised during 1st Qtr 2011 |
| | ||||||
Forfeitures during 1st Qtr 2011 |
| | ||||||
Balance March 31, 2011 |
34,250 | $ | 4.74 |
The following table summarizes the status of the stock options outstanding and exercisable at March
31, 2011:
Stock Options Outstanding | ||||||||||||||
Number of | ||||||||||||||
Weighted | Weighted- | Stock | ||||||||||||
Exercise Price | Average | Number of | Remaining | Options | ||||||||||
Range | Exercise Price | Options | Contractual Life | Exercisable | ||||||||||
$0.00 $4.80 |
$ | 3.23 | 14,250 | 0.2 years | 14,250 | |||||||||
$4.80 $9.60 |
$ | 5.82 | 20,000 | 5.1 years | 20,000 | |||||||||
34,250 | 34,250 | |||||||||||||
At March 31, 2011, 34,250 stock options were exercisable with a weighted average exercise price of
$4.74.
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Table of Contents
5) NET (LOSS)/INCOME PER SHARE:
The following table sets forth the computation of basic and diluted net (loss)/income per
share for the three months ended March 31, 2011 and 2010.
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Numerator for basic net (loss)/income per share |
||||||||
Net (loss)/income |
$ | (117,010 | ) | $ | (363,073 | ) | ||
Net (loss)/income available to
common stockholders |
$ | (117,010 | ) | $ | (363,073 | ) | ||
Numerator for diluted net (loss)/income per share |
||||||||
Net (loss)/income available to common
stockholders & assumed conversion |
$ | (117,010 | ) | $ | (363,073 | ) | ||
Denominator: |
||||||||
Denominator for basic and diluted (loss)/income
per share weighted-average shares |
5,826,088 | 3,086,362 | ||||||
Basic and diluted (loss)/income per share: |
||||||||
Net (loss)/income per share |
$ | (0.02 | ) | $ | (0.12 | ) | ||
During the three month periods ended March 31, 2011 and March 31, 2010, all options and
warrants outstanding were excluded from the computation of net (loss)/income per share because the
effect would have been anti-dilutive.
6) CONCENTRATION OF CREDIT RISK:
The revenues of three customers represented approximately 40%, 19% and 18% of the revenues for
the three month period ended March 31, 2011. The revenue of two customers represented
approximately 21% each of revenues for the same period in 2010. No other customer represented
greater than 10% of the Companys revenues for such periods. The Company continues its effort to
broaden its customer base in order to mitigate this risk.
7) CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The Companys commitments at March 31, 2011, are comprised of the following:
Payments Due by Period | ||||||||||||||||||||
More Than | ||||||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | 5 Years | |||||||||||||||
Long Term Obligations |
||||||||||||||||||||
Employment Contracts (1) |
| | | | | |||||||||||||||
Operating Lease Obligations |
||||||||||||||||||||
Rent (2) |
378,979 | 284,234 | 94,745 | | | |||||||||||||||
Total |
$ | 378,979 | $ | 284,234 | $ | 94,745 | $ | | $ | | ||||||||||
(1) | No named executive officers of the Company have employment contracts. |
|
(2) | The Company has a New York facility with a lease term expiring July 31, 2012. |
As of March 31, 2011, the Company does not have any Off Balance Sheet Arrangements.
8
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8) PROVISION FOR INCOME TAXES
The provision for income taxes as reflected in the consolidated statements of operations
varies from the expected statutory rate primarily due to a provision for minimum state taxes and
the recording of additional valuation allowance against deferred tax assets. Internal Revenue Code
Section 382 (the Code) places a limitation on the utilization of Federal net operating loss and
other credit carry-forwards when an ownership change, as defined by the tax law, occurs.
Generally, this occurs when a greater than 50 percent change in ownership occurs. During 2006,
Helios and Matheson Information Technology Ltd (Helios and Matheson Parent) acquired a greater
than 50 percent ownership of the Company. Accordingly, the actual utilization of the net operating
loss carry-forwards for tax purposes are limited annually under the Code to a percentage (currently
about four and a half percent) of the fair market value of the Company at the date of this
ownership change. The Company did not generate taxable income during the three months ended March
31, 2011. The Company maintains a valuation allowance against additional deferred tax assets
arising from net operating loss carry-forwards since, in the opinion of management; it is more
likely than not that some portion or all of the deferred tax assets will not be realized.
9) TRANSACTIONS WITH RELATED PERSONS
In September 2010, the Company entered into a Memorandum of Understanding with Helios and
Matheson Parent (the HMIT MOU) pursuant to which Helios and Matheson Parent has agreed to make
available to the Company facilities of dedicated Off-shore Development Centers (ODCs) and also
render services by way of support in technology, client engagement, management and running the ODCs
for the Company. The Company has furnished Helios and Matheson Parent a security deposit of $1
million to cover any expenses, claims or damages that Helios and Matheson Parent may incur while
discharging its obligations under the HMIT MOU and also to cover the Companys payables to Helios
and Matheson Parent. Such security deposit may be increased as business operations are scaled up.
Upon termination of the HMIT MOU, such security deposit will be refunded to the Company without
interest and after adjusting such amounts towards any expenses, claims or damages and dues payable
to Helios and Matheson Parent. The amount payable to Helios and Matheson Parent for services
rendered under the HMIT MOU was $90,048 for the three months ended March 31, 2011 and is included
as a component of cost of revenue. All payments to Helios and Matheson Parent under the MOU are
made after collections are received from clients.
10) COGITO LITIGATION
Cogito Ltd. (Cogito), a software company whose products the Company had marketed since 1991
under an exclusive perpetual distribution agreement, terminated the agreement effective April 14,
2010. The Company disputes that there are any valid grounds for termination of the Cogito
agreement and communicated its position to Cogito.
On or about July 23, 2010 Cogito initiated an action against the Company in the Supreme Court
of the State of New York (New York County) initiating claims for $282,000 for royalties allegedly
owed to Cogito by the Company and for alleged damages of over $2.0 million which was later amended
to over $4.7 million. Cogito is claiming damages for an alleged breach of contract, tortuous
interference with contracts, and tortuous interference with prospective business relations. The
Company strongly disputes the claim and intends to vigorously defend the action. In connection with
this case, the Company has initiated a counterclaim against Cogito in the State of New York for
$5.0 million dollars.
The Order to Show Cause for a preliminary injunction was resolved by way of a stipulation
between the parties dated October 18, 2010. The Court provided the Company with 30 days to file
its answer and Counterclaim. Limited discovery has so far been held. On a Motion for Summary
Judgment brought by Cogito on April 14, 2011, the Court ordered the Company to pay $244,122 held in
escrow account of its attorney to Cogito. No trial date is set.
In January 2011, the Company filed a complaint against the current President of Cogito North
America, for injunctive relief and compensatory and punitive damages in the Superior Court of New
Jersey. The Company is alleging that the President of Cogito breached a contractual covenant not
to compete by joining Cogito and providing the Companys confidential and proprietary information
to Cogito. The company is seeking an injunction restraining the President of Cogito from
communicating with the Companys clients and from engaging in any business or enterprise which
directly solicits business for services or goods that the Company has sold or is selling.
In the meanwhile, on August 25, 2010, the Company entered into an agreement with Cogito
effective May 2010 to continue to provide service and support of software products owned by the
Company. This agreement was renewed in April 2011 for one year.
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Table of Contents
11) SUBSEQUENT EVENTS
Management completed an analysis of all subsequent events occurring after March 31, 2011, the
balance sheet date, through May 12, 2011, the date upon which the quarter-end consolidated
financial statements were issued, and determined there were no disclosures necessary which have not
been already disclosed elsewhere in these financial statements, except for the following:
On April 12, 2011, the Company received a letter from NASDAQ informing the Company that the
Nasdaq Hearing Panel granted the Companys request for continued listing subject to certain
conditions. The details are provided below.
On January 19, 2011 and on January 20, 2011 the Company received letters from NASDAQ
indicating that the Companys continued failure to comply with the Market Value Rule and the
Minimum Bid Price Rule would result in the Companys securities being delisted from NASDAQ unless
the Company requested a hearing to appeal this determination.
The Company requested a hearing and on February 24, 2011, the Company appeared before the
NASDAQ hearing panel. On April 12, 2011, the Company received a letter from NASDAQ informing the
Company that the Nasdaq Hearing Panel granted the Companys request for continued listing subject
to the condition that, on or before July 18, 2011, the Company must have evidenced a closing bid
price of $1.00 or more for a minimum of ten prior consecutive trading days and a market value of
publically held shares of at least $1,000,000 for a minimum of ten prior consecutive trading days.
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Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of significant factors affecting the Companys operating
results, liquidity and capital resources should be read in conjunction with the accompanying
financial statements and related notes.
Statements included in this 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 under Section 27A of
the Securities Act of 1933, as amended, and under 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 risks and uncertainties that could cause results or
outcomes to differ materially from those expressed in such forward-looking statements. 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. The important factors on which such statements are based, include but are not limited
to, assumptions concerning the magnitude of the ongoing economic crisis, including its impact on
the Companys customers, demand trends in the information technology industry and the continuing
needs of current and prospective customers for the Companys services.
Overview
Since 1983, Helios and Matheson has provided high quality IT services and solutions to Fortune
1000 companies and other large organizations. The Company is headquartered in New York City and
has a second office in Bangalore, India.
The Companys services include Application Value Management, Application Development,
Integration, Independent Validation, Infrastructure and Information Management services. The
Company believes that a philosophy of intense focus on client satisfaction, business aware
solutions and guaranteed delivery provides tangible business value to its client base across
banking, financial services, insurance, pharmaceutical and manufacturing/automotive verticals.
The Company is dedicated to providing a Flexible Delivery Model to its clients, which allows
for dynamically configurable right shoring of service delivery based on client needs.
For the three months ended March 31, 2011, approximately 93% of the Companys consulting
services revenues were generated from clients under time and materials engagements, as compared to
approximately 87% for the three months ended March 31, 2010, with the remainder generated under
fixed-price engagements. The Company has established standard-billing guidelines for consulting
services based on the types of services offered. Actual billing rates are established on a
project-by-project basis and may vary from the standard guidelines. The Company typically bills its
clients for time and materials services on a weekly and monthly basis. Arrangements for
fixed-price engagements are made on a case-by-case basis. Consulting services revenues generated
under time and materials engagements are recognized as those services are provided. Revenues from
fixed fee contracts are recorded when work is performed on the basis of the proportionate
performance method, which is based on costs incurred to date relative to total estimated costs.
The Companys most significant operating cost is its personnel cost, which is included in cost
of revenues. For the three months ended March 31, 2011 and 2010, gross margin was 19.1% and 23.2%
respectively. The decrease in gross margin is primarily a result of a decrease in higher margin
project revenue and software revenue. A significant number of the Companys engagements are on a
time and materials basis. While most of the Companys engagements allow for periodic price
adjustments to address, among other things, increases in personnel costs, the current economic
conditions do not allow much price adjustment flexibility.
The Company actively manages its personnel utilization rates by monitoring project
requirements and timetables. The
Company s utilization rate for the three months ending March 31,
2011 was approximately 91% as compared to 94% for the three months ending March 31, 2010. As
projects are completed, consultants either are re-deployed to new projects at the current client
site or to new projects at another client site or are encouraged to participate in the Companys
training programs in order to expand their technical skill sets.
11
Table of Contents
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 financial statements
and they require the most difficult, subjective or complex judgments in the preparation of the
consolidated financial statements.
Revenue Recognition
Consulting revenues are recognized as services are provided. The Company primarily provides
consulting services under time and material contracts, whereby revenue is recognized as hours and
costs are incurred. Customers for consulting revenues are billed on a weekly, semi-monthly or
monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis
of the proportionate performance method, which is based on costs incurred to date relative to total
estimated costs. Any anticipated contract losses are estimated and accrued at the time they become
known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based
on services performed in advance of customer billings. Revenue from sales of software licenses is
recognized upon delivery of the software to a customer because future obligations associated with
such revenue are insignificant.
Allowance for Doubtful Accounts
The Company monitors its accounts receivable balances on a monthly basis to ensure that they
are collectible. On a quarterly basis, the Company uses its historical experience to accurately
determine its accounts receivable reserve. The 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 re-evaluated and adjusted as additional information is received that impacts
the amount reserved. The Company also establishes a general reserve for all customers based on a
range of percentages applied to aging categories. These percentages are based on historical
collection and write-off experience. If circumstances change, the Companys estimate of the
recoverability of amounts due the Company could be reduced or increased by a material amount. Such
a change in estimated recoverability would be accounted for in the period in which the facts that
give rise to the change become known.
Valuation of Deferred Tax Assets
Deferred tax assets are reduced by a valuation allowance when, in the opinion of the Company,
it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The Company assesses the recoverability of deferred tax assets at least annually based
upon the Companys ability to generate sufficient future taxable income and the availability of
effective tax planning strategies.
Stock Based Compensation
The Company uses the modified prospective application method as specified by the FASB whereby
compensation cost is recognized over the remaining service period based on the grant-date fair
value of those awards as calculated for pro forma disclosures as originally issued.
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Results of Operations
The following table sets forth the percentage of revenues of certain items included in the
Companys Statements of Operations:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
100.0 | % | 100.0 | % | ||||
Cost of revenues |
80.9 | % | 76.8 | % | ||||
Gross profit |
19.1 | % | 23.2 | % | ||||
Operating expenses |
22.5 | % | 33.7 | % | ||||
(Loss)/income from operations |
( 3.4 | )% | ( 10.5 | )% | ||||
Net (loss)/income |
( 3.6 | )% | ( 10.5 | )% | ||||
Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010
Revenues. Revenues for the three months ended March 31, 2011 were $3.2 million
compared to $3.4 million for the three months ended March 31, 2010. The decrease is primarily
attributable to a reduction of project revenue and software revenue due to the termination of the
contract by Cogito Ltd. See Part 1, Item 1, Note 10 of this Form 10-Q.
Gross Profit. The resulting gross profit for the three months ended March 31, 2011 was
$619,000 as compared to $801,000 for the three months ended March 31, 2010. As a percentage of
total revenues, gross margin for the three months ended March 31, 2011 was 19.1% compared to 23.2%
for the three months ended March 31, 2010. The gross margin has decreased primarily as a result of
a decrease in higher margin project revenue and software revenue.
Operating Expenses. Operating expenses are comprised of Selling, General and Administrative
(SG&A) expenses and depreciation and amortization. Operating expenses for the three months ended
March 31, 2011 were $731,000 compared to the 2010 comparable period level of $1.2 million. The
decrease in SG&A was associated with various cost reduction initiatives including, but not limited
to, renegotiation of agreements with major vendors and process restructuring, leading to higher
efficiency.
Taxes. Tax provision for the three months ended March 31, 2011 was $5,500 compared to $4,500
for the three months ended March 31, 2010.
Net Income/(loss). As a result of the above, the Company had net loss of ($117,000) or
($0.02) per basic and diluted share for the three months ended March 31, 2011 compared to a net
loss of ($363,000) or ($0.12) per basic and diluted share for the three months ended March 31,
2010.
Liquidity and Capital Resources
The Company believes that its business, operating results and financial condition have been
affected by the recent economic crisis and ongoing economic uncertainty which continue to impact
the IT spending of its clients. A significant portion of the Companys major customers are in the
financial services industry and came under considerable pressure as a result of the unprecedented
economic conditions in the financial markets. Spending on IT consulting services is largely
discretionary, and the Company has experienced a pushback of new assignments and high margin
projects from existing clients. Yet, the Companys operating loss and net loss in the three months
ended March 31, 2011 were reduced to one third of the operating loss and net loss reported for the
three months ended March 31, 2010. The Company had an operating loss of ($112,000) and a net loss
of ($117,000) for the three months ended March 31, 2011. During the three months ended March 31,
2010, the Company had an operating loss of ($362,000) and net loss of ($363,000).
The
Companys cash balances were approximately $1.2 million at March 31, 2011 and $1.7 million
at December 31, 2010. Net cash used in operating activities for the three months ended March 31,
2011 was approximately ($436,000) compared to net cash used in operating activities of approximately
($341,000) for the three months ended March 31, 2010.
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The Companys accounts receivable, less allowance for doubtful accounts, at March 31, 2011 and
at December 31, 2010 were approximately $2.3 million and $2.2 million, respectively, representing
61 days of sales outstanding (DSO) for both periods. The Company believes that stable DSO of 61
days is consistent with favorable resolutions of a limited number of dated client disputes. The
accounts receivable at March 31, 2011 and December 31, 2010 included $106,000 and $0 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 three month periods ended March 31, 2011 and March 31, 2010, there was no cash
provided by investing or financing activities.
In managements opinion, cash flows from operations combined with cash on hand will provide
adequate flexibility for funding the Companys working capital obligations for the next twelve
months.
For the three months ended March 31, 2011 and 2010, there were no shares of common stock
issued pursuant to the exercise of options granted under the Companys stock option plan.
Off Balance Sheet Arrangements
As of March 31, 2011, the Company does not have any Off Balance Sheet Arrangements.
Contractual Obligations and Commitments
The
Companys commitments at March 31, 2011 are reflected and further detailed in the
Contractual Obligation table located in Part I, Item 1, Note 7 of this Form 10-Q.
Inflation
The Company has not suffered material adverse 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.
Recent Accounting Pronouncements
None.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Not Required.
Item 4. | Controls and Procedures |
Evaluation of disclosure controls and procedures. As of March 31, 2011, we carried
out an evaluation, under the supervision of and with the participation of our President and
Principal Executive Officer, Chief Operating Officer and our Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange
Act)). Disclosure controls and procedures are designed to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to our management, including our Principal
Executive Officer , Chief Operating Officer and Principal Financial Officer, to allow timely
decisions regarding required disclosures. Based on that evaluation, our Principal Executive
Officer , Chief Operating Officer and Principal Financial Officer have concluded that, as of March
31, 2011, our disclosure controls and procedures were effective.
Changes in internal control. During the quarter covered by this report, there was no
change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) that has materially affected, or is reasonably likely to materially affect our
internal control over financial reporting.
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Part II. Other Information
Item 1. | Legal Proceedings |
The Companys legal proceedings at March 31, 2011 have been disclosed in Part I, Item 1, Note
10 of this Form 10-Q.
Item 1A. | Risk Factors |
Not Applicable.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | [Removed and Reserved] |
Item 5. | Other Information |
None.
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Item 6. Exhibits
(a) Exhibits
3.1 | Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1
to the Form 10-K, as previously filed with the SEC on March 31, 2010. |
|||
3.2 | Bylaws of Helios and Matheson Information Technology Inc., incorporated by reference to
Exhibit 3.2 to the Form 10-K, as previously filed with the SEC on March 31, 2010. |
|||
3.3 | Certificate of amendment of Certificate of Incorporation of Registrant. |
|||
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002. |
|||
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002. |
|||
31.3 | Certification of Principal Operating Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002. |
|||
32.1 | Certification of the Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of the Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.3 | Certification of the Principal Operating Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC. |
||||
Date: May 12, 2011 | By: | /s/ Divya Ramachandran | ||
Divya Ramachandran | ||||
Chief Executive Officer and President | ||||
Date: May 12, 2011 | By: | /s/ Umesh Ahuja | ||
Umesh Ahuja | ||||
Chief Financial Officer and Secretary | ||||
Date: May 12, 2011 | By: | /s/ Suparna NR | ||
Suparna NR | ||||
Chief Operating Officer |
17