UNITED STATES
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

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

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 registrant’s 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.

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 registrant’s common stock on the NASDAQ Capital Market ^CM on the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 26, 2010, there were 3,086,362 shares of the registrant’s common stock, $.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s 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

		Page
PART I			1
Item 1. Business			1
Item 1A. Risk Factors			4
Item 1B. Unresolved Staff Comments			9
Item 2. Properties			9
Item 3. Legal Proceedings			9
Item 4. Reserved			9
Executive Officer of the Registrant			9
PART II			10
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			10
Item 6. Selected Financial Data			12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			20
Item 8. Financial Statements and Supplementary Data			20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			20
Item 9A(T). Controls and Procedures			20
Item 9B. Other Information			21
PART III			22
Item 10. Directors, Executive Officers and Corporate Governance			22
Item 11. Executive Compensation			22
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			22
Item 13. Certain Relationships and Related Transactions, and Director Independence			23
Item 14. Principal Accountant Fees and Services			23
PART IV			23
Item 15. Exhibits and Financial Statement Schedules			23
Exhibit 3.1
Exhibit 3.2
Exhibit 4.1
Exhibit 10.1
Exhibit 10.2
Exhibit 21
Exhibit 23.2
Exhibit 31.1
Exhibit 32.1

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 Company’s 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 Company’s filings with the SEC. Part I, Item 1A Risk Factors of this Annual Report discusses risk factors.

The Company’s 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 Company’s 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 Company’s 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 Company’s revenues. The Company’s solutions are based on an understanding of each client’s enterprise model. The Company’s 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 Company’s total revenues.

On March 15, 2010, the Company received notice from Cogito, Ltd. (“Cogito”), a software company whose products the Company markets, of Cogito’s 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.

Clients

The Company’s clients consist primarily of Fortune 1000 companies and other large organizations. The Company’s clients operate in a diverse range of industries with a concentration in the financial services, pharmaceutical and manufacturing/automotive industries. Eight of the Company’s 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 Company’s 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 Company’s 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 Company’s revenues were derived from sources within the United States for the years ended December 31, 2009, 2008 and 2007, respectively.

Sales and Marketing

The Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s employees are represented by a labor union, and the Company has never incurred a work stoppage. In addition to the Company’s 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 Company’s long-lived assets were located in the United States for the years ended December 31, 2009, 2008 and 2007, respectively.

Intellectual Property Rights

The Company relies upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property, but there can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. In addition, the Company is subject to the risk of litigation alleging infringement of third-party intellectual property rights. Any such claims could require the Company to spend significant sums in litigation, pay damages, develop non-infringing intellectual property or acquire licenses to the intellectual property which is the subject of the asserted infringement.

Effective as of January 30, 2007, the Company changed its name from The A Consulting Team, Inc. to Helios & Matheson North America Inc. The name change reflects the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s marketing efforts under the name Helios & Matheson. Additionally, the Company is reliant upon Helios and Matheson Parent to protect Helios & Matheson’s 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 Company’s business has not been affected by seasonality.

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 Company’s recent operating results and financial condition could impact the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s shares of common stock. The Company’s 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 Company’s clients are operating under reduced budgets, including during the current period. A significant portion of the Company’s revenues is derived from sales to customers in the financial services, pharmaceutical and manufacturing/automotive industries. Many of the Company’s 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 Company’s ability to sell future projects.

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 Company’s clients located there, which in turn could adversely impact the Company’s 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 Company’s revenues. In any given year, the Company’s ten most significant customers may vary based upon specific projects for those clients during that year. There can be no assurance that the Company’s 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 Company’s 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 Company’s business, results of operations and financial condition.

Volatility of Stock Price

The Company’s 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 Company’s common stock. Additionally, the Company’s stock is infrequently traded on the NASDAQ Capital Market ^CM where it is listed, which further increases the stock’s volatility, and there can be no assurance that a trading market for the common stock will be sustained.

NASDAQ Listing

The NASDAQ Capital Market’s continued listing requirements include requirements that a company maintain a minimum shareholder’s 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 company’s 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 Company’s 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 Company’s 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 NASDAQ’s minimum required shareholder’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.

On March 9, 2010, the Company received an additional letter from NASDAQ stating that for the preceding 30 consecutive trading days the Company’s 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 Company’s 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 Company’s 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 Company’s shareholder’s equity was $2,609,499.

If the Company’s common stock is delisted from The NASDAQ Capital Market, the market liquidity of the Company’s 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 Company’s ability to raise capital through alternative financing sources on acceptable terms, if at all, and may result in the loss of confidence in the Company’s financial stability by suppliers, customers and employees. In addition, a delisting would likely increase the price volatility of the Company’s shares of common stock and have a material adverse impact on the price of the Company’s shares of common stock.

Project Risk

The Company’s 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 Company’s failure or inability to meet a client’s expectations in the performance of the Company’s services could result in a material adverse change to the client’s 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 Company’s 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 Company’s financial performance is primarily based upon billing margin (billable hourly rate less the consultant’s 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 Company’s cost containment and workforce rationalization efforts will provide positive results in the future. Additionally, during the past three years, the Company’s clients have been adverse to increases in any costs of the Company’s 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 Company’s margins.

Fluctuations in Quarterly Operating Results

The Company’s 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 Company’s 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 Company’s results of operations for any period are below the expectation of investors, the market price of the Company’s 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 Cogito’s 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 Company’s 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 Company’s ability to compete in the marketplace is its ability to attract, develop, motivate and retain skilled professionals.

Rapid Industry Change

The Company’s business is subject to rapid technological change and is dependent on new solutions. The Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s marketing efforts under the name “Helios & Matheson”. Additionally, the Company is reliant upon Helios and Matheson Parent to protect the Helios & Matheson’s trademarks, trade names, service marks and service names.

The Company’s 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.

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.

Performance Graph

The following graph depicts the performance of $100 invested on December 31, 2004 in the Company’s 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 Company’s 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 Company’s 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 Company’s common stock at a price of $1.45 per share, equal to the closing bid price of the Company’s 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 Market’s minimum shareholder’s equity requirement.

Share Repurchases

None.

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 Company’s revenues. The Company’s solutions are based on an understanding of each client’s enterprise model. The Company’s 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 Company’s subsidiary operating in Bangalore, India or Helios and Matheson Parent. The Company’s 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 company’s 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 Company’s 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.

For the three and twelve months ended December 31, 2009, approximately 76% and 71% respectively, of the Company’s 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 Company’s most significant operating cost is its personnel cost, which is included in cost of revenues. As a result, the Company’s operating performance is primarily based upon billing margins (billable hourly rate less the consultant’s 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 Company’s 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 Company’s engagements are on a time and materials basis. While most of the Company’s 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 Company’s clients are outsourcing the management of their time and material engagements to external Vendor Management Organizations (“VMO’s”) 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 VMO’s which have negatively impacted the Company’s margins.

Helios & Matheson actively manages its personnel utilization rates by monitoring project requirements and timetables. Helios & Matheson’s 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 & Matheson’s 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 Company’s total revenues.

On March 15, 2010, the Company received notice from Cogito, a software company whose products the Company markets, of Cogito’s 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.

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, IOT’s 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 Company’s common stock from Mr. Shmuel BenTov, the Company’s former Chairman, Chief Executive Officer and President and his family members, which represented approximately 43% of the Company’s outstanding common stock. 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 Company’s 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 Company’s experience and assumptions form the basis for its judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what is anticipated and different assumptions or estimates about the future could change reported results. The Company believes the following accounting policies are the most critical to it, in that they are important to the portrayal of its 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.

Allowance for Doubtful Accounts

The Company monitors its accounts receivable balances on a monthly basis to ensure that they are collectible. On a quarterly basis, the Company uses its historical experience to accurately determine its accounts receivable reserve. The Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the customer may have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer, against amounts due, to reduce the receivable to the amount that is expected to be collected. These specific reserves are 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 Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

Valuation of Deferred Tax Assets

Deferred tax assets are reduced by a valuation allowance when, in the opinion of the Company, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assesses the recoverability of deferred tax assets at least annually based upon the Company’s ability to generate sufficient future taxable income and the availability of effective tax planning strategies.

Stock Based Compensation

The Company uses the modified prospective application method as specified by the FASB whereby compensation cost is recognized over the remaining service period based on the grant-date fair value of those 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 Company’s Statements of Operations:

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.

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 Company’s 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.

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.

In management’s 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 Company’s 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 Company’s 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 Company’s 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			$	—			$	—

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 Company’s margins and overall cost structure.

Management Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of the Company’s 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 Company’s assets that could have a material effect on the financial statements.

Management assessed the Company’s internal control over financial reporting as of December 31, 2009, the end of the Company’s 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. Management’s assessment included evaluation of the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and the Company’s overall control environment. This assessment is supported by testing and monitoring performed by both an external independent third party serving as the Company’s internal audit organization and the Company’s internal finance department.

Based on the management’s assessment, management has concluded that the Company’s 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 Company’s internal controls over financial reporting with the Audit Committee of the Company’s Board of Directors.

This Annual Report does not include an attestation report of Mercadien P.C., Certified Public Accountants, the Company’s registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Inherent Limitations on Effectiveness of Controls

The Company’s management, including Salvatore M. Quadrino, does not expect that the Company’s Disclosure Controls or the Company’s 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 system’s 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 Company’s 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 Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter of 2009 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

The shareholders approved the proposal to change the Company’s 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

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 Company’s Definitive Proxy Statement, as previously filed with the SEC on June 27, 2005. †
	10.1.2			Amendment No. 1 to the Registrant’s 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 Registrant’s 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.

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   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   Salvatore M. Quadrino		Interim Chief Executive Officer and Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer)		March 31, 2010
/s/ Shri S. Jambunathan   Shri S. Jambunathan		Chairman and Director		March 31, 2010
/s/ Daniel L. Thomas   Daniel L. Thomas		Director		March 31, 2010
/s/ Rabin Dhoble   Rabin Dhoble		Director		March 31, 2010
/s/ Divya Ramachandran   Divya Ramachandran		Director		March 31, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
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 Company’s 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 Company’s 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 management’s 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   Mercadien, P.C., Certified Public Accountants
Hamilton, New Jersey
March 31, 2010

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

HELIOS & MATHESON NORTH AMERICA INC.

HELIOS & MATHESON NORTH AMERICA INC.
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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.

HELIOS & MATHESON NORTH AMERICA INC.
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 Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the customer may have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are 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 Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

Segment Information

The disclosure of segment information is not required as the Company operates in only one business segment.

HELIOS & MATHESON NORTH AMERICA INC.
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.

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.

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.

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 Company’s 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.

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

7. REINCORPORATION IN THE STATE OF DELAWARE

On August 12, 2009 the Company received a letter from NASDAQ stating that based on the Company’s 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 Company’s 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 Company’s common stock at a price of $1.45 per share, equal to the closing bid price of the Company’s 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 Company’s majority stockholder, occupies a status relative to the Company that afforded it effective access to the information registration would otherwise provide.

HELIOS & MATHESON NORTH AMERICA INC.
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:

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 Company’s 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.

A reconciliation between the federal statutory rate and the effective income tax rate for the years ended December 31, 2009, 2008, and 2007.

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 Company’s 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.

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.

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:

At December 31, 2009, the Company had 460,000 shares of common stock reserved in connection with the Stock Option Plan.

HELIOS & MATHESON NORTH AMERICA INC.
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 Company’s 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. Quadrino’s 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. Quadrino’s 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 Cogito’s 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.