Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended: March 31, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 0 -22945
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
(Exact Name of Registrant as Specified in Its Charter)
     
Delaware   13-3169913
     
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer Identification No.)
     
200 Park Avenue South
New York, New York 10003 		  (212) 979-8228
     
(Address of Principal Executive Offices)   (Registrant’s Telephone Number,
Including Area Code)
HELIOS AND MATHESON NORTH AMERICA INC.
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ
As of May 02, 2011, there were 5,826,088 shares of common stock, with $.01 par value per share, outstanding.
 
 

 

 

 

HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
INDEX
         
    3  
 
       
    3  
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    11  
 
       
    14  
 
       
    14  
 
       
    15  
 
       
    15  
 
       
    15  
 
       
    15  
 
       
    15  
 
       
    15  
 
       
    15  
 
       
    16  
 
       
    17  
 
       
  EX-3.3
  EX-31.1
  EX-31.2
  EX-31.3
  EX-32.1
  EX-32.2
  EX-32.3

 

2

Table of Contents

Part I. Financial Information
Item 1.  
Financial Statements
HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
                 
    March 31,     December 31,  
    2011     2010  
    (unaudited)          
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 1,219,465     $ 1,656,456  
Accounts receivable- less allowance for doubtful accounts of $233,124 at March 31, 2011, and $212,624 at December 31, 2010
    2,218,501       2,223,452  
Unbilled receivables
    106,437       —  
Security Deposit
    1,000,000       1,000,000  
Prepaid expenses and other current assets
    84,376       69,646  
 
           
Total current assets
    4,628,779       4,949,554  
Property and equipment, net
    37,794       44,613  
Deposits and other assets
    139,703       139,703  
 
           
Total assets
  $ 4,806,276     $ 5,133,870  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable and accrued expenses
  $ 1,239,775     $ 1,449,132  
Deferred revenue
    19,502       19,504  
 
           
Total current liabilities
    1,259,277       1,468,636  
 
               
Shareholders’ equity:
               
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2011, and December 31, 2010
    —       —  
Common stock, $.01 par value; 30,000,000 shares authorized; 5,826,088 issued and outstanding as of March 31, 2011 and December 31, 2010
    58,261       58,261  
Paid-in capital
    37,820,783       37,820,783  
Accumulated other comprehensive income (Loss) — foreign currency translation
    (11,087 )     (9,862 )
Accumulated deficit
    (34,320,958 )     (34,203,948 )
 
           
Total shareholders’ equity
    3,546,999       3,665,234  
 
           
Total liabilities and shareholders’ equity
  $ 4,806,276     $ 5,133,870  
 
           
See accompanying notes to consolidated financial statements.

 

3

Table of Contents

HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                 
    Three Months Ended  
    March 31,  
    2011     2010  
    (unaudited)     (unaudited)  
 
               
Revenues
  $ 3,249,012     $ 3,444,592  
Cost of revenues
    2,629,825       2,643,944  
 
           
Gross profit
    619,187       800,648  
Operating expenses:
               
Selling, general & administrative
    724,652       1,145,449  
Depreciation & amortization
    6,818       16,846  
 
           
 
    731,470       1,162,295  
 
           
Loss from operations
    (112,283 )     (361,647 )
Other income(expense):
               
Interest income-net
    773       3,074  
 
           
 
    773       3,074  
 
           
Loss before income taxes
    (111,510 )     (358,573 )
Provision for income taxes
    5,500       4,500  
 
           
Net loss
    (117,010 )     (363,073 )
Other comprehensive loss — foreign currency adjustment
    (1,226 )     (614 )
 
           
Comprehensive loss
  $ (118,236 )   $ (363,687 )
 
           
 
               
Net loss per share
               
Basic & Diluted
  $ (0.02 )   $ (0.12 )
 
           
See accompanying notes to consolidated financial statements.

 

4

Table of Contents

HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    Three Months Ended March 31,  
    2011     2010  
    (unaudited)     (unaudited)  
 
Cash flows from operating activities:
               
Net loss
  $ (117,010 )   $ (363,073 )
Adjustments to reconcile net loss to net cash used in operating activities, net of acquired assets:
               
Depreciation and amortization
    6,818       16,846  
Provision for doubtful accounts
    20,500       15,000  
Stock based compensation
    —       5,858  
Amortization of deferred financing cost
    —       3,750  
Changes in operating assets and liabilities:
               
Accounts receivable
    (15,549 )     13,968  
Unbilled receivables
    (106,437 )     87,280  
Prepaid expenses and other current assets
    (14,730 )     38,042  
Accounts payable and accrued expenses
    (209,357 )     (43,623 )
Deferred revenue
    —       (115,146 )
 
           
Net cash used in operating activities
    (435,765 )     (341,098 )
 
               
Cash flows from investing activities:
               
Sale/(Purchase) of Property and Equipment
    —       22  
 
           
Net cash provided by investing activities
    —       22  
 
               
Cash flows from financing activities:
               
Net cash provided by financing activities
    —       —  
Effect of foreign currency exchange rate changes on cash and cash equivalents
    (1,226 )     (614 )
 
           
Net decrease in cash and cash equivalents
    (436,991 )     (341,690 )
Cash and cash equivalents at beginning of period
    1,656,456       1,354,989  
 
           
Cash and cash equivalents at end of period
  $ 1,219,465     $ 1,013,299  
 
           
 
               
Supplemental disclosure of cash flow information:
               
Cash paid during the period for interest
  $ —     $ —  
 
           
 
               
Cash paid during the period for income taxes — net of refunds
  $ 4,139     $ 9,028  
 
           
See accompanying notes to consolidated financial statements

 

5

Table of Contents

HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
Notes to Consolidated Financial Statements
(Unaudited)
1) GENERAL:
These financial statements should be read in conjunction with the financial statements contained in Helios and Matheson Information Technology Inc.’s (“Helios and Matheson” or the “Company”) Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”) and the accompanying financial statements and related notes thereto. The accounting policies used in preparing these financial statements are the same as those described in the Company’s Form 10-K for the year ended December 31, 2010. On May 2, 2011, the Company changed its name from Helios and Matheson North America Inc to Helios and Matheson Information Technology Inc.
2) CONTROLLED COMPANY:
The Board of Directors has determined that Helios and Matheson meets the definition of a “Controlled Company” as defined by Rule 5615(c) of the NASDAQ Listing Rules. A “Controlled Company” is defined in Rule 5615(c) as a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company. Certain NASDAQ requirements do not apply to a “Controlled Company”, including requirements that: (i) a majority of its Board of Directors must be comprised of “independent” directors as defined in NASDAQ’s rules; and (ii) the compensation of officers and the nomination of directors be determined in accordance with specific rules, generally requiring determinations by committees comprised solely of independent directors or in meetings at which only the independent directors are present.
3) INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited consolidated financial statements contain all the adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position as of March 31, 2011, the consolidated results of operations for the three month periods ended March 31, 2011 and 2010 and cash flows for the three month periods ended March 31, 2011 and 2010.
The consolidated balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Form 10-K filed by the Company for the year ended December 31, 2010.
For the three month period ended March 31, 2011, the Company reported a net loss of approximately $118,000 and for the three month period ended March 31, 2010, the Company reported a net loss of approximately $363,000. The Company continues to focus on revenue growth by expanding its existing client market share and its client base and by providing a Flexible Delivery Model to clients, which allows for dynamically configurable “right shoring” of service delivery based on client needs. The Company also keeps a tight rein on discretionary expenditure and SG&A to enhance its competitiveness.
In management’s opinion, cash flows from operations combined with cash on hand will provide adequate flexibility for funding the Company’s working capital obligations for the next twelve months.
4) STOCK BASED COMPENSATION:
The Company has a stock based compensation plan, which is described as follows:
The Company’s Stock Option Plan (the “Plan”) provides for the grant of stock options that are either “incentive” or “non-qualified” for federal income tax purposes. The Plan provides for the issuance of a maximum of 460,000 shares of common stock (subject to adjustment pursuant to customary anti-dilution provisions). Stock options vest over a period of between one to four years.
The exercise price per share of a stock option is established by the Compensation Committee of the Board of Directors in its discretion but may not be less than the fair market value of a share of common stock as of the date of grant. The aggregate fair market value of the shares of common stock with respect to which “incentive” stock options first become exercisable by an individual to whom an “incentive” stock option is granted during any calendar year may not exceed $100,000.

 

6

Table of Contents

Stock options, subject to certain restrictions, may be exercisable any time after full vesting for a period not to exceed ten years from the date of grant. Such period is established by the Company in its discretion on the date of grant. Stock options terminate in connection with the termination of employment.
Information with respect to options under the Company’s Plan is as follows:
                 
    Number of     Average  
    Shares     Exercise Price  
Balance — December 31, 2010
    34,250     $ 4.74  
Granted during 1st Qtr 2011
    —       —  
Exercised during 1st Qtr 2011
    —       —  
Forfeitures during 1st Qtr 2011
    —       —  
 
           
Balance — March 31, 2011
    34,250     $ 4.74  
The following table summarizes the status of the stock options outstanding and exercisable at March 31, 2011:
                             
Stock Options Outstanding  
                        Number of  
    Weighted             Weighted-   Stock  
Exercise Price   Average     Number of     Remaining   Options  
Range   Exercise Price     Options     Contractual Life   Exercisable  
$0.00 – $4.80
  $ 3.23       14,250     0.2 years     14,250  
$4.80 – $9.60
  $ 5.82       20,000     5.1 years     20,000  
 
                       
 
            34,250           34,250  
 
                       
At March 31, 2011, 34,250 stock options were exercisable with a weighted average exercise price of $4.74.

 

7

Table of Contents

5) NET (LOSS)/INCOME PER SHARE :
The following table sets forth the computation of basic and diluted net (loss)/income per share for the three months ended March 31, 2011 and 2010.
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Numerator for basic net (loss)/income per share
               
Net (loss)/income
  $ (117,010 )   $ (363,073 )
 
           
Net (loss)/income available to common stockholders
  $ (117,010 )   $ (363,073 )
 
           
 
               
Numerator for diluted net (loss)/income per share
               
Net (loss)/income available to common stockholders & assumed conversion
  $ (117,010 )   $ (363,073 )
 
           
 
               
Denominator:
               
Denominator for basic and diluted (loss)/income per share — weighted-average shares
    5,826,088       3,086,362  
 
           
 
               
Basic and diluted (loss)/income per share:
               
Net (loss)/income per share
  $ (0.02 )   $ (0.12 )
 
           
During the three month periods ended March 31, 2011 and March 31, 2010, all options and warrants outstanding were excluded from the computation of net (loss)/income per share because the effect would have been anti-dilutive.
6) CONCENTRATION OF CREDIT RISK:
The revenues of three customers represented approximately 40%, 19% and 18% of the revenues for the three month period ended March 31, 2011. The revenue of two customers represented approximately 21% each of revenues for the same period in 2010. No other customer represented greater than 10% of the Company’s revenues for such periods. The Company continues its effort to broaden its customer base in order to mitigate this risk.
7) CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The Company’s commitments at March 31, 2011, are comprised of the following:
                                         
    Payments Due by Period  
                                    More Than  
Contractual Obligations   Total     Less Than 1 Year     1 - 3 Years     3 - 5 Years     5 Years  
Long Term Obligations
                                       
Employment Contracts (1)
    —       —       —       —       —  
Operating Lease Obligations
                                       
Rent (2)
    378,979       284,234       94,745       —       —  
 
                             
Total
  $ 378,979     $ 284,234     $ 94,745     $ —     $ —  
 
                             
(1)  
No named executive officers of the Company have employment contracts.
 
(2)  
The Company has a New York facility with a lease term expiring July 31, 2012.
As of March 31, 2011, the Company does not have any “Off Balance Sheet Arrangements”.

 

8

Table of Contents

8) PROVISION FOR INCOME TAXES
The provision for income taxes as reflected in the consolidated statements of operations varies from the expected statutory rate primarily due to a provision for minimum state taxes and the recording of additional valuation allowance against deferred tax assets. Internal Revenue Code Section 382 (the “Code”) places a limitation on the utilization of Federal net operating loss and other credit carry-forwards when an ownership change, as defined by the tax law, occurs. Generally, this occurs when a greater than 50 percent change in ownership occurs. During 2006, Helios and Matheson Information Technology Ltd (“Helios and Matheson Parent”) acquired a greater than 50 percent ownership of the Company. Accordingly, the actual utilization of the net operating loss carry-forwards for tax purposes are limited annually under the Code to a percentage (currently about four and a half percent) of the fair market value of the Company at the date of this ownership change. The Company did not generate taxable income during the three months ended March 31, 2011. The Company maintains a valuation allowance against additional deferred tax assets arising from net operating loss carry-forwards since, in the opinion of management; it is more likely than not that some portion or all of the deferred tax assets will not be realized.
9) TRANSACTIONS WITH RELATED PERSONS
In September 2010, the Company entered into a Memorandum of Understanding with Helios and Matheson Parent (the “HMIT MOU”) pursuant to which Helios and Matheson Parent has agreed to make available to the Company facilities of dedicated Off-shore Development Centers (“ODCs”) and also render services by way of support in technology, client engagement, management and running the ODCs for the Company. The Company has furnished Helios and Matheson Parent a security deposit of $1 million to cover any expenses, claims or damages that Helios and Matheson Parent may incur while discharging its obligations under the HMIT MOU and also to cover the Company’s payables to Helios and Matheson Parent. Such security deposit may be increased as business operations are scaled up. Upon termination of the HMIT MOU, such security deposit will be refunded to the Company without interest and after adjusting such amounts towards any expenses, claims or damages and dues payable to Helios and Matheson Parent. The amount payable to Helios and Matheson Parent for services rendered under the HMIT MOU was $90,048 for the three months ended March 31, 2011 and is included as a component of cost of revenue. All payments to Helios and Matheson Parent under the MOU are made after collections are received from clients.
10) COGITO LITIGATION
Cogito Ltd. (“Cogito”), a software company whose products the Company had marketed since 1991 under an exclusive perpetual distribution agreement, terminated the agreement effective April 14, 2010. The Company disputes that there are any valid grounds for termination of the Cogito agreement and communicated its position to Cogito.
On or about July 23, 2010 Cogito initiated an action against the Company in the Supreme Court of the State of New York (New York County) initiating claims for $282,000 for royalties allegedly owed to Cogito by the Company and for alleged damages of over $2.0 million which was later amended to over $4.7 million. Cogito is claiming damages for an alleged breach of contract, tortuous interference with contracts, and tortuous interference with prospective business relations. The Company strongly disputes the claim and intends to vigorously defend the action. In connection with this case, the Company has initiated a counterclaim against Cogito in the State of New York for $5.0 million dollars.
The Order to Show Cause for a preliminary injunction was resolved by way of a stipulation between the parties dated October 18, 2010. The Court provided the Company with 30 days to file its answer and Counterclaim. Limited discovery has so far been held. On a Motion for Summary Judgment brought by Cogito on April 14, 2011, the Court ordered the Company to pay $244,122 held in escrow account of its attorney to Cogito. No trial date is set.
In January 2011, the Company filed a complaint against the current President of Cogito North America, for injunctive relief and compensatory and punitive damages in the Superior Court of New Jersey. The Company is alleging that the President of Cogito breached a contractual covenant not to compete by joining Cogito and providing the Company’s confidential and proprietary information to Cogito. The company is seeking an injunction restraining the President of Cogito from communicating with the Company’s clients and from engaging in any business or enterprise which directly solicits business for services or goods that the Company has sold or is selling.
In the meanwhile, on August 25, 2010, the Company entered into an agreement with Cogito effective May 2010 to continue to provide service and support of software products owned by the Company. This agreement was renewed in April 2011 for one year.

 

9

Table of Contents

11) SUBSEQUENT EVENTS
Management completed an analysis of all subsequent events occurring after March 31, 2011, the balance sheet date, through May 12, 2011, the date upon which the quarter-end consolidated financial statements were issued, and determined there were no disclosures necessary which have not been already disclosed elsewhere in these financial statements, except for the following:
On April 12, 2011, the Company received a letter from NASDAQ informing the Company that the Nasdaq Hearing Panel granted the Company’s request for continued listing subject to certain conditions. The details are provided below.
On January 19, 2011 and on January 20, 2011 the Company received letters from NASDAQ indicating that the Company’s continued failure to comply with the Market Value Rule and the Minimum Bid Price Rule would result in the Company’s securities being delisted from NASDAQ unless the Company requested a hearing to appeal this determination.
The Company requested a hearing and on February 24, 2011, the Company appeared before the NASDAQ hearing panel. On April 12, 2011, the Company received a letter from NASDAQ informing the Company that the Nasdaq Hearing Panel granted the Company’s request for continued listing subject to the condition that, on or before July 18, 2011, the Company must have evidenced a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days and a market value of publically held shares of at least $1,000,000 for a minimum of ten prior consecutive trading days.

 

10

Table of Contents

Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of significant factors affecting the Company’s operating results, liquidity and capital resources should be read in conjunction with the accompanying financial statements and related notes.
Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this document that do not relate to present or historical conditions are “forward-looking statements” within the meaning of that term under Section 27A of the Securities Act of 1933, as amended, and under Section 21E of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the SEC. Such forward-looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in such forward-looking statements. Words such as “believes,” “forecasts,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to identify forward-looking statements. The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the 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. The important factors on which such statements are based, include but are not limited to, assumptions concerning the magnitude of the ongoing economic crisis, including its impact on the Company’s customers, demand trends in the information technology industry and the continuing needs of current and prospective customers for the Company’s services.
Overview
Since 1983, Helios and Matheson has provided high quality IT services and solutions to Fortune 1000 companies and other large organizations. The Company is headquartered in New York City and has a second office in Bangalore, India.
The Company’s services include Application Value Management, Application Development, Integration, Independent Validation, Infrastructure and Information Management services. The Company believes that a philosophy of intense focus on client satisfaction, business aware solutions and guaranteed delivery provides tangible business value to its client base across banking, financial services, insurance, pharmaceutical and manufacturing/automotive verticals.
The Company is dedicated to providing a Flexible Delivery Model to its clients, which allows for dynamically configurable “right shoring” of service delivery based on client needs.
For the three months ended March 31, 2011, approximately 93% of the Company’s consulting services revenues were generated from clients under time and materials engagements, as compared to approximately 87% for the three months ended March 31, 2010, with the remainder generated under fixed-price engagements. The Company has established standard-billing guidelines for consulting services based on the types of services offered. Actual billing rates are established on a project-by-project basis and may vary from the standard guidelines. The Company typically bills its clients for time and materials services on a weekly and monthly basis. Arrangements for fixed-price engagements are made on a case-by-case basis. Consulting services revenues generated under time and materials engagements are recognized as those services are provided. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs.
The Company’s most significant operating cost is its personnel cost, which is included in cost of revenues. For the three months ended March 31, 2011 and 2010, gross margin was 19.1% and 23.2% respectively. The decrease in gross margin is primarily a result of a decrease in higher margin project revenue and software revenue. A significant number of the 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 personnel costs, the current economic conditions do not allow much price adjustment flexibility.
The Company actively manages its personnel utilization rates by monitoring project requirements and timetables. The Company ’s utilization rate for the three months ending March 31, 2011 was approximately 91% as compared to 94% for the three months ending March 31, 2010. As projects are completed, consultants either are re-deployed to new projects at the current client site or to new projects at another client site or are encouraged to participate in the Company’s training programs in order to expand their technical skill sets.

 

11

Table of Contents

Critical Accounting Policies
The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its consolidated financial statements. The Company evaluates its estimates and judgments on an on-going basis. Estimates are based on historical experience and on assumptions that the Company believes to be reasonable under the circumstances. The Company’s experience and assumptions form the basis for its judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what is anticipated and different assumptions or estimates about the future could change reported results. The Company believes the following accounting policies are the most critical to it, in that they are important to the portrayal of its financial statements and they require the most difficult, subjective or complex judgments in the preparation of the consolidated financial statements.
Revenue Recognition
Consulting revenues are recognized as services are provided. The Company primarily provides consulting services under time and material contracts, whereby revenue is recognized as hours and costs are incurred. Customers for consulting revenues are billed on a weekly, semi-monthly or monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of the software to a customer because future obligations associated with such revenue are insignificant.
Allowance for Doubtful Accounts
The Company monitors its accounts receivable balances on a monthly basis to ensure that they are collectible. On a quarterly basis, the Company uses its historical experience to accurately determine its accounts receivable reserve. The Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the customer may have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer, against amounts due, to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. The Company also establishes a general reserve for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.
Valuation of Deferred Tax Assets
Deferred tax assets are reduced by a valuation allowance when, in the opinion of the Company, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assesses the recoverability of deferred tax assets at least annually based upon the Company’s ability to generate sufficient future taxable income and the availability of effective tax planning strategies.
Stock Based Compensation
The Company uses the modified prospective application method as specified by the FASB whereby compensation cost is recognized over the remaining service period based on the grant-date fair value of those awards as calculated for pro forma disclosures as originally issued.

 

12

Table of Contents

Results of Operations
The following table sets forth the percentage of revenues of certain items included in the Company’s Statements of Operations:
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Revenues
    100.0 %     100.0 %
Cost of revenues
    80.9 %     76.8 %
 
           
Gross profit
    19.1 %     23.2 %
Operating expenses
    22.5 %     33.7 %
 
           
(Loss)/income from operations
    ( 3.4 )%     ( 10.5 )%
 
           
Net (loss)/income
    ( 3.6 )%     ( 10.5 )%
 
           
Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010
Revenues. Revenues for the three months ended March 31, 2011 were $3.2 million compared to $3.4 million for the three months ended March 31, 2010. The decrease is primarily attributable to a reduction of project revenue and software revenue due to the termination of the contract by Cogito Ltd. See Part 1, Item 1, Note 10 of this Form 10-Q.
Gross Profit . The resulting gross profit for the three months ended March 31, 2011 was $619,000 as compared to $801,000 for the three months ended March 31, 2010. As a percentage of total revenues, gross margin for the three months ended March 31, 2011 was 19.1% compared to 23.2% for the three months ended March 31, 2010. The gross margin has decreased primarily as a result of a decrease in higher margin project revenue and software revenue.
Operating Expenses. Operating expenses are comprised of Selling, General and Administrative (“SG&A”) expenses and depreciation and amortization. Operating expenses for the three months ended March 31, 2011 were $731,000 compared to the 2010 comparable period level of $1.2 million. The decrease in SG&A was associated with various cost reduction initiatives including, but not limited to, renegotiation of agreements with major vendors and process restructuring, leading to higher efficiency.
Taxes. Tax provision for the three months ended March 31, 2011 was $5,500 compared to $4,500 for the three months ended March 31, 2010.
Net Income/(loss). As a result of the above, the Company had net loss of ($117,000) or ($0.02) per basic and diluted share for the three months ended March 31, 2011 compared to a net loss of ($363,000) or ($0.12) per basic and diluted share for the three months ended March 31, 2010.
Liquidity and Capital Resources
The Company believes that its business, operating results and financial condition have been affected by the recent economic crisis and ongoing economic uncertainty which continue to impact the IT spending of its clients. A significant portion of the Company’s major customers are in the financial services industry and came under considerable pressure as a result of the unprecedented economic conditions in the financial markets. Spending on IT consulting services is largely discretionary, and the Company has experienced a pushback of new assignments and high margin projects from existing clients. Yet, the Company’s operating loss and net loss in the three months ended March 31, 2011 were reduced to one third of the operating loss and net loss reported for the three months ended March 31, 2010. The Company had an operating loss of ($112,000) and a net loss of ($117,000) for the three months ended March 31, 2011. During the three months ended March 31, 2010, the Company had an operating loss of ($362,000) and net loss of ($363,000).
The Company’s cash balances were approximately $1.2 million at March 31, 2011 and $1.7 million at December 31, 2010. Net cash used in operating activities for the three months ended March 31, 2011 was approximately ($436,000) compared to net cash used in operating activities of approximately ($341,000) for the three months ended March 31, 2010.

 

13

Table of Contents

The Company’s accounts receivable, less allowance for doubtful accounts, at March 31, 2011 and at December 31, 2010 were approximately $2.3 million and $2.2 million, respectively, representing 61 days of sales outstanding (“DSO”) for both periods. The Company believes that stable DSO of 61 days is consistent with favorable resolutions of a limited number of dated client disputes. The accounts receivable at March 31, 2011 and December 31, 2010 included $106,000 and $0 of unbilled revenue respectively. The Company has provided an allowance for doubtful accounts at the end of each of the periods presented. After giving effect to this allowance, the Company does not anticipate any difficulty in collecting amounts due.
For the three month periods ended March 31, 2011 and March 31, 2010, there was no cash provided by investing or financing activities .
In management’s opinion, cash flows from operations combined with cash on hand will provide adequate flexibility for funding the Company’s working capital obligations for the next twelve months.
For the three months ended March 31, 2011 and 2010, there were no shares of common stock issued pursuant to the exercise of options granted under the Company’s stock option plan.
Off Balance Sheet Arrangements
As of March 31, 2011, the Company does not have any “Off Balance Sheet Arrangements”.
Contractual Obligations and Commitments
The Company’s commitments at March 31, 2011 are reflected and further detailed in the Contractual Obligation table located in Part I, Item 1, Note 7 of this Form 10-Q.
Inflation
The Company has not suffered material adverse affects from inflation in the past. However, a substantial increase in the inflation rate in the future may adversely affect customers’ purchasing decisions, may increase the costs of borrowing or may have an adverse impact on the Company’s margins and overall cost structure.
Recent Accounting Pronouncements
None.
Item 3.  
Quantitative and Qualitative Disclosures about Market Risk
Not Required.
Item 4.  
Controls and Procedures
Evaluation of disclosure controls and procedures. As of March 31, 2011, we carried out an evaluation, under the supervision of and with the participation of our President and Principal Executive Officer, Chief Operating Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer , Chief Operating Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, our Principal Executive Officer , Chief Operating Officer and Principal Financial Officer have concluded that, as of March 31, 2011, our disclosure controls and procedures were effective.
Changes in internal control. During the quarter covered by this report, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

14

Table of Contents

Part II. Other Information
Item 1.  
Legal Proceedings
The Company’s legal proceedings at March 31, 2011 have been disclosed in Part I, Item 1, Note 10 of this Form 10-Q.
Item 1A.  
Risk Factors
Not Applicable.
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3.  
Defaults Upon Senior Securities
None.
Item 4.  
[Removed and Reserved]
Item 5.  
Other Information
None.

 

15

Table of Contents

Item 6 . Exhibits
(a) Exhibits
         
  3.1    
Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Form 10-K, as previously filed with the SEC on March 31, 2010.
       
 
  3.2    
Bylaws of Helios and Matheson Information Technology Inc., incorporated by reference to Exhibit 3.2 to the Form 10-K, as previously filed with the SEC on March 31, 2010.
       
 
  3.3    
Certificate of amendment of Certificate of Incorporation of Registrant.
       
 
  31.1    
Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
       
 
  31.2    
Certification of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
       
 
  31.3    
Certification of Principal Operating Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
       
 
  32.1    
Certification of the Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  32.2    
Certification of the Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  32.3    
Certification of the Principal Operating Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

16

Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  HELIOS AND MATHESON INFORMATION TECHNOLOGY INC.
  		 
Date: May 12, 2011  By:   /s/ Divya Ramachandran    
    Divya Ramachandran   
    Chief Executive Officer and President   
 
Date: May 12, 2011  By:   /s/ Umesh Ahuja    
    Umesh Ahuja   
    Chief Financial Officer and Secretary   
 
Date: May 12, 2011  By:   /s/ Suparna NR    
    Suparna NR   
    Chief Operating Officer   

 

17

Exhibit 3.3
Certificate of Amendment
of
Certificate of Incorporation
of
Helios and Matheson North America Inc.
Under Section 242 of the Delaware General Corporation Law
Helios and Matheson North America Inc., a corporation organized and existing under the laws of the state of Delaware (the “Corporation”), hereby certifies as follows:
The Certificate of Incorporation of the Corporation is hereby amended as follows:
  1.  
Article First is hereby amended to read as follows:
 
     
FIRST: The Name of the corporation is Helios and Matheson Information Technology Inc. (hereinafter referred to as the “Corporation”).
The forgoing amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the vote of a majority of each class of outstanding stock of the corporation entitled to vote thereon.
IN WITNESS WHEREOF, I have signed this certificate this 2nd day of May 2011.
         
  /s/ Divya Ramachandran    
  Divya Ramachandran   
  Chief Executive Officer   

 

 

Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Divya Ramachandran, the Principal Executive Officer of Helios and Matheson Information Technology Inc., certify that:
1.  
I have reviewed this quarterly report on Form 10-Q of Helios and Matheson Information Technology Inc., the registrant;
2.  
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.  
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:
  a)  
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b)  
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c)  
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d)  
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)  
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b)  
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: May 12, 2011  /s/ Divya Ramachandran    
  Name:   Divya Ramachandran   
  Title:   President and Chief Executive Officer (Principal Executive Officer)   

 

 

Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Umesh Ahuja, the Principal Financial Officer of Helios and Matheson Information Technology Inc., certify that:
1.  
I have reviewed this quarterly report on Form 10-Q of Helios and Matheson Information Technology Inc., the registrant;
2.  
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.  
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:
  a)  
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b)  
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c)  
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d)  
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)  
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b)  
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: May 12, 2011  /s/ Umesh Ahuja    
  Name:   Umesh Ahuja   
  Title:   Chief Financial Officer
(Principal Financial Officer)  		 

 

 

Exhibit 31.3
CERTIFICATION OF PRINCIPAL OPERATING OFFICER
I, Suparna NR, the Principal Operating Officer of Helios and Matheson Information Technology Inc., certify that:
1.  
I have reviewed this quarterly report on Form 10-Q of Helios and Matheson Information Technology Inc., the registrant;
2.  
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.  
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:
  a)  
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b)  
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c)  
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d)  
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)  
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b)  
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: May 12, 2011  /s/ Suparna NR    
  Name:   Suparna NR   
  Title:   Chief Operating Officer
(Principal Operating Officer)  		 

 

 

Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Helios and Matheson Information Technology Inc. for the three month period ending March 31, 2011, I, Divya Ramachandran, the Principal Executive Officer of Helios and Matheson Information Technology Inc., hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
  (1)  
such Quarterly Report on Form 10-Q for the three month period ending March 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  (2)  
the information contained in such Quarterly Report on Form 10-Q for the three month period ending March 31, 2011 fairly presents, in all material respects, the financial condition and results of operations of Helios and Matheson Information Technology Inc., on a consolidated basis.
         
Date: May 12, 2011  /s/ Divya Ramachandran    
  Name:   Divya Ramachandran   
  Title:   President and Chief Executive Officer (Principal Executive Officer)   
 
A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Helios and Matheson Information Technology Inc. for the three month period ending March 31, 2011, I, Umesh Ahuja, the Principal Financial Officer of Helios and Matheson Information Technology Inc., hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
  (1)  
such Quarterly Report on Form 10-Q for the three month period ending March 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  (2)  
the information contained in such Quarterly Report on Form 10-Q for the three month period ending March 31, 2011 fairly presents, in all material respects, the financial condition and results of operations of Helios and Matheson Information Technology Inc., on a consolidated basis.
         
Date: May 12, 2011  /s/ Umesh Ahuja    
  Name:   Umesh Ahuja   
  Title:   Chief Financial Officer
(Principal Financial Officer)  		 
 
A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

Exhibit 32.3
CERTIFICATION OF PRINCIPAL OPERATING OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Helios and Matheson Information Technology Inc. for the three month period ending March 31, 2011, I, Suparna NR, the Principal Operating Officer of Helios and Matheson Information Technology Inc., hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
  (1)  
such Quarterly Report on Form 10-Q for the three month period ending March 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  (2)  
the information contained in such Quarterly Report on Form 10-Q for the three month period ending March 31, 2011 fairly presents, in all material respects, the financial condition and results of operations of Helios and Matheson Information Technology Inc., on a consolidated basis.
         
Date: May 12, 2011  /s/ Suparna NR    
  Name:   Suparna NR   
  Title:   Chief Operating Officer
(Principal Operating Officer)  		 
A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document