UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended: June 30, 2016
OR
☐ | 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 ANALYTICS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware (State or other jurisdiction of incorporation or organization) | 13-3169913 (I.R.S. Employer Identification No.)
|
Empire State Building, 350 5th Avenue, New York, New York 10118 (Address of Principal Executive Offices) | (212) 979-8228 (Registrant’s Telephone Number, Including Area Code) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☒ |
|
| (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 ☐ No ☒
As of July 31, 2016, there were 2,330,438 shares of common stock, with $.01 par value per share, outstanding.
HELIOS AND MATHESON ANALYTICS INC.
INDEX
PART I. FINANCIAL INFORMATION | 3 |
ITEM I. FINANCIAL STATEMENTS | |
Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015 | 3 |
Condensed Consolidated Statement of Operations and Comprehensive (Loss)/Income for the three and six months ended June 30, 2016 and 2015 (unaudited) | 4 |
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015(unaudited) | 5 |
Notes to Condensed Consolidated Financial Statements | 6 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION | 9 |
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS | 13 |
ITEM 4.CONTROLS AND PROCEDURES | 13 |
PART II. OTHER INFORMATION | 13 |
ITEM 1. LEGAL PROCEEDINGS | 13 |
ITEM 1A. RISK FACTORS | 13 |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 15 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 15 |
ITEM 4. MINE SAFETY DISCLOSURES | 15 |
ITEM 5. OTHER INFORMATION | 15 |
ITEM 6. EXHIBITS | 15 |
SIGNATURES | 16 |
Part I. Financial Information
Item 1. Financial Statements
HELIOS AND MATHESON ANALYTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2016 | December 31, 2015 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 1,369,985 | $ | 898,477 | ||||
Accounts receivable- less allowance for doubtful accounts of $26,272 at June 30, 2016, and $42,203 at December 31, 2015 | 822,261 | 1,386,155 | ||||||
Unbilled receivables | 79,080 | 295,473 | ||||||
Prepaid expenses and other current assets | 188,472 | 208,642 | ||||||
Prepaid expenses and other current assets - Related Party - less allowance of $344,041 at June 30, 2016, and December 31, 2015 | 8,948 | 8,948 | ||||||
Total current assets | 2,468,746 | 2,797,695 | ||||||
Property and equipment, net | 39,791 | 47,885 | ||||||
Security Deposit-Related Party- less allowance of $2,000,000 at June 30, 2016 and December 31, 2015 | - | - | ||||||
Deposits and other assets | 59,223 | 93,197 | ||||||
Total assets | $ | 2,567,760 | $ | 2,938,777 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 983,971 | $ | 1,060,792 | ||||
Total current liabilities | 983,971 | 1,060,792 | ||||||
Commitments and contingencies | - | - | ||||||
Shareholders' equity: | ||||||||
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of June 30, 2016, and December 31, 2015 | - | - | ||||||
Common stock, $.01 par value; 30,000,000 shares authorized; 2,330,438 issued and outstanding as of June 30, 2016 and December 31, 2015 | 23,304 | 23,304 | ||||||
Paid-in capital | 37,855,740 | 37,855,740 | ||||||
Accumulated other comprehensive loss - foreign currency translation | (140,253 | ) | (120,712 | ) | ||||
Accumulated deficit | (36,155,002 | ) | (35,880,347 | ) | ||||
Total shareholders' equity | 1,583,789 | 1,877,985 | ||||||
Total liabilities and shareholders' equity | $ | 2,567,760 | $ | 2,938,777 |
See accompanying notes to condensed consolidated financial statements.
HELIOS AND MATHESON ANALYTICS INC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS)/INCOME
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Revenues | $ | 1,858,186 | $ | 2,413,118 | $ | 3,887,630 | $ | 4,906,630 | ||||||||
Cost of revenues | 1,337,430 | 1,805,253 | 2,792,378 | 3,677,514 | ||||||||||||
Gross profit | 520,756 | 607,865 | 1,095,252 | 1,229,116 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general & administrative | 612,756 | 538,268 | 1,332,358 | 1,101,181 | ||||||||||||
Depreciation & amortization | 3,913 | 2,760 | 7,227 | 5,825 | ||||||||||||
616,669 | 541,028 | 1,339,585 | 1,107,006 | |||||||||||||
Income/(loss) from operations | (95,913 | ) | 66,837 | (244,333 | ) | 122,110 | ||||||||||
Other income: | ||||||||||||||||
Interest income | 2,919 | 2,734 | 3,925 | 5,551 | ||||||||||||
2,919 | 2,734 | 3,925 | 5,551 | |||||||||||||
Income/(loss) before income taxes | (92,994 | ) | 69,571 | (240,408 | ) | 127,661 | ||||||||||
Provision for income taxes | 31,247 | 3,000 | 34,247 | 6,000 | ||||||||||||
Net income/(loss) | (124,241 | ) | 66,571 | (274,655 | ) | 121,661 | ||||||||||
Other comprehensive loss - foreign currency adjustment | (20,097 | ) | (6,258 | ) | (19,541 | ) | (10,188 | ) | ||||||||
Comprehensive income/(loss) | $ | (144,338 | ) | $ | 60,313 | $ | (294,196 | ) | $ | 111,473 | ||||||
Net Income/(loss) per share | ||||||||||||||||
Basic & Diluted | $ | (0.05 | ) | $ | 0.03 | $ | (0.12 | ) | $ | 0.05 |
See accompanying notes to condensed consolidated financial statements.
HELIOS AND MATHESON ANALYTICS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
(unaudited) | (unaudited) | |||||||
Cash flows from operating activities: | ||||||||
Net income/(loss) | $ | (274,655 | ) | $ | 121,661 | |||
Adjustments to reconcile net income/(loss) to net cash provided by (used in)operating activities: | ||||||||
Depreciation and amortization | 7,227 | 5,825 | ||||||
Provision for doubtful accounts | (15,931 | ) | (6,641 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 579,825 | (175,981 | ) | |||||
Unbilled receivables | 216,394 | 26,041 | ||||||
Prepaid expenses and other assets | 20,169 | (89,919 | ) | |||||
Deposit & Other assets | 33,973 | |||||||
Accounts payable and accrued expenses | (76,820 | ) | (79,845 | ) | ||||
Net cash (used in)/provided by operating activities | 490,182 | (198,859 | ) | |||||
Cash flows provided by/(used in) from investing activities: | ||||||||
Sales of Property and Equipment (net of purchases) | 867 | - | ||||||
Net cash flows used in investing activities | 867 | - | ||||||
Effect of foreign currency exchange rate changes on cash and cash equivalents | (19,541 | ) | (10,188 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 471,508 | (209,047 | ) | |||||
Cash and cash equivalents at beginning of period | 898,477 | 1,225,518 | ||||||
Cash and cash equivalents at end of period | $ | 1,369,985 | $ | 1,016,471 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for income taxes - net of refunds | $ | 2,250 | $ | 4,771 |
See accompanying notes to condensed consolidated financial statements.
HELIOS AND MATHESON ANALYTICS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1) | GENERAL: |
These financial statements should be read in conjunction with the financial statements contained inHelios and Matheson Analytics Inc.’s (“Helios and Matheson” or the “Company”) Form 10-K for the year ended December 31, 2015 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, 2015.
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 Listing 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 condensed consolidated financial statements contain all the adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position as of June 30, 2016, the consolidated results of operations for the three and six months periods ended June 30, 2016 and 2015 and cash flows for the six months periods ended June 30, 2016 and 2015.
The consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date, but certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from these financial statements pursuant to the SEC’s rules and regulations. 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, 2015.
For the three month period ended June 30, 2016, the Company reported a net loss of approximately ($124,000) and for the six month period ended June 30, 2016, the Company reported a net loss of approximately ($275,000); for the three month period ended June 30, 2015, the Company reported net income of approximately $67,000 and for the six month period ended June 30, 2015, the Company reported net income of $122,000. The Company continues to focus on revenue growth by expanding its existing client market share and its client base and byproviding 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 expenditures and SG&A to enhance its competitiveness.
In management's opinion, existing 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:
On March 3, 2014, the Board of Directors terminated the Company’s 1997 Stock Option and Award Plan andapproved and adopted the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan (the “2014 Plan”). There were no shares outstanding under the 1997 Stock Option and Award Plan. The 2014 Plan sets aside and reserves 400,000 shares of the Company’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the 2014 Plan include employees (including officers and directors) of the Company and its affiliates, consultants who provide significant services to the Company or its affiliates and directors who are not employees of the Company or its affiliates (the “Participants”). The 2014 Plan permits the Company to issue to Participants qualified and/or non-qualified options to purchase the Company’s common stock, restricted common stock, performance units and performance shares. The 2014 Plan will terminate on March 3, 2024. The Compensation Committee of the Company’s Board of Directors has been appointed as the committee responsible for administration of the 2014 Plan and has the sole discretion to determine which Participants will be granted awards and the terms and conditions of the awards granted. Through the date of filing of this Form 10-Q no awards have been granted under the 2014 Plan.
5) | NET INCOME/(LOSS) PER SHARE: |
The following table sets forth the computation of basic and diluted net (loss)/income per share for the three months and six months ended June 30, 2016 and 2015:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Numerator for basic net income/(loss) per share | ||||||||||||||||
Net income/(loss) available to commonstockholders | $ | (124,241 | ) | $ | 66,571 | $ | (274,655 | ) | $ | 121,661 | ||||||
Numerator for diluted net income/(loss) per share | ||||||||||||||||
Net income/(loss) available to commonstockholders & assumed conversion | $ | (124,241 | ) | $ | 66,571 | $ | (274,655 | ) | $ | 121,661 | ||||||
Denominator: | ||||||||||||||||
Denominator for basic and diluted income/(loss)per share - weighted-average shares | 2,330,438 | 2,330,438 | 2,330,438 | 2,330,438 | ||||||||||||
Basic and diluted income/(loss) per share: | ||||||||||||||||
Net income/(loss) per share | $ | (0.05 | ) | $ | 0.03 | $ | (0.12 | ) | $ | 0.05 |
6) | CONCENTRATION OF CREDIT RISK: |
The revenues of the Company’s top four customers represented 89.1% of the revenues for the six month period ended June 30, 2016. The revenues of the Company’s top three customers represented 91.49% of revenues for the same period in 2015. 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.
One of the Company’s clients, while continuing the engagement under a Master Services Agreement, issued a notice to terminate, as of May 15, 2016, the arrangement for use of the Offshore Development Center (ODC) provided to the client by the Company. This may adversely impact the Company’s revenue and margins going forward in the near term. However the ODC, together with all of the employees, is now being utilized by another company (although not one of the Company’s clients), thus ensuring that no additional expenses are incurred by the Company with respect to the ODC. For the six months ended June 30, 2016 and 2015, revenue related to this contract was approximately $1.38 million and $1.51 million. For the full-year 2015 and 2014 the total revenue generated from this client was approximately $2.3 million and approximately $900,000, respectively. There can be no assurance that the Company will be able find other clients to make up for the annual revenue shortfall that resulted from the termination of this relationship.
7) | CONTRACTUAL OBLIGATIONS AND COMMITMENTS: |
The Company’s commitments at June 30, 2016, are comprised of the following:
Contractual Obligations | Payments Due by Period | |||||||||||||||||||
Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | ||||||||||||||||
Operating Lease Obligations | ||||||||||||||||||||
Rent(1) | 130,867 | 130,867 | - | - | - | |||||||||||||||
Total | $ | 130,867 | $ | 130,867 | $ | - | $ | - | $ | - |
(1) The Company has a New York facility with a lease term expiring April 30, 2017.
As of June 30, 2016, the Company does not have any “Off Balance Sheet Arrangements”.
8) | PROVISION FOR INCOME TAXES |
The provision for income taxes as reflected in the consolidated statement of operations and comprehensive (loss)/income varies from the expected statutory rate primarily due to a provision for minimum state taxes and the recording of adjustments to the 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 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 PARTIES |
Maruthi Consulting Inc. (Subsidiary of Helios and Matheson Parent )
The Company has provided consulting services to Maruthi Consulting Inc. The amount receivable for the consulting services as of June 30, 2016 was approximately $61,000 and as of December 31, 2015 $61,000 respectively.
The Company has also procured services from Maruthi Consulting Inc. The amount payable as of June 30, 2016 was approximately $2,000 and as of December 31, 2015 $2,000 respectively.
The Company did not have any transactions with Maruthi Consulting Inc. during the six months ended June 30, 2016.
10) | LEGAL PROCEEDINGS |
None
11) | SUBSEQUENT EVENTS: |
Agreement and Plan of Merger with Zone Technologies, Inc.
On July 7, 2016 , Helios and Matheson, Zone Acquisition, Inc., a Nevada corporation and wholly owned subsidiary of Helios and Matheson (“Sub”), and Zone Technologies, Inc., a privately held Nevada corporation (“Zone”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Sub will merge with and into Zone, with Zone surviving as a wholly owned subsidiary of Helios and Matheson (the “Merger”), subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement.
Nasdaq Hearing Panel’s approval on continued listing
On July 25, 2016, Helios and Matheson received written notification that the Nasdaq Hearings Panel (the “Panel”) granted Helios and Matheson’s request for continued listing on The Nasdaq Stock Market, subject to the fulfillment of certain conditions, with the final condition being that Helios and Matheson shall have publicly announced and informed the Panel, on or before November 15, 2016, that the merger with Zone and a capital raising transaction were complete and, as a result, Helios and Matheson has stockholders’ equity above $2.5 million.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 throughout and in particular in the discussion at Item 2 titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “plan,” “forecast,” and similar expressions are intended to identify forward-looking statements. Certain important risks, including those discussed in the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 which have been incorporated into this report by reference, could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of these risks include, among other things:
● | our ability to consummate the Merger and capital raising transaction contemplated by the Merger Agreement; |
● | our capital requirements and whether we will be able to raise capital when we need it; |
● | changes in local, state or federal regulations that will adversely affect our business; |
● | our ability to sell our products and services; |
● | whether we will continue to receive the services of certain officers and directors; |
● | our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and |
● | other uncertainties, all of which are difficult to predict and many of which are beyond our control. |
We do not intend to update forward-looking statements. You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission.
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.
Overview
Helios and Matheson provides a wide range of high quality information technology (“IT”) consulting solutions, custom application development and analytics services to Fortune 1000 companies and other large organizations. The Company is headquartered in New York, New York and has a subsidiary in Bangalore, India.
For the six months ended June 30, 2016, approximately 90% of the Company's consulting services revenues were generated from clients under time and materials engagements, as compared to approximately 91% for the six months ended June 30, 2015 with the remainder generated under fixed-price engagements and recruitment process outsourcing (RPO). 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-projectbasis 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.
During the second quarter of 2016, the Company commenced working with credit unions in Silicon Valley. The scope of the project is the digital transformation of current systems coupled with data analytics and insights that will enhance the customer experience and modernize their legacy systems.
In June 2016, the Company commenced working with Terafina to implement an Omni Channel Sales and Service platform for the largest credit union in southeastern Washington state to help grow the credit union's membership and deepen its relationships with its existing members.
Additionally, the Company is working on multiple solutions for a select group of credit unions and financial institutions across the country.
The Company's most significant operating cost is its personnel cost, which is included in cost of revenues. For the six months ended June 30, 2016 and 2015, gross margin was 28% and 25% respectively.
The Company actively manages its personnel utilization rates by monitoring project requirements and timetables. The Company’s utilization rate for the three months ending June 30, 2016 was approximately 95% as compared to 95% for the three months ending June 30, 2015. The utilization was approximately 96% for the six months ending June 30,2016 and June 30,2015. 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.
Investments by Helios and Matheson Parent and Controlled Company Status
On March 30, 2006, Helios and Matheson Parent, an IT services organization with its corporate headquarters in Chennai, India, purchased 409,879 shares of the Company’s common stock from Mr. Shmuel BenTov, the Company’s former Chairman, Chief Executive Officer and President and his family members, which represented approximately 43% of the Company’s outstanding common stock. In 2006, 2007, 2008, 2009 and 2010 Helios and Matheson Parent purchased additional shares of the Company’s common stock. Helios and Matheson Parent owns 1,743,040 shares of common stock, representing approximately 75% of the shares of the common stock currently outstanding. Helios and Matheson Parent is a publicly listed company on three stock exchanges in India, the National Stock Exchange (NSE), the Stock Exchange, Mumbai (BSE) and the Madras Stock Exchange (MSE). As a result of the number of shares of the Company’s outstanding common stock owned by Helios and Matheson Parent, the Company meets the definition of a “Controlled Company” as that term is defined by Rule 5615(c) of the NASDAQ Listing Rules.
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. Revenues from RPO services are recorded when service is performed. 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.
Results of Operations
The following table sets forth the percentage of revenues of certain items included in the Company’s Statement of Operations:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues | 72.0 | % | 74.8 | % | 71.8 | % | 74.9 | % | ||||||||
Gross profit | 28.0 | % | 25.2 | % | 28.2 | % | 25.1 | % | ||||||||
Operating expenses | 33.2 | % | 22.4 | % | 34.5 | % | 22.6 | % | ||||||||
(Loss)/income from operations | ( 5.2 | )% | 2.8 | % | ( 6.3 | )% | 2.5 | % | ||||||||
Other Income/(expense) | 0.2 | % | 0.1 | % | 0.1 | % | 0.1 | % | ||||||||
Income Tax | 1.7 | % | 0.1 | % | 0.9 | % | 0.1 | % | ||||||||
Net (Loss)/income | ( 6.7 | )% | 2.8 | % | ( 7.1 | )% | 2.5 | % |
Comparison of the Three Months Ended June 30, 2016 to the Three Months Ended June 30, 2015
Revenues. Revenues for the three months ended June 30, 2016 were approximately $1.9 million compared to approximately $2.4 million for the three months ended June 30, 2015, a decrease of approximately $500,000 or 21%. The decrease was primarily attributable to a decrease in the number of onshore consultants, who are billed at a higher hourly rate and also due to the termination, in May 2016, of a contract for delivery of offshore services with one of the Company’s major clients.
Gross Profit. The resulting gross profit for the three months ended June 30, 2016 was approximately $521,000 as compared to approximately $608,000 for the three months ended June 30, 2015. As a percentage of total revenues, gross margin for the three months ended June 30, 2016 was 28% compared to 25.2% for the three months ended June 30, 2015. The increase in gross margin is due to a decrease in low margin consulting revenue offset with an increase in high margin consulting and fixed price project revenue.
Operating Expenses. Operating expenses are comprised of selling, general and administrative (“SG&A”) expenses and depreciation and amortization. Operating expenses for the three months ended June 30, 2016were approximately $617,000 as compared to the 2015 period, with operating expenses of approximately $541,000, an increase of approximately $76,000 or 14%. The increase in SG&A expenses for the period resulted from an increase in professional services, certification fees and expenses incurred by the subsidiary based in India.
Taxes.Tax provisions for the three months ended June 30, 2016 and June 30, 2015 were approximately $31,000 and $3,000 respectively. Tax for the period ended June 30, 2016 was comprised of minimum state taxes and a provision for tax in respect of taxes incurred by the Company’s Indian subsidiary. Tax for the period ended June 30, 2015 was comprised of minimum state taxes.
Net (Loss)/Income.As a result of the above, the Company had a net loss of ($124,241) or ($0.05) per basic and diluted share for the three months ended June 30, 2016 as compared to net income of approximately $67,000 or $0.03 per basic and diluted share for the three months ended June 30, 2015.
Comparison of the Six Months Ended June 30, 2016 to the Six Months Ended June 30, 2015
Revenues.Revenues for the six months ended June 30, 2016 were approximately $3.9 million compared to $4.9 million for the six months ended June 30, 2015, a decrease of approximately $1 million or 20.4%. The decrease was primarily attributable to a decrease in the number of onshore consultants, who are billed at a higher hourly rate, and also due to the termination, in May 2016, of a contract for delivery of offshore services with one of the Company’s major clients.
Gross Profit. Gross profit for the six months ended June 30, 2016 was approximately $1.1 million as compared to approximately $1.2 million for the six months ended June 30, 2015. As a percentage of total revenues, gross margin for the six months ended June 30, 2016 was 28.2% compared to 25.1% for the six months ended June 30, 2015. The increase in gross margin is due to a decrease in low margin consulting revenue offset with an increase in high margin consulting and fixed price project revenue.
Operating Expenses. Operating expenses are comprised of selling, general and administrative (“SG&A”) expenses and depreciation and amortization. Operating expenses for the six months ended June 30, 2016 were approximately $1.3 million as compared to the 2015 period of approximately $1.1 million, an increase of approximately $200,000 or 18%. The increase in SG&A expenses for the period resulted from an increase in professional services, rental expenses, travel expenses and other expenses.
Taxes.Tax provisions for the six months ended June 30, 2016 and June 30, 2015 were at $34,247 and $6000 respectively. Tax for the period ended June 30, 2016 was comprised of minimum state taxes and a provision for tax in respect of taxes incurred by the Company’s Indian subsidiary. Tax for the period ended June 30, 2015 was comprised of minimum state taxes.
Net (Loss)/Income.As a result of the above, the Company had a net loss of ($274,655) or ($0.12) per basic and diluted share for the six months ended June 30, 2016 compared to net income of approximately $122,000 or $0.05 per basic and diluted share for the six months ended June 30, 2015.
Liquidity and Capital Resources.
The Company's cash balances were approximately $1.37 million at June 30, 2016 and $900,000 at December 31, 2015. Net cash provided from operating activities for the six months ended June 30, 2016 was approximately $490,000 compared to net cash used in operating activities of approximately ($199,000) for the six months ended June 30, 2015.
The Company's accounts receivable, less allowance for doubtful accounts, at June 30, 2016 and at December 31, 2015 were approximately $0.8 million and $1.39 million, respectively, representing 38 days and 46 days of sales outstanding (“DSO”) 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 six months ended June 30, 2016 net cash used in investing activities is $867 and $0 for the six months ended June 30, 2015.
For the six months ended June 30, 2016 and 2015, there were no cash flows from financing activities. In management's opinion, existing cash on hand will provide adequate flexibility for funding the Company's working capital obligations for the next twelve months.
Off Balance Sheet Arrangements
As of June 30, 2016, the Company does not have any off balance sheet arrangements.
Contractual Obligations and Commitments
The Company’s commitments at June 30, 2016 are reflected and further detailed in the Contractual Obligation table located in Part I, Item 1, Note 7 of this Form 10-Q.
Inflation
The Company has not suffered material adverse effects from inflation in the past. However, a substantial increase in the inflation rate in the future may adversely affect customers’ purchasing decisions, may increase the costs of borrowing or may have an adverse impact on the Company’s margins and overall cost structure.
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 provides a robust framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. ASU 2014-09 is effective beginning with the calendar year ended December 31, 2017. The Company has not yet assessed the impact ASU 2014-09 will have upon adoption on its financial position, results of operations or cash flows.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires that an entity’s management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Certain disclosures are necessary in the footnotes to the financial statements in the event that conditions or events raise substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter and early application is permitted. The Company has not yet assessed the impact ASU 2014-15 will have upon adoption.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. As of June 30, 2016, we carried out an evaluation, under the supervision of and with the participation of our Principal Executive Officer and our interim Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and interim Principal Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, our Principal Executive Officer and Principal interim Financial Officer have concluded that, as of June 30, 2016, our disclosure controls and procedures were effective.
Changes in internal control. During the quarter covered by this report, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
We incorporate herein by reference the risk factors included under Item 1A. of our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on March 28, 2016. In addition to the risks factors included in our Form 10-K, we are subject to the following risks:
There is no guarantee that the Merger will be completed. Failure to complete the Merger could negatively impact our stock price and our future business and financial results.
The Merger is subject to several material conditions. We cannot guarantee that these conditions will be satisfied or waived and that the Merger will be completed.
If the Merger is not completed, our business, prospects, financial condition and stock price may be adversely affected. Additionally, if the Merger is not completed and the Merger Agreement is terminated in certain circumstances described in the Merger Agreement, such as where we accept an unsolicited superior offer, we may be required to pay to Zone a termination fee of $750,000. In addition, we have already incurred significant transaction expenses in connection with the Merger, which may have an adverse effect on our financial position if the Merger Agreement is terminated. Risks arising in connection with the failure of the Merger to occur, including the diversion of management’s attention from conducting our business and pursuing other opportunities during the pendency of the Merger, may have an adverse effect on our business, operations, financial results and stock price. In addition, we could be subject to litigation related to any failure to consummate the Merger or any related action that could be brought to enforce a party’s obligation under the Merger Agreement.
The Merger involves risks associated with acquisitions and integrating the acquired business of Zone and the intended benefits of the Merger may not be realized.
The Merger involves risks associated with acquisitions and integrating the acquired business of Zone into our existing operations, including, but not limited to, the failure of Zone to perform as well as we anticipate and unexpected costs, delays, and challenges may arise in integrating Zone into our existing operations.
Even if we successfully integrate Zone into our operations, it may not be possible to realize the full benefits we anticipate or we may not realize these benefits within the expected timeframe. If we fail to realize the benefits we anticipate from the Merger with Zone, then our business, results of operations, and financial condition may be materially and adversely affected.
We have incurred significant transaction costs in connection with the Merger.
We have incurred significant costs in connection with the Merger including legal, accounting, consulting, and related fees. We may incur additional costs to retain key employees. We may also incur fees and costs related to formulating integration plans. We may be unable to realize efficiencies with the Merger that would allow us, over time, to offset the costs incurred in connection with the Merger.
There has been a limited trading market for our common stock.
Prior to the announcement of the Merger, there was not an active market for our common stock and there were several days during the period from January 1, 2016 to the announcement of the Merger on June 6, 2016 when there were no reported trades of shares of our common stock. The day following the announcement of the Merger, the sale price of our common stock increased to a high of $15.56 and over 15.8 million shares were traded. Since that date, both the price and the trading volume of shares of our common stock have declined. A lack of an active market may impair the ability of our stockholders to sell shares at the time they wish to sell them or at a price that they consider reasonable. The lack of an active market may also reduce the market value of our shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using our common stock as consideration.
The market price of our common stock may decline as a result of the Merger.
The market price of our common stock may decline as a result of the Merger if, among other things, we are unable to achieve growth in earnings or if we do not otherwise achieve the anticipated benefits of the Merger as rapidly or to the extent anticipated by investors in our common stock or if the effect of the Merger on our financial results is not consistent with the expectations of investors in our common stock.
Because we do not expect to pay cash dividends for the foreseeable future, you must rely on appreciation of our common stock price for any return on your investment.
We do not intend to pay cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial performance, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, you will have to rely on capital appreciation, if any, to earn a return on your investment in our common stock. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
Our failure to satisfy the conditions of our plan to regain compliance with Nasdaq’s minimum stockholders equity requirement pursuant to the decision of the Nasdaq Hearings Panel could result in a de-listing of our common stock.
If we fail to satisfy the conditions of our plan to regain compliance with the stockholder equity requirement pursuant to the decision of the Nasdaq Hearings Panel, Nasdaq may take steps to de-list our common stock, in which case our common stock would likely be traded in the over-the-counter market. Such a de-listing would likely have a negative effect on the price of our common stock and may impair your ability to sell our common stock when you wish to do so. In the event of a de-listing, we may take actions to attempt to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock.
For the six months ended June 30, 2016 we sustained net losses and we expect to incur net losses in the near term.
We incurred a net loss of $274,655 for the six months ended June 30, 2016. Following the Merger and because of the numerous risks and uncertainties associated with the research, development and commercialization efforts related to Zone’s technology and the growth of our historical business, we expect losses for the combined company to continue in the near term. These losses have had, and will continue to have, an adverse effect on our working capital, total assets and stockholders’ equity.
We expect to need to raise capital to fund our existing operations, pay expenses associated with the Merger and develop the Zone technology.
Prior to and following the Merger, we expect to need to raise capital to fund our operations, pay expenses associated with the Merger, develop, validate and commercialize Zone’s technology following the Merger and, if necessary, expand our operations. At June 30, 2016, we had cash and cash equivalents of $1.37 million. Net cash (used in)/provided by operating activities was $490,182 for the six months ended June 30, 2016 and approximately $(199,000), for the year ended December 31, 2015.
We have no committed source of financing, and we can provide no assurances that any sources of financing will be available to us on favorable terms, if at all, when needed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not Applicable
Item 5. Other Information
None
Item6.Exhibits
(a) Exhibits
3.1 | Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the form 10-K, as previously filed with the SEC on March 31, 2010. | |
3.1.1 | Certificate of Amendment to Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.3 to the Form 10-Q for the period ended March 31, 2011 as filed with the SEC on May 13, 2011. | |
3.1.2 | Certificate of Amendment to Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.4 to the Form 10-Q for the period ended June 30, 2011 as filed with the SEC on August 15, 2011. | |
3.2 | Bylaws of Helios and Matheson Analytics Inc., incorporated by reference to Exhibit 3.2 to the Form 10-K, as previously filed with the SEC on March 31, 2010. |
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. |
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.+ |
101.INS | XBRL Instance Documet |
101.SCH | XBRL Taxonomy Extension Schema |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | XBRL Taxonomy Extension Label Linkbase |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
+ Furnished, not filed.
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 ANALYTICS INC.
| By:/s/ Parthasarathy Krishnan |
Date: August 15, 2016 | Parthasarathy Krishnan |
| President, Chief Executive (Principal Executive Officer) and Interim Chief Financial Officer (Principal Financial Officer) |
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