HMNA Helios & Matheson North America Inc. (MM)

 

 

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: September 30, 2010

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 NORTH AMERICA 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		(212) 979-8228
New York, New York 10003 (Address of Principal Executive Offices)		(Registrant’s Telephone Number, Including Area Code)

N/A
(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 November 12, 2010, there were 5,826,088 shares of common stock, with $.01 par value per share, outstanding.

 

 

HELIOS AND MATHESON NORTH AMERICA INC.

INDEX

PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009			3
Consolidated Statement of Operations for the three and nine months ended September 30, 2010 and 2009			4
Consolidated Statement of Cash Flows for the nine months ended September 30, 2010 and 2009			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3. Quantitative and Qualitative Disclosures about Market Risk			15
Item 4. Controls and Procedures			15
PART II. OTHER INFORMATION			16
Item 1. Legal Proceedings			16
Item 1A. Risk Factors			16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			16
Item 3. Defaults Upon Senior Securities			16
Item 4. Submission of Matters to a Vote of Security Holders			16
Item 5. Other Information			16
Item 6. Exhibits			17
SIGNATURES			18
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Part I. Financial Information

Item 1.		Financial Statements

HELIOS AND MATHESON NORTH AMERICA INC.

CONSOLIDATED BALANCE SHEETS

		September 30,				December 31,
		2010				2009
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	1,809,779			$	1,354,989
Accounts receivable- less allowance for doubtful accounts of $266,395 at September 30, 2010, and $220,879 at December 31, 2009			2,238,968				2,471,705
Unbilled receivables			110,525				184,229
Prepaid expenses and other current assets			1,152,635				178,879
Total current assets			5,311,907				4,189,802
Property and equipment, net			53,632				79,952
Deposits and other assets			143,453				154,703
Total assets		$	5,508,992			$	4,424,457
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses		$	1,647,688			$	1,630,054
Deferred revenue			26,732				184,904
Total current liabilities			1,674,420				1,814,958
Shareholders’ equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of September 30, 2010, and December 31, 2009			—				—
Common stock, $.01 par value; 30,000,000 shares authorized; 5,826,088 issued and outstanding as of September 30, 2010 and 3,086,362 issued and outstanding as of December 31, 2009			58,261				30,864
Paid-in capital			37,820,783				35,840,669
Accumulated other comprehensive (loss)/income — foreign currency translation			(1,860	)			2,084
Accumulated deficit			(34,042,612	)			(33,264,118	)
Total shareholders’ equity			3,834,572				2,609,499
Total liabilities and shareholders’ equity		$	5,508,992			$	4,424,457

See accompanying notes to consolidated financial statements.

HELIOS AND MATHESON NORTH AMERICA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Nine Months Ended								Three Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Revenues		$	9,858,635			$	10,927,285			$	3,453,250			$	3,562,010
Cost of revenues			7,732,414				8,266,965				2,781,230				2,766,795
Gross profit			2,126,221				2,660,320				672,020				795,215
Operating expenses:
Selling, general & administrative			2,870,203				4,288,184				662,184				1,303,797
Depreciation & amortization			39,299				96,769				8,252				26,979
			2,909,502				4,384,953				670,436				1,330,776
(Loss)/income from operations			(783,281	)			(1,724,633	)			1,584				(535,561	)
Other income(expense):
Interest income-net			4,759				4,101				689				1,498
			4,759				4,101				689				1,498
(Loss)/income before income taxes			(778,522	)			(1,720,532	)			2,273				(534,063	)
Provision for income taxes			(28	)			17,431				(9,028	)			6,097
Net (loss)/income			(778,494	)			(1,737,963	)			11,301				(540,160	)
Other comprehensive loss — foreign currency adjustment			(3,944	)			(5,106	)			(1,971	)			(529	)
Comprehensive (loss)/income		$	(782,438	)		$	(1,743,069	)		$	9,330			$	(540,689	)
Net (loss)/income per share
Basic		$	(0.21	)		$	(0.73	)		$	0.00			$	(0.23	)
Diluted		$	(0.21	)		$	(0.73	)		$	0.00			$	(0.23	)

See accompanying notes to consolidated financial statements.

HELIOS AND MATHESON NORTH AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months Ended September 30,
		2010				2009
		(unaudited)				(unaudited)
Cash flows from operating activities:
Net loss		$	(778,494	)		$	(1,737,963	)
Adjustments to reconcile net loss to net cash used in operating activities, net of acquired assets:
Depreciation and amortization			39,299				96,769
Provision for doubtful accounts			4,821				45,000
Stock based compensation			7,511				18,574
Amortization of deferred financing cost			11,250				6,383
Changes in operating assets and liabilities:
Accounts receivable			165,163				1,056,007
Unbilled receivables			73,704				(100,075	)
Prepaid expenses and other current assets			(973,756	)			78,947
Deposits			—				1,750
Accounts payable and accrued expenses			80,386				(244,935	)
Deferred revenue			(158,172	)			187,715
Net cash used in operating activities			(1,528,288	)			(591,828	)
Cash flows from investing activities:
Sale/(Purchase) of property and equipment			(12,978	)			2,856
Net cash (used in)/provided by investing activities			(12,978	)			2,856
Cash flows from financing activities:
Proceeds from the sale of stock			2,000,000				—
Payment of deferred financing cost			—				(5,000	)
Net cash provided by/(used in) financing activities			2,000,000				(5,000	)
Effect of foreign currency exchange rate changes on cash and cash equivalents			(3,944	)			(5,106	)
Net increase/(decrease) in cash and cash equivalents			454,790				(599,078	)
Cash and cash equivalents at beginning of period			1,354,989				912,272
Cash and cash equivalents at end of period		$	1,809,779			$	313,194
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	—			$	—
Cash paid during the period for income taxes — net of refunds		$	10,592			$	(64,018	)

See accompanying notes to consolidated financial statements

HELIOS AND MATHESON NORTH AMERICA 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 North America Inc.’s (the “Company”) Form 10-K for the year ended December 31, 2009 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, 2009.

2) CONTROLLED COMPANY:

The Board of Directors had determined that Helios and Matheson is a “Controlled Company” for purposes of The NASDAQ Stock Market (“NASDAQ”) listing requirements. A “Controlled Company” is a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company. Certain NASDAQ requirements do not apply to a “Controlled Company”, including requirements that: (i) a majority of its Board of Directors must be comprised of “independent” directors as defined in 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. The Board of Directors has determined that Helios and Matheson is a “Controlled Company” based on the fact that Helios and Matheson Information Technology, Ltd. (“Helios and Matheson Parent”) holds approximately 84% of the voting power of the Company.

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 September 30, 2010, the consolidated results of operations for the three and nine month periods ended September 30, 2010 and 2009 and cash flows for the nine month period ended September 30, 2010 and 2009.

The consolidated balance sheet at December 31, 2009 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, 2009.

For the three and nine month periods ended September 30, 2010, the Company reported net income of approximately $11,000 and a net loss of ($778,000), respectively and for the three and nine month periods ended September 30, 2009, the Company reported a net loss of approximately ($540,000) and ($1.7) million, respectively. The Company continues to focus on revenue growth and cost reductions, including but not limited to outsourcing and off-shoring solutions, in an attempt to improve its financial condition.

In management’s opinion, cash flows from operations and borrowing capacity 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.

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.

The Company uses the modified prospective application method as specified by the Financial Accounting Standards Board (“FASB”), whereby compensation cost is recognized over the remaining service period based on the grant-date fair value of those awards as calculated for pro forma disclosures as originally issued. For the three and nine month period ended September 30, 2010, the Company recorded stock based compensation expense of $0 and $7,511. For the three and nine month period ended September 30, 2009, the Company recorded stock based compensation expense of $6,259 and $18,574.

Information with respect to options under the Company’s Plan is as follows:

						Weighted
		Number of				Average
		Shares				Exercise Price
Balance — December 31, 2009			35,500			$	4.62
Granted during 1st Qtr 2010			—				—
Exercised during 1st Qtr 2010			—				—
Forfeitures during 1st Qtr 2010			—				—
Balance — March 31, 2010			35,500			$	4.62
Granted during 2nd Qtr 2010			—				—
Exercised during 2nd Qtr 2010			—				—
Forfeitures during 2nd Qtr 2010			—				—
Balance — June 30, 2010			35,500			$	4.62
Granted during 3rd Qtr 2010			—				—
Exercised during 3rd Qtr 2010			—				—
Forfeitures during 3rd Qtr 2010			1,250				—
Balance — September 30, 2010			34,250			$	4.74

The following table summarizes the status of the stock options outstanding and exercisable at September 30, 2010:

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			0.7 years			14,250
$4.80 - $9.60		$	5.82				20,000			5.6 years			20,000
							34,250						34,250

At September 30, 2010, 34,250 stock options were exercisable with a weighted average exercise price of $4.74.

5) NET (LOSS)/INCOME PER SHARE :

The following table sets forth the computation of basic and diluted net (loss)/income per share for the nine months and the three months ended September 30, 2010 and 2009.

		Nine Months Ended								Three Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator for basic net (loss)/income per share
Net (loss)/income		$	(778,494	)		$	(1,737,963	)		$	11,301			$	(540,160	)
Net (loss)/income available to common stockholders		$	(778,494	)		$	(1,737,963	)		$	11,301			$	(540,160	)
Numerator for diluted net (loss)/income per share
Net (loss)/income available to common stockholders & assumed conversion		$	(778,494	)		$	(1,737,963	)		$	11,301			$	(540,160	)
Denominator:
Denominator for basic and diluted (loss)/income per share — weighted-average shares			3,668,428				2,396,707				4,813,581				2,396,707
Basic and diluted (loss)/income per share:
Net (loss)/income per share		$	(0.21	)		$	(0.73	)		$	0.00			$	(0.23	)

During the nine and three month periods ended September 30, 2010 and September 30, 2009, 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 23%, 22% and 15% of the revenues for the nine month period ended September 30, 2010. The revenue of one customer represented approximately 25% of revenues for the same period in 2009. 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) CREDIT ARRANGEMENT:

The Company has entered into a Loan and Security Agreement (“the Loan Agreement”) with Keltic Financial Partners, LP II (“Keltic”). The Company has maintained a line of credit with Keltic for more than five years but has rarely been required to draw on it. The Loan Agreement, which was set to expire December 31, 2009, has been extended through December 31, 2010 with no material changes in terms and conditions. Under the Loan Agreement, the Company has a line of credit up to $1.0 million based on the Company’s eligible accounts receivable balances at an interest rate based on the higher of prime rate plus 2.75%, 90 day LIBOR rate plus 5.25% or 7%. Net availability at September 30, 2010 was approximately $800,000. The Loan Agreement has certain financial covenants that shall apply only if the Company has any outstanding obligations to Keltic including borrowing under the facility. The Company had no outstanding balance at September 30, 2010, or at December 31, 2009, under the Loan Agreement.

8) CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The Company’s commitments at September 30, 2010, are comprised of the following:

		Payments Due by Period
						Less Than 1												More Than 5
Contractual Obligations		Total				Year				1 – 3 Years				3 – 5 Years				Years
Long Term Obligations
Employment Contracts (1)			—				—				—				—				—
Operating Lease Obligations
Rent (2)			521,096				284,234				236,862				—				—
Total		$	521,096			$	284,234			$	236,862			$	—			$	—

As of September 30, 2010, the Company does not have any “Off Balance Sheet Arrangements”.

9) 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. On September 5, 2006, Helios and Matheson Parent acquired a greater than 50 percent ownership of the Company. Accordingly, the actual utilization of the net operating loss carry-forwards for tax purposes are limited annually under 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 nine months ended September 30, 2010. 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.

10) TRANSACTIONS WITH RELATED PERSONS

On August 1, 2010, the Company entered into a Statement of Work with IonIdea, Inc. to provide certain professional services, workstation facilities and communication equipment to the Company and its wholly-owned subsidiary Helios and Matheson Global Services (“HMGS”). The Statement of Work commenced on August 1, 2010 and shall continue through July 31, 2011. Kishan Grama Ananthram, a member of the Company’s Board of Directors, is the Chief Executive Officer of IonIdea and Mr. Ananthram and his spouse own all of the outstanding capital stock of Ion Idea. The total amount paid to IonIdea is based upon the number of Company employees using workstation facilities and communication equipment.

On August 4, 2010, the Company entered into and consummated a private placement Securities Purchase Agreement with Helios Matheson Inc (“HM, Inc.”), a Delaware corporation and wholly-owned subsidiary of Helios and Matheson Parent, pursuant to which HM Inc. purchased 2,739,726 shares of the Company’s common stock at a price of $0.73 per share, equal to the closing bid price of the Company’s common stock on August 3, 2010, for a total investment of $2,000,000. The investment by HM Inc. was part of a plan submitted by the Company and accepted by NASDAQ to regain compliance with NASDAQ’s minimum stockholder’s equity requirement. As a result of the private placement, which closed on August 5, 2010, the Company believes that it has regained compliance with NASDAQ Listing Rule 5550(b)(1).

On July 20, 2010, the Company received a letter from NASDAQ regarding compliance with NASDAQ Listing Rule 5550(a)(5) which requires a minimum market value of publicly held shares of $1,000,000. The Company received communication from NASDAQ that its market value of publicly held shares fell short of $1,000,000 for the last 30 consecutive business days. Pursuant to the Listing Rules, NASDAQ has communicated to the Company that it has 180 calendar days from July 20, 2010 to regain compliance. In order to regain compliance, the market value of publicly held shares must close at $1,000,000 or more for a minimum of 10 consecutive business days during the 180 day grace period.

On July 23, 2010, the Company received a second letter from NASDAQ regarding compliance with NASDAQ Listing Rule 5550(a)(2) which requires a minimum bid price of $1.00 per share. The Company received communication from NASDAQ that the bid price of its listed securities closed below $1.00 for the last 30 consecutive business days. Pursuant to the Listing Rules, NASDAQ has communicated to the Company that it has a grace period of 180 calendar days from July 23, 2010, to regain compliance with the $1.00 minimum bid price requirement. In order to regain compliance, the bid price must close at $1.00 or more for a minimum of 10 consecutive business days during the 180 day grace period.

On September 22, 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.

11) 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 amounts of over $2.0 million which was later amended to over $4.7 million. On July 27, 2010 the Company was restrained from any solicitations of contract renewals.

The Order to Show Cause for a preliminary injunction was resolved by way of a stipulation between the parties dated October 18, 2010. The Company has been ordered by the Court to place an agreed amount of $155,823.28 in escrow. Said monies will be held in the Company’s attorney’s trust account until further Order of the Court. The Court provided the Company with 30 days to file its answer and Counterclaim. The Company strongly disputes the claims and intends to vigorously defend the action and assert appropriate counter claims for loss of business and goodwill due to Cogito’s termination of agreement without valid grounds. The Company has also been ordered to provide, by November 1, 2010, limited accounting of royalties for Cogito products and services from January 1, 2010 through April 14, 2010 if the agreement were not to be terminated. Limited discovery with regard to Cogito’s Order to Show Cause for a preliminary injunction was permitted but discovery has not commenced. No trial date is set.

In the meanwhile, on August 25, 2010, the Company entered into an agreement with Cogito to continue to provide service and support of software products owned by the Company.

12) SUBSEQUENT EVENTS

Management completed an analysis of all subsequent events occurring after September 30, 2010, the balance sheet date, through November 15, 2010, 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.

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 risk and uncertainties that could cause results or outcomes to differ materially from those expressed in such forward-looking statements. Forward-looking statements may include, without limitation, statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “forecasts,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to identify forward-looking statements. The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the 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 planning, designing and implementing enterprise-wide information systems, database management services, performance optimization, migrations and conversions, strategic sourcing, outsourcing and systems integration.

The Company is dedicated to providing cost efficient competitive services to its clients through its Flexible Delivery Model. This capability is made possible either through HMGS, the Company’s subsidiary operating in Bangalore, India or Helios and Matheson Parent.

For the nine months ended September 30, 2010, approximately 91% of the Company’s consulting services revenues were generated from clients under time and materials engagements, as compared to approximately 80% for the nine months ended September 30, 2009, 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 semi-monthly basis. Arrangements for fixed-price engagements are made on a case-by-case basis. Consulting services revenues generated under time and materials engagements are recognized as those services are provided. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs.

The Company’s most significant operating cost is its personnel cost, which is included in cost of revenues. As a result, the Company’s operating performance is primarily based upon billing margins (billable hourly rate less the consultant’s hourly cost) and consultant utilization rates (number of days worked by a consultant during a semi-monthly billing cycle divided by the number of billing days in that cycle). For the nine month period ended September 30, 2010, gross margin was 21.6% as compared to 24.3% for the nine month period ended September 30, 2009. The decrease in gross margin is primarily a result of a decrease in higher margin project revenue. Large portions of the Company’s engagements are on a time and materials basis. While most of the Company’s engagements allow for periodic price adjustments to address, among other things, increases in consultant costs, to date clients have been averse to accepting cost increases.

The Company actively manages its personnel utilization rates by monitoring project requirements and timetables. The Company’s utilization rate for the nine month period ended September 30, 2010 was approximately 88% as compared to approximately 84% for the nine month period ended September 30, 2009. As projects are completed, consultants either are re-deployed to new projects at the current client site or to new projects at another client site or are encouraged to participate in Helios and Matheson’s training programs in order to expand their technical skill sets. The Company carefully monitors the utilization levels.

Critical Accounting Policies

The methods, estimates and judgments the Company uses in applying its most critical accounting polices 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 reevaluated and adjusted as additional information is received that impacts the amount reserved. The Company also establishes a general reserve for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

Valuation of Deferred Tax Assets

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

Stock Based Compensation

The Company uses the modified prospective application method as specified by the FASB whereby compensation cost is recognized over the remaining service period based on the grant-date fair value of those awards as calculated for pro forma disclosures as originally issued.

Results of Operations

The following table sets forth the percentage of revenues of certain items included in the Company’s Statements of Operations:

		Nine Months Ended								Three Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenues			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenues			78.4	%			75.7	%			80.5	%			77.7	%
Gross profit			21.6	%			24.3	%			19.5	%			22.3	%
Operating expenses			29.5	%			40.1	%			19.4	%			37.4	%
(Loss)/income from operations			( 7.9	)%			( 15.8	)%			0.1	%			( 15.1	)%
Net (loss)/income			( 7.9	)%			( 15.9	)%			0.3	%			( 15.2	)%

Comparison of the Three Months Ended September 30, 2010 to the Three Months Ended September 30, 2009

During the quarter ended September 30, 2010, the Company turned the corner by posting a net income of $11,000 for the first time after a span of nearly three years. This significant turnaround has been possible due to new initiatives on the business development front as well as the results from various cost reduction measures implemented over the past months.

Revenues. Revenues for the three months ended September 30, 2010 were $3.5 million compared to $3.6 million for the three months ended September 30, 2009. The decrease is primarily attributable to a decline in consulting revenue due to difficulty in replacing completed projects and a pushback of new assignments from existing clients primarily as a result of the current economic condition in the financial markets and the economy more broadly.

Gross Profit . The resulting gross profit for the three months ended September 30, 2010 was $672,000 as compared to $795,000 for the three months ended September 30, 2009. As a percentage of total revenues, gross margin for the three months ended September 30, 2010 was 19.5% compared to 22.3% for the three months ended September 30, 2009. Gross margin has decreased primarily as a result of reductions 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. SG&A expenses for the three months ended September 30, 2010 were $662,000 compared to the 2009 comparable period level of $1.3 million. The decrease in SG&A expenses is associated with various cost reduction initiatives. Depreciation and amortization expenses decreased $19,000 from $27,000 for the three months ended September 30, 2009 to $8,000 for the three months ended September 30, 2010.

Taxes. Taxes for the three months ended September 30, 2010 were ($9,000) compared to $6,000 for the three months ended September 30, 2009. For the three months ended September 30, 2010, the Company recorded a tax provision of $5,000 for minimum state taxes which was offset by ($14,000) related to provision to return adjustments from the filing of state and federal tax returns. For the three months ended September 30, 2009, the Company recorded a tax provision of $5,000 for minimum state taxes and a provision to return adjustment of $1,000 from the filing of state and federal tax returns.

Net Income/(loss). As a result of the above, the Company had net income of $11,000 or $0.00 per basic and diluted share for the three months ended September 30, 2010 compared to a net loss of ($540,000) or ($0.23) per basic and diluted share for the three months ended September 30, 2009.

Comparison of the Nine Months Ended September 30, 2010 to the Nine Months Ended September 30, 2009

Revenues. Revenues for the nine months ended September 30, 2010 were $9.9 million compared to $10.9 million for the nine months ended September 30, 2009. The decrease is primarily attributable to a decline in consulting revenue due to difficulty in replacing completed projects and a pushback of new assignments from existing clients primarily as a result of the unprecedented crisis in the financial markets and the economy more broadly.

Gross Profit. The resulting gross profit for the nine months ended September 30, 2010 was $2.1 million compared to $2.7 million for the nine months ended September 30, 2009. As a percentage of total revenues, gross margin for the nine months ended September 30, 2010 was 21.6% compared to 24.3% for the nine months ended September 30, 2009. Gross margin has decreased primarily as a result of reductions 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. SG&A expenses for the nine months ended September 30, 2010 were $2.9 million compared to the 2009 comparable period level of $4.3 million. The decrease in SG&A expenses is associated with various cost reduction initiatives. Depreciation and amortization expenses decreased $58,000 from $97,000 for the nine months ended September 30, 2009 to $39,000 for the nine months ended September 30, 2010.

Taxes. Taxes for the nine months ended September 30, 2010 were $0 compared to $17,000 for the nine months ended September 30, 2009. For the nine months ended September 30, 2009, the Company recorded a tax provision of $14,000 for minimum state taxes which was increased by $3,000 related to provision to return adjustments from the filing of state and federal tax returns compared to a tax provision of $14,000 solely for minimum state taxes for the nine months ended September 30, 2010 which was offset by ($14,000) of provision to return adjustments from the filing of state and federal tax returns.

Net Loss. As a result of the above, the Company had a net loss of ($778,000) or ($0.21) per basic and diluted share for the nine months ended September 30, 2010 compared to a net loss of ($1.7) million or ($0.73) per basic and diluted share for the nine months ended September 30, 2009.

Liquidity and Capital Resources

The Company had an operating loss of ($783,000) and a net loss of ($778,000) for the nine months ended September 30, 2010. During the nine months ended September 30, 2009, the Company had an operating and net loss of ($1.7) million. The Company believes that its business, operating results and financial condition have been harmed by the recent economic crisis and ongoing economic uncertainty which continue to adversely affect the IT spending of its clients. A significant portion of the Company’s major customers are in the financial services industry and have come under considerable pressure as a result of the unprecedented economic conditions in the financial markets. While the Company has not lost any major clients, it has experienced a pushback of assignments from existing clients and difficulty replacing high-margin completed projects, both of which have impacted revenue growth through the third quarter of 2010. While the Company continues to focus on revenue growth and cost reductions, including but not limited to eliminating non-billing resources, outsourcing and off-shoring solutions, in an attempt to improve its financial condition, there can be no assurance that the Company will be profitable in future periods.

The Company’s cash balances were approximately $1.8 million at September 30, 2010 and $1.4 million at December 31, 2009. Net cash used in operating activities for the nine months ended September 30, 2010 was approximately ($1.5) million compared to net cash used in operating activities of approximately ($592,000) for the nine months ended September 30, 2009. The decrease in net cash provided is primarily a result of a decrease in working capital incurred for the nine months ended September 30, 2010.

The Company’s accounts receivable, less allowance for doubtful accounts, at September 30, 2010 and at December 31, 2009 were approximately $2.3 million and $2.7 million, respectively, representing 57 and 69 days of sales outstanding (“DSO”), respectively. The decrease in DSO is consistent with the collection of certain dated receivables. The accounts receivable at September 30, 2010 and December 31, 2009 included $111,000 and $184,000 of unbilled revenue, respectively. The Company has provided an allowance for doubtful accounts at the end of each of the periods presented. After giving effect to this allowance, the Company does not anticipate any difficulty in collecting amounts due.

For the nine month period ended September 30, 2010, cash used in investing activities was $13,000 which consisted of additions to property and equipment of $25,000 offset by disposals of property and equipment of $12,000. For the nine month period ended September 30, 2009, cash provided by investing activities was $3,000, comprised of $13,000 relating to the sale of a Company automobile offset by additions to property and equipment of $10,000.

For the nine month period ended September 30, 2010, cash provided by financing activities was $2,000,000 and related solely to a securities purchase agreement which closed on August 5, 2010 between the Company and Helios and Matheson Inc., a wholly-owned subsidiary of Helios and Matheson Parent. For the nine month period ended September 30, 2009, net cash used in financing activities was $5,000 and related solely to the extension of the Company’s line of credit with Keltic Financial Partners, LP.

The Company has entered into a Loan and Security Agreement (“the Loan Agreement”) with Keltic Financial Partners, LP II (“Keltic”). The Company has maintained a line of credit with Keltic for more than five years but has rarely been required to draw on it. The Loan Agreement, which was set to expire December 31, 2009, has been extended through December 31, 2010 with no material changes in terms and conditions. Under the Loan Agreement, the Company has a line of credit up to $1.0 million based on the Company’s eligible accounts receivable balances at an interest rate based on the higher of prime rate plus 2.75%, 90 day LIBOR rate plus 5.25% or 7%. Net availability at September 30, 2010 was approximately $800,000. The Loan Agreement has certain financial covenants that shall apply only if the Company has any outstanding obligations to Keltic including borrowing under the facility. The Company had no outstanding balance at September 30, 2010, or at December 31, 2009, under the Loan Agreement.

In management’s opinion, cash flows from operations and borrowing capacity combined with cash on hand (including the recent cash infusion of $2 million on August 5, 2010) will provide adequate flexibility for funding the Company’s working capital obligations for the next twelve months.

For the nine months ended September 30 2010, there were no shares of common stock issued pursuant to the exercise of options issued under the Company’s stock option plan.

Off Balance Sheet Arrangements

As of September 30, 2010, the Company does not have any “Off Balance Sheet Arrangements”.

Contractual Obligations and Commitments

The Company’s commitments at September 30, 2010 are reflected and further detailed in the Contractual Obligation table located in Part I, Item 1, Note 8 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

As a smaller reporting company we are not required to provide this information.

Item 4.		Controls and Procedures

Evaluation of disclosure controls and procedures. As of September 30, 2010, we carried out an evaluation, under the supervision of and with the participation of our Chief Executive 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 Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that, as of September 30, 2010, 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

The Company’s legal proceedings at September 30, 2010 have been disclosed in Part I, Item 1, Note 11 of this Form 10-Q.

Item 1A.		Risk Factors

As a smaller reporting company we are not required to provide this information.

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

On August 4, 2010, the Company issued 2,739,726 shares of common stock to Helios and Matheson, Inc., a subsidiary of Helios and Matheson Parent. The Company sold the common stock at a price of $0.73 per share, for total proceeds of $2 million. The Company relied on Section 4(2) of the Securities Act of 1933 to make the offer inasmuch the investor occupied a status relative to the Company that afforded it effective access to the information that registration would otherwise provide and the securities were sold without any form of general solicitation or general advertising.

Item 3.		Defaults Upon Senior Securities

None.

Item 4.		[Removed and Reserved]

None.

Item 5.		Other Information

None.

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 North America Inc., incorporated by reference to Exhibit 3.2 to the Form 10-K, as previously filed with the SEC on March 31, 2010.
	10.1			Statement of Work, dated as of August 1, 2010, between the Registrant and IonIdea, Inc.
	10.2			Memorandum of Understanding, dated as of September 22, 2010, between the Registrant and Helios and Matheson Information Technology Limited.
	10.3			Securities Purchase Agreement dated April 4, 2010 between the Registrant and Helios and Matheson, Inc., incorporated by reference to Exhibit 10.1 to the Form 8-K, as previously filed with the SEC on August 6, 2010.
	31.1			Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
	31.2			Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
	32.1			Certification of the Chief 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 Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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 NORTH AMERICA INC.
Date: November 15, 2010		By:		/s/ Divya Ramachandran   Divya Ramachandran
				Chief Executive Officer and President
Date: November 15, 2010		By:		/s/ Umesh Ahuja   Umesh Ahuja
				Chief Financial Officer and Secretary

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