Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
HMNY > SEC Filings for HMNY > Form 10-Q on 5-Nov-2012All Recent SEC Filings

Show all filings for HELIOS & MATHESON INFORMATION TECHNOLOGY INC.

Form 10-Q for HELIOS & MATHESON INFORMATION TECHNOLOGY INC.


5-Nov-2012

Quarterly Report


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 Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this document that do not relate to present or historical conditions are "forward-looking statements" within the meaning of that term under Section 27A of the Securities Act of 1933, as amended, and under Section 21E of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the SEC. Such forward-looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in such forward-looking statements. Words such as "believes," "forecasts," "intends," "possible," "expects," "estimates," "anticipates," or "plans" and similar expressions are intended to identify forward-looking statements. The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. The important factors on which such statements are based include, but are not limited to, assumptions concerning the magnitude of the ongoing economic crisis, including its impact on the Company's customers, demand trends in the information technology industry and the continuing needs of current and prospective customers for the Company's services.

Overview

Since 1983, Helios and Matheson has provided high quality IT services and solutions to Fortune 1000 companies and other large organizations. The Company is headquartered in New York City and has a second office in Bangalore, India.

The Company's services include application value management, application development, integration, independent validation, infrastructure, information management services and recruitment process outsourcing (RPO). The Company believes that a philosophy of intense focus on client satisfaction, business aware solutions and guaranteed delivery provides tangible business value to its client base across banking, financial services, insurance, pharmaceutical and manufacturing/automotive verticals.

The Company is dedicated to providing a Flexible Delivery Model to its clients, which allows for dynamically configurable "right shoring" of service delivery based on client needs.

For the nine months ended September 30, 2012, approximately 90% of the Company's consulting services revenues were generated from clients under time and materials engagements, as compared to approximately 92% for the nine months ended September 30, 2011, with the remainder generated under fixed-price engagements and RPO services. The Company has established standard-billing guidelines for consulting services based on the types of services offered. Actual billing rates are established on a project-by-project basis and may vary from the standard guidelines. The Company typically bills its clients for time and materials services on a weekly or monthly basis. Arrangements for fixed-price engagements are made on a case-by-case basis. Consulting services revenues generated under time and materials engagements are recognized as those services are provided. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs.

The Company's most significant operating cost is its personnel cost, which is included in cost of revenues. For the nine months ended September 30, 2012 and 2011, gross margins were 23.1% and 19.1% respectively. The increase in gross margin is primarily a result of an increase in higher margin long term annuity revenue and additional net revenue from RPO services.

The Company actively manages its personnel utilization rates by monitoring project requirements and timetables. The Company's utilization rate for the three months ending September 30, 2012 was approximately 98% as compared to 96% for the three months ending September 30, 2011. As projects are completed, associates 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.


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 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 and placement of a candidate is accepted by the customer. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings, including RPO services where placement of a candidate is accepted by the customer and payment is assured. 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 Statements of Operations:


                                  Nine Months Ended           Three Months Ended
                                    September 30,                September 30,
                                   2012         2011           2012          2011
Revenues                             100.0 %     100.0 %         100.0 %      100.0 %
Cost of revenues                      76.9 %      80.9 %          78.0 %       79.9 %
Gross profit                          23.1 %      19.1 %          22.0 %       20.1 %
Operating expenses
Operating expenses                    19.3 %      19.4 %          17.7 %       18.0 %
Income/(loss) from operations          3.8 %      ( .3 )%          4.3 %        2.1 %
Net Income/(loss)                      2.8 %      ( .4 )%          4.2 %        2.1 %

Comparison of the Three Months Ended September 30, 2012 to the Three Months Ended September 30, 2011

Revenues. Revenues for the three months ended September 30, 2012 and 2011 were approximately $3.4 million and $3.1 respectively.

Gross Profit. Gross profit for the three months ended September 30, 2012 was $750,000 as compared to $629,000 for the three months ended September 30, 2011. As a percentage of total revenues, gross margin for the three months ended September 30, 2012 was 22% compared to 20.1% for the three months ended September 30, 2011. The gross margin increased primarily as a result of higher margin long term annuity revenue and additional net revenue from RPO services.

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 September 30, 2012 were $603,000 compared $563,000 in operating expenses for the 2011 comparable period.

Taxes. Tax provision for the three months ended September 30, 2012 was $6,000 compared to $3,000 for the three months ended September 30, 2011, and is comprised exclusively of minimum state taxes.

Net Income/(Loss). As a result of the above, the Company had net profit of $143,000 or $0.06 per basic and diluted share for the three months ended September 30, 2012, compared to a net profit of $64,000 or $0.03 per basic and diluted share for the three months ended September 30, 2011.

Comparison of the Nine Months Ended September 30, 2012 to the Nine Months Ended September 30, 2011

Revenues. Revenues for the nine months ended September 30, 2012 were $9 million compared to $9.4 million for the nine months ended September 30, 2011. The decrease is primarily attributable to a reduction of project revenue (short term fixed-price revenue) and software revenue. The Company has concurrently improved revenue quality by replacing short term revenue with long-term annuity revenue.

Gross Profit. Gross profit for the nine months ended September 30, 2012 was $2.1 million as compared to $1.8 million for the nine months ended September 30, 2011. As a percentage of total revenues, gross margin for the nine months ended September 30, 2012 was 23.1% compared to 19.1% for the nine months ended September 30, 2011. The gross margin increased primarily as a result of higher margin long term annuity revenue and additional net revenue from RPO services.

Operating Expenses. Operating expenses are comprised of Selling, General and Administrative ("SG&A") expenses and depreciation and amortization. Operating expenses for the nine months ended September 30, 2012 were $1.7 million compared to $1.8 million in operating expenses for the 2011 comparable period. The decrease in SG&A was associated with various cost reduction initiatives including, but not limited to, renegotiation of agreements with major vendors and process restructuring, leading to higher efficiency.

Profit/(Loss) from Operations. Profit from operations for the nine months ended September 30, 2012 was $350,000 as compared to a net loss of ($24,000) for the nine months ended September 30, 2011.


Other Expenses. Other expenses for the nine months ended September 30, 2012 is comprised of an early lease termination fee of $82,548 due to the Company's former landlord. The termination payment was deducted from the security deposit already held by the landlord.

Taxes. Tax provision for the nine months ended September 30, 2012 was $18,000 compared to $14,500 for the nine months ended September 30, 2011, and is comprised exclusively of minimum state taxes.

Net Income/(loss). As a result of the above, the Company had net profit of $258,000 or $0.11 per basic and diluted share for the nine months ended September 30, 2012 compared to a net loss of ($36,000) or ($0.02) per basic and diluted share for the nine months ended September 30, 2011.

Liquidity and Capital Resources

The Company believes that its business, operating results and financial condition have been affected by the ongoing economic crisis and economic uncertainty which continue to impact the IT spending of its clients. A significant portion of the Company's major customers are in the financial services industry and came under considerable pressure as a result of the unprecedented economic conditions in the financial markets. Spending on IT consulting services is largely discretionary, and the Company has experienced a pushback of new assignments and high margin projects from existing clients. Yet, the Company has reported a profit during the nine months ended September 30, 2012 as compared to a loss in 2011. The Company had a profit from operations of approximately $350,000 and a net profit of approximately $258,000 for the nine months ended September 30, 2012. During the nine months ended September 30, 2011, the Company had a loss from operations of approximately ($24,000) and a net loss of approximately ($36,000).

The Company's cash balances were approximately $2.0 million both at September 30, 2012 and at December 31, 2011. Net cash provided by operating activities for the nine months ended September 30, 2012 was approximately $63,000 compared to net cash provided by operating activities of approximately $193,000 for the nine months ended September 30, 2011

The Company's accounts receivable, less allowance for doubtful accounts, at September 30, 2012 and at December 31, 2011 were approximately $2 million and $1.7 million, respectively, representing 55 days and 52 days of sales outstanding ("DSO") respectively. The Company believes that DSO of 55 and 52 days is consistent with favorable resolutions of a limited number of dated client disputes and shift of revenue to clients having more favorable payment terms. 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.

The Company's accounts payable and accrued expenses at September 30, 2012 and at December 31, 2011 were approximately $1.3 million and $1.1 million, respectively.

For the nine month period ended September 30, 2012 cash used in investing activities was ($43,000) compared to no cash used in investing activity for the nine months period September 30, 2011. Cash was used for the purchase of fixed assets.

For the nine month periods ended September 30, 2012 and September 30, 2011, there was no cash provided by financing activities.

In management's opinion, cash flows from operations combined with cash on hand will provide adequate flexibility for funding the Company's working capital obligations for the next twelve months.

For the nine months ended September 30, 2012 and 2011, there were no shares of common stock issued pursuant to the exercise of options granted under the Company's stock option plan.

Off Balance Sheet Arrangements

As of September 30, 2012, the Company does not have any off balance sheet arrangements.

Contractual Obligations and Commitments

The Company's commitments at September 30, 2012 are reflected and further detailed in the Contractual Obligation table located in Part I, Item 1, Note 7 of this Form 10-Q.


Inflation

The Company has not suffered material adverse affects from inflation in the past. However, a substantial increase in the inflation rate in the future may adversely affect customers' purchasing decisions, may increase the costs of borrowing or may have an adverse impact on the Company's margins and overall cost structure.

Recent Accounting Pronouncements

None.

  Add HMNY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for HMNY - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.