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HMNY > SEC Filings for HMNY > Form 10-Q on 13-Aug-2014All Recent SEC Filings

Show all filings for HELIOS & MATHESON ANALYTICS INC.

Form 10-Q for HELIOS & MATHESON ANALYTICS INC.


13-Aug-2014

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.

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, 2014, approximately 91% of the Company's consulting services revenues were generated from clients under time and materials engagements, as compared to approximately 89% for the six months ended June 30, 2013 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-project basis and may vary from the standard guidelines. The Company typically bills its clients for time and materials services on a weekly and monthly basis. Arrangements for fixed-price engagements are made on a case-by-case basis. Consulting services revenues generated under time and materials engagements are recognized as those services are provided. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs.

The Company's most significant operating cost is its personnel cost, which is included in cost of revenues. For the six months ended June 30, 2014 and 2013, gross margin was 18% and 22% 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, 2014 was approximately 97% as compared to 95% for the three months ending June 30, 2013. 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

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). Due to the acquisition of more than 50% of our common stock by Helios and Matheson Parent, we meet the definition of a "Controlled Company" as defined by Rule 5615(c) of the NASDAQ's 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          Six Months Ended
                                       June 30,                   June 30,
                                  2014           2013         2014         2013
Revenues                            100.0 %       100.0 %      100.0 %      100.0 %
Cost of revenues                     82.3 %        77.1 %       82.0 %       78.0 %
Gross profit                         17.7 %        22.9 %       18.0 %       22.0 %
Operating expenses                   20.6 %        19.7 %       20.9 %       18.8 %
(Loss)/income from operations       ( 2.9 )%        3.2 %      ( 2.9 )%       3.2 %
Net (Loss)/income                   ( 2.9 )%        3.1 %      ( 2.9 )%       3.1 %

Comparison of the Three Months Ended June 30, 2014 to the Three Months Ended June 30, 2013

Revenues. Revenues for the three months ended June 30, 2014 were $2.8 million compared to $3.4 million for the three months ended June 30, 2013. The decrease was primarily attributable to a decrease in consulting and RPO revenue due to a decline in discretionary spending in IT services by the Company's major clients in the financial and banking service industry. Our clients are facing significant financial pressure due to the ongoing tough economic environment resulting in a pushback in new assignments.


Gross Profit. The resulting gross profit for the three months ended June 30, 2014 was $497,000 as compared to $788,000 for the three months ended June 30, 2013. As a percentage of total revenues, gross margin for the three months ended June 30, 2014 was 17.7% compared to 22.9% for the three months ended June 30, 2013. The reduction to gross margin is due to a reduction in revenue from high margin consulting and fixed price 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, 2014 were $578,000 as compared to the 2013 period of $679,000. The decrease is due to certain onetime charges incurred in 2013 primarily relating to promotion of the Company's predictive analytics offering. It also included a charge of $15,000 due to the settlement of a legal action with Toranco-Clark Associates LLC, the Company's former landlord.

Taxes. Tax provisions for the three months ended June 30, 2014 and June 30, 2013 were the same at $3,000, and is comprised exclusively of minimum state taxes.

Net (Loss)/Income. As a result of the above, the Company had a net loss of $80,000 or $(0.03) per basic and diluted share for the three months ended June 30, 2014 as compared to net income of $108,000 or $0.05 per basic and diluted share for the three months ended June 30, 2013.

Comparison of the Six Months Ended June 30, 2014 to the Six Months Ended June 30, 2013

Revenues. Revenues for the six months ended June 30, 2014 were $5.7 million compared to $6.6 million for the six months ended June 30, 2013. The decrease was primarily attributable to a decrease in consulting and RPO revenue due to a decline in discretionary spending in IT services by the Company's major clients in the financial and banking service industry. Our clients are facing significant financial pressure due to the ongoing tough economic environment resulting in a pushback in new assignments.

Gross Profit. Gross profit for the six months ended June 30, 2014 was $1.03 million as compared to $1.5 million for the six months ended June 30, 2013. As a percentage of total revenues, gross margin for the six months ended June 30, 2014 was 18% compared to 22% for the six months ended June 30, 2013. The reduction to gross margin is due to a reduction in revenue from high margin consulting and fixed price 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, 2014 and June 30, 2013 were $1.2 million for each period.

Taxes. Tax provisions for the six months ended June 30, 2014 and June 30, 2013 were the same at $6,000, and is comprised exclusively of minimum state taxes.

Net (Loss)/Income. As a result of the above, the Company had a net loss of $165,000 or $(0.07) per basic and diluted share for the six months ended June 30, 2014 compared to net income of $208,000 or $0.09 per basic and diluted share for the six months ended June 30, 2013.

Liquidity and Capital Resources

The Company believes that its business, operating results and financial condition have been affected by the economic crisis and ongoing economic uncertainty which continue to impact the IT and analytics 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 analytics and technology consulting services is largely discretionary, and the Company has experienced, and in future may continue to experience, pushback of new assignments and high margin projects from existing clients. During the six months ended June 30, 2014 the Company's revenues declined by approximately 14% and the Company reported a net loss of ($165,000) as compared to net income of $208,000 during the same period in 2013. The net loss resulted primarily from a decline in high margin projects and RPO services revenue.

The Company's cash balances were approximately $996,000 at June 30, 2014 and $660,000 at December 31, 2013. Net cash provided from operating activities for the six months ended June 30, 2014 was approximately $532,000 compared to net cash used by operating activities of approximately ($503,000) for the six months ended June 30, 2013.

The Company's accounts receivable, less allowance for doubtful accounts, at June 30, 2014 and at December 31, 2013 were approximately $1.39 million and $2.1 million, respectively, representing 44 days and 59 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, 2014 cash used by investing activities was ($14,000) as compared to ($2,200) of cash used by investing activities for the six months ended June 30, 2013.

For the six months ended June 30, 2014, cash used by financing activities was ($186,000) as compared to $(210,000) for the six months ended June 30, 2013. On February 3, 2014 the Company's Board of Directors declared a dividend of $0.08 per share on the Company's common stock, amounting to a payout of $186,435. Cash used in financing activities in 2014 and 2013 consisted exclusively of the dividends paid to shareholders.

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.

Off Balance Sheet Arrangements

As of June 30, 2014, the Company does not have any off balance sheet arrangements.

Contractual Obligations and Commitments

The Company's commitments at June 30, 2014 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.

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