##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 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 & MATHESON NORTH AMERICA INC.
  New York
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    13-3169913
(I.R.S. Employer Identification No.)200 Park Avenue South 
New York, New York 10003
(Address of Principal Executive Offices)
    
    (212) 979-8228
(Registrants Telephone Number,
Including Area Code)
  Title of Class
    
    Name of Exchange on which RegisteredCommon Stock, par value $.01 per share
    
    NASDAQ Capital MarketCM
  o þ
 o þ
 þ o
 o
  o o þ
 o þ
 CM




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PagePART I
    
    
    1Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    5Item 2. Properties
    
    
    8Item 3. Legal Proceedings
    
    
    8Item 4. Submission of Matters to a Vote of Security Holders
    
    
    8Item 4.01. Executive Officers of Registrant
    
    
    8PART II
    
    
    9Item 5. Market for Registrants Common Equity and Related Shareholder Matters
    
    
    9Item 6. Selected Financial Data
    
    
    11Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 8. Financial Statements and Supplementary Data
    
    
    19Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    19Item 9A. Controls and Procedures
    
    
    19Item 9B. Other Information
    
    
    19PART III
    
    
    20Item 10. Directors, Executive Officers and Corporate Governance
    
    
    20Item 11. Executive Compensation
    
    
    21Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    21Item 13. Certain Relationships and Related Transactions
    
    
    21Item 14. Principal Accountant Fees and Services
    
    
    21PART IV
    
    
    21Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    21EX-3.1: RESTATED CERTIFICATE OF INCORPORATIONEX-3.2.1: CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATIONEX-3.2.2: CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATIONEX-3.2.3: CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATIONEX-3.2.4: CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATIONEX-4.1: SPECIMEN STOCK CERTIFICATEEX-10.1.3: AMENDMENT NO. 2 TO THE REGISTRANT'S AMENDED AND RESTATED 1997 STOCK OPTION PLANEX-10.12: PROFESSIONAL SERVICES AGREEMENTEX-10.14: LETTER FROM HELIOS & MATHESON INFORMATION TECHNOLOGY LTDEX-23.1: CONSENT OF GRANT THORNTON, LLPEX-23.2: CONSENT OF MERCADIEN P.C., CERTIFIED PUBLIC ACCOUNTANTSEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### 



PART I
 This Annual Report on Form 10-K contains forward-looking statements. Additional written and
oral forward-looking statements may be made by the Company from time to time in Securities and
Exchange Commission (SEC) filings and otherwise. 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 due to risks and factors
identified from time to time in the Companys filings with the SEC including those discussed in
this Report. Part I, Item 1A Risk Factors of this Annual Report discusses risk factors.
 
 ITEM 1. BUSINESS
 General
  CM
 Industry Background
  Strategy
  1




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Cross-sell Additional Services to Existing Clients.
 Expand Client Base.
 Offshore Expansion
 Acquisitions and Strategic Relationships
   Operational Efficiencies and Cost Reductions.
 Helios & Matheson Operations
 Consulting, T&M, Projects, Outsourcing .
   2




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Business Process Outsourcing .
 Software .
 Clients
   New Business Enabling Technologies
  Sales and Marketing
  Competition
   3




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##### 



Human Resources
  Long-Lived Assets
  Intellectual Property Rights
    Seasonality
  4




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##### 



ITEM 1A. RISK FACTORS
 Factors that Could Affect Operating Results
  Operating Losses
  Capital Requirements
  Dependence on Limited Number of Clients
  5




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Project Risk
  Rapid Technological Change
 .
 Billing Margins
  Managing Growth
  
    
    its ability to hire and retain consultants as employees or independent consultants,
    
    its ability to identify suitable new geographic markets with sufficient demand for
its services, hire and retain skilled management, marketing, customer service and other
personnel, and successfully manage growth, including monitoring operations, controlling
costs and maintaining effective quality and service controls, and
    
    if the Company consummates additional acquisitions, its ability to successfully and
profitably integrate any acquired businesses into its operations.
  6




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Fluctuations in Quarterly Operating Results
  Volatility of Stock Price
  Competition
  Intellectual Property Rights
   7




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Shareholder Influence
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 4.01. EXECUTIVE OFFICERS OF REGISTRANT.
   8




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##### 



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 Price Range of Common Stock
 CM CM
   2005
    
    High
    
    LowFirst Quarter
    
    $
    12.10
    
    
    $
    5.96Second Quarter
    
    
    15.00
    
    
    
    8.00Third Quarter
    
    
    18.75
    
    
    
    3.32Fourth Quarter
    
    
    5.00
    
    
    
    3.00
 2006
    
    High
    
    LowFirst Quarter
    
    $
    5.23
    
    
    $
    3.79Second Quarter
    
    
    6.92
    
    
    
    3.60Third Quarter
    
    
    4.84
    
    
    
    3.50Fourth Quarter
    
    
    5.00
    
    
    
    2.78
 9




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##### 



Performance Graph
 ®
 
 Dividends
   Holders
  Recent Sales of Unregistered Securities
  10




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##### 



Equity Compensation Plan Information
  
 ITEM 6. SELECTED FINANCIAL DATA
  Selected Financial Data
(in thousands, except number of shares and per share data)
 Year Ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Statement of Operations Data:Revenues
    
    $
    24,940
    
    
    $
    26,432
    
    
    $
    25,035
    
    
    $
    21,646
    
    
    $
    24,009Income (loss) from operations
    
    
    900
    
    
    
    (461
    )
    
    
    1,360
    
    
    
    (42
    )
    
    
    (130
    )Other income(expense):Gain from extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Net income (loss)
    
    
    852
    
    
    
    (484
    )
    
    
    1,237
    
    
    
    (123
    )
    
    
    204Net income (loss) per shareBasic
    
    $
    0.36
    
    
    $
    (0.22
    )
    
    $
    0.57
    
    
    $
    (0.07
    )(1)
    
    $
    0.10
    (1)Diluted
    
    $
    0.35
    
    
    $
    (0.22
    )
    
    $
    0.53
    
    
    $
    (0.07
    )(1)
    
    $
    0.10
    (1)Weighted average shares used in per
share calculation -basic
    
    
    2,380,699
    
    
    
    2,285,874
    
    
    
    2,110,072
    
    
    
    2,098,810
    (1)
    
    
    1,923,615
    (1)Weighted average shares used in per
share calculation -diluted
    
    
    2,404,946
    
    
    
    2,285,874
    
    
    
    2,312,021
    
    
    
    2,098,810
    (1)
    
    
    1,996,672
    (1)Balance Sheet DataTotal assets
    
    $
    9,789
    
    
    $
    8,493
    
    
    $
    8,650
    
    
    $
    7,374
    
    
    $
    8,046Long-term liabilities
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    231
    
    
    
    386Shareholders equity
    
    
    7,209
    
    
    
    6,205
    
    
    
    6,423
    
    
    
    5,193
    
    
    
    5,325Number of shares outstanding at
year end
    
    
    2,382,801
    
    
    
    2,361,333
    
    
    
    2,122,647
    
    
    
    2,107,967
    (1)
    
    
    2,096,717
    (1)
 
 (1)
    
    All share and per share amounts have been restated to reflect the
one for four reverse stock split of the Companys common stock,
which occurred on January 7, 2004 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  11




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Overview
 CM.
      12




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##### 



13




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##### 



Critical Accounting Policies
         14




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##### 



Results of Operations
  Year Ended December 31,2006
    
    2005
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    70.8
    %
    
    
    70.5
    %
    
    
    69.3
    %Gross profit
    
    
    29.2
    %
    
    
    29.5
    %
    
    
    30.7
    %Operating expenses
    
    
    25.5
    %
    
    
    31.3
    %
    
    
    25.2
    %Income/(Loss) from operations
    
    
    3.6
    %
    
    
    (1.8
    )%
    
    
    5.4
    %Net income/(loss)
    
    
    3.4
    %
    
    
    (1.8
    )%
    
    
    4.9
    %
 Comparison of Year Ended December 31, 2006 to Year Ended December 31, 2005
 Revenues.
  Gross Profit.
 Operating Expenses.
 15




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##### 



Taxes.
 Net
Income/(Loss).
 Comparison of Year Ended December 31, 2005 to Year Ended December 31, 2004
 Revenues.
  Gross Profit.
 Operating Expenses.
 Taxes.
 Net (Loss)/Income.
 Liquidity and Capital Resources
  16




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##### 



17




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##### 



Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments Due by PeriodLess Than 1
    
    1 - 3
    
    3 - 5
    
    More Than 5Contractual Obligations
    
    Total
    
    Year
    
    Years
    
    Years
    
    YearsLong Term ObligationsEmployment Contracts
    
    
    690,000
    
    
    
    540,000
    
    
    
    150,000
    
    
    
    
    
    
    
    Capital Lease ObligationsCapital Lease  Short Term
    
    
    290,517
    
    
    
    290,517
    
    
    
    
    
    
    
    
    
    
    
    Opertating LeasesRent (1)
    
    
    191,100
    
    
    
    191,100
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,171,617
    
    
    $
    1,021,617
    
    
    $
    150,000
    
    
    $
    
    
    
    $
    
 
 (1)
    
    The Company has a New York facilty with a lease term expiring July 31, 2007 and a New Jersey facility with a
lease term expiring August 31, 2007. The Company is in the process of negotiating the renewals of both of these
leases and considering alternative leasing arrangements. Recent Accounting Pronouncements
  18




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##### 



Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal controls.
 
 ITEM 9B. OTHER INFORMATION
    19




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##### 



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
   20




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##### 



ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
   ExhibitNumber
    
    Description of Exhibits3.1
    
    Restated Certificate of Incorporation of the Registrant.3.2.1
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated August 8, 2002.3.2.2
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated November 12, 2002.3.2.3
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated January 5, 2004.3.2.4
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated January 30, 2007.3.3
    
    Amended and Restated By-Laws of the Registrant, incorporated by reference to Exhibit 3.3
to the Registration Statement on Form SB-2 as previously filed with the SEC on August 6,
1997.3.4
    
    Amendment No. 1 to the Amended and Restated Bylaws of the Registrant incorporated by
reference to Exhibit 3.4 to the Form 10-Q for the period ended June 30, 2003, as previously
filed with the SEC on August 14, 2003.
 21




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##### 



ExhibitNumber
    
    Description of Exhibits4.1
    
    Specimen Common Stock Certificate.10.1.1
    
    Amended and Restated 1997 Stock Option and Reward Plan, incorporated by reference to Annex
J to the Companys Definitive Proxy Statement, as previously filed with the SEC on June 27,
2005.10.1.2
    
    Amendment No. 1 to the Registrants Amended and Restated 1997 Stock Option and Award Plan,
incorporated by reference to Exhibit 10.2 on Form 8-K, as filed with the SEC on June 9, 2006.10.1.3
    
    Amendment No. 2 to the Registrants Amended and Restated 1997 Stock Option and Award Plan.10.1.4
    
    Form of Restricted Stock Award Grant and Notice Agreement between the Registrant and each
of its Non-Employee Directors, incorporated by reference to Exhibit 10.9 to the Form 10-Q for
the nine months ended September 30, 2005, as previously filed with the SEC on November 14,
2005.10.1.5
    
    Form of Non-Qualified Stock Option Agreement between the Registrant and each of its
Non-Employee Directors incorporated by reference to Exhibit 10.10 to the Form 10-Q for the
nine months ended September 30, 2005, as previously filed with the SEC on November 14, 2005.10.2
    
    Amended and Restated Loan and Security Agreement between the Registrant and Keltic
Financial Partners, LP, dated March 23, 2004, incorporated by reference to Exhibit 10.2 to
the Form 10-K for the year ended December 31, 2003, as previously filed with the SEC on March
29, 2004.10.2.1
    
    First Modification dated March 23, 2005 to the Amended and Restated Loan and Security
Agreement, incorporated by reference to Exhibit 10.2 to the Form 10-Q for the first quarter
ended March 31, 2005, as previously filed with the SEC on May 12, 2005.10.2.2
    
    Amendment dated December 1, 2005 to the March 23, 2004 Amended and Restated Loan and
Security Agreement incorporated by reference to Exhibit 10.2.2 to the Form 10-K for the
fiscal year ended December 31, 2005, as previously filed with the SEC on March 29, 2006.10.3
    
    Employment Agreement, dated December 1, 2005, between the Registrant and Shmuel BenTov,
incorporated by reference to Exhibit 10.1 to the Form 8-K dated December 12, 2005, as
previously filed with the SEC on December 15, 2005.10.3.1
    
    Letter Agreement by and between the Registrant and Shmuel BenTov dated May 1, 2006,
incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, as previously
filed with the SEC on May 1, 2006.10.4
    
    Form of S Corporation Termination, Tax Allocation and Indemnification Agreement,
incorporated by reference to Exhibit 10.4 to the Registration Statement on Form SB-2, as
previously filed with the SEC on August 6, 1997.10.5
    
    Letter of Undertaking from the Registrant and Shmuel BenTov, incorporated by reference to
Exhibit 10.9 to the Registration Statement on Form SB-2, as previously filed with the SEC on
July 23, 1997.10.6
    
    Shmuel BenTov Letter Commitment, dated March 29, 2001, incorporated by reference to Exhibit
10.10 to the Form 10-K for the fiscal year ended December 31, 2000, as previously filed with
the SEC on April 2, 2001.10.7
    
    Form of Indemnification Agreement between the Registrant and certain of its Directors and
its Chief Executive Officer, incorporated by reference to Exhibit 10.12 to the Form 10-Q for
the period ended September 30, 2003 as filed with the SEC on November 11, 2003.10.8
    
    Employment Agreement, dated as of May 1 2006, between the Registrant and Salvatore M.
Quadrino, incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, as
filed with the SEC on May 1, 2006.10.9
    
    Form of Release and Covenant Not to Sue entered into by the Registrant releasing certain
parties, incorporated by reference to Exhibit 10.1 on Form 8-K, as filed with the SEC on June
2, 2006.
 22




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ExhibitNumber
    
    Description of Exhibits10.10
    
    Form of Release and Covenant Not to Sue entered into by the certain parties releasing the
Registrant, incorporated by reference to Exhibit 10.2 on Form 8-K, as filed with the SEC on
June 2, 2006.10.11
    
    Employment Agreement, dated as of December 16, 1998, by and between the Registrant and
Michael Prude, incorporated by reference to Exhibit 10.1 on Form 8-K, as filed with the SEC
on June 9, 2006.10.12
    
    Professional Services Agreement by and between the Registrant and IonIdea, Inc.10.13
    
    Key-Person Life Insurance Premium Sharing Agreement effective as of July 1, 2006 by and
among the Registrant, Helios & Matheson Parent and Mr. Shmuel BenTov, incorporate by
reference to Exhibit 10.1 on Form 8-K, as filed with the SEC on June 30, 2006.10.14
    
    Letter from Helios & Matheson Information Technology Ltd. dated March 26, 2007.23.1
    
    Consent of Grant Thornton, LLP.23.2
    
    Consent of Mercadien, P.C., Certified Public Accountants.31.1
    
    Certification of Chief 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 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 Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   23




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SIGNATURES
  HELIOS & MATHESON NORTH AMERICA INC.By:
    /s/ Shmuel BenTovShmuel BenTov,
Chief Executive OfficerDate: March 29, 2007  Signature
    
    Title
    
    Date/s/ Shmuel BenTov
    
    Chief Executive Officer (Principal ExecutiveShmuel BenTov
    
    Officer)
and Director
    
    March 29, 2007/s/ Salvatore M. Quadrino
    
    Chief Financial Officer (Principal FinancialSalvatore M. Quadrino
    
    and
Accounting Officer)
    
    March 29, 2007/s/ Steven Mukamal
    
    DirectorSteven Mukamal
    
    
    
    March 29, 2007/s/ William Miller
    
    DirectorWilliam Miller
    
    
    
    March 29, 2007/s/ Rabin Dhoble
    
    DirectorRabin Dhoble
    
    
    
    March 29, 2007/s/ Shankar Ram
    
    DirectorShankar Ram
    
    
    
    March 29, 2007/s/ Daniel L. Thomas
    
    DirectorDaniel L. Thomas
    
    
    
    March 29, 2007/s/ Shri S. Jambunathan
    
    DirectorShri S. Jambunathan
    
    
    
    March 29, 2007/s/ Divya Ramachandran
    
    DirectorDivya Ramachandran
    
    
    
    March 29, 2007DirectorKishan Grama Ananthram
 24




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##### 



ITEM 15 (a) (1) and (2)
 HELIOS & MATHESON NORTH AMERICA INC.
  Report of Independent Registered Public Accounting Firm  Mercadien, P.C.
    
    
    F-2Report of Independent Registered Public Accounting Firm  Grant Thornton LLP
    
    
    F-3Consolidated Balance Sheets
    
    
    F-4Consolidated Statements of Operations and Comprehensive Income
    
    
    F-5Consolidated Statements of Shareholders Equity
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8The following consolidated financial statement schedule
of Helios & Matheson North America Inc. is included
in Item 15(c): Schedule II  Valuation and Qualifying Accounts
    
    
    S-1
  F-1




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-2




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Helios & Matheson North America Inc.
(formerly The A Consulting Team, Inc.)
      
 F-3




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##### 



HELIOS & MATHESON NORTH AMERICA INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    3,849,056
    
    
    $
    2,156,867Accounts receivable- less allowance for
doubtful accounts of $225,741 at
December 31, 2006, and $320,804 at
December 31, 2005
    
    
    3,676,869
    
    
    
    3,918,371Unbilled receivables
    
    
    316,156
    
    
    
    434,563Prepaid expenses and other current assets
    
    
    159,398
    
    
    
    160,413Total current assets
    
    
    8,001,479
    
    
    
    6,670,214Property and equipment, net
    
    
    457,223
    
    
    
    480,845Goodwill
    
    
    1,140,964
    
    
    
    1,140,964Deposits and other assets
    
    
    189,620
    
    
    
    201,422Total assets
    
    $
    9,789,286
    
    
    $
    8,493,445LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable and accrued expenses
    
    $
    2,294,929
    
    
    $
    2,068,643Deferred revenue
    
    
    285,227
    
    
    
    220,005Total current liabilities
    
    
    2,580,156
    
    
    
    2,288,648Shareholders equity:Preferred stock, $.01 par value;
2,000,000 shares authorized; no shares
issued and outstanding as of December
31, 2006, and December 31, 2005
    
    
    
    
    
    
    Common stock, $.01 par value; 30,000,000
shares authorized; 2,382,801 issued and
outstanding as of December 31, 2006 and
2,361,333 issued and outstanding as of
December 31, 2005
    
    
    23,828
    
    
    
    23,614Paid-in capital
    
    
    34,607,651
    
    
    
    34,462,262Accumulated other comprehensive
income/(loss)  foreign currency
translation
    
    
    3,949
    
    
    
    (2,927
    )Accumulated deficit
    
    
    (27,426,298
    )
    
    
    (28,278,152
    )Total shareholders equity
    
    
    7,209,130
    
    
    
    6,204,797Total liabilities and shareholders equity
    
    $
    9,789,286
    
    
    $
    8,493,445
  F-4




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##### 



HELIOS & MATHESON NORTH AMERICA INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Revenues
    
    $
    24,940,153
    
    
    $
    26,431,967
    
    
    $
    25,035,167Cost of revenues
    
    
    17,669,075
    
    
    
    18,631,523
    
    
    
    17,361,526Gross profit
    
    
    7,271,078
    
    
    
    7,800,444
    
    
    
    7,673,640Operating expenses:Selling, general and administrative
    
    
    6,219,836
    
    
    
    8,057,416
    
    
    
    5,952,343Depreciation and amortization
    
    
    151,220
    
    
    
    203,678
    
    
    
    360,8596,371,056
    
    
    
    8,261,095
    
    
    
    6,313,202Income/(loss) from operations
    
    
    900,022
    
    
    
    (460,651
    )
    
    
    1,360,438Interest income
    
    
    69,422
    
    
    
    17,611
    
    
    
    8,664Interest expense
    
    
    (401
    )
    
    
    (24,724
    )
    
    
    (33,313
    )Interest income/(expense), net
    
    
    69,021
    
    
    
    (7,113
    )
    
    
    (24,649
    )Income/(loss) before income taxes
    
    
    969,043
    
    
    
    (467,764
    )
    
    
    1,335,789Provision for income taxes
    
    
    117,189
    
    
    
    16,240
    
    
    
    99,085Net income/(loss)
    
    $
    851,854
    
    
    $
    (484,004
    )
    
    $
    1,236,705Other comprehensive income/(loss)  foreign currency adjustment
    
    
    6,876
    
    
    
    (2,927
    )
    
    
    Comprehensive income/(loss)
    
    $
    858,730
    
    
    $
    (486,931
    )
    
    $
    1,236,705Net income/(loss) per shareBasic
    
    $
    0.36
    
    
    $
    (0.22
    )
    
    $
    0.57Diluted
    
    $
    0.35
    
    
    $
    (0.22
    )
    
    $
    0.53
  F-5




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    
    AccumulatedPreferred Stock
    
    
    Common Stock (*)
    
    
    Paid-In
    
    
    Other Comp
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance, December 31, 2003
    
    
    571,615
    
    
    $
    5,716
    
    
    
    2,107,959
    
    
    $
    21,080
    
    
    $
    34,161,628
    
    
    $
    
    
    
    $
    (28,995,106
    )
    
    $
    5,193,318Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,236,705
    
    
    
    1,236,705Preferred dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,850
    )
    
    
    (26,850
    )Exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    14,688
    
    
    
    147
    
    
    
    19,578
    
    
    
    
    
    
    
    
    
    
    
    19,725Balance, December 31, 2004
    
    
    571,615
    
    
    $
    5,716
    
    
    
    2,122,647
    
    
    $
    21,227
    
    
    $
    34,181,206
    
    
    $
    
    
    
    $
    (27,785,251
    )
    
    $
    6,422,898Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (484,004
    )
    
    
    (484,004
    )Preferred dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,897
    )
    
    
    (8,897
    )Conversion of Preferred Stock
    
    
    (571,615
    )
    
    
    (5,716
    )
    
    
    142,903
    
    
    
    1,429
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,287
    )Restricted Stock Issuance
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Exercise of employee stock options and warrants
    
    
    
    
    
    
    
    
    
    
    65,783
    
    
    
    658
    
    
    
    281,056
    
    
    
    
    
    
    
    
    
    
    
    281,714Foreign Exchange Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,927
    )
    
    
    
    
    
    
    (2,927
    )Balance, December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    2,361,333
    
    
    $
    23,614
    
    
    $
    34,462,262
    
    
    $
    (2,927
    )
    
    $
    (28,278,152
    )
    
    $
    6,204,797Net Income
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    851,854
    
    
    
    851,854Exercise of employee stock options
    
    
    
    
    
    $
    
    
    
    
    21,468
    
    
    $
    214
    
    
    $
    29,855
    
    
    $
    
    
    
    $
    
    
    
    
    30,069Stock based compensation expense
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    115,534
    
    
    $
    
    
    
    $
    
    
    
    
    115,534Foreign Exchange Translation
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,876
    
    
    $
    
    
    
    
    6,876Balance, December 31, 2006
    
    
    
    
    
    $
    
    
    
    
    2,382,801
    
    
    $
    23,828
    
    
    $
    34,607,651
    
    
    $
    3,949
    
    
    $
    (27,426,298
    )
    
    $
    7,209,130
 
 *
    
    Adjusted for the January 7, 2004 reverse stock split ( See Note 1)  F-6




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income/(loss)
    
    $
    851,854
    
    
    $
    (484,005
    )
    
    $
    1,236,705Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:Depreciation and amortization
    
    
    151,220
    
    
    
    203,679
    
    
    
    360,859Deferred income taxes
    
    
    
    
    
    
    (22,500
    )
    
    
    (22,500
    )Provision for doubtful accounts
    
    
    141,548
    
    
    
    35,000
    
    
    
    145,000Stock based compensation
    
    
    115,534
    
    
    
    
    
    
    
    Amortization of deferred financing cost
    
    
    12,000
    
    
    
    12,000
    
    
    
    10,000Compensation expense for restricted stock issued
    
    
    
    
    
    
    133,200
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    99,954
    
    
    
    (142,611
    )
    
    
    (532,488
    )Unbilled receivables
    
    
    118,407
    
    
    
    (174,563
    )
    
    
    (126,395
    )Prepaid expenses and other current assets
    
    
    1,015
    
    
    
    (20,709
    )
    
    
    (53,150
    )Accounts payable and accrued expenses
    
    
    226,286
    
    
    
    98,487
    
    
    
    223,431Deferred revenue
    
    
    65,222
    
    
    
    220,005
    
    
    
    Net cash provided by/(used in) operating activities
    
    
    1,783,040
    
    
    
    (142,017
    )
    
    
    1,241,460Cash flows from investing activities:Purchase of property and equipment
    
    
    (127,598
    )
    
    
    (92,962
    )
    
    
    (168,127
    )Investments and advances
    
    
    
    
    
    
    
    
    
    
    250,450Deposits
    
    
    (198
    )
    
    
    
    
    
    
    (38,489
    )Net cash (used in)/provided by investing activities
    
    
    (127,796
    )
    
    
    (92,962
    )
    
    
    43,834Cash flows from financing activities:Proceeds from the exercise of stock options
    
    
    30,069
    
    
    
    144,527
    
    
    
    19,726Payment of deferred financing cost
    
    
    
    
    
    
    
    
    
    
    (40,000
    )Dividend paid to Preferred Shareholders
    
    
    
    
    
    
    (8,897
    )
    
    
    (26,850
    )Repayment of long-term debt
    
    
    
    
    
    
    (233,962
    )
    
    
    (154,690
    )Net cash provided by/(used in) financing activities
    
    
    30,069
    
    
    
    (98,332
    )
    
    
    (201,814
    )Effect of foreign currency exchange rate changes on cash and cash equivalents
    
    
    6,876
    
    
    
    (2,927
    )
    
    
    Net increase/(decrease) in cash and cash equivalents
    
    
    1,692,189
    
    
    
    (336,237
    )
    
    
    1,083,481Cash and cash equivalents at beginning of period
    
    
    2,156,867
    
    
    
    2,493,104
    
    
    
    1,409,623Cash and cash equivalents at end of period
    
    $
    3,849,056
    
    
    $
    2,156,867
    
    
    $
    2,493,104Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    401
    
    
    $
    24,724
    
    
    $
    33,313Cash paid during the period for income taxes, net of refunds
    
    $
    27,746
    
    
    $
    18,863
    
    
    $
    99,085
  F-7




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SIGNIFICANT ACCOUNTING POLICIES
 Description of Business and Basis of Presentation
  Reverse Stock Split
 CM
 Principles of Consolidation
   Use of Estimates
  Earnings Per Share
  Cash Equivalents
  Fair Value of Financial Instruments
  F-8




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Property and Equipment
  Long-Lived Assets
  Goodwill and Intangible Assets
    Year ended December 31,2006
    
    
    2005
    
    
    2004Amortized intangible assetsEmployee Contracts- gross carrying amount
    
    $
    
    
    
    $
    312,000
    
    
    $
    312,000Less accumulated amortization
    
    
    
    
    
    
    (312,000
    )
    
    
    (277,333
    )Unamortized intangible assets
    
    $
    
    
    
    $
    
    
    
    $
    34,667Amortization expenseFor the year ended 12/31/04
    
    $
    
    
    
    $
    
    
    
    $
    69,333For the year ended 12/31/05
    
    $
    
    
    
    $
    34,667
    
    
    $
    For the year ended 12/31/06
    
    $
    
    
    
    $
    
    
    
    $
    Estimated amortization expense:For the year ended 12/31/07
    
    $
    
    
    
    $
    
    
    
    $
    
  Revenue Recognition
  F-9




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Accounts Receivable and Allowance for Doubtful Accounts
  Segment Information
  Stock-Based Compensation
      F-10




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Year ended December 31,2005
    
    
    2004Net (loss)/income, as reported
    
    $
    (484,000
    )
    
    $
    1,237,000Deduct:Total stock based compensation
expense determined under fair
value based method for all awards
    
    
    (3,000
    )
    
    
    (20,000
    )Pro forma net (loss)/income
    
    $
    (487,000
    )
    
    $
    1,217,000Earnings per share:Basic  as reported
    
    $
    (0.22
    )
    
    $
    0.57Basic  pro forma
    
    $
    (0.21
    )
    
    $
    0.57Diluted  as reported
    
    $
    (0.22
    )
    
    $
    0.53Diluted  pro forma
    
    $
    (0.21
    )
    
    $
    0.53
 F-11




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2006
    
    2005
    
    2004Expected life (years)
    
    
    4.00
    
    
    
    4.00
    
    
    
    4.00Risk free interest rate
    
    
    4.80
    %
    
    
    4.50
    %
    
    
    3.00
    %Expected volatility
    
    
    0.40
    
    
    
    0.95
    
    
    
    0.96Expected dividend yield
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Weighted average fair value per option
    
    $
    4.37
    
    
    $
    4.83
    
    
    $
    3.53
  2. ACQUISITIONS
     F-12




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. INVESTMENTS
   4. NET INCOME (LOSS) PER SHARE
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Numerator for basic net income(loss) per shareNet income/(loss)
    
    
    851,854
    
    
    
    (484,004
    )
    
    
    1,236,705Preferred Dividend
    
    
    
    
    
    
    8,897
    
    
    
    26,850Net income/(loss) available to
common stockholders
    
    $
    851,854
    
    
    $
    (492,901
    )
    
    $
    1,209,855Numerator for diluted net income(loss) per shareNet income/(loss) available to common
stockholders & assumed conversion
    
    $
    851,854
    
    
    $
    (492,901
    )
    
    $
    1,236,705Denominator:Denominator for basic earnings/(loss) before
extraordinary item and net loss per share
- weighted-average shares
    
    
    2,380,699
    
    
    
    2,285,874
    
    
    
    2,110,072Effect of dilutive securities:Preferred shares
    
    
    
    
    
    
    
    
    
    
    142,903Employee stock options
    
    
    24,247
    
    
    
    
    
    
    
    59,046Denominator for diluted earnings/(loss) per
share  adjusted weighted-average shares
    
    
    2,404,946
    
    
    
    2,285,874
    
    
    
    2,312,021Basic earnings income/(loss) per share:Net income/(loss)
    
    $
    0.36
    
    
    $
    (0.22
    )
    
    $
    0.57Diluted earnings income/(loss) per share:Net income/(loss)
    
    $
    0.35
    
    
    $
    (0.22
    )
    
    $
    0.53
  F-13




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. PROPERTY AND EQUIPMENT
  December 31,2006
    
    
    2005Equipment and leaseholds
    
    $
    5,601,941
    
    
    $
    5,585,602Software
    
    
    1,088,446
    
    
    
    990,845Furniture and fixtures
    
    
    1,113,650
    
    
    
    1,113,650Automobiles
    
    
    139,968
    
    
    
    158,7697,944,006
    
    
    
    7,848,866Less accumulated depreciation and amortization
    
    
    7,486,783
    
    
    
    7,368,021$
    457,223
    
    
    $
    480,845
 6. CREDIT ARRANGEMENT
   7. CONTRACTUAL OBLIGATIONS AND COMMITMENTS
   F-14




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Payments Due by PeriodLess Than 1
    
    1 - 3
    
    3 - 5
    
    More Than 5Contractual Obligations
    
    Total
    
    Year
    
    Years
    
    Years
    
    YearsLong Term ObligationsEmployment Contracts
    
    
    690,000
    
    
    
    540,000
    
    
    
    150,000
    
    
    
    
    
    
    
    Capital Lease ObligationsCapital Lease  Short Term
    
    
    290,517
    
    
    
    290,517
    
    
    
    
    
    
    
    
    
    
    
    Opertating LeasesRent (1)
    
    
    191,100
    
    
    
    191,100
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,171,617
    
    
    $
    1,021,617
    
    
    $
    150,000
    
    
    $
    
    
    
    $
    
 
 (1)
    
    The Company has a New York facilty with a lease term expiring July 31, 2007 and a New Jersey
facility with a
lease term expiring August 31, 2007. The Company is in the process of negotiating the renewals of
both of these
leases and considering alternative leasing arrangements. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  December 31,2006
    
    
    2005Accounts payable
    
    $
    458,431
    
    
    $
    467,864Payroll
    
    
    492,881
    
    
    
    484,745Bonuses
    
    
    116,000
    
    
    
    59,956Capital Lease Obligation
    
    
    290,517
    
    
    
    290,517Other accrued expenses
    
    
    937,100
    
    
    
    765,560$
    2,294,929
    
    
    $
    2,068,643
 9. VANGUARD RELEASE
   F-15




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. INCOME TAXES
    December 31,2006
    
    
    2005Licensing revenues
    
    $
    (54,000
    )
    
    $
    (50,000
    )Accounts receivable reserve
    
    
    113,000
    
    
    
    128,000Depreciation and amortization
    
    
    212,000
    
    
    
    214,000Investments
    
    
    928,000
    
    
    
    928,000Other
    
    
    176,000
    
    
    
    50,000Net operating losses
    
    
    4,409,000
    
    
    
    4,675,0005,784,000
    
    
    
    5,945,000Valuation allowance
    
    
    (5,784,000
    )
    
    
    (5,945,000
    )$
    
    
    
    $
    
    Year Ended December 31,2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    102,347
    
    
    $
    
    
    
    $
    35,625State and local
    
    
    14,842
    
    
    
    38,740
    
    
    
    85,960Total Current
    
    $
    117,189
    
    
    $
    38,740
    
    
    $
    121,585Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    (5,625
    )State and local
    
    
    
    
    
    
    (22,500
    )
    
    
    (16,875
    )Total Deferred
    
    
    
    
    
    
    (22,500
    )
    
    
    (22,500
    )Total
    
    $
    117,189
    
    
    $
    16,240
    
    
    $
    99,085
 F-16




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2006
    
    2005
    
    2004Federal statutory rate
    
    
    34.0
    %
    
    
    (34.0
    )%
    
    
    34.0
    %State and local taxes net of federal tax benefit
    
    
    0.6
    
    
    
    2.3
    
    
    
    5.7Non-deductible expenses
    
    
    (5.7
    )
    
    
    (25.1
    )
    
    
    5.4Change in valuation allowance
    
    
    (16.81
    )
    
    
    60.27
    
    
    
    (37.68
    )Total
    
    
    12.09
    %
    
    
    3.47
    %
    
    
    7.42
    %
 11. RETIREMENT PLAN
  12. CONCENTRATION OF CREDIT RISK
  13. LEASES
  2007
    
    
    191,100Total minimum future lease payments
    
    $
    191,100
    (1)
 
 (1)
    
    The Company has a New York facilty with a lease term expiring July 31, 2007 and a New Jersey
facility with a
lease term expiring August 31, 2007. The Company is in the process of negotiating the renewals of
both of these
leases or seeking comparable space.   F-17




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14. STOCK OPTION PLAN
     WeightedNumber of
    
    AverageShares
    
    Exercise PriceBalance  December 31, 2003
    
    
    158,521
    
    
    $
    3.27Granted during 2004
    
    
    154,750
    
    
    $
    4.61Exercised during 2004
    
    
    (14,688
    )
    
    $
    1.34Forfeitures during 2004
    
    
    (43,020
    )
    
    $
    4.94Balance  December 31, 2004
    
    
    255,563
    
    
    $
    3.91Granted during 2005
    
    
    15,750
    
    
    $
    4.67Exercised during 2005
    
    
    (56,032
    )
    
    $
    2.19Forfeitures during 2005
    
    
    (9,188
    )
    
    $
    5.64Balance  December 31, 2005
    
    
    206,093
    
    
    $
    4.36Granted during 2006
    
    
    37,750
    
    
    $
    5.08Exercised during 2006
    
    
    (21,468
    )
    
    $
    1.40Forfeitures during 2006
    
    
    (32,469
    )
    
    $
    4.83Balance  December 31, 2006
    
    
    189,906
    
    
    $
    4.76
  F-18




---



##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Stock Options Outstanding
 Number ofWeighted
    
    
    
    
    
    
    Weighted-
    
    
    StockExercise Price
    
    Average
    
    
    Number of
    
    
    Remaining
    
    
    OptionsRange
    
    Exercise Price
    
    
    Options
    
    
    Contractual Life
    
    
    Exercisable$0.00      - $  4.80
    
    $
    3.075
    
    
    
    107,156
    
    
    4.3 years
    
    
    62,906$4.80      - $  9.60
    
    $
    5.878
    
    
    
    74,000
    
    
    4.7 years
    
    
    27,000$9.60      - $14.40
    
    $
    9.620
    
    
    
    500
    
    
    3.6 years
    
    
    500$14.40
   - $19.20
    
    $
    15.504
    
    
    
    7,750
    
    
    2.9 years
    
    
    7,750$24.00    - $28.80
    
    $
    28.000
    
    
    
    250
    
    
    2.0 years
    
    
    250$28.80    - $33.60
    
    $
    30.000
    
    
    
    250
    
    
    1.8 years
    
    
    250189,906
    
    
    
    
    
    
    
    98,656
  15. EMPLOYMENT AGREEMENT OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
   16. SALES AND CONVERSION OF PREFERRED SHARES
  17. SUBSEQUENT EVENTS
  F-19




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##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   F-20




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##### 



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 18. QUARTERLY RESULTS (UNAUDITED)
  Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(in thousands, except per share amounts)
    
    2006
    
    2006
    
    2006
    
    2006Revenues
    
    $
    5,911
    
    
    $
    6,738
    
    
    $
    5,971
    
    
    $
    6,320Gross profit
    
    
    1,612
    
    
    
    1,813
    
    
    
    1,805
    
    
    
    2,041(Loss) income from operations
    
    
    (140
    )
    
    
    683
    
    
    
    4
    
    
    
    353Net (loss) income
    
    
    (139
    )
    
    
    682
    
    
    
    12
    
    
    
    297Net (loss) income per shareBasic
    
    $
    (0.06
    )
    
    $
    0.29
    
    
    $
    0.01
    
    
    $
    0.12Diluted
    
    $
    (0.06
    )
    
    $
    0.28
    
    
    $
    0.01
    
    
    $
    0.12
 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2005
    

2005
    

2005
    

2005Revenues
    
    $
    6,115
    
    
    $
    6,704
    
    
    $
    6,858
    
    
    $
    6,755Gross profit
    
    
    1,875
    
    
    
    1,783
    
    
    
    1,900
    
    
    
    2,242(Loss) income from operations
    
    
    (257
    )
    
    
    (543
    )
    
    
    133
    
    
    
    206Net (loss) income
    
    
    (259
    )
    
    
    (546
    )
    
    
    118
    
    
    
    203Net (loss) income per shareBasic
    
    $
    (0.12
    )
    
    $
    (0.24
    )
    
    $
    0.05
    
    
    $
    0.09Diluted
    
    $
    (0.12
    )
    
    $
    (0.24
    )
    
    $
    0.05
    
    
    $
    0.08
 F-21




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##### 



HELIOS & MATHESON NORTH AMERICA INC.
 
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Col. A
    
    Col. B
    
    Col. C
    
    Col. D
    
    Col. EAdditions(1)
    
    (2)Balance at
    
    Charged to
    
    Charged toBeginning of
    
    Costs and
    
    Other Accounts
    
    Deductions -
    
    Balances atDescription
    
    Period
    
    Expenses
    
    Describe
    
    Describe
    
    End of PeriodReserves and allowances deducted from
asset accounts:For the year ended December 31, 2006
Allowance for doubtful accounts
    
    $
    320,804
    
    
    $
    141,548
    
    
    $
    
    
    
    $
    (236,611
    ) (a)
    
    $
    225,741For the year ended December 31, 2005
Allowance for doubtful accounts
    
    $
    296,828
    
    
    $
    35,000
    
    
    $
    
    
    
    $
    (11,024
    ) (b)
    
    $
    320,804For the year ended December 31, 2004
Allowance for doubtful accounts
    
    $
    305,290
    
    
    $
    145,000
    
    
    $
    
    
    
    $
    (153,462
    ) (c)
    
    $
    296,828
 
 (a)
    
    Uncollectible accounts written off during 2006.(b)
    
    Uncollectible accounts written off during 2005.(c)
    
    Uncollectible accounts written off during 2004. S-1




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##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibits3.1
    
    Restated Certificate of Incorporation of the Registrant.3.2.1
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated August 8, 2002.3.2.2
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated
November 12, 2002.3.2.3
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated January
5, 2004.3.2.4
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated January
30, 2007.3.3
    
    Amended and Restated By-Laws of the Registrant, incorporated by reference to Exhibit 3.3 to
the Registration Statement on Form SB-2 as previously filed with the SEC on August 6, 1997.3.4
    
    Amendment No. 1 to the Amended and Restated Bylaws of the Registrant incorporated by
reference to Exhibit 3.4 to the Form 10-Q for the period ended June 30, 2003, as previously
filed with the SEC on August 14, 2003.4.1
    
    Specimen Common Stock Certificate.10.1.1
    
    Amended and Restated 1997 Stock Option and Reward Plan, incorporated by reference to Annex J
to the Companys Definitive Proxy Statement, as previously filed with the SEC on June 27,
2005.10.1.2
    
    Amendment No. 1 to the Registrants Amended and Restated 1997 Stock Option and Award Plan,
incorporated by reference to Exhibit 10.2 on Form 8-K, as filed with the SEC on June 9, 2006.10.1.3
    
    Amendment No. 2 to the Registrants Amended and Restated 1997 Stock Option and Award Plan.10.1.4
    
    Form of Restricted Stock Award Grant and Notice Agreement between the Registrant and each of
its Non-Employee Directors, incorporated by reference to Exhibit 10.9 to the Form 10-Q for the
nine months ended September 30, 2005, as previously filed with the SEC on November 14, 2005.10.1.5
    
    Form of Non-Qualified Stock Option Agreement between the Registrant and each of its
Non-Employee Directors incorporated by reference to Exhibit 10.10 to the Form 10-Q for the
nine months ended September 30, 2005, as previously filed with the SEC on November 14, 2005.10.2
    
    Amended and Restated Loan and Security Agreement between the Registrant and Keltic Financial
Partners, LP, dated March 23, 2004, incorporated by reference to Exhibit 10.2 to the Form 10-K
for the year ended December 31, 2003, as previously filed with the SEC on March 29, 2004.10.2.1
    
    First Modification dated March 23, 2005 to the Amended and Restated Loan and Security
Agreement, incorporated by reference to Exhibit 10.2 to the Form 10-Q for the first quarter
ended March 31, 2005, as previously filed with the SEC on May 12, 2005.




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##### 



ExhibitNumber
    
    Description of Exhibits10.2.2
    
    Amendment dated December 1, 2005 to the March 23, 2004 Amended and Restated Loan and
Security Agreement incorporated by reference to Exhibit 10.2.2 to the Form 10-K for the fiscal
year ended December 31, 2005, as previously filed with the SEC on March 29, 2006.10.3
    
    Employment Agreement, dated December 1, 2005, between the Registrant and Shmuel BenTov,
incorporated by reference to Exhibit 10.1 to the Form 8-K dated December 12, 2005, as
previously filed with the SEC on December 15, 2005.10.3.1
    
    Letter Agreement by and between the Registrant and Shmuel BenTov dated May 1, 2006,
incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, as previously
filed with the SEC on May 1, 2006.10.4
    
    Form of S Corporation Termination, Tax Allocation and Indemnification Agreement, incorporated
by reference to Exhibit 10.4 to the Registration Statement on Form SB-2, as previously filed
with the SEC on August 6, 1997.10.5
    
    Letter of Undertaking from the Registrant and Shmuel BenTov, incorporated by reference to
Exhibit 10.9 to the Registration Statement on Form SB-2, as previously filed with the SEC on
July 23, 1997.10.6
    
    Shmuel BenTov Letter Commitment, dated March 29, 2001, incorporated by reference to Exhibit
10.10 to the Form 10-K for the fiscal year ended December 31, 2000, as previously filed with
the SEC on April 2, 2001.10.7
    
    Form of Indemnification Agreement between the Registrant and certain of its Directors and its
Chief Executive Officer, incorporated by reference to Exhibit 10.12 to the Form 10-Q for the
period ended September 30, 2003 as filed with the SEC on November 11, 2003.10.8
    
    Employment Agreement, dated as of May 1 2006, between the Registrant and Salvatore M.
Quadrino, incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, as
filed with the SEC on May 1, 2006.10.9
    
    Form of Release and Covenant Not to Sue entered into by the Registrant releasing certain
parties, incorporated by reference to Exhibit 10.1 on Form 8-K, as filed with the SEC on June
2, 2006.10.10
    
    Form of Release and Covenant Not to Sue entered into by the certain parties releasing the
Registrant, incorporated by reference to Exhibit 10.2 on Form 8-K, as filed with the SEC on
June 2, 2006.10.11
    
    Employment Agreement, dated as of December 16, 1998, by and between the Registrant and
Michael Prude, incorporated by reference to Exhibit 10.1 on Form 8-K, as filed with the SEC on
June 9, 2006.10.12
    
    Professional Services Agreement by and between the Registrant and IonIdea, Inc.10.13
    
    Key-Person Life Insurance Premium Sharing Agreement effective as of July 1, 2006 by and
among the Registrant, Helios & Matheson Parent and Mr. Shmuel BenTov, incorporate by reference
to Exhibit 10.1 on Form 8-K, as filed with the SEC on June 30, 2006.10.14
    
    Letter from Helios & Matheson Information Technology Ltd. dated March 26, 2007.23.1
    
    Consent of Grant Thornton, LLP.23.2
    
    Consent of Mercadien, P.C., Certified Public Accountants.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.




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##### 



ExhibitNumber
    
    Description of Exhibits31.2
    
    Certification of Principal 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 2002.32.2.1
    
    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.
 
 (b)
    
    Exhibits  The response to this portion of Item 15 is submitted as a separate section of this
report.(c)
    
    Financial Statement Schedules  The response to this portion of Item 15 is submitted as a
separate section of this report at S-1.