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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, 2008
 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
 
 Yes o No þ
 Yes o No þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
 CM




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##### 



TABLE OF
CONTENTS
  
 PagePART I
    
    
    1Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    5Item 2. Properties
    
    
    9Item 3. Legal Proceedings
    
    
    9Item 4. Submission of Matters to a Vote of Security Holders
    
    
    9Item 4.01. Executive Officers of Registrant
    
    
    9PART II
    
    
    10Item 5. Market for Registrants Common Equity and Related Shareholder Matters
    
    
    10Item 6. Selected Financial Data
    
    
    12Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 8. Financial Statements and Supplementary Data
    
    
    20Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    21Item 9A(T). Controls and Procedures and Managements Report on Internal Controls
    
    
    21Item 9B. Other Information
    
    
    22PART III
    
    
    22Item 10. Directors, Executive Officers and Corporate Governance
    
    
    22Item 11. Executive Compensation
    
    
    23Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    23Item 13. Certain Relationships and Related Transactions
    
    
    23Item 14. Principal Accountant Fees and Services
    
    
    24PART IV
    
    
    24Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    24Exhibit 10.2.1Exhibit 10.9Exhibit 10.14Exhibit 23.2Exhibit 31.1Exhibit 32.1




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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 various risks and factors including
those discussed in this Report or identified from time to time in the Companys filings with the
SEC. Part I, Item 1A Risk Factors of this Annual Report discusses risk factors.
 
 ITEM 1. BUSINESS
 General
  CM
 Controlled Company
  Industry Background
   1




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Strategy
   Expand Existing Client Market Share.
 Expand Client Base.
 Offshore Expansion
 Operational Efficiency
 Helios & Matheson Operations
 Service Lines .
   2




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Software.
 Clients
    Market Driven Solutions
  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
  Going Concern and Capital Requirements
   Economic Crisis
   5




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Dependence on Limited Number of Clients
  Volatility of Stock Price
 CM
 NASDAQ Listing
 CM
 CM CM CM CM
 CM
  6




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Project Risk
  Billing Margins
  Fluctuations in Quarterly Operating Results
  Competition
    7




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Rapid Industry Change
 .
 Managing Growth
  
    
    its ability to identify suitable new geographic markets with sufficient demand for
its services;
    
    its ability to hire and retain skilled management, consultants (as employees or
independent contractors), marketing, customer service and other personnel; and
    
    its ability to successfully manage growth, including monitoring operations,
controlling costs and maintaining effective quality and service controls.
  Intellectual Property Rights
    8




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NASDAQ Controlled Company
  
 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
    9




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##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 Price Range of Common Stock
 CM CM
  2007
    
    High
    
    
    LowFirst Quarter
    
    $
    4.17
    
    
    $
    2.75Second Quarter
    
    
    5.09
    
    
    
    3.85Third Quarter
    
    
    5.38
    
    
    
    2.47Fourth Quarter
    
    
    3.45
    
    
    
    1.72
 2008
    
    High
    
    
    LowFirst Quarter
    
    $
    2.85
    
    
    $
    1.56Second Quarter
    
    
    2.40
    
    
    
    1.52Third Quarter
    
    
    2.24
    
    
    
    1.13Fourth Quarter
    
    
    1.80
    
    
    
    0.01
  10




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Performance Graph
 ®
 
 Dividends
   Holders
  Recent Sales of Unregistered Securities
   11




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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 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Statement of Operations Data:Revenues
    
    $
    19,651
    
    
    $
    20,830
    
    
    $
    24,940
    
    
    $
    26,432
    
    
    $
    25,035(Loss)/income from operations
    
    
    (2,953
    ) (3)
    
    
    (1,142
    )
    
    
    900
    (2)
    
    
    (461
    ) (1)
    
    
    1,360Net (loss)/income
    
    
    (2,924
    )
    
    
    (838
    )
    
    
    852
    
    
    
    (484
    )
    
    
    1,237Net (loss)/income per share
Basic
    
    $
    (1.22
    )
    
    $
    (0.35
    )
    
    $
    0.36
    
    
    $
    (0.22
    )
    
    $
    0.57Basic
    
    $
    (1.22
    )
    
    $
    (0.35
    )
    
    $
    0.36
    
    
    $
    (0.22
    )
    
    $
    0.57Diluted
    
    $
    (1.22
    )
    
    $
    (0.35
    )
    
    $
    0.35
    
    
    $
    (0.22
    )
    
    $
    0.53Weighted average shares used in per
share calculation-basic
    
    
    2,396,707
    
    
    
    2,391,452
    
    
    
    2,380,699
    
    
    
    2,285,874
    
    
    
    2,110,072Weighted average shares used in per
share calculation-diluted
    
    
    2,396,707
    
    
    
    2,391,452
    
    
    
    2,404,946
    
    
    
    2,285,874
    
    
    
    2,312,021Balance Sheet DataTotal assets
    
    $
    5,473
    
    
    $
    8,505
    
    
    $
    9,789
    
    
    $
    8,493
    
    
    $
    8,650Long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Shareholders equity
    
    
    3,665
    
    
    
    6,520
    
    
    
    7,209
    
    
    
    6,205
    
    
    
    6,423Number of shares outstanding at
year end
    
    
    2,396,707
    
    
    
    2,396,707
    
    
    
    2,382,801
    
    
    
    2,361,333
    
    
    
    2,122,647
 (1)
    
    Includes $1.2 million in pretax costs associated with the terminated transaction with Vanguard
Info-Solution Corporation for the year ended December 31, 2005.(2)
    
    Includes net proceeds received by the Company in connection with the release of claims relating
to the terminated transaction with Vanguard Info-Solution Corporation of $881,000 in the second
quarter of 2006.(3)
    
    Includes a goodwill impairment (non-cash) charge of $1.1 million in the fourth quarter of 2008.  12




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 CM.
       13




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14




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Investments
       15




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Critical Accounting Policies
          16




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Results of Operations
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    77.2
    %
    
    
    70.5
    %
    
    
    70.8
    %Gross profit
    
    
    22.8
    %
    
    
    29.5
    %
    
    
    29.2
    %Operating expenses
    
    
    37.8
    % (1)
    
    
    35.0
    %
    
    
    25.5
    %(Loss)/Income from operations
    
    
    (15.0
    )%
    
    
    (5.5
    )%
    
    
    3.6
    %Net (loss)/income
    
    
    (14.9
    )%
    
    
    (4.0
    )%
    
    
    3.4
    %
 (1)
    
    Includes a goodwill impairment charge of $1,141,000. Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007
 Revenues.
 Gross Profit.
 Operating Expenses.
  17




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Taxes.
 Net (Loss)/Income.
 Comparison of Year Ended December 31, 2007 to Year Ended December 31, 2006
 Revenues.
 Gross Profit.
 Operating Expenses.
 Taxes.
 Net (Loss)/Income.
 Liquidity and Capital Resources
   18




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19




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Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments Due by PeriodMore Than 5Contractual Obligations
    
    Total
    
    
    Less Than 1 Year
    
    

1
 3 Years
    
    
    3  5 Years
    
    
    YearsLong Term ObligationsEmployment Contracts (1)
    
    
    334,250
    
    
    
    317,000
    
    
    
    17,250
    
    
    
    
    
    
    
    Operating Lease ObligationsRent (2)
    
    
    1,260,683
    
    
    
    436,267
    
    
    
    658,613
    
    
    
    165,803
    
    
    
    Total
    
    $
    1,594,933
    
    
    $
    753,267
    
    
    $
    675,863
    
    
    $
    165,803
    
    
    $
    
 (1)
    
    The Company has employment agreements with its two named Executive Officers (Salvatore
M. Quadrino, the Companys Interim Chief Executive Officer and Chief Financial Officer, and
Michael Prude, the Companys Chief Operating Officer). Under Mr. Quadrinos employment
agreement, Mr. Quadrino will serve in a dual capacity as Chief Financial Officer and Interim
Chief Executive Officer. Under this agreement, prior to January 1, 2009, Mr. Quadrino
received, on a month-to-month basis, an additional $5,000 per month stipend for his role as
Interim Chief Executive Officer. Effective January 1, 2009, this $5,000 per month stipend
was eliminated and Mr. Quadrinos annual salary was adjusted from $200,000 to $220,000.
This rate adjustment is reflected in the table above. The employment agreement with Mr.
Prude, the Companys COO is effective July 1, 2007 and has a term of two years. Effective
January 1, 2009, Mr. Prudes annual salary was reduced by $30,000 from $237,000 to $207,000.
This rate adjustment is reflected in the table above. Effective February 23, 2009, the
Board of Directors of the Company and Mr. Prude agreed that Mr. Prude would be terminating
his employment with the Company and that his responsibilities would be redistributed to the
remaining members of the Companys senior management team. Under the terms of Mr. Prudes
employment agreement, with which the Company intends to comply, his final day with the
Company will be April 30, 2009. Mr. Prude is entitled to nine months of severance totaling
$155,250 which will be paid out monthly beginning May 2009. This severance amount is
reflected in the table above.(2)
    
    The Company has a New York facility with a lease term expiring July 31, 2012, a New
Jersey facility with a lease term expiring August 31, 2010, and a Massachusetts facility
with a lease term expiring January 31, 2010. Recent Accounting Pronouncements
  Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   20




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A(T). CONTROLS AND PROCEDURES
  Evaluation of Disclosure Controls and Procedures
    Management Report on Internal Control Over Financial Reporting
   21




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Inherent Limitations on Effectiveness of Controls
  Changes in Internal Controls
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   22




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Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   23




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
   ExhibitNumber
    
    Description of Exhibits3.1
    
    
    Restated Certificate of Incorporation of the Registrant, incorporated by reference to
Exhibit 3.1 to the Form 10-Q for the period ended June 30, 2001, as previously filed with
the SEC on August 10, 2001.3.2.1
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated
August 8, 2002, incorporated by reference to Exhibit 3.2 to the Form 10-Q for the period
ended June 30, 2001, as previously filed with the SEC on August 14, 2002.3.2.2
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated
November 12, 2002, incorporated by reference to Exhibit 3.2.2 to the Form 10-Q for the
period ended September 30, 2002, as previously filed with the SEC on November 14, 2002.3.2.3
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated
January 5, 2004, incorporated by reference to exhibit 3.2.3 to the Form 8-K dated January 8,
2004, as previously filed with the SEC on January 8, 2004.3.2.4
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated
January 30, 2007, incorporated by reference to Exhibit 3.2.4 to the Form 10-K for the period
ended December 31, 2006, as previously filed with the SEC on March 29, 2007.3.3
    
    
    Second Amended and Restated By-Laws of the Registrant dated June 20, 2007, incorporated
by reference to Exhibit 3.3 on Form 8-K, as previously filed with the SEC on June 22, 2007.4.1
    
    
    Specimen Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the Form
10-K for the period ended December 31, 2006, as previously filed with the SEC on March 29,
2007.10.1.1
    
    
    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 previously filed with the SEC on
June 9, 2006.
  24




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ExhibitNumber
    
    Description of Exhibits10.1.3
    
    
    Amendment No. 2 to the Registrants Amended and Restated 1997 Stock Option and Award Plan,
incorporated by reference to Exhibit 10.1.3 to the Form 10-K for the period ended December
31, 2006, as previously filed with the SEC on March 29, 2007.10.1.4
    
    
    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
    
    
    Restated and Amended Loan and Security Agreement between the Registrant and Keltic
Financial Partners, LP dated September 27, 2007, incorporated by reference to Exhibit 10.2 to
the Form 10-K for the period ended December 31, 2007, as previously filed with the SEC on
March 25, 2008.10.2.1
    
    
    Extension of Restated and Amended Loan and Security Agreement between the Registrant and
Keltic Financial Partners, LP dated March 30, 2009.10.3
    
    
    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 previously filed with the SEC on November 14,
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
previously filed with the SEC on May 1, 2006.10.9
    
    
    Amended Employment Agreement, dated as of May 9, 2008, between the Registrant and Salvatore
M. Quadrino.10.10
    
    
    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 previously filed with the
SEC on June 2, 2006.10.11
    
    
    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 previously filed with
the SEC on June 2, 2006.10.12
    
    
    Employment Agreement, dated as of July 1, 2007, by and between the Registrant and Michael
Prude, incorporated by reference to Exhibit 5.02 on Form 10-Q, as previously filed with the
SEC on August 10, 2007.10.13
    
    
    Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as
of January 29, 2007, incorporated by reference to Exhibit 10.12 to the Form 10-K for the
period ended December 31, 2006, as previously filed with the SEC on March 29, 2007.
  25




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ExhibitNumber
    
    Description of Exhibits10.14
    
    
    Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as
of August 1, 2008.10.15
    
    
    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, incorporated by
reference to Exhibit 10.1 on Form 8-K, as previously filed with the SEC on
June 30, 2006.10.16
    
    
    Letter from Helios & Matheson Information Technology Ltd. dated March 26, 2007,
incorporated by reference to Exhibit 10.14 to the Form 10-K for the period ended December 31,
2006, as previously filed with the SEC on March 29, 2007.23.2
    
    
    Consent
of Mercadien, P.C., Certified Public Accountants.31.1
    
    
    Certification of Interim Chief Executive Officer and Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Interim Chief Executive Officer and Chief Financial Officer, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
  26




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SIGNATURES
  HELIOS & MATHESON NORTH AMERICA INC.By:
    /s/ Salvatore M. QuadrinoSalvatore M. Quadrino,Interim Chief Executive Officer
and
Chief Financial Officer   Signature
    
    Title
    
    Date/s/ Salvatore M. Quadrino

Salvatore M. Quadrino
    
    Interim Chief Executive Officer
and
Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
    
    March 31, 2009/s/ Shri S. Jambunathan

Shri S. Jambunathan
    
    Chairman and Director
    
    March 31, 2009/s/ Daniel L. Thomas

Daniel L. Thomas
    
    Director
    
    March 31, 2009/s/ Rabin Dhoble

Rabin Dhoble
    
    Director
    
    March 31, 2009/s/ Divya Ramachandran

Divya Ramachandran
    
    Director
    
    March 31, 2009/s/ Kishan Grama Ananthram

Kishan Grama Ananthram
    
    Director
    
    March 31, 2009
  27




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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-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Operations and Comprehensive Income
    
    
    F-4Consolidated Statements of Shareholders Equity
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7The 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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HELIOS & MATHESON NORTH AMERICA INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    912,272
    
    
    $
    3,077,655Accounts receivable-less allowance for doubtful accounts of
$209,771 at
December 31, 2008, and $221,970 at
December 31, 2007
    
    
    3,846,355
    
    
    
    3,479,561Unbilled receivables
    
    
    34,208
    
    
    
    32,754Prepaid expenses and other current assets
    
    
    326,992
    
    
    
    279,625Total current assets
    
    
    5,119,827
    
    
    
    6,869,595Property and equipment, net
    
    
    207,470
    
    
    
    342,937Goodwill
    
    
    
    
    
    
    1,140,964Deposits and other assets
    
    
    145,336
    
    
    
    151,350Total assets
    
    $
    5,472,633
    
    
    $
    8,504,846LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable and accrued expenses
    
    $
    1,647,722
    
    
    $
    1,807,033Deferred revenue
    
    
    159,786
    
    
    
    178,018Total current liabilities
    
    
    1,807,508
    
    
    
    1,985,051Shareholders equity:Preferred stock, $.01 par value; 2,000,000 shares authorized; no
shares issued and
outstanding as of December 31, 2008, and
December 31, 2007
    
    
    
    
    
    
    Common stock, $.01 par value; 30,000,000 shares
authorized; 2,396,707 issued
and outstanding as of December 31, 2008 and 2,396,707 issued
and outstanding as
of December 31, 2007
    
    
    23,967
    
    
    
    23,967Paid-in capital
    
    
    34,822,736
    
    
    
    34,758,266Accumulated other comprehensive income  foreign currency translation
    
    
    6,863
    
    
    
    1,655Accumulated deficit
    
    
    (31,188,441
    )
    
    
    (28,264,093
    )Total shareholders equity
    
    
    3,665,125
    
    
    
    6,519,795Total liabilities and shareholders equity
    
    $
    5,472,633
    
    
    $
    8,504,846
   F-3




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Revenues
    
    $
    19,650,588
    
    
    $
    20,830,184
    
    
    $
    24,940,153Cost of revenues
    
    
    15,175,319
    
    
    
    14,683,313
    
    
    
    17,669,075Gross profit
    
    
    4,475,269
    
    
    
    6,146,871
    
    
    
    7,271,078Operating expenses:Selling, general and administrative
    
    
    6,108,704
    
    
    
    7,100,950
    
    
    
    6,219,836Depreciation and amortization
    
    
    178,199
    
    
    
    187,711
    
    
    
    151,220Impairment of goodwill
    
    
    1,140,964
    
    
    
    
    
    
    
    7,427,867
    
    
    
    7,288,661
    
    
    
    6,371,056(Loss)/income from operations
    
    
    (2,952,598
    )
    
    
    (1,141,790
    )
    
    
    900,022Interest income
    
    
    39,942
    
    
    
    157,200
    
    
    
    69,422Interest expense
    
    
    
    
    
    
    
    
    
    
    (401
    )Interest income/(expense), net
    
    
    39,942
    
    
    
    157,200
    
    
    
    69,021(Loss)/income before income taxes
    
    
    (2,912,656
    )
    
    
    (984,590
    )
    
    
    969,043Provision for income taxes
    
    
    11,692
    
    
    
    (146,795
    )
    
    
    117,189Net (loss)/income
    
    $
    (2,924,348
    )
    
    $
    (837,795
    )
    
    $
    851,854Other
comprehensive income/(loss) 
foreign currency adjustment
    
    
    5,208
    
    
    
    (2,294
    )
    
    
    6,876Comprehensive (loss)/income
    
    $
    (2,919,140
    )
    
    $
    (840,089
    )
    
    $
    858,730Net (loss)/income per shareBasic
    
    $
    (1.22
    )
    
    $
    (0.35
    )
    
    $
    0.36Diluted
    
    $
    (1.22
    )
    
    $
    (0.35
    )
    
    $
    0.35
   F-4




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##### Table of Contents



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, 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
    )
    
    $
    7,209,130Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (837,795
    )
    
    
    (837,795
    )Exercise of employee stock
options
    
    
    
    
    
    
    
    
    
    
    13,906
    
    
    
    139
    
    
    
    41,494
    
    
    
    
    
    
    
    
    
    
    
    41,633Stock based compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,121
    
    
    
    
    
    
    
    
    
    
    
    109,121Foreign Exchange Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,294
    )
    
    
    
    
    
    
    (2,294
    )Balance, December 31, 2007
    
    
    
    
    
    $
    
    
    
    
    2,396,707
    
    
    $
    23,967
    
    
    $
    34,758,266
    
    
    $
    1,655
    
    
    $
    (28,264,093
    )
    
    $
    6,519,795Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,924,348
    )
    
    
    (2,924,348
    )Stock based compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,470
    
    
    
    
    
    
    
    
    
    
    
    64,470Foreign Exchange Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,208
    
    
    
    
    
    
    
    5,208Balance, December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    2,396,707
    
    
    $
    23,967
    
    
    $
    34,822,736
    
    
    $
    6,863
    
    
    $
    (31,188,441
    )
    
    $
    3,665,125
   F-5




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net (loss)/income
    
    $
    (2,924,348
    )
    
    $
    (837,795
    )
    
    $
    851,854Depreciation and amortization
    
    
    178,199
    
    
    
    187,711
    
    
    
    151,220Impairment of goodwill
    
    
    1,140,964
    
    
    
    
    
    
    
    Provision for doubtful accounts
    
    
    50,000
    
    
    
    93,000
    
    
    
    141,548Stock based compensation
    
    
    64,470
    
    
    
    109,121
    
    
    
    115,534Write down of investment
    
    
    
    
    
    
    87,059
    
    
    
    Reduction of capital lease obligation
    
    
    
    
    
    
    (214,016
    )
    
    
    Amortization of deferred financing cost
    
    
    7,764
    
    
    
    9,883
    
    
    
    12,000Changes in operating assets and liabilities:Accounts receivable
    
    
    (416,794
    )
    
    
    105,921
    
    
    
    98,341Unbilled receivables
    
    
    (1,454
    )
    
    
    283,402
    
    
    
    118,407Prepaid expenses and other current assets
    
    
    (47,367
    )
    
    
    (121,840
    )
    
    
    2,628Deposits
    
    
    (1,750
    )
    
    
    (43,142
    )
    
    
    Accounts payable and accrued expenses
    
    
    (159,311
    )
    
    
    (273,880
    )
    
    
    226,286Deferred revenue
    
    
    (18,232
    )
    
    
    (107,209
    )
    
    
    65,222Net cash (used in)/provided by operating activities
    
    
    (2,127,859
    )
    
    
    (721,785
    )
    
    
    1,783,040Cash flows from investing activities:Purchase of property and equipment
    
    
    (42,732
    )
    
    
    (73,425
    )
    
    
    (127,598
    )Deposits
    
    
    
    
    
    
    
    
    
    
    (198
    )Net cash used in investing activities
    
    
    (42,732
    )
    
    
    (73,425
    )
    
    
    (127,796
    )Cash flows from financing activities:Proceeds from the exercise of stock options
    
    
    
    
    
    
    41,633
    
    
    
    30,069Payment of deferred financing cost
    
    
    
    
    
    
    (15,530
    )
    
    
    Net cash provided by financing activities
    
    
    
    
    
    
    26,103
    
    
    
    30,069Effect of foreign currency exchange rate changes on cash and cash equivalents
    
    
    5,208
    
    
    
    (2,294
    )
    
    
    6,876Net (decrease)/increase in cash and cash equivalents
    
    
    (2,165,383
    )
    
    
    (771,401
    )
    
    
    1,692,189Cash and cash equivalents at beginning of period
    
    
    3,077,655
    
    
    
    3,849,056
    
    
    
    2,156,867Cash and cash equivalents at end of period
    
    $
    912,272
    
    
    $
    3,077,655
    
    
    $
    3,849,056Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    
    
    
    $
    
    
    
    $
    401Cash paid during the period for income taxes, net of refunds
    
    $
    6,543
    
    
    $
    163,796
    
    
    $
    27,746
   F-6




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##### Table of Contents



1. SIGNIFICANT ACCOUNTING POLICIES
 Description of Business and Basis of Presentation
  Principles of Consolidation
   Use of Estimates
  Going Concern
  Earnings Per Share
   F-7




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Cash Equivalents
  Fair Value of Financial Instruments
  Property and Equipment
  Long-Lived Assets
  Goodwill and Intangible Assets
  Revenue Recognition
   F-8




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Accounts Receivable and Allowance for Doubtful Accounts
  Segment Information
  Stock-Based Compensation
        F-9




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2008
    
    
    2007
    
    
    2006Expected life (years)
    
    
    4.00
    
    
    
    4.00
    
    
    
    4.00Risk free interest rate
    
    
    1.50
    %
    
    
    2.45
    %
    
    
    4.80
    %Expected volatility
    
    
    1.70
    
    
    
    0.57
    
    
    
    0.40Weighted average fair value per option
    
    $
    0.00
    (1)
    
    $
    0.00
    (1)
    
    $
    4.37
 (1)
    
    There were no options granted by the Company for the 12 months ended December 31, 2008 and 2007.  2. ACQUISITIONS
    3. INVESTMENTS
   F-10




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4. NET INCOME (LOSS) PER SHARE
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Numerator for basic net (loss) / income per shareNet (loss) / income
    
    $
    (2,924,348
    )
    
    $
    (837,795
    )
    
    $
    851,854Net (loss) / income available to
common stockholders
    
    $
    (2,924,348
    )
    
    $
    (837,795
    )
    
    $
    851,854Numerator for diluted net (loss) / income per shareNet (loss) / income available to common
stockholders & assumed conversion
    
    $
    (2,924,348
    )
    
    $
    (837,795
    )
    
    $
    851,854Denominator:Denominator for basic (loss) / earnings per
share  adjusted weighted-average shares
    
    
    2,396,707
    
    
    
    2,391,452
    
    
    
    2,380,699Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    24,247Denominator for diluted (loss) / earnings per
share  adjusted weighted-average shares
    
    
    2,396,707
    
    
    
    2,391,452
    
    
    
    2,404,946Basic earnings (loss) / income per share:Net (loss) / income
    
    $
    (1.22
    )
    
    $
    (0.35
    )
    
    $
    0.36Diluted earnings (loss) / income

per share:Net (loss) / income
    
    $
    (1.22
    )
    
    $
    (0.35
    )
    
    $
    0.35
   F-11




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. PROPERTY AND EQUIPMENT
  December 31,2008
    
    
    2007Equipment and leaseholds
    
    $
    218,459
    
    
    $
    264,177Software
    
    
    163,793
    
    
    
    171,206Furniture and fixtures
    
    
    107,502
    
    
    
    359,609Automobiles
    
    
    54,136
    
    
    
    22,185543,890
    
    
    
    817,177Less accumulated depreciation and amortization
    
    
    336,420
    
    
    
    474,240$
    207,470
    
    
    $
    342,937
  6. CREDIT ARRANGEMENT
   7. CONTRACTUAL OBLIGATIONS AND COMMITMENTS
   F-12




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Payments Due by PeriodMore Than 5Contractual Obligations
    
    Total
    
    
    Less Than 1 Year
    
    

1
 3 Years
    
    

3
 5 Years
    
    
    YearsLong Term ObligationsEmployment Contracts (1)
    
    
    334,250
    
    
    
    317,000
    
    
    
    17,250
    
    
    
    
    
    
    
    Operating Lease ObligationsRent (2)
    
    
    1,260,683
    
    
    
    436,267
    
    
    
    658,613
    
    
    
    165,803
    
    
    
    Total
    
    $
    1,594,933
    
    
    $
    753,267
    
    
    $
    675,863
    
    
    $
    165,803
    
    
    $
    
 (1)
    
    The Company has employment agreements with its two named Executive Officers (Salvatore
M. Quadrino, the Companys Interim Chief Executive Officer and Chief Financial Officer, and
Michael Prude, the Companys Chief Operating Officer). Under Mr. Quadrinos employment
agreement, Mr. Quadrino will serve in a dual capacity as Chief Financial Officer and Interim
Chief Executive Officer. Under this agreement, prior to January 1, 2009, Mr. Quadrino
received, on a month-to-month basis, an additional $5,000 per month stipend for his role as
Interim Chief Executive Officer. Effective January 1, 2009, this $5,000 per month stipend
was eliminated and Mr. Quadrinos annual salary was adjusted from $200,000 to $220,000.
This rate adjustment is reflected in the table above. The employment agreement with Mr.
Prude, the Companys COO is effective July 1, 2007 and has a term of two years. Effective
January 1, 2009, Mr. Prudes annual salary was reduced by $30,000 from $237,000 to $207,000.
This rate adjustment is reflected in the table above. Effective February 23, 2009, the
Board of Directors of the Company and Mr. Prude agreed that Mr. Prude would be terminating
his employment with the Company and that his responsibilities would be redistributed to the
remaining members of the Companys senior management team. Under the terms of Mr. Prudes
employment agreement, with which the Company intends to comply, his final day with the
Company will be April 30, 2009. Mr. Prude is entitled to nine months of severance totaling
$155,250 which will be paid out monthly beginning May 2009. This severance amount is
reflected in the table above.(2)
    
    The Company has a New York facility with a lease term expiring July 31, 2012, a New
Jersey facility with a lease term expiring August 31, 2010, and a Massachusetts facility
with a lease term expiring January 31, 2010. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  December 31,2008
    
    
    2007Accounts payable
    
    $
    593,430
    
    
    $
    401,419Payroll
    
    
    645,606
    
    
    
    619,089Other accrued expenses
    
    
    408,686
    
    
    
    786,525$
    1,647,722
    
    
    $
    1,807,033
 9. VANGUARD RELEASE
   F-13




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  10. INCOME TAXES
    December 31,2008
    
    
    2007Licensing revenues
    
    $
    (47,000
    )
    
    $
    (50,000
    )Accounts receivable reserve
    
    
    107,000
    
    
    
    112,000Depreciation and amortization
    
    
    268,000
    
    
    
    240,000Investments
    
    
    928,000
    
    
    
    928,000Other
    
    
    214,000
    
    
    
    226,000Net operating losses
    
    
    5,273,000
    
    
    
    4,581,0006,743,000
    
    
    
    6,037,000Valuation allowance
    
    
    (6,743,000
    )
    
    
    (6,037,000
    )$
    
    
    
    $
    
    F-14




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    
    
    
    $
    (123,486
    )
    
    $
    102,347State and local
    
    
    11,692
    
    
    
    (23,309
    )
    
    
    14,842Total Current
    
    $
    11,692
    
    
    $
    (146,795
    )
    
    $
    117,189Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    State and local
    
    
    
    
    
    
    
    
    
    
    Total Deferred
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    11,692
    
    
    $
    (146,795
    )
    
    $
    117,189
  2008
    
    
    2007
    
    
    2006Federal statutory rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    34.0
    %State and local taxes net of federal tax benefit
    
    
    0.3
    
    
    
    (1.6
    )
    
    
    0.6Non-deductible expenses
    
    
    13.4
    
    
    
    (0.2
    )
    
    
    (5.7
    )Provision to return adjustments
    
    
    
    
    
    
    (4.8
    )
    
    
    Change in valuation allowance
    
    
    20.75
    
    
    
    25.71
    
    
    
    (16.81
    )Total
    
    
    0.40
    %
    
    
    (14.91
    )%
    
    
    12.09
    %
 11. RETIREMENT PLAN
  12. CONCENTRATION OF CREDIT RISK
   F-15




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. LEASES
  2009
    
    
    436,2672010
    
    
    374,3792011
    
    
    284,2342012
    
    
    165,803Total minimum future lease payments
    
    $
    1,260,683
    (1)
 (1)
    
    The Company has a New York facility with a lease term
expiring July 31, 2012, a New Jersey facility with a lease term expiring
August 31, 2010, and a Massachusetts facility with a lease term expiring
January 31, 2010.  14. IMPAIRMENT OF GOODWILL
  15. STOCK OPTION PLAN
     F-16




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  WeightedNumber of
    
    
    AverageShares
    
    
    Exercise PriceBalance  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
    
    
    $
    4.76Granted during 2007
    
    
    0
    
    
    $
    0.00Exercised during 2007
    
    
    (13,906
    )
    
    $
    3.00Forfeitures during 2007
    
    
    (47,000
    )
    
    $
    4.73Balance  December 31, 2007
    
    
    129,000
    
    
    $
    4.96Granted during 2008
    
    
    0
    
    
    $
    0.00Exercised during 2008
    
    
    0
    
    
    $
    0.00Forfeitures during 2008
    
    
    (21,625
    )
    
    $
    6.13Balance  December 31, 2008
    
    
    107,375
    
    
    $
    4.17
   Stock Options OutstandingNumber ofWeighted
    
    
    
    
    
    
    Weighted-
    
    
    StockExercise Price
    
    Average
    
    
    Number of
    
    
    Remaining
    
    
    OptionsRange
    
    Exercise Price
    
    
    Options
    
    
    Contractual Life
    
    
    Exercisable$0.00  $4.80
    
    $
    2.77
    
    
    
    59,375
    
    
    2.5 years
    
    
    
    55,625$4.80  $9.60
    
    $
    5.87
    
    
    
    48,000
    
    
    3.7 years
    
    
    
    38,000107,375
    
    
    
    
    
    
    
    93,625
  16. EMPLOYMENT AGREEMENT OF CHIEF EXECUTIVE OFFICER, CHIEF OPERATING OFFICER, AND CHIEF FINANCIAL
OFFICER
   F-17




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##### Table of Contents



HELIOS & MATHESON NORTH AMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       17. SUBSEQUENT EVENTS
   F-18




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##### Table of Contents



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)
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Revenues
    
    $
    4,772
    
    
    $
    4,836
    
    
    $
    5,038
    
    
    $
    5,005Gross profit
    
    
    985
    
    
    
    864
    
    
    
    1,198
    
    
    
    1,428Loss from operations
    
    
    (845
    )
    
    
    (550
    )
    
    
    (310
    )
    
    
    (1,248
    )Net loss
    
    
    (830
    )
    
    
    (545
    )
    
    
    (301
    )
    
    
    (1,248
    )Net loss per shareBasic
    
    $
    (0.35
    )
    
    $
    (0.23
    )
    
    $
    (0.13
    )
    
    $
    (0.51
    )Diluted
    
    $
    (0.35
    )
    
    $
    (0.23
    )
    
    $
    (0.13
    )
    
    $
    (0.51
    )
 Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,(in thousands, except per share amounts)
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007Revenues
    
    $
    5,876
    
    
    $
    4,733
    
    
    $
    4,957
    
    
    $
    5,264Gross profit
    
    
    1,971
    
    
    
    1,159
    
    
    
    1,393
    
    
    
    1,624Income (loss) from operations
    
    
    159
    
    
    
    (597
    )
    
    
    (363
    )
    
    
    (341
    )Net income (loss)
    
    
    211
    
    
    
    (568
    )
    
    
    (259
    )
    
    
    (222
    )Net income (loss) per shareBasic
    
    $
    0.09
    
    
    $
    (0.24
    )
    
    $
    (0.11
    )
    
    $
    (0.09
    )Diluted
    
    $
    0.09
    
    
    $
    (0.24
    )
    
    $
    (0.11
    )
    
    $
    (0.09
    )
  F-19




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##### Table of Contents



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, 2008Allowance for doubtful accounts
    
    $
    221,970
    
    
    $
    50,000
    
    
    $
    
    
    
    $
    (62,199
    )(a)
    
    $
    209,771For the year ended December 31, 2007Allowance for doubtful accounts
    
    $
    225,741
    
    
    $
    93,000
    
    
    $
    
    
    
    $
    (96,771
    )(b)
    
    $
    221,970For the year ended December 31, 2006Allowance for doubtful accounts
    
    $
    320,804
    
    
    $
    141,548
    
    
    $
    
    
    
    $
    (236,611
    )(c)
    
    $
    225,741
 (a)
    
    Uncollectible accounts written
off during 2008.(b)
    
    Uncollectible accounts written
off during 2007.(c)
    
    Uncollectible accounts written
off during 2006.




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibits3.1
    
    
    Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit
3.1 to the Form 10-Q for the period ended June 30, 2001, as previously filed with the SEC on
August 10, 2001.3.2.1
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated August
8, 2002, incorporated by reference to Exhibit 3.2 to the Form 10-Q for the period ended June
30, 2001, as previously filed with the SEC on August 14, 2002.3.2.2
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated
November 12, 2002, incorporated by reference to Exhibit 3.2.2 to the Form 10-Q for the period
ended September 30, 2002, as previously filed with the SEC on November 14, 2002.3.2.3
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated January
5, 2004, incorporated by reference to exhibit 3.2.3 to the Form 8-K dated January 8, 2004, as
previously filed with the SEC on January 8, 2004.3.2.4
    
    
    Certificate of Amendment of the Certificate of Incorporation of the Registrant dated January
30, 2007, incorporated by reference to Exhibit 3.2.4 to the Form 10-K for the period ended
December 31, 2006, as previously filed with the SEC on March 29, 2007.3.3
    
    
    Second Amended and Restated By-Laws of the Registrant dated June 20, 2007, incorporated by
reference to Exhibit 3.3 on Form 8-K, as previously filed with the SEC on June 22, 2007.4.1
    
    
    Specimen Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the Form 10-K
for the period ended December 31, 2006, as previously filed with the SEC on March 29, 2007.10.1.1
    
    
    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 previously 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,
incorporated by reference to Exhibit 10.1.3 to the Form 10-K for the period ended December 31,
2006, as previously filed with the SEC on March 29, 2007.10.1.4
    
    
    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
    
    
    Restated and Amended Loan and Security Agreement between the Registrant and Keltic Financial
Partners, LP dated September 27, 2007, incorporated by reference to Exhibit 10.2 to the Form
10-K for the period ended December 31, 2007, as previously filed with the SEC on March 25,
2008.10.2.1
    
    
    Extension of Restated and Amended Loan and Security Agreement between the Registrant and
Keltic Financial Partners, LP dated March 30, 2009.




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.3
    
    
    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 previously filed with the SEC on November 14, 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
previously filed with the SEC on May 1, 2006.10.9
    
    
    Amended Employment Agreement, dated as of May 9, 2008, between the Registrant and Salvatore
M. Quadrino.10.10
    
    
    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 previously filed with the
SEC on June 2, 2006.10.11
    
    
    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 previously filed with
the SEC on June 2, 2006.10.12
    
    
    Employment Agreement, dated as of July 1, 2007, by and between the Registrant and Michael
Prude, incorporated by reference to Exhibit 5.02 on Form 10-Q, as previously filed with the
SEC on August 10, 2007.10.13
    
    
    Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as of
January 29, 2007, incorporated by reference to Exhibit 10.12 to the Form 10-K for the period
ended December 31, 2006, as previously filed with the SEC on March 29, 2007.10.14
    
    
    Professional Services Agreement by and between the Registrant and IonIdea, Inc., dated as of
August 1, 2008.10.15
    
    
    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, incorporated by
reference to Exhibit 10.1 on Form 8-K, as previously filed with the SEC on June 30, 2006.10.16
    
    
    Letter from Helios & Matheson Information Technology Ltd. dated March 26, 2007, incorporated
by reference to Exhibit 10.14 to the Form 10-K for the period ended December 31, 2006, as
previously filed with the SEC on March 29, 2007.23.2
    
    
    Consent of Mercadien, P.C., Certified Public Accountants.31.1
    
    
    Certification of Interim Chief Executive Officer and Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Interim Chief Executive Officer and Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.