10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended: March 31, 2017

OR

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ___________

Commission file number:     0-22945

HELIOS AND MATHESON ANALYTICS INC.

 (Exact Name of Registrant as Specified in Its Charter)

Delaware (State or other jurisdiction of incorporation or organization)	13-3169913 (I.R.S. Employer Identification No.)
Empire State Building, 350 5th Avenue, New York, New York 10118 (Address of Principal Executive Offices)	(212) 979-8228 (Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer          ☐		Accelerated filer                              ☐
Non-accelerated filer            ☐	(Do not check if a smaller reporting company)	Smaller reporting company            ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 19, 2017, there were 5,861,191 shares of common stock, with $.01 par value per share, outstanding.

HELIOS AND MATHESON ANALYTICS INC.

INDEX

PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets March 31, 2017 (Unaudited) and December 31, 2016	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	2
	Condensed Consolidated Statement of Change in Shareholder’s Equity (Deficit) for the Three Months Ended March 31, 2017 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	26
ITEM 4.	Controls and Procedures	26
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	27
ITEM 1A.	Risk Factors	27
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
ITEM 3.	Defaults upon Senior Securities	27
ITEM 4.	Mine Safety Disclosures	27
ITEM 5.	Other Information	27
ITEM 6.	Exhibits	28
SIGNATURES		29
EXHIBIT INDEX

Part I. Financial Information 

Item I. Financial Statements

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,235,423		$	2,747,240
Accounts receivable - less allowance for doubtful accounts of $424,664 and $428,719 at March 31, 2017 and December 31, 2016, respectively		472,248			410,106
Unbilled Receivables		54,667			45,207
Prepaid expenses and other current assets		794,672			597,171
Total current assets		4,557,010			3,799,724
Property and equipment, net		60,791			45,212
Intangible assets, net		5,578,040			6,004,691
Goodwill		4,599,969			4,599,969
Deposits and other assets		145,929			59,189
Total assets	$	14,941,739		$	14,508,785
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,797,184		$	1,331,118
Convertible Notes Payable, net of debt discount of $1,691,914 and $2,200,575, respectively		2,351,062			31,425
Derivative liability		716,175			1,207,792
Total current liabilities		4,864,421			2,570,335
Total liabilities		4,864,421			2,570,335
Commitments and Contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2017 and December 31, 2016		-			-
Common stock, $.01 par value; 30,000,000 shares authorized; 5,861,191 and 4,874,839 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively		58,612			48,748
Paid-in capital		59,883,847			55,258,111
Accumulated other comprehensive loss - foreign currency translation		(106,168	)		(106,991	)
Accumulated deficit		(49,758,973	)		(43,261,418	)
Total shareholders' equity		10,077,318			11,938,450
Total liabilities and shareholders' equity	$	14,941,739		$	14,508,785

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 

	Three Months Ended March 31,
	2017 (Unaudited)			2016 (Unaudited)
Revenues:
Revenue	$	1,358,062		$	1,996,261
Cost of revenue		1,105,485			1,421,765
Gross profit		252,577			574,496
Operating expenses:
Selling, general & administrative		4,180,172			719,602
Depreciation & amortization		430,925			3,314
Total operating expenses		4,611,097			722,916
Loss from operations		(4,358,520	)		(148,420	)
Other income/(expense):
Change in fair market value - derivative liabilities		982,331			-
Interest expense		(3,108,832	)		-
Interest income		17,950			1,006
Total other (expense) / income		(2,108,551	)		1,006
Loss before income taxes		(6,467,071	)		(147,414	)
Provision for income taxes		30,484			3,000
Net loss		(6,497,555	)		(150,414	)
Other comprehensive income-foreign currency adjustment		823			556
Comprehensive loss	$	(6,496,732	)	$	(149,858	)
Net loss per share
Basic and Diluted	$	(1.17	)	$	(0.06	)
Weighted average shares		5,530,083			2,330,438

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

	Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount		Additional Paid-In Capital		Accumulated other comprehensive income			Accumulated Deficit			Total Shareholders' Equity (Deficit)
Balance at December 31, 2016		-	$	-		4,874,839	$	48,748	$	55,258,111	$	(106,991	)	$	(43,261,418	)	$	11,938,450
Conversion of convertible notes and interest to shares of common stock		-		-		466,352		4,664		1,852,337		-			-			1,857,001
Shares issued in exchange for services		-		-		520,000		5,200		1,891,200		-			-			1,896,400
Derivative liability which ceases to exist										882,199								882,199
Net Loss		-		-		-		-		-		-			(6,497,555	)		(6,497,555	)
Foreign Exchange Translation		-		-		-		-		-		823			-			823
Balance at March 31, 2017		-	$	-		5,861,191	$	58,612	$	59,883,847	$	(106,168	)	$	(49,758,973	)	$	10,077,318

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

HELIOS AND MATHESON ANALYTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

	For the Three Months Ended March 31,
	2017 (Unaudited)			2016 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,497,555	)	$	(150,414	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		430,925			3,314
Accretion of debt discount		1,685,946			-
Change in fair market value - derivative liabilities		(982,331	)		-
Provision for doubtful accounts		(4,055	)		12,350
Non-cash interest expense		1,422,886			-
Shares issued in exchange for services		1,896,400			-
Change in operating assets and liabilities:
Accounts receivable		(58,087	)		192,776
Unbilled receivables		(9,460	)		197,009
Prepaid expenses and other current assets		(197,501	)		45,703
Accounts payable and accrued expenses		(93,213	)		(39,511	)
Deposits		(86,740	)		(62,159	)
Net cash used in operating activities		(2,492,785	)		199,068
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of Property and Equipment		956			-
Purchases of equipment		(20,811	)		(1,673	)
Net cash used in investing activities		(19,855	)		(1,673	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable		3,000,000			-
Net cash provided by financing activities		3,000,000			-
Net change in cash		487,360			197,395
Effect of foreign currency exchange rate changes on cash and cash equivalents		823			556
Cash, beginning of period		2,747,240			898,477
Cash, end of period	$	3,235,423		$	1,096,428
Supplemental disclosure of cash and non-cash transactions:
Cash paid for income taxes	$	5,975		$	1,263
Cash paid for interest	$	128,114		$	-
Conversion of convertible notes and interest to common stock	$	1,857,001		$	-
Increase in debt for new original issue discount	$	681,818		$	-
Derivative ceases to exist - reclassified to paid in capital	$	882,199		$	-
Increase in debt discount for new derivatives and warrants	$	1,372,913		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.             General

The accompanying unaudited interim condensed consolidated financial statements (“interim statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. The consolidated balance sheet as of December 31, 2016 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2016. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2016.

2.             Prior Year Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation. This reclassification had no impact on the Company’s previously reported income from operations or cash flows from operations; the Company has determined that the impact of this reclassification is not material to the previously issued annual and interim unaudited consolidated financial statements using the guidance of SEC Staff Accounting Bulletin ("SAB”) No. 99 and SAB 108.

3.             Change in Controlled Company Status

Prior to the merger between our wholly-owned subsidiary, Zone Acquisition, Inc. (“Zone Acquisition”), and Zone Technologies, Inc. (“Zone”), as described below, the Company was a controlled company as defined by Rule 5615(c)(1) of the NASDAQ Listing Rules because Helios and Matheson Information Technology Ltd., our former parent (referred to in this report as “HMIT”), was the beneficial owner of approximately 75% of our outstanding common stock. Upon consummation of the merger on November 9, 2016, we ceased to be a controlled company.

4.             Merger with Zone Technologies, Inc.

On November 9, 2016 (the “Closing Date”), the Company completed the merger contemplated by the previously disclosed Agreement and Plan of Merger, dated as of July 7, 2016, among us, Zone and Zone Acquisition, as amended by the Waiver and First Amendment to Agreement and Plan of Merger dated as of August 25, 2016 and the Acknowledgment of Satisfaction of Condition and Second Amendment to Agreement and Plan of Merger, dated as of September 21, 2016 (collectively, the “Merger Agreement”).

On the Closing Date, the Company issued 1,740,000 shares of our common stock as merger consideration pursuant to the Merger Agreement, which represented an exchange ratio of 0.174 shares of our common stock for each share of Zone common stock outstanding, and Zone Acquisition, our wholly-owned subsidiary, was merged into Zone, with Zone surviving the merger as our wholly-owned subsidiary.

Zone is the developer of the proprietary RedZone Map, a GPS-driven, real-time crime and navigation map application whose goal is to enhance personal safety worldwide by providing users with real time crime data and a platform for alerting other users to criminal and other safety related occurrences in a navigation map format. Zone’s mapping lets users be pro-active when traveling, allowing them to enter a number of different cautionary items such as traffic problems, police sightings, road hazards, accidents and road closures. It also allows users to report a crime and to video upload live incidents.

Zone’s business model has four components. The first component is providing user access to public safety information. Zone’s goal is to enhance the personal safety of its users by providing crime data to anyone using a mobile or stationary mapping application for navigation. Zone also provides tools for examining such things as neighborhoods for possible relocation, schools to attend, travel planning and lodging selection. The second component, when implemented, will provide enterprise business solutions, such as choosing a route for trucking and delivery services based on crime mapping analytics. The third component, when implemented, will be geared towards providing law enforcement agencies with tools to better understand crime patterns and to engage with their jurisdiction(s) more meaningfully. The fourth component, when implemented, will be to work with governmental agencies using advanced mapping and geo-fencing for counter-terrorism efforts.

5

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

While RedZone Map is a fully functioning app available for free in the Apple App Store and the Google Play Store, the Company has not yet derived any advertising revenues from the app.

The following tables summarize the fair values of the net assets/liabilities assumed and the allocation of the aggregate fair value of the purchase consideration, non–controlling interest and net liabilities to assumed identifiable and unidentifiable intangible assets:

Purchase consideration:
Common stock (1,740,000 shares at the transaction date fair value of $5.41 per share)	$	9,413,000
Liabilities assumed		1,574,512
Assets acquired		(136,343	)
Aggregate fair value of enterprise		10,851,169
Purchase price allocation:
Net liabilities assumed		(1,488,476	)
Cash acquired		136,343
Total		(1,352,133	)
Technology		4,270,000
Broker Relationships		4,200
Trademarks		1,977,000
Goodwill		4,599,969
Total purchase price allocation	$	10,851,169

5.              Going Concern Analysis

The Company is subject to a number of risks similar to those of other Big Data technology and technology consulting companies, including its dependence on key individuals, uncertainty of product development and generation of revenues, dependence on outside sources of capital, risks associated with research, development, testing, and successful protection of intellectual property, and the Company’s susceptibility to infringement on the proprietary rights of others and, ultimately, the attainment of profitable operations are dependent on future events, including obtaining adequate financing to fulfill its development activities and generating a level of revenues adequate to support the Company's cost structure.

The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years, and as at March 31, 2017, had an accumulated deficit of $49,758,973, a net loss for the three months ended March 31, 2017 of $6,497,555 and net cash used in operating activities of $2,492,785.

6

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

The Company expects to continue to incur net losses and have significant cash outflows for at least the next twelve months. As of March 31, 2017, the Company had cash and a working capital deficit of $3,235,423 and $307,411, respectively and during the three months ended March 31, 2017, the Company used cash from operations of $2,492,785. Management has concluded that due to the conditions described above, there is substantial doubt about the Company’s ability to continue as a going concern through one year after the issuance of the accompanying financial statements. Management has evaluated the significance of the conditions in relation to the Company’s ability to meet its obligations and concluded that without additional funding the Company will not have sufficient funds to meet its obligations within one year from the date of the condensed consolidated financial statements were issued. While management continues to plan on raising additional capital from investors to meet operating cash requirements, there is no assurance that management’s plans will be successful.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company's cost structure.

6.              Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Principles of Consolidation

All intercompany transactions and balances have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of acquisition to be cash equivalents.

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at amounts due from clients, net of an allowance for doubtful accounts. The Company monitors its accounts receivable balances on a monthly basis to ensure that they are collectible. On a quarterly basis, the Company uses its historical experience to estimate its accounts receivable reserve. The Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the client may have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that client against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. The Company also establishes a general reserve for all clients based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

7

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted Section 360-10-35 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20, if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets which range from three to ten years.

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations. 

During the three months ended March 31, 2017 and 2016, the Company recorded depreciation expense of $4,274 and $3,314, respectively.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The Company is required to perform impairment reviews at each of its reporting units annually and more frequently in certain circumstances. The Company performs the annual assessment on December 31.

In accordance with ASC 350–20 “Goodwill”, the Company is able to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two–step goodwill impairment test. If the Company concludes that it is more likely than not that the fair value of a reporting unit is not less than its carrying amount it is not required to perform the two–step impairment test for that reporting unit. 

There were no impairment charges recognized during the three months ended March 31, 2017 and 2016.

Intangible Assets, net

Intangible assets consist of technology, trademarks and broker relationships. Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment. Intangible assets are amortized on the straight-line method over their useful lives ranging from 1 to 7 years.

During the three months ended March 31, 2017 and 2016, the Company recorded amortization expense of $426,651 and $0, respectively.

8

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

Debt Discount and Debt Issuance Costs

Debt discounts and debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense based on the related debt agreements using the effective-interest method.

Derivative Instruments

The Company evaluates its convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC Paragraph 815-10-05-4 and ASC and Paragraph 815-40-25. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current to correspond with its host instrument.

The Company marks to market the fair value of the remaining embedded derivative warrants at each balance sheet date and records the change in the fair value of the remaining embedded derivative warrants as other income or expense in the statements of operations.

The Company utilizes the Monte Carlo Method that values the liability of the debt conversion feature derivative financial instruments and derivative warrants based on a probability of a down round event. The reason the Company selected the lattice binomial model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models.

Revenue Recognition

Consulting revenues are recognized as services are provided. The Company primarily provides consulting services under time and material contracts, whereby revenue is recognized as hours and costs are incurred. Clients for consulting revenues are billed on a weekly or monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of the software to a customer because future obligations associated with such revenue are insignificant.

Advertising

The Company expenses advertising costs when incurred.

9

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

Comprehensive Loss

Comprehensive loss consists of two components, net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that are recorded as an element of stockholder’s equity but are excluded from net loss. The Company’s other comprehensive loss is comprised of foreign currency translation adjustments.

Foreign Currency Translation

Assets, liabilities, revenue and expenses denominated in non-U.S. currencies are translated at the rate of exchange prevailing on the date of the consolidated balance sheet. Gains (losses) on translation of the consolidated financial statements are from the Company’s subsidiary where the functional currency is not the U.S. dollar. Translation gains (losses) are reflected as a component of accumulated other comprehensive income (loss). Gains (losses) on foreign currency transactions are included in the consolidated statements of income.

Income Taxes

Income taxes are provided in accordance with ASC No. 740, “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the period of deferred tax assets and liabilities.

Stock Based Compensation

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

Net Income/(Loss) Per Share 

Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

The following table sets forth the computation of basic and diluted net income/(loss) per share for the three months ended March 31, 2017 and 2016:

	For the Three Months Ended March 31,
	2017			2016
Numerator
Net loss attributable to common shareholders - basic	$	(6,497,555	)	$	(150,414	)
Effect of dilutive instrument on net income (loss)		-			-
Net loss attributable to common shareholders - diluted	$	(6,497,555	)	$	(150,414	)
Denominator
Weighted average shares of common stock outstanding - basic		5,530,083			2,330,438
Dilutive effect of stock options, warrants and convertible securities		-			-
Weighted average shares of common stock outstanding - diluted		5,530,083			2,330,438
Net loss per share
Basic & Diluted	$	(1.17	)	$	(0.06	)

The following table shows the outstanding dilutive common shares excluded from the diluted net loss per share calculation as they were anti-dilutive:

	March 31, 2017		December 31, 2016
Warrants	$	130,714	$	70,714
Conversion features on convertible notes		216,092		511,989
Total potentially dilutive shares	$	346,806	$	582,703

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

Recent Accounting Pronouncements

In May 2014, the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle (issued as ASU 2014-09 by the FASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating this standards impact on its consolidated financial statements and disclosures.

During January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently evaluating the method of adoption and the impact of adopting ASU 2016-02 on its results of operations, cash flows and financial position.

In March 2016, the FASB issued ASU No. 2016-06, “Contingent Put and Call Option in Debt Instruments” (“ASU 2016-06”). ASU 2016-06 is intended to simplify the analysis of embedded derivatives for debt instruments that contain contingent put or call options. The amendments in ASU 2016-06 clarify that an entity is required to assess the embedded call or put options solely in accordance with the four-step decision sequence. Consequently, when a call (put) option is contingently exercisable, an entity does not have to initially assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. The amendments in ASU 2016-06 take effect for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. As of March 31, 2017, the Company has adopted ASU 2016–06 and has determined that the impact over the results of operations and cash flows is not material.

In April 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)”. The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the update is permitted. As of March 31, 2017, the Company has adopted ASU 2016–06 and has determined that the impact over the results of operations and cash flows is not material.

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The amendments in ASU 2016-12 provide clarifying guidance in certain narrow areas and add some practical expedients. Specifically, the amendments in this update (1) clarify the objective of the collectability criterion in step 1, and provides additional clarification for when to recognize revenue for a contract that fails step 1, (2) permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price (3) specify that the measurement date for noncash consideration is contract inception, and clarifies that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration, (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations, (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Further, accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. The guidance is effective for the Company beginning January 1, 2018, although early adoption is permitted beginning January 1, 2017. The Company is currently evaluating the method of adoption and the impact of adopting ASU 2016-12 on its results of operations, cash flows and financial position.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

11

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently in the process of evaluating the impact of ASU 2016-18 on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment to simplify the accounting for goodwill impairment. The guidance removes the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill for all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. This guidance is effective in 2020, but early adoption is permitted for any impairment tests performed after January 1, 2017. The Company is currently evaluating the impact that this guidance will have on the Company’s consolidated financial statements.

7.            Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following at March 31, 2017 and December 31, 2016:

	March 31, 2017		December 31, 2016
Customer Deposits	$	314,627	$	300,199
Tax		173,637		187,776
Insurance		74,345		44,517
Professional Fees and Services		157,600		42,833
Rent		13,087		13,087
Other		61,376		8,759
Total prepaid expenses and other current assets	$	794,672	$	597,171

12

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

8.            Property and Equipment, net

Property and equipment, net on March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017		December 31, 2016
Equipment and leaseholds	$	97,689	$	106,460
Furniture and Fixtures		52,924		34,186
Software		177,225		167,337
Subtotal		327,838		307,983
Less: Accumulated depreciation		267,047		262,771
Property and Equipment, net	$	60,791	$	45,212

9.             Intangible Assets, net and Goodwill

The Company’s intangibles assets consisted of the following on March 31, 2017 and December 31, 2016:

			March 31, 2017			December 31, 2016
	Estimated Useful Life		Net Book Value			Net Book Value
Technology		3	$	4,270,000		$	4,270,000
Trademarks		7		1,977,000			1,977,000
Broker Relationships		1		4,200			4,200
Subtotal				6,251,200			6,251,200
Less: Accumulated amortization				(673,160	)		(246,509	)
Intangible assets, net			$	5,578,040		$	6,004,691

The Company recorded amortization expense of $426,651 and $0 for the three months ended March 31, 2017 and 2016, respectively.

The following table outlines estimated future annual amortization expense for the next five years and thereafter:

March 31,
Remaining 2017	$	1,279,951
2018		1,706,602
2019		1,501,009
2020		283,269
2021		283,147
Thereafter		524,062
Total	$	5,578,040

13

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

Goodwill represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Goodwill and indefinite lived intangible assets are tested for impairment annually as of December 31^st and more often if a triggering event occurs, by comparing the fair value of each reporting unit to its carrying value.

Balance as of December 31, 2016	$	4,599,969
Goodwill activity for three months ended March 31, 2017		-
Balance as of March 31, 2017	$	4,599,969

10.         Securities Purchase Agreement

The Notes 

On September 7, 2016 the Company issued Senior Secured Convertible Notes (“September Notes”) in the aggregate principal amount of $4,301,075 for consideration consisting of (i) a cash payment by an institutional investor (the “Investor”) in the amount of $1,000,000 together with a secured promissory note payable by the Investor to the Company (the “Investor Note”) in the principal amount of $3,000,000 to finance a portion of the purchase price, fees and expenses for the direct or indirect acquisition of Zone Technologies, Inc. The September Notes have a maturity date of December 7, 2017. As of March 31, 2017, the Investor has made the following prepayments of the Investor Note: $1,000,000 on October 25, 2016; $1,100,000 on November 16, 2016; and $900,000 on December 2, 2016. As of January 23, 2017, the Investor had accepted a total of 887,707 shares of the Company’s common stock in full payment of the September Notes. On any principal balance owed by the Company to the Investor, a 6% interest obligation is due quarterly and calculated on a 360 day basis. For the three months ended March 31, 2017, the Company had interest expense of $1,217 related to the final $332,000 in principal amount outstanding during the quarter.

On December 2, 2016, the Company issued two Senior Secured Convertible Notes (the “December Notes”) to the Investor in the aggregate principal amount of $6,720,000 for consideration consisting of (i) a cash payment by the Investor in the amount of $1,100,000 and (ii) a secured promissory note payable by the Investor to the Company (the “December Investor Note”) in the principal amount of $4,900,000 to aid in the funding of Zone Technologies, Inc prior to the entity’s ability to generate revenues. The December Notes have a maturity date of August 2, 2017. At any time, the Investor may and, so long as certain equity conditions are met, the Company may require the Investor to (a “Mandatory Conversion”), convert the December Notes into shares of the Company’s common stock. At March 31, 2017, the contracted conversion price was $4.00 for a conversion made at the election of the Investor and, for a Mandatory Conversion, the Mandatory Conversion Price. The Mandatory Conversion Price is defined as that price which is the lower of (i) the applicable Conversion Price as in effect on the applicable Mandatory Conversion date, and (ii) 80% the sum of (A) the VWAP of the common stock for each of the 3 trading days with the lowest VWAP of the common stock during the 20 consecutive trading day period ending on and including the trading day immediately prior to the applicable Mandatory Conversion date by and (B) three. As of March 31, 2017 the Investor had paid $3,000,000 of the December Investor Note with the balance payable in full to the Company on August 2, 2017. On any principal balance owed by the Company to the Investor, a 6% interest obligation is due quarterly and calculated on a 360 day basis. For the three months ended March 31, 2017, the Company had $84,293 of interest expense pertaining to the unpaid principal amount of the December Notes.

On February 8, 2017, the Company issued two Senior Secured Convertible Notes (the “February 2017 Notes”) to the Investor in the aggregate principal amount of $5,681,818 for consideration consisting of a secured promissory note payable by the Investor to the Company (the “February 2017 Investor Note”) in the principal amount of $5,000,000 to aid in the funding of Zone Technologies, Inc prior to the entity’s ability to generate revenues. The February 2017 Notes have a maturity date of October 8, 2017. At any time the Investor may and, so long as certain equity conditions are met, the Company may require the Investor to (a “Mandatory Conversion”), convert the February Notes into shares of the Company’s common stock. At March 31, 2017, the contracted conversion price was $4.00 for a conversion made at the election of the Investor and, for a Mandatory Conversion, the Mandatory Conversion Price. The Mandatory Conversion Price is defined as that price which is the lower of (i) the applicable Conversion Price as in effect on the applicable Mandatory Conversion date, and (ii) 80% the sum of (A) the VWAP of the common stock for each of the 3 trading days with the lowest VWAP of the common stock during the 20 consecutive trading day period ending on and including the trading day immediately prior to the applicable Mandatory Conversion date by and (B) three. As of March 31, 2017 the Investor had paid $0 of the February 2017 Investor Note with the amount payable in full to the Company on October 8, 2017. On any principal balance owed by the Company to the Investor, a 6% interest obligation is due quarterly and calculated on a 360 day basis. For the three months ended March 31, 2017, the Company had $10,277 of interest expense pertaining to the unpaid principal amount of the February 2017 Notes.

14

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

The Placement Notes and Warrants 

The Company entered into an agreement with a placement agent (the “Placement Agent”) for assistance with the placement of the September Notes. The Placement Agent accepted from the Company a Senior Secured Convertible Note (the “September Placement Note”) in the aggregate amount of $80,000 in partial payment of the Placement Agent’s fee. Unless earlier converted or redeemed, the September Placement Note matures 15 months from the date of issuance. The Placement Agent Note bears interest at a rate of 6% due quarterly and calculated on a 360 day basis. For the three months ended March 31, 2017, the Company had interest expense pertaining to the September Placement Note in the amount of $1,200. The Placement Agent also received a 5-year warrant (the “Placement Agent Warrant”) for the purchase of the Company’s common stock as partial payment for the Placement Agent’s services. The Placement Agent Warrant is issued in tranches in conjunction with cash payments received by the Company on the corresponding Investor Note. During 2016, warrants were earned allowing for the purchase of 48,714 shares of the Company’s common stock at exercise prices ranging from $4.54 per share to $9.36 per share. As of March 31, 2017 and December 31, 2016 the Placement Agent had not purchased any shares from the exercise of the Placement Agent Warrant.

The Company entered into an agreement with the Placement Agent for assistance with the placement of the December Notes. The Placement Agent accepted from the Company a 5-year warrant (the “December Placement Agent Warrant”) as partial payment for the Placement Agent’s services. The December Placement Agent Warrant is issued in tranches in conjunction with cash payments received by the Company on the corresponding December Investor Note. As of December 31, 2016, 22,000 shares of the Company’s common stock had been issued in conjunction with the December Placement Agent Warrants at an exercise price of $4.45 per share. On February 8, 2017, the Company received a $3 million cash payment on the December Investor Notes, resulting in the issuance of 60,000 warrants at an exercise price of $4.00 per share. As of March 31, 2017 and December 31, 2016 the Placement Agent had not purchased any shares from the exercise of the December Placement Agent Warrant.

The Company entered into an agreement with the Placement Agent for assistance with the placement of the February Notes. The Placement Agent accepted from the Company a 5-year warrant (the “February Placement Agent Warrant”) as partial payment for the Placement Agent’s services. The February Placement Agent Warrant allows the purchase of up to 8% of the number of shares of the Company’s common stock into which the unrestricted principal of the February Note in the principal amount of $5 million becomes convertible at an exercise price of $4.50 per share. As of March 31, 2017 and December 31, 2016 the Placement Agent had not purchased any shares from the exercise of the February Placement Agent Warrants.

Note Activity:

Senior Secured Convertible Notes consists of the following:

	March 31, 2017		December 31, 2016
September notes	$	-	$	20,480
September placement note		36,000		902
December notes		2,168,960		10,043
February notes		146,102		-
Balance at March 31, 2017	$	2,351,062	$	31,425

Under ASC 210-20-45-1, management offset the Notes by the Investor Notes yet to be funded.

15

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

The carrying value of the Senior Secured Convertible Notes is comprised of the following:

	March 31, 2017			December 31, 2016
September notes	$	-		$	332,000
September placement note		80,000			80,000
December notes		3,295,000			1,820,000
February notes		681,818			-
Unamortized discounts		(1,705,756	)		(2,200,575	)
	$	2,351,062		$	31,425

During the three months ended March 31, 2017, the Investor has converted a total of $1,848,692 in principal and $8,309 in interest into 466,352 shares of the Company’s common stock.

Subsequent to March 31, 2017, the Company has not received any additional proceeds from the December Investor Note.

 

11.          Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

Level 3 Financial Liabilities - Derivative conversion features and warrant liabilities

Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of March 31, 2017 and December 31, 2016:

					Fair Value Measurement Using
	Amount at Fair Value		Level 1		Level 2		Level 3
March 31, 2017
Liabilities
Derivative liability - warrants	$	312,432	$	-	$	-	$	312,432
Derivative liability – conversion feature		403,743		-		-		403,743
Total	$	716,175	$	-	$	-	$	716,175
December 31, 2016
Liabilities
Derivative liability - warrants	$	230,663	$	-	$	-	$	230,663
Derivative liability – conversion feature		977,129		-		-		977,129
Total	$	1,207,792	$	-	$	-	$	1,207,792

16

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the month ended March 31, 2017:

	Fair Value Measurement Using Level 3 Inputs Total
Balance at December 31, 2016	$	1,207,792
Purchases, issuances and settlements		1,372,913
Reclassification to paid in capital		(882,199	)
Change in fair value of derivative liabilities		(982,331	)
Balance at March 31, 2017	$	716,175

The fair value of the derivative conversion features and warrant liabilities as of March 31, 2017 and December 31, 2016 were calculated using a Monte-Carlo option model valued with the following weighted average assumptions:

	March 31, Amount				December 31, Amount
Dividend Yield			0%				0%
Expected Volatility		100%	-	140%		154%	-	230%
Risk free interest rate		0.81%	-	1.93%		0.82%	-	1.12%
Contractual term (in years)		0.34	-	4.68		0.67	-	5.0
Exercise price		$4.00	-	$9.36		$4.00	-	$9.36

Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input (probability of a down round event) used in the fair value measurement is the estimation of the likelihood of the occurrence of a change in the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.

12.          Stock Based Compensation

The Company has a stock based compensation plan, which is described as follows:  

On March 3, 2014, the Board of Directors terminated the Company’s 1997 Stock Option and Award Plan and approved and adopted the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan (the “2014 Plan”) which the Company’s stockholders approved at the annual stockholders meeting on May 5, 2014. There were 520,000 shares outstanding under the 1997 Stock Option and Award Plan. The 2014 Plan originally set aside and reserved 400,000 shares of the Company’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the 2014 Plan include employees (including officers and directors) of the Company and its affiliates, consultants who provide significant services to the Company or its affiliates, and directors who are not employees of the Company or its affiliates (the “Participants”). The 2014 Plan permits the Company to issue to Participants qualified and/or non-qualified options to purchase the Company’s common stock, restricted common stock, performance units, and performance shares. The 2014 Plan will terminate on March 3, 2024. The Company’s Board of Directors is responsible for administration of the 2014 Plan and has the sole discretion to determine which Participants will be granted awards and the terms and conditions of the awards granted. Effective November 7, 2016 the plan was amended to include a total of 1,125,000 shares of common stock to be issued under the Employee Stock Option Plan.

Also, through the date of filing this Form 10-Q, several awards have been granted outside of the 2014 Plan to multiple third party consultants in exchange for services rendered in the amount of $1,896,400, which is recorded as part of Selling, General and Administrative expenses on the Company’s Statements of Operations for the three months ended March 31, 2017.

17

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

13.          Concentration of Credit Risk

As of March 31, 2017, and December 31, 2016, 4 customers accounted for 73% and 70% of the Company’s total accounts receivable, respectively.

During the three months ended March 31, 2017 and 2016, 87%, and 94% of the Company’s revenues were earned from 4 customers and 4 customers, respectively.

As of March 31, 2017 and December 31, 2016, 4 vendors accounted for 85% and 2 vendors accounted for 94% of the Company’s accounts payable, respectively.

14.          Commitments and Contingencies

The Company’s commitments at March 31, 2017 are comprised of the following:

Operating Lease Commitments(1)	Payments due by period
Less than 1 year	$	129,892
1 to 3 years		677,895
3 to 5 years		347,985
Thereafter		-
	$	1,155,772

(1) The Company’s executive office is located at the Empire State Building, 350 Fifth Avenue, Suite 7520, New York, New York 10118. The Company’s executive office is located in a leased facility with a term expiring on June 30, 2022. Zone rents two offices on a monthly basis through WeWork. The offices are located at 350 Lincoln Road, Miami Beach, Florida.

In addition, the Company’s Indian subsidiary has an office in Bangalore, India at a leased facility located at 3rd Floor, Beta Block, Number 7 Sigma Tech Park, Varthur Kodi, Bangalore 560066. This lease will expire on October 7 2017,

The Company’s executive office lease is subject to escalations based on increases in real estate taxes and operating expenses, all of which are charged to rent expense. Rent expense for the three months ended March 31, 2017 and 2016 was approximately $47,800 and $90,900, respectively.

As of March 31, 2017, the Company does not have any “Off Balance Sheet Arrangements”.

Legal Proceeding:

On August 24, 2016, 3839 Holdings LLC (“3839 Holdings”) filed a summons and complaint in the Supreme Court of the State of New York, New York County, against Theodore Farnsworth (“Mr. Farnsworth”), Highland Holdings Group, Inc. (“HHGI”) and Zone Technologies, Inc. (“Zone”), collectively referred to as the “Zone Defendants”. The claims arise out of 3839 Holdings’ purchase of a 10% interest in HHGI and an unsuccessful real estate investment. The Complaint asserted claims for: (i) breach of contract, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty against Mr. Farnsworth and HHGI; (ii) unjust enrichment against Mr. Farnsworth and Zone; (iii) fraudulent conveyance against all of the Zone Defendants; and (iv) alter ego liability against Mr. Farnsworth for HHGI’s obligations. The suit also sought, as part of any final relief it may obtain after trial, an injunction against the merger between Zone and the Company, along with an award of attorneys’ fees. On or about December 7, 2016, 3839 Holdings amended the complaint to add the Company as a defendant, alleging claims against the Company for unjust enrichment, fraudulent conveyance, aiding and abetting a fraudulent conveyance, tortious interference with contract, permanent injunction and attorneys’ fees and cost. 3839 Holdings seeks compensation from the Company and the Zone Defendants in an amount of no less than $3 million plus prejudgment interest, attorney’s fees and costs and expenses. 3839 Holdings is also seeking an injunction to prevent the Company and the Zone Defendants from transferring or disposing of assets. The Company and Zone believe that the claims are baseless and intend to vigorously defend the action.

18

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

15.          Transactions with Related Parties

Transactions with Helios and Matheson Information Technology Ltd. (“HMIT”)

In September 2010 the Company entered into an amendment of a Memorandum of Understanding (the “MOU”) with its former parent, HMIT, which was subsequently amended on August 2013. Pursuant to the MOU, HMIT agreed to make available to the Company facilities of dedicated Off-shore Development Centers (“ODCs”) and also render services by way of support in technology, client engagement, management and operating the ODCs for the Company. The Company furnished HMIT with a security deposit of $2 million to cover any expenses, claims or damages that HMIT may have incurred while discharging its obligations under the MOU and also to cover the Company’s payable to HMIT. As of December 31, 2015, the Company had a receivable from HMIT in the amount of $182,626 which represents amounts paid on behalf of HMIT, for which the Company fully reserved.

In August 2014, the Company entered into a Professional Service Agreement with HMIT (the “PSA”), which documented ongoing services provided by HMIT from February 24, 2014. Pursuant to the PSA, HMIT hired employees in India and provided infrastructure services for those employees to facilitate the operations of those of the Company’s clients who needed offshore support for their businesses. For the services the Company paid the costs incurred by HMIT for the employees it hired to provide the services and a fixed fee for infrastructure support. Beginning October 2014, all employees were transferred to the payroll of the Company’s subsidiary, Helios and Matheson Global Services Pvt. Ltd., and HMIT was paid only for the infrastructure support it provided until August 2015. Beginning September 2015, Helios and Matheson Global Services Pvt. Ltd. leased an office and took over infrastructure support from HMIT. For the three months ended March 31, 2017 and 2016 the Company did not have any revenue from services provided with offshore support of HMIT.

HMIT ceased providing services under the MOU and PSA during the third quarter of 2015. The Company ensured continued uninterrupted services to its clients by taking on infrastructure costs relating to the lease and employees.

The Company determined to provide for a reserve in its September 30, 2015 and December 31, 2015 financial statements in the amount of $2.3 million (the “Reserve Amount”) due to an uncertainty relating to the ability of HMIT to (i) return the security deposit held by HMIT in connection with the MOU and (ii) pay approximately $344,000 in reimbursable expenses and advances pursuant to the PSA. 

On January 21, 2016, HMIT became subject to a liquidation order by an Indian court resulting from creditors’ claims against HMIT. On February 15, 2016, the High Court of Judicature at Madras (Civil Appellate Jurisdiction) issued an order of interim stay of the liquidation order. HMIT continues to await a decision from the High Court of Judicature relating to this matter. If HMIT becomes subject to liquidation, the Company would likely not be able to collect the full amount of $2.3 million reserved in its September 30, 2016 and December 31, 2016 financial statements.

Maruthi Consulting Inc. (Subsidiary of HMIT)

The Company provided consulting services to Maruthi Consulting Inc., a subsidiary of HMIT. As of January 1, 2015, we had a receivable due from Maruthi in the amount of $75,338 and during 2015 we billed an additional $223,454 to Maruthi for services rendered. We provided no services to Maruthi during the year ended December 31, 2016. During 2015, we received $237,318 in payments from Maruthi. Therefore, the amounts receivable at March 31, 2017 and December 31, 2016 was approximately $61,474 and $61,474, respectively.

16.          Warrants

The following is a summary of the Company’s stock warrant activity during the three months March 31, 2017:

	Warrant Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding/Exercisable – December 31, 2016		70,714	$	6.26		4.87
Granted		60,000		8.08		4.99
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Outstanding/Exercisable – March 31, 2017		130,714	$	7.09		4.85

19 

HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

17.          Provision for Income Taxes

The provision for income taxes as reflected in the consolidated statement of operations and comprehensive loss varies from the expected statutory rate primarily due to a provision for minimum state taxes and the recording of adjustments to the valuation allowance against deferred tax assets. Internal Revenue Code Section 382 (the “Code”) places a limitation on the utilization of Federal net operating loss and other credit carry-forwards when an ownership change, as defined by the tax law, occurs. Generally, this occurs when a greater than 50 percent change in ownership occurs. During 2006, Helios and Matheson Information Technology Ltd. (“Helios and Matheson Parent”) acquired a greater than 50 percent ownership of the Company. Accordingly, the actual utilization of the net operating loss carry-forwards for tax purposes are limited annually under the Code to a percentage (currently about four and a half percent) of the fair market value of the Company at the date of this ownership change. The Company maintains a valuation allowance against additional deferred tax assets arising from net operating loss carry-forwards since, in the opinion of management; it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

18.          Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision–making group is composed of the Chief Executive Officer. The Company operates in two segments, Consulting and Technology. During the three months ended March 31, 2016, the Company only operated in the consulting segment.

 The Company evaluates performance of its operating segments based on revenue and operating loss. The following table summarizes our segment information for the three months ended March 31, 2017 and 2016 as well as for the balance sheet dates presented:

	For the Three Months Ended March 31,
	2017			2016
Consulting
Revenue	$	1,358,062		$	1,996,261
Cost of Revenue		1,105,485			1,421,765
Gross Margin		252,577			574,496
Total operating expenses		(3,313,547	)		(722,916	)
Loss from operations		(3,060,970	)		(148,420	)
Total other income/(expense)		(2,091,563	)		(1,006	)
Provision for income taxes		(30,484	)		(3,000	)
Total net loss	$	(5,183,017	)	$	(150,414	)
Technology
Revenue	$	-		$	-
Cost of Revenue		-			-
Gross Margin		-			-
Total operating expenses		(1,297,550	)
Income/(loss) from operations		(1,297,550	)		-
Total other income/(expense)		(16,988	)		-
Provision for income taxes		-			-
Total net loss	$	(1,314,538	)	$	-

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HELIOS AND MATHESON ANALYTICS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

	As of March 31,		As of December 31,
	2017		2016
Consulting
Cash and cash equivalents	$	617,524	$	1,104,715
Accounts receivable	$	472,248	$	410,106
Unbilled receivables	$	54,667	$	45,207
Prepaid expenses and other current assets	$	622,603	$	554,338
Property and equipment	$	43,596	$	34,368
Intangible assets	$	-	$	-
Goodwill	$	-	$	-
Accounts payable and accrued expenses	$	1,342,490	$	1,428,054
Technology
Cash and cash equivalents	$	2,617,899	$	1,651,508
Accounts receivable	$	-	$	-
Unbilled receivables	$	-	$	-
Prepaid expenses and other current assets	$	172,069	$	42,833
Property and equipment	$	17,195	$	10,844
Intangible assets	$	5,578,040	$	6,004,691
Goodwill	$	4,599,969	$	4,599,969
Accounts payable and accrued expenses	$	454,694	$	134,450

19.          Subsequent Events

In April 2017, the Company signed a three-year lease agreement for office space in Miami. The lease, for the three-year agreement starting in May of 2017, will have monthly rent payments due from the Company of $5,026 for the first twelve months, $5,177 for the second year term, and $5,332 for the final year of the contract.

In May 2017, the Company paid cash of $80,000 to redeem a convertible note payable which had been issued to the Placement Agent for services rendered in conjunction with the September Notes.

21

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 throughout and in particular in the discussion at Item 2 titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These are statements regarding financial and operating performance results and other statements that are not historical facts. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “plan,” “forecast,” and similar expressions are intended to identify forward-looking statements. Certain important risks, including those discussed in the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 which have been incorporated into this report by reference, could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of these risks include, among other things:

● our capital requirements and whether or not we will be able to raise capital when we need it;

● our ability to retain our existing clients and expand our client engagements;

● changes in local, state or federal regulations that will adversely affect our business;

● our ability to sell our products and services;

● whether we will continue to receive the services of certain officers and directors;

● our ability to integrate the operations of Zone Technologies, Inc. into our operations and our ability to successfully develop the RedZone Map™ application;

● our ability to effectively react to other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission, such as fluctuation of quarterly financial results, reliance on third party consultants, litigation or other proceedings and stock price volatility;

● our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and

● other uncertainties, all of which are difficult to predict and many of which are beyond our control.

We do not intend to update forward-looking statements. You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission.

The following discussion and analysis of significant factors affecting the Company's operating results and liquidity and capital resources should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes.

Overview

Helios and Matheson provides a wide range of high quality information technology (“IT”) consulting solutions, custom application development and analytics services to Fortune 1000 companies and other large organizations. The Company is headquartered in New York, New York and has a subsidiary in Bangalore, India.

For the three months ended March 31, 2017, 100% of the Company’s revenue was generated by its Consulting segment. Approximately 91.0% of the Company's consulting service revenues were generated from clients under time and materials engagements, as compared to approximately 93.2% for the three months ended March 31, 2016, with the remaining revenue generated under fixed-price engagements. The Company has established standard-billing guidelines for consulting services based on the type of service offered. Actual billing rates are established on a project-by-project basis and may vary from the standard guidelines. The Company typically bills its clients for time and material services on a weekly and monthly basis. Arrangements for fixed-price engagements are made on a case-by-case basis. Consulting service revenues generated under time and material engagements are recognized as those services are provided. Revenues earned from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs.

The Company's most significant operating cost is its personnel cost, which is included in cost of revenues. For the three months ended March 31, 2017 and 2016, gross margin was 18.6% and 28.3%, respectively.

The Company actively manages its personnel utilization rates by monitoring project requirements and timetables. The Company’s utilization rate for the three months ended March 31, 2017 was approximately 98%, as compared to 96% for the three months ended March 31, 2016. As projects are completed, consultants are either re-deployed to new projects at the current client site, re-deployed or re-assigned to new projects at another client site, or are encouraged to participate in the Company’s training programs in order to expand their technical skill sets.

In past years, cash flows from operations combined with cash on hand generally provided adequate funding for our working capital obligations. However, the merger with Zone and the development of the RedZone Map app resulted in an increase in legal, accounting and other expenses and required that we obtain financing for our operations through the issuance of Senior Secured Convertible Promissory Notes to an institutional investor in exchange for cash and promissory notes issued by the institutional investor. As of March 31, 2017, we had raised a total of approximately $15 million through these offerings, which does not include the acceptance of a Senior Secured Convertible Promissory Note in the amount of $80,000 by our placement agent in partial payment of its fees. Of the total amount raised, as of March 31, 2017 we had received $8.1 million in loan proceeds. If not prepaid, the remaining proceeds of $1.9 million from the promissory note issued by the institutional investor as part of the December 2016 financing is due to be paid in August 2017 and the proceeds of $5 million from the promissory note issued by the institutional investor as part of the February 2017 financing is due to be paid in October 2017.

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Plan of Operation

Until our operations are profitable, which we cannot guarantee will ever occur, we will continue to seek financing through the issuance of equity securities, debt securities or a combination of the two. Except as discussed in this report, we have no committed source of financing. We can provide no assurance that we will be able to obtain the financing we need or, if we are able to find financing, we cannot be certain that the financing will be available on acceptable terms. To the extent we raise additional funds by issuing equity securities, our shareholders will likely experience significant dilution. Any additional debt financing, if available, may also cause significant dilution to our existing shareholders and may involve restrictive covenants that impact our ability to conduct business. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to obtain additional financing when we need it, the impact on our operations could be material and adverse and could result in the Company severely curtailing, or even ceasing, its operations.

Our costs include employee salaries and benefits, compensation paid to consultants and costs associated with ongoing training and development activities for our staff, and include travel and administration expenses, legal expenses, sales and marketing costs, general and administrative expenses, and other costs. We anticipate overall costs will increase as we continue to support the activities of our legacy operations in the areas of research and development, sales and marketing, and general and administrative functions and as we continue to integrate Zone’s operations and develop the RedZone Map app. We also may incur increasing expenses to protect our intellectual property.

The amount that we spend for any specific purpose may vary significantly from period to period and could depend on a number of factors including, but not limited to, the pace of progress of our commercialization and development efforts relating to the RedZone Map app, market conditions and changes in or revisions to our marketing strategies.

While RedZone Map is a fully functioning app available for free in the Apple App Store and the Google Play Store, we have not yet derived any advertising revenues from the app and we do not expect to begin to derive revenues until the second half of 2017 or later. 

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP, and our discussion and analysis of its financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Note 6 - “Significant and Critical Accounting Policies and Practices”, of the Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q describes the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at amounts due from clients, net of an allowance for doubtful accounts. The Company monitors its accounts receivable balances on a monthly basis to ensure that they are collectible. On a quarterly basis, the Company uses its historical experience to estimate its accounts receivable reserve. The Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the client may have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that client against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. The Company also establishes a general reserve for all clients based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

23

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The Company is required to perform impairment reviews at each of its reporting units annually and more frequently in certain circumstances. The Company performs the annual assessment on December 31.

In accordance with ASC 350–20 “Goodwill”, the Company is able to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two–step goodwill impairment test. If the Company concludes that it is more likely than not that the fair value of a reporting unit is not less than its carrying amount it is not required to perform the two–step impairment test for that reporting unit. 

There were no impairment charges recognized during the three months ended March 31, 2017 and 2016.

Intangible Assets, net

Intangible assets consist of technology, trademarks and broker relationships. Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment. Intangible assets are amortized on the straight-line method over their useful lives ranging from 1 to 7 years.

During the three months ended March 31, 2017 and 2016, the Company recorded amortization expense of $426,651 and $0, respectively. 

Debt Discount and Debt Issuance Costs

Debt discounts and debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense based on the related debt agreements using the effective-interest method.

Derivative Instruments

The Company evaluates its convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC Paragraph 815-10-05-4 and ASC and Paragraph 815-40-25. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current to correspond with its host instrument.

The Company marks to market the fair value of the remaining embedded derivative warrants at each balance sheet date and records the change in the fair value of the remaining embedded derivative warrants as other income or expense in the statements of operations.

24

The Company utilizes the Monte Carlo Method that values the liability of the debt conversion feature derivative financial instruments and derivative warrants based on a probability of a down round event. The reason the Company selected the lattice binomial model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models.

Revenue Recognition

Consulting revenues are recognized as services are provided. The Company primarily provides consulting services under time and material contracts, whereby revenue is recognized as hours and costs are incurred. Clients for consulting revenues are billed on a weekly or monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of the software to a customer because future obligations associated with such revenue are insignificant.

Stock Based Compensation

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

Results of Operations

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

	For the Three Months Ended March 31,						Change
	2017			2016			Dollars			% Change
Revenues	$	1,358,062		$	1,996,261		$	(638,199	)		32.0	%
Cost of revenues		1,105,485			1,421,765			(316,280	)		22.2	%
Gross profit		252,577			574,496			(321,919	)		56.0	%
Operating expenses		4,611,097			722,916			3,888,181			536.9	%
Loss from operations		(4,358,520	)		(148,420	)		(4,210,100	)
Other income (expense), net		(2,108,551	)		1,006			(2,109,557	)
Income tax provision		30,484			3,000			27,484
Net loss	$	(6,497,555	)	$	(150,414	)	$	(6,347,141	)

Comparison of the Three Months Ended March 31, 2017 to the Three Months Ended March 31, 2016

Revenues. Revenues for the three months ended March 31, 2017 were approximately $1.4 million as compared to approximately $2.0 million for the three months ended March 31, 2016. The decrease was primarily to the loss of a key offshore client and an overall decrease in the number of onshore consultants who are billed at an hourly rate.

Gross Profit. The resulting gross profit for the three months ended March 31, 2017 was approximately $0.3 million as compared to approximately $0.6 million for the three months ended March 31, 2016. The decrease in gross margin is due to the loss of a key offshore client and an overall decrease in the number of onshore consultants who are billed at an hourly rate partially offset by a savings in cost of revenue from a decrease in consultants.

Operating Expenses. Operating expenses are comprised of selling, general and administrative (“SG&A”) expenses and depreciation and amortization. Operating expenses for the three months ended March 31, 2017 were approximately $4.6 million as compared to approximately $0.7 million for the three months ended March 31, 2016. This increase in operating expenses is primarily the result of two non-cash items: 1) the issuance of common stock to certain advisors for services performed resulting in approximately $1.9 million of SG&A expense and 2) approximately $0.4 million in amortization of intangible assets combined with an approximately $1.6 million increase in technology, marketing, legal and public relations costs associated with Zone Technologies (acquired on November 9, 2016).

Taxes. Tax provision for both the three months ended March 31, 2017 and 2016 was $30,484 and $3,000, respectively. Tax for the three months ended March 31, 2017 was comprised of minimum state taxes and a provision for tax in respect of taxes incurred by the Company’s Indian subsidiary. Tax for the period ended March 31, 2016 was comprised of minimum state taxes.

Net Income/(Loss). As a result of the above, the Company had a net loss of approximately $6.5 million or ($1.17) per basic and diluted share for the three months ended March 31, 2017 as compared to a net loss of approximately $0.2 million or ($0.06) per basic and diluted share for the three months ended March 31, 2016. The increase in net loss is due to the decline in revenues as stated above, as well as, the increase in costs associated with the acquisition of Zone Technologies, including the sale of our Senior Secured Convertible Promissory Notes.

25

Liquidity and Capital Resources 

During the three months ended March 31, 2017 the Company’s revenue declined by approximately 32% and the Company reported a net loss of approximately $6.5 million as compared to a net loss of approximately $0.2 million during the three months ended March 31, 2016. The net loss is primarily driven by a decrease in gross profit margin of approximately $0.3 million, $1.9 million of SGA expenses related to shares issued for services, an increase in amortization of approximately $0.4 million related to intangible assets acquired in conjunction with the Zone acquisition, $0.1 million related to expenses incurred related to the change in market value of derivative liabilities, and interest expense of approximately $1.7 million related to accretion of derivative instruments.

The Company's cash balances were approximately $3.2 million at March 31, 2017 and approximately $2.7 million at December 31, 2016. Net cash used in operating activities for the three months ended March 31, 2017 was approximately $2.5 million compared to net cash provided by operating activities of approximately $0.2 million for the three months ended March 31, 2016. Net cash provided by operating activities primarily relates to a net loss of approximately $6.5 million offset by non-cash adjustments of approximately $1.7 million related to accretion of debt discount, approximately $1.9 million related to shares issued in exchange for services, and approximately $0.4 million related to depreciation and amortization expense.

The Company's accounts receivable, less allowance for doubtful accounts, at March 31, 2017 and at December 31, 2016 were approximately $0.5 million and $0.4 million, respectively, representing 52 days and 52 days of sales outstanding respectively. The Company has provided an allowance for doubtful accounts at the end of each of the periods presented. After giving effect to this allowance, the Company does not anticipate any difficulty in collecting amounts due.

For the three months ended March 31, 2017, net cash used in investing activities was $19,855 as compared to $1,673 for the three months March 31, 2016.

For the three months ended March 31, 2017, net cash provided by financing activities was $3 million as compared to $0 for the three months ended March 31, 2016. In management's opinion, there is substantial doubt about the Company’s ability to continue as a going concern through one year after the issuance of the accompanying financial statements. Management has evaluated the significance of the conditions in relation to the Company’s ability to meet its obligations and concluded that without additional funding the Company will not have sufficient funds to meet its obligations within one year from the date of the condensed consolidated financial statements were issued. While Management continues to plan on raising additional capital from investors to meet operating cash requirements, there is no assurance that Management’s plans will be successful.

Off Balance Sheet Arrangements

As of March 31, 2017, the Company does not have any off balance sheet arrangements.

Contractual Obligations and Commitments

The Company’s commitments at March 31, 2017 are reflected and further detailed in the table located in Part I, Item 1, Note 14 of this Form 10-Q.

Inflation

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. As of March 31, 2017, the Company carried out an evaluation, under the supervision of and with the participation of our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of March 31, 2017, our disclosure controls and procedures were effective.

26

Changes in internal control over financial reporting. During the quarter covered by this report, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

On August 24, 2016, 3839 Holdings LLC (“3839 Holdings”) filed a summons and complaint in the Supreme Court of the State of New York, New York County, against Theodore Farnsworth (“Mr. Farnsworth”), Highland Holdings Group, Inc. (“HHGI”) and Zone Technologies, Inc. (“Zone”), collectively referred to as the “Zone Defendants”. The claims arise out of 3839 Holdings’ purchase of a 10% interest in HHGI and an unsuccessful real estate investment. The Complaint asserted claims for: (i) breach of contract, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty against Mr. Farnsworth and HHGI; (ii) unjust enrichment against Mr. Farnsworth and Zone; (iii) fraudulent conveyance against all of the Zone Defendants; and (iv) alter ego liability against Mr. Farnsworth for HHGI’s obligations. The suit also sought, as part of any final relief it may obtain after trial, an injunction against the merger between Zone and the Company, along with an award of attorneys’ fees. On or about December 7, 2016, 3839 Holdings amended the complaint to add the Company as a defendant, alleging claims against the Company for unjust enrichment, fraudulent conveyance, aiding and abetting a fraudulent conveyance, tortious interference with contract, permanent injunction and attorneys’ fees and cost. 3839 Holdings seeks compensation from the Company and the Zone Defendants in an amount of no less than $3 million plus prejudgment interest, attorney’s fees and costs and expenses. 3839 Holdings is also seeking an injunction to prevent the Company and the Zone Defendants from transferring or disposing of assets. The Company and Zone believe that the claims are baseless and intend to vigorously defend the action.

Item 1A. Risk Factors

We incorporate herein by reference the risk factors included under Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that was filed with the Securities and Exchange Commission on April 14, 2016.

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

None.

Item 3. Defaults Upon Senior Securities 

None.

Item 4. Mine Safety Disclosure 

Not Applicable.

Item 5. Other Information 

None.

27

Item 6. Exhibits

(a)        Exhibits

3.1 Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the form 10-K, as previously filed with the SEC on March 31, 2010.

3.1.1 Certificate of Amendment to Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.3 to the Form 10-Q for the period ended March 31, 2011 as filed with the SEC on May 13, 2011.

3.1.2 Certificate of Amendment to Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.4 to the Form 10-Q for the period ended June 30, 2011 as filed with the SEC on August 15, 2011.

3.2 Bylaws of Helios and Matheson Analytics Inc., incorporated by reference to Exhibit 3.2 to the form 10-K, as filed with the SEC on March 31, 2010.

10.1 First Amendment to Letter Agreement dated January 15, 2017 between the Company and an institutional investor, incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on January 17, 2017.

10.2 Form of Individual Employee Benefit Plan for Executives, incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on January 23, 2017. †

10.3 Form of Individual Employee Benefit Plan for Consultants, incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on January 23, 2017.

10.4 Securities Purchase Agreement dated February 7, 2017 between the Company and an institutional investor, incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on February 7, 2017.

10.5 Form of Senior Secured Promissory Note, incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on February 7, 2017.

10.6 Form of Investor Note, incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on February 7, 2017.

10.7 Form of Registration Rights Agreement, incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the SEC on February 7, 2017.

10.8 Form of Security and Pledge Agreement, incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the SEC on February 7, 2017.

10.9 Form of Guaranty, incorporated by reference to Exhibit 10.6 to the Form 8-K filed with the SEC on February 7, 2017.

10.10 Form of Voting and Lock-Up Agreement, incorporated by reference to Exhibit 10.7 to the Form 8-K filed with the SEC on February 7, 2017.

10.11 Letter Agreement dated February 7, 2017 between the Company and an institutional investor, incorporated by reference to Exhibit 10.8 to the Form 8-K filed with the SEC on February 7, 2017.

10.12 Form of Placement Agent Warrant, incorporated by reference to Exhibit 10.9 to the Form 8-K filed with the SEC on February 7, 2017.

31.1 Certification of Principal 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 Principal 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.**

101.INS XBRL Instance Document.*

101.SCH XBRL Taxonomy Extension Schema.*

101.CAL XBRL Taxonomy Extension Calculation Linkbase.*

101.LAB XBRL Taxonomy Extension Label Linkbase.*

101.PRE XBRL Taxonomy Extension Presentation Linkbase.*

101.DEF XBRL Taxonomy Extension Definition Linkbase.*

* Filed herewith.

** Furnished, not filed.

† Management contract or compensation plan.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HELIOS AND MATHESON ANALYTICS INC.
Date: May 18, 2017	By:	/s/	Theodore Farnsworth
			Theodore Farnsworth
			Chief Executive Officer (Principal Executive Officer)

	HELIOS AND MATHESON ANALYTICS INC.
Date: May 18, 2017	By:	/s/	Stuart Benson
			Stuart Benson
			Chief Financial Officer (Principal Financial Officer)

 29

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Theodore Farnsworth, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Helios and Matheson Analytics Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 18, 2017	/s/ Theodore Farnsworth
		Name: Theodore Farnsworth Title: Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Stuart Benson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Helios and Matheson Analytics Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 18, 2017	/s/ Stuart Benson
		Name: Stuart Benson Title: Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Helios and Matheson Analytics Inc. for the three month period ending March 31, 2017, I, Theodore Farnsworth, the Principal Executive Officer of Helios and Matheson Analytics Inc., hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) such Quarterly Report on Form 10-Q for the three month period ending March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in such Quarterly Report on Form 10-Q for the three month period ending March 31, 2017 fairly presents, in all material respects, the financial condition and results of operations of Helios and Matheson Analytics Inc. on a consolidated basis.

Date:	May 18, 2017	/s/ Theodore Farnsworth
		Name: Theodore Farnsworth Title: President and Chief Executive Officer (Principal Executive Officer)

A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Helios and Matheson Analytics Inc. for the three month period ending March 31, 2017, I, Stuart Benson, the Principal Financial Officer of Helios and Matheson Analytics Inc., hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) such Quarterly Report on Form 10-Q for the three month period ending March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in such Quarterly Report on Form 10-Q for the three month period ending March 31, 2017 fairly presents, in all material respects, the financial condition and results of operations of Helios and Matheson Analytics Inc., on a consolidated basis.

Date:	May 18, 2017	/s/ Stuart Benson
		Name: Stuart Benson Title: Chief Financial Officer (Principal Financial and Accounting Officer)

A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 19, 2017
Document Information [Line Items]
Entity Registrant Name	Helios & Matheson Analytics Inc.
Entity Central Index Key	0001040792
Trading Symbol	hmny
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		5,861,191
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 3,235,423	$ 2,747,240
Accounts receivable - less allowance for doubtful accounts of $424,664 and $428,719 at March 31, 2017 and December 31, 2016, respectively	472,248	410,106
Unbilled Receivables	54,667	45,207
Prepaid expenses and other current assets	794,672	597,171
Total current assets	4,557,010	3,799,724
Property and equipment, net	60,791	45,212
Intangible assets, net	5,578,040	6,004,691
Goodwill	4,599,969	4,599,969
Deposits and other assets	145,929	59,189
Total assets	14,941,739	14,508,785
Current liabilities:
Accounts payable and accrued expenses	1,797,184	1,331,118
Convertible Notes Payable, net of debt discount of $1,691,914 and $2,200,575, respectively	2,351,062	31,425
Derivative liability	716,175	1,207,792
Total current liabilities	4,864,421	2,570,335
Total liabilities	4,864,421	2,570,335
Commitments and Contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2017 and December 31, 2016
Common stock, $.01 par value; 30,000,000 shares authorized; 5,861,191 and 4,874,839 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	58,612	48,748
Paid-in capital	59,883,847	55,258,111
Accumulated other comprehensive loss - foreign currency translation	(106,168)	(106,991)
Accumulated deficit	(49,758,973)	(43,261,418)
Total shareholders' equity	10,077,318	11,938,450
Total liabilities and shareholders' equity	$ 14,941,739	$ 14,508,785

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Allowance for doubtful accounts	$ 424,664	$ 428,719
Convertible notes payable, discount	$ 1,691,914	$ 2,200,575
Preferred Stock, Par Value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized (in shares)	2,000,000	2,000,000
Preferred Stock, Shares Issued (in shares)	0	0
Preferred Stock, Shares Outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	5,861,191	4,874,839
Common stock, shares outstanding (in shares)	5,861,191	4,874,839

XML

Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revenues:
Revenue	$ 1,358,062	$ 1,996,261
Cost of revenue	1,105,485	1,421,765
Gross profit	252,577	574,496
Operating expenses:
Selling, general & administrative	4,180,172	719,602
Depreciation & amortization	430,925	3,314
Total operating expenses	4,611,097	722,916
Loss from operations	(4,358,520)	(148,420)
Other income/(expense):
Change in fair market value - derivative liabilities	982,331
Interest expense	(3,108,832)
Interest income	17,950	1,006
Total other (expense) / income	(2,108,551)	1,006
Loss before income taxes	(6,467,071)	(147,414)
Provision for income taxes	30,484	3,000
Net loss	(6,497,555)	(150,414)
Other comprehensive income-foreign currency adjustment	823	556
Comprehensive loss	$ (6,496,732)	$ (149,858)
Net loss per share
Basic and Diluted (in dollars per share)	$ (1.17)	$ (0.06)
Weighted average shares (in shares)	5,530,083	2,330,438

XML

Condensed Consolidated Statement of Shareholders' Equity (Deficit) (Unaudited) - 3 months ended Mar. 31, 2017 - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2016		4,874,839
Balance at Dec. 31, 2016		$ 48,748	$ 55,258,111	$ (106,991)	$ (43,261,418)	$ 11,938,450
Conversion of convertible notes and interest to shares of common stock (in shares)		466,352
Conversion of convertible notes and interest to shares of common stock		$ 4,664	1,852,337			1,857,001
Shares issued in exchange for services (in shares)		520,000
Shares issued in exchange for services		$ 5,200	1,891,200			1,896,400
Derivative liability which ceases to exist			882,199			882,199
Net loss					(6,497,555)	(6,497,555)
Foreign Exchange Translation				823		823
Balance (in shares) at Mar. 31, 2017		5,861,191
Balance at Mar. 31, 2017		$ 58,612	$ 59,883,847	$ (106,168)	$ (49,758,973)	$ 10,077,318

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (6,497,555)	$ (150,414)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	430,925	3,314
Accretion of debt discount	1,685,946
Change in fair market value - derivative liabilities	(982,331)
Provision for doubtful accounts	(4,055)	12,350
Non-cash interest expense	1,422,886
Issuance of Stock and Warrants for Services or Claims	1,896,400
Change in operating assets and liabilities:
Accounts receivable	(58,087)	192,776
Unbilled receivables	(9,460)	197,009
Prepaid expenses and other current assets	(197,501)	45,703
Accounts payable and accrued expenses	93,213	39,511
Deposits	(86,740)	(62,159)
Net cash used in operating activities	(2,492,785)	199,068
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of Property and Equipment	956
Purchases of equipment	(20,811)	(1,673)
Net cash used in investing activities	(19,855)	(1,673)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable	3,000,000
Net cash provided by financing activities	3,000,000
Net change in cash	487,360	197,395
Effect of foreign currency exchange rate changes on cash and cash equivalents	823	556
Cash, beginning of period	2,747,240	898,477
Cash, end of period	3,235,423	1,096,428
Supplemental disclosure of cash and non-cash transactions:
Cash paid for income taxes	5,975	1,263
Cash paid for interest	128,114
Conversion of convertible notes and interest to common stock	1,857,001
Increase in debt for new original issue discount	681,818
Derivative ceases to exist - reclassified to paid in capital	882,199
Increase in debt discount for new derivatives and warrants	$ 1,372,913

XML

Note 1 - General

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.

             General

The accompanying unaudited interim condensed consolidated financial statements (“interim statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form

10

-Q and Article

10

of Regulation S-X of the Securities Exchange Act of

1934,

as amended (the “Exchange Act”), issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that

may

be reported for the entire year. The consolidated balance sheet as of

December

31,

2016

was derived from the audited consolidated financial statements as of and for the year ended

December

31,

2016.

These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended

December

31,

2016.

XML

Note 2 - Prior Year Reclassification

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Accounting Changes and Error Corrections [Text Block]

2.

             Prior Year Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation. This reclassification had no impact on the Company’s previously reported income from operations or cash flows from operations; the Company has determined that the impact of this reclassification is not material to the previously issued annual and interim unaudited consolidated financial statements using the guidance of SEC Staff Accounting Bulletin ("SAB”) No.

99

and SAB 

108.

XML

Note 3 - Change in Controlled Company Status

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Change in Controlled Company Status [Text Block]

3.

             Change in Controlled Company Status

Prior to the merger between our wholly-owned subsidiary, Zone Acquisition, Inc. (“Zone Acquisition”), and Zone Technologies, Inc. (“Zone”), as described below, the Company was a controlled company as defined by Rule

5615(c)(1)

of the NASDAQ Listing Rules because Helios and Matheson Information Technology Ltd., our former parent (referred to in this report as “HMIT”), was the beneficial owner of approximately

75%

of our outstanding common stock. Upon consummation of the merger on

November

9,

2016,

we ceased to be a controlled company.

XML

Note 4 - Merger with Zone Technologies, Inc.

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Business Combination Disclosure [Text Block]

4.

             Merger with Zone Technologies, Inc.

On

November

9,

2016

(the “Closing Date”), the Company completed the merger contemplated by the previously disclosed Agreement and Plan of Merger, dated as of

July

7,

2016,

among us, Zone and Zone Acquisition, as amended by the Waiver and First Amendment to Agreement and Plan of Merger dated as of

August

25,

2016

and the Acknowledgment of Satisfaction of Condition and Second Amendment to Agreement and Plan of Merger, dated as of

September

21,

2016

(collectively, the “Merger Agreement”).

On the Closing Date, the Company issued

1,740,000

shares of our common stock as merger consideration pursuant to the Merger Agreement, which represented an exchange ratio of

0.174

shares of our common stock for each share of Zone common stock outstanding, and Zone Acquisition, our wholly-owned subsidiary, was merged into Zone, with Zone surviving the merger as our wholly-owned subsidiary.

Zone is the developer of the proprietary RedZone Map, a GPS-driven, real-time crime and navigation map application whose goal is to enhance personal safety worldwide by providing users with real time crime data and a platform for alerting other users to criminal and other safety related occurrences in a navigation map format. Zone’s mapping lets users be pro-active when traveling, allowing them to enter a number of different cautionary items such as traffic problems, police sightings, road hazards, accidents and road closures. It also allows users to report a crime and to video upload live incidents.

Zone’s business model has

four

components. The

first

component is providing user access to public safety information. Zone’s goal is to enhance the personal safety of its users by providing crime data to anyone using a mobile or stationary mapping application for navigation. Zone also provides tools for examining such things as neighborhoods for possible relocation, schools to attend, travel planning and lodging selection. The

second

component, when implemented, will provide enterprise business solutions, such as choosing a route for trucking and delivery services based on crime mapping analytics. The

third

component, when implemented, will be geared towards providing law enforcement agencies with tools to better understand crime patterns and to engage with their jurisdiction(s) more meaningfully. The

fourth

component, when implemented, will be to work with governmental agencies using advanced mapping and geo-fencing for counter-terrorism efforts.

While RedZone Map is a fully functioning app available for free in the Apple App Store and the Google Play Store, the Company has not yet derived any advertising revenues from the app.

The following tables summarize the fair values of the net assets/liabilities assumed and the allocation of the aggregate fair value of the purchase consideration, non–controlling interest and net liabilities to assumed identifiable and unidentifiable intangible assets:

Purchase consideration:
Common stock (1,740,000 shares at the transaction date fair value of $5.41 per share)	$	9,413,000
Liabilities assumed		1,574,512
Assets acquired		(136,343	)
Aggregate fair value of enterprise		10,851,169
Purchase price allocation:
Net liabilities assumed		(1,488,476	)
Cash acquired		136,343
Total		(1,352,133	)
Technology		4,270,000
Broker Relationships		4,200
Trademarks		1,977,000
Goodwill		4,599,969
Total purchase price allocation	$	10,851,169

XML

Note 5 - Going Concern Analysis

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Substantial Doubt about Going Concern [Text Block]

5.

              Going Concern Analysis

The Company is subject to a number of risks similar to those of other Big Data technology and technology consulting companies, including its dependence on key individuals, uncertainty of product development and generation of revenues, dependence on outside sources of capital, risks associated with research, development, testing, and successful protection of intellectual property, and the Company’s susceptibility to infringement on the proprietary rights of others and, ultimately, the attainment of profitable operations are dependent on future events, including obtaining adequate financing to fulfill its development activities and generating a level of revenues adequate to support the Company's cost structure.

The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years, and as at

March

31,

2017,

had an accumulated deficit of

$49,758,973,

a net loss for the

three

months ended

March

31,

2017

of

$6,497,555

and net cash used in operating activities of

$2,492,785.

The Company expects to continue to incur net losses and have significant cash outflows for at least the next

twelve

months. As of

March

31,

2017,

the Company had cash and a working capital deficit of

$3,235,423

and

$307,411,

respectively and during the

three

months ended

March

31,

2017,

the Company used cash from operations of

$2,492,785.

Management has concluded that due to the conditions described above, there is substantial doubt about the Company’s ability to continue as a going concern through

one

year after the issuance of the accompanying financial statements. Management has evaluated the significance of the conditions in relation to the Company’s ability to meet its obligations and concluded that without additional funding the Company will not have sufficient funds to meet its obligations within

one

year from the date of the condensed consolidated financial statements were issued. While management continues to plan on raising additional capital from investors to meet operating cash requirements, there is no assurance that management’s plans will be successful.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company's cost structure.

XML

Note 6 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

6.

             Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Principles of Consolidation

All intercompany transactions and balances have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of

three

months or less at the date of acquisition to be cash equivalents.

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times

may

exceed federally insured limits.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at amounts due from clients, net of an allowance for doubtful accounts. The Company monitors its accounts receivable balances on a monthly basis to ensure that they are collectible. On a quarterly basis, the Company uses its historical experience to estimate its accounts receivable reserve. The Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the client

may

have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that client against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. The Company also establishes a general reserve for all clients based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted Section

360

-

10

-

35

of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for its long-lived assets. Pursuant to ASC Paragraph

360

-

10

-

35

-

17,

an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph

360

-

10

-

35

-

20,

if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets which range from

three

to

ten

years.

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations. 

During the

three

months ended

March

31,

2017

and

2016,

the Company recorded depreciation expense of

$4,274

and

$3,314,

respectively.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The Company is required to perform impairment reviews at each of its reporting units annually and more frequently in certain circumstances. The Company performs the annual assessment on

December

31.

In accordance with ASC

350–20

“

Goodwill

”, the Company is able to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the

two–step

goodwill impairment test. If the Company concludes that it is more likely than not that the fair value of a reporting unit is not less than its carrying amount it is not required to perform the

two–step

impairment test for that reporting unit. 

There were 

no

 impairment charges recognized during the

three

months ended

March

 

31,

2017

and

2016.

Intangible Assets, net

Intangible assets consist of technology, trademarks and broker relationships. Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment. Intangible assets are amortized on the straight-line method over their useful lives ranging from

1

to

7

 years.

During the

three

months ended

March

31,

2017

and

2016,

the Company recorded amortization expense of

$426,651

and

$0,

respectively.

Debt Discount and Debt Issuance Costs

Debt discounts and debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense based on the related debt agreements using the effective-interest method.

Derivative Instruments

The Company evaluates its convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC Paragraph

815

-

10

-

05

-

4

and ASC and Paragraph

815

-

40

-

25.

The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current to correspond with its host instrument.

The Company marks to market the fair value of the remaining embedded derivative warrants at each balance sheet date and records the change in the fair value of the remaining embedded derivative warrants as other income or expense in the statements of operations.

The Company utilizes the Monte Carlo Method that values the liability of the debt conversion feature derivative financial instruments and derivative warrants based on a probability of a down round event. The reason the Company selected the lattice binomial model is that in many cases there

may

be multiple embedded features or the features of the bifurcated derivatives

may

be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value

may

not be appropriately captured by simple models.

Revenue Recognition

Consulting revenues are recognized as services are provided. The Company primarily provides consulting services under time and material contracts, whereby revenue is recognized as hours and costs are incurred. Clients for consulting revenues are billed on a weekly or monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of the software to a customer because future obligations associated with such revenue are insignificant.

Advertising

The Company expenses advertising costs when incurred.

Comprehensive Loss

Comprehensive loss consists of

two

components, net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that are recorded as an element of stockholder’s equity but are excluded from net loss. The Company’s other comprehensive loss is comprised of foreign currency translation adjustments.

Foreign Currency Translation

Assets, liabilities, revenue and expenses denominated in non-U.S. currencies are translated at the rate of exchange prevailing on the date of the consolidated balance sheet. Gains (losses) on translation of the consolidated financial statements are from the Company’s subsidiary where the functional currency is not the U.S. dollar. Translation gains (losses) are reflected as a component of accumulated other comprehensive income (loss). Gains (losses) on foreign currency transactions are included in the consolidated statements of income.

Income Taxes

Income taxes are provided in accordance with ASC No.

740,

“

Accounting for Income Taxes

”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the period of deferred tax assets and liabilities.

Stock Based Compensation

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

Net Income/(Loss) Per Share

Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section

260

-

10

-

45

of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs

260

-

10

-

45

-

10

through

260

-

10

-

45

-

16,

basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

The following table sets forth the computation of basic and diluted net income/(loss) per share for the

three

months ended

March

31,

2017

and

2016:

	For the Three Months Ended March 31,
	2017			2016
Numerator
Net loss attributable to common shareholders - basic	$	(6,497,555	)	$	(150,414	)
Effect of dilutive instrument on net income (loss)		-			-
Net loss attributable to common shareholders - diluted	$	(6,497,555	)	$	(150,414	)
Denominator
Weighted average shares of common stock outstanding - basic		5,530,083			2,330,438
Dilutive effect of stock options, warrants and convertible securities		-			-
Weighted average shares of common stock outstanding - diluted		5,530,083			2,330,438
Net loss per share
Basic & Diluted	$	(1.17	)	$	(0.06	)

The following table shows the outstanding dilutive common shares excluded from the diluted net loss per share calculation as they were anti-dilutive:

	March 31, 2017		December 31, 2016
Warrants	$	130,714	$	70,714
Conversion features on convertible notes		216,092		511,989
Total potentially dilutive shares	$	346,806	$	582,703

Recent Accounting Pronouncements

In

May

2014,

the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle (issued as ASU

2014

-

09

by the FASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These

may

include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In

August

2015,

the FASB issued ASU No.

2015

-

14,

which defers the effective date of ASU

2014

-

09

by

one

year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after

December

15,

2017.

The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating this standards impact on its consolidated financial statements and disclosures.

During

January

2016,

the FASB issued ASU No.

2016

-

01,

“Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”

(“ASU

2016

-

01”).

The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those years, beginning after

December

15,

2017.

Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income.

In

February

2016,

the FASB issued ASU

2016

-

02,

 

Leases (Topic

842)

 which supersedes FASB ASC Topic

840,

 

Leases (Topic

840)

 and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than

twelve

months regardless of classification. Leases with a term of

twelve

months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after

December

15,

2018,

with early adoption permitted upon issuance. The Company is currently evaluating the method of adoption and the impact of adopting ASU

2016

-

02

on its results of operations, cash flows and financial position.

In

March

2016,

the FASB issued ASU No. 

2016

-

06,

“Contingent Put and Call Option in Debt Instruments”

(“ASU

2016

-

06”).

ASU

2016

-

06

is intended to simplify the analysis of embedded derivatives for debt instruments that contain contingent put or call options. The amendments in ASU

2016

-

06

clarify that an entity is required to assess the embedded call or put options solely in accordance with the

four

-step decision sequence. Consequently, when a call (put) option is contingently exercisable, an entity does not have to initially assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. The amendments in ASU

2016

-

06

take effect for public business entities for financial statements issued for fiscal years beginning after

December

 

15,

2016,

and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. As of

March

31,

2017,

the Company has adopted ASU

2016–06

and has determined that the impact over the results of operations and cash flows is not material.

In

April

2016,

the FASB issued ASU No.

2016

-

09,

“

Compensation – Stock Compensation (Topic

718)”

. The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after

December

15,

2016,

including interim periods within those fiscal years. Early adoption of the update is permitted. As of

March

31,

2017,

the Company has adopted ASU

2016–06

and has determined that the impact over the results of operations and cash flows is not material.

In

May

2016,

the FASB issued ASU

2016

-

12,

“Revenue from Contracts with Customers (Topic

606):

Narrow-Scope Improvements and Practical Expedients”

(“ASU

2016

-

12”).

The amendments in ASU

2016

-

12

provide clarifying guidance in certain narrow areas and add some practical expedients. Specifically, the amendments in this update

(1)

clarify the objective of the collectability criterion in step

1,

and provides additional clarification for when to recognize revenue for a contract that fails step

1,

(2)

permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price

(3)

specify that the measurement date for noncash consideration is contract inception, and clarifies that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration,

(4)

provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations,

(5)

clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Further, accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts, and

(6)

clarifies that an entity that retrospectively applies the guidance in Topic

606

to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic

606.

The guidance is effective for the Company beginning

January

1,

2018,

although early adoption is permitted beginning

January

1,

2017.

The Company is currently evaluating the method of adoption and the impact of adopting ASU

2016

-

12

on its results of operations, cash flows and financial position.

In

August

2016,

the FASB issued ASU

2016

-

15,

“Statement of Cash Flows (Topic

230):

Classification of Certain Cash Receipts and Cash Payments”

(“ASU

2016

-

15”).

ASU

2016

-

15

will make

eight

targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU

2016

-

15

is effective for fiscal years beginning after

December

15,

2017.

The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of ASU

2016

-

15

on its consolidated financial statements.

In

October

2016,

the FASB issued ASU

2016

-

16,

“Income Taxes (Topic

740):

Intra-Entity Transfers of Assets Other than Inventory”,

which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after

December

15,

2019,

including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently in the process of evaluating the impact of ASU

2016

-

15

on its consolidated financial statements.

In

November

2016,

the FASB issued ASU

2016

-

18,

“Statement of Cash Flows (Topic

230)”

, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after

December

15,

2017

with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently in the process of evaluating the impact of ASU

2016

-

18

on its consolidated financial statements.

In

January

2017,

the FASB issued ASU

2017

-

01

Business Combinations (Topic

805):

Clarifying the Definition of a Business

in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for fiscal years beginning after

December

15,

2017,

and interim periods within those fiscal years. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

In

January

2017,

the FASB issued ASU

2017

-

04

Intangibles - Goodwill and Other (Topic

350):

Simplifying the Test for Goodwill Impairment

to simplify the accounting for goodwill impairment. The guidance removes the

second

step of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same

one

-step impairment test will be applied to goodwill for all reporting units, even those with

zero

or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with

zero

or negative carrying amounts. This guidance is effective in

2020,

but early adoption is permitted for any impairment tests performed after

January

1,

2017.

The Company is currently evaluating the impact that this guidance will have on the Company’s consolidated financial statements.

XML

Note 7 - Prepaid Expenses and Other Current Assets

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Other Current Assets [Text Block]

7.

            Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following at

March

31,

2017

and

December

31,

2016:

	March 31, 2017		December 31, 2016
Customer Deposits	$	314,627	$	300,199
Tax		173,637		187,776
Insurance		74,345		44,517
Professional Fees and Services		157,600		42,833
Rent		13,087		13,087
Other		61,376		8,759
Total prepaid expenses and other current assets	$	794,672	$	597,171

XML

Note 8 - Property and Equipment, Net

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

8.

            Property and Equipment, net

Property and equipment, net on

March

31,

2017

and

December

31,

2016

are as follows:

	March 31, 2017		December 31, 2016
Equipment and leaseholds	$	97,689	$	106,460
Furniture and Fixtures		52,924		34,186
Software		177,225		167,337
Subtotal		327,838		307,983
Less: Accumulated depreciation		267,047		262,771
Property and Equipment, net	$	60,791	$	45,212

XML

Note 9 - Intangible Assets, Net and Goodwill

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

9.

             Intangible Assets, net and Goodwill

The Company’s intangibles assets consisted of the following on

March

31,

2017

and

December

31,

2016

:

			March 31, 2017			December 31, 2016
	Estimated Useful Life		Net Book Value			Net Book Value
Technology		3	$	4,270,000		$	4,270,000
Trademarks		7		1,977,000			1,977,000
Broker Relationships		1		4,200			4,200
Subtotal				6,251,200			6,251,200
Less: Accumulated amortization				(673,160	)		(246,509	)
Intangible assets, net			$	5,578,040		$	6,004,691

The Company recorded amortization expense of

$426,651

and

$0

for the

three

months ended

March

31,

2017

and

2016,

respectively.

The following table outlines estimated future annual amortization expense for the next

five

years and thereafter:

March 31,
Remaining 2017	$	1,279,951
2018		1,706,602
2019		1,501,009
2020		283,269
2021		283,147
Thereafter		524,062
Total	$	5,578,040

Goodwill represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Goodwill and indefinite lived intangible assets are tested for impairment annually as of

December

31

st

and more often if a triggering event occurs, by comparing the fair value of each reporting unit to its carrying value.

Balance as of December 31, 2016	$	4,599,969
Goodwill activity for three months ended March 31, 2017		-
Balance as of March 31, 2017	$	4,599,969

XML

Note 10 - Securities Purchase Agreement

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

10.

         Securities Purchase Agreement

The Notes

 

On

September

7,

2016

the Company issued Senior Secured Convertible Notes

(“September

Notes”) in the aggregate principal amount of

$4,301,075

for consideration consisting of (i) a cash payment by an institutional investor (the “Investor”) in the amount of

$1,000,000

together with a secured promissory note payable by the Investor to the Company (the “Investor Note”) in the principal amount of

$3,000,000

to finance a portion of the purchase price, fees and expenses for the direct or indirect acquisition of Zone Technologies, Inc. The

September

Notes have a maturity date of

December

7,

2017.

As of

March

31,

2017,

the Investor has made the following prepayments of the Investor Note:

$1,000,000

on

October

25,

2016;

$1,100,000

on

November

16,

2016;

and

$900,000

on

December

2,

2016.

As of

January

23,

2017,

the Investor had accepted a total of

887,707

shares of the Company’s common stock in full payment of the

September

Notes. On any principal balance owed by the Company to the Investor, a

6%

interest obligation is due quarterly and calculated on a

360

day basis. For the

three

months ended

March

31,

2017,

the Company had interest expense of

$1,217

related to the final

$332,000

in principal amount outstanding during the quarter.

On

December

2,

2016,

the Company issued

two

Senior Secured Convertible Notes (the

“December

Notes”) to the Investor in the aggregate principal amount of

$6,720,000

for consideration consisting of (i) a cash payment by the Investor in the amount of

$1,100,000

and (ii) a secured promissory note payable by the Investor to the Company (the

“December

Investor Note”) in the principal amount of

$4,900,000

to aid in the funding of Zone Technologies, Inc prior to the entity’s ability to generate revenues. The

December

Notes have a maturity date of

August

2,

2017.

At any time, the Investor

may

and, so long as certain equity conditions are met, the Company

may

require the Investor to (a “Mandatory Conversion”), convert the

December

Notes into shares of the Company’s common stock. At

March

31,

2017,

the contracted conversion price was

$4.00

for a conversion made at the election of the Investor and, for a Mandatory Conversion, the Mandatory Conversion Price. The Mandatory Conversion Price is defined as that price which is the lower of (i) the applicable Conversion Price as in effect on the applicable Mandatory Conversion date, and (ii)

80%

the sum of (A) the VWAP of the common stock for each of the

3

trading days with the lowest VWAP of the common stock during the

20

consecutive trading day period ending on and including the trading day immediately prior to the applicable Mandatory Conversion date by and (B)

three.

As of

March

31,

2017

the Investor had paid

$3,000,000

of the

December

Investor Note with the balance payable in full to the Company on

August

2,

2017.

On any principal balance owed by the Company to the Investor, a

6%

interest obligation is due quarterly and calculated on a

360

day basis. For the

three

months ended

March

31,

2017,

the Company had

$84,293

of interest expense pertaining to the unpaid principal amount of the

December

Notes.

On

February

8,

2017,

the Company issued

two

Senior Secured Convertible Notes (the

“February

2017

Notes”) to the Investor in the aggregate principal amount of

$5,681,818

for consideration consisting of a secured promissory note payable by the Investor to the Company (the

“February

2017

Investor Note”) in the principal amount of

$5,000,000

to aid in the funding of Zone Technologies, Inc prior to the entity’s ability to generate revenues. The

February

2017

Notes have a maturity date of

October

8,

2017.

At any time the Investor

may

and, so long as certain equity conditions are met, the Company

may

require the Investor to (a “Mandatory Conversion”), convert the

February

Notes into shares of the Company’s common stock. At

March

31,

2017,

the contracted conversion price was

$4.00

for a conversion made at the election of the Investor and, for a Mandatory Conversion, the Mandatory Conversion Price. The Mandatory Conversion Price is defined as that price which is the lower of (i) the applicable Conversion Price as in effect on the applicable Mandatory Conversion date, and (ii)

80%

the sum of (A) the VWAP of the common stock for each of the

3

trading days with the lowest VWAP of the common stock during the

20

consecutive trading day period ending on and including the trading day immediately prior to the applicable Mandatory Conversion date by and (B)

three.

As of

March

31,

2017

the Investor had paid

$0

of the

February

2017

Investor Note with the amount payable in full to the Company on

October

8,

2017.

On any principal balance owed by the Company to the Investor, a

6%

interest obligation is due quarterly and calculated on a

360

day basis. For the

three

months ended

March

31,

2017,

the Company had

$10,277

of interest expense pertaining to the unpaid principal amount of the

February

2017

Notes.

The Placement Notes and Warrants

 

The Company entered into an agreement with a placement agent (the “Placement Agent”) for assistance with the placement of the

September

Notes. The Placement Agent accepted from the Company a Senior Secured Convertible Note (the

“September

Placement Note”) in the aggregate amount of

$80,000

in partial payment of the Placement Agent’s fee. Unless earlier converted or redeemed, the

September

Placement Note matures

15

months from the date of issuance. The Placement Agent Note bears interest at a rate of

6%

due quarterly and calculated on a

360

day basis. For the

three

months ended

March

31,

2017,

the Company had interest expense pertaining to the

September

Placement Note in the amount of

$1,200.

The Placement Agent also received a

5

-year warrant (the “Placement Agent Warrant”) for the purchase of the Company’s common stock as partial payment for the Placement Agent’s services. The Placement Agent Warrant is issued in tranches in conjunction with cash payments received by the Company on the corresponding Investor Note. During

2016,

warrants were earned allowing for the purchase of

48,714

shares of the Company’s common stock at exercise prices ranging from

$4.54

per share to

$9.36

per share. As of

March

31,

2017

and

December

31,

2016

the Placement Agent had not purchased any shares from the exercise of the Placement Agent Warrant.

The Company entered into an agreement with the Placement Agent for assistance with the placement of the

December

Notes. The Placement Agent accepted from the Company a

5

-year warrant (the

“December

Placement Agent Warrant”) as partial payment for the Placement Agent’s services. The

December

Placement Agent Warrant is issued in tranches in conjunction with cash payments received by the Company on the corresponding

December

Investor Note. As of

December

31,

2016,

22,000

shares of the Company’s common stock had been issued in conjunction with the

December

Placement Agent Warrants at an exercise price of

$4.45

per share. On

February

8,

2017,

the Company received a

$3

million cash payment on the

December

Investor Notes, resulting in the issuance of

60,000

warrants at an exercise price of

$4.00

per share. As of

March

31,

2017

and

December

31,

2016

the Placement Agent had not purchased any shares from the exercise of the

December

Placement Agent Warrant.

The Company entered into an agreement with the Placement Agent for assistance with the placement of the

February

Notes. The Placement Agent accepted from the Company a

5

-year warrant (the

“February

Placement Agent Warrant”) as partial payment for the Placement Agent’s services. The

February

Placement Agent Warrant allows the purchase of up to

8%

of the number of shares of the Company’s common stock into which the unrestricted principal of the

February

Note in the principal amount of

$5

million becomes convertible at an exercise price of

$4.50

per share. As of

March

31,

2017

and

December

31,

2016

the Placement Agent had not purchased any shares from the exercise of the

February

Placement Agent Warrants.

Note Activity:

Senior Secured Convertible Notes consists of the following:

	March 31, 2017		December 31, 2016
September notes	$	-	$	20,480
September placement note		36,000		902
December notes		2,168,960		10,043
February notes		146,102		-
Balance at March 31, 2017	$	2,351,062	$	31,425

Under ASC

210

-

20

-

45

-

1,

management offset the Notes by the Investor Notes yet to be funded.

The carrying value of the Senior Secured Convertible Notes is comprised of the following:

	March 31, 2017			December 31, 2016
September notes	$	-		$	332,000
September placement note		80,000			80,000
December notes		3,295,000			1,820,000
February notes		681,818			-
Unamortized discounts		(1,705,756	)		(2,200,575	)
	$	2,351,062		$	31,425

During the

three

months ended

March

31,

2017,

the Investor has converted a total of

$1,848,692

in principal and

$8,309

in interest into

466,352

shares of the Company’s common stock.

Subsequent to

March

31,

2017,

the Company has not received any additional proceeds from the

December

Investor Note.

XML

Note 11 - Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

11.

          Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

Level

3

Financial Liabilities - Derivative conversion features and warrant liabilities

Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of

March

31,

2017

and

December

31,

2016:

					Fair Value Measurement Using
	Amount at Fair Value		Level 1		Level 2		Level 3
March 31, 2017
Liabilities
Derivative liability - warrants	$	312,432	$	-	$	-	$	312,432
Derivative liability – conversion feature		403,743		-		-		403,743
Total	$	716,175	$	-	$	-	$	716,175
December 31, 2016
Liabilities
Derivative liability - warrants	$	230,663	$	-	$	-	$	230,663
Derivative liability – conversion feature		977,129		-		-		977,129
Total	$	1,207,792	$	-	$	-	$	1,207,792

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level

3)

during the month ended

March

31,

2017:

	Fair Value Measurement Using Level 3 Inputs Total
Balance at December 31, 2016	$	1,207,792
Purchases, issuances and settlements		1,372,913
Reclassification to paid in capital		(882,199	)
Change in fair value of derivative liabilities		(982,331	)
Balance at March 31, 2017	$	716,175

The fair value of the derivative conversion features and warrant liabilities as of

March

31,

2017

and

December

31,

2016

were calculated using a Monte-Carlo option model valued with the following weighted average assumptions:

	March 31, Amount				December 31, Amount
Dividend Yield			0%				0%
Expected Volatility		100%	-	140%		154%	-	230%
Risk free interest rate		0.81%	-	1.93%		0.82%	-	1.12%
Contractual term (in years)		0.34	-	4.68		0.67	-	5.0
Exercise price		$4.00	-	$9.36		$4.00	-	$9.36

Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level

3

financial instruments. The significant unobservable input (probability of a down round event) used in the fair value measurement is the estimation of the likelihood of the occurrence of a change in the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.

XML

Note 12 - Stock Based Compensation

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

12.

          Stock Based Compensation

The Company has a stock based compensation plan, which is described as follows:

 

On

March

3,

2014,

the Board of Directors terminated the Company’s

1997

Stock Option and Award Plan and approved and adopted the Helios and Matheson Analytics Inc.

2014

Equity Incentive Plan (the

“2014

Plan”) which the Company’s stockholders approved at the annual stockholders meeting on

May

5,

2014.

There were

520,000

shares outstanding under the

1997

Stock Option and Award Plan. The

2014

Plan originally set aside and reserved

400,000

shares of the Company’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the

2014

Plan include employees (including officers and directors) of the Company and its affiliates, consultants who provide significant services to the Company or its affiliates, and directors who are not employees of the Company or its affiliates (the “Participants”). The

2014

Plan permits the Company to issue to Participants qualified and/or non-qualified options to purchase the Company’s common stock, restricted common stock, performance units, and performance shares. The

2014

Plan will terminate on

March

3,

2024.

The Company’s Board of Directors is responsible for administration of the

2014

Plan and has the sole discretion to determine which Participants will be granted awards and the terms and conditions of the awards granted. Effective

November

7,

2016

the plan was amended to include a total of

1,125,000

shares of common stock to be issued under the Employee Stock Option Plan.

Also, through the date of filing this Form

10

-Q, several awards have been granted outside of the

2014

Plan to multiple

third

party consultants in exchange for services rendered in the amount of

$1,896,400,

which is recorded as part of Selling, General and Administrative expenses on the Company’s Statements of Operations for the

three

months ended

March

31,

2017.

XML

Note 13 - Concentration of Credit Risk

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

13.

          Concentration of Credit Risk

As of

March

31,

2017,

and

December

31,

2016,

4

customers accounted for

73%

and

70%

of the Company’s total accounts receivable, respectively.

During the

three

months ended

March

31,

2017

and

2016,

87%,

and

94%

of the Company’s revenues were earned from

4

customers and

4

customers, respectively.

As of

March

31,

2017

and

December

31,

2016,

4

vendors accounted for

85%

and

2

vendors accounted for

94%

of the Company’s accounts payable, respectively.

XML

Note 14 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

14.

          Commitments and Contingencies

The Company’s commitments at

March

31,

2017

are comprised of the following:

Operating Lease Commitments (1)	Payments due by period
Less than 1 year	$	129,892
1 to 3 years		677,895
3 to 5 years		347,985
Thereafter		-
	$	1,155,772

(1)

The Company’s executive office is located at the Empire State Building,

350

Fifth Avenue, Suite

7520,

New York,

New York

10118.

The Company’s executive office is located in a leased facility with a term expiring on

June

30,

2022.

Zone

rents

two

offices on a monthly basis through WeWork. The offices are located at

350

Lincoln Road, Miami Beach, Florida.

In addition, the Company’s Indian subsidiary has an office in Bangalore, India at a leased facility located at

3

rd

Floor, Beta Block, Number

7

Sigma Tech Park, Varthur Kodi, Bangalore

560066.

This lease will expire on

October

7

2017,

The Company’s executive office lease is subject to escalations based on increases in real estate taxes and operating expenses, all of which are charged to rent expense. Rent expense for the

three

months ended

March

31,

2017

and

2016

was approximately

$47,800

and

$90,900,

respectively.

As of

March

31,

2017,

the Company does not have any “Off Balance Sheet Arrangements”.

Legal Proceeding:

On

August

24,

2016,

3839

Holdings LLC

(“3839

Holdings”) filed a summons and complaint in the Supreme Court of the State of New York, New York County, against Theodore Farnsworth (“Mr. Farnsworth”), Highland Holdings Group, Inc. (“HHGI”) and Zone Technologies, Inc. (“Zone”), collectively referred to as the “Zone Defendants”. The claims arise out of

3839

Holdings’ purchase of a

10%

interest in HHGI and an unsuccessful real estate investment. The Complaint asserted claims for: (i) breach of contract, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty against Mr. Farnsworth and HHGI; (ii) unjust enrichment against Mr. Farnsworth and Zone; (iii) fraudulent conveyance against all of the Zone Defendants; and (iv) alter ego liability against Mr. Farnsworth for HHGI’s obligations. The suit also sought, as part of any final relief it

may

obtain after trial, an injunction against the merger between Zone and the Company, along with an award of attorneys’ fees. On or about

December

7,

2016,

3839

Holdings amended the complaint to add the Company as a defendant, alleging claims against the Company for unjust enrichment, fraudulent conveyance, aiding and abetting a fraudulent conveyance, tortious interference with contract, permanent injunction and attorneys’ fees and cost.

3839

Holdings seeks compensation from the Company and the Zone Defendants in an amount of no less than

$3

million plus prejudgment interest, attorney’s fees and costs and expenses.

3839

Holdings is also seeking an injunction to prevent the Company and the Zone Defendants from transferring or disposing of assets. The Company and Zone believe that the claims are baseless and intend to vigorously defend the action.

XML

Note 15 - Transactions With Related Parties

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

15.

          Transactions with Related Parties

Transactions with Helios and Matheson Information Technology Ltd. (“HMIT”)

In

September

2010

the Company entered into an amendment of a Memorandum of Understanding (the “MOU”) with its former parent, HMIT, which was subsequently amended on

August

2013.

Pursuant to the MOU, HMIT agreed to make available to the Company facilities of dedicated Off-shore Development Centers (“ODCs”) and also render services by way of support in technology, client engagement, management and operating the ODCs for the Company. The Company furnished HMIT with a security deposit of

$2

million to cover any expenses, claims or damages that HMIT

may

have incurred while discharging its obligations under the MOU and also to cover the Company’s payable to HMIT. As of

December

31,

2015,

the Company had a receivable from HMIT in the amount of

$182,626

which represents amounts paid on behalf of HMIT, for which the Company fully reserved.

In

August

2014,

the Company entered into a Professional Service Agreement with HMIT (the “PSA”), which documented ongoing services provided by HMIT from

February

24,

2014.

Pursuant to the PSA, HMIT hired employees in India and provided infrastructure services for those employees to facilitate the operations of those of the Company’s clients who needed offshore support for their businesses. For the services the Company paid the costs incurred by HMIT for the employees it hired to provide the services and a fixed fee for infrastructure support. Beginning

October

2014,

all employees were transferred to the payroll of the Company’s subsidiary, Helios and Matheson Global Services Pvt. Ltd., and HMIT was paid only for the infrastructure support it provided until

August

2015.

Beginning

September

2015,

Helios and Matheson Global Services Pvt. Ltd. leased an office and took over infrastructure support from HMIT. For the

three

months ended

March

31,

2017

and

2016

the Company did

not

have any revenue from services provided with offshore support of HMIT.

HMIT ceased providing services under the MOU and PSA during the

third

quarter of

2015.

The Company ensured continued uninterrupted services to its clients by taking on infrastructure costs relating to the lease and employees.

The Company determined to provide for a reserve in its

September

30,

2015

and

December

31,

2015

financial statements in the amount of

$2.3

million (the “Reserve Amount”) due to an uncertainty relating to the ability of HMIT to (i) return the security deposit held by HMIT in connection with the MOU and (ii) pay approximately

$344,000

in reimbursable expenses and advances pursuant to the PSA. 

On

January

21,

2016,

HMIT became subject to a liquidation order by an Indian court resulting from creditors’ claims against HMIT. On

February

15,

2016,

the High Court of Judicature at Madras (Civil Appellate Jurisdiction) issued an order of interim stay of the liquidation order. HMIT continues to await a decision from the High Court of Judicature relating to this matter. If HMIT becomes subject to liquidation, the Company would likely not be able to collect the full amount of

$2.3

million reserved in its

September

30,

2016

and

December

31,

2016

financial statements.

Maruthi Consulting Inc. (Subsidiary of HMIT)

The Company provided consulting services to Maruthi Consulting Inc., a subsidiary of HMIT. As of

January

1,

2015,

we had a receivable due from Maruthi in the amount of

$75,338

and during

2015

we billed an additional

$223,454

to Maruthi for services rendered. We provided

no

services to Maruthi during the year ended

December

31,

2016.

During

2015,

we received

$237,318

in payments from Maruthi. Therefore, the amounts receivable at

March

31,

2017

and

December

31,

2016

was approximately

$61,474

and

$61,474,

respectively.

XML

Note 16 - Warrants

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Warrants, Disclosure [Text Block]

16.

          Warrants

The following is a summary of the Company’s stock warrant activity during the

three

months

March

31,

2017:

	Warrant Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding/Exercisable – December 31, 2016		70,714	$	6.26		4.87
Granted		60,000		8.08		4.99
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Outstanding/Exercisable – March 31, 2017		130,714	$	7.09		4.85

XML

Note 17 - Provision for Income Taxes

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

17.

          Provision for Income Taxes

The provision for income taxes as reflected in the consolidated statement of operations and comprehensive loss varies from the expected statutory rate primarily due to a provision for minimum state taxes and the recording of adjustments to the valuation allowance against deferred tax assets. Internal Revenue Code Section

382

(the “Code”) places a limitation on the utilization of Federal net operating loss and other credit carry-forwards when an ownership change, as defined by the tax law, occurs. Generally, this occurs when a greater than

50

percent change in ownership occurs. During

2006,

Helios and Matheson Information Technology Ltd. (“Helios and Matheson Parent”) acquired a greater than

50

percent ownership of the Company. Accordingly, the actual utilization of the net operating loss carry-forwards for tax purposes are limited annually under the Code to a percentage (currently about

four

and a half percent) of the fair market value of the Company at the date of this ownership change. The Company maintains a valuation allowance against additional deferred tax assets arising from net operating loss carry-forwards since, in the opinion of management; it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

XML

Note 18 - Segment Reporting

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

18.

          Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision–making group is composed of the Chief Executive Officer. The Company operates in

two

segments, Consulting and Technology. During the

three

months ended

March

31,

2016,

the Company only operated in the consulting segment.

 The Company evaluates performance of its operating segments based on revenue and operating loss. The following table summarizes our segment information for the

three

months ended

March

31,

2017

and

2016

as well as for the balance sheet dates presented:

	For the Three Months Ended March 31,
	2017			2016
Consulting
Revenue	$	1,358,062		$	1,996,261
Cost of Revenue		1,105,485			1,421,765
Gross Margin		252,577			574,496
Total operating expenses		(3,313,547	)		(722,916	)
Loss from operations		(3,060,970	)		(148,420	)
Total other income/(expense)		(2,091,563	)		(1,006	)
Provision for income taxes		(30,484	)		(3,000	)
Total net loss	$	(5,183,017	)	$	(150,414	)
Technology
Revenue	$	-		$	-
Cost of Revenue		-			-
Gross Margin		-			-
Total operating expenses		(1,297,550	)
Income/(loss) from operations		(1,297,550	)		-
Total other income/(expense)		(16,988	)		-
Provision for income taxes		-			-
Total net loss	$	(1,314,538	)	$	-

	As of March 31,		As of December 31,
	2017		2016
Consulting
Cash and cash equivalents	$	617,524	$	1,104,715
Accounts receivable	$	472,248	$	410,106
Unbilled receivables	$	54,667	$	45,207
Prepaid expenses and other current assets	$	622,603	$	554,338
Property and equipment	$	43,596	$	34,368
Intangible assets	$	-	$	-
Goodwill	$	-	$	-
Accounts payable and accrued expenses	$	1,342,490	$	1,428,054
Technology
Cash and cash equivalents	$	2,617,899	$	1,651,508
Accounts receivable	$	-	$	-
Unbilled receivables	$	-	$	-
Prepaid expenses and other current assets	$	172,069	$	42,833
Property and equipment	$	17,195	$	10,844
Intangible assets	$	5,578,040	$	6,004,691
Goodwill	$	4,599,969	$	4,599,969
Accounts payable and accrued expenses	$	454,694	$	134,450

XML

Note 19 - Subsequent Events

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Subsequent Events [Text Block]

19.

         Subsequent Events

In

April

2017,

the Company signed a

three

-year lease agreement for office space in Miami. The lease, for the

three

-year agreement starting in

May

of

2017,

will have monthly rent payments due from the Company of

$5,026

for the

first

twelve

months,

$5,177

for the

second

year term, and

$5,332

for the final year of the contract.

In

May

2017,

the Company paid cash of

$80,000

to redeem a convertible note payable which had been issued to the Placement Agent for services rendered in conjunction with the

September

Notes.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Use of Estimates, Policy [Policy Text Block]

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

All intercompany transactions and balances have been eliminated.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of

three

months or less at the date of acquisition to be cash equivalents.

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times

may

exceed federally insured limits.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at amounts due from clients, net of an allowance for doubtful accounts. The Company monitors its accounts receivable balances on a monthly basis to ensure that they are collectible. On a quarterly basis, the Company uses its historical experience to estimate its accounts receivable reserve. The Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the client

may

have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that client against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. The Company also establishes a general reserve for all clients based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimate of the recoverability of amounts due the Company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted Section

360

-

10

-

35

of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for its long-lived assets. Pursuant to ASC Paragraph

360

-

10

-

35

-

17,

an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph

360

-

10

-

35

-

20,

if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets which range from

three

to

ten

years.

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations. 

During the

three

months ended

March

31,

2017

and

2016,

the Company recorded depreciation expense of

$4,274

and

$3,314,

respectively.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The Company is required to perform impairment reviews at each of its reporting units annually and more frequently in certain circumstances. The Company performs the annual assessment on

December

31.

In accordance with ASC

350–20

“

Goodwill

”, the Company is able to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the

two–step

goodwill impairment test. If the Company concludes that it is more likely than not that the fair value of a reporting unit is not less than its carrying amount it is not required to perform the

two–step

impairment test for that reporting unit. 

There were 

no

 impairment charges recognized during the

three

months ended

March

 

31,

2017

and

2016.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Intangible Assets, net

Intangible assets consist of technology, trademarks and broker relationships. Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment. Intangible assets are amortized on the straight-line method over their useful lives ranging from

1

to

7

 years.

During the

three

months ended

March

31,

2017

and

2016,

the Company recorded amortization expense of

$426,651

and

$0,

respectively.

Debt Discount and Debt Issuance Costs, Policy [Policy Text Block]

Debt Discount and Debt Issuance Costs

Debt discounts and debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense based on the related debt agreements using the effective-interest method.

Derivatives, Policy [Policy Text Block]

Derivative Instruments

The Company evaluates its convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC Paragraph

815

-

10

-

05

-

4

and ASC and Paragraph

815

-

40

-

25.

The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current to correspond with its host instrument.

The Company marks to market the fair value of the remaining embedded derivative warrants at each balance sheet date and records the change in the fair value of the remaining embedded derivative warrants as other income or expense in the statements of operations.

The Company utilizes the Monte Carlo Method that values the liability of the debt conversion feature derivative financial instruments and derivative warrants based on a probability of a down round event. The reason the Company selected the lattice binomial model is that in many cases there

may

be multiple embedded features or the features of the bifurcated derivatives

may

be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value

may

not be appropriately captured by simple models.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Consulting revenues are recognized as services are provided. The Company primarily provides consulting services under time and material contracts, whereby revenue is recognized as hours and costs are incurred. Clients for consulting revenues are billed on a weekly or monthly basis. Revenues from fixed fee contracts are recorded when work is performed on the basis of the proportionate performance method, which is based on costs incurred to date relative to total estimated costs. Any anticipated contract losses are estimated and accrued at the time they become known and estimable. Unbilled accounts receivables represent amounts recognized as revenue based on services performed in advance of customer billings. Revenue from sales of software licenses is recognized upon delivery of the software to a customer because future obligations associated with such revenue are insignificant.

Advertising Costs, Policy [Policy Text Block]

Advertising

The Company expenses advertising costs when incurred.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Loss

Comprehensive loss consists of

two

components, net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that are recorded as an element of stockholder’s equity but are excluded from net loss. The Company’s other comprehensive loss is comprised of foreign currency translation adjustments.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

Assets, liabilities, revenue and expenses denominated in non-U.S. currencies are translated at the rate of exchange prevailing on the date of the consolidated balance sheet. Gains (losses) on translation of the consolidated financial statements are from the Company’s subsidiary where the functional currency is not the U.S. dollar. Translation gains (losses) are reflected as a component of accumulated other comprehensive income (loss). Gains (losses) on foreign currency transactions are included in the consolidated statements of income.

Income Tax, Policy [Policy Text Block]

Income Taxes

Income taxes are provided in accordance with ASC No.

740,

“

Accounting for Income Taxes

”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the period of deferred tax assets and liabilities.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock Based Compensation

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

Earnings Per Share, Policy [Policy Text Block]

Net Income/(Loss) Per Share

Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section

260

-

10

-

45

of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs

260

-

10

-

45

-

10

through

260

-

10

-

45

-

16,

basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

The following table sets forth the computation of basic and diluted net income/(loss) per share for the

three

months ended

March

31,

2017

and

2016:

	For the Three Months Ended March 31,
	2017			2016
Numerator
Net loss attributable to common shareholders - basic	$	(6,497,555	)	$	(150,414	)
Effect of dilutive instrument on net income (loss)		-			-
Net loss attributable to common shareholders - diluted	$	(6,497,555	)	$	(150,414	)
Denominator
Weighted average shares of common stock outstanding - basic		5,530,083			2,330,438
Dilutive effect of stock options, warrants and convertible securities		-			-
Weighted average shares of common stock outstanding - diluted		5,530,083			2,330,438
Net loss per share
Basic & Diluted	$	(1.17	)	$	(0.06	)

The following table shows the outstanding dilutive common shares excluded from the diluted net loss per share calculation as they were anti-dilutive:

	March 31, 2017		December 31, 2016
Warrants	$	130,714	$	70,714
Conversion features on convertible notes		216,092		511,989
Total potentially dilutive shares	$	346,806	$	582,703

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

May

2014,

the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle (issued as ASU

2014

-

09

by the FASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These

may

include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In

August

2015,

the FASB issued ASU No.

2015

-

14,

which defers the effective date of ASU

2014

-

09

by

one

year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after

December

15,

2017.

The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating this standards impact on its consolidated financial statements and disclosures.

During

January

2016,

the FASB issued ASU No.

2016

-

01,

“Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”

(“ASU

2016

-

01”).

The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those years, beginning after

December

15,

2017.

Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income.

In

February

2016,

the FASB issued ASU

2016

-

02,

 

Leases (Topic

842)

 which supersedes FASB ASC Topic

840,

 

Leases (Topic

840)

 and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than

twelve

months regardless of classification. Leases with a term of

twelve

months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after

December

15,

2018,

with early adoption permitted upon issuance. The Company is currently evaluating the method of adoption and the impact of adopting ASU

2016

-

02

on its results of operations, cash flows and financial position.

In

March

2016,

the FASB issued ASU No. 

2016

-

06,

“Contingent Put and Call Option in Debt Instruments”

(“ASU

2016

-

06”).

ASU

2016

-

06

is intended to simplify the analysis of embedded derivatives for debt instruments that contain contingent put or call options. The amendments in ASU

2016

-

06

clarify that an entity is required to assess the embedded call or put options solely in accordance with the

four

-step decision sequence. Consequently, when a call (put) option is contingently exercisable, an entity does not have to initially assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. The amendments in ASU

2016

-

06

take effect for public business entities for financial statements issued for fiscal years beginning after

December

 

15,

2016,

and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. As of

March

31,

2017,

the Company has adopted ASU

2016–06

and has determined that the impact over the results of operations and cash flows is not material.

In

April

2016,

the FASB issued ASU No.

2016

-

09,

“

Compensation – Stock Compensation (Topic

718)”

. The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after

December

15,

2016,

including interim periods within those fiscal years. Early adoption of the update is permitted. As of

March

31,

2017,

the Company has adopted ASU

2016–06

and has determined that the impact over the results of operations and cash flows is not material.

In

May

2016,

the FASB issued ASU

2016

-

12,

“Revenue from Contracts with Customers (Topic

606):

Narrow-Scope Improvements and Practical Expedients”

(“ASU

2016

-

12”).

The amendments in ASU

2016

-

12

provide clarifying guidance in certain narrow areas and add some practical expedients. Specifically, the amendments in this update

(1)

clarify the objective of the collectability criterion in step

1,

and provides additional clarification for when to recognize revenue for a contract that fails step

1,

(2)

permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price

(3)

specify that the measurement date for noncash consideration is contract inception, and clarifies that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration,

(4)

provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations,

(5)

clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Further, accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts, and

(6)

clarifies that an entity that retrospectively applies the guidance in Topic

606

to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic

606.

The guidance is effective for the Company beginning

January

1,

2018,

although early adoption is permitted beginning

January

1,

2017.

The Company is currently evaluating the method of adoption and the impact of adopting ASU

2016

-

12

on its results of operations, cash flows and financial position.

In

August

2016,

the FASB issued ASU

2016

-

15,

“Statement of Cash Flows (Topic

230):

Classification of Certain Cash Receipts and Cash Payments”

(“ASU

2016

-

15”).

ASU

2016

-

15

will make

eight

targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU

2016

-

15

is effective for fiscal years beginning after

December

15,

2017.

The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of ASU

2016

-

15

on its consolidated financial statements.

In

October

2016,

the FASB issued ASU

2016

-

16,

“Income Taxes (Topic

740):

Intra-Entity Transfers of Assets Other than Inventory”,

which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after

December

15,

2019,

including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently in the process of evaluating the impact of ASU

2016

-

15

on its consolidated financial statements.

In

November

2016,

the FASB issued ASU

2016

-

18,

“Statement of Cash Flows (Topic

230)”

, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after

December

15,

2017

with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently in the process of evaluating the impact of ASU

2016

-

18

on its consolidated financial statements.

In

January

2017,

the FASB issued ASU

2017

-

01

Business Combinations (Topic

805):

Clarifying the Definition of a Business

in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for fiscal years beginning after

December

15,

2017,

and interim periods within those fiscal years. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

In

January

2017,

the FASB issued ASU

2017

-

04

Intangibles - Goodwill and Other (Topic

350):

Simplifying the Test for Goodwill Impairment

to simplify the accounting for goodwill impairment. The guidance removes the

second

step of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same

one

-step impairment test will be applied to goodwill for all reporting units, even those with

zero

or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with

zero

or negative carrying amounts. This guidance is effective in

2020,

but early adoption is permitted for any impairment tests performed after

January

1,

2017.

The Company is currently evaluating the impact that this guidance will have on the Company’s consolidated financial statements.

XML

Note 4 - Merger with Zone Technologies, Inc. (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Purchase consideration:
Common stock (1,740,000 shares at the transaction date fair value of $5.41 per share)	$	9,413,000
Liabilities assumed		1,574,512
Assets acquired		(136,343	)
Aggregate fair value of enterprise		10,851,169
Purchase price allocation:
Net liabilities assumed		(1,488,476	)
Cash acquired		136,343
Total		(1,352,133	)
Technology		4,270,000
Broker Relationships		4,200
Trademarks		1,977,000
Goodwill		4,599,969
Total purchase price allocation	$	10,851,169

XML

Note 6 - Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Three Months Ended March 31,
	2017			2016
Numerator
Net loss attributable to common shareholders - basic	$	(6,497,555	)	$	(150,414	)
Effect of dilutive instrument on net income (loss)		-			-
Net loss attributable to common shareholders - diluted	$	(6,497,555	)	$	(150,414	)
Denominator
Weighted average shares of common stock outstanding - basic		5,530,083			2,330,438
Dilutive effect of stock options, warrants and convertible securities		-			-
Weighted average shares of common stock outstanding - diluted		5,530,083			2,330,438
Net loss per share
Basic & Diluted	$	(1.17	)	$	(0.06	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	March 31, 2017		December 31, 2016
Warrants	$	130,714	$	70,714
Conversion features on convertible notes		216,092		511,989
Total potentially dilutive shares	$	346,806	$	582,703

XML

Note 7 - Prepaid Expenses and Other Current Assets (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Other Current Assets [Table Text Block]

	March 31, 2017		December 31, 2016
Customer Deposits	$	314,627	$	300,199
Tax		173,637		187,776
Insurance		74,345		44,517
Professional Fees and Services		157,600		42,833
Rent		13,087		13,087
Other		61,376		8,759
Total prepaid expenses and other current assets	$	794,672	$	597,171

XML

Note 8 - Property and Equipment, Net (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

	March 31, 2017		December 31, 2016
Equipment and leaseholds	$	97,689	$	106,460
Furniture and Fixtures		52,924		34,186
Software		177,225		167,337
Subtotal		327,838		307,983
Less: Accumulated depreciation		267,047		262,771
Property and Equipment, net	$	60,791	$	45,212

XML

Note 9 - Intangible Assets, Net and Goodwill (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

			March 31, 2017			December 31, 2016
	Estimated Useful Life		Net Book Value			Net Book Value
Technology		3	$	4,270,000		$	4,270,000
Trademarks		7		1,977,000			1,977,000
Broker Relationships		1		4,200			4,200
Subtotal				6,251,200			6,251,200
Less: Accumulated amortization				(673,160	)		(246,509	)
Intangible assets, net			$	5,578,040		$	6,004,691

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

March 31,
Remaining 2017	$	1,279,951
2018		1,706,602
2019		1,501,009
2020		283,269
2021		283,147
Thereafter		524,062
Total	$	5,578,040

Schedule of Goodwill [Table Text Block]

Balance as of December 31, 2016	$	4,599,969
Goodwill activity for three months ended March 31, 2017		-
Balance as of March 31, 2017	$	4,599,969

XML

Note 10 - Securities Purchase Agreement (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Convertible Debt Activity [Table Text Block]

	March 31, 2017		December 31, 2016
September notes	$	-	$	20,480
September placement note		36,000		902
December notes		2,168,960		10,043
February notes		146,102		-
Balance at March 31, 2017	$	2,351,062	$	31,425

Long-term Debt [Text Block]

	March 31, 2017			December 31, 2016
September notes	$	-		$	332,000
September placement note		80,000			80,000
December notes		3,295,000			1,820,000
February notes		681,818			-
Unamortized discounts		(1,705,756	)		(2,200,575	)
	$	2,351,062		$	31,425

XML

Note 11 - Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

					Fair Value Measurement Using
	Amount at Fair Value		Level 1		Level 2		Level 3
March 31, 2017
Liabilities
Derivative liability - warrants	$	312,432	$	-	$	-	$	312,432
Derivative liability – conversion feature		403,743		-		-		403,743
Total	$	716,175	$	-	$	-	$	716,175
December 31, 2016
Liabilities
Derivative liability - warrants	$	230,663	$	-	$	-	$	230,663
Derivative liability – conversion feature		977,129		-		-		977,129
Total	$	1,207,792	$	-	$	-	$	1,207,792

Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	Fair Value Measurement Using Level 3 Inputs Total
Balance at December 31, 2016	$	1,207,792
Purchases, issuances and settlements		1,372,913
Reclassification to paid in capital		(882,199	)
Change in fair value of derivative liabilities		(982,331	)
Balance at March 31, 2017	$	716,175

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

	March 31, Amount				December 31, Amount
Dividend Yield			0%				0%
Expected Volatility		100%	-	140%		154%	-	230%
Risk free interest rate		0.81%	-	1.93%		0.82%	-	1.12%
Contractual term (in years)		0.34	-	4.68		0.67	-	5.0
Exercise price		$4.00	-	$9.36		$4.00	-	$9.36

XML

Note 14 - Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Contractual Obligation, Fiscal Year Maturity Schedule [Table Text Block]

Operating Lease Commitments (1)	Payments due by period
Less than 1 year	$	129,892
1 to 3 years		677,895
3 to 5 years		347,985
Thereafter		-
	$	1,155,772

XML

Note 16 - Warrants (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Warrant Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding/Exercisable – December 31, 2016		70,714	$	6.26		4.87
Granted		60,000		8.08		4.99
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Outstanding/Exercisable – March 31, 2017		130,714	$	7.09		4.85

XML

Note 18 - Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Reconciliation of Revenue and Operating Profit (Loss) from Segments to Consolidated [Table Text Block]

	For the Three Months Ended March 31,
	2017			2016
Consulting
Revenue	$	1,358,062		$	1,996,261
Cost of Revenue		1,105,485			1,421,765
Gross Margin		252,577			574,496
Total operating expenses		(3,313,547	)		(722,916	)
Loss from operations		(3,060,970	)		(148,420	)
Total other income/(expense)		(2,091,563	)		(1,006	)
Provision for income taxes		(30,484	)		(3,000	)
Total net loss	$	(5,183,017	)	$	(150,414	)
Technology
Revenue	$	-		$	-
Cost of Revenue		-			-
Gross Margin		-			-
Total operating expenses		(1,297,550	)
Income/(loss) from operations		(1,297,550	)		-
Total other income/(expense)		(16,988	)		-
Provision for income taxes		-			-
Total net loss	$	(1,314,538	)	$	-

	As of March 31,		As of December 31,
	2017		2016
Consulting
Cash and cash equivalents	$	617,524	$	1,104,715
Accounts receivable	$	472,248	$	410,106
Unbilled receivables	$	54,667	$	45,207
Prepaid expenses and other current assets	$	622,603	$	554,338
Property and equipment	$	43,596	$	34,368
Intangible assets	$	-	$	-
Goodwill	$	-	$	-
Accounts payable and accrued expenses	$	1,342,490	$	1,428,054
Technology
Cash and cash equivalents	$	2,617,899	$	1,651,508
Accounts receivable	$	-	$	-
Unbilled receivables	$	-	$	-
Prepaid expenses and other current assets	$	172,069	$	42,833
Property and equipment	$	17,195	$	10,844
Intangible assets	$	5,578,040	$	6,004,691
Goodwill	$	4,599,969	$	4,599,969
Accounts payable and accrued expenses	$	454,694	$	134,450

XML

Note 4 - Merger with Zone Technologies, Inc. (Details Textual)	Nov. 09, 2016 shares
Stock Issued During Period, Shares, Acquisitions	1,740,000
Business Combination, Exchange Ratio	0.174

XML

Note 4 - Merger with Zone Technologies, Inc. - Schedule of Business Acquisition (Details) - USD ($)	Nov. 09, 2016	Mar. 31, 2017	Dec. 31, 2016
Goodwill		$ 4,599,969	$ 4,599,969
Zone Technologies, Inc. [Member]
Common stock (1,740,000 shares at the transaction date fair value of $5.41 per share)	$ 9,413,000
Liabilities assumed	1,574,512
Assets acquired	(136,343)
Aggregate fair value of enterprise	10,851,169
Net liabilities assumed	(1,488,476)
Cash acquired	136,343
Total	(1,352,133)
Technology	4,270,000
Broker Relationships	4,200
Trademarks	1,977,000
Goodwill	4,599,969
Total purchase price allocation	$ 10,851,169

XML

Note 4 - Merger with Zone Technologies, Inc. - Schedule of Business Acquisition (Details) (Parentheticals)	Nov. 09, 2016 $ / shares shares
Stock issued pursuant to acquisition, Shares (in shares)	1,740,000
Zone Technologies, Inc. [Member]
Stock issued pursuant to acquisition, Shares (in shares)	1,740,000
Stock issued pursuant to acquisition, Fair value per share (in dollars per share) | $ / shares	$ 5.41

XML

Note 5 - Going Concern Analysis (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Retained Earnings (Accumulated Deficit)	$ (49,758,973)		$ (43,261,418)
Net Income (Loss) Attributable to Parent	(6,497,555)	$ (150,414)
Net Cash Provided by (Used in) Operating Activities, Continuing Operations	(2,492,785)	199,068
Cash and Cash Equivalents, at Carrying Value	3,235,423	$ 1,096,428	$ 2,747,240	$ 898,477
Working Capital	$ 307,411

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Note 6 - Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Depreciation	$ 4,274	$ 3,314
Goodwill, Impairment Loss	0	0
Amortization of Intangible Assets	$ 426,651	$ 0
Minimum [Member]
Property, Plant and Equipment, Useful Life	3 years
Finite-Lived Intangible Asset, Useful Life	1 year
Maximum [Member]
Property, Plant and Equipment, Useful Life	10 years
Finite-Lived Intangible Asset, Useful Life	7 years

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Note 6 - Summary of Significant Accounting Policies - Calculation of Diluted Earnings Per Share (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Numerator
Net loss attributable to common shareholders - basic	$ (6,497,555)	$ (150,414)
Effect of dilutive instrument on net income (loss)
Net loss attributable to common shareholders - diluted	$ (6,497,555)	$ (150,414)
Denominator
Weighted average shares of common stock outstanding - basic (in shares)	5,530,083	2,330,438
Dilutive effect of stock options, warrants and convertible securities (in shares)
Weighted average shares of common stock outstanding - diluted (in shares)	5,530,083	2,330,438
Net loss per share
Basic and Diluted (in dollars per share)	$ (1.17)	$ (0.06)

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Note 6 - Summary of Significant Accounting Policies - Anti-dilutive Securities (Details) - shares	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Total potentially dilutive shares (in shares)	346,806	582,703
Warrant [Member]
Total potentially dilutive shares (in shares)	130,714	70,714
Convertible Debt Securities [Member]
Total potentially dilutive shares (in shares)	216,092	511,989

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Note 7 - Prepaid Expenses and Other Current Assets - Schedule of Prepaid Expenses and Other Current Assets (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Customer Deposits	$ 314,627	$ 300,199
Tax	173,637	187,776
Insurance	74,345	44,517
Professional Fees and Services	157,600	42,833
Rent	13,087	13,087
Other	61,376	8,759
Total prepaid expenses and other current assets	$ 794,672	$ 597,171

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Note 8 - Property and Equipment, Net - Property and Equipment, at Cost (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Equipment and leaseholds	$ 97,689	$ 106,460
Furniture and Fixtures	52,924	34,186
Software	177,225	167,337
Subtotal	327,838	307,983
Less: Accumulated depreciation	267,047	262,771
Property and Equipment, net	$ 60,791	$ 45,212

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Note 9 - Intangible Assets, Net and Goodwill (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Amortization of Intangible Assets	$ 426,651	$ 0

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Note 9 - Intangible Assets, Net and Goodwill - Intangible Assets (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
FiniteLivedIntangibleAssetsGross	$ 6,251,200	$ 6,251,200
Less: Accumulated amortization	(673,160)	(246,509)
Intangible assets, net	$ 5,578,040	6,004,691
Technology-Based Intangible Assets [Member]
Finite-Lived Intangible Asset, Useful Life (Year)	3 years
FiniteLivedIntangibleAssetsGross	$ 4,270,000	4,270,000
Trademarks [Member]
Finite-Lived Intangible Asset, Useful Life (Year)	7 years
FiniteLivedIntangibleAssetsGross	$ 1,977,000	1,977,000
Broker Relationships [Member]
Finite-Lived Intangible Asset, Useful Life (Year)	1 year
FiniteLivedIntangibleAssetsGross	$ 4,200	$ 4,200

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Note 9 - Intangible Assets, Net and Goodwill - Estimated Future Annual Amortization Expense (Details)	Mar. 31, 2017 USD ($)
Remaining 2017	$ 1,279,951
2018	1,706,602
2019	1,501,009
2020	283,269
2021	283,147
Thereafter	524,062
Total	$ 5,578,040

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Note 9 - Intangible Assets, Net and Goodwill - Schedule of Goodwill (Details)	3 Months Ended
	Mar. 31, 2017 USD ($)
Balance as of December 31, 2016	$ 4,599,969
Goodwill activity for three months ended March 31, 2017
Balance as of March 31, 2017	$ 4,599,969

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Note 10 - Securities Purchase Agreement (Details Textual)							3 Months Ended
	Feb. 08, 2017 USD ($) $ / shares shares	Jan. 23, 2017 shares	Dec. 02, 2016 USD ($) $ / shares shares	Nov. 16, 2016 USD ($)	Oct. 25, 2016 USD ($)	Sep. 07, 2016 USD ($)	Mar. 31, 2017 USD ($) $ / shares shares	Feb. 28, 2017 USD ($)	Dec. 31, 2016 $ / shares shares
Converted Debt to Common Stock [Member]
Debt Conversion, Converted Instrument, Shares Issued | shares							466,352
Debt Conversion, Original Debt, Amount							$ 1,848,692
Debt Conversion, Original Debt, Accrued Interest							$ 8,309
Warrants Issued for Placement Agent Services [Member]
Class of Warrant or Right, Term						5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares									48,714
Class of Warrant or Right, Granted During Period | shares							60,000
Class of Warrant or Right, Granted, Weighted Average Exercise Price | $ / shares							$ 8.08
Warrants Issued for Placement Agent Services [Member] | Minimum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares									$ 4.54
Warrants Issued for Placement Agent Services [Member] | Maximum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares									$ 9.36
Warrants Issued in Connection with December 2016 Securities Purchase Agreement [Member]
Class of Warrant or Right, Term			5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares			22,000
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares			$ 4.45
Class of Warrant or Right, Granted During Period | shares	60,000
Class of Warrant or Right, Granted, Weighted Average Exercise Price | $ / shares	$ 4
Warrants Issued in Connection with February 2017 Securities Purchase Agreement [Member]
Class of Warrant or Right, Term	5 years
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares	$ 4.50
Common Stock Purchased, Percentage	8.00%
Debt Instrument, Restricted Principal								$ 5
Investor Note [Member]
Financing Receivable, Net						$ 3,000,000
Voluntary Prepayment of Notes Receivable that Will Trigger the Debt Instrument's Alternate Conversion Price			$ 900,000	$ 1,100,000	$ 1,000,000
Debt Conversion, Converted Instrument, Shares Issued | shares		887,707
December Investor Notes [Member]
Proceeds from Collection of Notes Receivable	$ 3,000,000
Senior Secured Convertible Notes [Member]
Debt Instrument, Face Amount						4,301,075
Proceeds from Convertible Debt						$ 1,000,000
Financing Receivable, Net							$ 332,000
Debt Instrument, Interest Rate, Stated Percentage						6.00%
Interest Expense, Debt							$ 1,217
December 2016 Notes [Member] | Convertible Notes Payable [Member]
Debt Instrument, Face Amount			4,900,000
Proceeds from Convertible Debt			$ 1,100,000
Debt Instrument, Interest Rate, Stated Percentage							6.00%
Interest Expense, Debt							$ 84,293
Short-term Debt, Number of Instruments Issued			2
Short-term Debt			$ 6,720,000
Debt Instrument, Convertible, Conversion Price | $ / shares							$ 4
Debt Instrument, Percentage of Quotient Used in Determination of Alternative Conversion Price							80.00%
Debt Instrument, Convertible, Threshold Consecutive Trading Days							3
Repayments of Convertible Debt							$ 3,000,000
February 2017 Notes [Member] | Convertible Notes Payable [Member]
Debt Instrument, Face Amount	$ 5,000,000
Debt Instrument, Interest Rate, Stated Percentage	6.00%
Interest Expense, Debt							$ 10,277
Short-term Debt, Number of Instruments Issued	2
Short-term Debt	$ 5,681,818
Debt Instrument, Convertible, Conversion Price | $ / shares							$ 4
Debt Instrument, Percentage of Quotient Used in Determination of Alternative Conversion Price							80.00%
Debt Instrument, Convertible, Threshold Consecutive Trading Days							3
Repayments of Convertible Debt							$ 0
Palladium Note Payable [Member]
Debt Instrument, Face Amount						$ 80,000
Debt Instrument, Interest Rate, Stated Percentage						6.00%
Interest Expense, Debt							$ 1,200
Debt Instrument, Term						1 year 90 days

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Note 10 - Securities Purchase Agreement - Activity in the Convertible Notes (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Senior Secured Convertible Notes [Member]
Senior Secured Convertible Notes	$ 2,351,062	$ 31,425
September Notes [Member] | Senior Secured Convertible Notes [Member]
Senior Secured Convertible Notes		20,480
September Placement Note [Member] | Senior Secured Convertible Notes [Member]
Senior Secured Convertible Notes	36,000	902
December Notes [Member] | Senior Secured Convertible Notes [Member]
Senior Secured Convertible Notes	2,168,960	10,043
February Notes [Member] | Senior Secured Convertible Notes [Member]
Senior Secured Convertible Notes	$ 146,102

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Note 10 - Securities Purchase Agreement - Carrying Value of Senior Secured Convertible Notes (Details) - Senior Secured Convertible Notes [Member] - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Unamortized discounts	$ (1,705,756)	$ (2,200,575)
	2,351,062	31,425
September Notes [Member]
Long-term debt gross		332,000
September Placement Note [Member]
Long-term debt gross	80,000	80,000
December Notes [Member]
Long-term debt gross	3,295,000	1,820,000
February Notes [Member]
Long-term debt gross	$ 681,818

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Note 11 - Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis - Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Derivative liability	$ 716,175	$ 1,207,792
Fair Value, Measurements, Recurring [Member]
Derivative liability - warrants		230,663
Derivative liability – conversion feature		977,129
Derivative liability		1,207,792
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Derivative liability - warrants
Derivative liability – conversion feature
Derivative liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Derivative liability - warrants
Derivative liability – conversion feature
Derivative liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Derivative liability - warrants		230,663
Derivative liability – conversion feature		977,129
Derivative liability		$ 1,207,792
Reported Value Measurement [Member] | Fair Value, Measurements, Recurring [Member]
Derivative liability - warrants	312,432
Derivative liability – conversion feature	403,743
Derivative liability	716,175
Estimate of Fair Value Measurement [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Derivative liability - warrants
Derivative liability – conversion feature
Derivative liability
Estimate of Fair Value Measurement [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Derivative liability - warrants
Derivative liability – conversion feature
Derivative liability
Estimate of Fair Value Measurement [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Derivative liability - warrants	312,432
Derivative liability – conversion feature	403,743
Derivative liability	$ 716,175

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Note 11 - Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis - Summary of the Changes in Fair Value (Details)	3 Months Ended
	Mar. 31, 2017 USD ($)
Balance	$ 1,207,792
Purchases, issuances and settlements	1,372,913
Reclassification to paid in capital	(882,199)
Change in fair value of derivative liabilities	(982,331)
Balance	$ 716,175

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Note 11 - Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis - Valuation Assumptions (Details) - Derivative Conversion Features and Warrant Liabilities [Member] - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Dividend Yield	0.00%	0.00%
Minimum [Member]
Dividend Yield
Expected Volatility	100.00%	154.00%
Risk free interest rate	0.81%	0.82%
Contractual term (in years) (Year)	124 days	244 days
Exercise price (in dollars per share)	$ 4	$ 4
Maximum [Member]
Dividend Yield
Expected Volatility	140.00%	230.00%
Risk free interest rate	1.93%	1.12%
Contractual term (in years) (Year)	4 years 248 days	5 years
Exercise price (in dollars per share)	$ 9.36	$ 9.36

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Note 12 - Stock Based Compensation (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Nov. 07, 2016	Mar. 02, 2014
Issuance of Stock and Warrants for Services or Claims	$ 1,896,400
The 1997 Stock Options and Award Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number				520,000
The 2014 Equity Incentive Plan [Member]
Common Stock, Capital Shares Reserved for Future Issuance	400,000		1,125,000
The 2014 Equity Incentive Plan [Member] | Third Party Service Providers [Member] | Selling, General and Administrative Expenses [Member]
Issuance of Stock and Warrants for Services or Claims	$ 1,896,400

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Note 13 - Concentration of Credit Risk (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number of Major Customers	4
Concentration Risk, Percentage	73.00%		70.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Number of Major Customers	4	4
Concentration Risk, Percentage	87.00%	94.00%
Supplier Concentration Risk [Member] | Accounts Payable, Benchmark [Member]
Number of Major Vendors	4		2
Supplier Concentration Risk [Member] | Accounts Payable, Benchmark [Member] | Four Vendors [Member]
Concentration Risk, Percentage	85.00%
Supplier Concentration Risk [Member] | Accounts Payable, Benchmark [Member] | Two Vendors [Member]
Concentration Risk, Percentage			94.00%

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Note 14 - Commitments and Contingencies (Details Textual) - USD ($)		3 Months Ended
	Aug. 24, 2016	Mar. 31, 2017	Mar. 31, 2016
Operating Leases, Rent Expense		$ 47,800	$ 90,900
The 3839 Holdings LLC Litigation Case [Member] | Minimum [Member]
Loss Contingency, Damages Sought, Value	$ 3,000,000
The 3839 Holdings LLC [Member] | Highland Holdings Group, Inc [Member]
Equity Method Investment, Ownership Percentage	10.00%

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Note 14 - Commitments and Contingencies - Summary of Operating Lease Commitments (Details)	Mar. 31, 2017 USD ($)
Less than 1 year	$ 129,892
1 to 3 years	677,895
3 to 5 years	347,985
Thereafter
	$ 1,155,772

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Note 15 - Transactions With Related Parties (Details Textual) - USD ($)	3 Months Ended		9 Months Ended	12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Sep. 30, 2016	Dec. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2010
Revenues	$ 1,358,062	$ 1,996,261
Helios and Matheson Parent [Member]
Accounts Receivable, Related Parties					$ 182,626
Reserve for Security Deposit and Reimbursable Expenses and Advances						$ 2,300,000
Reserve for Reimbursable Expenses and Advances					344,000
Revenues	$ 0	$ 0	$ 2,300,000	$ 2,300,000
Maruthi Consulting Inc., Subsidiary [Member]
Accounts Receivable, Related Parties				61,474			$ 75,338
Additional Amounts Billed					223,454
Proceeds From Related Party				$ 0	$ 237,318
Security Deposits [Member] | Helios and Matheson Parent [Member]
Due from Related Parties								$ 2,000,000

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Note 16 - Warrants - Warrant Activity (Details) - Warrants Issued for Placement Agent Services [Member] - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Number of Warrants, Beginning Balance (in shares)	70,714
Weighted Average Exercise Price, Begining (in dollars per share)	$ 6.26
Weighted Average Remaining Contractual Life (Year)	4 years 310 days	4 years 317 days
Number of Warrants, Granted (in shares)	60,000
Weighted Average Exercise Price, Granted (in dollars per share)	$ 8.08
Weighted Average Remaining Contractual Life, Granted (Year)	4 years 361 days
Number of Warrants, Exercised (in shares)
Weighted Average Exercise Price, Exercised (in dollars per share)
Weighted Average Remaining Contractual Life, Exercised (Year)
Number of Warrants, Forfeited/Cancelled (in shares)
Weighted Average Exercise Price, Forfeited/Cancelled (in dollars per share)
Weighted Average Remaining Contractual Life, Forfeited/Cancelled (Year)
Number of Warrants, Ending Balance (in shares)	130,714	70,714
Weighted Average Exercise Price, Ending (in dollars per share)	$ 7.09	$ 6.26

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Note 18 - Segment Reporting (Details Textual)	3 Months Ended
	Mar. 31, 2017
Number of Operating Segments	2

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Note 18 - Segment Reporting - Summary of Segment Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Revenue	$ 1,358,062	$ 1,996,261
Cost of revenue	1,105,485	1,421,765
Gross Margin	252,577	574,496
Total operating expenses	4,611,097	722,916
Income/(loss) from operations	(4,358,520)	(148,420)
Total other income/(expense)	(2,108,551)	1,006
Provision for income taxes	30,484	3,000
Net Income (Loss) Attributable to Parent	(6,497,555)	(150,414)
Cash and cash equivalents	3,235,423	1,096,428	$ 2,747,240	$ 898,477
Accounts receivable	472,248		410,106
Unbilled Receivables	54,667		45,207
Prepaid expenses and other current assets	794,672		597,171
Property and equipment, net	60,791		45,212
Intangible assets, net	5,578,040		6,004,691
Goodwill	4,599,969		4,599,969
Accounts payable and accrued expenses	1,797,184		$ 1,331,118
Consulting Segment [Member]
Revenue	1,358,062	1,996,261
Cost of revenue	1,105,485	1,421,765
Gross Margin	252,577	574,496
Total operating expenses	(3,313,547)	(722,916)
Income/(loss) from operations	(3,060,970)	(148,420)
Total other income/(expense)	(2,091,563)	(1,006)
Provision for income taxes	(30,484)	(3,000)
Net Income (Loss) Attributable to Parent	(5,183,017)	(150,414)
Cash and cash equivalents	617,524	1,104,715
Accounts receivable	472,248	410,106
Unbilled Receivables	54,667	45,207
Prepaid expenses and other current assets	622,603	554,338
Property and equipment, net	43,596	34,368
Intangible assets, net
Goodwill
Accounts payable and accrued expenses	1,342,490	1,428,054
Technology Segment [Member]
Revenue
Cost of revenue
Gross Margin
Total operating expenses	(1,297,550)
Income/(loss) from operations	(1,297,550)
Total other income/(expense)	(16,988)
Provision for income taxes
Net Income (Loss) Attributable to Parent	(1,314,538)
Cash and cash equivalents	2,617,899	1,651,508
Accounts receivable
Unbilled Receivables
Prepaid expenses and other current assets	172,069	42,833
Property and equipment, net	17,195	10,844
Intangible assets, net	5,578,040	6,004,691
Goodwill	4,599,969	4,599,969
Accounts payable and accrued expenses	$ 454,694	$ 134,450

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Note 19 - Subsequent Events (Details Textual) - Subsequent Event [Member] - USD ($)	May 14, 2017	Apr. 01, 2017
Repayments of Convertible Debt	$ 80,000
Lease Arrangement for Office Space in Miami [Member]
Lessee, Operating Lease, Term of Contract		3 years
Lessee, Operating Lease, Monthly Rental Payments, First Twelve Months		$ 5,026
Lessee, Operating Lease, Monthly Rental Payments, Year Two		5,177
Lessee, Operating Lease, Monthly Rental Payments, Year Three		$ 5,332