<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For Fiscal Year Ended December_31,_1995 [Fee Required]
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period
__________________ to ___________________.
Commission File No. 1-8292
_________________________HELM_RESOURCES,_INC.________________________
(Exact name of registrant as specified in its charter)
___________Delaware_________________________________59-0786066____________
(State or other jurisdiction of (IRS Employer Identification
No.) incorporation or organization)
537 Steamboat Road
_______Greenwich,_Connecticut____ ____________06830____________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)_629-1400
Securities registered pursuant to Section l2(b) of the Act:
Name of each exchange
Title_of_each_class _on_which_registered_
Common Stock, par value $.0l American Stock Exchange
Check whether the registrant (l) has filed all reports required to be filed by
Section l3 or l5(d) of the Securities Exchange Act of l934 during the
preceding l2 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 _[X]_ No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB. [X]
The issuer's revenues for the year ended December 31, 1995 were $15,183,000.
The aggregate market value of the voting stock held by non-affiliates of the
issuer is approximately $1,674,000 based upon the closing price of the
issuer's common stock, $.01 par value, as reported by the American Stock
Exchange on March 26, 1996, which was $.9375.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 26, 1996: 2,458,953.
Documents incorporated by reference: NONE
Transitional Small Business Format: Yes ____ No __X__
Page 1 of 72 pages. Exhibits begin on page 72
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TABLE OF CONTENTS
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PART I
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<TABLE>
<S> <C>
ITEM 1: BUSINESS
INTRODUCTION.............................................................3
INTERPAK TERMINALS, INC..................................................4
INTERSYSTEMS, INC.
Introduction......................................................6
Recent Developments...............................................7
The Business of InterSystems Nebraska.............................9
The Business of Chemtrusion, Inc.................................12
INVESTMENTS
The Mezzanine Financial Fund, L.P................................14
Unapix Entertainment, Inc........................................14
Professionals' Financial Services, Inc...........................15
EMPLOYEES...............................................................16
ITEM 2: PROPERTIES......................................................16
ITEM 3: LEGAL PROCEEDINGS...............................................18
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............19
PART II
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ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS................................20
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION........................................21
ITEM 7: FINANCIAL STATEMENTS............................................24
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.........................24
PART III
--------
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............25
ITEM 10: EXECUTIVE COMPENSATION.........................................27
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.......................................................32
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS...........33
ITEM 13: EXHIBITS, LISTS AND REPORTS ON FORM 8-K........................38
</TABLE>
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PART I
ITEM l. BUSINESS
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INTRODUCTION
- ------------
Helm Resources, Inc. (the "Company") provides financial services
and management assistance to small and mid-market companies and, in
recent years, has developed and oversees the management of various
business enterprises. Currently, the Company, through its wholly-owned
and majority-owned subsidiaries, affiliated companies and investments, is
engaged in several business activities.
The Company, through Interpak Terminals, Inc. ("Interpak"), a
wholly-owned subsidiary, warehouses, custom packages and arranges for
delivery of thermoplastic resins for its customers.
In addition, through a 35% (24.5% after December 31, 1995) owned
affiliate and a public company, InterSystems, Inc. (together with its
wholly owned subsidiaries, hereinafter "ISI"), provides custom resin
compounding services for thermoplastic resin producers through a
subsidiary, Chemtrusion, Inc., and designs, manufactures, sells and
leases various agricultural and industrial products primarily used in the
handling, cleaning and weighing of grain products and for sampling the
quality and grade of various industrial and agricultural products, as well
as commercial rolling doors and hurricane resistant shutters, through its
subsidiary, InterSystems, Inc., a Nebraska corporation.
The Company maintains smaller investments in several companies as
follows:
- 9% limited partnership interest in The Mezzanine Financial Fund,
L.P., a Delaware limited partnership which makes collateralized loans to
companies.
- 3.4% of the outstanding common stock of Unapix Entertainment,
Inc., a Delaware corporation and a public company engaged in the business
of marketing and distributing television programs and motion pictures
("Unapix").
- 19% of the outstanding common stock of Professionals'
Financial Services, Inc. ("PFS"). PFS, a Delaware corporation, which,
through its wholly owned subsidiaries, Healthcare Financial Services,
Inc. and Professional Factors, Inc. based in Red Bank, New Jersey and
Tampa, Florida, is in the business of financing receivables of healthcare
and other enterprises.
The Company is a Delaware corporation with its principal offices at 537
Steamboat Road, Greenwich, Connecticut 06830. Its telephone number is
(203) 629-1400. Unless the context otherwise requires, reference to the
"Company" includes Helm Resources, Inc. and its majority owned
subsidiaries (but not its affiliates). Set forth below is a discussion
of the principal subsidiaries, affiliates, and investments of Helm Resources,
Inc.
<PAGE> 4
Results of Operations
---------------------
During 1995, the Company realized revenues of $15,183,000 on a
consolidated basis, as compared to consolidated revenues of $14,214,000
in 1994, and the Company realized a loss of ($594,000), as compared to a
loss of ($2,662,000) in 1994.
The loss from operations is attributable in part to the residual effects
of the reduction experienced by Interpak of its normal rail car packaging
and warehousing business due to distribution disruptions from floods and
a pipeline explosion in the Houston area in the fourth quarter of 1994.
The natural disasters resulted in an extreme shortage of domestic
thermoplastic resins, which caused the company's warehouse utilization to
fall to an all-time low. The net loss for 1994 reflects a non-recurring
charge of $450,000, primarily for accruing the loss from the termination
of two Interpak leases and related expenses, of which $233,000 was
reversed during the year ended December 31, 1995.
INTERPAK TERMINALS, INC.
- ------------------------
General
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Interpak, a wholly owned subsidiary of the Company, offers its customers
a "turnkey" polymer handling service, providing a complete bridge between
the production and marketing of polymers for both domestic and export
shipments. This state-of-the-art service enables the polymer producer to
focus its business on the production of polymers, knowing that Interpak
will efficiently package, warehouse and arrange for the distribution of
polymers to the ultimate customer. Interpak believes it is one of the
larger companies operating exclusively in the United States in the
thermoplastic resin handling business, based on revenues, capacity,
warehouse space and number of customers. Interpak has long standing and
extensive contacts with resin producers and suppliers. Interpak
maintains its position in the industry on the basis of the efficiency,
quality, thoroughness and reliability of its turnkey service.
In 1995, Interpak had revenues of $15,066,502 and a net loss of
($240,800). The loss from operations in 1995 was attributable in part to
the residual effects of the reduction experienced by Interpak of its
normal rail car packaging and warehousing business due to distribution
disruptions caused by floods and a pipeline explosion in the Houston area
in the fourth quarter of 1994. These natural disasters resulted in an
extreme shortage of domestic thermoplastic resins, which caused the
company's warehouse utilization to fall to an all-time low of
approximately 57% in mid-1995, as compared to approximately 85% as of
March 1, 1996.
During 1994, the Company first announced that it is considering the sale
of Interpak to ISI. At the present time, discussions between the Company
and ISI are in the preliminary stages and no agreement in principle has
been reached. If an agreement is reached, the sale would be subject to a
number of conditions, including ISI's arranging
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financing to complete the acquisition and stockholder approval.
Currently, the sales price proposed by the Company would consist of a
cash down payment, the assumption by ISI of certain Helm debentures and
the issuance to Helm of shares of ISI's common stock. No assurance can
be given that the Company will successfully complete this transaction.
Business
--------
Interpak's turnkey service has three components: packaging, warehousing
and distribution and bulk transfer of thermoplastic resins:
Interpak's packaging service can be tailored to meet any customer
specifications. There are four types of packaging operations: box and
super sack line, form fill and seal line, valve bag line and open mouth
sewingline. All packaging operations are conducted with four criteria in
mind: rapid processing, maintaining product integrity, strict weight
tolerances and stable pallet loads.
Interpak operates twelve packaging lines in eight packaging and
warehousing facilities in the Houston area, with approximately 1,507,859
square feet of space. It also operates five packaging lines at its
facilities in Edison, New Jersey with approximately 125,000 square feet
of warehousing space. Customers desiring warehousing store their resins
at any of the above facilities. A computerized inventory management
system monitors the warehoused product, which is also regularly inspected
and inventoried.
Resins packaged and/or warehoused by Interpak are distributed worldwide.
From Interpak's facilities, the resins are loaded in accordance with the
customer's instructions, loose or palletized, onto bulk railroad cars,
ocean containers, hopper trucks or onto 20 or 40 foot sea bulk
containers. The proximity of Interpak's operations to various Gulf Coast
ports via its Houston area facilities and to the New York and New Jersey
ports via its Edison, New Jersey facility facilitates its distribution
functions.
Interpak also accommodates polymer producers who require bulk transfer
facilities for the shipment of materials to customers in domestic and
overseas markets. Interpak's operations are concentrated, along with
those of the majority of the U.S. polymer producers and suppliers, in the
Houston, Texas area. Interpak's packaging facilities are located
alongside rail sidings, allowing the polymers to be transported to the
Interpak packaging facilities by rail cars.
Interpak's customers are producers and suppliers of thermoplastic resins.
The producers are mainly the major petrochemical companies, along with
certain other chemical companies. Suppliers of resins include companies
that buy and sell but do not produce resins. Interpak currently has
approximately 40 customers. Interpak estimates that there are in total
fewer than 200 worldwide producers and suppliers of resins.
<PAGE> 6
One of Interpak's customers, Union Carbide Corporation, accounted for 57%
and 58%, respectively, of Interpak's revenues for 1995 and 1994.
Interpak has dedicated its Edison, New Jersey, and its Calvacade and
Produce Row, Texas facilities to Union Carbide, although Interpak
performs services for other customers also at such facilities on a spot
basis. There are two contracts with Interpak's major customer; one for
dedicated activities in each state. Both contracts will expire on April
30, 1996, unless they are renewed by the parties, and are cancellable by
either party upon 30 days notice. As of April 12, 1996, these contracts
have not been renewed, but Interpak expects to continue servicing this
customer under the terms of the present contracts until renewals are
entered into. Interpak does not believe that its business is dependent
upon any one customer; however, the loss of Union Carbide Corporation
would adversely affect its revenues until such time as the business
represented by such customer was replaced. There can be no assurance
that such revenues could be replaced.
Environmental Matters
Interpak does not currently anticipate any material effect upon its
capital expenditures, earnings or competitive position as a result of its
compliance with Federal, state and local provisions which have been
enacted or adopted relating to the protection of the environment.
INTERSYSTEMS, INC.
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Introduction
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InterSystems, Inc. was originally organized under the laws of the state
of Delaware in 1984. ISI's two principal lines of business today consist
of the operations of its wholly-owned subsidiary, InterSystems, Inc., a
Nebraska corporation ("InterSystems Nebraska"), which designs,
manufactures and sells specialized materials handling equipment, and the
custom resin compounding operations conducted by its wholly-owned
subsidiary, Chemtrusion, Inc. ("Chemtrusion"). For each of the two years
ended December 31, 1995, approximately 76% of ISI's revenues were
attributable to the business of InterSystems Nebraska and approximately
24% of ISI's revenues were attributable to the business of Chemtrusion.
Historically, ISI's principal line of business had been the sale and
distribution of thermoplastic resins on a worldwide basis. In April
1993, ISI completed the sale to Bamberger Acquisition Corp., a newly
formed Delaware corporation ("Acquisition") owned by six individuals who
were then members of ISI's senior management (the "Management Group"), of
all the assets related to its domestic and international resin trading
and distribution business. The sale was approved by the stockholders of
ISI at a special stockholders meeting held in March 1993. The sales
price of $1,955,331 was paid at closing by the delivery to ISI of (i)
$608,526 in cash, (ii) an additional $187,639 through the surrender by
members of the Management Group of debentures of ISI and affiliates held
by them, (iii) a promissory note of Acquisition in the original principal
amount of $796,166 (the "Note"); and (iv) $363,000 in payments pursuant
to a non-compete
<PAGE> 7
agreement with ISI. Acquisition also assumed certain liabilities of ISI.
In addition, in August 1993 ISI completed the purchase from the Company
of all of the outstanding capital stock of InterSystems Nebraska. The
purchase was approved by a majority of the stockholders of ISI at a
special stockholders meeting held in March 1993. The basic purchase
price of $3,300,000 was paid at the closing by the delivery to the
Company of (i) $500,000 in cash, (ii) a one-year promissory note in the
amount of $300,000, and (iii) a commitment to issue to such persons as
may be designated by Helm $2,100,000 aggregate principal amount of ISI's
newly issued ten year 8% Convertible Debentures. In additon, ISI offset
$340,000 of intercompany debt owed by Helm to ISI and transferred to Helm
$60,000 in principal amount of Helm debentures received from the
Management Group in connection with the sale of the Trading Business.
Helm is also entitled to an earnout and certain royalties. See "Certain
Relationships and Related Party Transactions."
Recent Developments
- -------------------
In late 1995 and into 1996, ISI and its subsidiaries, InterSystems
Nebraska and Chemtrusion, embarked on plans for major internal and
external expansion, in the form of new facilities and new product lines,
which will have the effect of greatly expanding manufacturing capacity
and rounding out product lines to reduce the effects of seasonality on
product demand, as more fully described below.
The Company
- -----------
Private Placement. On December 1, 1995, ISI commenced a private
placement of 25 Units consisting of 40,000 shares of Common Stock and
20,000 Common Stock Purchase Warrants for $55,000 per Unit. ISI reserved
the right to sell up to 35 Units, and to sell fractional Units. The
purchase price per Unit was based upon the average of the closing price
of the common stock on the American Stock Exchange during the ten trading
days preceding November 15, 1995, which is the date the Board of
Directors of ISI authorized the offering, or $1.375. The private
placement closed in February 1996 after the Board of Directors of ISI
resolved to accept subscriptions for 39 Units, which yielded
approximately $2,100,000 in proceeds to ISI. These proceeds were used to
repay debt, to provide working capital and to provide in part funds for
the proposed Interpak acquisition, discussed on page 4-5, and the
proposed Tropical Manufacturing Group acquisition, discussed on page 8.
InterSystems Nebraska
- ---------------------
Expansion of Omaha Facility. In November 1995, InterSystems Nebraska
entered into a lease for a second 30,000 square foot facility in Omaha,
thereby nearly doubling total square footage under use to 70,000 square feet.
In connection with the expansion, the subsidiary has arranged $1.1 million in
operating leases and $500,000 in equipment financing for advanced robotics,
software and other automated equipment to be installed in both facilities.
Installation is expected to be completed
<PAGE> 8
by April 1996. The planned expansion and automation are designed to render
the combined facility efficient and state-of-the-art without changing the
present workforce, and to increase manfacturing capacity to permit InterSystems
Nebraska to meet its record backlog, bring subcontracted work back into the
plant and take on additional customers.
Acquisition of The Tropical Manufacturing Group, Inc. InterSystems
Nebraska, through a subsidiary, Tropical Systems,Inc. ("TSI") signed a letter
of intent in September 1995 (the "Letter of Intent") for the acquisition of
the assets of The Tropical Manufacturing Group, Inc. headquartered in Miami,
Florida ("Tropical"), and has entered into an operating agreement with
Tropical, which is engaged in the business of manufacturing and selling
commercial rolling doors and hurricane resistant doors and shutters in South
Florida, Latin American and the Caribbean. Under the operating agreement,
Tropical (i) has assigned to TSI its rights to sell, market and distribute its
products and (ii) is manufacturing its products for the sole account of TSI,
in exchange for the agreement of TSI to pay Tropical cost plus 1% for each
product so manufactured. This is intended as an interim arrangement which may
be terminated at any time by TSI, and which will be terminated upon the
purchase by TSI of all of Tropical's assets and the assumption of certain
liabilities of Tropical pursuant to the Letter of Intent. The consummation of
the purchase is conditioned upon arranging the necessary financing to complete
the purchase and obtaining clear title to the assets of Tropical, which are
currently subject to various tax and other liens. At the present time, the
cost of acquiring the assets of Tropical is expected to be approximately
$250,000, although transactional expenses and the cost of clearing title may
increase this estimate.
The acquisition of this facility and product line is expected to
complement the present product demand of InterSystems Nebraska, which usually
peaks in the summer months and drops in the winter months, whereas Tropical
experiences high product demand year round, but especially during hurricane
season.
Chemtrusion
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On January 26, 1996, Chemtrusion entered into a Definitive Agreement for
Compounding Services with Mytex Polymers ("Mytex"), a Delaware general
partnership of affiliates of Mitsubishi Chemical America and Exxon Chemical
Company, a division of Exxon Corporation.
Pursuant to the Agreement, Chemtrusion has undertaken to acquire 16.4
acres of land in Jeffersonville, Indiana, and to construct thereon and equip
in accordance with agreed upon plans and specifications a plastics compounding
plant at a cost currently estimated not to exceed $12.7 million. As designed,
the plant will initially contain four production lines with an annual capacity
of 35 million pounds of product, and will contain sufficient space to add
several additional production lines, if desirable, at a future date.
Chemtrusion and Mytex are working together to obtain construction financing
for the plant, and Mytex has agreed to fund the cost of construction on an
interim basis until permanent construction financing is in place. Ground has
been broken and the expected completion date of the plant is August 31, 1996.
<PAGE> 9
Upon completion of the plant, Chemtrusion will produce an array of
polypropylene-based compounds at the plant exclusively for the benefit of
Mytex. Production at the plant will use raw materials and specifications
provided by Mytex. Once the plant is completed, Chemtrusion will be paid a
monthly management fee for its operation of the plant which will cover most
operating expenses of the plant and construction financing debt service, and
which management currently expects to provide significant net profits to
Chemtrusion on an annual basis.
The initial term of the Agreement is five years, and Mytex has the
option to renew the Agreement for two additional five year terms. The
Agreement may be terminated by either party upon the default of the other,
except that certain defaults require notice and an opportunity to cure.
Termination of the Agreement triggers purchase rights on behalf of Mytex (the
"Option") and put rights on behalf of Chemtrusion (the "Put") with respect to
the facility. The purchase price under the Option and Put ranges from $1.5
million plus assumption of the construction financing, to assumption of
construction financing less $700,000, depending on when the rights are
exercised and whether the exercise follows a default by Mytex or Chemtrusion.
Mytex has the right to require Chemtrusion to undertake the expansion of
the plant at any time at its sole cost and expense, with adjustment in the
management fee payable to Chemtrusion.
----------
ISI had revenues of $16,555,000 and $15,063,000, respectively, for the years
ended December 31, 1995 and 1994. For these same periods, losses were
($695,000) and ($732,000), respectively, after a non-recurring charge in 1994
of $495,000.
The Business of InterSystems Nebraska
- -------------------------------------
InterSystems Nebraska designs, manufactures, sells and leases equipment for
sampling, conveying, elevating, weighing and cleaning a wide variety of
products for the industrial and agricultural sectors of the economy, including
the following industries: grain and animal feed, fertilizer, petrochemical,
milling, plastics, chemical, pharmaceutical, food, minerals and paper and
pulp. In addition, pursuant to its subsidiary's Operating Agreement with The
Tropical Manufacturing Group, Inc., InterSystems Nebraska is engaged in the
manufacture and sale of commercial rolling doors and hurricane resistant
shutters. See Recent Developments-InterSystems Nebraska--Acquisition of The
Tropical Manufacturing Group, Inc. on page 8.
The equipment that InterSystems Nebraska designs and manufactures includes
automatic samplers, mechanical truck and rail probes, conveyors, bucket
elevators, screeners and bulk weighing systems. A brief description of the
equipment is set forth below:
Automatic samplers. Automatic samplers are used to sample materials such as
powders, pellets, granules and liquids in gravity, pneumatic or liquid
applications. Samplers are used at different stages of a material handling or
production process to determine the quality of the products being received,
produced or transported. Automatic samplers are sold to
<PAGE> 10
customers in substantially all businesses served by InterSystems Nebraska
and can be adapted to extreme applications, such as high temperatures,
toxic materials and non-standard pressures. InterSystems
Nebraska manufactures a line of automatic samplers for use by agricultural
customers as well as a line for use by industrial customers.
Truck and Rail Probes. Truck and rail probes are used to mechanically sample
commodities being received by truck or railcar to determine quality. Either a
core or a compartmentalized probe is hydraulically inserted into the load and
a sample is retrieved. Examples of commodities that can be sampled using
truck and rail probes include grains, soymeal, sunflowers, flax, cranberries
and wood chips.
Conveyors. Conveyors are used to transport bulk materials horizontally or at
inclines of up to 60 degrees. The material is moved by using a chain and a
series of paddles to drag the material or to move it en masse. Conveyors are
frequently used for the movement of such commodities as grain, feed, sugar,
green barley malt, flour, minerals, oyster shells and fertilizer.
Bucket elevators. Bucket elevators are used to elevate material vertically.
The material is elevated by utilizing buckets attached to a belt. Material
flows into the buckets at the bottom and is discharged when reaching the top.
This equipment is typically required by customers to elevate commodities such
as wood chips, slate, fertilizer, flour, grains and malt.
Screeners. Screeners are used to separate smaller particles from the product
stream. This is accomplished by running the product over screens which
separate the material by particle size. Screeners are typically used for
commodities such as grains, pellets, feed, pet food and soymeal.
Bulk Weighing Systems. Bulk weighing systems are used to weigh free flowing
bulk commodities that are being continuously loaded into trucks, railcars,
barges or ships. During the weighing operation, information can be obtained
and assessed without interrupting the scale process. A typical system
includes a structure with several hoppers and an electronic package that
controls the weighing operation. These systems are generally sold for the
bulk weighing of grains, oil, flour, soymeal and fertilizer.
Sales and Marketing
-------------------
InterSystems Nebraska's industrial samplers are sold by approximately 80
manufacturer's representatives who are independent sales representatives and
independent contractors of InterSystems Nebraska. These representatives
typically market various lines of industrial products and equipment
manufactured by InterSystems Nebraska as well as five to ten other companies.
However, the representatives do not offer or sell products competitive with
those of InterSystems Nebraska within a given product line. Each
representative has an exclusive territory within which the representative
operates. Compensation of such representative is strictly on a commission
basis.
Intersystems Nebraska's other products are sold by 5 sales personnel who are
employees of the Company. In addition, InterSystems Nebraska leases its
agricultural automatic sampling systems. In this circumstance,
<PAGE> 11
InterSystems Nebraska typically enters into a three-year agreement with its
customer, generally a grain elevator, pursuant to which InterSystems Nebraska
installs the sampling system and maintains the system on a continuing basis.
In consideration for these services, the customer agrees to pay InterSystems
Nebraska monthly for each sample drawn and to pay for a minimum number of
samples during each l2-month period.
To date, most of InterSystems Nebraska's equipment has been sold within the
grain, feed and grain processing industries. InterSystems Nebraska is seeking
to increase its sales volume by marketing its products outside of the United
States. InterSystems Nebraska currently has the following foreign
representatives: 4 in Mexico, 8 in Canada, 4 in Europe, one in Australia and
one servicing the remainder of Central America and South America.
Manufacturing
-------------
InterSystems Nebraska fabricates, welds and assembles raw material and other
purchased components into its finished sampling and handling systems.
InterSystems Nebraska's products are designed and manufactured at its 40,000
square foot office and manufacturing facility in Omaha, Nebraska, of which
approximately 30,000 square feet are dedicated to manufacturing operations.
The subsidiary relies where possible on automated production systems, and has
invested in a CNC turret punch and computerized machining and fabrication
equipment. In addition, engineering efficiency has increased and costs have
decreased through the implementation and use of a Computer Aided Design (CAD)
system, which was installed in 1985.
Suppliers and Raw Materials
---------------------------
The principal raw materials used by InterSystems Nebraska in its product
manufacturing consist of steel, plastic and other stock, all of which are
commonly available from numerous suppliers and vendors. InterSystems Nebraska
has not experienced, nor does it reasonably anticipate, any material
interruption in the supply of raw materials necessary to manufacture its
products.
Backlog and Customers
---------------------
InterSystems Nebraska had a sales backlog of approximately $2,300,000 at
December 31, 1995, compared with $1,350,000 at December 3l, 1994. All orders
at December 3l, l995 are believed to be firm and are expected to be filled by
December 3l, l996.
During 1995, InterSystems Nebraska provided equipment to approximately 1,300
customers. No single customer has accounted for 10% or more of InterSystems
Nebraska's total revenues during 1995 or 1994. InterSystems Nebraska does not
believe that the loss of any single customer would have a material adverse
effect on its business operations.
Competition
-----------
InterSystems Nebraska competes against numerous equipment manufacturers and
suppliers of products similar to those it manufactures. Many of these
manufacturers and suppliers have longer operating histories and greater
resources than InterSystems Nebraska. Competition in the markets served
<PAGE> 12
by InterSystems Nebraska is mainly through product quality and performance,
competitive pricing, engineering expertise and timely service.
Patents and Trademarks
----------------------
InterSystems Nebraska has a registered trademark in the United States for its
"I-S" logo. InterSystems Nebraska's marketing efforts are not materially
dependent in any way on any trademark, patent or other intellectual property
rights, although InterSystems Nebraska has received certain design patents on
aspects of its equipment, including its wood pulp sampler, wood chip sampler,
grain cleaner bypass and radius bottom conveyor.
The Business of Chemtrusion
- ---------------------------
Chemtrusion provides the value-added service of custom compounding
thermoplastic resins for resin producers. Custom resin compounding involves
the combining of a resin with various additives such as pigments, impact
modifiers, mineral fillers or stabilizers to customize the product to a
particular end use. The end use may require color, opaqueness, toughness,
stiffness, flame or chemical retardance characteristics or other specified
qualities not available in standard thermoplastic resins. These compounds are
used extensively in consumer products, packaging materials, automotive parts,
and in the electrical, agricultural and office equipment industries. A
variety of compounds are manufactured by Chemtrusion, including filled
polyolefins, glass reinforced thermoplastics of all kinds and additive
concentrates for the polyolefin film industry.
Compounding Operations
----------------------
Chemtrusion provides custom compounding services using three twin screw
extruders, various blenders and other equipment. Based on the rated capacity
of its equipment and given the current mix of the products manufactured by
Chemtrusion, Chemtrusion's present annual manufacturing capacity is
approximately 34 million pounds. 1995 production was approximately 28,943,000
pounds, compared to approximately 27,391,000 pounds in 1994. From the
perspective of pounds of resin processed, Chemtrusion's business consists
predominantly of toll compounding operations, although to a very limited
extent Chemtrusion is engaged in proprietary compounding. In 1996,
Chemtrusion will undertake the construction of a $12.7 million plastics
compounding plant in Jeffersonville, Indiana, which will contain four
production lines and will be operated by Chemtrusion for the sole benefit of
Mytex Polymers. See "Business--Recent Developments--Chemtrusion" on page 8.
In Chemtrusion's compounding operations, the customer supplies all or most of
the raw materials including resin and other additives. Chemtrusion supplies
the operating equipment and process technology for combining the feedstocks
and additives into finished compounded resins. Chemtrusion does not typically
acquire an ownership interest in the raw materials or finished product. In
most cases, Chemtrusion's customer supplies the specifications and
formulations for the end product. In others, a customer with a specific end
use for a compound requests Chemtrusion to modify the customer's existing
formulation. To an increasing extent, Chemtrusion is assisting customers in
developing products that have
<PAGE> 13
resulted from the customers' research and development activities to a product
that is ready for commercial use.
Suppliers and Raw Materials
---------------------------
Chemtrusion is typically not required to purchase any significant raw
materials for its compounding operations other than maintenance related
supplies for its compounding equipment. These supplies are commonly
available from numerous suppliers and vendors. Chemtrusion has not
experienced, nor does it reasonably anticipate, any material interruption in
the supply of materials for its compounding operations.
Sales and Marketing
-------------------
Marketing efforts are conducted through involvement of Chemtrusion executive
officers in industry and trade networks, attendance at
trade and technology conferences and symposia and other venues where
resin producers or independent proprietary compounding houses can learn
of Chemtrusion's capabilites. Chemtrusion does not have an outside or
field sales force. Chemtrusion believes its focus on quality has
resulted in the development of stable, long-term customer relationships.
Customers
---------
The customer base for Chemtrusion's compounding business consists
primarily of resin producers, although end product distributors and
independent proprietary compounders also represent a small portion of the
company's customer base. For each of the last two fiscal years,
approximately 70% to 80% of total revenues of the compounding business
were attributable to between eight and ten regular customers. Of these,
one customer accounted for approximately 75% of total revenues of the
compounding business for the years ended December 31, 1995 and 1994.
This customer is a large and well known resin producer, and is the oldest
customer of the compounding business. The Company believes that the loss
of this customer would have a material adverse effect on the compounding
business and on the Company's revenues. Although there are minor
fluctuations in demand for custom compounding services resulting from new
automobile model introductions in the fall and plastic outdoor product
sales in the spring and summer, these fluctuations are not significant.
Competition
-----------
Chemtrusion competes with numerous compounding businesses, and its
operations represent an insignificant percentage of the overall
compounding activities in the United States. The primary competitive
factors in compounding of resins are the ability to provide high quality,
precise, high yield, value added services to the customer on a timely
basis, in accordance with customer specifications. Price is typically a
secondary concern due to the "made to order" nature of the business.
Chemtrusion has sought to position itself as a custom compounder capable
of handling a broad spectrum of compounding jobs in a timely and precise
manner.
<PAGE> 14
Research and Development
During the two fiscal years ended December 31, 1995 and 1994, ISI spent
minimal amounts on research and development activities.
Environmental Matters
ISI does not currently anticipate any material effect upon its capital
expenditures, earnings or competitive position as a result of its
compliance with Federal, state and local provisions which have been
enacted or adopted relating to the protection of the environment.
INVESTMENTS
-----------
Mezzanine Financial Fund, L.P.
- ------------------------------
The Company presently holds a $303,000, or 9%, limited partnership
interest in the Mezzanine Financial Fund, L.P., a Delaware limited
partnership (the "Fund") formed to provide capital in high yield
"mezzanine" debt situations of mid-market companies and to provide asset-
based lending directly to or in participation with other commercial
lenders. A total of $3,400,000 of limited partnership interests have
been sold, including a $200,000 contribution from the Fund's general
partner and an additional $1,000,000 in notes have been issued by the
Fund. As of February 28, 1996, the Fund had loans outstanding in the
aggregate amount of approximately $4,260,000 to 11 entities. Through its
first five years of operation, the Fund has been profitable each year and
has never had a capital loss from any investment situation.
In consideration of Helm's investment, the Fund has agreed to the extent
that it will be providing mezzanine financing, asset-based financing or
otherwise investing in a company which requires capital to be invested in
an amount in excess of what the General Partner determines to be a
suitable level for the Fund, to offer the Company the opportunity to
participate in any investment before offering such opportunity to
unrelated third parties. In addition, should any company that the Fund
invests in elect to sell all or substantially all of its assets, the
Fund, to the extent that it is practical, shall request that the company
grant to Helm a right of first refusal to purchase such assets prior to
offering the opportunity to unrelated third parties.
Unapix Entertainment, Inc.
- --------------------------
Unapix is a Delaware corporation and a public company (AMEX:UPIX) which
was formed in 1993. As of March 15, 1996, the Company owned 171,432
shares of its common stock, representing 3.4% of the shares presently
outstanding.
Unapix is a worldwide licensor of feature films and television programs,
primarily produced by others, principally for the television market
(including free and pay television, cable and satellite) and the home
video market (including video cassette and laser disc). The company's
current "library" of films and programs
<PAGE> 15
includes feature films, documentaries, children's programming, classic
films and serials, musical concerts, comedy shows, adventure series and
special interest programming (the "Properties").
Prior to 1993, Unapix primarily focused on the international distribution
of older Properties. Since then, Unapix expanded its activities to
exploit the increasing worldwide demand for television programming and
home video products resulting from the fractionalization of the
television viewing audience.
During 1993, Unapix implemented a plan to expand and diversify its
business into the areas of domestic and foreign licensing, and domestic
home video cassette and laser disc distribution of newer Properties,
including Properties that are designed to appeal to a specific segmented
audience. During 1994 and 1995, Unapix continued its plans of expansion
and diversification by adding a significant number of newer Properties to
its library.
To facilitate its plans of expansion, the Company established separate
divisions, which currently consist of Unapix International, Unapix North
America (formerly known as Unapix Entertainment) and Unapix Consumer
Products. Unapix International concentrates on the distribution of
Properties from the company's library to foreign broadcasters and home
video companies. Unapix North America is presently engaged in the
licensing of Properties to the North American home video and television
markets. Unapix Consumer Products, formed in January 1995, conducts the
company's "sell-through" operations, marketing products that are intended
to be purchased by consumers.
PROFESSIONALS' FINANCIAL SERVICES, INC.
- ---------------------------------------
Since 1993, Professionals' Financial Services, Inc. ("PFS"), a privately-
held Delaware corporation based in Red Bank, New Jersey, has been engaged
in the business of providing capital to small and mid-market business
enterprises through the purchase of accounts receivable. Through its
wholly-owned subsidiaries, HealthCare Financial Services, Inc. ("HF") and
Professional Factors, Inc. ("PF"), both of which are located in Tampa,
Florida, PFS has been engaged in the business of providing factoring
services to healthcare related business enterprises which need credit
accomodations of between $50,000 and $400,000 and are unable to obtain
traditional commercial bank financing.
In providing its factoring services, HF purchases accounts receivable
from its customers at discounts that range from 4% to 6% for the first 30
days that the accounts remain outstanding after such purchase.
Additional charges are applied upon collection. While PFS, through HF,
initially extended factoring services primarily to companies in the
healthcare field, has diversified its client base and initiated factoring
services for companies engaged in other business activities. In this
regard, PFS formed Professional Factors, Inc. in 1995.
<PAGE> 16
HF and PF also provide billing and collecting services, at an additional
fee, for their respective customers, thereby becoming more essential to a
customer's operating business.
The Company presently holds 325,635 shares of common stock which it
acquired in 1995, representing approximately 19% of the common stock of
PFS presently outstanding.
EMPLOYEES
---------
The Company. The Company has 8 employees, 5 of whom serve in executive
capacities and 3 who serve principally in administrative capacities.
Interpak Terminals, Inc. Interpak employs approximately 185 full-time
employees in Texas and 43 full-time employees in New Jersey, including
executives, clerical and administrative personnel and warehouse personnel.
Approximately 30 Interpak employees are covered by a collective bargaining
agreement which expires in May 1996.
InterSystems, Inc. ISI currently employs 182 persons, all of whom are full
time employees, in executive, administrative and clerical, and production,
engineering and laboratory personnel capacities. None of ISI's employees are
represented by a union.
The Company believes its subsidiaries and affiliates have good relations with
their employees.
ITEM 2. PROPERTIES
- -------------------
The Company. The Company shares occupancy with four other corporations of
4,500 square feet of office space located at 537 Steamboat Road, Greenwich,
Connecticut. The lease commenced in June 1995, and has a term of three years
with an annual base rent of $99,000 for the first year, $103,500 for the second
year and $108,000 for the third year. The other corporations sharing this
space are ISI, Unapix and two other corporations as to which Messrs. Herbert
Pearlman and/or David Lawi serve as directors and to which they devote some of
their business time. The rent is apportioned among the other four corporations
occupying the space.
Interpak Terminals, Inc. Interpak's principal executive offices and domestic
operations headquarters are located at one of its packaging and warehouse
facility in Houston, Texas. Interpak leases twelve facilities at which
packaging, warehousing and distribution or bulk transfer services are
conducted. Certain of these facilities also have administrative offices.
These facilities are as follows:
<PAGE> 17
<TABLE>
Approximate Current
Location Term Expires Square Feet Annual Rent
- -------- ------------ ----------- -----------
<S> <C> <C> <C>
Edison, New Jersey I September 1998 76,800 $188,700
Edison, New Jersey II September 1998 48,000 136,356
Houston, Texas I January 1998 136,930 340,325
Houston, Texas II February 2003 163,000 454,200
Houston, Texas III March 2000 176,225 359,499
Houston, Texas IV December 1996 147,873 294,872
Houston, Texas V June 1999 99,267 238,241
Houston, Texas VI May 1999 151,000 326,160
Houston, Texas VII May 1999 141,000 304,560
LaPorte, Texas September 2005 198,378 494,913
</TABLE>
InterSystems Nebraska: InterSystems Nebraska owns a 40,000 square foot
office and manufacturing facility in Omaha, Nebraska, subject to a mortgage
of $840,000 to secure indebtedness of an industrial development bond due in
December 1996, requiring periodic payments of interest and principal. The
interest rate is 11% and the remaining principal balance is approximately
$41,220. The facility is subject to a second mortgage with respect to a
term loan due in September 1999.
In November 1995, InterSystems Nebraska entered into a lease for a facility
comprising 30,000 square feet of additional manufacturing space in Omaha.
The lease provides for an annual rental of approximately $100,000 per year
and expires in November 2000.
Given the current mix of equipment manufactured by InterSystems Nebraska
and its current pricing, the Company believes that the facilities are
capable of manufacturing equipment representing approximately $20,000,000
in sales. The Company utilized 100% of the productive capacity of its
original facility in 1995.
InterSystems Nebraska also leases approximately 950 square feet of office
space in Dallas, Texas for use as a regional sales office at an annual
rental of approximately $11,400. This lease expires in December 1996, and
is subject to renewal.
Chemtrusion: Chemtrusion conducts its business in a leased 78,410 square
foot facility located in Houston, Texas. The current annual rent is
$205,800, and the lease expires in April 1997. The Company estimates that
Chemtrusion operated at approximately 86% of the facility's practical
capacity during 1995.
In January 1996, Chemtrusion acquired a 16.4 acre parcel of land in
Jeffersonville, Indiana, on which it will construct a $12.7 million
plastics compounding plant, which will contain four production lines and
will be operated by Chemtrusion for the sole benefit of Mytex Polymers.
See "Business-Recent Developments-Chemtrusion."
ISI shares executive office space with Interpak Terminals, Inc. at the
Houston, Texas II facility above, for which it pays no rental.
The rent expense that could be allocated would be minimal.
<PAGE> 18
The Company believes that its properties and the properties of its
subsidiaries are in good operating condition and adequate for it and its
subsidiaries' present levels of operation. The Company's affiliated
companies have office and operating facilities that are adequate for
their present operations. The Company does not deem any one of its
affiliated company's facilities to be materially important to the
Company.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
On December 13, 1993, Shirley Garner, the wife and duly appointed
guardian of James A. Garner, commenced lawsuits against the Company and
Interpak Terminals, Inc. in the Probate and County Court of Brazoria
County, Texas (docket no. 19,408), and in the 10th Judicial District
Court for the County of Galveston, State of Texas (docket no. 93CV1479).
The suit in the District Court for the County of Galveston has been
dismissed.
In her original complaint, the plaintiff demanded a jury trial and sought
an unspecified amount of damages arising from injuries sustained to Mr.
Garner, an independent contractor, while installing equipment at a
facility of Interpak Terminals, Inc., a Texas corporation and a
subsidiary of the Company ("Interpak Texas"). The Company and Interpak
Texas have notified their respective insurance carriers of this claim,
and Interpak Texas and the Company's primary general liability insurer,
The Travelers Insurance Cos., has retained counsel in Houston and is
defending this matter.
Mr. Garner died in October 1995. On October 30, 1995, the plaintiff
filed an amended complaint seeking wrongful death damages for herself and
her two sons aggregating $17,500,000, medical expenses of $3,000,000 and
punitive damages to the maximum extent allowable by
law. The matter is presently scheduled for trial in late April 1996. The
amended complaint alleges that Mr. Garner was an employee of Interpak
Texas, or that in the alternative, he was an independent contractor.
Prior to the date of the incident, in the normal course of business,
Interpak Texas made application to reject coverage under the Texas
Workers' Compensation Act and, upon approval by the state, obtained
insurance coverage which provided excess indemnity insurance in the amount
of $750,000 per incident, with a $250,000 deductible, and provided a
maximum of $4,000,000 through underwriters at Lloyds. The purpose of
these arrangements was to provide funds to the employer in order to pay
statutory workers' compensation benefits. In addition, at the time of the
incident in question, Helm had in place, on behalf of itself and its
subsidiaries, a $1,000,000 primary general liability policy by The
Travelers Insurance Cos., together with a $5,000,000 excess/umbrella
policy through Westchester Fire Insurance Group. Neither the Travelers
nor Westchester policies was written to provide for employers liability
under the Texas Workers' Comensation Act.
<PAGE> 19
Both Lloyds and Westchester are monitoring this litigation. While
Travelers is vigorously defending this litigation, it is impossible to
predict the outcome of this case or to reasonably estimate the amount of
the damages, if any, which may be awarded by the jury in this case
should the jury find for the plaintiff. Any verdict in excess of any
insurance proceeds which may be available to Interpak Texas or the
Company under any applicable policies could have a material adverse
effect upon the business and financial condition of Interpak Texas and
the Company, and may cause either or both of the companies to seek
protection under applicable bankruptcy laws.
In addition, the Company and its subsidiaries and its affiliates are
parties to lawsuits arising out of the ordinary course of business,
which, either individually or in the aggregate, are not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None
- ------------------------------------------------------------
<PAGE> 20
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- --------------------------------------------------------------
STOCKHOLDER MATTERS
- -------------------
(a) Market Information
------------------
The Company's common stock is listed on the American Stock Exchange
under the symbol "HHH". The following table sets forth the high and low
closing sale prices for the Company's common stock for the periods
indicated, as reported on the American Stock Exchange - Composite Tape.
<TABLE>
l995 High Low
---- ---- ---
<S> <C> <C>
First Quarter $ 1.00 .75
Second Quarter .75 .4375
Third Quarter .8125 .5625
Fourth Quarter 1.0625 .625
l994 High Low
---- ---- ---
First Quarter 1.875 1.125
Second Quarter 1.875 1.125
Third Quarter 1.25 .875
Fourth Quarter 1 .625
</TABLE>
On March 26, l996, the closing price of the Company's common stock was
$.9375.
(b) Holders As of March 1, 1996, there were, to the best of the
Company's knowledge, approximately 1,900 holders of record (not
beneficial holders) of the Company's Common Stock.
(c) Dividend Policy The Company has not paid any cash dividends during
the last two fiscal years. The Company currently intends to retain all
of its earnings to support the development of its business and does not
anticipate paying any cash dividends for the forseeable future.
[The rest of this page intentionally left blank.]
<PAGE> 21
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
- -----------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
- ----------------------------------
1995 Compared to 1994
- ---------------------
Revenues increased $969,000 (7%) in 1995 to $15,183,000 compared to
$14,214,000 in 1994 primarily due to an increase in packaging and storage
volume at Interpak.
Operating expenses increased $420,000 (4%) to $11,953,000 in 1995 from
$11,533,000 in 1994. Approximately $627,000 is due to increased labor
cost at Interpak to accomodate the increase in volume and a decrease of
$128,000 in amortization of data bank which was fully depreciated in
1994.
Selling, general and administrative expenses decreased $617,000 (14%)
in 1995 to $3,917,000 compared to $4,534,000 in 1994. Increased
allocations of parent company expenses to affiliates resulted in a
decrease of $432,000, and $237,000 was due to reductions in Arcadian
Financial following the sale of its loan portfolio earlier in the year.
The $738,000 gain on sale of securities in 1995 represents gains on
sales of various securities held by the Company including sales of
securities to two officers. The gain of $100,000 in 1994 represents the
gain on sale of warrants held by the Company. See Note 3 to the
Consolidated Financial Statements.
Lease termination cost of $233,000 was recorded in 1994 in anticipation
of cancellation of a long term lease upon sale of the related property.
In 1995, the aniticpated sale did not close and the provision was
reversed since the Company's subsidiary decided to continue to lease the
property. See Note 13 to the Consolidated Financial Statements.
Equity in net loss of affiliates decreased to $132,000 in 1995 from
$256,000 in 1994 due to a decrease in the share of InterSystems' loss of
$41,000 and an increased share of real estate joint venture income of
$48,000 and $35,000 equity in income of a new investment, Professionals'
Financial Services, Inc. in 1994. See Note 2 to the Consolidated
Financial Statements.
Increase in underlying equity of affiliate of $123,000 in 1995 consists
of $96,000 relating to the Company's share of the increase in
InterSystems' equity resulting from the issuance by InterSystems of
common shares upon conversions of subordinated debentures, and $27,000
relating to the Company's share of the increase in Professionals'
Financial Services' equity resulting from a private placement of common
stock. The $371,000 in 1994 is all attributable to InterSystems
resulting form conversion of subordinated debentures and the elimination
of a put option on securities held by a financial institution.
<PAGE> 22
Interest and debt expense increased by $104,000 (12%) to $989,000
in 1995 from $885,000 in 1994 due to increased borrowings by Interpak.
The extraordinary item of $85,000 in 1994 is the debt discount related
to $500,000 principal amount of subordinated debentures exchanged for
preferred stock.
Impact of Inflation
- -------------------
Inflation has not had a significant impact on the Company's operations.
Liquidity and Capital Resources
- -------------------------------
Operating activities for the year ended December 31, 1995 provided cash
of $370,000, proceeds from the sale of securities provided $617,000 and
$423,000 was provided by borrowings from affiliates. Purchases of
property, plant and equipment used $204,000, and $864,000 was used for
repayments of notes payable and long-term debt; other net increases were
$51,000, which resulted in an increase in cash of $393,000.
At December 31, 1995, the Company had a working capital deficit of
$3,716,000, which included $2,008,000 for Interpak. The Interpak working
capital deficit included $1,000,000 under a revolving loan agreement that
expired in February 1996 and which is presently being extended on a month
to month basis. The line, which has an annual interest rate of prime
plus 1.25%, was fully borrowed at December 31, 1995, is secured by
substantially all of the assets of Interpak, as well as Interpak's common
stock and 400,000 shares of common stock of an affiliated company, and is
guaranteed by the Company. Interpak is in violation of the covenants
under this loan agreement and has requested waivers from the lender, an
increase in the line of credit, and an extension of the agreement to
February 1997. There is no assurance that Interpak will be able to
refinance, or refinance on the same terms. It is expected that
Interpak's operations, with an increase in the line of credit, should be
sufficient to meet its other obligations as they become due. The balance
of the working capital deficit included approximately $2,038,000 of payables
to affiliates, of which $620,000 was repaid subsequent to December 31, 1995
and another $1,138,000 as to which the Company is confident of its ability to
fund these amount as needed from the sale of investment securities.
Future liquidity sources for the parent company will consist of
reimbursement of general and administrative expenses from subsidiaries
and affiliates, available funds from the earnings of Interpak and
possible sales of investment securities. On a longer term basis, the
Company may be required to seek additional liquidity through debt and
equity offerings of the Company and/or its subsidiaries.
The report of independent certified public accountants on the Company's
financial statements contains a going concern paragraph which references
the violation of the loan covenants mentioned above and the outcome of the
litigation included in Item 3--Legal Proceedings.
<PAGE> 23
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS No. 121). SFAS No. 121 requires, among other things, that
impairment losses on assets to be held, and gains or losses from assets
that are expected to be disposed of, be included as a component of income
from continuing operations. The Company will adopt SFAS No. 121 in 1996
and its implementation is not expected to have a material effect on the
consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 encourages
entities to adopt the fair value method in place of the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB No. 25), for all arrangements under which employees
receive shares of stock or other equity instruments of the employer or
the employer incurs liabilities to employees in amounts based on the
price of its stock. The Company does not anticipate adopting the fair
market method encouraged by SFAS No. 123 and will continue to account for
such transactions in accordance with APB No. 25. However, the Company
will be required to provide additional disclosures beginning in 1996
providing pro forma effects as if the Company had elected to adopt SFAS
No. 123.
<PAGE> 24
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The financial statements required by this Item are set forth below:
<TABLE>
Financial Statements of the Registrant Page
- -------------------------------------- ----
<S> <C>
Report of Independent Certified Public
Accountants........................................ F-l
Consolidated Balance Sheet as of
December 3l, l995.................................. F-3
Consolidated Statements of
Loss for the Years Ended
December 3l, 1995 and l994......................... F-5
Consolidated Statements of
Changes in Shareholders' Capital
Deficit for the Years Ended December
31, 1995 and 1994.................................. F-6
Consolidated Statements of
Cash Flows for the Years Ended
December 3l, 1995 and 1994......................... F-7
Notes to Consolidated Financial
Statements......................................... F-8
</TABLE>
Financial Statements of InterSystems, Inc., a Delaware corporation
- ------------------------------------------------------------------
The financial statements of InterSystems, Inc., a Delaware
corporation are hereby incorporated by reference to the InterSystems, Inc.
Annual Report on Form 10-KSB for the year ended December 31, 1995 as filed
with the Securities and Exchange Commission.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE: None
<PAGE> 25
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The directors and executive officers of the Company are set forth
below. The directors serve until the next annual shareholders meeting
and until their successors are elected and qualified.
<TABLE>
<S> <C> <C>
Name, Principal Occupation
Over Past Five Years and Director of
Other Directorships of Nominee Age Company Since
- ------------------------------ --- -------------
Herbert M. Pearlman................... 63 l980
Mr. Pearlman has been the Company's president and chief executive
officer since l980 and became the chairman of the Company's Board of
Directors in June 1984. Mr. Pearlman is a co-founder and since l982 has
been a director of Seitel, Inc. ("Seitel"), a New York Stock Exchange
company which is engaged in acquiring and marketing seismic data. In
March l987, he was elected as the chairman of Seitel's Board of
Directors. Since l984, Mr. Pearlman has been chairman of ISI. In 1990,
Mr. Pearlman became chairman of the board of directors of Unapix. In
1994, Mr. Pearlman became chairman of the board of American Business
Computers Corporation ("ABBC"), a public company which is engaged in the
business of designing and manufacturing equipment which dispenses
liquids, solids, gases, pastes and gels. Since 1989, Mr. Pearlman has
been a director of PLB Management Corp. ("PLB Managment"), the general
partner of The Mezzanine Financial Fund, L.P. (the "Fund"). Since 1993,
he has been a director of Professionals' Financial Services, Inc.
("Professionals"). The Company presently holds equity positions in ISI,
Professionals and Unapix, and a limited partnership interest in the Fund.
Walter M. Craig, Jr................. 42 1993
Mr. Craig joined the Company in March 1984 as vice president and
general counsel. In July, 1991, he was appointed senior vice president--
business and legal affairs, and in July 1992 he was appointed executive
vice president and Chief Operating Officer. In
1993, he became president of the Fund and President of Professionals. He
has been a director of Seitel since 1987 and a director of Unapix and ISI
since 1993. Prior to joining the Company, Mr. Craig was engaged in the
private practice of law.
David S. Lawi......................... 60 l980
Mr. Lawi has been the Company's executive vice president and
secretary from l980 until 1992, when he was appointed secretary-treasurer.
Since l984, Mr. Lawi has been a director of ISI and since 1986 he has been
chairman of ISI's Executive Committee. Since l982, Mr. Lawi has been a
director of Seitel and in 1989 he was elected Chairman of Seitel's
Executive Committee. Since 1989, Mr. Lawi has been a director of PLB
Management. Since 1993, he has been a director of Professionals'. In
1990, Mr. Lawi became a director of
Unapix. In 1993, he became treasurer and secretary of Unapix.
<PAGE> 26
Joseph J. Farley...................... 73 l982
From l982 until February 1991, Mr. Farley served as the Company's
vice president for marketing and engineering. Prior to joining the
Company, Mr. Farley had been a senior executive with International
Business Machines Corporation ("IBM") for 32 years, where he held various
positions in engineering, marketing and field engineering. His final
assignment at IBM was corporate director of marketing/standard practices.
William Lerner........................ 62 l985
Mr. Lerner is a practising attorney in New York and Pennsylvania.
From 1989 to 1990, he was General Counsel to Hon Development Company, a
Southern California real estate development company. Mr. Lerner has been
a director of Seitel since July l984. Mr. Lerner is also a director of
several other public companies, including Rent-Way, Inc., a company
engaged in the rental-purchase business, a director of Co-Counsel, Inc.,
a legal staffing company providing contract lawyers and paralegal
personnel to law firms and corporate law departments, and Micro-to-
Mainframes, Inc., a provider and systems integrator of advanced
technology communications products and Internet services.
John E. Stieglitz..................... 63 l986
Since l976, Mr. Stieglitz has been president of Conspectus, Inc., a
privately held company engaged in providing consulting services in the
area of executive recruiting. Mr. Stieglitz has been a director of
Seitel since 1989, and a director of ISI since 1991.
</TABLE>
Executive Officers
- ------------------
In addition to Messrs. Pearlman, Craig and Lawi, the Company has
one additional executive officer. Daniel T. Murphy, 57, joined the
Company in May 1984 as vice president and chief financial officer. In
April 1992 he was appointed executive vice president-finance. In May
1984 he became vice president-finance and operations, and in 1985 he
became executive vice president of operations and chief financial
officer, of ISI. He became a director of ISI in 1986.
All of the Company's executive officers spend a majority of their
work-related time on the various businesses of the Company and its
subsidiaries and affiliates, and allocate their time among these entities
according to the relative need of each for executive assistance.
Section 16 Compliance
- ---------------------
Based upon a review of Forms 3, 4 and 5, and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) during, and with
respect to, its most recent fiscal year, and written representations
furnished to the Company, it appears that all such reports required to be
filed were filed on a timely basis.
<PAGE> 27
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
Set forth below is certain information with respect to cash and
noncash compensation awarded to, earned by or paid to the Chief Executive
Officer of the Company and the next most highly compensated individuals
who served as executive officers of the Company for services rendered to
the Company and its subsidiaries during 1995. Each of the named officers
has been a party to an employment agreement with ISI during the years
ended December 3l, 1995, 1994 and l993. See "Certain Relationships and
Related Party Transactions--The Company and InterSystems, Inc."
<TABLE>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
---------------------------
<S> <C> <C> <C> <C>
All
Name and Other
Principal Compen-
Position Year Salary(1) Bonus sation(2)
- -------- ---- ----------- -------- -----------
Herbert M. 1995 $340,000(3) - $ 16,800
Pearlman, 1994 340,000(3) - 16,800
CEO and Chairman 1993 257,083(3) - 12,600
Daniel T. 1995 139,999 - 16,343
Murphy, 1994 140,000 - 15,812
Executive Vice 1993 143,790 - 13,516
President, Finance
David S. Lawi, 1995 170,000(3) - 17,442
Secretary- 1994 170,000(3) - 16,769
Treasurer 1993 128,541(3) - 14,027
Walter M. Craig, 1995 150,570 23,000 9,105
Jr., Executive 1994 138,167 20,000 10,064
Vice President 1993 127,577 19,556 8,828
_______________________
</TABLE>
(1) includes the following amounts paid by the Company's subsidiary,
InterSystems, Inc., during 1995, 1994 and 1993, respectively: Mr.
Pearlman: $100,000, $100,000 and $66,667; Mr. Murphy: $85,127, $90,000 and
$94,743; Mr. Lawi: $50,000, $50,000 and $33,333; and Mr. Craig: $17,500,
$17,500 and $17,500; also includes $16,820, $33,667 and $29,615 paid by
the Company's subsidiary, Cliff Engle Ltd., during 1995, 1994 and 1993,
respectively, to Mr. Craig $100,000, $50,000 and $24,500 paid during 1995,
$100,000, $50,000 and $24,500 paid during 1994 and $100,000, $50,000 and
$20,462 paid during 1993 by the Company's subsidiary, Interpak Holdings,
Inc., to Mr. Pearlman, Mr. Lawi and Mr. Craig, respectively.
(2) Amounts shown include automobile allowances and taxable fringe
benefits.
(3) Includes amounts payable in common stock of the Company, which will be
issued pending listing on the American Stock Exchange, as follows:
<PAGE> 28
<TABLE>
<S> <C> <C>
Herbert M. Pearlman 1995 $100,000
1994 100,000
1993 33,333
David S. Lawi 1995 50,000
1994 50,000
1993 16,666
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
--------------------------------------------------------------
YEAR-END OPTION/SAR VALUE TABLE
-------------------------------
The following table sets forth aggregated option exercises in the
last fiscal year, the number of unexercised options and fiscal year-end
values of in-the-money options for the Chief Executive Officer and the
next most highly-compensated executives.
<TABLE>
<S> <C> <C> <C> <C>
Value of Number of
Unexercised
Shares Unexercised In-the-money
Acquired Options at Options at
on Fiscal year-end fiscal year end
Exercise Value Exercisable/ Exercisable/
Name (#) Realized ($) Unexercisable Unexercisable (1)
- -------- -------- ------------ ------------- -----------------
Herbert M. - - 13,334/0 n/a
Pearlman
Walter M - - 7,667/0 n/a
Craig, Jr.
David S. - - 6,667/0 n/a
Lawi
Daniel T. - - 5,000/0 n/a
Murphy
- ----------------
(1) All options are out-of-the-money.
</TABLE>
Compensation of Directors
- -------------------------
Outside directors receive fees of $10,000 for services they render to the
Company, payable $5,000 in cash and $5,000 in common stock of the Company.
Mr. Farley receives an additional $5,000 for his services as Chairman of the
Executive Committee. Expenses reasonably incurred in the furtherance of
their duties are reimbursed by the Company.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
----------------------------------------------------------------
Pearlman Employment Agreement
On January 1, 1990, the Company entered into an employment contract
with Herbert M. Pearlman, as the Company's President and Chief Executive
Officer, with a continuous five-year term (the "Pearlman Agreement"). The
Pearlman Agreement, as amended, provides for (a) a base salary, payable by
the Company or its subsidiaries, of $404,475 a year (subject to annual upward
adjustments in relation to the increase in the consumer
<PAGE> 29
price index) (the "Base Salary") and (b) additional fees ("Additional Fees")
each year equal to 5% of the Company's consolidated pre-tax profits and 5% of
the annual pre-tax profits of each unconsolidated subsidiary of the Company
attributable to the Company for such year. To the extent Mr. Pearlman
receives a portion of his salary from a subsidiary, the amount of salary he
receives from the Company is similarly reduced.
Mr. Pearlman has agreed to voluntarily reduce his base salary.
Effective September 1, 1993, the annual base salary payable to Mr. Pearlman
was $340,000, of which $200,000 in the aggregate is paid by two of the
Company's subsidiaries. An additional $100,000 is payable in common stock of
the Company based upon certain average stock prices, and $40,000 is payable
in cash by the Company.
If Mr. Pearlman is unable to discharge his duties for a period of six
consecutive months, the Company may terminate the Pearlman Agreement, in
which event Mr. Pearlman will be entitled to receive the Base Salary for two
years from the date of termination. Thereafter, until age 65 Mr. Pearlman
shall receive annual disability payments in an amount equal to the greater of
60% of his final Base Salary or $10,000 per month. Under the Pearlman
Agreement, Mr. Pearlman is not required to devote his full time to the
Company and may seek to acquire businesses for enterprises other than the
Company as long as he obtains the prior approval of the Board of Directors of
the Company before acquiring any business with sales, net income before taxes
and stockholders equity of more than $4,000,000, $600,000 and $750,000,
respectively.
If, at any time during the term of the Pearlman Agreement the majority of
the Company's Board of Directors are comprised of members recommended by a
party not supported by the Company's present Chairman (hereinafter "Change of
Control"), Mr. Pearlman, at his option, will receive, no later than the date
upon which such Change of Control occurs, the following (hereafter the
"Change in Control Payments"):
(i) a lump sum cash payment equal to 2.99 times the
average of all forms of compensation paid to Mr. Pearlman by the
Company and all of its subsidiaries and affiliates during the
prior five years reduced by the amounts received pursuant to
terms (ii) and (iii) below;
(ii) a lump sum cash payment equal to the difference
between the exercise price of all stock options, warrants,
convertible preferred stock and convertible debentures held by
Mr. Pearlman and the then current market price for the Company's
common stock; and
(iii) a continuation of all medical and disability
insurances and benefits for Mr. Pearlman (and his family) for a
period of five years.
Messrs. Lawi, Murphy and Craig have similar Change of Control
Payment provisions pursuant to their employment arrangements (see
descriptions below). By way of illustration, if a Change in Control
occurred during 1996, it is estimated that Messrs. Pearlman, Lawi,
<PAGE> 30
Murphy and Craig would receive Change of Control Payments of $960,000,
$480,000, $450,000, and $450,000, respectively. The Company believes
that the Change in Control Payment provisions in these officers'
agreements may tend to discourage attempts to acquire a controlling
interest in the Company and may also tend to make the removal of
management more difficult; however, the Company believes such provisions
provide security and decision making independence for its executive
officers.
The Pearlman Agreement further provides (i) that upon the
expiration of the term, if Mr. Pearlman's employment is not continued, he
will be entitled to a severance payment of two years' salary and (ii) for
certain company-paid fringe benefits such as life insurance, with the
beneficiary to be specified by Mr. Pearlman, disability insurance and
health insurance providing one hundred (100%) per cent coverage of most
medical expenses.
Lawi Employment Agreement
- -------------------------
On January 1, 1990, the Company entered into an employment
agreement whereby David S. Lawi is presently employed as the Company's
Secretary-Treasurer with a continuous five year term (the "Lawi
Agreement"). The Lawi Agreement, as amended, provides for Mr. Lawi to
receive a salary, payable by the Company or its subsidiaries, of $202,238
a year (subject to annual adjustment in proportion to the increase in the
consumer price index or as determined by the Board of Directors), plus an
annual bonus equal to 2.5% of the Company's consolidated pre-tax profits
and 2.5% of the annual pre-tax profits of each unconsolidated subsidiary
of the Company attributable to the Company for such year. To the extent
Mr. Lawi receives a portion of his salary from a subsidiary, the amount
of salary he receives from the Company is similarly reduced.
Mr. Lawi has agreed to voluntarily reduce his base salary. Effective
September 1, 1993, the annual base salary payable to Mr. Lawi was
$170,000, of which $100,000 in the aggregate is paid by two of the
Company's subsidiaries. An additional $50,000 is payable in common stock
of the Company based upon certain average stock prices, and $20,000 is
payable in cash by the Company.
If Mr. Lawi is unable to discharge his duties for a period of six
consecutive months, the Company may terminate the Lawi Agreement but will
be required to pay Mr. Lawi's base salary for two additional years.
Thereafter, until age 65, Mr. Lawi will receive annual disability
payments in an amount equal to the greater of 60% of his final base
salary or $10,000 per month.
The Lawi Agreement contains Change in Control Payment provisions
and provisions permitting him to devote his time to other business
enterprises, severance arrangements and provisions regarding Company-paid
fringe benefits which are similar to those described above for Mr.
Pearlman. See "Pearlman Employment Agreement" for additional information
concerning these provisions.
<PAGE> 31
Craig Employment Agreement
- --------------------------
On January 1, 1995, the Company entered into an employment agreement
whereby Walter M. Craig, Jr. is presently employed as the Company's Chief
Operating Officer with a continuous three year term (the "Craig
Agreement"). The Craig Agreement provides for Mr. Craig to receive a
salary, payable by the Company or its subsidiaries, of $161,000 a year
(subject to annual adjustment in proportion to the increase in the
consumer price index or as determined by the Board of Directors). In
addition, Mr. Craig is entitled to a minimum annual bonus equal to the
greater of $20,000 or $12,500 for each $1,000,000 of the Company's
consolidated pre-tax profits, and such additional bonus as is equitable
in the opinion of the Company's Chairman. Any minimum bonus owing will
be offset by any bonus paid by PLB Management, Cliff Engle and ISI and
any other affiliated companies (other than Unapix). Mr. Craig is
entitled to certain additional bonuses in the event that the debt owing
from Cliff Engle to the Company is repaid or cancelled, or if the Cliff
Engle securities owned by the Company are sold.
If Mr. Craig is unable to discharge his duties for a period of
150 days, the Company may terminate the Craig Agreement but will be
required to pay Mr. Craig's base salary for two additional years.
Thereafter, until age 65, Mr. Craig will receive annual disability
payments in an amount equal to the greater of 60% of his final base
salary or $10,000 per month.
The Craig Agreement contains Change in Control Payment provisions and
provisions permitting him to devote his time to other business
enterprises, severance arrangements and provisions regarding Company-paid
fringe benefits which are similar to those described above for Mr.
Pearlman. See "Pearlman Employment Agreement" for additional information
concerning these provisions.
Murphy Employment Arrangement
- -----------------------------
The Board of Directors also has authorized an employment arrangement
for Daniel T. Murphy, Executive Vice President and Chief Financial
Officer, which requires Mr. Murphy to devote his full time to the
Company, its affiliates and subsidiaries. Pursuant to Mr. Murphy's
arrangement, he receives an annual salary of approximately $165,000,
which he has voluntarily reduced to $140,000 and which is subject to
annual increases based on a cost-of-living index. The salary payable
under this arrangement is reduced by the compensation received by the
officer from any of the Company's subsidiaries or affiliates. In
addition, Mr. Murphy receives a bonus to be determined on an annual basis
by the Company's Board of Directors. The agreement also provides Change
of Control Payments, severance benefits and fringe benefits similar to
those provided for Messrs. Lawi and Pearlman. As of the date hereof, a
formal contract has not been entered into by the Company with Mr. Murphy.
<PAGE> 32
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------------------------------------------------------------
MANAGEMENT
----------
Set forth below is certain information as of March 15, l996
concerning the beneficial ownership of common stock (the Company's only
class of voting securities) by each director individually, and by all
officers and directors of the Company as a group and by all beneficial
owners of more than 5% of the outstanding shares of the Company's
common stock.
<TABLE>
<S> <C> <C>
Amount and Nature
of Beneficial Percent of
Name Ownership(l)(2) Class(2)
- ---- --------------- --------
Gerson I. Fox.......................... 708,785 (3) 25.6%
111 West Monrovia
Monrovia, CA 91016
Clarence Y. Palitz..................... 562,500 (4) 18.9%
650 Allamuchy Road
Allamuchy, NJ 07820
Directors and Officers
- ----------------------
Herbert M. Pearlman*................... 832,826 (5) 26.6%
David S. Lawi*......................... 396,095 (6) 13.9%
Walter M. Craig, Jr.................... 27,711 (7) 1.1%
Joseph J. Farley....................... 26,008 1.1%
John E. Stieglitz...................... 17,333 **
William Lerner ........................ 16,866 **
Daniel T. Murphy....................... 21,362 (8) **
All officers and directors
as a group (6 persons)..................1,338,201 (5)-(8) 37.6%
</TABLE>
_______________________________________
* address is 537 Steamboat Road, Greenwich, CT 06830
** less than 1%
(l) Except as otherwise indicated, each named holder has, to the best of
the Company's knowledge, sole voting and investment power with
respect to the shares indicated.
(2) Includes shares that may be acquired within 60 days by any of the
named persons upon exercise of any contractual right.
(3) Includes 312,766 shares that may be acquired from the Company within
60 days upon conversion of Series B 8% Cumulative Convertible
Preferred Stock (212,766) and 1993 Class B warrants (100,000). Does
not include shares held by Mr. Fox's wife, as to which he disclaims
beneficial ownership.
<PAGE> 33
(4) Includes 520,833 shares that may be acquired from the Company within
60 days upon conversion of Series A 8% Cumulative Convertible
Preferred Stock held by Mr. Palitz (104,166) and by a limited
partnership as to which Mr. Palitz is the president of the corporate
general partner (416,667).
(5) Includes 671,202 shares that may be acquired from the Company within
60 days upon exercise of options (13,334) and Class A Warrants
(66,145), and conversion of Series A Preferred Stock (18,333), Series
A 8% Cumulative Convertible Preferred Stock (421,875) and 8%
debentures (151,515). Does not include shares held by Mr. Pearlman's
wife, as to which he disclaims beneficial ownership.
(6) Includes 383,938 shares that may be acquired from the Company within
60 days upon exercise of options (6,667) and 1993 Class A Warrants
(27,763), and conversion of Series A Preferred Stock (13,333), Series
A 8% Cumulative Convertible Preferred Stock (260,417) and 8%
debentures (75,758).
(7) Includes 27,031 shares which may be acquired from the Company within
60 days upon exercise of options (7,667), and conversion of 8%
debentures (19,364).
(8) Includes 20,152 shares which may be acquired from the Company within
60 days upon exercise of options (5,000) and conversion of 8%
debentures (15,152).
ITEM l2. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------
The Company, its Subsidiaries and the Fund
- ------------------------------------------
Messrs. Herbert M. Pearlman and David S. Lawi are principal
shareholders of, and control, PLB Management Corp., a Delaware
corporation serving as general partner to The Mezzanine Financial Fund,
L.P. (the "Fund"). In addition, they hold 5.5% and 1%, respectively,
limited partnership interests in the Fund. Mr. Craig is President of the
Fund.
In December 1994, the Fund made available a $250,000 line of credit
to the Company which was increased to $350,000 during 1995. The line
matures on December 31, 1996, bears interest at 15% per annum, entitles
the Fund to the option to receive an additional 10% interest per annum or
to purchase from the Company shares of common stock of Helm, Unapix and
ISI in equal amounts based upon the annual outstanding loan balance.
This loan is secured by the assets of the Company. At December 31, 1995,
$340,000 was outstanding under the loan.
<PAGE> 34
In August 1994, the Fund made available a $250,000 line of credit to
ISI. In 1995, the line was increased to $450,000. The line was paid off
in full in February 1996.
In February 1993, the Fund made available a $750,000 line of
credit to HC, a wholly-owned subsidiary of PFS, to enable HC to initiate
its business activity. The line, which was increased to $1,350,000 but
subsequently reduced to $500,000 during 1996, matures on December 31,
1996 and bears interest at 15% per annum. At December 31, 1995, $900,000
was outstanding under the loan.
In January, 1995, PFS made a $100,000 accounts receivable line of
credit available to The Tropical Manufacturing Group, Inc.("TMG"), which
is a party to an operating agreement and a letter of intent for the
purchase of assets with Tropical Systems, Inc.("TSI"), a subsidiary of
InterSystems Nebraska. See Item 1. Business--InterSystems, Inc.--Recent
Developments on page 8. Effective upon the execution of the operating
agreement in October 1995, no further accounts receivable of TMG were
purchased under the line of credit, and PFS entered into a substitute
accounts receivable line of credit in the amount of $250,000 with TSI.
At December 31, 1995, $203,804.39 was outstanding under the TMG line of
credit and $193,610.21 was outstanding under the TSI line of credit.
In March 1995, PFS acquired from the Company a $200,000 limited
partnership interest in the Fund in exchange for 400,000 shares of common
stock of PFS.
The Company and InterSystems, Inc.
- ----------------------------------
Messrs. Pearlman, Lawi, Murphy and Craig are parties to employment
agreements with ISI. All salary amounts paid under the ISI agreements
reduce the amount of salary the Company is responsible to pay to said
officers. The agreements, as amended, provide for current annual
salaries of approximately $238,000, $130,000, $90,000 and $17,500 to
Messrs. Pearlman, Lawi, Murphy and Craig, respectively. Beginning in
1992, however, Messrs. Pearlman and Lawi agreed to significant voluntary
salary reductions and are currently receiving $100,000 and $50,000,
respectively, from ISI. Each of the four individuals is also entitled to
an annual bonus from ISI computed on the basis of ISI's earnings, if any.
Specifically, Messrs. Pearlman and Lawi are entitled to 5% and 2.5%,
respectively, of ISI's consolidated pre-tax profits (as defined), less
the amount, if any, paid to such officer by the Company as a result of
the inclusion in the Company's earnings of ISI's income for that year.
Messrs. Murphy and Craig receive a discretionary bonus determined by
ISI's Board of Directors.
<PAGE> 35
If at any time the Company no longer is able to elect a majority
of ISI's Board of Directors, any of the officers may terminate their
employment under his respective agreement upon 18 months' notice and
receive upon the conclusion of that period a lump sum severance payment
equal to 18 months' salary. Each agreement also provides that upon the
expiration of the term, if the officer's employment is not continued, he
will be entitled to a severance payment of two years' salary (unless
employment is secured elsewhere). If, upon expiration of the employment
term, continuation is offered but declined by the officer, the officer is
obligated to act as a consultant for two years at 50% of his then current
salary, during which time he will not provide services for any competitor
of ISI.
The Company has an arrangement with ISI whereby ISI pays the Company
an amount equal to the expenses incurred by the Company and allocable to
the business of ISI. These expenses consist primarily of office-related
and administrative expenses and rent. During 1995, ISI paid a total of
$5,153 during, and accrued an additional $47,767 at December 31, 1995, to
the Company pursuant to this arrangement.
In connection with the August 1993 purchase by ISI of InterSystems
Nebraska, certain ongoing contractual relationships exist between Helm
and ISI. In addition to the base purchase price paid to Helm, additional
consideration will be paid in the form of an earnout and a royalty.
Performance Earnout. Helm is entitled to a performance earnout payable
in the event that InterSystems Nebraska's average earnings before federal
income taxes, related party management fees and non-recurring or
extraordinary expense ("EBTME") in 1992 through 1995 inclusive, exceeds
$550,000. If during this period, the average EBTME of InterSystems
Nebraska exceeds $550,000, ISI is required to pay to Helm an amount equal
to six (6) times such excess (the "Earnout Payments"). Earnout Payments
are required to be made commencing March 1994 (for any Earnout Payment
payable under the formula for 1992 and 1993), and each successive year
thereafter, as necessary, until March 1996. The March 1994 Earnout
Payment covers average EBTME for 1992 and 1993. The March 1995 Earnout
Payment covers average EBTME for 1992 through and including 1994. The
March 1996 Earnout Payment covers average EBTME for 1992 through and
including 1995. In the event of a reduction of average EBTME for any
period from the average EBTME for previous periods, no refund of Earnout
Payments will be made. However, the Payments due in March 1995 and 1996
will reflect a credit of the payments previously made toward the total
earnout payment owed. Earnout Payments may be made, at ISI's option, by
delivering cash, shares of common stock (valued at the average closing
sale price on the American Stock Exchange for the 60 days preceding
delivery), by delivering to Helm shares of ISI's common stock having an
aggregate value of such Earnout Payment or other agreed upon
consideration or by the retirement of indebtedness of Helm to ISI.
InterSystems Nebraska's EBTME for the years 1995, 1994, 1993 and 1992 was
$567,000, $507,000, $666,000 and $420,000, respectively. No Earnout
Payment was due for March 1994, March 1995 or March 1996.
<PAGE> 36
Royalty Arrangements. In addition to the base purchase price and the
earnout payments, Helm also is entitled to receive royalties on three
classes of InterSystems Nebraska products that were developed with the
assistance of Helm, and that have not yet had a material impact on
InterSystems Nebraska's sales to date. These three products are: a
sampler used to sample, among other things, wood chips and coal; a higher
capacity sampler used to sample, among other things, wood pulp, cement
and coal; and a radius bottom conveyor. With respect to each of these
three products, Helm will receive a royalty of 5% of all net sales of
such products exceeding certain established thresholds (which thresholds
approximated the highest annual net sales for each of the products during
the last three years), payable on an annual basis for the 15-year period
following the closing (the "Royalties"). In no case can the annual
Royalties paid to Helm in any year with respect any of the products
licensed exceed 10% of the annual gross profit of such product,
calculated in accordance with the accounting procedures and practices
currently employed by InterSystems Nebraska. Royalties to Helm on
account of 1995 sales were approximately $7,000, which remained unpaid at
December 31, 1995.
In General
- ----------
Since 1988, Messrs. Pearlman, Lawi, Murphy and Craig (the
"Officers") have been the holders of an aggregate $1,800,000 principal
amount of the Company's unsecured 8% subordinated convertible debentures,
due 1999 (the "Debentures"), holding $1,000,000, $500,000, $125,000 and
$175,000, respectively, in principal amount. The Debentures were purchased
at face value by the Officers with individual promissory notes, each bearing
interest at 9% per annum, and payable in annual installments over 10 years.
Interest and principal on each note may be repaid in cash or by the
Officer's surrender to the Company of securities of the Company, or any
affiliated company. As of March 15, 1996, the outstanding principal balance
under the notes for each of Messrs. Pearlman, Lawi. Murphy and Craig was
$400,000, $200,000, $50,000 and $83,750, respectively. In addition, as of
such date, the Company owes Messrs. Pearlman, Lawi, Murphy and Craig
interest on their Debentures net of interest on the notes, in the amounts of
$78,221, $39,579, $7,816 and $11,569, respectively.
Messrs. Pearlman and Lawi are limited partners of a Texas limited
partnership known as Partnership 102 Limited, and control the corporation
which serves as general partner to the limited partnership. Partnership 102
Limited is the landlord at a facility in Houston, Texas leased by Interpak
Terminals, Inc. (a subsidiary of the Company). Interpak had been a tenant
in this facility for over four years prior to the 1989 acquisition of the
facility by Partnership 102 Limited. The lease provides for minimum annual
payments of $429,000 through the year 2005, which lease payments are the
same as Interpak paid prior to the acquisition of the facility. See Note 13
to Consolidated Financial Statements.
<PAGE> 37
Arcadian Financial Corp. ("Arcadian") is a Delaware corporation and a
former indirect subsidiary of the Company. Historically, Arcadian has been
engaged in the business of providing accounts receivable based credit
facilities to small businesses, usually having annual sales between $100,000
and $4,000,000, which were unable to qualify for traditional bank financing.
In 1995, Arcadian sold its portfolio of loans and ceased operations except
that it receives an annual royalty of 10% of the income from the portfolio,
and it receives a monthly 2% participation fee on a $150,000 loan made to a
customer of HF in connection with HF's financing of that business. In
November 1995, the Company sold the parent company of Arcadian to the Fund
for $60,000.
During 1995, in order to raise needed working capital, the Company
engaged in a series of transactions in which it sold shares of stock of ISI,
Unapix and PFS held by at market to Messrs. Pearlman and Lawi. In April
1995, the Company sold 15,000 shares of common stock of Unapix to Mr.
Pearlman and 7,500 shares of common stock of Unapix to Mr. Lawi in exchange
for $60,000 and $30,000 respectively, half of which was paid in cash and
half of which was paid by a reduction in the principal amount outstanding of
the Company's 14% Notes held by each of them. The closing price of these
shares of common stock of Unapix on the day of the sale on the NASDAQ was
$4.00.
In May 1995, the Company sold 4,166 shares of common stock of Unapix to
Mr. Pearlman and 2,083 shares of common stock of Unapix to Mr. Lawi in
exchange for $16,667 and $8,333 respectively, half of which was paid in cash
and half of which was paid by a reduction in the principal amount
outstanding of the Company's 14% Notes held by each of them. The closing
price of these shares of common stock on the day of the sale on the NASDAQ
was $4.00. On the same day in May 1995, the Company sold 13,334 shares of
common stock of PFS to Mr. Pearlman and 6,667 shares of common stock of
Unapix to Mr. Lawi in exchange for $16,667 and $8,333 respectively, half of
which was paid in cash and half of which was paid by a reduction in the
principal amount outstanding of the Company's 14% Notes held by each of
them. The market price of these shares of common stock of PFS, which was
based upon the most recent price at which shares of PFS were sold in a
private placement, was $1.25.
In September 1995, the Company sold 10,355 and 5,178 shares of common
stock of Unapix at $4.375 per share, 40,270 and 20,135 shares of common
stock of ISI at $1.125 per share and 36,243 and 18,122 shares of common
stock of PFS at $1.25 per share to Messrs Pearlman and Lawi, respectively,
in exchange for $67,956 and $33,978 in cash, respectively, and $67,957 and
$33,978 in the reduction of the principal amount outstanding of the
Company's 14% Notes held by each of them, respectively. The closing market
price of these shares of common stock of Unapix, as determined by the
NASDAQ, on the day of the sale was $4.375. The closing market price of these
shares of common stock of ISI, as determined by the AMEX, on the day of the
sale was $1.25. The market price of these shares of common stock of PFS,
which was based upon the most recent price at which shares of PFS were sold
in a private placement, was $1.25.
<PAGE> 38
ITEM l3. EXHIBITS, LIST AND REPORTS ON FORM 8-K
- ------------------------------------------------
(a) Exhibits filed as part of this Report
-------------------------------------
3.l Certificate of Incorporation [incorporated by reference to
Exhibit (3)(i) to the Company's Annual Report on Form l0-K for
the fiscal year ended December 3l, l980 (the "l980 Form l0-K")]
3.2 Certificate of Amendment to Certificate of Incorporation
dated June 7, l983 [incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1985 (the "1985 Form 10-K")]
3.3 By-laws [incorporated by reference to Exhibit (3)(ii) to
the l980 Form l0-K]
3.4 Amendment to By-laws dated as of August 27, l982
[incorporated by reference to Exhibit 3.3 to the Company's
Annual Report on Form l0-K for the Fiscal Year Ended December
3l, l982 (the "l982 Form l0-K")]
3.5 Certificate of Amendment to Certificate of Incorporation
dated July 7, 1987 [incorporated by reference to Exhibit 3.5 to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1987 (the "1987 Form 10-K")]
3.6 Certificate of Amendment to Certificate of Incorporation
dated July 21, 1986 [incorporated by reference to Exhibit 3.6
to Registration Statement on Form S-2 (Registration No. 33-
32834) (the "S-2")]
3.7 Certificate of Amendment to Certificate of Incorporation
dated December 8, 1989 [incorporated by reference to Exhibit
3.7 to the S-2]
3.8 Certificate of Designation relating to Series A Preferred
Stock [incorporated by reference to Exhibit 4.21 to the 1985
Form 10-K]
3.9 Certificate of Amendment to Certificate of Incorporation
dated December 16, 1993 [incorporated by reference to Exhibit
3.9 to the 1993 Form 10-K]
3.10 Certificate of Designation relating to Series A 8%
Cumulative Convertble Preferred Stock [incorporated by
reference to Exhibit 3.10 to the 1995 Form 10-K]
3.11 Certificate of Designation relating to Series B 8%
Cumulative Convertible Preferred Stock [incorporated by
reference to Exhibit 3.11 to the 1995 Form 10-K]
4.1 Form of Helm Resources, Inc. 12% Subordinated Debenture due
August 31, 1999 (incorporated by reference to Exhibit 4.4 to
the 1990 10-K).
<PAGE> 39
4.2 Form of Helm Resources, Inc. 8% Subordinated Convertible
Debenture due September 30, 1999 (incorporated by reference
to Exhibit 4.5 to the 1990 10-K).
4.3 Form of Helm Resources, Inc. 14% Promissory Note due
January 31, 1996 [incorporated by reference to Exhibit 4.3 to
the 1995 Form 10-K]
4.4 Form of Helm Resources, Inc. Class A Common Stock Purchase
Warrant due January 31, 1999 [incorporated by reference to
Exhibit 4.4 to the 1995 Form 10-K]
4.5 Form of Helm Resources, Inc. Class B Common Stock Purchase
Warrant due January 31, 1999 [incorporated by reference to
Exhibit 4.5 to the 1995 Form 10-K]
l0.1 l982 Incentive Stock Option Plan, as amended [incorporated by
reference to Exhibit B to the l982 Proxy Statement]
10.2 Amendment to the Company's 1982 Incentive Stock Option Plan
[incorporated by reference to Exhibit 10.15 to the S-2]
10.3 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and Herbert M. Pearlman [incorporated by
reference to Exhibit 10.18 to the S-2]
10.4 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and David S. Lawi [incorporated by
reference to Exhibit 10.19 to the S-2]
10.5 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and Daniel T. Murphy [incorporated by
reference to Exhibit 10.20 to the S-2]
10.6 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and Walter M. Craig, Jr. [incorporated by
reference to Exhibit 10.21 to the S-2]
10.7 Employment Agreement dated as of January 1, 1990 between the
Company and Herbert M. Pearlman [incorporated by reference to
Exhibit 10.22 to Post-Effective Amendment No.1 to the S-2, as
filed with the Commission on October 10, 1990 ("Amendment No.
1")]
10.8 Employment Agreement dated as of January 1, 1990 between the
Company and David S. Lawi [incorporated by reference to
Exhibit 10.23 to Amendment No. 1]
10.9 Employment Agreement dated as of January 1, 1995 between the
Company and Walter M. Craig, Jr. [to be filed by amendment]
13.1 The Company's Annual Report to Stockholders for the year
ended December 31, 1995 [incorporated by reference to this
document as filed with the Commission]
<PAGE> 40
22.0 List of Subsidiaries*
___________________________
*Filed herewith
(c) Reports on Form 8-K: None.
-------------------
<PAGE> 41
SIGNATURES
----------
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on
this 12th day of April, 1996.
HELM RESOURCES, INC.
<TABLE>
<S> <C>
By: /s/ Herbert M. Pearlman
-------------------------
Herbert M. Pearlman
President,
Chief Executive Officer,
Director
(principal executive officer)
By: /s/ Daniel T. Murphy
-------------------------
Daniel T. Murphy
Exec. Vice President - Finance
(principal financial and
accounting officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of l934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Herbert M. Pearlman President, Chief Executive April 12, l996
- ----------------------- Officer, Director (principal
Herbert M. Pearlman executive officer)
/s/ David S. Lawi Secretary-Treasurer, April 12, l996
- ----------------- Director
David S. Lawi
/s/ Walter M. Craig Executive Vice April 12, 1996
- ------------------- President,
Walter M. Craig, Jr. Director
Director April 12, l996
Joseph J. Farley
/s/ William Lerner Director April 12, l996
- ------------------
William Lerner
/s/ John Stieglitz Director April 12, l996
- ------------------
John Stieglitz
</TABLE>
<PAGE> 42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders
Helm Resources, Inc.
Greenwich, Connecticut
We have audited the accompanying consolidated balance sheet
of Helm Resources, Inc. and Subsidiaries as of December 31,
1995, and the related consolidated statements of loss,
shareholders' capital deficit and cash flows for each of
the two years in the period ended December 31, 1995. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Helm Resources, Inc.
and Subsidiaries at December 31, 1995 and the results of
their operations and their cash flows for each of the two
years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a
going concern. At December 31, 1995, the Company had a
working capital deficit of $3,716,000, which includes
$1,000,000 outstanding under a line of credit which is in
default. As discussed in Note 5(b) to the consolidated
financial statements, the Company's wholly-owned subsidiary
was in violation of certain loan covenants in accordance
with its line of credit agreement and the agreement expired
February 28, 1996. Management is currently in negotiations
with the lender to renew the line of credit. Further as
discussed in Note 13(a), the Company is a defendant in a
F-1
<PAGE> 43
lawsuit alleging wrongful death and punitive damages. The
amount of damages claimed substantially exceeds the
Company's insurance coverage and the Company is unable to
predict the outcome of the litigation. These matters raise
substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these
matters.
BDO Seidman, LLP
New York, New York
March 21, 1996
F-2
<PAGE> 44
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
DECEMBER 31, 1995
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 434
Accounts receivable 2 052
Inventories 267
Current portion of promissory notes
receivable from officers 180
Due from affiliates 250
Prepaid expenses 138
Other current assets 59
-----
TOTAL CURRENT ASSETS 3 380
INVESTMENTS IN AFFILIATES 2 278
PROMISSORY NOTES RECEIVABLE FROM OFFICERS 554
PROPERTY, PLANT AND EQUIPMENT, net 2 448
DEFERRED CHARGES AND OTHER ASSETS 401
------
$9 061
======
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 45
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except par values)
DECEMBER 31, 1995
(continued)
<TABLE>
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIT
<S> <C>
CURRENT LIABILITIES:
Notes payable to affiliates $ 2 038
Accounts payable 1 897
Accrued interest 164
Accrued expenses 1 406
Current portion of long-term debt 1 332
Contract settlement 259
-------
TOTAL CURRENT LIABILITIES 7 096
LONG-TERM DEBT, NET OF CURRENT PORTION 1 477
SUBORDINATED DEBENTURES, NET OF CURRENT PORTION 3 241
OTHER LIABILITIES 101
--------
TOTAL LIABILITIES 11 915
--------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
SHAREHOLDERS' CAPITAL DEFICIT:
Preferred stock, $.01 par value: shares
authorized 5,000; issued and outstanding
40 shares -
Common stock, $.01 par value: shares
authorized 15,000; issued and outstanding
2,399 shares 24
Additional paid-in capital 19 889
Unrealized gain on available for sale securities 763
Deficit (23 501)
---------
(2 825)
Less: 6 shares of treasury stock, at cost (29)
---------
TOTAL SHAREHOLDERS' CAPITAL DEFICIT (2 854)
---------
$ 9 061
=========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 46
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(In thousands, except per share amounts)
<TABLE>
<S> <C> <C>
Year ended
December 31,
-------------------
1995 1994
SALES $15 183 $14 214
------- -------
COSTS, EXPENSES AND OTHER:
Cost of sales 11 953 11 533
Selling, general and administrative expenses 3 917 4 534
Gain on sale of securities (738) (100)
Lease termination costs (233) 233
Equity in net loss of affiliates 132 256
Increase in underlying equity of affiliates (123) (371)
Distribution from affiliates (cost method) (40) (48)
Interest and debt expense 989 885
Interest income (80) (131)
------ ------
Total costs, expenses and other 15 777 16 791
------ ------
LOSS BEFORE EXTRAORDINARY ITEM (594) (2 577)
EXTRAORDINARY ITEM - (85)
------ -------
NET LOSS $ (594) $(2 662)
====== =======
LOSS PER COMMON SHARE:
Loss before extraordinary item $ (32) $ (125)
Extraordinary item - (04)
------ -------
Net loss $ (32) $ (129)
Weighted average number of common shares
outstanding 2 231 2 158
====== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 47
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1994
(In thousands, except number of shares)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized
gain(loss)on
Preferred stock Common stock Additional available Treasury stock
--------------- ----------------- paid-in for sale --------------
Shares Amount Shares Amount capital securities Deficit Shares Amount
------ ------ --------- ------ ---------- ------------ --------- ------ ------
Balance at January 1, 1994 41 125 $ - 2 124 356 $ 21 $19 494 $ 831 $(20 245) 6 362 $ (29)
Common stock issued for interest accrued at
December 31, 1993 on 13.5% convertible
subordinated debentures - - 35 671 1 46 - - - -
Shares issued in connection with exercise of
options - - 800 - 3 - - - -
Preferred stock received from officers in
payment of promissory notes (3 350) - - - (167) - - - -
Issuance of preferred stock in connection
with retirement of debt 5 300 - - - 534 - - - -
Unrealized loss on available for sale
securities - - - - - (46) - - -
Other - - - - (70) - - - -
Net loss - - - - - - (2 662) - -
------ --- --------- --- ------- ---- -------- ----- ----
Balance at December 31, 1994 43 075 - 2 160 827 22 19 840 785 (22 907) 6 362 (29)
Common stock issued for interest accrued
at December 31, 1994 and interest payable
during the year on 13.5% convertible
subordinated debentures - - 208,857 2 173 - - - -
Preferred stock received from officers in
connection with retirement of debt (3 075) - - - (154) - - - -
Shares issued in connection with settlement - - 9 719 - 10 - - - -
Shares issued in connection with directors'
fees payable - - 20,000 - 20 - - - -
Unrealized loss available for sale securities - - - - - (22) - - -
Net loss - - - - - - (594) - -
------ ---- --------- --- ------- ---- --------- ----- -----
Balance at December 31, 1995 40 000 $ - 2 399 403 $24 $19,889 $763 $(23 501) 6 362 $(29)
====== ==== ========= === ======= ==== ========= ===== =====
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 48
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<S> <C> <C>
Year ended
December 31,
-------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994
Net loss $(594) $(2 662)
Adjustments to reconcile net loss to net ----- -------
cash provided by (used in) operating activities:
Share of losses of affiliates 132 256
Gain on sale of securities (738) (100)
Increase in underlying equity of affiliate (123) (371)
Depreciation and amortization 669 639
Other amortization 62 290
Interest paid through issuance of common stock 175 47
Directors' fee paid through issuance of common stock 20 -
Minority interest - 17
Other (19) 96
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 97 81
Inventories (88) 16
Increase in:
Accounts payable and accrued expenses 639 332
Other 138 163
----- ------
Total adjustments 964 1 466
----- ------
Net cash provided by (used in)
operating activities 370 (1 196)
CASH FLOWS FROM INVESTING ACTIVITIES: ----- ------
Proceeds from sale of InterSystems Nebraska - 300
Proceeds on sale of securities 617 194
Purchases of property, plant and equipment (204) (380)
Advances to (from) affiliates (15) 49
Net cash provided by ----- ------
investing activities 398 163
CASH FLOWS FROM FINANCING ACTIVITIES: ----- ------
Proceeds from issuance of debt - 2 388
Net borrowings on line of credit - 493
Borrowings from affiliates 423 -
Decrease in notes payable and long-term debt (864) (1 617)
Retirement of debentures (13) (400)
Distributions from investment 79 -
----- ------
Net cash provided by (used in)
financing activities (375) 864
----- ------
NET INCREASE (DECREASE) IN CASH 393 (169)
CASH, beginning of year 41 210
----- ------
CASH, end of year $ 434 $ 41
===== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 49
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(a) Business and Basis of Presentation
Helm Resources, Inc. (the "Company") initiates, develops,
acquires and oversees the management of various business
enterprises. Over the last two years, the Company owned a
controlling or large stock interest in the following operating
entities:
(i) Interpak Terminals, Inc. ("Interpak"), a
wholly-owned subsidiary located primarily in Houston,
Texas, provides packaging, warehousing, distribution and
bulk transfer services for plastic resin producers and
distributors.
(ii) InterSystems, Inc., a Delaware corporation ("ISI"),
a 35% (in 1995) and a 41% (in 1994) owned subsidiary,
which specializes in the custom-compounding of
thermoplastic resins for the petrochemical industry,
through ISI's wholly-owned subsidiary in Houston, Texas
and through ISI's wholly-owned subsidiary in Omaha,
Nebraska, is also engaged in the design, manufacture,
sale and leasing of equipment for sampling, conveying,
elevating, weighing and cleaning a wide variety of
products for agriculture and other industries.
Additionally, ISI also markets rolling doors and
hurricane shutters.
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going
concern. Due to a deficiency in working capital of $3,716,000 at
December 31, 1995 (which includes $1,000,000 outstanding under a
line of credit which is in default) and a potentially significant
lawsuit described in Note 13(a), there is substantial doubt about
the Company continuing in business. The consolidated financial
statements do not include any adjustments that might result from
the outcome of these matters.
All significant intercompany balances and transactions
have been eliminated in consolidation, where appropriate.
(b) Inventories
Inventories, consisting of packaging supplies, are valued
at the lower of cost or market. Cost is determined on a first-in,
first-out basis.
F-8
<PAGE> 50
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Property, Plant, Equipment and Leasehold Improvements
Property, plant, equipment and leasehold improvements are
stated at cost. The Company provides for depreciation principally
by utilizing the straight-line method over the estimated useful
lives of the assets. Amortization of leasehold improvements is
provided based on the shorter of the lease term or the useful lives
of the assets. For income tax purposes, depreciation on certain
assets is calculated using accelerated methods.
(d) Revenue Recognition
Sales are recorded in the periods that services are
provided.
(e) Management's Estimates and Assumptions
The preparation of financial statements in conformity
with generally accepted accounting principles 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 date of the financial statements and the
reported amounts of revenues and expenses during the reported
periods. The Company reviews all significant estimates affecting
the financial statements on a recurring basis and records the
effect of any adjustments when necessary.
(f) New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS No. 121). SFAS No. 121 requires,
among other things, that impairment losses on assets to be held,
and gains or losses from assets that are expected to be disposed
of, be included as a component of income from continuing
operations. The Company will adopt SFAS No. 121 in 1996 and its
implementation is not expected to have a material effect on the
consolidated financial statements.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS
No. 123 encourages entities to adopt the fair value method in place
of the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), for all
arrangements under which employees receive shares of stock or other
equity
F-9
<PAGE> 51
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of its stock. The Company
does not anticipate adopting the fair value method encouraged by
SFAS No. 123 and will continue to account for such transactions in
accordance with APB No. 25. However, the Company will be required
to provide additional disclosures beginning in 1996 providing pro
forma effects as if the Company had elected to adopt SFAS No. 123.
(g) Loss Per Share
Loss per share is computed on the basis of weighted
average number of outstanding shares of common stock during the
year. Equivalents were not included since they were anti-dilutive.
The loss has been adjusted to reflect the dividends on the Series A
and B 8% preferred stock.
(h) Income Taxes
The Company follows Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes", which requires,
among other things, a liability approach to calculating deferred
income taxes.
(i) Investments
The Company generally accounts for all investments in
which it owns 20% or more of the investees' outstanding common
stock and for investments over which it has significant influence
on the equity method. Other investments are generally carried on
the cost method. In accordance with Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("FASB 115"), the Company classifies
securities in certain companies accounted for under the cost method
(see (Note 2) as Available for Sale securities. The securities are
recorded at fair value with the resulting gain (or loss) credited
(or charged) to equity, for Available for Sale securities.
(j) Changes in Underlying Equity of Affiliates
Where appropriate, the Company records changes in its
underlying equity of affiliates in its statement of loss, in
compliance with Staff Accounting Bulletin No. 51.
F-10
<PAGE> 52
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Credit Risk Concentration
Financial instruments which potentially subject the
Company to concentration of credit risk consist primarily of trade
accounts receivable. The Company has one major customer (see
Note 14) and had receivable balances from this customer of $796,000
at December 31, 1995. Most of the Company's customers are in the
petro-chemical business and are located in the Southwest part of
the country.
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES
Investments in and advances to affiliates consist of the
following at December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C> <C> <C>
Name Ownership % Investment Advances to
-------- ----------- ---------- -----------
ISI 35.0 $238 $102
Mezzanine 9.0 303 -
Unapix 3.4 763 -
PFS 19.0 225 -
Joint venture 25.0 749 -
Other - - 148
------ -----
$2 278 $250
====== =====
</TABLE>
Equity in earnings (loss) for the equity method
investments and distributions from the cost method investments are
as follows (in thousands and for the years ended December 31):
<TABLE>
<S> <C> <C>
Name 1995 1994
----- ----- -----
ISI $ (253) $(294)
PFS 35 -
Joint venture 86 38
------ -----
(132) (256)
Mezzanine 40 48
------ -----
$(92) $(208)
====== =====
</TABLE>
F-11
<PAGE> 53
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
InterSystems, Inc. ("ISI")
The Company accounts for its investment in ISI on the
equity method. The quoted market value of the Company's share of
ISI's common stock was approximately $3,325,500 as of December 31,
1995.
In 1995, ISI issued shares of its common stock upon the
conversion of $252,000 of debentures and received proceeds of
$165,000 from the exercise of warrants to purchase common stock. In
1994, ISI issued shares of its common stock upon the conversion of
$598,000 of debentures. In addition, the redemption value of
$275,000 of common stock was classified within ISI's shareholders'
equity. The Company's percentage ownership share in these increases
in ISI's shareholders' equity has been reflected as income, in
compliance with Staff Accounting Bulletin No. 51. Subsequent to
December 31, 1995, ISI sold additional shares of its common stock
which reduced the Company's ownership interest to approximately 25%.
Significant accounting policies for ISI are as follows:
Inventories
Inventories are valued at the lower of cost or market.
Cost is determined on a first-in, first-out basis.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated
at cost. The Company provides for depreciation and amortization on
certain equipment by utilizing the units of production method based
upon the number of hours the compounding equipment operates.
Depreciation and amortization on other equipment and leasehold
improvements is provided using the straight-line method over the
estimated useful lives of the assets or the lease period, whichever
is less. For income tax purposes, depreciation on certain assets is
calculated using accelerated methods.
F-12
<PAGE> 54
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
Revenue Recognition
Sales are recorded in the periods that products are
shipped or as services are performed.
Lease Accounting
ISI leases grain sampling systems to certain of its
customers. The leases generally provide for revenues based on
samples taken on a monthly basis with a minimum number on an annual
basis. Revenue is recorded monthly based on the number of samples
and any difference between the number billed and the minimum annual
amount is recorded on the annual anniversary date of the lease.
Equipment leased to others is recorded at cost and is
being depreciated on a straight-line basis over eight years.
Summarized Financial Data
Summarized financial data for ISI as of December 31, 1995
and 1994 and for the years then ended is as follows (in thousands):
<TABLE>
<S> <C> <C>
1995 1994
------ ------
Balance sheet data:
Current assets $ 5 320 $ 4 089
Other assets 6 007 6 450
-------- --------
Total assets 11 327 10 539
Current liabilities (5 947) (4 375)
Long-term liabilities (4 675) (5 197)
-------- ------
Stockholders' equity $ 705 $ 967
======== ========
Income statement data:
Revenues $ 16 555 $ 15 063
Expenses 17 250 15 795
-------- --------
Net loss $ (695) $ (732)
======== ========
</TABLE>
F-13
<PAGE> 55
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
Mezzanine Financial Fund, L.P. ("Mezzanine")
Mezzanine, a limited partnership, is engaged in a variety
of investments and loans. Certain officers of the Company are the
principal shareholders of the general partner that provides
management services to Mezzanine. The Company accounts for this
investment on the cost method, the carrying value of which
approximates market.
During 1995, Arcadian Financial Corp. (61% owned by the
Company) sold its portfolio of loans to Mezzanine for $60,000,
which approximated book value and ceased operations.
Mezzanine provided loans to the Company and its
subsidiaries in 1995 (see Note 5).
Unapix Entertainment, Inc. ("Unapix")
Unapix is engaged in the worldwide distribution of
feature films, documentaries, live action children series and other
special interest programming.
The shares of Unapix common stock held by the Company
have been classified as Available for Sale Securities. The
unrealized gains (losses) from this investment have been credited
(debited) to a component of equity.
Professional Financial Services, Inc. ("PFS")
In March 1995, the Company sold $200,000 of its interest
in Mezzanine for 400,000 shares of common stock in PFS. PFS,
through its wholly-owned subsidiary, is in the business of
financing receivables of health care related enterprises. PFS is
controlled by affiliates of the Company and has been accounted for
on the equity method.
F-14
<PAGE> 56
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
Joint Venture
On August 19, 1994, Interpak entered into a joint venture
agreement with a company for the purchase of a warehouse facility.
Interpak has a 25% interest in the joint venture which is accounted
for using the equity method of accounting. To finance its
investment, Interpak entered into a loan agreement with its joint
venture partner. The agreement allowed for borrowings up to
$750,000 for Interpak's initial contribution to the joint venture.
At December 31, 1995, Interpak had borrowed $703,000 under this
agreement (see Note 5). Also, Interpak entered into a lease
agreement with the joint venture for the lease of the warehouse
facility. Interpak's share of net income from the joint venture for
the years ended December 31, 1995 and 1994 was $86,000 and $38,000,
respectively. The Company received distributions from the joint
venture totalling $79,000 for the year ended December 31, 1995
which were used to pay interest on the note payable. Following is a
summary of financial position, revenue and net income of the joint
venture (in thousands):
<TABLE>
<S> <C> <C>
December 31, December 31,
1995 1994
----------- -----------
Assets:
Land, building and improvements, net $5 132 $5 149
Other 257 426
------ ------
$5 389 $5 575
====== ======
Liabilities and equity:
Note payable $2 270 $2 445
Other 123 165
Equity 2 996 2 965
------ ------
$5 389 $5 575
====== ======
</TABLE>
F-15
<PAGE> 57
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
<TABLE>
<S> <C> <C>
Period from
inception
(August 19,
1994)
Year ended through
December 31, December 31,
1995 1994
------------ -------------
Rental income $751 $274
==== ====
Net income $346 $151
==== ====
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
(a) Sale of Securities
During 1995, two officers of the Company purchased 44,282
shares of restricted common stock of Unapix, 74,366 shares of
restricted common stock of PFS, and 60,405 shares of restricted
common stock of ISI at market value from the Company for $344,000.
One-half of the purchase price was paid in cash and the other half
by surrender of senior subordinated notes due to them. The
purchases were approved by the Board of Directors and the Company
realized a gain from the transaction of $293,000 in 1995.
Additionally, in 1995, the Company had nonrelated party
transactions in which it sold 78,925 shares of Unapix stock, which
resulted in a gain of $428,000 and sold 9,100 shares of ISI stock,
which resulted in a gain of $17,000.
(b) Other
Interpak provides management services to Chemtrusion, Inc.
(a subsidiary of ISI), which comprises one of ISI's businesses. The
allocated expenses for such management services, based on certain
formulas which management deems to be reasonable, amounted to
$36,000 in 1995 and 1994. At December 31, 1995 and 1994, Interpak
had accounts receivable totalling $195,000 and $121,000,
respectively, due from ISI. The balances consist primarily of
managerial and administrative expenses incurred by Interpak on
behalf of the affiliate.
F-16
<PAGE> 58
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 3 - RELATED PARTY TRANSACTIONS (continued)
Management and administrative salaries of the Company are
allocated to affiliates based upon estimated time devoted to the
respective operations. All other allocations of general corporate
expense are recorded on a specific identification method. In 1995
and 1994, $605,000 and $509,000, respectively, were allocated to
affiliates and reduced from the Company's expenses.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at
December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Machinery and equipment $ 8 339
Furniture and fixtures 980
Leasehold improvements 1 304
-------
10 623
Less: Accumulated depreciation
and amortization 8 175
-------
$ 2 448
=======
</TABLE>
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
(a) Short-Term Notes Payable
Notes payable consist of the following at December 31,
1995 (in thousands):
<TABLE>
<S> <C>
Revolving credit debt payable
to Mezzanine $ 340
14% notes payable to shareholders 1 275
15% notes payable to affiliates 373
Other 50
------
$2 038
======
</TABLE>
F-17
<PAGE> 59
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
Mezzanine has provided a line of credit, expiring
December 31, 1996, totaling $350,000 for the Company (interest at
25% per annum). The Company has pledged its stock ownership in
affiliates as security for the loan. Interest expense on this debt
totalled $75,000 and $71,000 in 1995 and 1994, respectively.
The 14% notes were due January 31, 1996 and have been extended
on a month-to-month basis, thereafter. The notes bear interest at 14%
per annum, payable 7% in cash and 7% in the Company's common stock. Total
interest expense relating to these notes amounted to $199,000 and $215,000
in 1995 and 1994, respectively. In 1995, there was a net reduction of these
notes of $172,000 in connection with the sale of investments (Note 3). In
January 1996 $400,000 of these notes were repaid. Interest continues to be
due at 14%, payable in cash.
The 15% notes payable to an affiliate are unsecured notes
payable to an affiliated company of Interpak. The notes bear
interest at 15% payable monthly and are due at various dates
through May 28, 1996. Subsequent to December 31, 1995, $170,000 of
these notes were repaid.
(b) Long-term Debt
Long-term debt (all at Interpak) consists of the
following at December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Revolving line of credit $1 000
Term loan, interest at 9.25%, payable in
monthly installments of $31,675, including
interest, through April 1999 1 087
Note payable, interest at 13%, interest
payable monthly with principal due
September 2001 (see Note 2) 703
Other 19
-----
2 809
Less current maturities 1 332
------
Total long-term debt $1 477
======
</TABLE>
F-18
<PAGE> 60
A summary of maturities of long-term debt at December 31,
1995 is as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31, Amount
1996 $1 332
1997 325
1998 355
1999 94
Thereafter 703
------
$2 809
======
</TABLE>
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
At December 31, 1995, Interpak had a revolving line of
credit with a lending institution. The agreement provides for a
maximum borrowing based on eligible receivables, as defined, or
$1,000,000, which originally expired February 28, 1996 and has been
extended on a monthly basis thereafter. The line of credit bears
interest at prime plus 1-1/4% and is collateralized by
substantially all assets of Interpak, Interpak's common stock,
400,000 shares of an affiliated company's stock and is guaranteed
by the Company. The revolving line of credit agreement contains
covenants which limit the amount of management fees and advances
Interpak can pay Helm, restricts the incurrence of additional debt,
and requires Interpak not to incur two consecutive months of losses
beginning May 31, 1995, as defined. At December 31, 1995, Interpak
was in violation of certain financial covenants.
Management is currently in negotiations with the lender
to renew the line of credit, as it has done for prior years.
However, there is no guarantee that management will be able to
renew the line of credit or at terms favorable to Interpak.
The term loan agreement is collateralized by certain
equipment and requires the maintenance of certain levels of
tangible net worth and debt to equity ratio, as defined. At
December 31, 1995, Interpak was in violation of certain financial
covenants and has received a waiver of the violations through 1997.
The note payable agreement is collateralized by a second
lien on the joint venture's property and is subordinate to the
joint venturer's mortgage note payable. Also, the note is
guaranteed by the Company and an affiliated company.
(c) Contract Settlement
At December 31, 1995, the contract settlement payable
totaling $259,000 represents the remaining balance due from a
$952,000 contract dispute settlement with a major customer of
Interpak over billing arrangements in prior years.
F-19
<PAGE> 61
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
The settlement was recorded in prior years' operating results.
At December 31, 1995, the Company was in arrears and is renegotiating new
payment terms. Of the balance due at December 31, 1995, $86,000 bears
interest at a range of 4.25% to 6% and $173,000 is noninterest
bearing.
NOTE 6 - SUBORDINATED DEBENTURES
Subordinated debentures of the Company consist of the
following at December 31, 1995 (in thousands):
<TABLE>
<S> <C>
12% subordinated debentures, due 1999,
net of discount of $179
(effective interest rate 12.5%) $1 446
8% convertible subordinated debentures
due 1999 1 775
Other 20
------
$3 241
======
</TABLE>
12% Subordinated Debentures, due 1999
These bonds mature on August 31, 1999. Interest is
payable in cash semiannually.
In 1994, 12% debentures totaling $534,000 were exchanged
for convertible 8% preferred stock. The extraordinary loss of
$85,000 in 1994 represents the write-off of the related debt
discounts.
F-20
<PAGE> 62
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 6 - SUBORDINATED DEBENTURES (Continued)
8% Convertible Subordinated Debentures, due 1999
In November 1989, stockholders approved the issuance of
$1,800,000 principal amount of 8% subordinated convertible
debentures to certain officers of the Company. The debentures bear
interest at 8% per annum, payable on a quarterly basis, and are
convertible, at the option of the holder, into common stock of the
Company at a conversion price of $6.60 per share and will mature on
December 1, 1999. The debentures were purchased by the officers
with their individual promissory notes in the face amount of the
debentures, each bearing interest at 9% per annum and are due
December 1, 1999. Principal payments may be made by the officers up
to a maximum of 10% of the total amounts of the notes annually and
may be paid in cash or securities of the Company or its
subsidiaries.
Interpak Debentures
In 1994, Interpak retired 12% debentures due in 1996 in
connection with obtaining funds from a new term loan (see
Note 5(b)).
NOTE 7 - LIABILITIES
Accrued expenses consist of the following at December 31,
1995 (in thousands):
<TABLE>
<S> <C>
Payroll related expenses $ 594
Other 812
------
$1 406
======
</TABLE>
NOTE 8 - INCOME TAXES
The Company and its eligible subsidiaries file a
consolidated Federal income tax return. Other subsidiaries and
affiliates file separate income tax returns.
The Company has approximately $22,000,000 of net
operating loss carryovers for Federal income tax purposes that
expire in years through 2009. Certain of these loss carryforwards
are subject to future limitations in usage.
F-21
<PAGE> 63
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 8 - INCOME TAXES (Continued)
Net deferred income taxes as of December 31, 1995
consisted of the following (in thousands):
<TABLE>
<S> <C>
Deferred Tax
Asset
------------
Tax benefit of net operating loss carryovers $ 7 700
Tax basis in excess of book basis of
investments in unconsolidated subsidiaries 1 264
Expenses accrued for financial reporting
purposes not deducted for tax purposes, net 27
-------
Deferred tax asset 8 991
Valuation allowance (8 991)
-------
Net deferred tax asset $ -
=======
</TABLE>
NOTE 9 - PREFERRED STOCK
The Company has authorized the issuance of 5,000,000
shares of $.01 par preferred stock, which have been issued in three
types of series which, as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
Series A preferred stock 24 250
Series A 8% cumulative convertible
preferred stock 13 750
Series B 8% cumulative convertible
preferred stock 2 000
------
40 000
======
</TABLE>
F-22
<PAGE> 64
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 9 - PREFERRED STOCK (Continued)
The Series A preferred stock has a stated value of $50.00
per share and each share is convertible into 3.3 shares of common
stock at the greater of $15.00 or 66-2/3% of the then common stock
market price.
The Series A 8% cumulative convertible preferred stock
with a stated value of $100.00 per share was issued in connection
with a debenture refinancing in 1993. The shares are convertible
into common shares at an exercise price of $0.96 for each $1.00 of
stated value.
The Series B 8% cumulative convertible preferred stock with a
stated value of $100.00 per share was also issued in connection
with the debenture refinancing. The shares are convertible into
common shares at an exercise price of $0.94 for each $1.00 of
stated value.
Series A and B 8% cumulative convertible preferred stock
provide the holders with voting rights in proportion with the
respective shares of common stock that may be converted. The
aggregate amount of unpaid dividends in arrears on the Series A and
Series B preferred stock was $252,000 at December 31, 1995.
NOTE 10 - STOCK OPTIONS AND WARRANTS
The 1982 Incentive Stock Option Plan, as amended,
provides for the issuance of options to purchase up to 116,667
shares of common stock. Options are granted at market value on the
date of the grant. In 1995 and 1994, no options were granted under
this plan.
No options were exercised during 1995. During 1994, 9,334
options issued in 1984 expired. During 1994, 800 options were
exercised at an option price of $3.75.
F-23
<PAGE> 65
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
The options outstanding at December 31, 1995 are as
follows:
<TABLE>
<S> <C> <C> <C>
Options
Expiration Shares subject Option exercisable as of
date to option price December 31, 1995
- ---------- -------------- ------- -----------------
1996 1 234 $ 7.50 1 234
1997 25 369 $ 7.50 25 369
1998 8 333 $ 9.375 8 333
2000 5 147 $ 3.75 5 147
2001 10 335 $ 3.75 to $ 7.50 10 335
------ ------
50 418 50 418
====== ======
</TABLE>
In June of 1993, the Company issued 16,667 options at an
exercise price of $1.50. These options expire after five years and
vest over a three-year period. No options were exercised as of
December 31, 1995.
In 1994, the Board of Directors authorized the grant of
50,000 options at an exercise price of $1.25 per share. These
options were granted in 1995. They will vest over a five-year
period.
In connection with a debenture refinancing completed in
1993, the Company issued 212,945 warrants to purchase the Company's
common stock. The warrants expire on January 31, 1996, of which
112,945 have an exercise price of $0.96 and 10,000 are exercisable
at $0.90.
In 1994, the Company issued 50,000 warrants at an
exercise price of $1.25 per share, which have a five-year vesting
period. At December 31, 1995, 10,000 warrants were exercisable.
F-24
<PAGE> 66
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 11 - SHARES RESERVED FOR FUTURE ISSUANCE
Shares reserved for future issuance at December 31, 1995
are as follows:
<TABLE>
<S> <C>
Shares
---------
Conversion of preferred stock 1 725 000
Conversion of 8% convertible
subordinated debentures 269 000
Warrants to purchase common stock 263 000
Shares reserved for stock options
including options granted 183 000
---------
Total shares reserved for future issuance 2 440 000
=========
</TABLE>
NOTE 12 - EMPLOYEES' SAVINGS PLANS
Subsidiaries of the Company sponsor qualified salary
reduction plans under Section 401(k) of the Internal Revenue Code,
covering substantially all salaried employees of these
subsidiaries. The charges against consolidated income for the
subsidiaries' contributions were approximately $14,000 and $29,000
in 1995 and 1994, respectively.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
(a) On December 13, 1993, Shirley Garner, the wife and duly
appointed guardian of James A. Garner, commenced lawsuits against
the Company and Interpak in the Probate and County Court of
Brazoria County, State of Texas and in the 10th Judicial District
Court for the County of Galveston, State of Texas. The suit in the
District Court for the County of Galveston has been dismissed.
In her original complaint, the plaintiff demanded a jury
trial and sought an unspecified amount of damages arising from
injuries sustained to Mr. Garner, an outside contractor, while
performing services within a facility of Interpak, a Texas
corporation and a subsidiary of the Company. The Company and other
defendants have notified their respective insurance carriers of
this claim, and the Company's primary general liability insurer,
The Travelers Insurance Cos., has retained counsel in Houston and
is defending this matter.
F-25
<PAGE> 67
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
Mr. Garner died in October 1995. On October 30, 1995, the
plaintiff filed an amended complaint seeking wrongful death damages
for herself and her two sons aggregating $17,500,000, medical
expenses of $3,000,000 and punitive damages to the maximum extent
allowable by law. The matter is presently scheduled for trial in
late April 1996. The amended complaint alleges that Mr. Garner was
an employee of Interpak, or that in the alternative, he was an
independent contractor.
Prior to the date of the incident, in the normal course
of business, Interpak made application to reject coverage under the
Texas Workers' Compensation Act and, upon approval by the state,
obtained insurance coverage which provided excess indemnity
insurance in the amount of $750,000 per incident, with a $250,000
deductible, and provided a maximum of $4,000,000 through
underwriters at Lloyds. The purpose of these arrangements was to
provide funds to the employer in order to pay statutory workers'
compensation benefits. In addition, at the time of the incident in
question, Helm had in place, on behalf of itself and its
subsidiaries, a $1,000,000 primary general liability policy by The
Travelers Insurance Cos., together with a $5,000,000
excess/umbrella policy through Westchester Fire Insurance Group.
Neither The Travelers nor Westchester policy was written to provide
for employer's liability under the Texas Workers' Compensation Act.
Both Lloyds and the excess/umbrella liability carriers
are monitoring this litigation. While The Travelers is vigorously
defending this litigation, it is impossible to predict the outcome
of this case or to reasonably estimate the amount of the damages,
if any, which may be awarded by the jury in this case should the
jury find for the plaintiff. Accordingly, no provision for any
liability that may result has been recorded in the accompanying
financial statements. Any verdict in excess of any insurance
proceeds which may be available to Interpak or the Company under
any applicable policies could have a material adverse effect upon
the business and financial condition of Interpak and the Company,
and may cause either or both of the companies to seek protection
under applicable bankruptcy laws.
In addition, the Company and its subsidiaries and
affiliates are parties to lawsuits arising out of the ordinary
course of business. While neither management nor counsel can
express an opinion as to the likelihood of settlement of these
actions, in the opinion of management, the amount of possible
liability arising therefrom, either individually or in the
aggregate, will not have a material adverse effect on the Company's
financial position or results of operations.
F-26
<PAGE> 68
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
(b) Interpak is obligated under various long-term
noncancellable operating leases for its office and warehouse
facilities expiring through 2005 at minimum annual rentals as
follows:
<TABLE>
<S> <C>
(in thousands)
1996 $3 609
1997 3 114
1998 2 875
1999 2 728
2000 2 167
Thereafter 3 783
</TABLE>
The above leases require the lessees to pay taxes,
insurance and maintenance expenses. Certain leases include purchase
or renewal options. Rent expense for all leases for 1995 and 1994
was $4,216,000 and $3,948,000, respectively.
(c) Interpak leases a warehouse from a partnership in which
certain executives of the Company are partners. The lease provides
for minimum annual payments of $429,000 through 2005 plus cost of
living increases. During the years ended December 31, 1995 and
1994, Interpak paid $527,000 and $508,000 under this lease
agreement, respectively.
Prior to December 31, 1994, Interpak informed the
partnership that it would like to cancel the lease as part of its
cost cutting program. The partnership agreed to cancel the lease
only in connection with a sale of the property and Interpak's
agreement to pay the closing costs on the sale in lieu of a lease
termination fee. As of December 31, 1994, the Company had recorded
costs associated with the termination of the lease totaling
$233,000. In 1995, a proposed sale of the property was not
completed and Interpak decided to continue leasing the facility.
Accordingly, the previously recorded termination cost of $233,000
was reversed in 1995, as a fourth quarter adjustment.
During 1994, the Company entered into a warehouse lease
with a joint venture in which the Company has a 25% ownership
interest (see Note 2). The lease provides for minimum annual
payments of $751,000 through August 31, 2001. During the years
ended December 31, 1995 and 1994, the Company paid rents totalling
approximately $751,000 and $270,000, respectively, under this
agreement.
(d) During 1995, Interpak entered into a three-year equipment
lease with a company in which an officer of Interpak is a
stockholder. The lease requires annual minimum lease payments
totalling approximately $45,000 and expires November 30, 1998.
F-27
<PAGE> 69
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
(e) Certain subsidiaries of the Company have employment
contracts with certain of its officers which provide for the
payment of nonqualified, noncontributory, unfunded deferred
compensation commencing at age 65 for a period of 15 years. The
benefits under most of these contracts were frozen as of January 1,
1992. Included in other liabilities is $52,000 at December 31, 1995
and 1994, representing amounts due under the agreements.
(f) The Company has employment contracts with continuous five-
year terms with two of its officers. The officers have agreed to a
reduced aggregate annual base compensation of $210,000 plus an
annual bonus of 7% of pre-tax income, as defined. Of this amount,
$150,000 is payable in the Company's common stock and $60,000 is
payable in cash. At December 31, 1995, $490,000 is payable under
these contracts and included in accrued expenses. The employment
contracts, along with those for two additional officers of the
Company, also include a provision for lump-sum payments in the
event of a change in control of the Company. Payments to each
officer are limited to 2.99 times their average compensation (as
defined) during the prior five-year period (totaling approximately
$2,340,000 at December 31, 1995). The agreements also provide for
severance and other payments in the event the officers do not
complete the original terms of the agreements or do not stay at the
Company until age 65.
(g) The Company has guaranteed certain debt of an affiliate
totaling approximately $91,000 at December 31, 1995.
NOTE 14 - MAJOR CUSTOMERS
Interpak had sales to significant customers for the years
ended December 31, 1995 and 1994 as follows:
<TABLE>
<S> <C> <C>
Year ended
December 31,
--------------------
1995 1994
(in thousands)
Customer "A" $8 513 $8 027
Customer "B" 1 509 1 131
</TABLE>
F-28
<PAGE> 70
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 15 - STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<S> <C> <C>
Year ended
December 31,
--------------------
1995 1994
(in thousands)
Interest paid $659 $655
</TABLE>
Noncash transactions relating to investing and financing
activities:
<TABLE>
<S> <C> <C>
Year ended
December 31,
-------------------
1995 1994
(in thousands)
Repayment of officers' notes receivable
by exchange of preferred stock and, in
1994, the exchange of debentures $166 $180
Issuance of stock in settlement 10 -
Issuance of preferred stock - 534
Investment in joint venture upon the
issuance of debt - 704
Net reduction of debentures exchanged - 547
Exchange of investment in Mezzanine for
investment in PFS 200 -
Reduction of notes payable in exchange
for common stock of affiliates 172 -
</TABLE>
F-29
<PAGE> 71
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 16 - PENDING SALE
The Company is proceeding with the negotiations for the
sale of Interpak to ISI. In November and December 1995, the Board
of Directors of ISI elected two independent directors and created
an acquisition committee. The committee will undertake an
independent analysis of the proposed transaction utilizing the
assistance of experts as it deems necessary and appropriate in its
discretion, and will negotiate at arm's length with the Company in
order to determine if the acquisition can be completed. The
discussions between the Company and ISI are in the preliminary
stages and no agreement in principal has been reached. If an
agreement is reached, the acquisition would be subject to a number
of conditions, including ISI arranging financing to complete the
acquisition and stockholder approval.
Currently, the sales price proposed by the Company would
consist of a cash down payment, the assumption by ISI of certain of
the Company's debentures and the issuance to the Company of shares
of ISI's common stock.
F-30
<PAGE> 72
<TABLE>
<S> <C>
Exhibit 22.0
Jurisdiction
Subsidiaries_Name of_Incorporation
InterSystems, Inc. Delaware
Chemtrusion, Inc. Delaware
InterSystems, Inc. Nebraska
Tropical Systems, Inc. Florida
Interpak Holdings, Inc. Delaware
Interpak Terminals, Inc. Delaware
Interpak Terminals, Inc. Texas
Helm Investment Company Delaware
</TABLE>
All the entities listed above are significant subsidiaries of the Company or
a significant subsidiary of a subsidiary of the Company, even though not
necessarily majority-owned by the Company. Certain subsidiaries considered
insignificant for the year covered by this report have been omitted.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 434
<SECURITIES> 0
<RECEIVABLES> 2,052
<ALLOWANCES> 0
<INVENTORY> 267
<CURRENT-ASSETS> 3,380
<PP&E> 2,448
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,061
<CURRENT-LIABILITIES> 6,758
<BONDS> 3,241
0
0
<COMMON> 24
<OTHER-SE> (2,878)
<TOTAL-LIABILITY-AND-EQUITY> 9,061
<SALES> 15,183
<TOTAL-REVENUES> 15,183
<CGS> 11,953
<TOTAL-COSTS> 15,870
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 989
<INCOME-PRETAX> (594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (594)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (594)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> 0
</TABLE>
