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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, 1996 [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. [ ]
The issuer's revenues for the year ended December 31, 1996 were $18,234,000. The
aggregate market value of the voting stock held by non-affiliates of the issuer
is approximately $1,515,366 based upon the closing price of the issuer's common
stock, $.01 par value, as reported by the American Stock Exchange on April 3,
1997, which was $.6875.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on April 4, 1997: 2,540,538.
Documents incorporated by reference: NONE
Transitional Small Business Format: Yes No X
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PART I
ITEM 1. BUSINESS
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 a wholly-owned subsidiary, affiliated company
and several 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, a 22% owned affiliate and a public company, InterSystems,
Inc. (together with its wholly owned subsidiaries, hereinafter "ISI"), 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
through a subsidiary, InterSystems, Inc., a Nebraska corporation, and provides
custom resin compounding services for thermoplastic resin producers through a
subsidiary, Chemtrusion, Inc.
The Company maintains smaller investments in the following entities:
- 9% limited partnership interest in The Mezzanine Financial Fund,
L.P., a Delaware limited partnership which makes collateralized loans to
companies; and
- 14% of the outstanding common stock of Professionals' Financial
Services, Inc. ("PFS"). PFS, a Delaware corporation, which, through its wholly
owned subsidiaries, MediFin, Inc. and Professional Factors, Inc. based in Red
Bank, New Jersey and Tampa, Florida, is in the business of providing credit
through the purchase of accounts receivables to healthcare and other commercial
enterprises.
Results of Operations
During 1996, the Company realized revenues of $18,234,000 on a
consolidated basis, as compared to consolidated revenues of $15,183,000 in 1995,
and the Company realized a loss of ($1,138,000) in 1996, as compared to a loss
of ($594,000) in 1995.
The loss from operations in 1996 is attributable in part to $635,000 in
special expenses relating to its wholly-owned subsidiary, Interpak Holdings,
Inc., including $300,000 attributable to the settlement of a major litigation
and $335,000 in warehouse restructuring expenses to accommodate customers, as
well as by the Company's $428,000 share in the loss from discontinued operations
of ISI.
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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 subsidiary,
affiliate and investments of Helm Resources, Inc.
RECENT DEVELOPMENTS
In 1995, the Company announced that its subsidiary, Interpak Holdings,
Inc. ("Holdings") was pursuing the possible sale of Interpak to ISI. In late
October 1996, the Company's board of directors terminated discussions with ISI
concerning the sale of Interpak since after months of discussions, no agreement
was reached as to price, nor was ISI able to arrange financing to complete the
purchase. Shortly thereafter, the Company and Holdings announced an agreement in
principle to sell Interpak to Fred S. Zeidman, President of Interpak, for $3.1
million in cash. This agreement was terminated when Mr. Zeidman was unable to
obtain financing on acceptable terms.
In January 1997, the board of directors reconsidered the sale of
Interpak after receiving an offer from ISI to purchase Interpak from Holdings
for approximately $3.1 million consisting of a cash down payment of $400,000 and
the balance payable in a combination of cash or stock over the next two and one
half years. This purchase price was less than that originally sought by Helm and
Holdings, and the structure of the payment of the consideration eliminated the
need for third party financing, which ISI was not able to obtain on acceptable
terms during the original negotiations. The board, however, remained interested
in selling Interpak as the first step in focusing its operations on providing
financial services to small and medium sized businesses.
In late March 1997, ISI withdrew its offer to acquire Interpak from the
Company as ISI was unable to satisfy certain conditions to the consummation of
the sale. Shortly thereafter, the Company and Holdings was approached by a large
European corporation which has made a proposal for a cash acquisition of
Interpak. The Company and Holdings are presently in negotiations with this
corporation. Should a definitive agreement be entered into with this prospective
purchaser, a closing is expected in the next 60 to 90 days.
INTERPAK TERMINALS, INC.
General
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
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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 1996, Interpak had revenues of $18,065,361 and a net loss of
($409,291). The loss from operations in 1996 was attributable in part to
$300,000 incurred in the settlement of the Garner litigation (See Item 3: Legal
Proceedings) and $335,000 of special warehouse restructuring expenses.
Business
Interpak's turnkey service has three components: packaging,
warehousing, transportation, distribution and bulk transfer of thermoplastic
resins as follows:
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 thirteen packaging lines in nine packaging and
warehousing facilities in the Houston area, with approximately 1,292,423 square
feet of space. It also operates five packaging lines at its facilities in
Edison, New Jersey with approximately 153,600 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 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
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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.
One of Interpak's customers, Union Carbide Corporation, accounted for
56% and 57%, respectively, of Interpak's revenues for 1996 and 1995. 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 at these facilities on a spot basis. Contracts with Union Carbide for
dedicated activities in Texas and New Jersey expired on April 30, 1996 and have
been renewed for three years commencing January 1, 1997. The Union Carbide
contract is cancelable upon 180 days' notice. Interpak does not believe that
its business is dependent upon any one customer; however, the loss of Union
Carbide would adversely affect its revenues until such time as the business
represented by this customer was replaced. There can be no assurance that these
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.
General
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, 1996 and 1995,
approximately 71% and 75%, respectively, of ISI's revenues were attributable to
the business of InterSystems Nebraska and approximately 29% and 25%,
respectively, of ISI's revenues were attributable to the business of
Chemtrusion.
In addition, at June 30, 1996, ISI elected to discontinue the
operations of its Tropical Systems, Inc. ("Tropical") subsidiary in Miami.
Tropical was engaged in the business of manufacturing and selling hurricane
resistant window and door products. This decision was reached after ISI
determined that the cost to continue the business was significantly greater than
originally projected, and proceeding with these operations would have a negative
impact on the financial situation of InterSystems Nebraska, which was financing
Tropical.
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ISI had revenues of $20,387,000 and $15,703,000, respectively, for the
years ended December 31, 1996 and 1995. For these same periods, losses from
continuing operations were ($399,000) and ($478,000), respectively. The total
losses for the years ended December 31, 1996 and 1995 were ($2,319,000) and
($695,000), which included a loss from discontinued operations of ($1,920,000)
in 1996 and ($217,000) in 1995, of which ($1,440,000) was incurred in 1996 on
the disposal of ISI's Tropical Systems, Inc. subsidiary discussed below.
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.
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 take a random sample of the products being received,
produced or transported. Automatic samplers are sold to 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.
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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 6 sales personnel
who are employees of the Company. In addition, InterSystems Nebraska leases its
agricultural automatic sampling systems. In this circumstance, 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 two Omaha
facilities with a combined area of 70,000 square feet, of which approximately
60,000 square feet are dedicated to manufacturing operations. The subsidiary
utilizes advanced robotics, integrated software and automated production systems
in its manufacturing processes, and has invested in a CNC turret punch,
computerized machining and fabrication equipment and automatic welding
equipment. In addition, all engineering utilizes a Computer Aided Design (CAD)
system.
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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 $2,266,000
at December 31, 1996, compared with $2,309,000 at December 3l, 1995. All orders
at December 3l, l996 are believed to be firm and are expected to be filled by
December 3l, l997.
During 1996, 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 1996 or 1995. 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 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.
Discontinued Operations: Tropical Systems, 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 entered into an operating
agreement with Tropical, which was 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) assigned to TSI its rights to sell, market and distribute its
products and (ii) manufactured its products for the sole account of TSI, in
exchange for the agreement of TSI to pay
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Tropical cost plus 1% for each product so manufactured. This was intended as an
interim arrangement which could be terminated at any time by TSI, and which
would 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 was conditioned upon arranging the necessary
financing to complete the purchase and obtaining clear title to the assets of
Tropical, which were subject to various tax and other liens.
The capital needs of TSI proved to be significantly greater than
originally anticipated. While original estimates of the cost of clearing title
to the assets of Tropical to be purchased by TSI remained at approximately
$250,000, additional working capital was needed to maintain the day to day
operating expenses of this division while marketing and sales were developed to
cover future cash flow and working capital needs. For the quarter ended December
31, 1995, TSI recorded revenues of $852,000 and a net loss from operations of
$217,000. For the six months ended June 30, 1996, TSI operated at a loss of
$480,000. Working capital needs for this subsidiary through the end of 1996 were
estimated at a minimum of approximately $500,000 to $750,000. TSI was unable to
generate sufficient sales to meet its working capital needs, nor was TSI or its
parent companies able to contribute sufficient funds needed to fund TSI for the
foreseeable future. Accordingly, at June 30, 1996, ISI elected to discontinue
TSI operations. In October 1996, Tropical filed for protection from its
creditors under the federal bankruptcy laws.
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 at its Houston facility and four
twin screw extruders at its Mytex facility (discussed below). 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 70 million pounds at its two facilities. 1996 production was
approximately 23,820,635 pounds in Houston, compared to approximately 28,943,000
pounds in 1995. During 1996, Houston production was impacted negatively by a
lower plant utilization rate due to an interruption in feedstock supply from one
of its customers, an
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internal restructuring by another customer and concentration on the start-up of
the Mytex facility. 1996 production at the Mytex facility, which began
operations in November 1996, was 5,444,731 pounds. 1997 aggregate production
capacity is expected to be considerably greater than 1996 after a full year of
compounding activities at the Mytex facility.
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. 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
resulted from the customers' research and development activities to a product
that is ready for commercial use.
Mytex Facility
In January 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
acquired 16.4 acres of land in Jeffersonville, Indiana, on which it constructed
and equipped in accordance with agreed upon plans and specifications a plastics
compounding plant at a cost of $12.8 million. As designed, the plant contains
four production lines with an annual capacity of 35 million pounds of product,
and contains sufficient space to add several additional production lines, if
desirable, at a future date. Mytex has the right to require Chemtrusion to
undertake the expansion of the plant at any time, with adjustment in the
management fee payable to Chemtrusion.
Mytex guaranteed the initial construction financing which had been
provided by a financial institution. The plant was completed in October 1996. In
January 1997, Mytex provided $14,000,000 permanent financing for the facility.
At this facility, Chemtrusion produces an array of polypropylene-based
compounds exclusively for the exclusive benefit of Mytex using raw materials and
specifications provided by Mytex. Chemtrusion is paid a monthly management fee
for its operation of the plant, which covers most operating expenses of the
plant and construction financing debt service, and which management currently
expects to provide significant net profits to Chemtrusion.
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
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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.
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 consumers of compounded materials can learn of Chemtrusion's
capabilities. 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
consumers 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, two customers, one of which is Mytex, accounted for
approximately 36% and 35% of total revenues of the compounding business for the
year ended December 31, 1996 and one of these customers accounted for 77% of
Chemtrusion's revenues in 1995. In addition, beginning in 1997, Mytex is
expected to account for approximately one half of the Company's total revenues.
The Company believes that the loss of either of these customers would have a
material adverse effect on its business and revenues.
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 sophisticated
or technological nature of the business. Chemtrusion has sought to position
itself as a value added custom compounder capable of handling a broad spectrum
of compounding jobs in a timely and precise manner.
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Seasonality
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.
Research and Development
During the two fiscal years ended December 31, 1996 and 1995, 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 $300,000, 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. In addition, the fund received additional capital of
$1,000,000 in the form of year to year notes that were issued by the Fund. As of
March 1, 1997, the Fund had loans outstanding in the aggregate amount of
approximately $3,400,000 to 7 entities. Through its first five years of
operation, the Fund has been profitable each year.
In consideration of Helm's investment, the Fund has agreed to the
extent that it provided mezzanine financing, asset-based financing or otherwise
invested in a company which required capital to be invested in an amount in
excess of what the General Partner determined was suitable 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 which the Fund invested in elect to sell all or substantially all of its
assets, the Fund, to the extent that it is practical, would request that such
company grant Helm a right of first refusal to purchase such assets prior to
offering the opportunity to unrelated third parties.
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
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receivable. Through its wholly-owned subsidiaries, MediFin, Inc. ("MF") and
Professional Factors, Inc. ("PF"), both of which share a processing center
located in Tampa, Florida, PFS has been engaged in the business of providing
factoring services to healthcare related and other business enterprises which
need credit accommodations of between $50,000 and $700,000 and are unable to
obtain traditional commercial bank financing.
In providing its factoring services, PFS (through its operating
subsidiaries) purchases accounts receivable from its customers at various
discount rates. Additional charges are applied upon collection of receivables.
While PFS, through MF, initially extended factoring services 9 primarily to
companies in the healthcare field, it has diversified its client base and
initiated factoring services for companies engaged in other business activities.
The Company presently holds 268,483 shares of common stock,
representing approximately 14% of the common stock of PFS presently outstanding.
EMPLOYEES
The Company. The Company has 8 employees, 4 of whom serve in executive
capacities and 4 who serve principally in administrative capacities.
Interpak Terminals, Inc. Interpak employs approximately 165 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 1999.
InterSystems, Inc. ISI currently employs 255 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 one other corporation 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 these three corporations.
Page 13 of 68 pages. Exhibits begin on page 68
<PAGE> 14
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 eleven 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:
<TABLE>
<CAPTION>
Approximate Current
Location Term Expires Square Feet Annual Rent
- -------- ------------ ----------- -----------
<S> <C> <C> <C>
Edison, New Jersey I September 1998 76,800 $191,700
Edison, New Jersey II September 1998 76,800 232,704
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
Houston, Texas VIII May 1998 78,750* 226,800
LaPorte, Texas September 2005 198,378 494,913
</TABLE>
- -----------
* cancelable by Interpak on 30 days notice
InterSystems Nebraska: InterSystems Nebraska owns a 40,000 square foot office
and manufacturing facility in Omaha, Nebraska, which was subject to an original
mortgage of $840,000 which matured in December 1996. The facility is subject to
a second mortgage with respect to a $432,345.00 term loan due in September 1999.
In November 1995, InterSystems Nebraska leased a facility comprising
30,000 square feet of additional manufacturing space in Omaha, thereby nearly
doubling total square footage under use to 70,000 square feet. The lease
provides for an annual rental of approximately $100,000 per year and expires in
November 2000.
In connection with the expansion into the second Omaha facility, the
subsidiary arranged $1.1 million in operating leases and $250,000 in equipment
financing for advanced robotics, software and other automated equipment to be
installed in both its facilities. Installation was completed by the end of 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 manufacturing capacity to permit InterSystems Nebraska to meet
its record backlog, bring subcontracted work back into the plant and take on
additional customers.
Given the current mix of equipment manufactured by InterSystems
Nebraska and its current pricing, the Company believes that InterSystems
Nebraska utilized 70% of the productive capacity of its original facility in
1996 and 70% of the productive capacity of its second Omaha facility beginning
in March 1996.
Page 14 of 68 pages. Exhibits begin on page 68
<PAGE> 15
InterSystems Nebraska also leases approximately 1,079 square feet of
office space in Richardson, Texas for use as a regional sales office at an
annual rental of approximately $13,600. This lease expires in December 1999, and
is subject to renewal.
Chemtrusion: Chemtrusion conducts its non-Mytex business in a leased 77,910
square foot facility located in Houston, Texas. The current annual rent is
$217,200, and the lease expires in April 2002. The Company estimates that this
facility operated at approximately 70% of the facility's practical capacity
during 1996.
The Mytex facility located in Jeffersonville, Indiana is a 178,000
square foot state-of-the-art compounding plant which is owned by Chemtrusion,
but is subject to the right of Mytex to repurchase it from Chemtrusion under
certain circumstances. The facility is also subject to a mortgage of $14,000,000
to secure construction financing at 7% due January 31, 2011, requiring periodic
payments of interest and principal. See "Business of Chemtrusion--Mytex
Facility."
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.
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 was 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 notified their respective
insurance carriers of this claim, and Interpak Texas and the Company's primary
general liability insurer, The Travelers Insurance Cos., retained counsel in
Houston and defended 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 was scheduled for
trial in late April
Page 15 of 68 pages. Exhibits begin on page 68
<PAGE> 16
1996. In April 1996, this litigation was settled within the limits of the
Company's and Interpak's insurance coverage. Interpak was required to contribute
$250,000 to the settlement.
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
--------------------
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>
<CAPTION>
l995 High Low
---- ---
<S> <C> <C>
First Quarter $1.00 $ .75
Second Quarter .75 .4375
Third Quarter .8125 .5625
Fourth Quarter 1.0625 .625
</TABLE>
<TABLE>
<CAPTION>
l996 High Low
---- ---
<S> <C> <C>
First Quarter $1.0625 $ .6875
Second Quarter 1.75 1.125
Third Quarter 1.375 .8125
Fourth Quarter 1.125 .5625
</TABLE>
On April 3, l997, the closing price of the Company's common stock was
$.6875.
(b) Holders As of March 15, 1997, 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 foreseeable future.
Page 16 of 68 pages. Exhibits begin on page 68
<PAGE> 17
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
1996 Compared to 1995
Revenues increased $3,051,000 (20%) in 1996 to $18,234,000 compared to
$15,183,000 in 1995 primarily due to an increase in packaging and storage volume
at Interpak.
Operating expenses increased $1,923,000 (16%) to $13,876,000 in 1996 from
$11,953,000 in 1995 due to increased labor and rent to accommodate additional
volume.
Selling, general and administrative expenses increased $402,000 (10%) in
1996 to $4,319,000 compared to $3,917,000 in 1995. The increased cost relates
primarily to Interpak for additional personnel cost and travel.
Gain on sale of securities of $649,000 in 1996 includes a gain of $152,000
on the sale of 91,400 shares of ISI common stock and a $238,000 gain on the sale
of 56,800 shares of Unapix common stock. In addition, a gain of $259,000 was
realized on the sale of securities to two officers of the Company, as described
in Note 3 to the Consolidated Financial Statements. The $738,000 gain on the
sale of securities in 1995 represents gains on sales of various securities held
by the Company including sales of securities to two officers of the Company as
described in Note 3 to the Consolidated Financial Statements.
Lease termination credits of $233,000 in 1995 is the reversal of certain
costs accrued in 1994 as described in Note 14(b) to the Consolidated Financial
Statements.
Costs of $300,000 incurred in 1996 for settlement of a lawsuit relate to
the litigation described in Note 13 to the Consolidated Financial Statements.
Warehouse reorganization expense of $335,000 was incurred by Interpak in
1996 to serve customers more efficiently.
The loss from discontinued operations of affiliate of $428,000 and $76,000
relates to the discontinuance by ISI of its Tropical Systems, Inc. subsidiary as
described in Note 2 to the Consolidated Financial Statements.
Impact of Inflation
Inflation has not had a significant impact on the Company's operations.
Page 17 of 68 pages. Exhibits begin on page 68
<PAGE> 18
Liquidity and Capital Resources
Operating activities for the year ended December 31, 1996 provided cash of
$48,000, proceeds from the sale of securities provided $403,000 and $1,079,000
was provided by borrowings from affiliates. Purchases of property, plant and
equipment used $504,000, and $1,448,000 was used for repayments of notes payable
and long-term debt; other net increases were $89,000, which resulted in a
decrease in cash of $333,000.
At December 31, 1996, the Company had a working capital deficit of
$4,278,000, which included $2,949,000 for Interpak. The Interpak working capital
deficit included $1,000,000 under a revolving loan agreement that expired in
February 1997 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, 1996, 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 the lender has informed
Interpak that the line of credit will not be renewed. Management is currently
discussing an increased line of credit with a new lender; however, there can be
no assurance that these negotiations will be successful. Interpak is also in
violation of certain financial covenants relating to an equipment term loan in
the amount of $795,000, which has been classified as a current liability. The
balance of the working capital deficit included approximately $1,417,000 of
payables to affiliates, of which $282,000 was repaid subsequent to December 31,
1996. The Company is confident of its ability to reach payment accomodations for
the remaining balances due.
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 or the possible sale
of Interpak, and possible sales of investment securities. The Company is
currently in negotiations with a European corporation for the sale of Interpak.
No assurance can be given that such negotiations will result in a sale of the
subsidiary. 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 or affiliates.
The report of independent certified public accountants on the Company's
financial statements contains a going concern paragraph which references the
violation of loan covenants mentioned above.
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
Page 18 of 68 pages. Exhibits begin on page 68
<PAGE> 19
adopted SFAS No. 121 in 1996 and its implementation did not 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 did not adopt the fair
market method encouraged by SFAS No. 123 and will continue to account for such
transactions in accordance with APB No. 25. The adoption of the method did not
affect the Company's financial position, operating results or cash flows.
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128). This pronouncement provides a different method of calculating earnings
per share than in currently used in accordance with Accounting Board Opinion
(APB) No. 15. "Earnings Per Share." SFAS No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per share to common shareholders by the weighted
average of the number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
The Company will adopt SFAS No. 128 in 1997 and its implementation is not
expected to have a material effect on the consolidated financial statements.
Forward Looking Statements
This annual report for the year ended December 31, 1996 as well as other
public documents of the Company contains forward-looking statements which
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievement of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such statements include, without
limitation, the Company's expectations and estimates as to future financial
performance, cash flows from operations, capital expenditures and the
availability of funds from refinancings of indebtedness. Readers are urged to
consider statements which use the terms "believes," "intends," "expects,"
plans," "estimates," "anticipated" or "anticipates" to be uncertain and
forward-looking. In addition to other factors that may be discussed in the
Company's filings with the Securities and Exchange Commission, including this
report, the following factors, among others, could cause the Company's actual
results to differ materially from those expressed in any forward-looking
statement made by the Company: (i) general economic and business conditions,
acts of God and natural disasters which may effect the supply and demand for
thermoplastic resins, as well as the demand for the Company's services, or the
ability of the Company to provide such services; (ii) the loss of Union Carbide
as a customer, (iii) the insolvency or failure to pay its debts by a
Page 19 of 68 pages. Exhibits begin on page 68
<PAGE> 20
significant customer or customers; (iv) increased competition; (v) changes in
customer preferences and the inability of the Company to develop and introduce
new services to accommodate these changes; and (vi) the maturing of debt and the
ability of the Company to raise capital to repay or refinance such debt on
favorable terms.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this Item are set forth below:
Financial Statements of the Registrant Page
Report of Independent Certified Public
Accountants..................................... F-l
Consolidated Balance Sheet as of
December 3l, l996............................... F-3
Consolidated Statements of
Loss for the Years Ended
December 3l, 1996 and l995...................... F-5
Consolidated Statements of
Changes in Shareholders' Equity
(Deficit) for the Years Ended December
31, 1996 and 1995............................... F-6
Consolidated Statements of
Cash Flows for the Years Ended
December 3l, 1996 and 1995...................... F-8
Notes to Consolidated Financial
Statements...................................... F-9 - F-31
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, 1996 as filed with the Securities
and Exchange Commission.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE: None
Page 20 of 68 pages. Exhibits begin on page 68
<PAGE> 21
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.
Name, Principal Occupation
Over Past Five Years and Director of
Other Directorships of Nominee Age Company Since
Herbert M. Pearlman................... 64 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 the board of directors of InterSystems, Inc., a public company
engaged in the design and manufacture of industrial and agricultural equipment
and in chemical compounding ("ISI"). 1990, Mr. Pearlman became chairman of the
board of directors of Unapix Entertainment, Inc. ("Unapix"), a Delaware
corporation and a public company engaged in the business of marketing and
distributing television programs and motion pictures.
Walter M. Craig, Jr.................. 43 1993
Mr. Craig has been president of Professionals' Financial Services,
Inc., a Delaware corporation which is in the business of financing
receivables of healthcare and other enterprises, since 1993. He has also
served as president and a director of PLB Management Corp., the general
partner of The Mezzanine Financial Fund, L.P. (the "Fund"), a Delaware
limited partnership which makes collateralized loans to companies, and as
president of the Fund, since 1993. Mr. Craig has been a director of Seitel
since 1987, a director of Unapix since 1993 and a director of ISI since
1993. He has also served as a director, executive vice president and chief
operating officer of Helm since 1993. Prior thereto, Mr. Craig served as
vice president for business and legal affairs for Helm.
David S. Lawi......................... 62 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 and secretary 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.
In 1990, Mr. Lawi became a director of Unapix, and in 1993, he became treasurer
and secretary of Unapix, and chairman of the Executive Committee of Unapix.
Page 21 of 68 pages. Exhibits begin on page 68
<PAGE> 22
Joseph J. Farley...................... 74 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........................ 64 l985
Mr. Lerner is an attorney engaged in the private practice of Law. From
May 1990 until December 1990, he was General Counsel to Hon Development Company,
a California real estate development company. Mr. Lerner has been a director of
Seitel since l984. Mr. Lerner is also a director of Rent-Way, Inc., the owner of
a chain of retail stores in the rental-purchase industry, and a director of
Micros-to-Mainframes, Inc., a provider of advanced technology services and
computer equipment to Fortune 2000 companies with headquarters and significant
operations in the states of New Jersey, New York and Connecticut.
John E. Stieglitz..................... 66 l986
Mr. Stieglitz is Chairman Emeritus of Conspectus, Inc., a
privately-held company engaged in providing consulting services to the
professional investment communities in the area of executive recruiting. Mr.
Stieglitz has been a director of ISI since 1991 and a director of Seitel since
1989.
Executive Officers
In addition to Messrs. Pearlman, Craig and Lawi, the Company has one
additional executive officer. Daniel T. Murphy, 58, 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(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than 10% of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission (the "SEC") and the American Stock Exchange initial reports
of ownership and reports of changes of ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than 10%
stockholders are
Page 22 of 68 pages. Exhibits begin on page 68
<PAGE> 23
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. Based upon a review of reports and amendments thereto
furnished to the Company 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, except for that
John Stieglitz' Report on Form 4 for January 1996 reporting 16,666 shares issued
as directors' fees was filed 18 days late.
Attendance at Meetings; Committees
During 1996, the Company's Board of Directors held two meetings, which
was attended by all of the directors.
The Board of Directors has a standing Audit Committee, Compensation and
Stock Option Committee and Executive Committee. During 1996, the Audit Committee
as well as the Compensation and Stock Option Committee consisted of Messrs.
Lerner and Stieglitz. The function of the Audit Committee is to select the
independent public accountants of the Company, to review with them the Company's
financial statements, to review the Company's financial systems and controls and
to oversee other matters relating to the integrity of the Company's finances and
financial statements as the Committee may consider appropriate. The function of
the Compensation and Stock Option Committee is to determine the compensation of
the officers of the Company and to administer the Company's stock option plans.
The Executive Committee is comprised of Messrs. Pearlman, Lawi and Farley, who
is the Chairman. The function of the Executive Committee is to act on an interim
basis for the full Board. The Audit Committee, the Compensation and Stock Option
Committee and the Executive Committee did not meet separate from the entire
Board of Directors during 1996.
In addition, in June 1994, the Board of Directors appointed a Special
Committee to evaluate and negotiate the sale of Interpak Holdings, Inc. The
Special Committee is chaired by Mr. William Lerner, and Messrs. Herbert M.
Pearlman and David S. Lawi also serve on this Committee. During 1996, the
Special Committee met several times with representatives of InterSystems, Inc.
concerning the proposed sale of Interpak, and all members of the Committee
attended these meetings.
Page 23 of 68 pages. Exhibits begin on page 68
<PAGE> 24
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 1996. Each of the named officers has been a party to an
employment agreement with ISI during the years ended December 3l, 1996, 1995 and
l994. See "Certain Relationships and Related Party Transactions--The Company and
InterSystems, Inc."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
All
Name and Other
Principal Compen-
Position Year Salary(1) Bonus sation(2)
- -------- ---- --------- ----- ---------
<S> <C> <C> <C> <C>
Herbert M. 1996 $340,000(3) - $ 16,800
Pearlman, 1995 340,000(3) - 16,800
CEO and Chairman 1994 340,000(3) - 16,800
Daniel T. 1996 140,000 - 12,354
Murphy, 1995 140,000 - 16,343
Executive Vice 1994 140,000 - 15,812
President, Finance
David S. Lawi, 1996 170,000(3) - 12,044
Secretary- 1995 170,000(3) - 17,442
Treasurer 1994 170,000(3) - 16,769
Walter M. Craig, 1996 162,000 20,000 8,148
Jr., Executive 1995 150,570 23,000 9,105
Vice President 1994 138,167 20,000 10,064
</TABLE>
- -----------------------
(1) includes the following amounts paid by the Company's affiliate,
InterSystems, Inc., during 1996, 1995 and 1994, respectively: Mr. Pearlman:
$100,000, $100,000 and $100,000; Mr. Murphy: $56,000, $85,127 and $90,000; Mr.
Lawi: $50,000, $50,000 and $50,000; and Mr. Craig: $17,500, $17,500 and $17,500;
also includes $0, $16,820 and $33,667 paid by the Company's subsidiary, Cliff
Engle Ltd., during 1996, 1995 and 1994, respectively, to Mr. Craig $100,000,
$100,000 and $50,000 paid during 1996, $100,000, $50,000 and $24,500 paid during
1995 and $100,000, $50,000 and $24,500 paid during 1994 by the Company's
subsidiary, Interpak Holdings, Inc., to Mr. Pearlman, Mr. Lawi and Mr. Craig,
respectively. Mr. Craig also received $60,000 from each of the management
company for the Fund and PFS.
(2) Amounts shown include automobile allowances and taxable fringe benefits.
Page 24 of 68 pages. Exhibits begin on page 68
<PAGE> 25
(3) Includes for each of 1996, 1995 and 1994 $100,000 for Mr. Pearlman and
$50,000 for Mr. Lawi payable in common stock of the Company, which will be
issued pending listing of the shares on the American Stock Exchange, and $40,000
for Mr. Pearlman and $20,000 for Mr. Lawi which has been accrued but not yet
paid
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUE TABLE
The following table sets forth aggregated option exercises in the last
fiscal year, the number of unexercised options and fiscal year-end values of
in-the-money options for the Chief Executive Officer and the next most
highly-compensated executives. All options were out-of-the-money at December 31,
1996.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Unexercised In-the-money
Acquired Options at Options at
on Fiscal year-end fiscal year end
Exercise Value Exercisable/ Exercisable/
Name (#) Realized ($) Unexercisable Unexercisable
---- --- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Herbert M. - - 13,334/0 n/a
Pearlman
Walter M - - 6,667/0 n/a
Craig, Jr.
David S. - - 6,667/0 n/a
Lawi
Daniel T. - - 5,000/0 n/a
Murphy
</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 25 of 68 pages. Exhibits begin on page 68
<PAGE> 26
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 26 of 68 pages. Exhibits begin on page 68
<PAGE> 27
Murphy and Craig would receive Change of Control Payments of $920,000, $460,000,
$430,000, and $480,000, 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 27 of 68 pages. Exhibits begin on page 68
<PAGE> 28
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 28 of 68 pages. Exhibits begin on page 68
<PAGE> 29
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of March 15, l997 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>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name Ownership(l)(2) Class(2)
- ---- --------------- --------
<S> <C> <C>
Gerson I. Fox......................... 745,917 (3) 26.2%
1230 Huntington Drive
Duarte, CA 91010
Clarence Y. Palitz.................... 562,500 (4) 18.4%
650 Allamuchy Road
Allamuchy, NJ 07820
Directors and Officers
Herbert M. Pearlman*.................. 856,453 (5) 26.8%
David S. Lawi*........................ 432,539 (6) 14.8%
Walter M. Craig, Jr................... 7,347 (7) **
Joseph J. Farley...................... 33,929 1.3%
John E. Stieglitz..................... 25,254 **
William Lerner ....................... 24,787 **
Daniel T. Murphy...................... 13,777 (8) **
All officers and directors
as a group (7 persons)................ 1,394,086 (5)-(8) 38.8%
</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 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 29 of 68 pages. Exhibits begin on page 68
<PAGE> 30
(4) Includes 520,833 shares that may be acquired from the Company 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 657,869 shares that may be acquired from the Company upon
exercise of options (13,334) and Class A Warrants (66,145), and
conversion of Series A Preferred Stock (5,000), 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 380,605 shares that may be acquired from the Company upon
exercise of options (6,667) and 1993 Class A Warrants (27,763), and
conversion of Series A Preferred Stock (10,000), Series A 8% Cumulative
Convertible Preferred Stock (260,417) and 8% debentures (75,758).
(7) Includes 6,667 shares which may be acquired from the Company exercise of
options.
(8) Includes 12,576 shares which may be acquired from the Company upon
exercise of options (5,000) and conversion of 8% debentures (7,576).
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. ("PLB"), 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. Walter M. Craig, Jr. is President of PLB
and of the Fund.
In December 1994, the Fund made available a line of credit to the
Company which has been increased to $750,000. The line matures on December 31,
1997, 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, 1996, $628,000 was outstanding under the loan.
In August 1994, the Fund made available a $250,000 line of credit to
ISI, which was increased to $450,000 in 1995 and paid in full in February 1996.
In February 1993, the Fund made available a $750,000 line of credit to
Healthcare Financial Services, Inc. ("HC"), a wholly-owned subsidiary of
Professionals' Financial Services, Inc. ("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
Page 30 of 68 pages. Exhibits begin on page 68
<PAGE> 31
1996, matures on December 31, 1997 and bears interest at 15% per annum. At
December 31, 1996, $900,000 was outstanding under the loan. Messrs. Pearlman,
Lawi and Craig are directors of PFS, and Mr. Craig serves as President of PFS.
In addition, Helm owns approximately 14% of the outstanding common stock of PFS.
In January, 1995, PFS made a $100,000 accounts receivable line of
credit available to The Tropical Manufacturing Group, Inc.("TMG"), which was 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, Inc., a
Nebraska corporation and a subsidiary of ISI ("InterSystems Nebraska").
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. On October 31, 1996, an involuntary petition under Chapter
7 of the federal bankruptcy laws was filed against TMG. The filing was later
converted to a voluntary petition and the operating agreement between TMG and
TSI terminated. TSI has guaranteed the amounts owing by TMG to PFS. At December
31, 1996, $70,000 was outstanding under the TMG line of credit and $49,000 was
outstanding under the TSI line of credit.
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.
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.
Page 31 of 68 pages. Exhibits begin on page 68
<PAGE> 32
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 1996, ISI paid a total of $51,000
during, and accrued an additional $32,000 at December 31, 1996, to the Company
pursuant to this arrangement. At December 31, 1996, the Company had net advances
due to ISI of $244,000.
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 in March 1996,
which is the last of such payments, 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 Payment due in March 1996 will reflect a credit of the
payments previously made, if any, 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.
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
Page 32 of 68 pages. Exhibits begin on page 68
<PAGE> 33
employed by InterSystems Nebraska. Royalties to Helm on account of 1996 sales
were approximately $13,300, which remained unpaid at December 31, 1996.
In General
Messrs. Pearlman, Lawi and Murphy (the "Officers") are the holders of
an aggregate $1,550,000 principal amount of the Company's unsecured 8%
subordinated convertible debentures, due 1999 (the "Debentures"), holding
$1,000,000, $500,000 and $50,000, respectively, in principal amount at December
31, 1996. 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 December 31, 1996, the outstanding
principal balance under the notes for each of Messrs. Pearlman and Lawi was
$300,000 and $150,000, respectively. In addition, as of such date, the Company
owes Messrs. Pearlman and Lawi and Murphy interest on their Debentures net of
interest on the notes, in the amounts of $122,000, $61,000 and $11,000,
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.
of Texas. 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 in the 1996 Annual
Report to Shareholders accompanying this Proxy Statement.
During 1996, management of the Company provided various administrative,
managerial, financial, legal and accounting services to Unapix Entertainment,
Inc. ("Unapix"), for which the Company was paid $182,000 by Unapix in 1996.
Messrs. Pearlman, Lawi and Craig are directors of Unapix, and Mr. Murphy is the
Chief Financial Officer of Unapix.
Page 33 of 68 pages. Exhibits begin on page 68
<PAGE> 34
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
Convertible 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 34 of 68 pages. Exhibits begin on page 68
<PAGE> 35
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]
13.1 The Company's Annual Report to Stockholders for the year ended
December 31, 1996 [incorporated by reference to this document
as filed with the Commission]
22.0 List of Subsidiaries*
- -----------------------
* Filed herewith
(c) Reports on Form 8-K: None.
Page 35 of 68 pages. Exhibits begin on page 68
<PAGE> 36
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 14th day of April,
1997. HELM RESOURCES, INC.
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)
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 14, l997
- ------------------------ Officer, Director (principal
Herbert M. Pearlman executive officer)
/s/ David S. Lawi Secretary-Treasurer, April 14, l997
- ------------------------
David S. Lawi Director
/s/ Walter M. Craig Executive Vice April 14, 1997
- ------------------------
Walter M. Craig, Jr. President,
Director
/s/ Joseph Farley Director April 14, l997
- ------------------------
Joseph J. Farley
Director April , l997
- ------------------------
William Lerner
Director April , l997
- ------------------------
John Stieglitz
</TABLE>
Page 36 of 68 pages. Exhibits begin on page 68
<PAGE> 37
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, 1996, 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, 1996. 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, 1996 and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996 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. The Company has had
significant losses in the past and at December 31, 1996, the Company had a
shareholders' capital deficit of $4,476,000 and a working capital deficit of
$4,278,000, which includes $1,000,000 and $795,000 outstanding under a line of
credit agreement and a note payable agreement, respectively, which are 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
F-1
<PAGE> 38
line of credit agreement and a note payable agreement. The line of credit
agreement expired February 28, 1997 and the lender has informed management that
the line of credit will not be renewed. The note payable is due in monthly
installments through April 1999 and the Company has not obtained a waiver of the
loan covenant violations. Management is currently seeking a new lender to
refinance the line of credit and is attempting to obtain a waiver of the note
payable loan covenant violations. 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, 1997
F-2
<PAGE> 39
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
DECEMBER 31, 1996
====================================
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash $ 101
Accounts receivable, net of allowance for
doubtful accounts of $27 1 834
Inventories 290
Current portion of promissory notes
receivable from officers 150
Prepaid expenses 189
Due from affiliates 26
Other current assets 87
------
TOTAL CURRENT ASSETS 2 677
INVESTMENTS IN AFFILIATES 1 361
PROMISSORY NOTES RECEIVABLE FROM OFFICERS 300
PROPERTY, PLANT AND EQUIPMENT, net 2 567
DEFERRED CHARGES AND OTHER ASSETS 380
------
$7 285
======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 40
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except par values)
DECEMBER 31, 1996
(continued)
=========================
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIT
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C>
Notes payable to affiliates $ 1 022
Accounts payable 2 130
Accrued interest 211
Accrued expenses 1 213
Current portion of long-term debt 1 876
Contract settlement 259
Due to affiliates 244
--------
TOTAL CURRENT LIABILITIES 6 955
LONG-TERM DEBT, NET OF CURRENT PORTION 738
NOTE PAYABLE TO AFFILIATE 323
SUBORDINATED DEBENTURES, NET OF CURRENT PORTION 3 060
ACCRUED EXPENSES PAYABLE IN COMMON STOCK 535
OTHER LIABILITIES 150
--------
TOTAL LIABILITIES 11 761
--------
COMMITMENTS AND CONTINGENCIES (NOTES 13 and 14)
SHAREHOLDERS' CAPITAL DEFICIT:
Preferred stock, $.01 par value: shares
authorized 5,000; issued and outstanding
37 shares --
Common stock, $.01 par value: shares
authorized 15,000; issued and outstanding
2,501 shares 25
Additional paid-in capital 19 852
Unrealized gain on available for sale securities 315
Deficit (24 639)
--------
(4 447)
Less: 6 shares of treasury stock, at cost (29)
========
TOTAL SHAREHOLDERS' CAPITAL DEFICIT (4 476)
--------
$ 7 285
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 41
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(In thousands, except per share amounts)
========================================
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------------
1996 1995
------- -------
<S> <C> <C>
REVENUES $18 234 $15 183
------- -------
COSTS, EXPENSES AND OTHER:
Operating expenses 13 876 11 953
Selling, general and administrative expenses 4 319 3 917
Gain on sale of securities (649) (738)
Lease termination costs -- (233)
Equity in net loss (gain) of affiliates (15) 56
Increase in underlying equity of affiliates (103) (123)
Distribution from affiliates (cost method) (36) (40)
Interest and debt expense 984 989
Interest income (67) (80)
Settlement of lawsuit 300 --
Warehouse restructuring 335 --
------- -------
Total costs, expenses and other 18 944 15 701
------- -------
LOSS FROM CONTINUING OPERATIONS (710) (518)
LOSS FROM DISCONTINUED OPERATIONS OF AFFILIATE (428) (76)
------- -------
NET LOSS $(1 138) $ (594)
======= =======
LOSS PER COMMON SHARE:
Continuing operations $ (.34) $ (.29)
Discontinued operations (.17) (.03)
------- -------
Net loss $ (.51) $ (.32)
======= =======
Weighted average number of common shares outstanding 2 475 2 231
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 42
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1995
(In thousands, except number of shares)
===================================================================
<TABLE>
<CAPTION>
Preferred stock Common stock
----------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 43 075 $-- 2 160 827 $22
Common stock issued for interest accrued
at December 31, 1994 and interest payable
during the year on 14% notes payable -- -- 208 857 2
Preferred stock received from officers in
connection with retirement of debt (3 075) -- -- --
Shares issued in connection with settlement -- -- 9 719 --
Shares issued in connection with directors'
fees payable -- -- 20 000 --
Change in unrealized gain on available
for sale securities -- -- -- --
Net loss -- -- -- --
------ --- --------- ---
Balance at December 31, 1995 40 000 -- 2 399 403 24
Common stock issued for interest accrued at
December 31, 1995 and interest payable
during the year on 14% notes payable -- -- 71 902 1
Warrants issued in connection
with notes payable -- -- -- --
Preferred stock received from officers in
connection with retirement of debt (3 000) -- -- --
Shares issued in connection with
directors' fees payable -- -- 30 000 --
Change in unrealized gain on available
for sale securities -- -- -- --
Net loss -- -- -- --
------ --- --------- ---
Balance at December 31, 1996 37 000 $-- 2 501 305 $25
====== === ========= ===
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 43
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1995
(In thousands, except number of shares)
(Continued)
<TABLE>
<CAPTION>
Unrealized
Additional gain on
capital available Treasury stock
paid-in for sale ---------------------
capital securities Deficit Shares Amount
------- ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $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 14%
notes payable 173 -- -- -- --
Preferred stock received from
officers in connection with
retirement of debt (154) -- -- -- --
Shares issued in connection with
settlement 10 -- -- -- --
Shares issued in connection with
directors' fees payable 20 -- -- -- --
Change in unrealized gain on
available for sale securities -- (22) -- --
Net loss -- -- (594) -- --
------- ---- -------- ----- ----
Balance at December 31, 1995 19 889 763 (23 501) 6 362 (29)
Common stock issued for interest
accrued at December 31,
1995 and interest payable
during the year on 14%
notes payable 61 -- -- -- --
Warrants issued in connection
with notes payable 22 -- -- -- --
Preferred stock received from
officers in connection
with retirement of debt (150) -- -- -- --
Shares issued in connection
with directors' fees
payable -- 30 -- -- --
Change in unrealized gain on
available for sale securities -- (448) -- -- --
Net loss -- -- (1 138) -- --
------- ---- -------- ----- ----
Balance at December 31, 1996 $19 852 $315 $(24 639) 6 362 $(29)
======= ==== ======== ===== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 44
HELM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
=====================================
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1996 1995
------ ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1 138) $(594)
------- -----
Adjustments to reconcile net loss to net
cash provided by operating activities:
Share of losses of affiliates 413 132
Gain on sale of securities (649) (738)
Increase in underlying equity of affiliate (103) (123)
Depreciation and amortization 395 669
Other amortization 58 62
Lawsuit settlement 149 --
Interest paid through issuance of common stock 48 175
Directors' fee paid through issuance of common stock 30 20
Other (37) (19)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 218 97
Inventories (23) (88)
Increase in:
Accounts payable and accrued expenses 638 639
Other 49 138
------- -----
Total adjustments 1 186 964
------- -----
Net cash provided by operating
activities 48 370
------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of securities 403 617
Purchases of property, plant and equipment (504) (204)
Advances (to) from affiliates 468 (15)
------- -----
Net cash provided by
investing activities 367 398
------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from affiliates 611 423
Decrease in notes payable and long-term debt (1 448) (864)
Retirement of debentures -- (13)
Distributions from investment 89 79
------- -----
Net cash used in financing
activities (748) (375)
------- -----
NET INCREASE (DECREASE) IN CASH (333) 393
CASH, beginning of year 434 41
------- -----
CASH, end of year $ 101 $ 434
======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 45
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 22% (in
1996) and a 35% (in 1995) owned subsidiary, which specializes
in the custom-compounding of thermoplastic resins for the
petrochemical and automobile industries, through ISI's
wholly-owned subsidiary with operations in Houston, Texas and
Jeffersonville, Indiana, respectively. Through ISI's
wholly-owned subsidiary in Omaha, Nebraska, ISI 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 previously marketed rolling
doors and hurricane shutters. As of June 30, 1996, ISI adopted
a formal plan to dispose of the rolling door and hurricane
shutter operations (see Note 2).
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
had a deficiency in shareholders' capital deficit of $4,476,000 and a working
capital deficiency of $4,278,000 at December 31, 1996 which includes $1,000,000
and $795,000 outstanding under a line of credit agreement and a note payable
agreement, respectively, which are in default. These matters raise substantial
doubt about the Company's ability to continue as a going concern. 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.
F-9
<PAGE> 46
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
(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) Long-Lived Assets
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 adopted SFAS No. 121 in 1996 and its implementation did not have a
material effect on the consolidated financial statements.
F-10
<PAGE> 47
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Stock-Based Compensation
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 requires entities which
have 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 to either record the fair value of the
arrangement or disclose the pro forma effects of the fair value of the
arrangements. In 1996, the Company has adopted the disclosure method of SFAS No.
123. The adoption of this method did not affect the Company's financial
position, operating results or cash flows.
(h) 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 of $126,000 for
the years ended December 31, 1996 and 1995.
(i) 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.
(j) 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" ("SFAS No. 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.
F-11
<PAGE> 48
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) 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.
(l) 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 $909,000 at December 31, 1996. Most of the Company's customers
are in the petro-chemical business and are located in the Southwest part of the
country.
(m) Estimated Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS No.
107"), "Disclosure about Fair Value of Financial Instruments", requires
disclosures of fair value information about financial instruments for which it
is practicable to estimate the value, whether or not recognized on the balance
sheet. The fair value of financial instruments, including cash, accounts
receivable, notes receivable, accounts payable and accrued expenses, approximate
their carrying value because of the current nature of these instruments. The
carrying amounts of long-term debt and subordinated debentures approximate their
fair value because the interest rates approximate current market rates for
financial instruments with similar maturities and terms.
(n) Recent Accounting Standards
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 specifies the computation, presentation, and
disclosure requirements for earnings per share. SFAS No. 128 is effective for
periods ending after December 15, 1997. The adoption of this statements is not
expected to have a material effect on the consolidated financial statements.
F-12
<PAGE> 49
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES
Investments in and advances to affiliates consist of the
following at December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Advances to
Name Ownership % Investment (from)
- ---------- ----------- ---------- -----------
<S> <C> <C> <C>
ISI 22.0 $(260) $(244)
Mezzanine 9.0 300 --
Unapix 2.0 315 --
PFS 14.0 250 --
Joint venture 25.0 756 --
Other -- -- 26
------ -----
$1 361 $(218)
====== =====
</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>
<CAPTION>
Name 1996 1995
- ------------ ---- ----
<S> <C> <C>
ISI $(516) $(253)
PFS 7 35
Joint venture 96 86
----- -----
(413) (132)
Mezzanine 36 40
----- -----
$(377) $ (92)
===== =====
</TABLE>
INTERSYSTEMS, INC. ("ISI")
The Company accounts for its investment in ISI on the equity
method. As of December 31, 1996, the Company has recorded its negative
investment in ISI because ISI is projecting earnings in the near future. The
quoted market value of the Company's share of ISI's common stock was
approximately $1,409,000 as of December 31, 1996.
F-13
<PAGE> 50
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
In 1996, ISI adopted a plan to discontinue a portion of its
business; accordingly, ISI recorded a loss from discontinued operations of
$1,920,000, of which $1,190,000 was recorded in the fourth quarter of 1996. The
Company's allocable share of this loss totaled $428,000 and $76,000 in 1996 and
1995, respectively, and it has been recorded as discontinued operations.
Additionally, in 1996, ISI completed a private placement of
1,560,000 shares of common stock and 780,000 warrants (the "Units"). Holders of
the Units have the right at the end of a two-year period, as defined, to have
the common stock contained in the Units redeemed by ISI unless during such
period the closing ISI stock price is at least $1.80 per share for any thirty
consecutive trading days. In 1996, ISI also issued shares of its common stock
upon the conversion of $487,500 of debentures. 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.
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 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.
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-14
<PAGE> 51
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, 1996 and
for the years ended December 31, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Balance sheet data:
Current assets $ 6 046
Other assets 19 173
-------
Total assets 25 219
Current liabilities 5 629
Long-term liabilities 18 697
Redemption value of common stock 2 077
-------
Shareholders' equity (capital deficit) $(1 184)
=======
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Income statement data:
Revenues $20 387 $15 703
Expenses 20 786 16 181
------- -------
Net loss from continuing operations (399) (478)
Loss from discontinued operations (1 920) (217)
------- -------
Net loss $(2 319) $ (695)
======= =======
</TABLE>
F-15
<PAGE> 52
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.
Mezzanine provided loans to the Company and its subsidiaries
in 1996 (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")
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.
In 1996, PFS sold additional shares of its common stock which
has resulted in the Company's percentage ownership share in these increases in
PFS' shareholders' equity to increase. This increase has been reflected as
income, in compliance with Staff Accounting Bulletin No. 51.
F-16
<PAGE> 53
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 2 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
JOINT VENTURE
Interpak has a 25% interest in a joint venture that owns a
warehouse facility. The investment 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, 1996, Interpak had borrowed $700,000 under this agreement (see Note 5).
Also, Interpak has 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, 1996 and 1995 was $96,000 and $86,000,
respectively. The Company received distributions from the joint venture
totalling $89,000 and $79,000 for the years ended December 31, 1996 and 1995,
respectively, which were used to pay interest on the note payable, with any
excess being applied to principal. Following is a summary of financial position,
revenue and net income of the joint venture (in thousands):
<TABLE>
<CAPTION>
December 31,
1996
<S> <C>
Assets:
Land, building and improvements, net............. $4 933
Other ........................................... 296
------
$5 229
======
Liabilities and equity:
Note payable...................................... $2 065
Other 140
Equity ......................................... 3 024
------
$5 229
======
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Rental income........................................ $769 $751
==== ====
Net income ......................................... $383 $346
==== ====
</TABLE>
F-17
<PAGE> 54
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 3 - RELATED PARTY TRANSACTIONS
(a) Sale of Securities
During 1996, the Company reduced its 8% convertible
subordinated debentures, held by two officers of the Company, by $225,000 by
offsetting $134,000 of certain promissory note receivables, the issuance of
86,098 warrants and the transfer of certain shares of securities held by the
Company. Additionally, during 1996, the Company exchanged 25,000 shares of
restricted common stock of Unapix and 40,000 shares of PFS for the surrender of
$200,000 of 14% notes payable to shareholders. These transactions were approved
by the Board of Directors and the Company realized a gain from these
transactions of $259,000.
Additionally, in 1996, the Company had nonrelated party
transactions in which it sold 91,400 shares of ISI and 56,800 shares of Unapix,
resulting in total gains of $390,000.
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 1996 and 1995. At
December 31, 1996 and 1995, Interpak had accounts receivable totalling $26,000
and $195,000, respectively, due from ISI. The balances consist primarily of
managerial and administrative expenses incurred by Interpak on behalf of the
affiliate.
F-18
<PAGE> 55
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 1996 and 1995, $510,000 and $605,000,
respectively, were allocated to affiliates and deducted from the Company's
expenses.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment $ 8 735
Furniture and fixtures 1 044
Leasehold improvements 1 348
-------
11 127
Less: Accumulated depreciation
and amortization (8 560)
-------
$ 2 567
=======
</TABLE>
During the year ended December 31, 1996, Interpak changed the
estimated useful lives of certain machinery and equipment. The effects of these
changes decreased the net loss from continuing operations by approximately
$293,000, and loss per share from continuing operations and net loss per share
by approximately $.12 for the year then ended.
F-19
<PAGE> 56
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
(a) Notes Payable
Notes payable consist of the following at December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Short-term:
Revolving credit debt payable
to Mezzanine $ 628
14% notes payable to shareholders 394
------
1 022
Long-term:
15% note payable to affiliate 323
------
$1 345
======
</TABLE>
Mezzanine has provided a line of credit, expiring December
31, 1997, totaling $750,000 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 $94,000 and $75,000 in 1996 and 1995,
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 $132,000 and $199,000 in
1996 and 1995, respectively. Interest continues to be due at 14%, payable in
cash and stock.
The 15% note payable to an affiliate is an unsecured note
payable to an affiliated company of Interpak. The note bears interest at 15%
payable monthly and is due on March 31, 1998.
F-20
<PAGE> 57
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
(b) Long-term Debt
Long-term debt (all at Interpak) consists of the following at
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<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 795
Note payable, interest at 13%, interest
payable monthly with principal due
September 2001 (see Note 2) 700
Unsecured note payable, interest at 8.25%,
payable in monthly installments of
$6,727, including interest, due June 1998 108
Other 11
-------
Less current maturities 2 614
(1 876)
-------
Total long-term debt $ 738
=======
</TABLE>
A summary of maturities of long-term debt at December 31, 1996
is as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------
<S> <C>
1997 $1 876
1998 38
1999 --
2000 --
2001 700
------
$2 614
======
</TABLE>
F-21
<PAGE> 58
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
At December 31, 1996, 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 expired on February
28, 1997. 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,
1996, Interpak was in violation of certain financial covenants. The lender has
informed management that the line of credit will not be renewed. Management is
currently seeking a new lender to refinance the line of credit. There is no
guarantee that management will be able to refinance the line of credit on terms
favorable to Interpak.
The term loan is collateralized by certain equipment with a
net book value of $1,200,000 at December 31, 1996, and requires the maintenance
of certain levels of tangible net worth and debt to equity ratio, as defined. At
December 31, 1996, Interpak was in violation of certain financial covenants and
is attempting to obtain a waiver of the loan covenant violations. However, as of
March 21, 1997, Interpak had not obtained a waiver. Accordingly, the balance of
the note due has been classified as current.
The note payable due September 2001 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, 1996, 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. The settlement was recorded in prior years' operating results. Under the
terms of the original settlement agreement, all amounts were scheduled to be
paid by November 1995. At December 31, 1996, the Company was in arrears and is
expecting to renegotiate new payment terms. Of the balance due at December 31,
1996, $85,000 bears interest at a range of 4.25% to 6% and $173,000 is
noninterest bearing.
F-22
<PAGE> 59
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 6 - SUBORDINATED DEBENTURES
Subordinated debentures of the Company consist of the
following at December 31, 1996 (in thousands):
<TABLE>
<S> <C>
12% subordinated debentures, due 1999,
net of discount of $179
(effective interest rate 12.5%) $1 490
8% convertible subordinated debentures
due 1999 1 550
Other 20
------
$3 060
======
</TABLE>
12% Subordinated Debentures, due 1999
These bonds mature on August 31, 1999. Interest is payable in
cash semiannually.
8% Convertible Subordinated Debentures, due 1999
The 8% subordinated convertible debentures are held by 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.
F-23
<PAGE> 60
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 7 - LIABILITIES
Accrued expenses consist of the following at December 31, 1996
(in thousands):
<TABLE>
<S> <C>
Payroll related expenses $313
Other 900
------
$1 213
======
</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 $22,600,000 of net operating
loss carryovers for Federal income tax purposes that expire in years through
2011. Certain of these loss carryforwards are subject to future limitations in
usage.
Net deferred income taxes as of December 31, 1996 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
Deferred Tax
Asset
------------
<S> <C>
Tax benefit of net operating loss carryovers $7 925
Tax basis in excess of book basis of
investments in unconsolidated subsidiaries 1 437
Expenses accrued for financial reporting
purposes not deducted for tax purposes, net 58
-------
Deferred tax asset 9 420
Valuation allowance (9 420)
-------
Net deferred tax asset $ --
=======
</TABLE>
F-24
<PAGE> 61
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
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, 1996, are as follows:
<TABLE>
<S> <C>
Series A preferred stock 21 250
Series A 8% cumulative convertible
preferred stock 13 750
Series B 8% cumulative convertible
preferred stock 2 000
------
37 000
======
</TABLE>
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 $378,000 at December
31, 1996.
F-25
<PAGE> 62
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
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 1996 and 1995,
no options were granted under this plan.
No options were exercised during 1996 and 1995. During 1996,
1,234 options expired.
The options outstanding at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Options
Expiration Shares subject Option exercisable as of
date to option price December 31, 1996
- ---------- -------------- ----- -----------------
<S> <C> <C> <C>
1997 25 369 $ 7.50 25 369
1998 8 333 $ 9.375 8 333
2000 5 000 $ 3.75 5 000
2001 10 335 $ 3.75 to $ 7.50(1) 10 335
------ ------
49 037 49 037
====== ======
</TABLE>
(1) The weighted average exercise price per share for these
options is $4.54.
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, 1996.
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 expired on January 31, 1996.
In 1994, the Company issued 50,000 warrants at an exercise
price of $1.25 per share, which have a five-year vesting period.
F-26
<PAGE> 63
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
In 1996, the Company issued 86,098 warrants at an exercise
price of $1.25, expiring on December 15, 2006, in exchange for the cancellation
of certain 8% debentures.
SFAS No. 123 requires the Company to provide pro forma
information regarding net loss and loss per share as if compensation cost for
the Company's stock option plans had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The disclosure provisions of SFAS
No. 123 do not have a material effect on the Company's pro forma net loss and
loss per share for the years ended 1996 and 1995, and thus have not been
presented.
NOTE 11 - SHARES RESERVED FOR FUTURE ISSUANCE
Shares reserved for future issuance at December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
Conversion of preferred stock 1 715 000
Conversion of 8% convertible
subordinated debentures 235 000
Warrants to purchase common stock 136 000
Shares reserved for stock options
including options granted 183 000
---------
Total shares reserved for future issuance 2 269 000
=========
</TABLE>
F-27
<PAGE> 64
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
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
loss for the subsidiaries' contributions were approximately $18,000 and $14,000
in 1996 and 1995, respectively.
NOTE 13 - LAWSUIT SETTLEMENT
In prior years, Interpak was a defendant in a wrongful death
lawsuit for an incident that occurred at one of Interpak's facilities. During
the year ended December 31, 1996, Interpak's insurance carriers, who were
defending Interpak, settled the lawsuit prior to trial. Interpak's portion of
the settlement totalled $250,000, of which $101,000 was paid in cash with the
balance being satisfied by the issuance of a $149,000 note payable (see Note
5(b)). The Company has also accrued $50,000 of legal fees related to this
settlement.
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.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(a) 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>
<CAPTION>
(in thousands)
<S> <C>
1997 $3 700
1998 2 932
1999 2 728
2000 2 167
2001 1 622
Thereafter 2 160
-------
$15 309
=======
</TABLE>
F-28
<PAGE> 65
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 14 - COMMITMENTS AND CONTINGENCIES (Continued)
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 1996 and 1995 was $4,232,000 and $4,216,000,
respectively.
(b) 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, 1996 and 1995, Interpak paid $545,000 and $527,000
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 to $850,000 through
August 31, 2001. During the years ended December 31, 1996 and 1995, the Company
paid rents totalling approximately $769,000 and $751,000, respectively, under
this agreement.
(c) 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.
(d) 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, 1996
and 1995, representing amounts due under the agreements.
F-29
<PAGE> 66
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 14 - COMMITMENTS AND CONTINGENCIES (Continued)
(e) 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 1/2% 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, 1996, $700,000 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. The change in
control payments would approximate $2,290,000 at December 31, 1996. 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.
(f) The Company has guaranteed certain debt of an affiliate
totaling approximately $141,000 at December 31, 1996. The Company plans to
reduce this guarantee by the transfer of approximately $50,000 worth of ISI
stock during 1997.
NOTE 15 - MAJOR CUSTOMERS
Interpak had sales to significant customers for the years
ended December 31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------
1996 1995
------- ------
(in thousands)
<S> <C> <C>
Customer "A" $10 026 $8 513
Customer "B" 1 810 1 509
</TABLE>
NOTE 16 - STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------
1996 1995
------- ------
(in thousands)
<S> <C> <C>
Interest paid $824 $659
</TABLE>
F-30
<PAGE> 67
HELM RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================
NOTE 16 - STATEMENT OF CASH FLOWS (Continued)
Noncash transactions relating to investing and financing
activities:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------
1996 1995
------- ------
(in thousands)
<S> <C> <C>
Repayment of officers' notes receivable
by exchange of preferred stock $150 $166
Issuance of stock in settlement -- 10
Issuance of warrants in exchange
for notes payable 22 --
Exchange of investment in Mezzanine for
investment in PFS -- 200
Reduction of notes payable in exchange
for common stock of affiliates 287 172
Note payable issued for partial payment
of law settlement 149 --
Exchange of promissory note receivable
for reduction of notes payable 134 --
</TABLE>
NOTE 17 - PENDING SALE
During 1996 and 1995, the Company was in negotiations for the
sale of Interpak to ISI. In March 1997, the negotiations were terminated because
ISI was unable to satisfy certain conditions to consummate the acquisition.
Shortly thereafter, the Company announced that it had entered into negotiations
for the sale of Interpak to a European corporation. As of March 21, 1997, no
definitive agreement has been entered into with this prospective buyer.
F-31
<PAGE> 68
EXHIBIT INDEX
Item No. Description
-------- -----------
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
Convertible 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> 69
EXHIBIT INDEX
Item No. Description
-------- -----------
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]
13.1 The Company's Annual Report to Stockholders for the year ended
December 31, 1996 [incorporated by reference to this document
as filed with the Commission]
22.0 List of Subsidiaries*
- -----------------------
* Filed herewith
<PAGE> 1
Exhibit 22.0
Jurisdiction
Subsidiaries Name of Incorporation
InterSystems, Inc. Delaware
Chemtrusion, Inc. Delaware
InterSystems, Inc. Nebraska
Interpak Holdings, Inc. Delaware
Interpak Terminals, Inc. Delaware
Interpak Terminals, Inc. Texas
Helm Investment Company Delaware
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.
Page 68 of 68 pages. Exhibits begin on page 68
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 1861
<ALLOWANCES> 27
<INVENTORY> 290
<CURRENT-ASSETS> 2677
<PP&E> 11127
<DEPRECIATION> 8560
<TOTAL-ASSETS> 7285
<CURRENT-LIABILITIES> 6955
<BONDS> 3060
0
0
<COMMON> 25
<OTHER-SE> (4501)
<TOTAL-LIABILITY-AND-EQUITY> 7285
<SALES> 18234
<TOTAL-REVENUES> 18234
<CGS> 0
<TOTAL-COSTS> 13876
<OTHER-EXPENSES> 4619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 984
<INCOME-PRETAX> (710)
<INCOME-TAX> 0
<INCOME-CONTINUING> (710)
<DISCONTINUED> (428)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1138)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> 0
</TABLE>
