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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, 1997 [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 CAPITAL GROUP, INC.
(FORMERLY 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:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
<S> <C>
Common Stock, par value $.0l American Stock Exchange
</TABLE>
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, 1997 were $40,000. The
aggregate market value of the voting stock held by non-affiliates of the issuer
is approximately $3,018,642 based upon the closing price of the issuer's common
stock, $.01 par value, as reported by the American Stock Exchange on March 31,
1998, which was $1.125.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 31, 1998: 3,743,937.
Documents incorporated by reference: NONE
Transitional Small Business Format: Yes ____ No X
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PART I
ITEM 1. BUSINESS
INTRODUCTION
HELM CAPITAL GROUP, 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, two
affiliated companies and an investment, is engaged in several business
activities.
Through a newly formed wholly owned subsidiary, MEZZANINE FINANCIAL
CORP. ("Mezzanine"), a Delaware corporation, the Company is engaged in the
business of making collateralized loans to small businesses.
In addition, a 15.5% 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 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.
Finally, through a 19.4% ownership in CORE CAPITAL, INC. ("CCI")
(formerly known as Professionals' Financial Services, Inc.), a privately held
Delaware corporation, and its two wholly owned subsidiaries, MEDIFIN, INC. AND
PROFESSIONAL FACTORS, INC., based in Red Bank, New Jersey, the Company is
engaged in the business of providing credit and related services through the
purchase of accounts receivables of health care and other commercial
enterprises.
The Company maintains a $200,000 limited partnership interest IN THE
MEZZANINE FINANCIAL FUND, L.P., a Delaware limited partnership which makes
collateralized loans to companies in a manner similar to Mezzanine Financial
Corp.
RECENT DEVELOPMENTS
On July 31, 1997, the Company's subsidiary, Interpak Holdings, Inc., a
Delaware corporation, completed the sale of all of the capital stock of its
subsidiaries, Interpak Terminals, Inc., a Delaware corporation doing business in
New Jersey, and Interpak Terminals, Inc., a Texas corporation doing business in
Houston, to Katoen Natie U.S.A., Inc., a domestic subsidiary of a privately-held
Belgium corporation, for a $2.2 million cash purchase price. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Interpak is a provider of custom packaging and distribution
services to manufacturers of thermoplastic resins. For the seven months ended
July 31, 1997 and for the twelve months ended December 31, 1996, Interpak had
revenues of $10,608,000 and $18,065,000, respectively.
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TELETRAK ADVANCED TECHNOLOGY SYSTEMS, INC.
The Company and its majority owned subsidiary, Teletrak Advanced
Technology Systems, Inc. (OTC Bulletin Board:TATS), which has been inactive
since 1993, has signed a letter of intent to combine Teletrak with Advanced
Environmental Systems, Inc. ("AES") of Webster, Massachusetts. Completion of the
transaction is subject to negotiation and execution of a definitive merger
agreement. No assurance can be given that the transaction will be completed.
Under the transaction, AES will become a wholly owned subsidiary of
Teletrak, and the existing AES stockholders will receive shares of Teletrak
common stock in exchange for their AES stock. Immediately prior to the
transaction, Teletrak will effect a reverse stock split and recapitalization,
and change its name to Teletrak Environmental Systems, Inc., which will have
approximately 7.5 million common shares outstanding immediately following the
transaction.
AES, a privately held company, specializes in the manufacture,
distribution and licensing of industrial "mucking pumps" and related equipment.
The design of these pumps, based upon jet pump technology, makes this equipment
a highly effective portable tool for the removal of granular wet or dry
materials (including sludge, scale and slurries) -- particularly for
environmental cleanup of hazardous matter such as asbestos and lead. The motive
power, compressed air or pressurized liquid, provides operating flexibility for
hopper loading, vacuum cleaning and submersible application, as well as the
ability to collect and transport materials over long distances. With no moving
parts, the AES pump is designed to be virtually maintenance free and to require
no skilled labor to operate.
More than 1,000 pumps are in use today in a wide range of
industries, including power plants, steel mills and foundries, oil refineries,
chemical and petrochemical plants, food processing facilities, shipyards and
marine vessel operators and water treatment plants. In 1997, AES had revenues of
approximately $1,300,000 and a net loss for the year of approximately of
$460,000.
Teletrak has been an inactive public company for several years as
management sought an appropriate merger partner. It has no employees or
facilities. Helm, the holder of 61% of Teletrak's common stock, and management,
have voted in favor of the transaction, the reverse stock split and
recapitalization and the name change. After the merger, Helm will be a minority
stockholder. Helm wrote off its investment in Teletrak prior to 1996.
RESULTS OF OPERATIONS
The Company realized net income of $2,613,000 in 1997,
of which $2,324,000 was attributable to a gain on the sale of Interpak. These
results are compared to a loss of $1,138,000 in 1996, which was attributable in
part to a loss of $409,000 relating to Interpak, as well as to 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. Following the sale of Interpak, the Company changed its name from Helm
Resources, Inc. to Helm Capital Group, Inc. to reflect its new focus as a
financial services company. Set forth below is a discussion of the principal
subsidiary, affiliates and investment of Helm Capital Group, Inc.
MEZZANINE FINANCIAL CORP.
With the completion of the sale of Interpak Terminals, Inc.,
historically the Company's principal operating subsidiary, the Company was
positioned to bring its primary business activity into the financial services
area. Over the past few years, the Company has developed a particular expertise
and equity interests in two niche finance businesses -- The Mezzanine Financial
Fund, L.P. (the "Fund") and Core Capital, Inc. Both experiences give management
reason to believe the ground work has been established for the Company to become
a successful operating financial services company. To that end, Mezzanine
Financial Corp. ("Mezzanine") was organized in 1997 as a wholly owned subsidiary
of the Company to provide capital in high yield "mezzanine" debt situations of
small and mid-market companies and to provide asset-based lending directly to or
in participation with other commercial lenders to such sector.
The Company capitalized Mezzanine with $1,550,000 of cash
proceeds from the sale of Interpak in exchange for the issuance by Mezzanine of
a like principal amount of 9 1/2% Senior Convertible Notes due December 31, 2001
(the "Notes"). In an effort to reduce the Company's debt, the Notes were issued
to the holders of the Company's 12% Subordinated Debentures due August 31, 1999
in exchange for the retirement of the Company's 12% Debentures pursuant to an
exchange offer commenced by the Company in October 1997. One half of the
outstanding principal amount of the Notes are convertible into shares of the
Company's common stock at $1.25 per share, and one half of the outstanding
principal amount of the Notes are convertible into shares of ISI common stock at
$2.75 per share. The Company has listed and reserved for issuance 650,000 shares
of its common stock and has reserved 295,000 shares of the Company's ISI common
stock for issuance upon conversion of the Notes. As of March 16, 1998, Mezzanine
had two loans outstanding in the aggregate amount of $850,000, one of which
bears interest at the rate of 22% per annum and the other bearing interest at
the rate of 15% per annum.
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, 1997 and 1996,
approximately 60% and 71%, respectively,
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of ISI's revenues were attributable to the business of InterSystems Nebraska and
approximately 40% and 29%, respectively, of ISI's revenues were attributable to
the business of Chemtrusion.
ISI had revenues from continuing operations of $27,008,000, and
$20,462,000, respectively, for the years ended December 31, 1997 and 1996. For
the year ended December 31, 1997, ISI reported a profit from continuing
operations of $419,000 and a net profit for the year of $569,000, as compared
to a loss from continuing operations of ($399,000) and a net loss of
($2,319,000) for the year ended December 31, 1996. The net profit for the year
ended December 31, 1997 included a $150,000 gain from discontinued operations
due to the reversal of over-accruals arising from the 1996 disposal of ISI's
Tropical Systems, Inc. subsidiary, as compared to a loss from discontinued
operations of ($1,920,000) for the year ended December 31, 1996, of which
($1,440,000) was incurred on the disposal of Tropical.
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.
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Bucket elevators. Bucket elevators are used to elevate material vertically. The
material is elevated by utilizing buckets attached to a belt. Material flows
into the buckets at the bottom and is discharged when reaching the top. This
equipment is typically required by customers to elevate commodities such as wood
chips, slate, fertilizer, flour, grains and malt.
Screeners. Screeners are used to separate smaller particles from the product
stream. This is accomplished by running the product over screens which separate
the material by particle size. Screeners are typically used for commodities such
as grains, pellets, feed, pet food and soymeal.
Bulk Weighing Systems. Bulk weighing systems are used to weigh free flowing bulk
commodities that are being continuously loaded into trucks, railcars, barges or
ships. During the weighing operation, information can be obtained and assessed
without interrupting the scale process. A typical system includes a structure
with several hoppers and an electronic package that controls the weighing
operation. These systems are generally sold for the bulk weighing of grains,
oil, flour, soymeal and fertilizer.
Sales and Marketing
InterSystems Nebraska's industrial samplers are sold by
approximately 80 manufacturer's representatives who are independent sales
representatives and independent contractors of InterSystems Nebraska. These
representatives typically market various lines of industrial products and
equipment manufactured by InterSystems Nebraska as well as five to ten other
companies. However, the representatives do not offer or sell products
competitive with those of InterSystems Nebraska within a given product line.
Each representative has an exclusive territory within which the representative
operates. Compensation of such representative is strictly on a commission basis.
Intersystems Nebraska's other products are sold by 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.
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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, engineering utilizes a Computer Aided Design
(CAD) system.
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.
Seasonality
A substantial portion of InterSystems Nebraska's revenues are derived
from the agricultural sector of the economy and, accordingly, are subject to
seasonal fluctuations. InterSystems Nebraska's revenues generally are highest in
the second and third quarter, although the company did receive a very large
international order in late December 1997 from which no revenues were derived in
1997. See "Backlog." InterSystems Nebraska's success is, to some extent,
dependent upon weather conditions affecting domestic grain production,
conditions in the grain industry generally and the value of the United States
dollar against foreign currency.
Backlog
InterSystems Nebraska had a sales backlog of approximately $7,200,000 at
December 31, 1997, compared with $2,266,000 at December 3l, 1996. The backlog at
December 31, 1997 was attributable in part to one large international order in
the amount of $4,000,000. All orders at December 3l, l997 are believed to be
firm and are expected to be filled by December 3l, l998.
Customers
During 1997, 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 1997 or 1996. 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.
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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.
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 mineral and glass filled polyolefins,
specialty resin alloys and additive concentrates.
Compounding Operations
HOUSTON FACILITY: Chemtrusion provides custom compounding services using four
twin screw extruders, various blenders and other equipment at its Houston
facility. The Houston facility completed installation of its fourth twin screw
extruder during November 1997. This new extrusion line offers the latest
generation of compounding technology and provides manufacturing capacity for
smaller volume products bringing the total annualized capacity of the facility
to 46 million pounds. 1997 production was approximately 27,313,016 pounds,
compared to approximately 23,820,635 pounds in 1996.
In Chemtrusion's custom compounding operations, the customer supplies
all or most of the raw materials including resins and other additives.
Chemtrusion supplies the operating equipment and process technology to precisely
melt mix or physically blend the various feedstock components into finished
products. Chemtrusion consults with each customer regarding use of its process
technology in order to achieve the optimal product performance of each
formulation, particularly when the objective is support of the customer's
research and development activities for new products. Once parameters are
established, Chemtrusion's process technology is generally used to support
commercial manufacturing of products.
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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 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 the Mytex facility, Chemtrusion produces an array of
polypropylene-based compounds 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.
During June 1997, Chemtrusion and Mytex amended the Definitive
Agreement to provide additional rail siding in support of both current and
future bulk shipment requirements of the facility. Pursuant to the Agreement,
Chemtrusion arranged for design and installation of the new facilities during
1997. Currently, the project is being funded by Mytex through interim short term
financing. Mytex provided permanent financing of the new facilities under terms
similar to those contained in the initial Agreement. In accordance with the
terms of this amendment, no change was made to Chemtrusion's management fee in
conjunction with these new facilities.
Also during June 1997, Chemtrusion and Mytex further amended the
Definitive Agreement to provide for design, installation and operation of a new
production line. Pursuant to the Agreement, Chemtrusion is currently in the
process of procuring equipment for the new line which is designed to
significantly increase output from the facility. Under the terms of the
Agreement, Mytex will again provide permanent financing of the new facilities
under terms similar to those contained in the initial Agreement. In accordance
with the terms of the Agreement, Chemtrusion will receive a management fee for
its operation of the new facilities, which covers operating expenses of the new
facilities and debt servicing. Management expects this fee to increase net
profits to Chemtrusion beginning in June 1998.
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.
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Termination of the Agreement triggers purchase rights on behalf of Mytex (the
"Option") and put rights on behalf of Chemtrusion (the "Put") with respect to
the facility. The purchase price under the Option and Put ranges from $1.5
million plus assumption of the construction financing, to assumption of
construction financing less $700,000, depending on when the rights are exercised
and whether the exercise follows a default by Mytex or Chemtrusion.
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. During 1997, 97% of Chemtrusion's revenues were attributable to three
customers: Mytex accounted for approximately 58% of total revenues and two other
customers accounted for an aggregate of 39% of total revenues. Other than Mytex,
Chemtrusion is not under long term contract with these customers, although it
has done business with both customers for several years. The Company believes
that the loss of any 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.
Seasonality
Although there are minor fluctuations in demand for custom
compounding services resulting from new automobile model introductions in
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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, 1997 and 1996, 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.
CORE CAPITAL, INC.
Since 1993, Core Capital, Inc. ("CCI"), formerly known as
Professionals' Financial Services, Inc., a privately-held Delaware corporation
based in Red Bank, New Jersey, has been engaged in the business of providing
capital and other related services (billing, collections, data and collections
monitoring) to small and mid-market business enterprises through the purchase of
accounts receivable. Through its wholly-owned subsidiaries, MediFin, Inc. and
Professional Factors, Inc., both of which share a processing center located in
Tampa, Florida, CCI 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, CCI (through its operating
subsidiaries) purchases accounts receivable from its customers at various
discount rates. Additional charges are applied upon collection of receivables or
the providing of other administrative functions. While CCI, through Medifin,
initially extended factoring services primarily to companies in the healthcare
field, it has diversified its client base and initiated factoring services to
companies engaged in other business activities through Professional Factors.
The Company presently owns 418,483 shares, representing
approximately 19.4%, of the common stock of CCI. For the year ended December 31,
1997, CCI reported a loss from operations of approximately $1,053,000, as
compared to a loss of approximately $425,000 for the year ended December 31,
1996.
INVESTMENT
THE MEZZANINE FINANCIAL FUND, L.P.
The Company presently holds a $200,000, or 6%, 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 small and mid-market companies and to provide asset-based
lending directly to or in participation with other
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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, 1998, the Fund had
loans outstanding in the aggregate amount of approximately $4,367,000 to 9
entities. Through its first six 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.
Pursuant to the terms of the limited partnership agreement under
which the Fund was organized, the Fund will terminate on December 31, 1998, at
which time limited partners will be entitled to a return of their investment
upon liquidation of the outstanding loans.
EMPLOYEES
THE COMPANY. The Company has 5 employees, 4 of whom serve in executive
capacities and 1 who serves principally in an administrative capacity.
MEZZANINE FINANCIAL CORP., together with the Fund, currently employs 3 part-time
persons, one of which serves in an executive capacity and 2 who serve
principally in administrative capacities.
INTERSYSTEMS, INC. currently employs 280 persons, all of whom are full time
employees, in executive, administrative and clerical, and production,
engineering and laboratory personnel capacities, and 5 part-time persons in
executive and administrative capacities who allocate their time between the
Company and affiliated entities. None of ISI's employees are represented by a
union.
CORE CAPITAL, INC., through its subsidiaries, currently employs 23 persons, 3 of
whom serve in executive capacities, 3 who serve in managerial capacities and 17
who serve principally in administrative capacities.
The Company believes its subsidiaries and affiliates have good relations
with their employees.
ITEM 2. PROPERTIES
THE COMPANY. The Company shares occupancy with three other corporations of 4,500
square feet of office space located at 537 Steamboat Road, Greenwich,
Connecticut. The lease commenced in June 1995, and an option to extend the lease
for an additional three years was exercised in January 1998 at a
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rental of $112,500 for the first year, $117,500 for the second year and $121,500
for the third year. The other corporations sharing this space are ISI and two
other corporations as to which Messrs. Herbert Pearlman and David Lawi serve as
directors and to which they devote some of their business time. The rent is
apportioned among these three corporations.
INTERSYSTEMS NEBRASKA: InterSystems Nebraska owns a 40,000 square foot office
and manufacturing facility in Omaha, Nebraska. The facility is subject to a
mortgage with respect to a $656,000.00 term loan bearing interest at 8.82%. The
loan matures in July 2002 and the balance due at maturity is $450,000.
InterSystems Nebraska leases a second facility comprising 30,000 square feet of
additional manufacturing space in Omaha, for a total square footage under use of
70,000 square feet. The lease provides for an annual rental of approximately
$100,000 per year and expires in November 2000.
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 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."
MEZZANINE FINANCIAL CORP. AND CORE CAPITAL, INC.: Mezzanine, the Fund and Core
Capital share a leased 2,000 square foot office in Red Bank, New Jersey. The
lease, which expires in November 1998, provides for a monthly rental of $2,000,
which is apportioned among the three entities. Core Capital's operating
subsidiaries lease a 6,000 square foot processing center in Tampa, Florida. This
lease expires in December 2000, and provides for a monthly rental of $7,000.
The Company believes that its properties and the properties of its subsidiaries
are in good operating condition and adequate for it and their 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
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.
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<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 29, 1997, the Company held its 1997 Annual Meeting of
Shareholders, at which the shareholders elected Herbert M. Pearlman, David S.
Lawi, Walter M. Craig, Jr., William Lerner, Joseph J. Farley and John Stieglitz
to serve as directors until the 1998 annual meeting of shareholders and until
their successors are elected, and approved the adoption of an amendment to the
Company's Certificate of Incorporation which changed the name of the Company
from Helm Resources, Inc. to Helm Capital Group, Inc.
The holders of record of 2,002,453 shares of common stock of the Company
out of a total of 2,561,855 shares of common stock outstanding on the record
date were present, in person or by proxy, at the annual meeting of shareholders.
The holders of record of the respective number of shares of common stock
of the Company set forth below voted for, or withheld authority for, the
election of the following individuals as members of the board of directors:
<TABLE>
<CAPTION>
No. of No. of Votes
Name Votes For Withheld
- ---- --------- --------
<S> <C> <C>
Herbert M. Pearlman 1,957,664 41,973
David S. Lawi 1,959,096 40,541
Walter M. Craig, Jr. 1,958,462 41,475
William Lerner 1,959,096 40,541
Joseph J. Farley 1,959,068 40,569
John Stieglitz 1,959,096 40,541
</TABLE>
The holders of record of not less than 1,973,393 shares of common stock of
the Company voted for the proposal regarding change of the Company's name, the
holders of not more than 11,506 shares of common stock voted against the
proposal and the holders of not less than 12,555 shares of common stock
abstained with respect to the proposal.
Page 14
<PAGE> 15
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>
l997 High Low
---- ---- ---
<S> <C> <C>
First Quarter $ .8125 $ .625
Second Quarter .875 .50
Third Quarter 1.25 .6875
Fourth Quarter 1.3125 .75
</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 March 31, l998, the closing price of the Company's common stock was
$1 1/8.
(b) HOLDERS. As of March 20, 1998, 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.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Interpak Terminals, the Company's primary operation was sold in July
1997 and its operations and the gain on the sale are included in discontinued
operations.
The Company's revenues for 1997 and 1996 consist primarily of
participating interests in seismic data sales which have declined over the past
several years and are not expected to result in significant revenue in
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<PAGE> 16
the future. Future revenues are expected to be derived primarily from the
Company's focus on financial services.
Income from continuing operations was $277,000 in 1997 compared to a
loss of $301,000 for 1996 or a net increase in income of $578,000 which is
primarily attributable to the Company's share of the increase in the underlying
equity of Intersystems, Inc.
Discontinued operations had income of $2,442,000 in 1997, of which
$2,324,000 was the gain on the sale of Interpak Terminals (see note 12 to the
financial statements), compared to a loss of $837,000 in 1996 which consisted of
a loss of $409,000 for Interpak Terminals and equity in loss of $428,000
attributable to Intersystems' discontinued operations (see note 3 to the
financial statements).
The extraordinary loss of $106,000 for 1997 is a non-cash item related
to the write off of debt discount on the outstanding 12% subordinated
debentures exchanged for 9.5% senior convertible notes.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $562,000 in 1997. The sale of Interpak
provided $1,950,000 and $415,000 was received from sales of securities. Cash of
$960,000 was used for lending activities and $282,000 was used to repay debt.
The resulting increase in cash for 1997 was $561,000.
Future liquidity sources for the Company will consist of revenues
generated from its financial service activities, reimbursement of general and
administrative expenses from affiliates, and sales of investment securities. On
a longer term basis, the Company may be required to seek additional liquidity
through debt or equity offerings.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
two new reporting and disclosure standards. Results of operations and financial
position will be unaffected by implementation of these new standards.
SFAS 130, "Reporting Comprehensive Income", established standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all items that are required to
be recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
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<PAGE> 17
SFAS 131, "Disclosure about Segments of a Business Enterprise",
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Adoption of SFAS 130 and 131 is not expected
to have any material effect on the Company's financial statement disclosures.
FORWARD LOOKING STATEMENTS
This annual report for the year ended December 31, 1997 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 refinancing 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, as well as the demand for the Company's
services, or the ability of the Company to provide such services; (ii) the
insolvency or failure to pay its debts by a significant customer or customers;
(iii) increased competition; (iv) changes in customer preferences and the
inability of the Company to develop and introduce new services to accommodate
these changes; and (v) the maturing of debt and the ability of the Company to
raise capital to repay or refinance such debt on favorable terms.
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<PAGE> 18
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, l997............................... F-2
Consolidated Statements of
Operations for the Years Ended
December 3l, 1997 and l996...................... F-4
Consolidated Statements of
Changes in Shareholders' Capital
Deficit for the Years Ended December
31, 1997 and 1996............................... F-5
Consolidated Statements of
Cash Flows for the Years Ended
December 3l, 1997 and 1996...................... F-7
Notes to Consolidated Financial
Statements...................................... F-8 - F-29
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, 1997 as filed with
the Securities and Exchange Commission.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE: None
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................... 65 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
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<PAGE> 19
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"). In 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. Mr. Pearlman has been
chairman of the board of Teletrak since 1983.
Walter M. Craig, Jr.................. 44 1993
Mr. Craig has been the Company's executive vice president and chief
operation officer since 1993. Since 1993, he has also served as president of
Core Capital, Inc., a Delaware corporation which is in the business of financing
receivables of healthcare and other enterprises, and president and a director of
PLB Management Corp., the general partner of The Mezzanine Financial Fund, L.P.
Mr. Craig has been a director of Seitel since 1987, a director of Unapix since
1993 and a director of ISI since 1993. Prior thereto, Mr. Craig served as vice
president for business and legal affairs for Helm.
David S. Lawi......................... 63 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. Mr.
Lawi has been a director and secretary of Teletrak since 1983.
Joseph J. Farley...................... 75 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. Mr. Farley has been a
director and chief executive officer of Teletrak since 1983.
William Lerner........................ 65 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
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<PAGE> 20
companies with headquarters and significant operations in the states of New
Jersey, New York and Connecticut. Mr. Lerner has been a director of Teletrak
since 1985.
John E. Stieglitz..................... 67 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, 59, 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, a position he held until
September 1997. He became a director of Teletrak in 1988, a director of ISI in
1986, and chief financial officer of Unapix in 1996.
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 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 William Lerner's Report on Form 4 for September 1997
reporting 3,571 shares issued as directors' fees was filed 17 days late and
Gerson I. Fox's Form 5 for 1996 reporting the receipt of common stock as
interest on promissory notes of the Company was filed 15 days late.
ATTENDANCE AT MEETINGS; COMMITTEES
During 1997, the Company's Board of Directors held four meetings, which
were attended by all of the directors.
The Board of Directors has a standing Audit Committee, Compensation and
Stock Option Committee and Executive Committee. During 1997, the Audit
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<PAGE> 21
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,
Farley and Lawi, 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 1997.
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is certain information with respect to compensation
awarded to, earned by or paid to the Chief Executive Officer of the Company. No
other executive officers of the Company earned in excess of $100,000 for
services rendered to the Company and its subsidiaries during 1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND OTHER
PRINCIPAL ANNUAL
POSITION YEAR SALARY (1)(2) COMPENSATION(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Herbert M. 1997 $ 58,000 $54,800
Pearlman, 1996 100,000 84,320
CEO and Chairman 1995 100,000 33,742
</TABLE>
- ----------------
(1) Represents salary paid by the Company's wholly-owned subsidiary,
Interpak Holdings, Inc. to Mr. Pearlman.
(2) Does not include $100,000 payable to Mr. Pearlman in common stock of the
Company, which will be issued pending listing of the shares on the
American Stock Exchange, and $40,000, which has been accrued but not yet
paid. See "Employment Agreements and Termination of Employment
Arrangements."
(3) Includes life insurance premiums and automobile allowances.
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<PAGE> 22
INDIVIDUAL OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent Of
Securities Total Options/
Underlying SARs Granted
Options/ To Employees Exercise or Expiration
SARS Granted In Fiscal Year Base Price Date
Name (#) (%) ($/Sh)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HERBERT M. 150,000 44 $1.125 10/29/02
PEARLMAN
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUE TABLE
The following table sets forth aggregated option exercises in the last
fiscal year, the number of unexercised options and fiscal year end values of the
in-the-money options for the Chief Executive Officer. Al options were
out-of-the-money at December 31, 1997.
<TABLE>
<CAPTION>
Value
Number of Unexercised
Shares Unexercised In-the-money
Acquired Options at Options at
On Fiscal y/e Fiscal y/e
Exercise Exercisable/ Exercisable
Name (#) Realized ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Herbert M.
Pearlman - - 150,000/0 n/a
</TABLE>
COMPENSATION OF DIRECTORS
Until July 1, 1997, outside directors received 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. Effective July 1, 1997, the outside directors received an
option to purchase 20,000 shares of common stock at market as directors fees for
1997, and are to receive each year thereafter an option to purchase 10,000
shares of common stock at market on the date of grant. Expenses reasonable
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, the Company's President and Chief Executive Officer
(the "Pearlman Agreement"), with a continuous five-year term and a base salary
of $404,475 per year, subject to adjustment for increases in
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<PAGE> 23
the CPI, payable by the Company or its subsidiaries, and a bonus each year equal
to five percent of the Company's consolidated pre-tax profits. To the extent Mr.
Pearlman receives a portion of his salary from a subsidiary, the amount of
salary payable by the Company is similarly reduced.
Beginning in 1993, Mr. Pearlman agreed to a voluntary reduction in his
base salary to $340,000, of which $100,000 has been paid by InterSystems, Inc.
since that date and $100,000 has been paid by Interpak Holdings, Inc. until its
sale in July 1997. Since 1994 and until June 30, 1997, an additional $100,000
has been accrued annually representing amounts payable in common stock of the
Company based upon certain average stock prices, and $40,000 has been accrued
annually as payable in cash by the Company. The issuance of this stock is
subject to listing on the American Stock Exchange.
Following the sale of Interpak, Mr. Pearlman agreed to an amendment in
his employment agreement with the Company for the twelve months ended June 30,
1998 pursuant to which in lieu of current contractual salary and bonus, as
adjusted, Mr. Pearlman will receive 7.5% of earnings before taxes, calculated
prior to payment of any bonus based upon earnings before tax to any individual
and prior to any gain on the sale of Interpak.
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 his adjusted salary for two years
form the date of termination. Pursuant to the Agreement, he is not required to
devote his full business time to the Company and may seek to acquire businesses
for enterprises other than the Company as long as he obtains 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.
By way of illustration, if a Change in Control occurred during 1997, it
is estimated that Mr. Pearlman would receive Change of Control Payments of
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<PAGE> 24
$900,000. 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND_MANAGEMENT
Set forth below is certain information as of March 15, 1998 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.
Amount and Nature
of Beneficial Percent of
Name Ownership(l)(2) Class(2)
- ---- ------------------ ----------
Gerson I. Fox.......................... 745,917 (3) 18.4%
1230 Huntington Drive
Duarte, CA 91010
Clarence Y. Palitz..................... 562,500 (4) 13.2%
650 Allamuchy Road
Allamuchy, NJ 07820
Directors and Officers
Herbert M. Pearlman*................... 1,284,603 (5) 28.6%
David S. Lawi*......................... 666,551 (6) 16.0%
Walter M. Craig, Jr.................... 680 **
Joseph J. Farley....................... 57,500 (7) 1.5%
John E. Stieglitz...................... 48,825 (8) 1.3%
William Lerner ........................ 48,358 (9) 1.3%
Daniel T. Murphy....................... 58,908 (10) 1.6%
All officers and directors
as a group (7 persons)................. 2,165,425 (5)-(10) 43.3%
- --------------------------------------------------------------------------------
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<PAGE> 25
* 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.
(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 747,868 shares that may be acquired from the Company upon
exercise of options (150,000) and Class A Warrants (66,145), and
conversion of Series A 8% Cumulative Convertible Preferred Stock
(421,875) and 8% debentures (109,848). Does not include shares held by
Mr. Pearlman's wife, as to which he disclaims beneficial ownership.
(6) Includes 425,680 shares that may be acquired from the Company upon
exercise of options (75,000) and 1993 Class A Warrants (27,763), and
conversion of Series A 8% Cumulative Convertible Preferred Stock
(260,417) and 8% debentures (62,500).
(7) Includes 20,000 shares which may be acquired from the Company exercise
of options.
(8) Includes 20,000 shares which may be acquired from the Company exercise
of options.
(9) Includes 20,000 shares which may be acquired from the Company exercise
of options.
(10) Includes 29,015 shares which may be acquired from the Company upon
exercise of options (23,333) and conversion of 8% debentures (5,682).
ITEM 12. 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.
Page 25
<PAGE> 26
In February 1993, the Fund made available a $750,000 line of credit to
Medifin, Inc. ("Medifin"), a wholly-owned subsidiary of Core Capital, Inc.
("CCI"), to enable Medifin to initiate its business activity. The line, was
increased to 2,000,000 at December 31, 1997 and matures on December 31, 1998
the loan bears interest at 15% per annum. The fund is entitled to receive an
additional fee in common stock of Core equal to 10% of the loan provided by the
fund each year (the "fee"). The fee is convertible into Core stock at $2.00 per
share.At December 31, 1997, $1,615,000 was outstanding under the loan. Messrs.
Pearlman, Lawi and Craig are directors of CCI, and Mr. Craig serves as
President of CCI. In addition, Helm owns approximately 19.4% of the outstanding
common stock of CCI.
In January, 1995, CCI 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 guaranteed the amounts owing by TMG to CCI. At June 30, 1997, TSI was
indebted to CCI in the amount of $109,000 under the TMG line of credit and
pursuant to the TSI line of credit. In full settlement of all amounts owing to
CCI, ISI issued 109,000 shares of its common stock, at $1.00 per share, to CCI
after completion of the bankruptcy proceedings.
In December 1997, Mezzanine assumed the Fund's position in a $750,000
note from a third party. The note is due November 30, 1998 and bears interest
at 15% per annum plus an enhancement fee of 9% to 10%, as defined, and is
collateralized by the assets of the third party. As compensation for
administering the note, the fund will receive 30% of the enhancement fee.
THE COMPANY AND UNAPIX ENTERTAINMENT, INC.
In December 1997 and January 1998, Mezzanine advanced $750,000 ($200,000
and $550,000 respectively) to Unapix Entertainment, Inc. in exchange for a
promissory note due December 31, 1998. The note provided for interest at 15%
per annum and a number of Unapix common stock purchase warrants based on the
length of time the loan is outstanding. The loan was repaid on February 27,
1998 with a cash payment of $650,000 and $100,000 principal amount of Unapix
10% convertible subordinated note due 2003. Mezzanine received warrants to
purchase 12,500 shares of Unapix common stock at $6.00 per share expiring
June 30, 2003 under the terms of the promissory note.
THE COMPANY AND INTERSYSTEMS, INC.
Messrs. Pearlman and Lawi are parties to employment agreements with
InterSystems, Inc., a 15.5% owned affiliate of the Company. All salary amounts
paid under the ISI agreements reduce the amount of salary the Company is
responsible to pay to these officers. The agreements, as amended, provide for
current annual salaries of approximately $238,000 and $130,000 to Messrs.
Pearlman and Lawi, 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.
In September 1997, the Compensation and Stock Option Committee of the
ISI Board of Directors proposed new compensation arrangements for Herbert
Pearlman and David Lawi, Chairman and Secretary, respectively, of ISI as
follows: In addition to their current contractual salaries of $100,000 and
$50,000, respectively, they are to receive bonuses of 5% (HMP) and 2.5% (DSL) of
"EBT." For purposes of this proposal, "EBT" is to be calculated prior to payment
of any bonus based upon earnings before tax to any officer
Page 26
<PAGE> 27
of ISI. For the years 1998, 1999 and 2000, EBT shall mean EBT over $0; for the
years 2001, 2002 and 2003, EBT shall mean EBT over $250,000, and shall continue
to increase by $250,000 every three years. In addition, the Committee approved
the following salary increases:
<TABLE>
<CAPTION>
EBT Pearlman Lawi
--- -------- ----
<S> <C> <C>
$1.0 million + $125,000 $62,500
1.5 million + 150,000 75,000
2.0 million + 175,000 87,500
2.5 million + 200,000 100,000
</TABLE>
In addition, their contracts were to be extended for five years to June 30,
2002, with a two year evergreen feature.
If at any time the Company no longer is able to elect a majority of
ISI's Board of Directors, any of the officers may terminate their employment
under his respective agreement upon 18 months' notice and receive upon the
conclusion of that period a lump sum severance payment equal to 18 months'
salary. Each agreement also provides that upon the expiration of the term, if
the officer's employment is not continued, he will be entitled to a severance
payment of two years' salary (unless employment is secured elsewhere). If, upon
expiration of the employment term, continuation is offered but declined by the
officer, the officer is obligated to act as a consultant for two years at 50% of
his then current salary, during which time he will not provide services for any
competitor of ISI.
The Company has an arrangement with ISI whereby ISI pays the Company an
amount equal to the expenses incurred by the Company and allocable to the
business of ISI. These expenses consist primarily of office-related and
administrative expenses and rent. During 1997, ISI paid a total of $51,000
during, and accrued an additional $32,000 at December 31, 1997, to the Company
pursuant to this arrangement. During 1997, the Company had net advances due to
ISI of $400,000 which included a $250,000 down payment for the acquisition by
ISI of Interpak Terminals, Inc. which never took place. This amount was repaid
in 1997 by cancellation of a $30,000 ISI debenture held by the Company,
transferring $100,000 of ISI's common stock, or 70,060 shares at $1.43 per
share, held by the Company to ISI, issuing $117,000 of Helm common stock, or
169,565 shares at $.69 per share, to ISI, and the payment of $136,000 in cash.
For purposes of computing the number of shares to be issued, the average stock
price for the 30 days following the date of the June 6, 1997 board meeting which
approved the transaction was used.
IN GENERAL
Messrs. Pearlman, Lawi and Murphy (the "Officers") are the holders of
an aggregate $1,175,000 principal amount of the Company's unsecured 8%
subordinated convertible debentures, due 1999 (the "Debentures"), holding
$725,000, $412,500 and $37,500, respectively, in principal amount at December
31, 1997. 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
Page 27
<PAGE> 28
to the Company of securities of the Company, or any affiliated company. As of
December 31, 1997, $175,000 remains outstanding. On November 21, 1997, the
Company resolved to issue 171,428, 100,000 and 14,285 shares of common stock of
the Company to Messrs. Pearlman, Lawi and Murphy, respectively, in repayment of
$150,000, $87,500 and $12,500 aggregate principal amount of Debentures held by
each of them, respectively, at a price of $.875 which is equal to the closing
price of the common stock on that date. This represented a reduction of the
stated conversion price and resulted in a non-cash conversion loss of $165,000
attributable to the additional shares. In December 1997, the Company resolved
to issue, subject to listing on the American Stock Exchange, 166,723, 87,043 and
14,406 shares of common stock of the Company to Messrs. Pearlman, Lawi and
Murphy, respectively, in repayment of $160,471, $83,779 and $13,866 of accrued
interest at September 30, 1997, at a price of $.9625 which is equal to the
average closing price of the common stock during the ten trading days preceding
December 15, 1997. The listing of the shares was completed on March 4, 1998.
In September 1997, the Company transferred to Mr. Herbert M. Pearlman
$100,000 of its limited partnership interest in the Fund in settlement of
indebtedness owing to Mr. Pearlman.
Messrs. Pearlman and Lawi are limited partners of a Texas limited
partnership known as Partnership 102 Limited, and control the corporation which
serves as general partner to the limited partnership. Partnership 102 Limited is
the landlord at a facility in Houston, Texas leased by Interpak Terminals, Inc.,
a former indirect wholly owned subsidiary of the Company. Interpak had been a
tenant in this facility for over four years prior to the 1989 acquisition of the
facility by Partnership 102 Limited. The lease provides for minimum annual
payments of $429,000 through the year 2005, which lease payments are the same as
Interpak paid prior to the acquisition of the facility. The Company's interest
in Interpak Terminals, Inc. was sold in July 1997.
On December 10, 1997, the Board of Directors approved the sale of
$300,000 in market value of common stock of the Company, at a price of $1.00 per
share, to Core Capital, Inc. (formerly Professionals' Financial Services, Inc.)
in exchange for $300,000 in market value of common stock of Core Capital at
$2.00 per share, subject to adjustment as follows: the purchase price of the
Core Capital shares will be reduced by $.10 per share, or a pro rata amount
thereof, for every $200,000 in losses on receivables of Core Capital booked as
of January 1, 1997, which losses are incurred through December 31, 2000, but in
no event shall the price be reduced below $1.25 per share. Herbert M. Pearlman,
David S. Lawi and Walter M. Craig, Jr., officers and directors of the Company,
are officers, directors and shareholders of Core Capital.
During 1997, management of the Company provided various administrative,
managerial, financial, legal and accounting services to Unapix Entertainment,
Inc. ("Unapix"), for which the Company was paid $121,000 by Unapix in 1997.
Messrs. Pearlman, Lawi, Craig and Murphy are directors of Unapix, and Mr. Murphy
is the Chief Financial Officer of Unapix.
Helm is the owner of 61.2% of the outstanding common stock of Teletrak
Advanced Technology Systems, Inc. ("Teletrak"). Historically, Teletrak financed
its operations and operating deficits with advances from Helm. Since 1996, Helm
has made no advances to Teletrak, although financial and
Page 28
<PAGE> 29
accounting services are provided by Helm to Teletrak. During 1997 and 1996, no
transactions were entered into between Helm and Teletrak, or the current
directors and officers, on the one hand, and Teletrak, on the other hand,
involving in excess of $60,000 except that in August 1997 Teletrak issued
3,582,268 shares of common stock to Helm in extinguishment of $895,567 of
indebtedness owing to Helm, and 5,000,000 shares of common stock to Helm upon
conversion of 1,000,000 shares of outstanding preferred stock at $.20 per share.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this Report
3.1 Certificate of Incorporation [incorporated by reference to
Exhibit(3)(i) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1980 (the "1980 Form
10-K")]
3.2 Certificate of Amendment to Certificate of Incorporation dated
June 7, 1983 [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
1980 Form 10-K]
3.4 Amendment to By-laws dated as of August 27, 1982 [incorporated
by reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1982 (the
"1982 Form 10-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]
Page 29
<PAGE> 30
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]
3.12 Certificate of Amendment to Certificate of Incorporation dated
October 31, 1997 *
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).
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. Class A Common Stock Purchase
Warrant due January 31, 1999 [incorporated by reference to
Exhibit 4.4 to the 1995 Form 10-K].
4.4 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].
4.5 Form of Helm Resources, Inc. Employee Warrant Agreement
granted October 29, 1997.*
10.1 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and Herbert M. Pearlman [incorporated by
reference to Exhibit 10.18 to the S-2].
10.2 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and David S. Lawi [incorporated by
reference to Exhibit 10.19 to the S-2].
10.3 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and Daniel T. Murphy [incorporated by
reference to Exhibit 10.20 to the S-2].
10.4 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].
10.5 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")].
10.6 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, 1997 [incorporated by reference to this document
as filed with the Commission].
Page 30
<PAGE> 31
21 List of Subsidiaries*
*Filed herewith
(c) Reports on Form 8-K: None.
Page 31
<PAGE> 32
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 13th day of April,
1998.
HELM CAPITAL GROUP, 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.
/s/ Herbert M. Pearlman President, Chief Executive April 13, l998
- ----------------------- Officer, Director (principal
Herbert M. Pearlman executive officer)
/s/ David S. Lawi Secretary-Treasurer, April 13, l998
- ----------------------- Director
David S. Lawi
/s/ Walter M. Craig Executive Vice April 13, 1998
- ----------------------- President,
Walter M. Craig, Jr. Director
/s/ Joseph Farley Director April 13, l998
- -----------------------
Joseph J. Farley
/s William Lerner Director April 13, l998
- -----------------------
William Lerner
/s/ John Stieglitz Director April 13, l998
- -----------------------
John Stieglitz
Page 32
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders
Helm Capital Group, Inc.
Greenwich, Connecticut
We have audited the accompanying consolidated balance sheet of Helm Capital
Group, Inc. and Subsidiaries (formerly Helm Resources, Inc.) as of December 31,
1997, and the related consolidated statements of operations, shareholders'
capital deficit and cash flows for each of the two years in the period ended
December 31, 1997. 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
Capital Group, Inc. and Subsidiaries at December 31, 1997, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
New York, New York
March 30, 1998
<PAGE> 34
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
DECEMBER 31, 1997
------------------------------------------------------------------------
------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 622
Prepaid expenses 10
Notes receivable from affiliates 960
Other current assets 17
------
TOTAL CURRENT ASSETS 1,609
PROMISSORY NOTES DUE FROM OFFICERS 175
INVESTMENTS IN AFFILIATES 997
CASH HELD IN ESCROW, NET OF RESERVE 125
DEFERRED CHARGES AND OTHER ASSETS 40
------
$2,946
======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 35
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except par values)
DECEMBER 31, 1997
(continued)
------------------------------------------------------------------------
------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIT
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C>
Accounts payable $ 29
Accrued expenses 681
--------
TOTAL CURRENT LIABILITIES 710
SUBORDINATED DEBENTURES 2,800
ACCRUED EXPENSES PAYABLE IN COMMON STOCK 575
OTHER LIABILITIES 31
TOTAL LIABILITIES 4,116
--------
COMMITMENTS (NOTE 11)
SHAREHOLDERS' CAPITAL DEFICIT:
Preferred stock, $.01 par value: shares
authorized 5,000; issued and outstanding
33 shares --
Common stock, $.01 par value: shares
authorized 15,000; issued
3,703 shares 37
Additional paid-in capital 20,848
Deficit (22,026)
--------
(1,141)
Less: 6 shares of treasury stock, at cost (29)
--------
TOTAL SHAREHOLDERS' CAPITAL DEFICIT (1,170)
--------
$ 2,946
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 36
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
------------------------------------------------------------------------
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996
---- ----
(Restated
see Note 1(a))
<S> <C> <C>
REVENUES $ 40 $ 169
------- -------
COSTS, EXPENSES AND OTHER:
Selling, general and administrative expenses 511 724
Gain on sale of securities (699) (649)
Equity in net loss of affiliates 203 81
Increase in underlying equity of affiliates (726) (103)
Distribution from affiliates (cost method) (20) (36)
Debt conversion loss 165-
Interest expense 386 520
Interest income (57) (67)
Total costs, expenses and other, net (237) 470
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS 277 (301)
------- -------
DISCONTINUED OPERATIONS:
Equity portion of investment gain (loss)
on discontinued operations 23 (428)
Income (loss) from operations of Interpak 95 (409)
Gain on disposal of Interpak, net of income taxes of $65 2,324 --
------- -------
2,442 (837)
------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 2,719 (1,138)
DEBT DISCOUNT WRITTEN-OFF UPON
EXTINGUISHMENT OF SUBORDINATED DEBENTURES 106 --
------- -------
NET INCOME (LOSS) $ 2,613 $(1,138)
======= =======
EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
Continuing operations $ .06 $ (.17)
Discontinued operations .92 (.34)
Extraordinary item (.04) --
------- -------
$ .94 $ (.51)
======= =======
Weighted average shares outstanding - basic and diluted 2,663 2,475
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 37
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1996
(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 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
Common stock issued for interest payable
during the year on 14% notes payable - - 2,553 -
Shares issued for settlement of debts
to officers and affiliates - - 782,280 8
Preferred shares received from officers in
connection with retirement of debt (3,000) - - -
Preferred shares converted into
common shares (795) - 82,813 1
Shares issued in connection with
directors' fees payable - - 34,476 -
Shares issued in connection with
investment - - 300,000 3
Change in unrealized gain on available
for sale securities - - - -
Net income - - - -
------ -- --------- ---
Balance at December 31, 1997 33,205 $- 3,703,427 $37
====== == ========= ===
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 38
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1996
(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 $19,889 $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)
Common stock issued for interest
payable during the year on 14%
notes payable 1 - - - -
Shares issued in settlement of debts
to officers and affiliates 824 - - - -
Preferred shares received from
officers in connection
with retirement of debt (150) - - - -
Preferred shares converted
into common shares - - - - -
Shares issued in connection
with directors' fees
payable 24 - - - -
Shares issued in connection with
investment 297 - - - -
Change in unrealized gain on
available for sale securities - (315) - - -
Net Income - - 2,613 - -
------- ----- -------- ----- ----
Balance at December 31, 1997 20,848 - $(22,026) 6,362 $(29)
======= ===== ======== ===== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 39
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
------------------------------------------------------------------------
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996
---- ----
(Restated
see Note 1(a))
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,613 $(1,138)
------- -------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Extraordinary loss on extinguishment of debt 106 --
Gain on disposition of discontinued operations (2,324) --
(Gain) loss from discontinued operations (95) 409
Share of losses of affiliates 180 509
Gain on sale of securities (699) (649)
Increase in underlying equity of affiliates (726) (103)
Other amortization 31 64
Interest costs paid through issuance of
common stock 113 48
Directors' fee paid through issuance of common stock 10 30
Debt conversion loss 165 --
Other 111 (12)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 21 (223)
Other (18) --
Increase (decrease) in:
Accounts payable and accrued expenses (67) 433
Other 17 49
Total adjustments (3,175) 555
------- -------
Net cash used in operating activities (562) (583)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of securities 415 403
Proceeds from sale of discontinued operations 1,950 --
Notes receivable from affiliates (960) --
Advances (to) from affiliates -- 468
------- -------
Net cash provided by
investing activities 1,405 871
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from affiliates (282) 467
Decrease in notes payable and long-term debt -- (1,102)
------- -------
Net cash used in financing
activities (282) (635)
------- -------
NET INCREASE (DECREASE) IN CASH 561 (347)
CASH and cash equivalents, beginning of year 61 408
------- -------
CASH and cash equivalents, end of year $ 622 $ 61
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 40
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(a) Business and Basis of Presentation
Helm Capital Group, Inc. (formerly Helm Resources, Inc.) (the
"Company") provides financial services and initiates, develops, acquires and
oversees the management of various business enterprises. Through a newly formed
wholly owned subsidiary, Mezzanine Financial Corp., the Company is engaged in
the business of making collateralized loans to small businesses. Over the last
two years, the Company owned a controlling or large stock interest in the
following operating entities:
(i) Interpak Holdings, Inc. (formerly 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. On July 31, 1997, Interpak sold its
operating units, located in Houston, Texas and Edison, New Jersey, to Katoen
Natie, N.V., a privately-held Belgium corporation (see Note 12).
The statements of operations and cash flows have been restated
for the year ended December 31, 1996 to reflect the sale of Interpak's units.
Interpak's operating units results of operations have been classified as
discontinued operations in the accompanying consolidated financial statements.
(ii) InterSystems, Inc., a Delaware corporation ("ISI"), currently a 16%
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 3).
F-8
<PAGE> 41
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
All significant intercompany balances and transactions have been
eliminated in consolidation, where appropriate.
(b) Revenue Recognition
Revenues are recorded when earned
(c) 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.
(d) Long-Lived Assets
Long-lived assets, such as goodwill, are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When any such impairment exists,
the related assets will be written down to fair value. No impairment losses have
been necessary through December 31, 1997.
(e) Stock-Based Compensation
The Company accounts for its stock option awards under the
intrinsic value based method of accounting, prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company makes pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied as required by SFAS No. 123,
"Accounting for Stock-Based Compensation."
F-9
<PAGE> 42
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Earnings (Loss) Per Common Share
Effective for the year ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" ("SFAS 128"). In accordance with SFAS 128, the Company is required to
provide basic and dilutive earnings (loss) per common share information.
The basic earnings (loss) per common share is computed by
dividing the net income (loss) available to common shareholders by the weighted
average number of common shares outstanding.
Diluted earnings (loss) per common share is computed by dividing
the net income (loss) available to common shareholders, adjusted on an as if
converted basis, by the weighted average number of common shares outstanding
plus potential dilutive securities.
For the year ended December 31, 1997 and 1996, potential
dilutive securities had an anti-dilutive effect and accordingly were not
included in the calculation of diluted earnings (loss) per common share.
For the years ended December 31, 1997 and 1996, certain
securities were not included in the calculation of diluted earnings because of
their anti-dilutive effect, those securities are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
(shares) (shares)
<S> <C> <C>
Stock options 243 183
Stock warrants 136 136
Shares issuable on conversion of
preferred shares 1,622 1,715
Shares issuable on conversion of
subordinated debentures 698 235
----- -----
2,699 2,269
===== =====
</TABLE>
The adoption of SFAS 128 had no effect on net loss per common
share for the year ended December 31, 1996; accordingly, no restatement was
necessary.
F-10
<PAGE> 43
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) 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.
(h) 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 3) 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> 44
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Changes in Underlying Equity of Affiliates
Where appropriate, the Company records changes in its underlying
equity of affiliates in its statement of operations, in compliance with Staff
Accounting Bulletin No. 51.
(j) Goodwill
Goodwill, which represents the excess of the underlying carrying
value of the equity in the investment, is included in investments in affiliates
and is amortized over 20 years on a straight line basis.
(k) 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, amounts due from
affiliates, 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.
(l) Cash and cash equivalents
The Company considers all highly liquid investments and other
short-term investments with an initial maturity of three months or less from
purchase date to be cash equivalents.
(m) Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB")
issued two new reporting and disclosure standards. Results of operations and
financial position will be unaffected by implementation of these new standards.
SFAS 130, "Reporting Comprehensive Income", established
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
F-12
<PAGE> 45
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS 131, "Disclosure about Segments of a Business Enterprise",
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial
statements for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Adoption of SFAS 130 and 131 is
not expected to have any material effect on the Company's financial statement
disclosures.
NOTE 2 - EARNINGS (LOSS) PER SHARE
The following illustrates the components' income (loss) from
continuing operations utilized in the computation of earnings (loss) per share
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income (loss) from continuing operations $ 277 $(301)
Nonconvertible preferred stock dividends (120) (126)
----- -----
Numerator for basic and diluted income
(loss) from continuing operations $ 157 $(427)
===== ======
</TABLE>
F-13
<PAGE> 46
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 3 - INVESTMENTS IN AND NOTES RECEIVABLES FROM AFFILIATES
Investments in and advances to affiliates consist of the
following at December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Notes
Name Ownership % Investment Receivable
---- ----------- ---------- ----------
<S> <C> <C> <C> <C>
ISI 16.0 $540 $ -
Mezzanine 9.0 204 760
Core 19.0 253 -
Unapix - - 200
----- ----- ---
$997 $960
==== ====
</TABLE>
During 1997, the Company loaned $200 to Unapix which was repaid
during the first quarter of 1998.
In December 1997, the Company assumed Mezzanine's position in a
note. The note is due November 30, 1998 and bears interest at 15% per annum plus
an enhancement fee of 9% to 10%, as defined and is collateralized by the assets
of the third-party. The liens on the third-party's assets are filed in the name
of Mezzanine, which has assigned its rights to the collateral to the Company. As
compensation for administering the note, Mezzanine will receive 30% of the
enhancement fee as its fee for the administration. At December 31, 1997, the
balance due is $760,000 including accrued interest of $10,000.
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 1997 1996
---- ---- ----
<S> <C> <C> <C>
ISI $89 $(88)
Core (292) 7
----- ---
(203) (81)
Mezzanine 20 36
--- ----
$(183) $(45)
====== ====
</TABLE>
INTERSYSTEMS, INC. ("ISI")
The Company accounts for its investment in ISI on the equity
method. The quoted market value of the Company's share of ISI's common stock was
approximately $2,289,000 as of December 31, 1997.
In 1997, the Company exchanged 84,659 and 70,060 shares,
respectively, of ISI in satisfaction of certain deferred compensation for
certain officers of the Company and to related third parties (see Note 4(a)).
F-14
<PAGE> 47
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 totaled $23,000 of income in 1997 and $428,000 of
losses in 1996, and has been classified as discontinued operations in the
accompanying consolidated financial statements.
F-15
<PAGE> 48
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 3 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
INTERSYSTEMS, INC. ("ISI") (CONTINUED)
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 1997, ISI registered the shares and the stock traded at
$1.80 for the thirty consecutive trading days, as defined in the agreement.
Accordingly, the redemption feature of the security was terminated and the
redemption value of $2,077,000 of ISI's stock was reclassified to ISI's
shareholders equity. In 1997 and 1996, ISI also issued shares of its common
stock upon the conversion of $1,680,000 and $487,500 of debentures,
respectively.
The Company's percentage ownership share in these increases in
ISI's shareholders' equity for 1997 and 1996 have 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.
Revenue Recognition
Sales are recorded in the periods that products are shipped or
as services are performed.
F-16
<PAGE> 49
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 3 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
INTERSYSTEMS, INC. ("ISI") (CONTINUED)
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, 1997 and
for the years ended December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1997
<S> <C> <C>
Balance sheet data:
Current assets $ 6,729
Other assets 21,395
-------
Total assets 28,124
Current liabilities 7,194
Long-term liabilities 17,458
Shareholders' equity $ 3,472
=======
1997 1996
------- -------
Income statement data:
Revenues $27,008 $20,462
Expenses 26,589 20,861
------- -------
Net income (loss) from continuing
operations 419 (399)
Income (loss) from discontinued operations 150 (1,920)
-------- --------
Net income (loss) $ 569 $(2,319)
======== ========
</TABLE>
F-17
<PAGE> 50
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 3 - INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)
CORE CAPITAL GROUP, INC. (FORMERLY PROFESSIONAL FINANCIAL SERVICES,
INC.) ("CORE")
Core, through its wholly-owned subsidiary, is in the business
of financing receivables of health care related enterprises. Core is controlled
by affiliates of the Company and has been accounted for on the equity method.
In December 1997, the Company increased its ownership interest
in Core from 14% to 19% by issuing 300,000 shares of its common stock valued at
$1.00 per share.
The Company has recorded approximately $281,000 as goodwill for
the cost over the estimated fair value. This value was determined based on the
book value of Core at the time of the exchange. Amortization expense was not
material for the year ended December 31, 1997.
In 1996, Core sold additional shares of its common stock which
has resulted in the Company's percentage ownership share in these increases in
Core's shareholders' equity to increase. This increase has been reflected as
income, in compliance with Staff Accounting Bulletin No. 51.
Significant accounting policies for Core are as follows:
Furniture and equipment:
Furniture and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
related assets, including assets held under capital leases.
Revenue recognition, client reserves and allowance for credit
losses:
Core purchases accounts receivable from customers based on
amounts it deems collectible based on deductibles, coinsurance percentages,
credit histories, verification of claims, and various fees that Core will be
charging the customer. The difference between the face amount of receivables
purchased and the payments for those receivables is accounted for as a client
reserve.
Receivables are generally collectible within 30 to 90 days.
Under the factoring agreements, Core typically makes initial advances from 50 to
80 percent of the face amount of the gross receivables purchased and charges a
fee at the time of purchase ("purchase discount fee") as well as a fee for
receivables not collected within a prescribed period of time ("collection fee").
Core recognizes the purchase discount fee as revenue upon purchase of the
receivable since collection is expected within 30-90 days and all the services
related
F-18
<PAGE> 51
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
to transfer of title and investigation of credit-worthiness have been performed.
The collection fee is recognized monthly as earned. Core also charges certain
accounts a processing fee which are also recognized monthly as the services are
performed. Fees charged vary among clients and are based upon a credit
evaluation and expected profit contribution to Core from each customer. Should
receivables be denied by the payee or payment delayed for any reason, Core
requires that the customer provide additional collateral, generally in the form
of additional receivables. Such additional receivables often times include
long-term receivables, which include bodily injury claims. Bodily injury
receivables represent approximately 35 percent of the portfolio collateral as of
December 31, 1997.
The allowance for estimated credit losses represents Core's
recognition of the assumed risk of financing receivables and quality of the
receivables. The allowance is maintained at a level Core believes to be adequate
to provide for potential losses based on an assessment of various factors
affecting accounts receivable collectibility, including loss experience, review
of problem accounts and business conditions. Because of the inherent
uncertainties in estimating credit losses, it is at least reasonably possible
that these estimates may change within the near term.
SUMMARIZED FINANCIAL DATA
Summarized financial data for Core as of December 31, 1997 and
for the years ended December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Balance sheet data: 1997
----
Current assets $5,571
Other assets 1,022
------
Total assets $6,593
Current liabilities 2,605
Long-term debt 3,430
------
Shareholders' equity $ 558
======
Income statement data: 1997 1996
---- ----
Revenues $1,742 $2,942
Expenses 2,642 3,616
Net loss 1,053 425
</TABLE>
F-19
<PAGE> 52
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
Pursuant to the terms of the limited partnership agreement
under which Mezzanine was organized, the partnership will terminate on December
31, 1998, at which time the limited partners will be entitled to a return of
their investment upon liquidation of the outstanding loans.
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 were
classified as Available for Sale Securities and, accordingly, any unrealized
gains (losses) from this investment have been credited (debited) to a component
of equity.
During 1997, the Company, in the normal course of business,
sold its remaining shares of Unapix held for investment (see Note 4(a)).
NOTE 4 - RELATED PARTY TRANSACTIONS
(a) Sale and Exchange of Securities
During 1997, the Company reduced its 8% convertible
subordinated debentures (see Note 5), held by two officers of the Company, by
$375,000 by offsetting $125,000 of certain promissory note receivables and the
issuance of 285,713 shares of common stock of the Company. The issuance of
additional shares of common stock over the stated conversion amounts resulted in
a loss of $165,000. The Company also issued 268,213 shares for the payment of
approximately $258,000 of accrued interest due on the 8% convertible
subordinated debentures.
Additionally, during 1997, the Company also exchanged a
one-third interest in Mezzanine (value of $100,000) for the surrender of
$100,000 of 14% notes payable to a shareholder.
The Company also exchanged 49,659 shares of ISI for certain
deferred compensation and 10% promissory notes with a value of approximately
$184,000 from certain officers of the Company. Also in 1997, the Company
exchanged 169,565 of the Company's shares, valued at $117,000 and 70,060 shares
of ISI, valued at $100,000, with ISI for amounts due to ISI. These transactions
were approved by the Board of Directors and the Company realized a gain from
these transactions of $284,000 which has been included in gain on sale of
securities.
The Company exchanged 58,789 shares of the Company's common stock, valued
at $55,000 and 35,000 shares of ISI, valued at $77,000 with Mezzanine for
amounts due to Mezzanine.
F-20
<PAGE> 53
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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--------------------------------------------------------------------------
Additionally, in 1997, the Company had nonrelated party
transactions in which it sold 88,700 shares of Unapix, resulting in total gains
of $415,000.
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.
(b) Other
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 1997 and 1996, $510,000 for each year, were
allocated to affiliates and deducted from the Company's expenses.
NOTE 5 - SUBORDINATED DEBENTURES
Subordinated debentures of the Company consist of the
following at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
12% subordinated debentures, due 1999 $ 325
9-1/2% convertible subordinated
debentures, due 2001 1 300
8% convertible subordinated debentures
due 1999 1 175
------
$2 800
======
</TABLE>
12% Subordinated Debentures, due 1999
These bonds mature on August 31, 1999. Interest is payable in
cash semiannually.
On October 30, 1997, the Company commenced an exchange offer
of its 12% subordinated debentures with a principal balance of $1,625,000 for
9-1/2% convertible subordinated debentures of Mezzanine Financial Corp.
("Mezzanine Corp."), a wholly-owned subsidiary of the Company, due December 31,
2001. Through December 31, 1997, the Company had exchanged $1,300,000 of the 12%
subordinated debentures for an equal amount of 9-1/2% convertible subordinated
debentures.
F-21
<PAGE> 54
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 5 - SUBORDINATED DEBENTURES (Continued)
In connection with the exchange, the Company wrote off, in the
fourth quarter of 1997, approximately $106,000 of original issuance discount
related to the 12% subordinated debentures, which has been classified as an
extraordinary item in the accompanying consolidated financial statements.
In January 1998, the Company exchanged the remaining $325 of
12% subordinated debentures for an equal amount of 9-1/2% convertible
subordinated debentures.
9-1/2% Convertible Subordinated Debentures
Mezzanine Corp. was created to engage in the business of
providing capital in high yield debt situations of mid-market
companies and to provide asset-based lending directly to or in
participation with other commercial lenders.
The 9-1/2% convertible subordinated debentures consist of two
separate notes ("Note A", "Note B", and collectively the "Notes") of equal value
and are due December 31, 2001. Note A is convertible, at the option of the
holder, into common stock of the Company ("Helm Shares") at a conversion price
of $1.25 per share. Note B is convertible, at the option of the holder, into
common stock of ISI, held by the Company, at a conversion price of $2.75 per
share.
ISI will not be obligated, directly or indirectly, to provide
principal or interest payments with respect to the Notes. Interest on the Notes
will be paid semi-annually on June 30 and December 31 of each year commencing
December 31, 1997. Although Mezzanine Corp. and the Company are the only
obligors with respect to the payment of principal and interest with respect to
the Notes, Mezzanine Corp., Helm and ISI jointly agree to provide the
registration rights with respect to the Helm Shares or ISI Shares.
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. At December 31,
1997, $175,000 of promissory notes receivable were outstanding. 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-22
<PAGE> 55
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 6 - LIABILITIES
Accrued expenses consist of the following at December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Payroll related expenses $257
Income taxes 65
Other 359
---
$681
====
</TABLE>
NOTE 7 - 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 $22,232,000 of net operating loss
carryovers for Federal income tax purposes, of which $4,800,000, $5,400,000 and
$3,400,000 expire in 1998, 1999 and 2000, respectively, the remainder of which
expire through 2011. Certain of these loss carryforwards are subject to future
limitations in usage. During 1997, the Company utilized $2,259,000 of net
operating loss carryovers to offset 1997 taxable income.
Net deferred income taxes as of December 31, 1997 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
Deferred Tax
Asset
-----
<S> <C>
Tax benefit of net operating loss carryovers $7,757
Tax basis in excess of book basis of
investments in unconsolidated subsidiaries 1,557
Expenses accrued for financial reporting
purposes not deducted for tax purposes, net 282
Other 65
------
Deferred tax asset 9,661
Valuation allowance (9,661)
------
Net deferred tax asset $ -
======
</TABLE>
F-23
<PAGE> 56
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 8 - 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, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Series A preferred stock 18,250
Series A 8% cumulative convertible
preferred stock 12,955
Series B 8% cumulative convertible
preferred stock 2,000
------
33,205
======
</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.
During 1997, the Company redeemed 3,000 shares of Series A
preferred stock from two officers of the Company in satisfaction of $150,000 in
promissory notes held by the Company.
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.
During 1997, 795 shares of Series A 8% convertible preferred
stock were converted to common stock.
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 $498,000 at December
31, 1997.
F-24
<PAGE> 57
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 9 - STOCK OPTIONS AND WARRANTS
The Company applies APB No. 25 and related interpretations in
accounting for its employee stock options. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The 1982 Incentive Stock Option Plan (the "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 1997 and
1996, no options were granted under this plan.
No options were exercised during 1997 and 1996. During 1997 and
1996, 25,369 and 1,234 options expired, respectively.
The options outstanding under the Plan at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
Options
exercisable
Shares as of
Expiration subject to December 31,
date option Option price 1997
---- ------ ------------ ----
<S> <C> <C> <C>
1998 8,333 $9.375 8,333
2000 5,000 $3.75 5,000
2001 10,335 $3.75 to 10,335
$7.50(1)
------ ------
23,668 23,668
====== ======
</TABLE>
- --------------
(1) The weighted average exercise price per share for these options is
$4.54.
F-25
<PAGE> 58
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 9 - STOCK OPTIONS AND WARRANTS (continued)
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, 1997.
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 1997, the Company granted 225,000 options to two executives
of the Company with an exercise price of $1.125, fair market value at the date
of grant. The options vest immediately and expire in October 2002. Also in 1997,
the Company granted to its outside directors, in consideration of services
provided, 60,000 options at an exercise price of $1.00, which vest over a
three-year period and expire in October 2002. At December 31, 1997, 30,000
options were exercisable. The fair value of the options granted was minimal.
In 1994, the Company issued 50,000 warrants at an exercise
price of $1.25 per share, which have a five-year vesting period.
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 earnings (loss) and earnings (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
Company estimates the fair value of each stock option at the grant date by using
the Blacks-Sholes option-pricing model with the following weighted average
assumptions used for the 1997 grants; no dividend yield, expected volatility of
40%, risk free interest rate of $6.5%, expected life of five years. The pro
forma effect of the options granted in 1997 would have been to reduce income
from continuing operations by $115,000 or $.04 per share. There were no grants
in 1996.
F-26
<PAGE> 59
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTE 10 - SHARES RESERVED FOR FUTURE ISSUANCE
Shares reserved for future issuance at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Conversion of preferred stock 1,622,000
Conversion of 9 1/2% convertible
subordinated debentures 520,000
Conversion of 8% convertible
subordinated debentures 178,000
Warrants to purchase common stock 136,000
Shares reserved for stock options
including options granted 243,000
---------
Total shares reserved for future issuance 2,699,000
=========
</TABLE>
NOTE 11 - COMMITMENTS
The Company has employment contracts with an annual term
expiring June 30, 1998 with two of its officers. The officers have agreed, in
lieu of annual base compensation, to receive 7.5% and 3.75% of EBT, as defined.
As of December 31, 1997, no amounts were due under these contracts. 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 $2.2 million at December 31, 1997.
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.
NOTE 12 - DISCONTINUED OPERATIONS
On July 31, 1997, the Company's subsidiary, Interpak Holdings,
Inc. sold its Interpak Terminal units, located in Houston, Texas and Edison, New
Jersey, to Katoen Natie N.V., a privately-held Belgium corporation, for a cash
purchase price of $2.2 million, of which $250,000 is held in reserve (the
"escrow") until July 31, 2000. The Company has recorded a reserve of
approximately $125,000 in connection with the escrow in anticipation of certain
post-closing adjustments, as defined.
F-27
<PAGE> 60
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The results of Interpak have been classified as discontinued
operations in the accompanying financial statements, as follows:
<TABLE>
<CAPTION>
Seven months Year ended
ended July 31, December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Revenues $10,608 $18,065
------- -------
Operating expenses 8,330 13,814
Selling, general and 1,947 3,707
administrative
expense
Equity in affiliates (58) (96)
Expense related to - 250
settlement of lawsuit
Nonrecurring warehouse - 335
organization
Interest expense, net 294 464
------- -------
10,513 18,474
------- -------
Net income (loss) $ 95 $ (409)
======= =======
</TABLE>
NOTE 13 - STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Interest paid $240 $824
</TABLE>
F-28
<PAGE> 61
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Noncash transactions relating to investing and financing activities:
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Repayment of officers' notes receivable
by exchange of preferred stock $150 $150
Issuance of stock for directors fees 24 -
Issuance of stock in exchange
for debts to affiliates 408 22
Exchange of investment in Mezzanine
for reduction in notes payable 100 -
Reduction of notes payable and interest
accrued expenses in exchange for
common stock of affiliates 199 287
Note payable issued for partial payment
of law settlement - 149
Exchange of promissory note receivable
for reduction of notes payable 125 134
Issuance of stock in exchange for stock
of affiliate 300 -
Issuance of stock for interest previously
accrued 165 -
</TABLE>
F-29
<PAGE> 62
EXHIBIT INDEX
3.1 Certificate of Incorporation [incorporated by reference to
Exhibit(3)(i) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1980 (the "1980 Form
10-K")]
3.2 Certificate of Amendment to Certificate of Incorporation dated
June 7, 1983 [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
1980 Form 10-K]
3.4 Amendment to By-laws dated as of August 27, 1982 [incorporated
by reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1982 (the
"1982 Form 10-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]
<PAGE> 63
EXHIBIT INDEX
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]
3.12 Certificate of Amendment to Certificate of Incorporation dated
October 31, 1997 *
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).
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. Class A Common Stock Purchase
Warrant due January 31, 1999 [incorporated by reference to
Exhibit 4.4 to the 1995 Form 10-K].
4.4 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].
4.5 Form of Helm Resources, Inc. Employee Warrant Agreement
granted October 29, 1997.*
10.1 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and Herbert M. Pearlman [incorporated by
reference to Exhibit 10.18 to the S-2].
10.2 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and David S. Lawi [incorporated by
reference to Exhibit 10.19 to the S-2].
10.3 Employment Agreement dated January 1, 1988 between
InterSystems, Inc. and Daniel T. Murphy [incorporated by
reference to Exhibit 10.20 to the S-2].
10.4 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].
10.5 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")].
10.6 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, 1997 [incorporated by reference to this document
as filed with the Commission].
21 List of Subsidiaries*
*Filed herewith
<PAGE> 1
EXHIBIT 3.12
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
HELM RESOURCES, INC.
Under Section 242 of the Delaware Corporation Law
* * * * * *
The undersigned, being the President and the Secretary of Helm
Resources, Inc., a corporation organized and existing under and by virtue of the
Corporation Law of the State of Delaware (the "Company"), DO HEREBY CERTIFY:
FIRST: That the name of the Company is HELM RESOURCES, INC.
SECOND: That the Certificate of Incorporation of the Company is hereby amended
to effect a change in the corporate name pursuant to section 242(a)(1) of the
Delaware Corporation Law as follows.
Paragraph FIRST of the Certificate of Incorporation is hereby amended as
follows:
"FIRST: The name of the Corporation is HELM CAPITAL GROUP, INC."
THIRD: That this amendment to the certificate of incorporation of HELM
RESOURCES, INC. was duly authorized by the board of directors of the Company at
a duly called meeting of the board held on September 3, 1997 and by the
stockholders of the Company at the duly called annual meeting of stockholders
held on October 29, 1997, all in accordance with Section 242 of the Delaware
Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed and signed this
certificate this 29th day of October, 1997 and affirm the same to be true under
penalties of perjury.
/s/ Herbert M. Pearlman
------------------------------
Herbert M. Pearlman, President
/s/ David S. Lawi
------------------------------
David S. Lawi, Secretary
Page 33
<PAGE> 1
EXHIBIT 4.5
WARRANT AGREEMENT
AGREEMENT, made as of the 29th day of October, 1997 between
HELM CAPITAL GROUP, INC. a Delaware corporation ("Company"), and _____________
("Grantee").
WHEREAS, the Board of Directors of the Company (the "Company")
authorized the grant to the Grantee of a warrant to purchase an aggregate
of__,000 authorized but unissued shares of Common Stock of the Company, $.01 par
value (the "Common Stock"), on the terms and conditions set forth in this
Agreement as set forth below; and
WHEREAS, the Grantee desires to acquire said warrant on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. The Company hereby grants to the Grantee the right to
purchase all or any part of an aggregate of __,000 shares of Common Stock on the
terms and conditions set forth herein (the "Warrant"). Said Warrant is not
intended to qualify under any section of the Internal Revenue Code of 1986, as
amended.
2. The purchase price of each share of Common Stock subject to
the Warrant ("Warrant Shares") shall be $1.125 per share.
3. (a) No Warrant shall be exercisable after five years from
the date of grant. The Warrant shall be one-third immediately exercisable, with
the second 1/3 exercisable after the first anniversary of the date issued and
the final 1/3 exercisable on the second anniversary of the date issued.
(b) The death or disability of the Grantee shall not affect
the Grantee's rights under this Agreement.
(c) The Warrant shall not be assignable or transferable except
in the event of the death of the Grantee, by will or by the laws of descent and
distribution. No transfer of the Warrant by the Grantee by will or by the laws
of descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of the
will and such other evidence as the Company may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of
the terms and conditions of the Warrant. Nothwithstanding the foregoing, the
Grantee may transfer this Warrant to a joint tenancy of which Grantee is a joint
tenant together with Grantee's spouse, children, grandchildren, or great
grandchildren.
4. The Grantee shall not have any of the rights of a
stockholder with respect to the Warrant Shares until such shares have been
issued after the due exercise of the Warrant.
<PAGE> 2
5. In the event of a reorganization, recapitalization,
reclassification, stock split or exchange, stock dividend, combination of
shares, or any other similar change in Common Stock of the Company, the Board of
Directors of the Company may, in its sole discretion, make such equitable,
proportionate adjustment, if any, as it deems appropriate in the number and kind
of shares covered by this Warrant and in the warrant price hereunder, in order
to preserve the Grantee's proportionate interest in the Company and to maintain
the aggregate warrant price; provided, however, that upon the dissolution or
liquidation of the Company, or upon any merger, consolidation or other form of
reorganization in which the Company is not the surviving entity, or upon the
sale of all or substantially all of the Company's assets, the Warrant may be
terminated by the Company or its successor or be of no further effect provided
that (a) the Company shall have given notice of such intended termination to the
Grantee at least thirty (30) days prior to the date fixed as a record date for
the determination of the stockholders of the Company entitled to participate in
the dividends or other distributions with respect to the Common Stock, or the
exchange or conversion of shares of Common Stock, as the case may be, associated
with any such dissolution, liquidation, merger, consolidation, reorganization or
sale of all or substantially all of the Company's assets, and (b) the date
selected by the Company as the termination date shall not be prior to such
record date.
6. The Company hereby represents and warrants to the Grantee that the
Warrant Shares, when issued and delivered by the Company to the Grantee in
accordance with the terms and conditions hereof, will be duly and validly issued
and fully paid and nonassessable.
7. The Grantee hereby represents and warrants to the Company that he is
acquiring the Warrant and shall acquire the Warrant Shares for his own account
and not with a view to the distribution thereof.
8. Anything in this Agreement to the contrary notwithstanding, the
Grantee hereby agrees that he shall not sell, transfer by any means or otherwise
dispose of the Warrant Shares acquired by him without registration under the
Act, or in the event that they are not so registered, unless (a) an exemption
from the Securities Act of 1933, as amended, (the "Act"), is available
thereunder, and (b) the Grantee has furnished the Company with notice of such
proposed transfer and the Company's legal counsel, in its reasonable opinion,
shall deem such proposed transfer to be so exempt.
9. The Grantee hereby acknowledges that: (a) If he exercised the
Warrant, he must bear the economic risk of the investment in the Warrant Shares
for an indefinite period of time because the Warrant Shares will not have been
registered under the Act and cannot be sold by him unless they are registered
under the Act or an exemption therefrom is available thereunder.
(b) In his position as a director of the Company, he has had
both the opportunity to ask questions of and receive answers from the officers
and directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to
<PAGE> 3
obtain any additional information to the extent the Company possesses or may
possess such information or can acquire it without unreasonable effort or
expense necessary to verify the accuracy of the information.
(c) The Company shall place stop transfer orders with its
transfer agent against the transfer of the Warrant Shares in the absence of
registration under the Act or an exemption therefrom, and the certificate
evidencing the Warrant Shares shall be
legended appropriately.
10. Subject to the terms and conditions of the Agreement, the Warrant
may be exercised by written notice to the Company at its principal place of
business. Such notice shall state the election to exercise the Warrant and the
number of Warrant Shares in respect to which it is being exercised, shall
contain a representation and agreement by the person or persons so exercising
the Warrant that the Warrant Shares are being purchased for investment and not
with view to the distribution or resale thereof, and shall be signed by the
person or persons so exercising the warrant. Such notice shall be accompanied by
payment of the full purchase price of the Warrant Shares. Payment of the
purchase price shall be made in cash or by check, bank draft or money order
payable to the order of the Company. The Company shall issued a certificate or
certificates evidencing the Warrant Shares as soon as practicable after the
notice and payment is received. The certificate or certificates evidencing the
Warrant Shares shall be registered in the name of the person or persons so
exercising the Warrant.
11. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall either be delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the parties at
their respective addresses set forth below, or to such other address as either
shall have specified by notice in the writing to the other, and shall be deemed
duly given hereunder when so delivered or mailed, as the case may be.
12. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
13. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter thereof.
14. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and to the extent not prohibited herein, their respective
heirs, successors, assigns and representatives. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto and as provided above, their respective heirs, successors, assigns and
representatives, any rights, remedies, obligations or liabilities.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
<PAGE> 4
IN WITNESS WHEREOF, parties hereto have signed this Agreement as
of the 29th day of October, 1997.
HELM CAPITAL GROUP, INC. GRANTEE
By:____________________
Herbert M. Pearlman
President
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
Jurisdiction
Subsidiaries Name of Incorporation
- ----------------- ----------------
Helm Ventures, Inc. Delaware
Core Capital, Inc. Delaware
Mezzanine Financial Corp. Delaware
Teletrak Advanced Technology Delaware
Systems, Inc.
All the entities listed above are significant subsidiaries of the Company or a
significant subsidiary of a subsidiary of the Company. Certain subsidiaries
considered insignificant for the year covered by this report have been omitted.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 622
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,609
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,946
<CURRENT-LIABILITIES> 710
<BONDS> 2,800
0
0
<COMMON> 37
<OTHER-SE> (1,207)
<TOTAL-LIABILITY-AND-EQUITY> 2,946
<SALES> 40
<TOTAL-REVENUES> 40
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386
<INCOME-PRETAX> 277
<INCOME-TAX> 0
<INCOME-CONTINUING> 277
<DISCONTINUED> 2,442
<EXTRAORDINARY> 106
<CHANGES> 0
<NET-INCOME> 2,613
<EPS-PRIMARY> .94
<EPS-DILUTED> 0
</TABLE>
