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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, 1999 [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.
(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(g) of the Act:
Common Stock, par value $.0l
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. [XX]
The issuer's revenues for the year ended December 31, 1999 were $237,000. The
aggregate market value of the voting stock held by non-affiliates of the issuer
is approximately $1,193,867 based upon the average of the bid and ask price of
the issuer's common stock, $.01 par value, as reported by the NASD Electronic
Bulletin Board on April 4, 2000 which was $.406.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 15, 2000: 3,833,947.
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. ("Helm" or the "Company"), through a wholly
owned subsidiary, MEZZANINE FINANCIAL CORP. ("Mezzanine"), a Delaware
corporation, provides financial assistance to affiliated and unaffiliated
companies through loan participations.
Helm also maintains investments in affiliated entities. The Company
holds a 15% interest in a publicly-held Delaware corporation, INTERSYSTEMS, INC.
(together with its wholly-owned subsidiary, hereinafter "ISI") (AMEX:II). ISI
provides custom resin compounding services for thermoplastic resin producers
through a wholly owned subsidiary, CHEMTRUSION, INC.
The Company also maintains a $209,000 limited partnership interest in
THE MEZZANINE FINANCIAL FUND, L.P. (the "Fund"), a Delaware limited partnership
which makes collateralized loans to companies in a manner similar to Mezzanine
Financial Corp. The Fund is in the process of being liquidated.
RESULTS OF OPERATIONS
The Company realized net income of $449,000 in 1999, as compared to
a net loss of $194,000 in 1998. The net income for 1999 included $478,000 equity
in net income of affiliates.
The Company is a Delaware corporation originally organized in 1980
with its principal offices at 537 Steamboat Road, Greenwich, Connecticut 06830.
Its telephone number is (203) 629-1400. Set forth below is a discussion of the
principal subsidiary, affiliates and investments of Helm Capital Group, Inc.
MEZZANINE FINANCIAL CORP.
Mezzanine Financial Corp. ("Mezzanine"), based in Spring Lake, New
Jersey, was organized in 1997 as a wholly-owned subsidiary of the Company to
provide capital in high yield "mezzanine" debt situations to 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 1997 sale of its Interpak Terminals operations 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,
which has guaranteed the payment of the Notes, has listed and reserved for
issuance 580,000 shares of its common stock and approximately 264,000 shares of
the Company's ISI common stock for issuance upon conversion of the Notes. As of
December 31, 1999, $100,000 of the Notes had been converted, leaving $1,450,000
principal amount of Notes outstanding.
As of December 31, 1999, Mezzanine had loan participations
outstanding in the aggregate amount of approximately $2,288,000, which
participations have an annual rate of return of 15% per annum. Mezzanine's
participations are in conjunction with financings made by the Fund, and related
to 11 separate
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corporate entities, one of which is affiliated with Mezzanine. See "Certain
Relationships and Related Party Transactions."
INVESTMENTS
INTERSYSTEMS, INC.
InterSystems, Inc., based in Houston, Texas, was originally organized
under the laws of the state of Delaware in 1984. ISI's principal line of
business today consists of the operations of its wholly-owned subsidiary,
CHEMTRUSION, INC. ("Chemtrusion"). On December 1, 1999, ISI completed the sale
of the business of its Nebraska subsidiary, also known as InterSystems, Inc.,
for approximately $5.6 million in cash and a $500,000 three year promissory
note.
ISI had revenues from continuing operations of $14,746,000, and
$11,504,000, respectively, for the years ended December 31, 1999 and 1998. For
the year ended December 31, 1999, ISI reported a loss from continuing operations
of $(679,000) and a net profit for the year of $3,192,000, as compared to a loss
from continuing operations of $(775,000) and a net profit of $443,000 for the
year ended December 31, 1998. The net profit for the year ended December 31,
1999 included $821,000 income from discontinued operations and $3,184,000 gain
on the sale of the business of another subsidiary. The net profit for the year
ended December 31, 1998 included $1,218,000 income from discontinued operations.
As of December 31, 1999, the Company held 1,182,364 shares, or
approximately 15%, of the outstanding of common stock of ISI, of which 600,000
shares were pledged as collateral for a loan to a bank and an additional 264,000
shares were reserved for issuance to the holders of the Mezzanine Financial
Corp. 9-1/2% Series B Senior Convertible Notes due December 31, 2001 upon
exercise of conversion rights. Directors or officers of the Company comprise
four of the six members of the ISI board of directors.
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.
Chemtrusion provides custom compounding services using four twin screw
extruders, various blenders and other equipment at its Houston facility which
contains four production lines with a total annualized capacity 46 million
pounds. Chemtrusion also operates a dedicated compounding services facility for
Mytex Polymers ("Mytex"), a Delaware general partnership of Mitsubishi Chemical
America and Exxon Chemical Company, a division of Exxon Corporation, located in
Jeffersonville, Indiana. This plant, which has recently been expanded, now
contains six production lines with an annual capacity of 75 million pounds of
product. At the Mytex facility, Chemtrusion produces an array of
polypropylene-based compounds exclusively for Mytex using raw materials and
specifications provided by Mytex. Mytex is a leading supplier of engineered
polypropylene to the auto manufacturing industry. 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
provides significant net profits to Chemtrusion.
The initial term of the Mytex agreement, which commenced in 1997, 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 and put
rights on behalf of Chemtrusion with respect to the facility as specified in the
Mytex agreement.
THE MEZZANINE FINANCIAL FUND, L.P.
The Company presently holds a $209,000, or 7%, limited
partnership interest in the Mezzanine Financial Fund, L.P., a Delaware limited
partnership (the "Fund"). The Fund was 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 commercial
lenders. A total of $3,400,000 of limited partnership interests were sold and
are outstanding, including a $200,000 contribution from the Fund's general
partner. The Fund received additional capital of up to $1,000,000 in the form of
year to year notes that were issued by the Fund. As of December 31, 1999, the
Fund had financial accommodations outstanding in the aggregate amount of
approximately $5,600,000 to 12 entities, including $1,766,000 to affiliated
entities. See "Certain Relationships and Related Party Transactions." The Fund
has been profitable for each of its nine full years of operation.
Pursuant to the terms of the limited partnership agreement under
which the Fund was organized, the Fund by its terms terminated on December 31,
1999. As required by the limited partnership agreement, the Fund's management
has begun an orderly liquidation of the Fund's assets to enable the Fund to
return the original limited partnership capital to its partners. Directors of
Helm control the general partner of the Fund.
EMPLOYEES
THE COMPANY. The Company has 5 employees, 4 of whom serve in executive
capacities and 1 who serves principally in administrative capacities. These
individuals allocate their business time among the business of the Company and
its affiliates.
MEZZANINE FINANCIAL FUND, L.P. currently employs 6 full-time persons, one of
whom serves in a senior executive capacity, 3 who serve in managerial positions
and 2 who serve principally in administrative capacities. These individuals also
handle all operations of Mezzanine Financial Corp.
The Company believes it and its subsidiary 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 effective June 1998 at a 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.
MEZZANINE FINANCIAL CORP.: Mezzanine occupies part of a 2,000 square foot office
in Spring Lake, New Jersey, which it shares with the Fund. The lease, which
expires December 31, 2002, provides for a current monthly rent of $2,200, which
is apportioned among the three entities. During 1999, the Fund paid the entire
rent for this facility.
The Company believes that its properties and the properties of its subsidiary
are in good operating condition and adequate for it and their present levels of
operation. The Company's affiliated companies have office and
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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
In July 1998, the Company received a claim for indemnification as
guarantor in the amount of approximately $900,000 arising out of alleged
breaches of representations and warranties made in connection with the sale of
Interpak Terminals, Inc. in July 1997. At the closing of the sale, $250,000 of
the purchase price was placed in an interest bearing escrow account to be used
to satisfy legitimate indemnification claims. In September 1999, management
settled the claims for the balance in the escrow account, including interest
accrued thereon, in exchange for a complete release.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's common stock was listed on the American Stock Exchange
("AMEX") under the symbol "HHH" until October 9, 1998, at which time the common
stock was delisted by the AMEX for failure to satisfy continued listing
requirements. Following delisting, the Company's common stock began trading on
the Over the Counter Electronic Bulletin Board under the symbol "HCGI." 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 AMEX -
Composite Tape through the date of delisting, and thereafter the high and low
bid prices as reported by the Bulletin Board.
l999 High Low
---- ---- ---
First Quarter $ .25 $.125
Second Quarter .1875 .125
Third Quarter .1875 .125
Fourth Quarter .1875 .09375
l998 High Low
---- ---- ---
First Quarter $ 1.25 $.8125
Second Quarter 1.0625 .875
Third Quarter .875 .50
Fourth Quarter .50 .125
On April 4, 2000, the closing price of the Company's common stock was
$.406.
(b) HOLDERS As of March 23, 2000, 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.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS - 1999 COMPARED TO 1998
Income from continuing operations in 1999 was $449,000 compared
to a loss of $235,000 in 1998. The primary factors for the improvement in 1999
results were an increase in gain on sale of securities of $139,000 ($196,000 in
1999 compared to $57,000 in 1998) and an increase in equity in income of
affiliates of $643,000 ($478,000 income in 1999 compared to a loss of $165,000
in 1998). The equity income in 1999 is largely attributable to a gain recognized
by InterSystems on the disposition of its Nebraska operations in the fourth
quarter of 1999. See note 3 to the consolidated financial statements for
components of the equity in income and losses.
The Company adjusts the deferred tax asset valuation allowance
based on judgments as to the future realization of the deferred tax benefits
supported by demonstrated trends in the Company's net operating results. At
December 31, 1999 and 1998, the Company provided a 100% valuation allowance for
the deferred tax asset because it could not determine whether it was more likely
than not that the deferred tax asset would be realized.
Income from discontinued operations in 1998 related to Interpak
Terminals, Inc. as detailed in Note 14 to the Consolidated Financial Statements.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's
prospects or operations.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $197,000 in 1999. Cash of
$360,000 was provided by investing activities, primarily from sales of
securities and collections on loans, and $150,000 was used for payment of debt.
The resulting increase in cash for 1999 was $13,000.
Future liquidity sources for the Company will consist of
revenues generated from its financial service activities, reduction in selling,
general and administrative expenses, 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: None
YEAR 2000 COMPLIANCE
During 1999, the Company completed its Year 2000 ("Y2K") compliance project to
prepare its computer systems, applications and software products for the year
2000 at an insignificant cost. Subsequent to December 31, 1999, the Company has
not experienced any Y2K disruptions, either internally or from suppliers or
other outside sources that had an adverse impact on the Company's operations or
financial condition. The Company has no reason to believe that Y2K failures will
materially affect it in the future. However, since it may take several
additional months before it is known whether the Company or suppliers, vendors
or customers may have undergone Y2K problems, no assurances can be given that
the Company will not experience losses or disruption due to Y2K computer-related
problems. The Company will continue to monitor the operation of its software
products, computers and microprocessor-based devices for any Y2K problems.
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FORWARD LOOKING STATEMENTS
This annual report for the year ended December 31, 1999 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 creditor of the Company
or its subsidiaries or affiliates, or the inadequacy or uncollectibility of any
collateral pledged to secure such creditor's debts to the Company or its
subsidiaries or affiliates; (iii) increased competition; (iv) changes in
customer preferences and the inability of the Company's subsidiaries or
affiliates to develop and introduce new services to accommodate these changes;
and (v) the maturing of debt at the Company, subsidiary or affiliate level and
the inability of the Company, the subsidiary or affiliate to raise capital to
repay or refinance such debt on favorable terms, or the insufficiency of
collateral pledged to secure any such debt.
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-1
Consolidated Balance Sheet as of
December 3l, l999............................... F-2
Consolidated Statements of
Operations for the Years Ended
December 3l, 1999 and l998...................... F-4
Consolidated Statements of
Changes in Shareholders' Capital
Deficit for the Years Ended
December 31, 1999 and 1998...................... F-5
Consolidated Statements of
Cash Flows for the Years Ended
December 3l, 1999 and 1998...................... F-7
Notes to Consolidated Financial
Statements...................................... F-8 - F-27
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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-K for the year ended December 31, 1999 as filed with
the Securities and Exchange Commission.
ITEM 7A. MARKET RISK: None
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............ 67 l980
Mr. Pearlman has been the Company's president and chief executive
officer since l980 and became the chairman of the Company's board of directors
in June 1984. Mr. Pearlman is a co-founder and since l982 has been a director of
Seitel, Inc. ("Seitel"), a New York Stock Exchange company which is engaged in
acquiring and marketing seismic data. In March l987, he was elected as the
chairman of Seitel's board of directors. Since l984, Mr. Pearlman has been
chairman of the board of directors and, since December 1999, president, of
InterSystems, Inc., a public company engaged in providing custom resin
compounding services for thermoplastic resin producers ("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. In
February 1999, Mr. Pearlman assumed the additional role of chief executive
officer of Unapix. Mr. Pearlman has been chairman of the board of Mezzanine
Financial Corp. ("Mezzanine"), a Delaware corporation engaged in the business of
making collaterialized loans to small businesses since 1997.
David S. Lawi.................. 66 l980
Mr. Lawi has been the Company's executive vice president and secretary
from l980 until 1992, when he was appointed secretary-treasurer and chairman of
the Executive Committee. 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. Since 1997, he has served as vice president,
secretary and a director of Mezzanine.
Joseph J. Farley............... 77 l982
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From l982 until February 1991, Mr. Farley served as the Company's vice
president for marketing and engineering. Prior to joining the Company, Mr.
Farley had been a senior executive with International Business Machines
Corporation ("IBM") for 32 years, where he held various positions in
engineering, marketing and field engineering. His final assignment at IBM was
corporate director of marketing/standard practices.
William Lerner................. 67 l985
Mr. Lerner is an attorney engaged in the private practice of law. From
May 1990 until December 1990, he was General Counsel to Hon Development Company,
a California real estate development company. Mr. Lerner has been a director of
Seitel since l984. Mr. Lerner is also a director of Rent-Way, Inc., the owner of
a chain of retail stores in the rental-purchase industry, and a director of
Micros-to-Mainframes, Inc., a provider of advanced technology services and
computer equipment to Fortune 2000 companies with headquarters and significant
operations in the states of New Jersey, New York and Connecticut.
John E. Stieglitz.............. 69 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 and Lawi, the Company has one additional
executive officer. Daniel T. Murphy, 61, 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
reassumed the position of chief financial officer of ISI in 1999. He became a
director of Teletrak Environmental Systems, Inc. in 1998, a director of ISI in
1986, and served as chief financial officer of Unapix from 1996 to 1998. In
1998, he became treasurer of Unapix. In 1997, Mr. Murphy was appointed chief
financial officer of Mezzanine.
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") 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.
ATTENDANCE AT MEETINGS; COMMITTEES
During 1999, the Company's Board of Directors acted twice by unanimous
written consent in lieu of a meeting, but did not meet.
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The Board of Directors has a standing Audit Committee, Compensation and
Stock Option Committee and Executive Committee. During 1999, the Audit Committee
as well as the Compensation and Stock Option Committee consisted of Messrs.
Lerner and Stieglitz. The function of the Audit Committee is to select the
independent public accountants of the Company, to review with them the Company's
financial statements, to review the Company's financial systems and controls and
to oversee other matters relating to the integrity of the Company's finances and
financial statements as the Committee may consider appropriate. The function of
the Compensation and Stock Option Committee is to determine the compensation of
the officers of the Company and to administer the Company's stock option plans.
The Executive Committee is comprised of Messrs. Pearlman, 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 during 1999.
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
executive officers of the Company earned in excess of $100,000 for services
rendered to the Company and its subsidiaries during 1999. No options were
granted to any executive officers in 1999.
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION
-------------------
NAME AND OTHER
PRINCIPAL ANNUAL
POSITION YEAR SALARY (1) COMPENSATION(2)
- ------------------------------------------------------------------------------
Herbert M. 1999 $ -- $ --
Pearlman, 1998 -- 67,400
CEO and Chairman 1997 58,000 54,800
(1) Represents salary paid by the Company's former wholly-owned subsidiary,
Interpak Terminals, Inc., to Mr. Pearlman. Interpak was sold in July
1997.
(2) Represents principally life insurance premiums.
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, 1999.
<TABLE>
<CAPTION>
Value of
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>
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COMPENSATION OF DIRECTORS
Each year, the outside directors of the Company receive an option to
purchase 10,000 shares of common stock at market on the date of grant. Expenses
reasonably incurred in the furtherance of their duties are reimbursed by the
Company.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
PEARLMAN EMPLOYMENT AGREEMENT
On January 1, 1990, the Company entered into an employment contract with
Herbert M. Pearlman, 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 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 or affiliate, 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 had been paid by Interpak Holdings, Inc. until its
sale in July 1997. Since 1994 and until June 30, 1997, an additional $100,000
had 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.
Following the sale of Interpak, Mr. Pearlman agreed to an employment
arrangement with the Company 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. This
arrangement remained in effect through June 30, 1999.
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;
Page 11
<PAGE> 12
(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 1999, it
is estimated that Mr. Pearlman would receive Change of Control Payments of
$1,629,000. 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 April 1, 2000 concerning
the beneficial ownership of common stock (the Company's only class of voting
securities) by each director individually, and by all officers and directors of
the Company as a group and by all beneficial owners of more than 5% of the
outstanding shares of the Company's common stock.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name Ownership(l)(2) Class(2)
- ---- --------------- --------
<S> <C> <C>
Gerson I. Fox................... 745,917 (3) 18.0%
1230 Huntington Drive
Duarte, CA 91010
Directors and Officers
Herbert M. Pearlman*............ 1,281,573 (4) 28.0%
David S. Lawi*.................. 663,521 (5) 15.6%
Joseph J. Farley................ 77,500 (6) 2.0%
John E. Stieglitz............... 68,825 (7) 1.8%
William Lerner ................. 68,358 (8) 1.8%
Daniel T. Murphy................ 48,675 (9) 1.3%
All officers and directors
as a group (6 persons).......... 2,208,452 (5)-(9) 42.9%
</TABLE>
Page 12
<PAGE> 13
* address is 537 Steamboat Road, Greenwich, CT 06830
(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 744,838 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 (106,818). Does not include shares held by
Mr. Pearlman's wife, as to which he disclaims beneficial ownership.
(5) Includes 424,544 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 (61,364).
(6) Includes 40,000 shares which may be acquired from the Company exercise
of options.
(7) Includes 40,000 shares which may be acquired from the Company exercise
of options.
(8) Includes 40,000 shares which may be acquired from the Company exercise
of options.
(9) Includes 25,682 shares which may be acquired from the Company upon
exercise of options (20,000) and conversion of 8% debentures (5,682).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In September 1999, the Company sold 1,353,013 shares of common
stock of Teletrak Environmental Systems, Inc. ("Teletrak"), located in Webster,
Massachusetts, for $200,000 in cash. Teletrak is the successor to Teletrak
Advanced Technology Systems, Inc., a former subsidiary of the Company. Helm
wrote off its investment in Teletrak prior to 1996. Helm continues to hold
1,105,507 common stock purchase warrants of Teletrak, which expire on October
31, 2001 and are exercisable at $2.00 per share. As of April 4, 2000, the
average of the bid and ask prices of the Teletrak common stock on the NASD
Electronic Bulletin Board (Symbol: TAES) was $.405.
THE COMPANY, MEZZANINE, THE FUND AND OTHER AFFILIATED ENTITIES
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. The Company also owns 19.4% of the
outstanding common stock of Core Capital, Inc. ("Core"), which in turn owns
MediFin, Inc. ("MediFin"). Messrs. Pearlman and Lawi are principal shareholders,
and serve as directors, of Core. The operations of Core and MediFin, which were
in the business of financing receivables of healthcare- related and other
commercial businesses, have been discontinued. The Company has written off its
investment in Core.
Page 13
<PAGE> 14
In 1993, the Fund made available a line of credit to MediFin to enable
MediFin to initiate its business activity. The loan bore interest at 15% per
annum, and the Fund was 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 was convertible into Core common stock at $2.00 per share. Since December
31, 1998, no credit has been extended by the Fund under this line and the Fund
terminated the credit facility. At December 31, 1999, $1,200,000 was outstanding
under this line and no additional interest was being accrued. Mezzanine does not
participate in this credit facility.
In 1999, Mezzanine entered into a first-out participation arrangement
with the Fund on its loan portfolio which services 11 enterprises. As of
December 31, 1999, the balance payable under this arrangement was approximately
$2,288,000, including interest and an enhancement fee of $114,000. All
participations pursuant to this arrangement carry an annual rate of return of
15%, and in the aggregate they represents Mezzanine's principal investment at
this time.
In 1998, MediFin defaulted on its loan to its principal lender (the
"Bank"). The Bank demanded payment pursuant to guarantees which had been given
by the Company and Messrs. Pearlman and Lawi. As of December 31, 1999, the
Company was indebted to Mr. Pearlman and Mr. Lawi on account of amounts paid
pursuant to these guarantees of $30,000 and $15,000, respectively, pursuant to
10% demand promissory notes. In addition, the Company borrowed $500,000 from The
Chase Manhattan Bank ("Chase") to complete the payment pursuant to its guaranty.
The Chase loan, as amended on November 5, 1999, calls for repayment in 24
unequal monthly installments commencing August 25, 1999, with a final payment of
$302,000 on September 10, 2000. The loan is guaranteed by Messrs. Pearlman and
Lawi and is secured by 600,000 shares of common stock of ISI held by the
Company. Mr. Pearlman's guaranty is limited to $333,333 and Mr. Lawi's guaranty
is limited to $166,667. Core, the parent company of MediFin, agreed to repay to
the Company all amounts paid to Messrs. Pearlman and Lawi on account of these
10% notes, as well as all amounts paid to Chase on account of the loan. In 1999,
this obligation of Core was assumed by the Fund in exchange for a first position
lien on certain receivables owned by MediFin.
In November 1998, Mr. Pearlman loaned $100,000 to the Company, which in
turn was lent to Core in exchange for a participation on a loan made by Core to
MediFin. The participation bears a rate of return of 18%. Prior to December 31,
1998, the Company repaid $25,000 to Mr. Pearlman in six equal installments, and
Mr. Lawi advanced an additional $25,000 to Helm which was immediately used to
repay in part the amount owing to Mr. Pearlman. At December 31, 1999, the
Company was indebted to Messrs. Pearlman and Lawi in the amounts of $50,000 and
$25,000, respectively. These balances are represented by one year convertible
promissory notes bearing interest at 10% per annum. The notes are convertible
into common stock of Helm at a price based upon the average market price of the
common stock during the 30 days preceding the maturity date. The notes may be
extended for an additional year at the option of the holder.
In 1998, Partnership 102, a corporation controlled by Messrs. Pearlman
and Lawi, made a loan of $250,000 to Mezzanine. These funds were then loaned by
Mezzanine to the Fund. The loan, which was payable on demand, bore interest at
12% per annum, payable monthly. Interest expense for 1999 amounted to $30,000,
and $250,000 remained outstanding at December 31, 1999. The loan was repaid in
full in February 2000.
In 1998, the Company acquired from MediFin the right to acquire a 40%
ownership interest in Total Health Concepts, Inc. ("THC"), a Florida based
business which provides in-home nursing care, in exchange for an agreement to
provide $80,000 in equity capital to THC on or before July 1999. THC was
acquired by MediFin in a foreclosure action. If the Company was not able to pay
the $80,000 on demand by THC, its ownership option would revert to MediFin. In
1999, the option period was extended to July 2000.
THE COMPANY AND UNAPIX ENTERTAINMENT, INC.
Page 14
<PAGE> 15
During 1999, management of the Company provided various administrative,
managerial, financial and accounting services to Unapix Entertainment, Inc.
("Unapix"), for which the Company was paid $150,000 by Unapix in 1999. Messrs.
Pearlman and Lawi are directors of Unapix, and Mr. Murphy is the treasurer of
Unapix.
THE COMPANY AND INTERSYSTEMS, INC.
Messrs. Pearlman and Lawi are parties to employment agreements with ISI.
All salary amounts paid under the ISI agreements reduce the amount of salary the
Company is responsible to pay to 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 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 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:
EBT Pearlman Lawi
--- -------- ----
$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
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 1999, ISI paid a total of $58,980 to
the Company pursuant to this arrangement.
Page 15
<PAGE> 16
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this Report
3.l Certificate of Incorporation [incorporated by reference to
Exhibit(3)(i) to the Company's 1980 Form l0-K ]
3.2 Certificate of Amendment to Certificate of Incorporation dated
June 7, l983 [incorporated by reference to Exhibit 3.2 to the
Company's 1985 Form 10-K]
3.3 Certificate of Amendment to Certificate of Incorporation dated
July 7, 1987 [incorporated by reference to Exhibit 3.5 to the
Company's 1987 Form 10-K]
3.4 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")]
3.5 Certificate of Amendment to Certificate of Incorporation dated
December 8, 1989 [incorporated by reference to Exhibit 3.7 to
the S-2]
3.6 Certificate of Designation relating to Series A Preferred
Stock [incorporated by reference to Exhibit 4.21 to the 1985
Company's Form 10-K]
3.7 Certificate of Amendment to Certificate of Incorporation dated
December 16, 1993 [incorporated by reference to Exhibit 3.9 to
the Company's 1993 Form 10-K]
3.8 Certificate of Designation relating to Series A 8% Cumulative
Convertible Preferred Stock [incorporated by reference to
Exhibit 3.10 to the Company's 1995 Form 10-K]
3.9 Certificate of Designation relating to Series B 8% Cumulative
Convertible Preferred Stock [incorporated by reference to
Exhibit 3.11 to the Company's 1995 Form 10-K]
3.10 Certificate of Amendment to Certificate of Incorporation dated
October 31, 1997 [incorporated by reference to Exhibit 3.12 to
the Company's 1997 10-KSB]
3.11 By-laws as Restated on May 12, 1998 [incorporated by reference
to Exhibit 3.11 to the Company's 1998 10-KSB]
4.1 Form of Helm Resources, Inc. 8% Subordinated Convertible
Debenture due September 30, 1999 [incorporated by reference to
Exhibit 4.5 to the Company's 1990 10-K]
4.2 Form of Helm Resources, Inc. Class A Common Stock Purchase
Warrant due January 31, 1999 [incorporated by reference to
Exhibit 4.4 to the Company's 1995 Form 10-K]
4.3 Form of Helm Resources, Inc. Class B Common Stock Purchase
Warrant due January 31, 1999 [incorporated by reference to
Exhibit 4.5 to the Company's 1995 Form 10-K]
Page 16
<PAGE> 17
4.4 Form of Helm Resources, Inc. Employee Warrant Agreement
granted October 29, 1997 [incorporated by reference to Exhibit
4.5 to the Company's 1997 Form 10-K]
4.5 Form of Mezzanine Financial Corp. 9 1/2% Series A Senior
Convertible Note due December 31, 2001 [incorporated by
reference to Exhibit 4.5 to the Company's 1998 10-KSB]
4.6 Form of Mezzanine Financial Corp. 9 1/2% Series B Senior
Convertible Note due December 31, 2001 [incorporated by
reference to Exhibit 4.6 to the Company's 1998 10-KSB]
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 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")].
10.5 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]
21 List of Subsidiaries: Mezzanine Financial Corp., a Delaware
corporation organized in 1997.
(c) Reports on Form 8-K: None.
Page 17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 14th day of April,
2000.
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.
<TABLE>
<S> <C> <C>
/s/ Herbert M. Pearlman
- ------------------------- President, Chief Executive April 14, 2000
Herbert M. Pearlman Officer, Director (principal
executive officer)
/s/ David S. Lawi
- ------------------------- Secretary-Treasurer, April 14, 2000
David S. Lawi Director
/s/ Joseph Farley
- ------------------------- Director April 14, 2000
Joseph J. Farley
/s William Lerner
- ------------------------- Director April 14, 2000
William Lerner
/s/ John Stieglitz
- ------------------------- Director April 14, 2000
John Stieglitz
</TABLE>
Page 18
<PAGE> 19
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 as of December 31, 1999, 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, 1999. 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, 1999, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
New York, New York
April 4, 2000 except for Note 5
which is as of April 20, 2000
F-1
<PAGE> 20
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 28
Due from related party 50
Prepaid expenses 26
Participation in receivables of affiliate, net of
allowance of $120,000 2,168
Other current assets 19
------
TOTAL CURRENT ASSETS 2,291
INVESTMENTS IN AFFILIATES 1,250
DEFERRED CHARGES AND OTHER ASSETS 27
------
$3,568
======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 21
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except par values)
December 31, 1999
(continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIT
<S> <C>
CURRENT LIABILITIES:
Accrued expenses $ 361
Advances due to affiliates 59
Notes due to related parties 370
Subordinated debentures due currently 25
Loan payable to bank 400
--------
TOTAL CURRENT LIABILITIES 1,215
SUBORDINATED DEBENTURES 1,450
SUBORDINATED DEBENTURES AND ACCRUED INTEREST DUE TO OFFICERS 1,329
ACCRUED EXPENSES PAYABLE IN COMMON STOCK 575
OTHER LIABILITIES 38
--------
TOTAL LIABILITIES 4,607
--------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' CAPITAL DEFICIT:
Preferred stock, $.01 par value: shares authorized 5,000; issued
and outstanding 29 shares --
Common stock, $.01 par value: shares authorized 15,000; issued
3,779 shares 38
Additional paid-in capital 20,723
Deficit (21,771)
--------
(1,010)
Less: 6 shares of treasury stock, at cost (29)
--------
TOTAL SHAREHOLDERS' CAPITAL DEFICIT (1,039)
--------
$ 3,568
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 22
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998
<S> <C> <C>
REVENUES, primarily interest income $ 237 $ 298
------- -------
COSTS, EXPENSES AND OTHER:
Selling, general and administrative expenses 228 229
Gain on sale of securities (196) (57)
Equity in net (income) loss of affiliates (478) 165
Decrease in underlying equity of affiliates 28 --
Distribution from affiliates (cost method) (5) (12)
Interest expense 288 259
Interest income -- (7)
Royalty income (77) (44)
------- -------
Total costs, expenses and other, net (212) 533
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS 449 (235)
------- -------
DISCONTINUED OPERATIONS:
Gain on disposal of Interpak -- 41
------- -------
Income from discontinued operations -- 41
------- -------
NET INCOME (LOSS) $ 449 $ (194)
======= =======
EARNINGS (LOSS) PER COMMON SHARE - BASIC
Continuing operations $ .09 $ (.09)
Discontinued operations -- .01
------- -------
$ .09 $ (.08)
======= =======
EARNINGS (LOSS) PER COMMON SHARE - DILUTED
Continuing operations $ .07 $ (.09)
Discontinued operations -- .01
======= =======
$ .07 $ (.08)
======= =======
Weighted average shares outstanding - basic 3,779 3,744
======= =======
Weighted average shares outstanding - diluted 4,644 3,744
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Preferred stock Common stock
--------------- ------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 33,205 $ -- 3,703,427 $ 37
Shares issued for settlement of debts to
officers and affiliates -- -- 50,000 1
Preferred shares received from officers
in connection with retirement of debt (3,500) -- -- --
Preferred shares converted into common
shares (250) -- 26,042 --
Net loss -- -- -- --
--------- -------- --------- ---------
Balance at December 31, 1998 29,455 -- 3,779,469 38
Net income -- -- -- --
--------- -------- --------- ---------
Balance, at December 31, 1999 29,455 $ -- 3,779,469 $ 38
========= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 24
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands, except number of shares)
(continued)
<TABLE>
<CAPTION>
Additional
capital
paid-in Treasury stock
capital Deficit Shares Amount
------- ------- ------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 20,848 $(22,026) 6,362 $ (29)
Shares issued in settlement of debts to
officers and affiliates 50 -- -- --
Preferred shares received from officers
in connection with retirement of debt (175) -- -- --
Preferred shares converted into common
shares -- -- -- --
Net loss -- (194) -- --
-------- -------- -------- --------
Balance at December 31, 1998 20,723 (22,220) 6,362 (29)
Net income -- 449 -- --
-------- -------- -------- --------
Balance at December 31, 1999 $ 20,723 $(21,771) 6,362 $ (29)
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 25
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 449 $ (194)
------- -------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on disposition of discontinued operations -- (41)
Equity in net (income) loss of affiliates (478) 165
Distributions from affiliate (5) (12)
Gain on sale of securities (196) (57)
Allowance on participation in receivables of affiliate 120 --
Decrease in underlying equity of affiliates 28 --
Amortization expense 2 14
Changes in assets and liabilities:
Increase (decrease) in:
Accounts payable and accrued expenses (264) 105
Other 147 26
------- -------
Total adjustments (646) 200
------- -------
Net cash provided by (used in) operating activities (197) 6
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities 196 --
Proceeds from participation in receivables of affiliate 184 210
Increases to notes receivable and advances due from
affiliates (16) (1,706)
Proceeds from advances due to affiliates -- 65
Payments on advances due to affiliates (4) (2)
Advances to related party -- (50)
------- -------
Net cash provided by (used in) investing activities 360 (1,483)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of subordinated debentures (50) --
Borrowings from related parties -- 575
Payments to related parties -- (205)
Proceeds from long-term debt -- 500
Payments of long-term debt (100) --
------- -------
Net cash provided by (used in) financing activities (150) 870
------- -------
NET INCREASE (DECREASE) IN CASH 13 (607)
CASH, beginning of year 15 622
------- -------
CASH, end of year $ 28 $ 15
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 26
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. (the "Company") through a wholly owned
subsidiary, Mezzanine Financial Corp., ("Mezzanine"), is engaged in the business
of making collateralized loans to small businesses. The Company operates in only
one segment. In addition, the Company has several investments.
(i) InterSystems, Inc., a Delaware Corporation ("ISI"), currently a 15%
owned affiliate, 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. During 1999, ISI sold its equipment business. Accordingly, the
equipment business has been reflected in ISI's financial statements as a
discontinued operation (See Note 3).
(ii) Core Capital, Inc. and its subsidiaries (collectively "Core"),
currently a 19.4% owned subsidiary, historically had been engaged in providing
capital and services related thereto through the purchasing of accounts
receivable and providing revolving lines of credit to enterprises primarily in
the health care industry. During 1999, in connection with the removal of the
Company's guarantee of Core's debt (see Note 6), the Company determined to cease
further funding of Core's operations. Accordingly, the Company has not, for the
year ended December 31, 1999, recorded its share of Core's results of
operations. (See Note 3). Core is currently being liquidated.
All significant intercompany balances and transactions have been
eliminated in consolidation, where appropriate.
(b) Revenue Recognition
Revenues are recorded when earned.
F-8
<PAGE> 27
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (continued)
(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) Stock-Based Compensation
The Company accounts for its stock option awards to employees 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."
(e) Earnings (Loss) Per Common Share
Basic earnings (loss) per common share, includes no dilution and 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 reflect, in periods in which they have a dilutive
effect, the effects of common shares issuable upon exercise of stock options and
convertible debt.
F-9
<PAGE> 28
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (continued)
For the year ended December 31, 1998, potential dilutive securities had
an anti-dilutive effect and accordingly were not included in the calculation of
diluted loss per common share.
For the years ended December 31, 1998, 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>
1999 1998
(shares) (shares)
<S> <C> <C>
Stock options 467 437
Stock warrants 299 299
Shares issuable on conversion of preferred
shares 1,585 1,585
Shares issuable on conversion of subordinated
debentures and notes 753 1,333
--- -----
3,104 3,654
===== =====
</TABLE>
(f) 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.
(g) 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.
(h) 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 SEC Staff
Accounting Bulletin No. 51 ("SAB51"). SAB51 allows the recordings of a gain or
loss when there are changes in affiliates' equity due to sale of stock, exercise
of stock options and warrants and the purchase of treasury stock, as defined.
F-10
<PAGE> 29
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) 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.
NOTE 2: EARNINGS (LOSS) PER SHARE
The following illustrates the components' of income (loss) from
continuing operations utilized in the computation of earnings (loss) per share
(in thousands):
<TABLE>
<CAPTION>
Income available to common shareholders 1999 1998
--------------------------------------- ---- ----
<S> <C> <C>
Income (loss) from continuing operations $ 449 $(235)
Convertible preferred stock dividends (117) (117)
----- -----
Numerator for basic income (loss) from continuing
operations $ 332 $(352)
===== =====
Income available to common shareholders 1999 1998
- --------------------------------------------------- ----- -----
Income (loss) from continuing operations $ 449 $(235)
Convertible preferred stock dividends (117) (117)
Interest on 10% convertible promissory notes 8 --
----- -----
Numerator for diluted income (loss) from continuing
operations $ 340 $(352)
===== =====
</TABLE>
In 1999, 864,055 shares relating to 10% convertible promissory notes
held by officers of the Company (See Note 4(b)) were dilutive.
F-11
<PAGE> 30
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 3: INVESTMENTS IN AFFILIATES AND PARTICIPATIONS IN
RECEIVABLES OF AFFILIATE
Investments in and advances due from affiliates consist of the
following at December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
Participations
Name Ownership % Investment in Receivables
---- ----------- ---------- --------------
<S> <C> <C> <C>
ISI 15.0 $1,041 $ --
Fund 7.0 209 2,168
------ ------
$1,250 $2,168
====== ======
</TABLE>
In December 1997, Mezzanine entered into a participation in Mezzanine
Financial Fund, L.P.'s (the "Fund") position in a note from a third party
totaling $600,000. The note was due November 30, 1999, bears interest at 12% 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 Fund, which Mezzanine, through the participation agreement,
shares in the liens and rights to the assets of the third party. As compensation
for administering the note, Fund receives 30% of the enhancement fee.
In 1998, Mezzanine entered into a participation agreement in Fund's
loan to a wholly owned subsidiary of Core. The amount receivable under this
participation totaled approximately $778,000 at December 31, 1998.
In 1999, the Company exchanged the above participations and purchased
additional participations in the Fund's accounts. At December 31, 1999, a total
of $2,288,000, including accrued interest and an enhancement fee of $114,000,
were outstanding at a rate of return of 15% per annum.
Interest earned totaled approximately $218,000 and $118,000 for the
years ended December 31, 1999 and 1998, respectively, and have been included in
revenues.
F-12
<PAGE> 31
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 3: INVESTMENTS IN AFFILIATES AND PARTICIPATION IN
RECEIVABLES OF AFFILIATE
Equity in earnings (loss) for the equity method investments and
distributions from the cost method investments are as follows (in thousands):
<TABLE>
<CAPTION>
For the year ended December 31, 1999 1998
------------------------------- ---- ----
<S> <C> <C>
ISI $450 $73
Core - (238)
---- -----
450 (165)
Fund 5 12
---- -----
$455 $(153)
==== ======
</TABLE>
INTERSYSTEMS, INC., ("ISI")
The Company accounts for its investment in ISI on the equity method as
ISI is controlled by affiliates of the Company. The quoted market value of ISI's
common stock was approximately $.56 per share as of December 31, 1999.
Accordingly, the value of the Company's investment in ISI was $665,000 at
December 31, 1999.
As of December 31, 1999, approximately 264,000 shares of ISI are
reserved for future payment to satisfy the Company's obligation on the 9--1/2%
convertible subordinated debentures. In 1998, the Company exchanged 22,222
shares of ISI as partial payment to satisfy the Company's obligation on a
9--1/2% convertible subordinated debenture (see Note 5).
Additionally, in 1998, the Company sold 16,000 shares of ISI to certain
officers of the Company. In lieu of cash, the Company exchanged 8% convertible
subordinated debentures held by the officers (see Note 4(a)).
In November 1998, the Company granted to ISI a five year option to
purchase all of the Company's 1,353,000 shares of common stock in Teletrak
Environmental Systems, Inc. ("Teletrak") for $.50 per share. The purpose of this
grant was to induce ISI to participate, to the extent of $122,500, in a private
placement of Teletrak units consisting of one share of common stock and a
warrant to purchase one-half share of common stock for $.50 per unit. The
Company reserved the right to dispose of the shares at any time subject to prior
notice to ISI. In August 1999, the Company sold its shares in Teletrak (see
Teletrak Environmental Systems, Inc.).
F-13
<PAGE> 32
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 3: INVESTMENTS IN AFFILIATES AND PARTICIPATION IN
RECEIVABLES OF AFFILIATE
(continued)
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 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.
Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of an asset may not be
fully recoverable.
Revenue Recognition
Sales are recorded in the periods that services are performed.
F-14
<PAGE> 33
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 3: INVESTMENTS IN AFFILIATES AND PARTICIPATION IN
RECEIVABLES OF AFFILIATE
(continued)
Summarized Financial Data
Summarized financial data for ISI as of December 31, 1999 and for the
years ended December 31, 1999 and 1998 is as follows (in thousands).
<TABLE>
<CAPTION>
1999
<S> <C> <C>
Balance sheet data:
Current assets $6,693
Fixed assets, net 21,329
Other assets 804
---
Total assets 28,826
Current liabilities 4,668
Long-term liabilities 17,178
------
Shareholders' equity $6,980
======
1999 1998
---- ----
Income statement data:
Revenues $14,746 $11,504
Expenses 15,425 12,279
------ ------
Net loss from continuing operations (679) (775)
Income from discontinued operations 821 1,218
Gain on disposal of discontinued operations 3,184 -
Cumulative effect of change in accounting
principle (134) -
------ ----
Net income $3,192 $443
====== ====
</TABLE>
CORE CAPITAL, INC. ("CORE")
Core, through its wholly-owned subsidiary, was in the business of
financing commercial receivables. Core is controlled by affiliates of the
Company and has been accounted for on the equity method.
F-15
<PAGE> 34
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 3: INVESTMENTS IN AFFILIATES AND PARTICIPATION IN
RECEIVABLES OF AFFILIATE
(continued)
Summarized financial data for Core for the year ended December 31, 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
1998
<S> <C>
Income statement data:
Revenues $ 1,429
Expenses, including loan loss provision of $650 3,351
-------
Net loss $(1,922)
=======
</TABLE>
MEZZANINE FINANCIAL FUND, L.P. (THE "FUND")
The Fund, 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 the Fund. The Company
accounts for this investment on the cost method, the carrying value of which
approximates fair value.
Pursuant to the terms of the limited partnership agreement under which
the Fund was organized, the Fund was scheduled to terminate on December 31,
1998. Fund management obtained limited partner approval of a one year extension
of the term of the Fund in order to pursue an orderly liquidation of the
outstanding loans to enable the Fund to return the original limited partnership
investments to the limited partners.
At December 31, 1999, the Fund's partnership agreement terminated and
management of the Fund commenced the orderly liquidation of the Fund's assets.
F-16
<PAGE> 35
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 3: INVESTMENTS IN AFFILIATES AND PARTICIPATION IN
RECEIVABLES OF AFFILIATE
(continued)
TELETRAK ENVIRONMENTAL SYSTEMS, INC. ("TELETRAK")
In November 1998, the Company's majority owned subsidiary, Teletrak
Advanced Technology Systems, Inc., merged with Advanced Environmental Systems,
Inc. ("AES"). Under the transaction, AES became a wholly owned subsidiary of
Teletrak, and the AES stockholders received shares of Teletrak common stock in
exchange for their AES stock. Immediately prior to the transaction, Teletrak
effected a 10 for 1 reverse stock split and recapitalization, and changed its
name to Teletrak Environmental Systems, Inc. The Company wrote off its
investment in Teletrak prior to 1996.
Subsequent to the merger the Company became a minority stockholder with
approximately 1,353,000 shares, or 18%, of the outstanding common stock and
retained two seats on Teletrak's seven member board of directors. In February
1999, Teletrak began trading shares of its common stock on the Over-the-Counter
Bulletin Board. (Symbol: TAES).
In August 1999, the Company sold all of the Teletrak common stock in a
private sale to a third party for cash consideration and a gain of $196,000, net
of broker's fees.
The Company continues to hold 1,105,507 common stock purchase warrants
of Teletrak which expire October 2001 and are exercisable at $2.00 a share.
NOTE 4: RELATED PARTY TRANSACTIONS
(a) Sale and Exchange of Securities
During 1998, the Company exchanged $30,000 of 8% convertible
subordinated debentures (see Note 5), held by two officers of the Company for
16,000 shares of ISI. The excess of the proceeds over the carrying value of the
shares resulted in a gain of approximately $20,000.
F-17
<PAGE> 36
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 4: RELATED PARTY TRANSACTIONS (continued)
(b) Borrowings
In July 1998, a wholly-owned subsidiary of Core ("the subsidiary")
defaulted on a loan to a bank. The loan was guaranteed in part by the Company,
and two of its officers. The bank demanded payment pursuant to the loan's
guarantees. In order to permit the Company to make payment pursuant to its
guaranty, two officers of the Company advanced a total of $225,000 to the
Company, $180,000 of which was repaid by the subsidiary in September 1998. In
addition, in September 1998, the Company borrowed $500,000 from a bank to
complete the payment pursuant to its guaranty. (see Note 6). In 1999, the
subsidiary entered into an agreement with Fund that ultimately obligates Fund to
pay the Company all amounts paid, both principal and interest, pursuant to these
notes in exchange for the assignment of certain receivables. As of December 31,
1999, the Company was indebted to two officers of the Company for these advances
in the amounts of $30,000 and $15,000, respectively, pursuant to promissory
notes payable on demand and bearing interest at 10% per annum.
In relation to the repayment of the subsidiary loan, during 1998 an
officer of the Company paid $100,000 to the bank pursuant to his guaranty on
behalf of the subsidiary. In exchange for its agreement to repay the officer of
the Company all amounts paid by him pursuant to his guaranty, the subsidiary
increased its loan from Fund by $100,000 and directed Fund to transfer to the
officer of the Company a $100,000 10% Convertible Subordinated Note due June 30,
2002 of Unapix Entertainment, Inc. held by Fund in full satisfaction of all
amounts owing to him.
In November 1998, another officer of the Company loaned $100,000 to the
Company which in turn was lent to Core, in exchange for participation on a loan
made by Core to the subsidiary. The participation bears a rate of return of 18%.
Prior to December 31, 1998, the Company repaid $25,000 to the officer of the
Company and the other officer of the Company advanced an additional $25,000 to
the Company which was immediately used to repay, in part, the amount owed to the
other officer of the Company. At December 31, 1999, the Company is indebted to
the two officers of the Company in the amounts of $50,000 and $25,000,
respectively pursuant to one year convertible promissory notes bearing interest
at 10% per annum. The notes are convertible into common stock of the Company at
a price based upon the average market price of the common stock during the 30
days preceding the maturity date. (See Note 12). The notes have been extended
for an additional year at the option of the holders to November 2000.
F-18
<PAGE> 37
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 4: RELATED PARTY TRANSACTIONS (continued)
In April 1998, a company, owned jointly by several officers of the
Company, loaned $250,000 to Mezzanine. The loan which totaled $250,000 at
December 31, 1999 is payable on demand and bears interest at 12% per annum,
payable monthly. Interest expense amounted to approximately $30,000 and $21,000
for the years ended December 31, 1999 and 1998, respectively. Subsequent to
December 31, 1999, Mezzanine repaid the loan in full.
(c) Other
Management and administrative salaries of the Company are allocated to
affiliates based upon estimated time devoted to the respective operations. All
other allocation of general corporate expenses are recorded on a specific
identification method. In 1999 and 1998, approximately $476,000 and $526,000,
respectively, were allocated to affiliates and deducted from the Company's
expenses.
NOTE 5: SUBORDINATED DEBENTURES AND CONVERTIBLE NOTES
Subordinated debentures and convertible notes of the Company consist of
the following at December 31, 1999 (in thousands):
<TABLE>
<S> <C>
12% subordinated debentures, past due $25
8% convertible subordinated debentures, due 2001 1,145
9-1/2% senior convertible notes, due 2001 1,450
-----
Total debentures $2,620
======
</TABLE>
12% Subordinated Debentures, past due
These bonds matured on August 31, 1999. Interest was payable in cash
semi-annually. In 1999, $50,000 plus accrued interest was paid to a debenture
holder and the remaining $25,000 is now payable on demand and will accrue
interest at the original rate.
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% senior
convertible notes of Mezzanine, due December 31, 2001. Through December 31,
1998, the Company had exchanged $1,550,000 of the 12% subordinated debentures
for an equal amount of 9-1/2% senior convertible notes and $100,000 of the notes
were converted.
F-19
<PAGE> 38
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 5: SUBORDINATED DEBENTURES AND CONVERTIBLE NOTES
(continued)
9-1/2% Senior Convertible Notes
Mezzanine was formed in 1997 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% senior convertible notes, which are guaranteed by the
Company, 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. Although Mezzanine
and the Company are the only obligors with respect to the payment of principal
and interest with respect to the Notes, Mezzanine , Helm and ISI jointly agree
to provide the registration rights with respect to the Helm Shares or ISI
Shares.
During 1998, a debenture holder converted $100,000 of the 9-1/2% senior
convertible notes for 50,000 Helm shares and 22,222 shares of ISI. The Company's
Board of Directors authorized a one time adjustment to the conversion prices to
$1.00 per share for Note A and $2.25 per share for Note B to induce the
exchange. Mezzanine recognized a gain on this exchange of $37,000.
8% Convertible Subordinated Debentures, due 2001
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, with an original
maturity date of 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.
On April 20, 2000, the officers elected to extend the maturity until
October 2001. In addition, the officers agreed not to make demand for payment of
the accrued interest until maturity of the debentures or until such time the
Company has sufficient cash to retire the debentures. At December 31, 1999,
accrued interest totaled $184,000.
In 1998, the remaining $175,000 of promissory notes receivable was paid
in securities of the Company (see Note 9).
F-20
<PAGE> 39
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 6: LOAN PAYABLE TO BANK
In September 1998, the Company borrowed $500,000 from a bank to
complete payment pursuant to its guaranty of a loan from a second bank to a
wholly-owned subsidiary of Core (see Note 4(b)). Core, through its subsidiary,
had previously defaulted on the loan. At the time of default, the Core loan was
guaranteed in part by the Company and one of its officers. The second bank
demanded payment pursuant to the guarantees. At December 31, 1998, the Company
used the proceeds of the loan to pay the second bank and thus the Company
fulfilled all its obligations as guarantor on the Core loan. In 1999, the loan
was amended to provide for repayment in unequal monthly installments with a
final payment of $302,000 due September 2000. At December 31, 1999, $400,000 was
outstanding. Interest is payable monthly at prime rate (8.50% at December 31,
1999). The loan is guaranteed by two officers of the Company and secured by
600,000 shares of ISI. (See Note 3).
NOTE 7: LIABILITIES
Accrued expenses consist of the following at December 31, 1999 (in
thousands):
<TABLE>
<S> <C>
Payroll related expenses $235
Other 126
----
$361
====
</TABLE>
NOTE 8: ACCRUED EXPENSES PAYABLE IN COMMON STOCK
Prior to 1998, in accordance with the employment agreements existing at
that time, two officers of the Company earned deferred salaries payable in
common stock of the Company based upon certain average stock prices. The
compensation was earned over a three year period and totaled $575,000.
F-21
<PAGE> 40
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9: 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 $17,000,000 of net operating loss
carryovers for Federal income tax purposes, of which $3,400,000 and $186,000
expire in 2000 and 2001, respectively, the remainder of which expire through
2019.
Net deferred income taxes as of December 31, 1999 consisted of the
following (in thousands):
<TABLE>
<S> <C>
Tax benefit of net operating loss carryovers $5,959
Tax basis in excess of book basis of investments in
unconsolidated subsidiaries 392
Other 2
-
Deferred tax asset 6,353
Valuation allowance (6,353)
------
Net deferred tax asset $ --
======
</TABLE>
At December 31, 1999, the Company provided a 100% valuation allowance
for the deferred tax asset because it could not determine whether it was more
likely than not that the deferred tax asset would be realized.
NOTE 10: 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, 1999, are as follows:
<TABLE>
<S> <C>
Series A preferred stock 14,750
Series A 8% cumulative convertible preferred stock 12,705
Series B 8% cumulative convertible preferred stock 2,000
------
29,455
======
</TABLE>
F-22
<PAGE> 41
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10: PREFERRED STOCK (continued)
The Series A preferred stock has a stated value of $50.00 per share and
each share is convertible into 3.3 shares of common stock at the greater of
$15.00 or 6-2/3% of the then common stock market price.
During 1998, the Company redeemed 3,500 shares of Series A preferred
stock from an officer of the Company in satisfaction of a $175,000 promissory
note 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 1998, 250 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 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 $733,000 at December 31, 1999.
NOTE 11: 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 1999 and 1998,
no options were granted under this plan. The plan has been terminated and no
further options can be granted thereunder.
F-23
<PAGE> 42
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 11: STOCK OPTIONS AND WARRANTS (continued)
No options were exercised during 1999 and 1998. No options expired
during 1999 and 66,667 options expired during 1998.
A summary of the Company's stock options and the related transactions
for the years ended December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 437,001 $ 1.00 473,668 $ 2.27
Granted 30,000 .16 30,000 .81
Exercised -- -- -- --
Expired -- -- (66,667) 9.375
------- -------- ------- --------
Outstanding at end of year 467,001 $ 1.07 437,001 $ 1.00
======= ======== ======= ========
Options exercisable at year-end 424,501 $ 1.11 407,001 $ 1.13
Weighted average fair value of
options granted during the year $ 0.05 $ 0.39
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
average Weighted Weighted
Range of exercise Number remaining average Number average
prices outstanding contractual life exercise price exercisable exercise price
------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.16 to $1.13 460,000 3.1 $1.02 417,500 $1.06
$3.75 to $4.69 7,001 1.2 4.02 7,001 4.02
------- --- ---- ----- ----
$0.16 to $4.69 467,001 3.1 $1.07 424,501 $1.11
</TABLE>
In 1999, the Company granted to its outside directors, in consideration
of services provided, 30,000 options at an exercise price of $0.16, which vest
over a three-year period and expire in July 2004. At December 31, 1999, 15,000
options were exercisable. No options were exercised as of December 31, 1999.
F-24
<PAGE> 43
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 11: STOCK OPTIONS AND WARRANTS (continued)
In 1998, the Company granted to its outside directors, in consideration
of services provided, 30,000 options at an exercise price of $0.8125, which vest
over a three-year period and expire in July 2003. At December 31, 1999, 22,500
options were exercisable. The fair value of the options granted was minimal.
Prior to 1998, the Company granted 225,000 options to two executives
and 115,000 to other employees of the Company with an exercise price of $1.125,
fair market value at the date of grant. The options vested 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, 1999, 60,000 options were exercisable. The fair value of the
options granted was minimal.
Prior to 1998, 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.
The Company also has 112,945 warrants at an exercise price of $0.96 and
100,000 warrants at an exercise price of $0.90, expiring on January 31, 2002
which were issued prior to 1997.
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 Black-Sholes
option-pricing model with the following weighted average assumptions used for
the 1999 and 1998 grants; no dividend yield, expected violatility of 46%, risk
free interest rate of 5.6% and 5.3% for 1999 and 1998, respectively, expected
life of five years.
The proforma effect of applying the provisions of SFAS No. 123 would be
as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
---- ----
<S> <C> <C>
Net income (loss)
As reported $449 $(194)
Proforma $449 $(194)
Net income (loss) per common share
- as reported and proforma
Basic $.09 $(.08)
Diluted $.07 $(.08)
</TABLE>
F-25
<PAGE> 44
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 12: SHARES RESERVED FOR FUTURE ISSUANCE
Shares reserved for future issuance at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Shares
<S> <C>
Conversion of preferred stock 1,585,370
Conversion of 10% convertible promissory notes 864,055
Conversion of 9-1/2% senior convertible notes 580,000
Conversion of 8% convertible subordinated debentures 173,485
Warrants to purchase common stock 299,043
Shares reserved for stock options including options granted 467,001
Shares reserved for stock options exchangeable for Core
stock options 175,000
---------
Total shares reserved for future issuance 4,143,954
=========
</TABLE>
In May 1998, the Company's Board of Directors resolved to reserve for
issuance 175,000 shares of Helm common stock to be issued pursuant to a like
number of Helm common stock options exercisable at $1.50 until August 31, 2007.
These Helm options may be issued to various holders of Core options in exchange
for the Core options in the event that Core does not complete a public offering
or is not merged into a public entity on or before December 31, 2002. For making
these standby options available, the Company received 25,000 Core options
exercisable at $2.00 per share. In addition, the Company will receive the Core
options exchanged for Helm options.
With respect to the 10% convertible promissory notes, the conversion
price is based on a 30 day moving average (see Note 4(b)) and thus the number of
shares issuable upon conversion will change accordingly.
NOTE 13: COMMITMENTS AND CONTINGENCIES
(a) Employment Contracts
The Company has agreements with two of its officers which provide for
continuous five-year terms. As part of the agreement, the officers will receive,
in lieu of annual base compensation, 7.5% and 3.75% of EBT, as defined. These
arrangements remained in effect through June 30, 1999. As of December 31, 1999,
no amounts were due under these contracts. The employment agreements, 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 $1.6 million at December 31, 1999. The agreements also provide for
severance and other payments in the event the officers do not complete the
original terms of the agreements or do not stay at the Company until age 65.
F-26
<PAGE> 45
HELM CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 14: LEGAL PROCEEDINGS
In 1998, the Company received a claim for indemnification as guarantor
in the amount of approximately $900,000 arising out of alleged breaches of
representations and warranties made in connection with the sale of Interpak
Terminals, Inc. in July 1997. (See Note 15). At the closing of the sale,
$250,000 of the purchase price was placed in escrow to be used to satisfy
legitimate indemnification claims. In 1999, the Company agreed to forfeit the
escrow account in full settlement of the claim. The Company had provided for
this loss in prior years and thus there was no effect on income in 1999.
NOTE 15: DISCONTINUED OPERATIONS
In 1998, the Company received approximately $41,000 for reimbursed
expenses related to the 1997 sale by the Company's subsidiary, Interpak
Holdings, Inc., of its Interpak Terminal units. Accordingly, the proceeds have
been classified as income from discontinued operations.
NOTE 16: STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
(in thousands)
<S> <C> <C>
Interest paid $185 $162
</TABLE>
Non-cash transactions relating to investing and financing activities:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
(in thousands)
<S> <C> <C>
Repayment of officer's notes receivable by exchange of
preferred stock $ -- $175
Reduction of notes payable and interest accrued expenses
in exchange for common stock of affiliates -- 22
Reduction of notes payable in exchange for common stock of
the Company -- 50
</TABLE>
F-27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 28
<SECURITIES> 0
<RECEIVABLES> 2,168
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,291
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,568
<CURRENT-LIABILITIES> 1,215
<BONDS> 1,450
38
0
<COMMON> 0
<OTHER-SE> (1,048)
<TOTAL-LIABILITY-AND-EQUITY> 3,568
<SALES> 0
<TOTAL-REVENUES> 237
<CGS> 0
<TOTAL-COSTS> (212)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 449
<INCOME-TAX> 0
<INCOME-CONTINUING> 449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 449
<EPS-BASIC> .09
<EPS-DILUTED> .07
</TABLE>
