UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Hello Direct Inc.
(Name of Issuer)
Common Stock, Par Value $.001 Per Share
(Title of Class of Securities)
423402106
CUSIP Number)
Nelson Obus, Wynnefield Capital Management, LLC
One Penn Plaza, Suite 4720, New York, New York 10119, (212) 760-0814
and
Jesse R. Meer, Esq.
Berlack, Israels & Liberman, LLP,
120 West 45th Street, New York, N.Y. 10036, (212) 704-0100
(Name, Address and Telephone Number of Persons Authorized to Receive Notices and
Communications)
August 28, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
(Page 1 of 9 Pages)
<PAGE>
SCHEDULE 13D
- -------------------- -----------------
CUSIP No. 423402106 Page 2 of 9 Pages
- -------------------- -----------------
________________________________________________________________________________
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Wynnefield Partners Small Cap Value, L.P.
13-3688497
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [_]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS*
WC
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
________________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF 113,879
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
None
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 113,879
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
113,879 SHARES
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.23
________________________________________________________________________________
14 TYPE OF REPORTING PERSON*
PN
________________________________________________________________________________
*SEE INSTRUCTIONS BEFORE FILLING OUT!
(Page 2 of 9 Pages)
<PAGE>
SCHEDULE 13D
- -------------------- -----------------
CUSIP No. 423402106 Page 3 of 9 Pages
- -------------------- -----------------
________________________________________________________________________________
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Wynnefield Partners Small Cap Value, L.P. II
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [_]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS*
WC
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
________________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF 100,321
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
None
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 100,321
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
100,321 shares
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.96
________________________________________________________________________________
14 TYPE OF REPORTING PERSON*
PN
________________________________________________________________________________
*SEE INSTRUCTIONS BEFORE FILLING OUT!
(Page 3 of 9 Pages)
<PAGE>
SCHEDULE 13d
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CUSIP No. 423402106 Page 4 of 9 Pages
- -------------------- ------------------
________________________________________________________________________________
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Wynnefield Small Cap Value Offshore Fund Ltd.
None
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [_]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS*
WC
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)[_]
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
________________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF 54,300
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
None
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 54,300
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
54,300 shares
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.06
________________________________________________________________________________
14 TYPE OF REPORTING PERSON*
CO
________________________________________________________________________________
*SEE INSTRUCTIONS BEFORE FILLING OUT!
(Page 4 of 9 pages)
<PAGE>
SCHEDULE 13D
Item 1. Security and Issuer.
This statement relates to the Common Stock, par value $.001 per share (the
"Shares"), of Hello Direct Inc., a Delaware corporation (the "Issuer"). The
Issuer's principal executive offices are located at 5893 Rue Ferrari, San Jose,
CA 95138-1858.
Item 2. Identity and Background.
This statement is being filed by Wynnefield Partners Small Cap Value, L.
P., and Wynnefield Partners Small Cap Value, L.P. I, each a limited partnership
formed under the laws of the State of Delaware (together the "Partnerships") and
Wynnefield Small Cap Value Offshore Fund Ltd., an Exempted Company formed under
the laws of the Cayman Islands (the "Offshore Fund"). The principal business of
the Partnerships and the Offshore Fund is investments. The address of the
principal offices of the Partnerships is One Penn Plaza, Suite 4720, New York,
New York 10119 and the address of the principal offices of the Offshore Fund is
c/o Olympia Capital (Cayman) Ltd., Williams House, 20 Reid Street, Hamilton HM
11, Bermuda.
Wynnefield Capital Management, LLC, a New York limited liability company
("WCM") is the general partner of the Partnerships. Nelson Obus, Joshua Landes
and Robert Melnick are the managing members of WCM, and their principal business
address is the same as the Partnerships'. The principal occupations of Messrs.
Obus, Landes and Melnick are acting as the managing members of WCM and managing
investments of the Partnerships. Messrs. Obus, Landes and Melnick are also
executive officers of Wynnefield Capital Inc. ("Wynnefield Capital") a
corporation organized under the laws of Delaware. Wynnefield Capital is the
investment manager of the Offshore Fund.
During the past five years, neither the Partnerships, the Offshore Fund,
WCM, Wynnefield Capital, Mr. Obus, Mr. Landes nor Mr. Melnick (a) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (b) has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction, as a result of which it or he was
or is subject to a judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
Messrs. Obus, Landes and Melnick are citizens of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
214,200 Shares were purchased by the Partnerships for cash aggregating
$1,246,661. The cash was provided from the working capital of the Partnerships.
54,300 Shares were purchased by the Offshore Fund for cash aggregating $335,000
which was provided from its working capital.
Item 4. Purpose of Transaction.
The Partnerships and the Offshore Fund intend to vote their Shares and
otherwise to influence the policies of the Issuer's management to achieve the
objectives described in the letter, dated August 31, 1998, attached as an
exhibit hereto.
(Page 5 of 9 Pages)
<PAGE>
Item 5. Interest in Securities of the Issuer.
The Partnerships and the Offshore Fund own a total of 268,500 Shares. Such
Shares represent approximately 5.25% of the Shares of the Issuer that were
outstanding as of July 24, 1998, based on the Issuer's quarterly report on Form
10-Q for the period ended June 30, 1998.
Messrs. Obus, Landes and Melnick, as the managing members of WCM, the
general partner of the Partnerships, and as the officers of Wynnefield, the
investment manager of the Offshore Fund, have the sole power to vote, or to
direct the vote, or to direct the sale or other disposition of, the Shares and
have the sole power to receive or to direct the receipt of the proceeds from the
sale of the Shares, or any dividends paid with respect to the Shares.
As of June 22, 1998, Wynnefield Partners Small Cap Value, L.P.
("Wynnefield"), owned 84,089 Shares, Wynnefield Partners Small Cap Value, L.P. I
("Wynnefield-I") owned 67,511 Shares and the Offshore Fund owned 37,900 Shares.
Additional Shares were purchased in August, 1998, as follows:
<TABLE>
PER SHARE
PURCHASER DATE OF PURCHASE SHARES PURCHASED PURCHASE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wynnefield August 13 5,040 $7.0000
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield August 14 6,300 7.0000
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield August 20 4,725 6.9375
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield August 27 8,925 6.5000
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield August 28 4,800 6.3750
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield-I August 7 6,000 7.0042
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield-I August 13 4,560 7.0055
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield-I August 14 5,700 7.0044
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield-I August 20 4,275 6.9433
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield-I August 27 8,075 6.5031
- ------------------------------------------------------------------------------------------------------------------------------------
Wynnefield-I August 28 4,200 6.3810
- ------------------------------------------------------------------------------------------------------------------------------------
Offshore Fund August 13 2,400 7.0000
- ------------------------------------------------------------------------------------------------------------------------------------
Offshore Fund August 14 3,000 7.0000
- ------------------------------------------------------------------------------------------------------------------------------------
Offshore Fund August 20 6,000 6.9375
- ------------------------------------------------------------------------------------------------------------------------------------
Offshore Fund August 27 5,000 6.5000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
Neither the Partnerships, the Offshore Fund, WCM, Wynnefield Capital, Mr.
Obus, Mr. Landes nor Mr. Melnick has any contracts, arrangements, understandings
or relationships (legal or otherwise) with respect to the Shares. None of the
Shares is pledged or otherwise subject to a contingency, the occurrence of which
would give another person voting or investment power over the Shares.
Item 7. Material to be Filed as Exhibits.
Letter from Wynnefield Capital Inc. to the Board of Directors of the
Issuer, dated August 31, 1998.
(Page 6 of 9 Pages)
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
September 2, 1998
(Date)
WYNNEFIELD PARTNERS SMALL CAP VALUE, L.P.
WYNNEFIELD PARTNERS SMALL CAP VALUE, L.P.I
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC
By: s/ Nelson Obus
Nelson Obus, Managing Member
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND LTD.
By: s/ Joshua Landes_________________________
Joshua Landes, Director
(Page 7 of 9 Pages)
<PAGE>
August 31, 1998
The Members of the Board of Directors
Hello Direct Inc.
5893 Rue Ferrari
San Jose, CA 95138
Gentlemen,
The purpose of this letter is to express publicly our displeasure with the
company's capital structure and reluctance to engage in a share re-purchase and,
ultimately, to suggest that a public company format may be inappropriate for
Hello Direct Inc.
HELO came public in April 1995 at $11.50 a share and has yet to invest the
proceeds from the IPO. The company has a debt-free balance sheet, with cash and
equivalents of $2.42 a share. The company produces cash and sells at a discount
to book value. We believe that the company sells at a substantial discount to
its private market value.
Within this context---an undervalued security, excessively capitalized---we
believe that a share re-purchase would have made eminent sense under any
condition. However, taken in light of the current market conditions and the 2
1/2 mm shares recently distributed by the two large venture capital funds, it's
baffling that the company hasn't explored this venue.
Hello Direct has a fine management, a fine business niche, and an exciting
business model. We are fully cognizant of the great strides senior management
has made to turn around the prosperity of HELO. We applaud these initiatives and
look forward to future growth and improvement in profitability.
That said, it's premature to be taking any victory laps. Hello Direct's
operating margin, return on assets, and return on equity are woeful, and the
company has yet to realize the operating leverage off a large and growing
infrastructure. Management has stated its intention to make fold-in acquisitions
and has stated its belief that there is managerial and infrastructure capacity
to handle an increase in revenues to perhaps $200mm. The fact remains, however,
that management has not executed a single acquisition within HELO.
While the public shareholders have not seen the benefits from the company's
behavior, the same isn't true of other Hello Direct constituents. Management has
built a large staff and last year moved to a comparatively opulent facility
given its line of business. Stock options have been granted to management and
employees, and, recently, two board members did a great injustice to the public
shareholders by distributing shares in their private investment vehicles in such
a way as to triple the public float of the company, creating a sloppy overhang
that has contributed to the stock declining from $13 to its present price of $5
1/4 a share.
The company appears to have little reason to be public. There are no analysts
following the company, and the company has no immediate need for capital. The
firm has done little to defend its currency--its stock price-- to facilitate
future use of the currency for acquisitions, joint venture purposes, or to
attract and retain management.
The board of directors owns little stock directly, following the two recent
distributions. We urge you to demonstrate the same fiduciary duty to the public
shareholders as you have done for yourselves and your two funds. We believe that
this company could be sold in a single transaction at a substantial premium to
its current stock price and we urge this consideration. If the company is to
remain as a public company, it's time to start acting like one.
(Page 8 of 9 Pages)
<PAGE>
In going public, a company establishes a bond with the equity marketplace. Hello
Direct Inc.'s board has acknowledged this in previous discussion by publicly
stating that it will not engage in such dastardly behavior as re-pricing of
options. What the board may be over-looking, by not buying back shares, is the
ultimate effect this refusal will have on the workforce who are shareholders and
ultimately on the valuation. For when the dark clouds of 1998 have passed,
prospective investors will assess which companies defended their currencies and
which permitted their stocks to erode to absurd levels.
Respectfully submitted,
Bobby Melnick
General Partner
Wynnefield Capital Inc.
(Page 9 of 9 Pages)
