U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
[ X ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934
For the transition period from to
Commission file number 1-9224
HELMSTAR GROUP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-2689850
- ----------------------------------------- ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 World Trade Center, Suite 2112, New York, N.Y. 10048
---------------------------------------------------------------------------
(Address of Principal Executive Offices)
212-775-0400
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 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 [ ]
The number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 30, 1996
----- -----------------------------
Common stock - par value $.10 5,546,373 shares
- ----------------------------- ----------------
<PAGE>
PART I
FINANCIAL INFORMATION
Item l. Financial Statements.
The following consolidated financial statements of Helmstar Group, Inc.
and subsidiaries (collectively referred to as the "Company," unless the context
requires otherwise) are prepared in accordance with the rules and regulations of
the Securities and Exchange Commission for Form 10-QSB and reflect all
adjustments (consisting of normal recurring accruals) and disclosures which, in
the opinion of management, are necessary for a fair statement of results for the
interim periods presented. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Form 10-KSB for the fiscal year ended December 31, 1995, which was
filed with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................. $ 1,164,688 $ 1,358,730
Marketable securities ...................... 3,127,836 3,805,767
Joint ventures ............................. 1,444,916 1,324,023
Mortgage servicing rights - net of
accumulated amortization of
$1,339 in 1996 and
$1,371 in 1995 ......................... 45,546 46,886
Mortgage loans held for sale ............... 1,345,099 1,541,640
Due from mortgage investors ................ 57,339 52,179
Furniture, equipment and
leasehold improvements - at cost,
less accumulated depreciation and
amortization of $379,246 in
1996 and $363,901 in 1995 .............. 216,404 203,373
Other assets ............................... 1,003,851 1,654,068
------------ ------------
TOTAL ............................. $ 8,405,679 $ 9,986,666
============ ============
LIABILITIES
Notes payable .............................. $ 943,743
Accrued expenses and other
liabilities ............................ $ 1,471,275 1,608,193
------------ ------------
Total liabilities ................. 1,471,275 2,551,936
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - authorized
10,000,000 shares, par value
$.10; issued 6,749,600 shares .......... 674,960 674,960
Paid-in surplus ............................ 14,984,510 14,984,510
(Accumulated deficit) ...................... (5,819,964) (5,319,638)
------------ ------------
Total ............................. 9,839,506 10,339,832
Less treasury stock, at cost -
1,203,227 shares ....................... (2,905,102) (2,905,102)
------------ ------------
Total stockholders' equity ........ 6,934,404 7,434,730
------------ ------------
TOTAL ............................. $ 8,405,679 $ 9,986,666
============ ============
See Notes to Condensed Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Profit from joint ventures .............. $ 167,393 $ 1,447,609
Loan servicing fees ..................... 12,172 218,253
Loan origination fees ................... 187,056 81,342
Interest income ......................... 116,094 56,263
Investment income ....................... 201,575 2,120
Other income ............................ 2,761 16,304
----------- -----------
Total revenues ..................... 687,051 1,821,891
----------- -----------
Expenses:
Compensation and related costs .......... 751,750 514,056
Occupancy cost .......................... 92,171 98,519
Amortization of mortgage
servicing rights ................... 1,339 100,302
General and administrative .............. 252,825 177,147
Professional fees ....................... 54,144 45,648
Interest ................................ 23,329 1,694
----------- -----------
Total expenses ..................... 1,175,558 937,366
----------- -----------
(Loss) income before taxes .................. (488,507) 884,525
Income tax .................................. 11,819 57,909
----------- -----------
NET (LOSS) INCOME ........................... $ (500,326) $ 826,616
=========== ===========
Net (loss) income per common share .......... $ (.09) $ .14
=========== ===========
Weighted average number of
common shares outstanding ............... 5,546,373 5,957,288
=========== ===========
See Notes to Condensed Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ..................................... $ (500,326) $ 826,616
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization ....................... 25,253 123,600
Unrealized (gain) on joint ventures
and other investments .............................. (167,393) (157,462)
(Gain) on sale or disposal of investments ........... (1,272,365)
Loss on sale of fixed assets ........................ 1,912
Changes in operating assets and liabilities:
Decrease (increase) in mortgage loans held for sale 196,541 (792,630)
(Increase) in due from mortgage investors .......... (5,160) (26,640)
Decrease (increase) in other assets ................ 641,649 (3,904)
(Decrease) increase in accrued expenses ............. (136,918) 26,771
----------- -----------
Net cash provided by (used in) operating activities ..... 53,646 (1,274,102)
----------- -----------
Cash flows from investing activities:
Sale (purchase) of investment securities - net:
U.S. Government obligations ......................... 677,931 (154,129)
Distributions from joint ventures and other investments 46,500
Acquisition of mortgage servicing rights .............. (10,975)
Proceeds from the sale of interest in joint ventures .. 1,677,730
Proceeds from sale of fixed assets .................... 8,752
Purchase of fixed assets .............................. (28,376) (4,282)
----------- -----------
Net cash provided by investing activities ............... 696,055 1,517,096
----------- -----------
Cash flows from financing activities:
Repayment of short term borrowings - net: ............. (943,743) (379,479)
Purchase of treasury stock ............................ (7,183)
----------- -----------
Net cash (used in) financing activities ................. (943,743) (386,662)
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ............. (194,042) (143,668)
Cash and cash equivalents at beginning of period ........ 1,358,730 739,624
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 1,164,688 $ 595,956
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................ $ 23,329 $ 1,694
Taxes ............................................... 6,278 7,273
See Notes to Condensed Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
l. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in the
notes to the Company's financial statements included in its Form 10-KSB, for the
fiscal year ended December 3l, 1995, which was filed with the Securities and
Exchange Commission.
2. JOINT VENTURES
On February 22, 1995, First Highpoint Limited Partnership sold its
principal asset, an apartment project located in Plano, Texas.
Summary combined operating results of the joint ventures in which the
Company is a co-venturer are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Rental income ............................ $ 619,058 $ 811,094
Operating expenses ....................... (8,908) (134,999)
----------- -----------
Net operating income ..................... 610,150 676,095
Other income (expense) ................... (373,774) (391,602)
----------- -----------
Net income ............................... $ 236,376 $ 284,493
=========== ===========
Company's share of profit
from joint ventures ...................... $ 167,393 $ 186,738
Company's share of gain on
sale of an apartment project ............. 1,260,871
----------- -----------
Profit from joint ventures ............... $ 167,393 $ 1,447,609
=========== ===========
</TABLE>
Pro forma summary combined operating results of the joint ventures in
which the Company is a co-venturer, excluding First Highpoint Limited
Partnership, are as follows:
<PAGE>
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Rental income ............................ $ 619,058 $ 621,669
Operating expenses ....................... (8,908) (28,530)
--------- ---------
Net operating income ..................... 610,150 593,139
Other income (expense) ................... (373,774) (320,139)
--------- ---------
Net income ............................... $ 236,376 $ 273,000
========= =========
Company's share of profit
from joint ventures ...................... $ 167,393 $ 175,245
========= =========
</TABLE>
3. INCOME (LOSS) PER SHARE
Income (loss) per share is computed based on the weighted average
number of common shares outstanding during each period. Common share equivalents
relating to the Company's incentive compensation plan have been excluded from
the computation for the three months ended March 31, 1996 because the effect of
their inclusion would be antidilutive.
4. LITIGATION
The Company is a defendant in various lawsuits. In those instances in
which any liability can be estimated, provisions have been reflected in the
financial statements. The ultimate outcome of the remaining lawsuits cannot
presently be determined, and no provision for any liability that may result has
been made in the financial statements, since the amounts, if any, cannot be
determined.
For an update to the litigation described in the notes to the Company's
Financial Statements included in its Form 10-KSB for the fiscal year ended
December 31, 1995, which was filed with the SEC, see Item 1, "Legal
Proceedings," on page 16 of this Form 10-QSB.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
A. Three Months Ended March 31, 1996 Compared
with Three Months Ended March 31, 1995
In May 1995, the Company began a new business of
arranging viatical settlements. A viatical settlement is the
payment of a discounted death benefit on an insurance policy
to the insured while the insured is still living. The insured
transfers ownership of the policy to the entity that makes the
payment. The insured must be critically ill, i.e., have a life
threatening disease with a limited life expectancy. The
Company will receive a fee from the purchaser of the life
insurance policy.
The Company is educating social services
professionals and employee benefits managers about viatical
settlements. The Company expects to receive referrals from
such persons.
Total revenues decreased to $687,051 for the three
months ended March 31, 1996 from $1,821,891 for the three
months ended March 31, 1995.
Profit from joint ventures decreased to $167,393 for
the three months ended March 31, 1996 from $1,447,609 for the
three months ended March 31, 1995. This classification
represents the Company's share of income and losses, computed
in accordance with the equity method of accounting, from
various joint ventures in which the Company is participating.
The profit for the three months ended March 31, 1995
included the effect of the sale in February 1995 by First
Highpoint Limited Partnership ("First Highpoint"), a Texas
partnership, of an apartment project located in Plano, Texas.
This was an all cash sale to an insurance company. The
Company's share of the profit was approximately $1,260,000.
Additionally, the Company had derived a profit of $11,493 from
First Highpoint's operating results for the three months ended
March 31, 1995. Excluding the effects of First Highpoint from
profit from joint ventures for the three months ended March
31, 1995, the Company's profit would have been $175,245.
Compared with the profit of $167,393 for the three months
ended March 31, 1996, the decrease was $7,852. The decrease
was attributable to increased interest expense due to the
refinancing of the debt of Blowing Rock Outlet Partners
("Blowing Rock") from $3,757,828 to $6,550,000 in April 1995
and a change in the Company's percentage share of income, as
described below, from Blowing Rock.
<PAGE>
Operating results of the two real estate ventures in
which the Company participates continue to improve. The
Company's percentage share of income from Blowing Rock was
lower for the three months ended March 31, 1996 than for the
comparable prior period because of the successful refinancing
of the venture's project in April 1995. The partnership
agreement provides that the Company's share of income and cash
flow would decline, once the Company recovered its entire
capital contribution from certain events including the
refinancing of the venture's debt. In April 1995, the Company
received a distribution from refinancing proceeds in excess of
its capital contribution.
Although operating results continue to improve, some
variation in profit or loss for a specific interim period may
result due to such factors as receiving annual payments of
percentage rent; incurring periodic operating expenses which
will occur only every few years, such as painting the entire
project; accounting adjustments between interim periods; lost
rent due to the turnover of a tenant notwithstanding that a
new tenant has been secured at a higher rent; etc.
The Company did not realize any financial consulting
fees for the three months ended March 31, 1996 or for the
three months ended March 31, 1995. Although providing
financial structuring advice to clients on a fee basis remains
an integral component of the Company's merchant banking
business, significant variations in revenues are likely
because of the transactional nature of this business.
Typically, an engagement is based on a specific assignment to
assist a client to lower its cost of capital. The Company
currently is engaged in advising clients with respect to the
structuring of transactions which are expected to generate
fees later in 1996.
Loan servicing fees were $12,172 for the three months
ended March 31, 1996 compared with $218,253 for the three
months ended March 31, 1995. In December 1995, the Company
sold substantially all of its mortgage servicing rights for
approximately $2.3 million and realized a gain of
approximately $380,000. The Company has repositioned its
mortgage banking operation to originate residential mortgage
loans and sell the servicing rights to other mortgage banking
companies. The Company intends to sell the balance of its
mortgage servicing rights in the near future. Such disposition
is not expected to result in a significant gain or loss.
Loan origination fees increased to $187,056 for the
three months ended March 31, 1996 compared with $81,342 for
the three months ended March 31, 1995. This category includes
fees earned in connection with making mortgage loans and net
profit or loss from sales of such loans to investors. This
increase was attributable to the Company's ability to attract
experienced mortgage loan originators as well as an improved
housing market due to lower interest rates during the three
months ended March 31, 1996 compared with the three months
ended March 31, 1995.
<PAGE>
Interest income increased to $116,094 for the three
months ended March 31, 1996 from $56,263 for the three months
ended March 31, 1995, due in large part to an increase in the
Company's interest earning assets as a result of substantial
cash distributions received during 1995 from First Highpoint
and Blowing Rock.
Investment income increased dramatically to $201,575
for the three months ended March 31, 1996 from $2,120 for the
three months ended March 31, 1995. This category principally
consists of net profit or loss from investing in futures,
puts, calls, equities, municipal securities, and other
securities activities.
Other income was $2,761 for the three months ended
March 31, 19965 compared with $16,304 for the three months
ended March 31, 1995. In 1995, this category consisted
primarily of sundry fees and revenues earned in connection
with the Company's mortgage banking business other than loan
servicing or origination fees. In 1996, it consisted primarily
of revenue derived from arranging a viatical settlement.
Total expenses increased to $1,175,558 for the three
months ended March 31, 1996 from $937,366 for the three months
ended March 31, 1995.
Compensation and related costs increased to $751,750
for the three months ended March 31, 1996 from $514,056 for
the three months ended March 31, 1995. This increase
principally was attributable to the addition of professional
staff after March 31, 1995; higher commission expense for
mortgage loan originators as a result of the increased volume
of originations; additional salaried employees in the mortgage
loan origination area to support the higher level of
production; and salaries incurred in connection with the
Company's viatical settlements business which had commenced in
May 1995. Increased compensation in mortgage loan originations
partially was offset by salary savings from a reduction in
mortgage servicing personnel as a result of the sale of
substantially all of the Company's mortgage servicing
portfolio.
Occupancy costs decreased slightly to $92,171 for the
three months ended March 31, 1996 from $98,519 for the three
months ended March 31, 1995. This decrease reflects a rent
increase for maintaining a small office for the Company's
viatical settlements business and a significant decrease in
rent on the Company's executive offices, effective March 1,
1996. The landlord has permitted the Company to remain in
possession of the premises at the recently negotiated, lower
rent pending the finalization of a new lease.
<PAGE>
Amortization of mortgage servicing rights decreased
to $1,339 for the three months ended March 31, 1996 from
$100,302 for the three months ended March 31, 1995. The
carrying amount of purchased mortgage servicing rights must be
amortized over the period of the estimated future net
servicing income associated therewith. For fiscal years
beginning after December 15, 1995, Statement of Financial
Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights ("SFAS 122"), requires that servicing rights
also must be capitalized and subsequently amortized in the
same manner as purchased servicing rights, if the servicing
rights were acquired in connection with originating mortgage
loans with respect to which the originator has a definitive
plan to sell or securitize the loans and retain the servicing
rights. In these instances, under SFAS 122, a portion of the
cost of originating a mortgage loan must be allocated to the
right to service such loan.
The Company reviews the carrying amount of its
capitalized servicing rights. If an impairment exists, the
amount thereof will be recognized through a valuation
allowance. When the Company's withdrawal from mortgage
servicing as a separate activity is completed, the Company
will no longer have a mortgage servicing portfolio to
amortize. Management believes that SFAS 122 does not have a
material effect on the Company's financial statements.
General and administrative expenses increased to
$252,825 for the three months ended March 31, 1996 from
$177,147 for the three months ended March 31, 1995. This
increase reflects higher mortgage loan origination activity;
promotion expenses incurred in connection with the Company's
financial consulting activities; and expenses related to the
Company's viatical settlements business.
Professional fees increased slightly to $54,144 for
the three months ended March 31, 1996 from $45,648 for the
three months ended March 31, 1995.
Interest expense was $23,329 for the three months
ended March 31, 1996 compared with $1,694 for the three months
ended March 31, 1995. This increase was attributable to
interest expense incurred by the Company in connection with
its treasury management function to maximize investment
income.
On a pre-tax basis, the Company had a loss of
$488,507 for the three months ended March 31, 1996 compared
with a profit of $884,525 for the three months ended March 31,
1995. Provision for income taxes for the three months ended
March 31, 1996 was $11,819 compared with $57,909 for the three
months ended March 31, 1995. These provisions consist solely
of state and local taxes. For Federal income tax purposes, as
of December 31, 1995, the Company had net operating loss
carryforwards of approximately $10,211,000 available to reduce
future taxable income. These carryforwards expire in the years
2006 through 2009.
<PAGE>
The Company's net loss for the three months ended
March 31, 1996 was $500,326 compared with net income of
$826,616 for the three months ended March 31, 1995. On a per
share basis, the net loss was ($.09) for the three months
ended March 31, 1996, compared with net income of $.14 for the
three months ended March 31, 1995. Income per share for the
three months ended March 31, 1995 is computed based on the
weighted average number of common shares actually outstanding
plus the shares that would be outstanding assuming the
exercise of stock options relating to the Company's incentive
compensation plan which are considered to be common stock
equivalents. The assumed exercise of stock options relating to
the Company's incentive compensation plan were not included in
the computation of the loss per share for the three months
ended March 31, 1996, because the effect of their inclusion
would be antidilutive. The number of shares used in the
computations were 5,546,373 in 1996 and 5,957,288 in 1995.
B. Liquidity and Capital Resources
Management of the Company believes that funds
generated from operations, its credit and warehouse
facilities, and cash distributions from joint ventures,
supplemented by its available assets, will provide it with
sufficient resources to meet all present and reasonably
foreseeable future capital needs. A significant portion of the
Company's assets are readily convertible into cash.
The Company invests excess funds in liquid, short-
term financial instruments in order to maximize its current
cash return with minimum interest rate risk, while preserving
the ability to move quickly in funding attractive merchant
banking ventures. Such investments primarily include U.S.
Government obligations, municipal securities, commodity
futures contracts, and money market funds. Additionally, since
commencing the mortgage loan origination business, the Company
may use its own cash to carry a portion of its inventory of
mortgage loans originated for resale. Prior to funding any
loans, the Company procures firm commitments from investors to
purchase such loans. Fifteen days is the typical time between
funding a mortgage loan and receiving payment from an
investor.
The Company's primary financing needs are in its
mortgage banking activities. In addition to its own cash
resources, the Company meets its mortgage funding requirements
by borrowing the necessary amounts from a $2.25 million
"credit facility" maintained with a savings bank. After
funding an individual loan, the Company can replenish its cash
position or available borrowing capacity under the credit
facility by utilizing a separate, $11 million mortgage
"warehouse facility." The Company can draw down up to 98% of
the face amount of an individual mortgage loan from the
"warehouse facility." This facility is replenished from the
purchase price paid by the investor who had committed to
purchase such loan.
<PAGE>
The Company had a $350,000 revolving credit line for
use in its mortgage banking activities with the bank which
provides the "warehouse facility." This revolving credit line
expired on April 1, 1996. Management believes that the
Company's operations will not be materially impacted by the
absence of this line.
In connection with its interests in real estate, the
Company uses separate subsidiaries for each venture. The
Company utilizes the equity method of accounting for its
interests in real estate joint ventures. Accordingly, the
assets and liabilities of such ventures are not included in
the Company's consolidated balance sheets.
The two operating real estate projects in which the
Company is a co-venturer, currently have strong occupancies
and positive cash flow. Cash maintained by each partnership,
supplemented with cash flow from operations, should be
sufficient to cover all operating costs and debt service
requirements of each venture. Additional cash contributions
from the Company or its co-venturers would not be necessary.
Facts and circumstances, however, are subject to change for
reasons beyond the Company's control. Based on current
estimates, the Company expects to continue to receive cash
distributions from its real estate joint ventures during 1996.
In April 1993, one of the Company's real estate joint
ventures entered into a modification agreement with the lender
holding the venture's mortgage loan. The lender converted the
loan from a short-term, variable rate loan into a four-year,
fixed rate loan. Interest is payable at 8.5% per annum. The
lender charged an extension fee which was paid as follows: (1)
$15,000 at the time the extension was consummated; (2) $15,000
on April 1, 1994; and $33,818 (an amount equal to the product
of the outstanding principal balance $4,609,079 multiplied by
.0075) on April 1, 1995. Regular amortization was determined
on a 20-year schedule for the first year and then on a 15-year
self-liquidating basis. Additional amortization payments equal
to 25% of "excess cash flow" were paid during the second
12-month period. Thereafter, 50% of "excess cash flow" was due
as additional amortization. The loan matures on April 1, 1997.
In April 1995, the Company's other real estate joint
venture refinanced the mortgage loan on its project. The
principal amount of the new, nonrecourse loan is $6,550,000;
the interest rate equals Citibank's six-month LIBOR rate plus
3.10% and the interest rate resets each September and March;
the maximum interest rate is 13.5375%; principal amortization
is based on a 25-year schedule; and the loan matures on May 1,
2002. The current interest rate through August 31, 1996 is
8.3%. The interest rate had been 9.5375% through August 31,
1995 and 9.0063% from September 1, 1995 through February 29,
1996. The principal balance of the refinanced loan was
$3,757,828. The proceeds from refinancing, net of expenses
including points, fees, title insurance, escrows, etc., was
approximately $2.5 million. The Company received a
distribution from the joint venture of approximately $2.2
million.
<PAGE>
Prior to the distribution of the net proceeds from
refinancing, the Company received a preferred return equal to
10% of its original capital contribution. Distributions from
sales or refinancing proceeds were to be applied, pursuant to
the partnership agreement, first to the Company to pay any
preferred return due and then in an amount equal to the
Company's original capital contribution. The Company received
55% of cash distributions in excess of the preferred return.
Since the Company recovered its entire original capital
contribution, it will no longer receive a preferred return. If
the project is sold or refinanced in the future, the Company
will receive 70% of distributable net proceeds.
Although the venture's outstanding debt was increased
substantially, at current interest rates, monthly debt service
decreased slightly because the old loan required monthly
principal payments of $40,000 through its maturity in July
1995. In addition to principal and interest payments, debt
service on the new loan includes contributions to various
reserve accounts. The funds from such reserve accounts may be
used, in accordance with the loan agreement, to offset future
expenses, if any, for structural repairs, tenant improvements,
leasing commissions, and interest expense.
The carrying amounts reflected on the Company's
consolidated balance sheet for its joint venture interests is
determined in accordance with the equity method of accounting.
Such carrying amounts may not be representative of the
realizable value on a sale of those interests. Management
reviews the carrying amount of each venture to determine if an
adjustment for any impairment other than a temporary decline
is required. If management believes in good faith that any
impairment is other than temporary, a loss provision equal to
such amount will be included in the Company's consolidated
statement of operations.
Cash distributions from joint ventures are reflected
in investing activities in the Company's consolidated
statements of cash flows. Equity contributions to joint
ventures as well as any advances to joint ventures also are
reflected in investing activities in the Company's
consolidated statements of cash flows.
While the Company believes that currently available
funds will provide it with sufficient resources to meet all
present and reasonably foreseeable future capital needs, the
Company may seek various forms of credit in order to finance
its merchant banking, mortgage banking or other activities in
the future. The Company does not have any material commitments
for capital expenditures as of March 31, 1996.
The Company is a defendant in various lawsuits.
Although the Company has reached settlements in some
instances, an unfavorable result in those remaining could have
a significant adverse effect upon the Company's liquidity and
capital resources.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Fred W. Wasserman, et al. v. Jeffrey P. Christopher, et al.,
Case No. 278699
In May 1996, the Company was served with a summons
and complaint in connection with a class action commenced in
March 1996 against multiple parties. This action was filed in
the Superior Court of California, County of Riverside. The
plaintiffs brought this action on behalf of themselves and all
other purchasers of bonds issued by the Housing Authority of
the County of Riverside for the Whitewater Garden Apartments
project and the Ironwood Apartments project (the "Bonds"). The
plaintiffs maintain the defendants misrepresented that the
interest on the Bonds would be exempt from federal income tax.
The plaintiffs allege negligent misrepresentation, fraudulent
misrepresentation, and concealment against multiple
defendants, including the Company, relating to actions with
respect to the issuance and underwriting of the Bonds in 1985
and 1986. The plaintiffs also filed claims involving breach of
written contract, breach of oral contract, breach of fiduciary
duty, and negligent representation against multiple defendants
other than the Company. The plaintiffs are seeking damages for
taxes, penalties, and interest they have paid or are obligated
to pay, attorneys fees, costs, punitive damages, and other
relief the court deems just. The plaintiffs maintain that
taxes, interest, and penalties are in excess of $3 million or
an amount to be proved at the time of trial.
Responsive pleadings are not due yet. The Company
plans to defend vigorously against all of the plaintiffs'
allegations involving it. It is too early to assess the
potential for, and the amount of, any damages in connection
with this action.
In October 1995, the United States Tax Court held in
Harbor Bancorp & Subsidiaries, et al. v. Commissioner of
Internal Revenue, 105 T.C. No. 19, that the interest on the
Bonds at issue in the Wasserman case was not excludable from
the taxpayers' taxable income. In January 1996, the taxpayers
appealed the Tax Court's decision to the U.S. Court of Appeals
for the Ninth Circuit.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: -- A statement regarding the computation of per
share earnings is omitted because the computation is
described in Note 3 of the Notes to Consolidated Financial
Statements (Unaudited) on page 6 of this Form 10-QSB.
Exhibit 27 -- Financial Data Schedule - see below
(b) Reports on Form 8-K:
-- January 2, 1996, Disposition of
substantially all of the Company's
mortgage servicing rights.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HELMSTAR GROUP, INC.
s/ George W. Benoit
----------------------------------------
Date: May 15, 1996 George W. Benoit, Chairman of the
Board of Directors, President,
Chief Executive Officer
s/ Roger J. Burns
----------------------------------------
Date: May 15, 1996 Roger J. Burns, First Vice President,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HELMSTAR
GROUP, INC. AND SUBSIDIARIES' CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE INTERIM
PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,164,688
<SECURITIES> 3,127,836
<RECEIVABLES> 57,339
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 595,650
<DEPRECIATION> 379,246
<TOTAL-ASSETS> 8,405,679
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 674,960
<OTHER-SE> 6,259,444
<TOTAL-LIABILITY-AND-EQUITY> 8,405,679
<SALES> 0
<TOTAL-REVENUES> 687,051
<CGS> 0
<TOTAL-COSTS> 1,175,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,329
<INCOME-PRETAX> (488,507)
<INCOME-TAX> 11,819
<INCOME-CONTINUING> (500,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (500,326)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
