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 June 30, 1997
[ ] 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 July 31, 1997
Common stock - par value $.10 5,516,373 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, 1996, which was
filed with the Securities and Exchange Commission.
The results of operations for the three months and six months ended
June 30, 1997 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
June 30, December 31,
ASSETS 1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents ................ $ 945,258 $ 1,679,454
Marketable securities .................... 3,203,759 1,350,441
Joint ventures ........................... 82,234 1,418,383
Other investments ........................ 35,000
Mortgage loans held for sale ............. 2,648,359 2,647,692
Due from mortgage investors .............. 4,123
Furniture, equipment and
leasehold improvements - at cost,
less accumulated depreciation and
amortization of $456,880 in
1997 and $415,504 in 1996 ............ 266,505 237,673
Other assets ............................. 436,451 951,132
------------ ------------
TOTAL ........................... $ 7,617,566 $ 8,288,898
============ ============
LIABILITIES
Notes payable ............................ $ 2,414,665 $ 2,246,672
Accrued expenses and other
liabilities .......................... $ 1,256,446 $ 979,298
------------ ------------
Total liabilities ............... 3,671,111 3,225,970
------------ ------------
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) .................... (8,784,417) (7,683,718)
------------ ------------
Total ........................... 6,875,053 7,975,752
Less treasury stock, at cost
1,233,227 shares in 1997 and
1,213,227 shares in 1996 ............. (2,928,598) (2,912,824)
------------ ------------
Total stockholders' equity ...... 3,946,455 5,062,928
------------ ------------
TOTAL ........................... $ 7,617,566 $ 8,288,898
============ ============
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 Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Profit from joint ventures ... $ 176,933 $ 253,352 $ 363,851 $ 420,745
Financial consulting fees .... 90,000
Loan servicing fees net of
guarantor fees .......... 33 15,995 70 28,167
Loan origination fees ........ 351,000 424,438 734,991 611,494
Interest income .............. 110,956 91,108 174,762 207,202
Investment income (loss) ..... (491,164) (9,981) 53,400 191,594
Other income (loss) .......... 200 (335) 1,768 2,426
----------- ----------- ----------- -----------
Total revenues .......... 147,958 774,577 1,418,842 1,461,628
----------- ----------- ----------- -----------
Expenses:
Compensation and related costs 717,974 981,243 1,503,086 1,732,993
Occupancy cost ............... 79,084 93,788 157,653 185,959
Amortization of mortgage
servicing rights ........ 1,335 2,674
General and administrative ... 313,615 336,903 606,383 589,728
Professional fees and
litigation expenses ..... 81,353 26,426 107,434 80,570
Interest ..................... 103,668 41,459 141,968 64,788
----------- ----------- ----------- -----------
Total Expenses .......... 1,295,694 1,481,154 2,516,524 2,656,712
----------- ----------- ----------- -----------
Loss before taxes ............... (1,147,736) (706,577) (1,097,682) (1,195,084)
Income tax (benefit) ............. (6,764) 9,500 3,016 21,319
----------- ----------- ----------- -----------
NET (LOSS)....... ................ $(1,140,972) $ (716,077) $(1,100,698) $(1,216,403)
=========== =========== =========== ===========
Net (loss)
per common share ............. $ (.21) $ (.13) $ (.20) $ (.22)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding .... 5,516,373 5,545,806 5,525,542 5,608,592
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) .............................................. $(1,100,699) $(1,216,403)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization............................ 48,515 50,788
Unrealized (gain) from joint ventures
and other investments................................... (363,851) (220,745)
(Gain) on settlement, sale or disposal of investments.... (200,000)
Provision for loan reserve............................... 50,000
Changes in operating assets and liabilities:
(Increase) in mortgage loans held for sale.............. (667) (1,318,588)
Decrease (increase) in due from mortgage investors...... 4,123 (176,497)
Decrease (increase) in other assets..................... 507,543 (409,787)
Purchase of investment securities - net................. (1,853,318)
Increase (decrease) in accrued expenses................. 277,148 (405,756)
----------- -----------
Net cash (used in) operating activities...................... (2,431,206) (3,896,988)
----------- -----------
Cash flows from investing activities:
Sale of marketable securities - net........................ 3,339,381
Distributions from joint ventures and other investments.... 1,700,000 99,123
Proceeds from the settlement or sale of joint ventures..... 200,000
Purchase of other investments.............................. (35,000)
Purchase of fixed assets................................... (70,209) (85,653)
Loan to debtor in possession............................... (50,000)
----------- -----------
Net cash provided by investing activities.................... 1,544,791 3,552,851
----------- ----------
Cash flows from financing activities:
Proceeds of short term borrowings - net.................... 167,993 279,951
Purchase of treasury stock................................. (15,774) (1,332)
----------- ----------
Net cash provided by financing activities.................... 152,219 278,619
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (734,196) (65,518)
Cash and cash equivalents at beginning of period............. 1,679,454 1,358,730
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 945,258 $ 1,293,212
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................. $ 141,968 $ 64,788
Taxes.................................................... 688 6,578
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, 1996, which was filed with the Securities and
Exchange Commission (the "SEC").
2. JOINT VENTURES
On June 15, 1997, Nags Head Outlet Partners refinanced its principal
asset, a manufacturers outlet shopping center, located in Nags Head, North
Carolina. The Company's share of the proceeds distributed after the refinancing
was in excess of the carrying amount of the Company's interest in such venture
prior to the distribution.
Summary combined operating results of the joint ventures in which the
Company is a co-venturer are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
Rental income .............................. $ 552,186 $ 517,007
Operating expenses ......................... (46,076) (80,563)
--------- ---------
Net operating income ....................... 506,110 436,444
Other income (expense) ..................... (370,288) (363,424)
--------- ---------
Net income ................................. $ 135,822 $ 73,020
========= =========
Company's share of profit
from joint ventures ..................... $ 97,522 $ 53,352
Receipt from the guarantors
of a co-venturer's
obligations in connection
with the development of a
project which had been sold at
a foreclosure sale in 1992 .............. 200,000
Fully reserve an investment
which was contingent on a
project being built ..................... (500)
Gain from receiving cash
distributions in excess of the
book value of the Company's
interest in a joint venture ............. 79,911
--------- ---------
Profit from joint ventures ................. $ 176,933 $ 253,352
========= =========
</TABLE>
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. JOINT VENTURES (continued)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Rental income ............................ $ 1,208,301 $ 1,136,065
Operating expenses ....................... (78,850) (89,471)
----------- -----------
Net operating income ..................... 1,129,451 1,046,594
Other income (expense) ................... (734,022) (737,198)
----------- -----------
Net income ............................... $ 395,429 $ 309,396
=========== ===========
Company's share of profit
from joint ventures ................... $ 284,440 $ 220,745
Receipt from the guarantors
of a co-venturer's
obligations in connection
with the development of a
project which had been sold at
a foreclosure sale in 1992 ............ 200,000
Fully reserve an investment
which was contingent on a
project being built ................... (500)
Gain from receiving cash
distributions in excess of the
book value of the Company's
interest in a joint venture ........... 79,911
----------- -----------
Profit from joint ventures ............... $ 363,851 $ 420,745
=========== ===========
</TABLE>
3. INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of
common shares outstanding and common stock equivalents based on the treasury
stock method when dilutive.
4. LITIGATION
The Company is a defendant in various lawsuits. In those instances in
which 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. There were no significant changes in the status of litigation during
the three months ended June 30, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In April 1997, the Company made a $50,000 loan to a
debtor in possession which is fully reserved in the June 1997
financial statements.
A. Three Months Ended June 30, 1997 Compared
with Three Months Ended June 30, 1996
Total revenues decreased to $147,958 for the three
months ended June 30, 1997 from $774,577 for the three months
ended June 30, 1996.
Profit from joint ventures decreased to $176,933 for
the three months ended June 30, 1997 from $253,352 for the
three months ended June 30, 1996. 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.
During the three months ended June 30, 1997, this
category included a gain of approximately $80,000 as a result
of the Company's receipt of cash distributions in excess of
the book value of its interest in a joint venture. In June
1997, Nags Head Outlet Partners ("Nags Head") refinanced its
mortgage debt to $5,400,000 from $3,947,020 for one year to
May 1998 at a fixed rate of 9%.
During the three months ended June 30, 1996, this
category included $200,000 received from certain individuals
who had guaranteed the obligations of the co-venturer in
Stoneledge Associates ("Stoneledge") with respect to a project
which had been sold at a foreclosure sale in 1992. The
guarantors made such payment in satisfaction of the
co-venturer's existing obligations to the Company which had
previously been fully reserved.
Excluding the effects of the Nags Head refinancing
and Stoneledge, the Company's share of profit from joint
ventures increased to $97,522 for the three months ended June
30, 1997 from $53,352 for the three months ended June 30,
1996. The increase is attributable, in part, to higher base
rent, the receipt of some percentage rents during the second
quarter of 1997 compared with collection of the same items
during the first quarter of 1996, and lower operating
expenses.
Although operating results should improve as a result
of increased rents, 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 every few years,
such as painting the entire project; accounting adjustments
between interim periods; lost rent due to the turnover of a
tenant, etc.
<PAGE>
The Company did not realize any financial consulting
fees for the three months ended June 30, 1997 or for the three
months ended June 30, 1996. 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. The Company currently
is engaged in advising clients with respect to the structuring
of transactions which are expected to generate fees later in
1997.
Loan origination fees decreased to $351,000 for the
three months ended June 30, 1997 compared with $424,438 for
the three months ended June 30, 1996. This category includes
fees earned in connection with making mortgage loans and net
profit or loss from sales of such loans to investors. The
decrease is the result of the Company's restructured loan
origination efforts and the loss of volume related to the
closing of high overhead branch offices. Also, the Company's
emphasis on "non-conforming product" offerings met increased
competition in the marketplace which reduced volume.
Interest income increased to $110,956 for the three
months ended June 30, 1997 from $91,108 for the three months
ended June 30, 1996, due in part to an increase in interest
earning assets and earnings generated through cash management
and investing activities. These earnings were somewhat offset
by the loss of interest earnings on escrow deposits as a
result of the sale of the balance of the Company's mortgage
servicing rights during the third quarter of 1996.
Investment income decreased dramatically to a
negative $491,164 for the three months ended June 30, 1997
compared to a negative $9,981 for the three months ended June
30, 1996. This category principally consists of net profit or
loss from cash management and investing in futures, puts,
calls, equities, municipal securities, and other securities
activities. Large swings can occur due to volatility in the
financial markets.
Total expenses decreased to $1,295,694 for the three
months ended June 30, 1997 from $1,481,154 for the three
months ended June 30, 1996.
Compensation and related costs decreased to $717,974
for the three months ended June 30, 1997 from $981,243 for the
three months ended June 30, 1996. This decrease principally
was attributable to the reduction of salaried employees in the
mortgage loan origination area and the elimination of salaries
incurred in connection with the Company's viatical settlements
business which had terminated in the fourth quarter of 1996.
Occupancy costs decreased to $79,084 for the three
months ended June 30, 1997 from $93,788 for the three months
ended June 30, 1996. This reduction resulted from closing
certain branch offices at the mortgage company during the
third and fourth quarters of 1996 and the termination of the
lease for a small office for the viatical settlements activity
which closed in the fourth quarter of 1996.
<PAGE>
General and administrative expenses decreased to
$313,615 for the three months ended June 30, 1997 from
$336,903 for the three months ended June 30, 1996. This
decrease reflects a lower level of mortgage loan origination
activity and curtailment of expenses related to the Company's
viatical settlements business in the fourth quarter of 1996.
The reduction was somewhat mitigated by the creation of a
reserve for advances made to a debtor in possession during the
current period.
Professional fees increased to $81,353 for the three
months ended June 30, 1997 from $26,426 for the three months
ended June 30, 1996. The increase is due in large part to
legal fees incurred in connection with a potential acquisition
the Company had considered acquiring.
Interest expense increased to $103,668 for the three
months ended June 30, 1997 from $41,459 for the three months
ended June 30, 1996. This increase was due in part to greater
use of the Company's credit facilities to fund mortgage loans
held for sale. Additionally, the Company incurred interest
expense in connection with its cash management and investing
activities.
On a pre-tax basis, the Company had a loss of
$1,147,736 for the three months ended June 30, 1997 compared
with a loss of $706,577 for the three months ended June 30,
1996. Provision for income taxes for the three months ended
June 30, 1997 was a benefit of $6,764 compared with a
provision of $9,500 for the three months ended June 30, 1996.
These provisions consist solely of state and local taxes. For
Federal income tax purposes, as of December 31, 1996, the
Company had net operating loss carryforwards of approximately
$13,750,000 available to reduce future taxable income. These
carryforwards expire in the years 2005 through 2011.
The Company's net loss for the three months ended
June 30, 1997 was $1,140,972 compared with net loss of
$716,077 for the three months ended June 30, 1996. On a per
share basis, the net loss was $(.21) for the three months
ended June 30, 1997, compared with net loss of $(.13) for the
three months ended June 30, 1996. Average common shares
outstanding used for the primary computation of net loss per
common share were 5,516,373 and 5,545,806 for 1996. Common
share equivalents relating to the Company's Incentive
Compensation Plan were not included in the computation because
the effect of their inclusion would be antidilutive.
Six Months Ended June 30, 1997 Compared
with Six Months Ended June 30, 1996
Total revenues decreased to $1,418,842 for the six
months ended June 30, 1997 from $1,461,628 for the six months
ended June 30, 1996.
<PAGE>
Profit from joint ventures decreased to $363,851 for
the six months ended June 30, 1997 from $420,745 for the six
months ended June 30, 1996. 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.
During the six months ended June 30, 1997, this
category included a gain of approximately $80,000 as a result
of the Company's receipt of cash distributions in excess of
book value of its interest in a joint venture. In June 1997,
Nags Head refinanced its mortgage debt to $5,400,000 from
$3,947,020 for one year to May 1998 at a fixed rate of 9%.
During the six months ended June 30, 1996, this
category included $200,000 received from certain individuals
who had guaranteed the obligations of the co-venturer in
Stoneledge with respect to a project which had been sold at a
foreclosure sale in 1992. The guarantors made such payment in
satisfaction of the co-venturer's existing obligations to the
Company which had previously been fully reserved.
Excluding the effects of the Nags Head refinancing
and Stoneledge, the Company's share of profit from joint
ventures increased to $284,440 for the six months ended June
30, 1997 from $220,745 for the six months ended June 30, 1996.
The increase is attributable, in part, to higher base rents
collected during the period and lower operating expenses.
Although operating results should improve as a result
of increased rents, 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 every few years,
such as painting the entire project; accounting adjustments
between interim periods; lost rent due to the turnover of a
tenant, etc.
Financial consulting fees were $90,000 for the six
months ended June 30, 1997 versus nil for the six months ended
June 30, 1996. 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. The Company currently is engaged in advising
clients with respect to the structuring of transactions which
are expected to generate fees later in 1997.
Loan origination fees increased to $734,991 for the
six months ended June 30, 1997 from $611,494 in the 1996
period. This category includes fees earned in connection with
the origination of mortgage loans and the profit or loss from
sales of mortgage loans to permanent investors. The increase
is the result of the Company's restructured loan origination
efforts and the Company's emphasis on its "non-conforming
product" offerings which generate higher revenue and which
were not offered during the six months ended June 30, 1996.
<PAGE>
Interest income decreased to $174,762 for the six
months ended June 30, 1997 from $207,202 for the six months
ended June 30, 1996. This decrease was due in large part to
the loss of interest earning escrow deposits as a result of
the sale of the mortgage servicing portfolio. In addition, the
Company reduced the time a mortgage loan remains in inventory
before being delivered to an investor and thus reduced the
interest earning period on mortgages held in inventory. This
decrease was somewhat offset by increased interest earning
generated through cash management and investing activities.
Investment income decreased to $53,400 for the six
months ended June 30, 1997 from $191,594 for the six months
ended June 30, 1996. This category primarily consists of: net
profit or loss from cash management and investing in futures,
puts, calls, equities, municipal securities and other
securities activities.
Total expenses decreased to $2,516,524 for the six
months ended June 30, 1997 from $2,656,712 for the six months
ended June 30, 1996.
Compensation and related costs decreased to
$1,503,086 for the six months ended June 30, 1997 from
$1,732,993 for the six months ended June 30, 1996. The
decrease is due principally to a reduction of salaried
employees in the mortgage loan origination area and the
elimination of the salaries incurred in connection with the
Company's viatical settlements business which had terminated
in the fourth quarter of 1996.
Occupancy costs decreased to $157,653 for the six
months ended June 30, 1997 from $185,959 for the six months
ended June 30, 1996. This reduction resulted from closing
certain branch offices at the mortgage company during the
third and fourth quarters of 1996 and the termination of the
lease for a small office for the viatical settlement activity
which closed in the fourth quarter of 1996.
General and administrative expenses increased to
$606,383 for the six months ended June 30, 1997 from $589,728
for the six months ended June 30, 1996. This increase was
caused primarily by the creation of a reserve for advances
made to a debtor in possession during the second quarter of
1997. This increase was somewhat mitigated by a lower level of
mortgage loan origination costs and savings realized with the
curtailment of the viatical settlement business in the fourth
quarter of 1996.
Professional fees increased to $107,434 for the six
months ended June 30, 1997 from $80,570 for the six months
ended June 30, 1996. The increase is due in large part to
legal fees incurred in connection with a potential acquisition
the Company had considered acquiring.
<PAGE>
Interest expense increased to $141,968 for the six
months ended June 30, 1997 from $64,788 for the six months
ended June 30, 1996. The increase in interest expense was due
in part to greater use of the Company's credit facilities to
fund mortgage loans held for sale. Additionally, the Company
incurred interest expense in connection with its cash
management and investing activities.
On a pre-tax basis, the Company had a loss of
$1,097,682 for the six months ended June 30, 1997 compared
with a loss of $1,195,084 for the six months ended June 30,
1996. Provision for income taxes for the six months ended June
30, 1997 was $3,016 compared with $21,319 for the six months
ended June 30, 1996. These provisions consist solely of state
and local taxes. For Federal income tax purposes, as of
December 31, 1996, the Company has net operating loss
carryforwards aggregating approximately $13,750,000 available
to reduce future taxable income. These carryforwards expire in
the years 2005 through 2011.
The Company's net loss for the six months ended June
30, 1997 was $1,100,698 compared with a net loss of $1,216,403
for the six months ended June 30, 1996. On a per share basis,
the net loss was $(.20) for the six months ended June 30,
1997, compared with a net loss of $(.22) for the six months
ended June 30, 1996. Average common shares outstanding used
for the primary computation of net loss per common share were
5,525,542 in 1997 and 5,608,592 in 1996. Common share
equivalents relating to the Company's Incentive Compensation
Plan were not included in the computation because the effect
of their inclusion would be antidilutive.
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.
<PAGE>
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 three separate
warehouse bank lines aggregating $8,250,000, down from
$12,250,000 available at December 31, 1996. This decline since
year end results from a warehouse lender notifying the Company
that it was reducing the line available from $5 million to $1
million since the Company was not using the amount allotted.
At June 30, 1997, approximately $2,200,000 has been borrowed
against these lines. 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.
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 1997.
In June 1997, 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 four-year, fixed rate loan with interest payable
at 8.5% per annum to a one-year fixed rate loan with interest
payable at 9% per annum. Regular amortization was determined
on a 15-year schedule and the principal balance is due when
the loan matures on May 10, 1998.
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, 1997 is
8.788%. The interest rate had been 8.3% through August 31,
1996 and 8.85% from September 1, 1996 through February 28,
1997. 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>
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 for 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 various 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 charged against the
Company's consolidated results 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 June 30, 1997.
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 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Helmstar Group, Inc. was
held on June 4, 1997 at the offices of Richard A. Eisner &
Company, LLP, 575 Madison Avenue, New York, New York.
4,648,376 votes were present at the meeting either personally
or by proxy. The results of the matters submitted to a vote of
stockholders at the Annual Meeting were as follows:
(a) Election of Directors
Roger J. Burns and Charles W. Currie were reelected as
directors for a term of three years. 4,624,176 shares were
voted for each director and 24,200 shares withheld authority
to vote for each director. George W. Benoit, Joseph G.
Anastasi, David W. Dube, and James J. Murtha continued their
terms of office as directors after the meeting.
(b) Appointment of Auditors
The appointment of Richard A. Eisner & Company, LLP, as
independent auditors to audit the Company's 1997 financial
statements was ratified at the Annual Meeting. 4,641,426
shares were voted in favor of the proposal, 4,100 shares were
voted against it, and 2,850 shares abstained.
<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 Condensed Consolidated Financial
Statements (Unaudited) of this Form 10-QSB.
Exhibit 27 - Financial Data Schedule -- See below.
(b) Reports on Form 8-K:
-- The Company did not file any reports on Form 8-K
during the three months ended June 30, 1997.
<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.
Date: August 14, 1997 /s/ George W. Benoit
--------------------
George W. Benoit,
Chairman of the Board of
Directors, President,
Chief Executive Officer
Date: August 14, 1997 /s/ Roger J. Burns
------------------
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 6
MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 945,258
<SECURITIES> 3,203,759
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 723,385
<DEPRECIATION> 456,880
<TOTAL-ASSETS> 7,617,566
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0
0
<COMMON> 674,960
<OTHER-SE> 3,271,495
<TOTAL-LIABILITY-AND-EQUITY> 7,617,566
<SALES> 0
<TOTAL-REVENUES> 1,418,842
<CGS> 0
<TOTAL-COSTS> 2,516,524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (1,097,682)
<INCOME-TAX> 3,016
<INCOME-CONTINUING> (1,100,698)
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