SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from __________ to __________
Commission file number l-9224
HELMSTAR GROUP, INC.
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(Name of Small Business Issuer in Its Charter)
DELAWARE 13-2689850
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(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
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(Address of Principal Executive Offices) (Zip Code)
212-775-0400
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(Issuer's Telephone Number, including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common stock - par value $.10 American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
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[ ]
(Cover page 1 of 2 pages)
<PAGE>
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for 1997, its most recent fiscal year, were
$6,363,911.
As of February 28, 1998, the aggregate market value of voting stock
held by non-affiliates of the Issuer was approximately $2,802,274.
The number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at February 28, 1998
Common stock - par value $.10 5,516,373 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form l0-KSB incorporates by reference from the
issuer's definitive proxy statement for the annual meeting of stockholders to be
held on June 4, l998.
(Cover page 2 of 2 pages)
<PAGE>
PART I
Item l. Description of Business.
Background and History
Helmstar Group, Inc., ("Group"), through its subsidiaries
(collectively referred to as the "Company" unless the context
requires otherwise), is engaged primarily in the business of
merchant banking.
Merchant Banking - General
Joint Venture Criteria
Since 1988, the Company has engaged in merchant banking
activities primarily concentrating on real estate projects and
real estate-related services companies. The Company seeks
projects that offer strong upside potential because of high
short-term risk, albeit manageable risk, and financial
leverage. Although real estate development, rehabilitation or
"value-added" transactions are of primary interest, the
Company will consider most industries with the exception of
those requiring a highly specialized scientific analysis.
The Company's exacting standards of selecting ventures and
co-venturers are directed toward middle-market oriented
activities. Co-venturers must be thoroughly experienced and
financially stable, as well as having a demonstrated track
record in the particular business activity. Talented
co-venturers are expected to execute each venture's day-to-day
management plan developed through the combined efforts of the
Company and the co-venturers.
The Company does not intend to take excessive risk in its
joint venture activities either through a single venture or a
series of interdependent ventures which result in excessive
risk when taken in the aggregate. The Company intends to
consider the risks of any potential undertaking independently
as well as how the risks of the proposed venture impact on the
Company in light of its other ventures. This risk evaluation
is based on a facts and circumstances analysis at the time the
feasibility of a potential joint venture is being evaluated.
Facts and circumstances are subject to change over time.
Accordingly, the Company has established flexible criteria in
selecting its venture activities to meet changing market
conditions.
The Company plans to limit its equity infusion in any single
transaction to a maximum of $3 million. Also, a predetermined
exit strategy is paramount. The holding period for a
particular venture will be based on facts and circumstances,
including maximizing the Company's potential return and other
opportunities available at the time of a possible disposition.
<PAGE>
Beginning in 1990, drawing on its experience in real estate
project finance, the Company began to offer financial
consulting services to clients on a fee basis. This permits
the Company to increase its revenue by utilizing its merchant
banking expertise without deploying a significant amount of
capital. The Company's primary focus in this area has been
assisting clients in realizing lower cost of capital through
creative financial structuring. This business is transaction
oriented, and potential revenue therefrom is subject to wide
variation. During 1997, 1996, 1995, and 1994 approximately 4%,
9%, 12% and 20% of the Company's total revenues in each year
were realized in connection with providing financial
consulting services to a single financial institution in
several transactions.
Joint Ventures - Sale of Outlet Shopping Centers
During 1997, one of the Company's outlet shopping centers was
refinanced generating a cash distribution to the Company of
$1,420,000 and a profit of approximately $80,000. Later in the
year, the two outlet shopping centers owned by the
partnerships in which the Company is a general partner were
sold generating a profit of approximately $5,200,000 and
providing a cash distribution of approximately $4,500,000
prior to estimated tax payments of approximately $460,000.
During the year, operations of the outlet shopping centers
prior to sale generated profits of approximately $380,000 and
provided cash of $373,000. The Company still maintains an
investment in the partnerships and expects to liquidate them
in the future.
Mortgage Banking - Sale of Citizens
During the third quarter 1997, the Company sold its
wholly-owned subsidiary, Citizens Mortgage Service Company
("Citizens"), to IMN Financial Corp. for approximately
$375,000, of which $111,000 has been received. The purchase
price may be increased based on the outcome of certain
transactions still in progress. Prior to the sale, the Company
recorded an operational loss of approximately $755,000. In
addition, the Company recorded a loss on the sale of
approximately $231,000. The operating results of Citizens has
been reflected as discontinued operations in the Company's
financial statements.
Real Estate Development Program
The Company is developing and/or acquiring state-of-the-art,
multiplex movie theaters (the "Theaters") in various states
throughout the continental United States. The cost and fair
market value of the Theaters is expected to be approximately
$75 million. A major film exhibitor, Carmike Cinemas, Inc.
(the "Lessee"), will act as development agent for the Company
in this endeavor over the course of a two-year "Project
Development Period" and will lease and operate each Theater as
it is completed.
<PAGE>
All leases will be triple net, credit-type leases (the
"Leases"). Such Leases require that the Lessee, in addition to
paying Basic Rent, also (i) pay all utilities, insurance and
local real estate, corporate and franchise taxes; (ii)
reimburse the Lessor for all of its necessary and reasonable
direct expenses incurred in fulfilling its role as Landlord;
and (iii) assume full operating, maintenance and environmental
responsibilities for the preservation and, if necessary,
restoration of the Theaters. Rents will commence on all
Theaters at the end of the Project Development Period and
extend over an ensuing initial Lease term of sixteen years. At
the end of the initial Lease term, the Lessee can purchase the
properties, renew the Leases or vacate the Theaters, in which
event the Company may sell or re-lease the Theaters to any
third party of its choosing.
In order to finance 97% of the total expected cost of the
Theaters, on November 20, 1997 the Company's subsidiary,
Movieplex Realty Leasing, L.L.C. (the "Lessor"), issued
$72,750,000 of adjustable rate tender securities due November
1, 2015 (the "Bonds"). The Bonds bear interest from their date
of delivery at a variable base rate indexed to the 30-day,
high-grade commercial paper rate. This rate will be reset
weekly and interest for the prior four or five week period
will be payable on the first Monday of each calendar month
commencing Monday, January 5, 1998. Principal on the Bonds is
payable annually on the first Monday of each November. Prior
to maturity, $59,775,000 of the original Bond principal is
scheduled to be amortized. The Bonds may be tendered at par by
investors on any interest rate reset date, in which event the
Remarketing Agent would try to remarket the bonds to other
investors. The Bonds are issued in three sets. Each set is
secured by irrevocable, direct pay letters-of-credit (the
"LOCs") from a highly-rated commercial bank and each with an
initial LOC term of five years. In such instances, the
investors look to the financial strength of the LOC banks
rather than to the creditworthiness of either the Company as
the Lessor or Carmike as the Lessee. The Company expects to
continue to use LOCs of this nature to secure the Bonds
throughout their 18-year term.
The remaining 3% of the cost of the Theaters will come from
equity invested in the Lessor. Subsidiaries of the Company own
100% of the Common Membership (or shareholding) of the Lessor
entity which is a Limited Liability Corporation. In addition,
the same subsidiaries own 1% of the Preferred Membership of
the Lessor in return for a cash investment of $22,500 and a
third party owns 99% of the Preferred Membership in return for
a cash investment of $2,227,500 (of which $750,000 was paid in
1997, with the balance due prior to the end of the Project
Development Period). See "Management Discussion and Analysis -
Liquidity and Capital Resources."
<PAGE>
General
The Company was incorporated under the laws of the State of
Delaware in 1968. It maintains offices at 2 World Trade
Center, Suite 2112, New York, New York 10048 and its telephone
number is (2l2) 775-0400. Unless the context requires
otherwise, the term "Company" refers to Helmstar Group, Inc.
("Group") and its wholly-owned subsidiaries: Matthews &
Wright, Inc. ("Matthews & Wright"); Snider, Williams & Co.,
Inc. ("Snider"); Randolph, Hudson & Co., Inc. ("Randolph");
Eden Consulting, Inc. ("Eden"); Shaw Realty Company, Inc.
("Shaw"); Helmstar Funding, Inc. ("Funding," formerly CMS
Insurance Agency, Inc.); Burrows, Hayes Company, Inc.
("Burrows"); Dover, Sussex Company, Inc. ("Dover"); Housing
Capital Corporation ("Housing"); Randel, Palmer & Co., Inc.
("Randel"); Parker, Reld & Co., Inc. ("Parker"), McAdam,
Taylor & Co., Inc. ("McAdam") and Ryan, Jones & Co., Inc.
("Ryan"). The term Company also includes Movieplex Realty
Leasing, L.L.C. ("Movieplex"), a limited liability company,
all of whose common membership interests are indirectly owned
by the Company. Additionally, unless the context requires
otherwise, "Company" includes all wholly-owned subsidiaries of
Group including Citizens Mortgage Service Company
("Citizens"), a wholly-owned subsidiary of McAdam. Citizens
was sold during 1997.
As of March l, 1998, the Company had 8 employees.
Competition
Competition in the Company's business of merchant banking
focusing on middle market oriented, real estate and other
businesses is widespread and highly fragmented. In its
activities as a co-venturer with a focus on smaller, more
specialized ventures having defined markets, institutional
joint venturers including large public real estate or venture
capital partnerships and real estate investment trusts should
not be significant competitors. Likely competition will be
encountered from small syndicators; individual investors,
typically from the local market; smaller insurance companies;
and participating mortgage lenders. Many of the Company's
likely competitors have greater access to capital than the
Company. Similarly, the Company encounters stiff competition
from a broad range of financial services firms when seeking
financial consulting assignments. Other major parties in the
marketplace for off-balance sheet structures are large
developers, commercial banks with synthetic lease structures,
and real estate investment trusts.
Regulation
In the course of conducting its business of merchant banking,
the Company may acquire interests in regulated activities.
Such regulation may be either directly or indirectly related
to the Company's interest.
With respect to real estate joint ventures, the Company may
encounter Federal, state and local regulation in connection
with land use, building code requirements, environmental, and
similar restrictions on development and/or operations.
<PAGE>
Item 2. Description of Property.
The Company leases approximately 7,000 square feet of office
space at 2 World Trade Center, New York, New York 10048 under
the terms of a lease that expires February 28, 2006. This
office is utilized as the Company's executive office in
addition to housing its merchant banking activities.
The future minimum annual base rental commitments under this
lease are reflected in the amounts provided in Note G[1] in
Notes to Financial Statements included in Part II, Item 7 of
this Form 10-KSB.
<PAGE>
Item 3. Legal Proceedings.
Cross Creek Village v. Housing Authority of the County of
Riverside, et al., Case No. 236813
This action was filed in the Superior Court of the State of
California, County of Riverside, in July 1993, and a summons
was served on Matthews & Wright in September 1993. It was
indexed as Case No. 93-7732. The complaint asserts numerous
claims against multiple defendants arising out of the issuance
of $13,000,000 Housing Authority of the County of Riverside,
Multi-Family Housing Revenue Bonds, Series 1985A (Ironwood
Apartments Project), issued by the Housing Authority of the
County of Riverside, California ("Housing Authority") and
underwritten by Matthews & Wright for the construction of the
Ironwood Apartments project. The complaint alleges that the
bonds were issued pursuant to a "sham closing" in 1985 when in
fact the bonds were not actually issued until 1986, resulting
in an assertion by the Internal Revenue Service (the "IRS")
that the interest on the bonds is not tax-exempt. The
plaintiff in this action is Cross Creek Village, a partnership
which allegedly acquired the project from the original
developer. The plaintiff maintains that the Housing Authority
claimed to have incurred more than $500,000 in legal costs in
contesting the IRS' assertion for which the Housing Authority
seeks indemnity from the plaintiff.
The original complaint in this action asserted claims against
Matthews & Wright for equitable indemnity, fraud, and
negligent misrepresentation. In September 1993, the plaintiff
dismissed the complaint without prejudice against Matthews &
Wright and others. In October 1993, the plaintiff filed a
First Amended Complaint arising out of the same facts as the
initial complaint, and named Group as the
successor-in-interest to Matthews & Wright among the
defendants. The First Amended Complaint alleged the same
claims against Group as had formerly been alleged against
Matthews & Wright. In November 1993, Group filed an answer
denying all liability.
<PAGE>
In addition, cross-claims have been filed by certain
co-defendants in this action against Group and Matthews &
Wright. One co-defendant, legal counsel to the Housing
Authority, filed a cross-complaint for indemnification and
apportionment of fault against multiple parties including
Group. In addition, the County of Riverside, California and
the Housing Authority, two other co-defendants filed a
cross-complaint that, in addition to alleging claims arising
out of the Ironwood Apartments bonds, adds claims arising out
of the issuance of $17,500,000 Housing Authority of the County
of Riverside, Multi-Family Housing Revenue Bonds, Series 1985A
(Whitewater Garden Apartments Project), issued by the Housing
Authority and underwritten by Matthews & Wright. The claims in
the second cross-complaint arise out of allegations concerning
the manner in which the closings on both bond issues were
conducted. The second cross-complaint alleges claims against
"Matthews & Wright, Inc., dba Helmstar" for equitable
indemnity, intentional misrepresentation, negligent
misrepresentation, fraudulent concealment of material facts,
negligence, breach of fiduciary duty, RICO, and conspiracy to
make intentional or negligent misrepresentations. Both
cross-complaints assert claims against defendants already in
the case as well as against new defendants. By a standstill
agreement dated January 21, 1994, cross-claimants and certain
other parties, including Group and Matthews & Wright, have
agreed not to pursue cross-claims against one another at this
time. The parties also agreed to extend the time to respond to
the pending cross-claims until 30 days after termination of
the agreement.
The plaintiff seeks compensatory and punitive damages as well
as indemnification and equitable relief. In four counts, two
of which involve the Company as well as other defendants, the
plaintiff seeks compensatory damages plus interest estimated
to be not less than $5 million. 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 v. Commissioner, 105 T.C. No. 19, that the interest on
the bonds forming the basis of the Cross Creek Village case
was not excludable from the bondholders' taxable income. The
United States Court of Appeals for the Ninth Circuit
subsequently affirmed this decision and the United States
Supreme Court declined to review the case.
In late 1997 and early 1998, the parties to the case signed a
stipulation agreeing to dismiss the action and all
cross-actions without prejudice, and to toll the applicable
statutes of limitation for a period of three years from the
date of the dismissal. This stipulation is currently awaiting
action by the Court.
<PAGE>
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.
Matthews & Wright, Inc. entered into a stipulation with
plaintiffs to stay all proceedings without prejudice pending
the outcome of the appeal to the United States Court of
Appeals for the Ninth Circuit in Harbor Bancorp.
After the Ninth Circuit affirmed the judgment of the Tax Court
in Harbor Bancorp, the FDIC, as receiver for First
RepublicBank Houston, formerly known as InterFirst Bank
Houston, intervened and removed the case to the United States
District Court for the Central District of California. The
FDIC subsequently moved to transfer venue of the case to the
United States District Court for the Southern District of
Texas. It appears that the claims against the FDIC as receiver
have been transferred, and the claims against all other
parties remain pending in federal district court in
California.
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.
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
<PAGE>
PART II
Item 5. Market For Common Equity and Related Stockholder
Matters.
Exchange Listing:
The common stock of Helmstar Group, Inc. is listed on the
American Stock Exchange (trading symbol HLM).
The approximate number of recordholders of Common Stock as of
February 28, 1998 was 285.
Equity Sale Prices:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
1997 1 3/4 15/16 11/16 7/8 5/8 1 1/4 3/4
1996 1 5/16 7/8 1 1/8 3/4 1 1/2 3/4 1 3/8 3/4
Dividends:
The Company has not previously paid cash dividends on its
common stock. The Board of Directors does not presently intend
to pay cash dividends on the outstanding shares of common
stock in the foreseeable future. The payments of future
dividends and the amount thereof will depend upon the
Company's earnings, financial condition, capital requirements
and such other factors as the Board of Directors may consider
relevant.
<PAGE>
Item 6. Management's Discussion and Analysis.
A. Results of Operations
1. 1997 Compared to 1996
Total revenue increased to $6,363,911 for 1997 from $1,353,015
for 1996.
Profit from joint ventures increased to $5,656,080 for 1997
from $557,037 for 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. The types of
ventures being pursued typically require several years of
careful management before they provide the projected returns
envisioned.
Profit for 1997 included profit from refinancing Nags Head
Outlet Partners (Nags Head) in June 1997, the sale in
September 1997 of both Nags Head and Blowing Rock Outlet
Partners (Blowing Rock), the two outlet shopping centers, and
operating income through the time of sale.
The refinancing of Nags Head produced income of $79,911, while
the sale of Nags Head and Blowing Rock produced income of
$5,193,018. The Company's share of income from operations
through the sale in September 1997 was $383,651 compared to
income from operations for 1996 of $357,037.
During 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. In 1991, the Company had created a
loss provision equal to the full carrying amount of the
partnership interest.
Financial consulting fees increased to $255,938 for 1997 from
$116,000 for 1996. The Company provides financial structuring
advice on a fee basis. Typically, an engagement is based on a
specific assignment to assist a client to lower its cost of
capital. Due to the transactional nature of this business,
significant variations in revenue are likely.
Interest income increased to $725,412 for 1997 from $245,024
for 1996, primarily due to interest earned during the
development period on the proceeds from the $72,750,000 bond
offering made by the Company for the purpose of obtaining land
and constructing Theaters, and on the securities held in the
cash management, trading and investing activities of the
Company.
<PAGE>
Investment income decreased to a loss of $273,519 for 1997
from a benefit of $428,954 for 1996. This category includes:
(1) net profit or loss from cash management and investing in
futures, puts, calls, municipals and other securities
activities and (2) a reserve against an investment made by the
Company.
Other income was nil for 1997 compared to a profit of $6,000
in 1996.
Total expenses increased to $3,172,946 for 1997 from
$2,147,130 in 1996.
Compensation and related costs increased to $1,495,720 for
1997 from $1,363,314 for 1996. The increase is due principally
to the accrual in 1997 of an incentive bonus in connection
with the profits generated from the sale of the joint
ventures. The increase, due to the bonus, was somewhat
mitigated by a reduction in staff.
Occupancy costs decreased to $164,943 for 1997 from $185,737
for 1996. This reduction primarily resulted from the
termination of the lease for a small office which was closed
in the fourth quarter of 1996.
General and administrative expenses increased to $677,929 for
1997 from $447,864 for 1996. This increase was due principally
to the creation of a reserve in connection with the sales of
various assets of the Company.
Professional fees increased to $174,266 for 1997 from $86,212
for 1996. This increase was due in large part to legal fees
incurred in connection with a potential acquisition which was
not consummated.
Interest expense increased to $660,088 for 1997 from $64,003
for 1996. The principal reason for this increase is the
interest expense and letter of credit fees (which are treated
as interest) incurred on the $72,750,000 Bonds issued for the
development of Theaters. Also included in this account is the
interest cost incurred in the Company's cash management and
investing activities.
The Company had a profit from continuing operations of
$2,689,230 for 1997 compared with a loss of $786,230 for 1996.
In 1997, the Company had a tax expense of $501,735 compared to
a tax benefit of $7,885 for 1996. In 1997, the Company
incurred Federal alternative minimum tax together with state
and local taxes compared with 1996 when the Company recorded
only state and local taxes. For Federal income tax purposes,
as of December 31, 1997, the Company has net operating loss
carryforwards of approximately $7,300,000 available to reduce
future taxable income. These carryforwards expire in the years
2005 through 2011. The Company has a net capital loss
carryforward of approximately $3,400,000 which expires in
2002.
<PAGE>
The Company's net income for 1997 was $1,702,660 compared with
net loss of $2,364,080 for 1996. For 1997, income from
continuing operations was $.48 per share reduced by a net loss
from discontinued operations of $(.17) per share, resulting in
a net income of $.31 per share. For 1996, net loss from
continuing operations was $(.14) per share increased by a net
loss from discontinued operations of $(.29) per share,
resulting in a net loss of $(.43) per share. The Company
adopted Statements of Financial Accounting Standards No. 128
in 1997 and has retroactively applied the effects thereof to
the year ended December 31, 1996. Statement No. 128 replaces
the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. The
number of shares used in the computations were 5,520,958 for
1997 and 5,544,480 for 1996.
Inflation
Inflation may affect the Company in certain areas of its cash
management, real estate development program, and merchant
banking activities. Changes in interest rates typically follow
actual or expected changes in the inflation rate. Accordingly,
interest rates usually increase during periods of high
inflation and decrease during periods of low inflation.
B. Liquidity and Capital Resources
Management of the Company believes that funds generated from
operations, supplemented by its available assets, will provide
it with sufficient resources to meet all present and
reasonably foreseeable future capital needs. Currently the
Company's assets consist primarily of cash and investments
which 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 include U.S. Government and
municipal obligations, futures contracts and money market
funds.
Additionally, in the fourth quarter of 1997 on November 20,
the Company issued $72,750,000 of adjustable rate tender
securities due November 1, 2015 (the "Bonds"). The Bonds were
issued to finance 97% of the cost of the Company's Real Estate
Development Program. See "Description of Business - Real
Estate Development Program." The 3% balance, $2,250,000, is
being provided as a capital contribution from Preferred
Members (shareholders) of the Company's Lessor subsidiary,
Movieplex Realty Leasing, L.L.C. $772,500 of this capital was
contributed during the fourth quarter.
<PAGE>
The Bonds pay interest from the date of delivery on the first
Monday of each month for the preceding four or five week
period commencing January 5, 1998 and principal annually on
the first Monday of November commencing in the year 2000.
Various commercial banks which provided letters of credit
securing payment on the Bonds are due letter of credit ("LOC")
fees which are payable on the same dates as the Bond interest
and also commence in 1998. In addition, a preferred return on
capital contributed is due to the Preferred Members, payable
on the same due dates as is the interest on the Bonds but
commencing in January of the year 2000.
All debt service on the Bonds, while bank letters of credit
are effectively in force, is paid directly from draws on those
LOCs. The banks are then reimbursed by the Lessor. Fees and
the Preferred return are due from the Lessor directly. During
the period from November 1997 through November 1999, all
reimbursements to the banks and bank fees will be paid from
Bond proceeds. Thereafter all reimbursements to the banks for
debt service on the Bonds as well as fees and the preferred
return to Preferred Members will be paid from the Rents which
commence on December 1, 1999. In addition, the Rents will
cover all other costs of owning and operating the real estate
other than Federal, state or local income taxes due on a net
income basis. Prior to the utilization of these proceeds to
pay for the costs in connection with the construction of the
Theaters, they will be invested in liquid short-term
instruments.
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 or other activities in the future. The Company does
not have any material commitments for capital expenditures as
of December 31, 1997, except for the development of the
Theaters with funds provided by the issuance of the Bonds.
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.
Year 2000 Issue
The Company does not anticipate that the cost of addressing
the "Year 2000" issue will be material to its future operating
results or financial condition.
<PAGE>
Item 7. Financial Statements.
The Company's financial statements to be filed hereunder
follow, beginning with page F. Following such financial
statements, are the financial statements for each of the
operating real estate joint ventures in which the Company is a
joint venturer.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Helmstar Group, Inc.
New York, New York
We have audited the consolidated balance sheet of Helmstar Group, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the two-year period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the 1997 and 1996 financial statements of the real estate joint ventures
described in Note C. The Company's equity in these joint ventures aggregated
$185,864 at December 31, 1997 and they account for $5,656,580 and $357,037 of
income included in income (loss) from continuing operations before income taxes
for the years ended December 31, 1997 and 1996, respectively. The financial
statements of these entities were audited by other auditors whose reports have
been furnished to us, and our opinion insofar as it relates to these entities is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Helmstar Group, Inc. and subsidiaries as
of December 31, 1997, and the consolidated results of their operations and their
consolidated cash flows for each of the years in the two-year period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As described more fully in Note H to the consolidated financial statements, the
Company was a defendant in various lawsuits.
/s/RICHARD A. EISNER & COMPANY, LLP
New York, New York
February 27, 1998
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1997
<S> <C>
ASSETS
Cash and cash equivalents (Note A) ..................................................... $ 802,352
Short-term investments - restricted (Notes A, B and C) ................................. 71,174,934
Marketable securities (Note A) ......................................................... 7,234,862
Investment in joint ventures (Notes A and B) ........................................... 185,864
Furniture, equipment and leasehold improvements - at cost, less accumulated depreciation
and amortization of $242,565 (Note A) ............................................... 106,128
Deferred financing costs, less accumulated amortization of $11,000 (Note D) ............ 1,663,209
Other assets ........................................................................... 651,403
------------
$ 81,818,752
============
LIABILITIES
Bonds payable (Note D) ................................................................. $ 72,750,000
Accrued expenses and other liabilities (Note A) ........................................ 1,509,201
Income taxes payable ................................................................... 59,737
------------
Total liabilities ................................................................ 74,318,938
------------
Due to preferred member (Note D) ....................................................... 750,000
------------
Commitments and contingencies (Notes E, F, G, H and J)
STOCKHOLDERS' EQUITY (Notes D and F)
Common stock - authorized 10,000,000 shares, par value $.10; issued 6,749,600 shares ... 674,960
Paid-in surplus ........................................................................ 14,984,510
Deficit ................................................................................ (5,981,058)
------------
9,678,412
Less treasury stock, at cost - 1,233,227 shares ........................................ (2,928,598)
------------
6,749,814
------------
$ 81,818,752
============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Year Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Profit from joint ventures including gain on sale of venture assets of
$5,193,018 in 1997 (Note C) ....................................... $ 5,656,080 $ 557,037
Financial consulting fees ............................................ 255,938 116,000
Interest income ...................................................... 725,412 245,024
Investment income (loss) ............................................. (273,519) 428,954
Other income ......................................................... 6,000
----------- -----------
6,363,911 1,353,015
----------- -----------
Expenses:
Compensation and related costs ....................................... 1,495,720 1,363,314
Occupancy cost ....................................................... 164,943 185,737
General and administrative ........................................... 677,929 447,864
Professional fees .................................................... 174,266 86,212
Interest ............................................................. 660,088 64,003
----------- -----------
3,172,946 2,147,130
----------- -----------
Income (loss) from continuing operations before income taxes ............ 3,190,965 (794,115)
Income tax provision (benefit) (Note E) ................................. 501,735 (7,885)
----------- -----------
Income (loss) from continuing operations ................................ 2,689,230 (786,230)
Discontinued operations:
Loss from the operation of discontinued subsidiary ................... (755,409) (1,577,850)
Loss on disposal of subsidiary ....................................... (231,161)
----------- -----------
Net income (loss) .................................................... $ 1,702,660 $(2,364,080)
=========== ===========
Per common share - basic and diluted (Note A):
Income (loss) from continuing operations ............................. $ .48 $ (.14)
Loss from discontinued operations .................................... (.17) (.29)
----------- -----------
Net income (loss) ....................................................... $ .31 $ (.43)
=========== ===========
Weighted average number of common shares outstanding - basic
income (loss) per share .............................................. 5,520,958 5,544,480
Effect of dilutive employee stock options ............................... 30,770
----------- -----------
Adjusted weighted average number of common shares - diluted income
(loss) per share ..................................................... 5,551,728 5,544,480
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
(Note __)
Common Stock
------------------------------- Paid-in
Shares Amount Surplus
------ ------ -------
<S> <C> <C> <C>
Balance - January 1, 1996 ..... 6,749,600 $ 674,960 $ 14,984,510
Treasury stock acquired at cost
Net loss ......................
------------ ------------ ------------
Balance - December 31, 1996 ... 6,749,600 674,960 14,984,510
Treasury stock acquired at cost
Net income ....................
------------ ------------ ------------
Balance - December 31,1997 .... 6,749,600 $ 674,960 $ 14,984,510
============ ============ ============
<CAPTION>
Treasury Stock
------------------------------
Deficit Shares Amount Total
------- ------ ------ -----
<S> <C> <C> <C> <C>
Balance - January 1, 1996 ..... $ (5,319,638) 1,203,227 $ (2,905,102) $ 7,434,730
Treasury stock acquired at cost 10,000 (7,722) (7,722)
Net loss ...................... (2,364,080) (2,364,080)
------------ ------------ ------------ ------------
Balance - December 31, 1996 ... (7,683,718) 1,213,227 (2,912,824) 5,062,928
Treasury stock acquired at cost 20,000 (15,774) (15,774)
Net income .................... 1,702,660 1,702,660
------------ ------------ ------------ ------------
Balance - December 31,1997 .... $ (5,981,058) 1,233,227 $ (2,928,598) $ 6,749,814
============ ============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year Ended December 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations ................................... $ 2,689,230 $ (786,230)
Adjustments to reconcile income (loss) from continuing operations to net
cash used in operating activities:
Depreciation and amortization ......................................... 27,576 27,987
Share of (income) from joint ventures ................................. (463,062) (357,037)
Realized (gain) from joint ventures sale of net assets ................ (5,193,018) (200,000)
Provision for bad debts ............................................... 85,000
Realized loss (gain) on sale or disposal of marketable securities ..... 235,585 (440,906)
Unrealized loss from marketable securities ............................ 2,934 12,012
Loss on sale of fixed assets .......................................... 2,653 143,377
Purchase of marketable securities ..................................... (12,415,814) (63,221,393)
Sales of marketable securities ........................................ 6,292,874 62,816,478
Changes in:
Other assets ....................................................... 4,133 (1,364,143)
Accrued expenses ................................................... 762,492 (417,895)
Income taxes ....................................................... 59,737
------------ ------------
Cash used in continuing operations ......................................... (7,909,680) (3,787,750)
Cash used in discontinued operations ....................................... (477,951) (1,477,771)
------------ ------------
Net cash used in operating activities ........................... (8,387,631) (5,265,521)
------------ ------------
Cash flows from investing activities:
Purchase of short-term investments ......................................... (71,174,934)
Sales of short-term investments ............................................ 3,805,767
Distributions from joint ventures - operations.............................. 473,360
Distributions from joint ventures - refinancings ........................... 1,420,000 262,677
Distributions from joint ventures - sale of assets.......................... 4,995,239 200,000
Purchase of fixed assets ................................................... (38,546) (35,205)
Other investment ........................................................... (85,000)
Other....................................................................... 500
------------ ------------
Cash (used in) provided by continuing operations .............................. (64,409,881) 4,233,739
Cash provided by discontinued operations ...................................... 110,393 57,299
------------ ------------
Net cash (used in) provided by investing activities ............. (64,229,488) 4,291,038
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year Ended December 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Deferred financing costs ................................................... (1,674,209)
Repayment of short-term borrowings ......................................... (593,743)
Purchase of treasury stock ................................................. (15,774) (7,722)
Proceeds from bonds payable ................................................ 72,750,000
Proceeds from preferred member ............................................. 750,000
Cash provided by (used in) continuing operations .............................. 71,810,017 (601,465)
Cash provided by discontinued operations ...................................... 1,896,672
------------ ------------
Net cash provided by financing activities ....................... 71,810,017 1,295,207
------------ ------------
Net (decrease) increase in cash and cash equivalents .......................... (877,102) 320,724
Cash and cash equivalents at beginning of year ................................ 1,679,454 1,358,730
------------ ------------
Cash and cash equivalents at end of year ...................................... $ 802,352 $ 1,679,454
============ ============
Supplemental disclosures of cash flow information from continuing operations:
Cash paid during the year for:
Interest ................................................................ $ 123,603 $ 66,102
Taxes ................................................................... $ 888 $ 16,415
</TABLE>
See notes to financial statements
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Helmstar Group, Inc. and subsidiaries (the "Company") are in the merchant
banking business. In 1997, the Company sold its mortgage banking subsidiary
(Note K). During 1997, the Company borrowed $72,750,000 for the purpose of
acquiring and developing movie theaters which it will lease to a major operator
under the terms of an operating lease (Note C).
The Company also has an interest in two joint ventures, each of which sold their
manufacturers' outlet shopping malls in 1997.
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Helmstar Group, Inc. and its wholly owned subsidiaries. Results of
operations of the mortgage banking subsidiary have been reflected as
discontinued operations on the accompanying financial statements.
All significant intercompany balances and transactions have been
eliminated.
[2] Joint ventures:
Joint ventures are accounted for under the equity method.
[3] Depreciation and amortization:
Furniture, fixtures and equipment are being depreciated using both
straight-line and accelerated methods over estimated lives of five to
seven years. Leasehold improvements are amortized on a straight-line basis
over the shorter of the term of the lease or their useful lives.
Deferred financing costs are amortized over the life of the bonds
(eighteen years).
[4] Statements of cash flows:
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
[5] Income (loss) per share:
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," in the year ended December 31, 1997 and has
retroactively applied the effects thereof to the year ended December 31,
1996. Statement 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings
per share is very similar to the previously reported fully diluted
earnings per share.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE A -THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] Income (loss) per share: (continued)
Basic income (loss) per share is computed based upon the weighted average
number of common shares outstanding during each year. Dilutive employee
stock options did not have an effect on the computation of diluted
earnings per share in 1997 and in 1996, employee stock options were
anti-dilutive.
[6] Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. The resulting deferred tax asset at December
31, 1997 was fully reserved since the likelihood of realization of the
benefit cannot be established.
[7] Marketable securities and short-term investments:
The Company accounts for its investments in marketable securities and
short-term investments pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). SFAS 115 requires, among other things, the
classification of investments in one of three categories based on the
Company's intent: trading, available-for-sale and held-to-maturity, with
trading and available-for-sale securities carried at fair value and
held-to-maturity securities carried at amortized cost. Gains and losses on
the trading securities are included in operations for trading securities
are reported in a separate compartment of stockholders' equity, for
available-for-sale securities.
The Company's marketable securities consists of United States Treasury
Bills and Notes which are classified as trading securities since they are
actively traded.
Short-term investments were acquired with the proceeds of bonds (see Note
B). The Trust Indenture governing the issuance of the bonds provides that
the bond proceeds must always be available for sale; accordingly, such
investments which consist of taxable municipal debt securities and
repurchase agreements are classified as available-for-sale securities.
[8] Stock-based compensation to employees:
The Company has elected to follow Accounting Principals Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB
25, compensation cost is measured as the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[9] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE B - SHORT-TERM INVESTMENTS
In November of 1997, the Company issued $72,750,000 of adjustable rate tender
securities (the "Bonds") in order to provide a part of the funds needed for its
new real estate development activities (see Note D). According to the Trust
Indenture pursuant to which these Bonds were issued, the Company is restricted
as to the term and the investment instruments (the "Eligible Investments") in
which it can invest Bond proceeds until spent for the purposes defined in the
Indenture.
From the Eligible Investments defined in the Indenture, the Company has chosen
to invest the Bond proceeds in taxable Municipal Auction Rate Certificates or
ARCs and Adjustable Rate Repurchase Agreements or Repos. ARCs are high-grade
taxable instruments with long-term maturities but with 35-day interest rate
reset and tender dates which function as artificial interim maturities. The
Repos are primarily overnight instruments or have other extremely short
maturities. Because these Investments may be redeemed at par within short
periods of time, cost closely approximates market value and there were no
unrealized gains and losses at December 31, 1997. In addition, there were no
gains or losses from the sale of any of these investments. The Company uses the
specific identification method to determine cost of these investments upon
disposition.
Short-term investments at December 31, 1997 consists of:
Auction rate certificates $ 60,000,000
Adjustable rate repurchase agreements 11,174,934
---------------
$ 71,174,934
===============
NOTE C - INVESTMENTS IN JOINT VENTURES
During 1997, two partnerships in which the Company has a majority financial
interest and a 50% voting interest sold their manufacturers outlet shopping
malls.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE C - INVESTMENT IN JOINT VENTURES (CONTINUED)
[1] A reconciliation of the change in the carrying amount of the Company's
investment in real estate joint ventures for the year ending December 31,
1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year ................................... $ 1,418,383
-----------
Income:
From operations ........................................... 383,151
From refinancing .......................................... 79,911
From sale ................................................. 5,193,018
-----------
5,656,080
-----------
Cash distributions:
From operations ........................................... (473,360)
From refinancing .......................................... (1,420,000)
From sale.................................................. (4,995,239)
-----------
(6,888,599)
-----------
Balance, end of year ......................................... $ 185,864
===========
</TABLE>
[2] Investment in joint ventures as of December 31, 1997 consist of:
Blowing Rock Outlet Partners ("Blowing Rock") $ 122,316
Nags Head Outlet Partners ("Nags Head") 63,548
-----------
$ 185,864
===========
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE C - INVESTMENT IN JOINT VENTURES (CONTINUED)
[3] Summary selected financial data of the Company's joint ventures as of
December 31, 1997 and 1996 and for the years then ended is as follows:
<TABLE>
<CAPTION>
Total Total Equity Net
Assets Liabilities (Deficit) Revenues Income
------ ----------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
1997:
Blowing Rock $ 566,475 $ 403,977 $ 162,498 $ 1,030,002 $ 5,037,942 (1)
Nags Head 375,937 176,211 199,726 758,106 2,435,450 (2)
1996:
Blowing Rock $ 5,787,837 $ 6,546,614 $ (758,777) $ 1,365,476 $ 410,432
Nags Head 6,155,132 4,097,839 2,057,293 968,530 182,394
</TABLE>
- --------------------
(1) Includes gain on sale of assets of $5,146,075
(2) Includes gain on sale of assets of $2,456,781
NOTE D - REAL ESTATE DEVELOPMENT AND FINANCING
The Company intends to develop and/or acquire state-of-the-art, multiplex movie
theaters (the "Theaters") in various states throughout the continental United
States. The expected cost of the Theaters is expected to be approximately
$75,000,000. A major film exhibitor, Carmike Cinemas, Inc., (the "Lessee"), will
act as development agent for the Company in this endeavor over the course of a
two-year "Project Development Period" and will lease and operate each Theater as
it is completed. All leases will be triple net. Rents will commence on all
Theaters at the completion of the Project Decelopment Period and extend over an
ensuing initial lease term of sixteen years. The Company expects to continue to
use LOCs of this nature to secure the Bonds throughout their terms.
In order to finance 97% of the total expected cost of the Theaters, on November
20, 1997 the Company's subsidiary, Movieplex Realty Leasing, L.L.C. (the
"Lessor") issued $72,750,000 of adjustable rate tender securities, due November
1, 2015 (the "Bonds"). The Bonds were issued in sets of three series, each of
which is secured by irrevocable, direct pay letters-of-credit (the "LOCs") from
a commercial bank and each with an initial term of five years.
The Bonds bear interest from their date of delivery at a variable base rate
indexed to the 30-day, high-grade commercial paper rate. This rate (5.96% at
December 31, 1997) will be reset weekly and interest will be payable monthly
commencing in January 1998. Principal on the Bonds is payable annually
commencing in December 2000. Prior to maturity, $59,775,000 of the original Bond
principal is scheduled to be amortized. The Bonds may be tendered at par by
investors on any interest rate reset date, in which event they may be remarketed
by a marketing agent to other investors.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE D - REAL ESTATE DEVELOPMENT AND FINANCING (CONTINUED)
Interest cost incurred on the Bonds during the Project Development Period will
be capitalized based on the average amount of accumulated expenditures incurred
to develop the theatres.
The remaining 3% of the cost of the Theaters will be financed from equity
invested in the Lessor. Subsidiaries of the Company own 100% of the Common
Membership (or shareholdings) of the Lessor which is a Limited Liability
Company. In addition, the same subsidiaries own 1% of the Preferred Membership
of the Lessor in return for a cash investment of $22,500 and a third party owns
99% of the Preferred Membership in return for a cash investment of $2,227,500
(of which $750,000 was paid in 1997 with the balance due prior to the end of the
Project Development Period.)
Scheduled maturities of bonds payable at December 31, 1997 are as follows:
Year Ended
December 31, Amount
------------ ------
2000 $ 970,000
2001 1,035,000
2002 1,105,000
Thereafter 69,640,000
------------
$ 72,750,000
============
NOTE E - INCOME TAXES
[1] Net operating loss and capital loss carryforward:
At December 31, 1997, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $7,300,000 which expires
from 2005 to 2011 and a capital loss carryforward of approximately
$3,400,000 which expires in 2002.
[2] Provision for income taxes:
The provision for income taxes all of which are current, consists of the
following:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Current:
Federal ................. $ 53,000
State and local (benefit) 448,735 $ (7,885)
--------- ---------
$ 501,735 $ (7,885)
========= =========
</TABLE>
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE E - INCOME TAXES (CONTINUED)
[3] Deferred income taxes:
The Company's deferred tax assets consists of the following at December
31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss carryforward ..... $ 3,356,000
Capital loss carryforward ............ 1,564,000
Litigation provision ................. 230,000
Accounts receivable and other reserves 175,000
-----------
5,325,000
Valuation allowance .................. (5,325,000)
-----------
Net asset ............................ $ 0
===========
</TABLE>
The valuation allowance decreased by approximately $1,225,000 during 1997
and increased by $1,550,000 during 1996.
[4] Effective tax rate reconciliation:
The effective tax rate applicable to continuing operations varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Statutory rate (benefit) ........................................ 34.0% (34.0)%
State and local taxes (benefit), net of federal income tax effect 9.3 (.1)
Nondeductible expenses .......................................... .7
Other ........................................................... .6
Utilization of carryforward losses .............................. (28.9)
Valuation allowance ............................................. 34.0
---- ---
Effective rate .................................................. 15.7% (.1)%
==== ====
</TABLE>
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE E - INCOME TAXES (CONTINUED)
[5] Internal Revenue examination:
The Internal Revenue Service ("IRS") is examining the Company's federal
income tax returns for the years 1985 through 1989. The IRS has proposed
certain adjustments to the returns for possible additional income tax due
in the amount of approximately $1,909,000 (exclusive of interest and
penalties.) The Company does not agree with the proposed adjustments and
has engaged tax counsel to protest them.
NOTE F - INCENTIVE COMPENSATION PLAN
The Company has reserved an aggregate of 750,000 shares of its common stock for
issuance to officers and other key employees in the form of incentive or
nonqualified stock options, stock appreciation rights, or restricted stock
awards pursuant to its 1990 Incentive Compensation Plan (the "Plan"). Incentive
stock options granted under the Plan must be exercisable at a price per share
not less than 100% (110% in the case of a 10% stockholder) of the fair market
value of the Company's common stock on the date of grant. Options cannot be
exercised after ten years (five years in the case of a 10% stockholder) from the
date of grant. Nonqualified stock options cannot be exercised prior to one year
or after ten years from the date of grant. During 1992, options to purchase
150,000 shares were granted at an exercise price of $.5625 per share. In 1996,
50,000 options were cancelled. There are 100,000 outstanding options to purchase
common stock at December 31, 1997, all of which are exercisable.
NOTE G - COMMITMENTS
[1] The Company occupies office space under a lease expiring on February 28,
2006. Rental expense for such lease was $151,200 and $153,700 for the
years ended December 31, 1997 and 1996, respectively.
Minimum future annual rental payments are as follows:
1998 $ 127,900
1999 127,900
2000 127,900
2001 127,900
2002 127,900
Thereafter 404,800
-----------
$ 1,044,300
===========
[2] The Company has a Retirement Savings Plan for its employees, pursuant to
Section 401(k) of the Internal Revenue Code. The Company, at its
discretion, may match 25% of contributions. Employee contributions to the
Plan and the Company's matching contributions vest immediately. The
Company's contribution to the Plan in 1997 and 1996 applicable to
continuing operations was approximately $9,000 and $5,500, respectively.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE H - LITIGATION
[1] In July 1993, an action was commenced against multiple defendants,
including the Company, in the California Superior Court. The plaintiff
asserts numerous claims in connection with the issuance of Housing
Authority of the County of Riverside, Multi-Family Housing Revenue Bonds,
Series 1985A ("Ironwood Bonds").
The Company was the underwriter of the Ironwood Bonds.
The plaintiff allegedly acquired an apartment project financed with the
proceeds of such bond issue from the original developer. The Housing
Authority sought indemnity from the plaintiff for expenses it allegedly
incurred in contesting the IRS's assertion that the Ironwood Bonds were
not tax-exempt.
A cross-claim was filed against multiple defendants, including the
Company, by one co-defendant for indemnification and apportionment of
fault. Two other co-defendants filed a cross-complaint alleging claims in
connection with the Ironwood Bonds and another bond issue, Housing
Authority of the County of Riverside, Multi-Family Housing Revenue Bonds,
Series 1985A ("Whitewater Bonds") against multiple defendants, including
the Company. By a standstill agreement dated January 21, 1994,
cross-claimants and certain parties, including the Company, have agreed
not to pursue cross-claims against one another at this time.
The plaintiff seeks compensation and punitive damages as well as
indemnification and equitable relief. In four counts, two of which involve
the Company as well as other defendants, the plaintiff seeks compensatory
damages plus interest estimated to be no less than $5 million per count.
In October 1995, the United States Tax Court determined that interest
earned on the Ironwood Bonds and the Whitewater Bonds was not tax-exempt.
The United States Court of Appeals for the Ninth Circuit subsequently
affirmed the decision and the United States Supreme Court declined to
review the case.
In late 1997 and early 1998, the parties to the case signed a stipulation
agreeing to dismiss the action and all cross-actions without prejudice and
to toll the applicable statutes of limitation for a period of three years
from the date of the dismissal. The stipulation is currently awaiting
action by the Court.
The Company believes that the action is without merit and is vigorously
defending its position. The ultimate resolution of this action is not
presently determinable.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE H - LITIGATION (CONTINUED)
[2] 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.
Matthews & Wright, Inc. (a subsidiary of the Company) entered into a
stipulation with plaintiffs to stay all proceedings without prejudice
pending the outcome of the appeal to the United States Court of Appeals
for the Ninth Circuit in Harbor Bancorp.
After the Ninth Circuit affirmed the judgment of the Tax Court in Harbor
Bancorp, that interest earned on the Bonds was not tax exempt, the FDIC,
as receiver for first RepublicBank Houston, formerly known as InterFirst
Bank Houston, intervened and removed the case to the United States
District Court for the Central District of California. The FDIC
subsequently moved to transfer venue of the case to the United States
District Court for the Southern District of Texas. It appears that the
claims against the FDIC as receiver have been transferred, and the claims
against all other parties remain pending in federal district court in
California.
The Company plans to defend vigorously against all of the plaintiffs'
allegations involving it. The ultimate resolution of this action is not
presently determinable.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE I - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
As a result of the sale in 1997 of its mortgage banking subsidiary (Note K), the
Company operates in one segment-merchant banking.
NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company is a party to derivative
financial instruments which have off-balance-sheet risk. The Company's
risk of accounting loss due to the credit risks and market risks
associated with these off-balance-sheet instruments varies with the type
of financial instrument. Credit risk represents the possibility of a loss
occurring from the failure of another party to perform in accordance with
the terms of a contract. Market risk represents the possibility that
future changes in market prices may make a financial instrument more or
less valuable.
As part of its investment and risk management strategies to profit from
anticipated market movements, the Company maintains trading positions in a
variety of derivative financial instruments consisting principally of
future contracts in treasury and municipal securities.
All positions are reported at fair value, and changes in fair value are
reflected in operations as they occur.
At December 31, 1997, no derivative financial instruments were held or
issued by the Company and the average fair value of such instruments held
or issued during the year was not material.
The Company realized a net loss on derivatives sold during 1997 of
approximately $239,000 versus a gain of approximately $428,000 in 1996.
Such amounts are included in investment income (loss) on the accompanying
statements of operations.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996
NOTE K - SALE OF MORTGAGE BANKING SUBSIDIARY
During 1997, the Company sold its wholly owned subsidiary, Citizens Mortgage
Service Company ("Citizens"), to IMN Financial Corp. for approximately $375,000.
The Company recorded a loss from this transaction of approximately $231,000. The
Company has received approximately $111,000 from the purchaser and has a
receivable at December 31, 1997 of approximately $264,000 which is past due.
Condensed results of operations of Citizens, which are reflected as discontinued
operations in the accompanying financial statements, are presented below:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues ........................... $ 1,106,519 $ 2,136,580
Expenses ........................... (1,861,928) (3,714,430)
----------- -----------
Loss from operations ............... $ (755,409) $(1,577,850)
=========== ===========
</TABLE>
<PAGE>
BLOWING ROCK OUTLET PARTNERS
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1997
<PAGE>
BLOWING ROCK OUTLET PARTNERS
CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS
BALANCE SHEET
STATEMENTS OF INCOME AND VENTURERS' EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
<PAGE>
(letterhead of Joseph Decosimo and Company)
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
Private Companies Practice Section Member AICPA Division for CPA Firms
SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
To the Co-Venturers
Blowing Rock Outlet Partners
Nashville, Tennessee
We have audited the accompanying balance sheet of Blowing Rock Outlet Partners
(a joint venture) as of December 31, 1997, and the related statements of income
and venturers' equity and cash flows for the years ended December 31, 1997 and
1996. These financial statements are the responsibility of the joint venture's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Blowing Rock Outlet Partners as
of December 31, 1997, and the results of its operations and its cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
/s/Joseph Decosimo and Company, LLP
- -----------------------------------
Joseph Decosimo and Companh, LLP
Chattanooga, Tennessee
January 20, 1998
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
BALANCE SHEET
December 31, 1997
ASSETS
<S> <C>
Cash and Cash Equivalents ................................... $528,529
Receivables, net of allowance for
uncollectible accounts of $52,535 ......................... 37,946
--------
TOTAL ASSETS ................................................ $566,475
========
LIABILITIES AND VENTURERS' EQUITY
LIABILITIES
Accounts Payable and Deferred Revenue ..................... $ 6,190
State Income Taxes Payable ................................ 397,787
--------
Total Liabilities ................................. 403,977
VENTURERS' EQUITY ........................................... 162,498
--------
TOTAL LIABILITIES AND VENTURERS' EQUITY ..................... $566,475
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
STATEMENTS OF INCOME AND VENTURERS' EQUITY
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Rental Revenue ........................... $ 1,030,002 $ 1,365,476
----------- -----------
EXPENSES
Management Fees .......................... 50,042 68,274
Leasing Commissions ...................... 20,278 21,869
Professional Services .................... 9,746 11,298
Common Area Maintenance, net of
recoveries from tenants ................ 10,318 18,215
Landlord Repairs ......................... 834 5,815
Bad Debt Expense ......................... 45,370 7,165
Other .................................... 15,913 --
----------- -----------
152,501 132,636
----------- -----------
INCOME FROM OPERATIONS ..................... 877,501 1,232,840
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income .......................... 14,171 7,488
Interest Expense ......................... (421,768) (556,815)
Depreciation ............................. (151,985) (199,695)
Amortization ............................. (27,598) (36,797)
Gain on Sale of Assets ................... 5,146,075 --
State Income Tax ......................... (398,454) (33,877)
Real Estate Taxes, net of recoveries
from tenants ........................... -- (2,712)
----------- -----------
4,160,441 (822,408)
----------- -----------
NET INCOME ................................. 5,037,942 410,432
VENTURERS' DEFICIT -
beginning of year ........................ (758,777) (764,209)
Distributions ............................ (4,116,667) (405,000)
----------- -----------
VENTURERS' EQUITY (DEFICIT) -
end of year .............................. $ 162,498 $ (758,777)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net Income ............................. $ 5,037,942 $ 410,432
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities -
Depreciation and Amortization ........ 179,583 236,492
Bad Debt Expense ..................... 45,370 7,165
Gain on Sale of Assets ............... (5,146,075) --
Changes in Operating Assets and
Liabilities -
Decrease (Increase) in -
Receivables ...................... (68,619) (20,207)
Prepaid Expenses ................. 104,668 (33,566)
Deferred Leasing Fees ............ (59,645) (15,722)
Increase (Decrease) in -
Accounts Payable and Deferred
Revenue ........................ (3,112) (21,647)
Tenant Deposits .................. 52,017 8,012
Due to Related Parties ........... (43,930) 4,188
State Income Taxes Payable ....... 363,910 2,812
----------- -----------
Net Cash Provided by Operating
Activities ...................... 462,109 577,959
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures ................... -- (71,975)
Proceeds from Sale of Assets ........... 4,194,291 --
----------- -----------
Net Cash Provided (Used) by
Investing Activities ............ 4,194,291 (71,975)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Notes Payable ............. (57,029) (79,486)
Distributions to Venturers ............. (4,116,667) (405,000)
----------- -----------
Net Cash Used by Financing
Activities ...................... (4,173,696) (484,486)
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
1997 1996
---------- ----------
<S> <C> <C>
NET INCREASE IN CASH AND CASH
EQUIVALENTS .............................. $ 482,704 $ 21,498
CASH AND CASH EQUIVALENTS -
beginning of year ...................... 45,825 24,327
---------- ----------
CASH AND CASH EQUIVALENTS -
end of year ............................ $ 528,529 $ 45,825
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During the Year for -
Interest ............................... $ 421,768 $ 556,815
Income Taxes ........................... $ 34,544 $ 31,064
SUPPLEMENTAL DISCLOSURE OF
NONCASH FINANCING AND INVESTING
ACTIVITIES
Repayment of Note Payable
at Closing of Sale of Assets ........... $6,364,526 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BLOWING ROCK OUTLET PARTNERS
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the joint venture
are as follows:
DESCRIPTION OF BUSINESS - Blowing Rock Outlet Partners is a joint venture
engaged in the business of renting retail space to manufacturers' outlet stores
in Watauga County, North Carolina.
RENTAL INCOME - Rent is reported as income over the lease term as it is earned.
Rent received from tenants in advance is accounted for as deferred revenue.
CASH EQUIVALENTS - The venture considers all money market accounts and highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The venture maintains cash and cash equivalent accounts at
various financial institutions which may at times exceed federally insured
amounts and which may at times exceed balance sheet amounts due to outstanding
checks.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Expenditures
for repairs and maintenance are charged to expense as incurred and additions and
improvements that significantly extend the lives of assets are capitalized. Upon
sale or other retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
reflected in operations.
Depreciation is provided on the straight-line method over the estimated useful
lives of the depreciable assets.
INTANGIBLE ASSETS - Developmental and other costs incurred before operations
commenced are capitalized as start-up costs. Initial and renewal leasing
commissions are amortized over the remaining lease periods. The cost of
intangible assets is amortized using the straight-line method over the following
estimated useful lives:
Years
Deferred Leasing Fees 5
Loan Fees 7
INCOME TAXES - No provision for federal income taxes is reflected in the
financial statements since the tax effects of the venture's income or loss are
passed through to the individual venturer. State income taxes in the State of
North Carolina are paid by the venture on behalf of the venturers.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
<PAGE>
BLOWING ROCK OUTLET PARTNERS
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION
Blowing Rock Outlet Partners was organized under the laws of the State of North
Carolina on June 10, 1988, for the purpose of acquiring, developing and
operating a shopping center in Watauga County, North Carolina. The two venturers
are Burrows, Hayes Company, Inc. (BHC) and Company Stores Management Corp.
(CSMC).
The joint venture agreement provides that net cash flow, as defined therein, is
allocated and distributed first to BHC up to the amount of the current year
preferred return and any unpaid preferred return from prior years. Any remaining
balance is allocated 55% to BHC and 45% to CSMC. The preferred return is equal
to 10% per annum of BHC's capital contribution of $1,449,000 less any
distributions in excess of the preferred return paid from sale or refinancing
proceeds. In April 1995, the joint venture refinanced the rental property and
BHC received a distribution from loan proceeds in excess of $1,449,000.
Accordingly, the joint venture no longer has to make a preferred return
allocation. All net cash flow is distributable 55% to BHC and 45% to CSMC.
Taxable income is allocated first to BHC to the extent of all distributions of
the preferred return for the current year and for all prior years, less all
prior allocations of taxable income relating to the preferred return
distributions made in previous years. Thereafter, taxable income is allocated
55% to BHC and 45% to CSMC.
SALE OF PROPERTY
Effective September 30, 1997, the joint venture sold the outlet mall operated as
Shoppes on the Parkway for $11,160,000. Net proceeds from the sale, except for
amounts withheld to pay anticipated state taxes, were distributed to the
venturers during October, 1997. The joint venture plans to distribute any
remaining assets to the venturers during 1998 and cease operations.
RELATED PARTY TRANSACTIONS
Effective April 1, 1995, CS Partners (CSP) began managing the rental property
for 5% of total rents collected. CSP is an affiliate of CSMC, one of the
venturers. Prior to such time, CSMC managed the rental property for 5% of total
rents collected. Management fees paid totaled $50,042 for 1997 and $68,274 for
1996.
CSP also assumed leasing agent responsibilities on April 1, 1995. The joint
venture pays CSP an initial fee of 12.5% of the total base rental dollars
accruing for the first year of new leases and 3% of the base and percentage
rents each year thereafter for the term of said lease. In addition, the venture
pays a 2% commission on any leases which are renewed. Prior to April 1, 1995, a
different affiliate of CSMC acted as leasing agent for the same commission
arrangement as outlined above. Leasing commissions paid totaled $79,933 for 1997
and $37,590 for 1996.
<PAGE>
BLOWING ROCK OUTLET PARTNERS
NOTES TO FINANCIAL STATEMENTS
LEASES
The joint venture receives rents from tenants under noncancelable operating
leases typically with five year lease terms. Virtually all tenants pay a minimum
guaranteed rental based on square footage and a percentage rental based on a
percentage of gross sales over a certain sales level per year. Percentage rents
totaled $79,214 for 1997 and $88,282 for 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value due to
the short maturity of those instruments.
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1997
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS
BALANCE SHEET
STATEMENTS OF INCOME AND VENTURERS' EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
<PAGE>
(letterhead of Joseph Decosimo and Company)
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
Private Companies Practice Section Member AICPA Division for CPA Firms
SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
To the Co-Venturers
Nags Head Outlet Partners,
a North Carolina Joint Venture
Nags Head, North Carolina
We have audited the accompanying balance sheet of Nags Head Outlet Partners, a
North Carolina Joint Venture as of December 31, 1997, and the related statements
of income and venturers' equity and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
venture's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nags Head Outlet Partners, a
North Carolina Joint Venture as of December 31, 1997, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
/s/Joseph Decosimo and Company, LLP
- -----------------------------------
Joseph Decosimo and Companh, LLP
Chattanooga, Tennessee
January 20, 1998
<PAGE>
<TABLE>
<CAPTION>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
BALANCE SHEET
December 31, 1997
ASSETS
<S> <C>
Cash and Cash Equivalents ................................... $321,153
Receivables, net ............................................ 54,784
--------
TOTAL ASSETS ................................................ $375,937
========
LIABILITIES AND VENTURERS' EQUITY
LIABILITIES
Accounts Payable and Deferred Revenue ..................... $ 488
Tenant Deposits ........................................... 1,147
Due to Related Parties .................................... 416
State Income Taxes Payable ................................ 174,160
--------
Total Liabilities ................................. 176,211
VENTURERS' EQUITY ........................................... 199,726
TOTAL LIABILITIES AND VENTURERS' EQUITY ..................... $375,937
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
STATEMENTS OF INCOME AND VENTURERS' EQUITY Years Ended
December 31, 1997 and 1996
1997 1996
<S> <C> <C>
REVENUES
Rental Revenue ......................... $ 758,106 $ 968,530
----------- -----------
EXPENSES
Management Fees ........................ 38,067 48,427
Leasing Commissions .................... 17,092 14,392
Professional Services .................. 15,231 18,652
Common Area Maintenance, net of
recoveries from tenant ............... (2,355) 949
Landlord Repairs ....................... 208 12,427
Tenant Improvements .................... -- 2,248
Other .................................. 3,716 4,673
----------- -----------
71,959 101,768
----------- -----------
INCOME FROM OPERATIONS ................... 686,147 866,762
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income ........................ 10,540 6,258
Interest Expense ....................... (303,689) (359,794)
Depreciation ........................... (196,953) (277,934)
Amortization ........................... (42,860) (30,500)
Gain on Sale of Assets ................. 2,456,781 --
State Income Tax ....................... (174,516) (22,398)
----------- -----------
1,749,303 (684,368)
----------- -----------
NET INCOME ............................... 2,435,450 182,394
VENTURERS' EQUITY - beginning of year .... 2,057,293 1,904,899
Distributions ........................ (4,293,017) (30,000)
----------- -----------
VENTURERS' EQUITY - end of year .......... $ 199,726 $ 2,057,293
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income .................................... $ 2,435,450 $ 182,394
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation and Amortization ............... 239,813 308,434
Gain on Sale of Assets ...................... (2,456,781) --
Changes in Operating Assets and Liabilities -
Decrease (Increase) in -
Receivables ............................. (54,625) 8,654
Prepaid Expenses ........................ 22,897 (38,036)
Deferred Leasing Fees ................... (48,162) (4,702)
Increase (Decrease) in -
Accounts Payable and Deferred Revenue ... (8,387) (2,621)
Accrued Interest ........................ (16,128) (1,155)
Tenant Deposits ......................... 18,627 (8,695)
Due to Related Parties .................. (3,580) 82
State Income Taxes Payable .............. 152,081 5,321
----------- -----------
Net Cash Provided by Operating Activities 281,205 449,676
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures .......................... -- (6,595)
Proceeds from Sale of Assets .................. 2,876,556 --
----------- -----------
Net Cash Provided (Used) by
Investing Activities ................... 2,876,556 (6,595)
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Loan Proceeds .............................. $ 32,980 $ --
Repayment of Note Payable .................. (121,209) (287,739)
Distributions to Venturers ................. (2,873,017) (30,000)
Loan Fees Paid ............................. (30,497) --
----------- -----------
Net Cash Used by Financing Activities . (2,991,743) (317,739)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ........................... 166,018 125,342
CASH AND CASH EQUIVALENTS - beginning of
year ....................................... 155,135 29,793
----------- -----------
CASH AND CASH EQUIVALENTS - end of year ...... $ 321,153 $ 155,135
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash Paid During the Year for -
Interest ................................. $ 320,019 $ 360,949
Income Taxes ............................. $ 22,435 $ 17,077
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES
Distributions Made through Issuance
of Long-Term Debt ........................ $ 1,420,000 $ --
Repayment of Note at Closing on
Sale of Property ......................... $ 5,349,781 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the venture are as
follows:
DESCRIPTION OF BUSINESS - Nags Head Outlet Partners, a North Carolina Joint
Venture, is engaged in the business of renting retail space to manufacturers'
outlet stores in Nags Head, North Carolina.
RENTAL INCOME - Rent is reported as income over the lease term as it is earned.
Rent received from tenants in advance is accounted for as deferred revenue.
CASH EQUIVALENTS - The venture considers all money market accounts and highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
LAND, BUILDINGS AND IMPROVEMENTS - Land, buildings and improvements are stated
at cost. Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the lives of
assets are capitalized. Upon sale or other retirement of depreciable property,
the cost and accumulated depreciation are removed from the related accounts and
any gain or loss is reflected in operations.
Depreciation is provided on the straight-line method over the estimated useful
lives of the depreciable assets.
INTANGIBLE ASSETS - Developmental and other costs incurred before operations
commenced are capitalized as start-up costs. Initial and renewal leasing
commissions are amortized over the remaining lease periods. The cost of
intangible assets is amortized using the straight-line method over the following
estimated useful lives:
Years
Deferred Leasing Fees 5
Loan Fees 4
INCOME TAXES - No provision for federal income taxes is reflected in the
financial statements since the tax effects of the venture's income or loss are
passed through to the individual venturers. State income taxes in the State of
North Carolina are paid by the venture on behalf of the venturers.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION
Nags Head Outlet Partners, a North Carolina Joint Venture, was organized under
the laws of the State of North Carolina on December 6, 1989, for the purpose of
acquiring, developing and operating a shopping center in Nags Head, North
Carolina. The two venturers are Parker, Reld & Co., Inc. (JV) and Company Stores
Capital Corp. (CSCC).
Net cash flow, as defined in the joint venture agreement, is allocated and
distributed first to JV up to the amount of the current year preferred return
and any unpaid preferred return from prior years. Any remaining balance is
allocated 63% to JV and 37% to CSCC.
Taxable income is allocated first to JV to the extent of all distributions of
the preferred return for the current year and for all prior years, less all
prior allocations of taxable income relating to the preferred return
distributions made in previous years. Thereafter, taxable income is allocated
63% to JV and 37% to CSCC.
Taxable losses, should they occur, are allocated to JV up to its capital
contribution of $1,500,000. Any remaining taxable loss is allocated 63% to JV
and 37% to CSCC.
SALE OF PROPERTY
Effective September 30, 1997, the joint venture sold the outlet mall operated as
Soundings Factory Stores for $8,340,000. Net proceeds from the sale, except for
amounts withheld to pay anticipated state taxes, were distributed to the
venturers during October, 1997. The joint venture plans to distribute any
remaining assets to the venturers during 1998 and cease operations.
RELATED PARTY TRANSACTIONS
Effective April 1, 1995, CS Partners (CSP) began managing the rental property
for 5% of total rents collected. CSP is an affiliate of CSCC, one of the
venturers. Prior to such time, a different affiliate of CSCC managed the rental
property for 5% of total rents collected. Management fees paid totaled $38,067
for 1997 and $48,427 for 1996.
CSP also assumed leasing agent responsibilities on April 1, 1995. The joint
venture pays CSP an initial fee of 12.5% of the total base rental dollars
accruing for the first year of new leases and 3% of the base and percentage
rents each year thereafter for the term of said lease. In addition, the venture
pays a 2% commission on any leases which are renewed. Prior to April 1, 1995, a
different affiliate of CSCC acted as leasing agent for the same commission
arrangement as outlined above. Leasing commissions paid totaled $65,087 for 1997
and $19,094 for 1996.
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
LEASES
The joint venture receives rents from tenants under noncancelable operating
leases typically with five year lease terms. Virtually all tenants pay a minimum
guaranteed rental based on square footage and a percentage rental based on a
percentage of gross sales over a certain sales level per year. Percentage rents
totaled $45,211 for 1997 and $31,823 for 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value due to
the short maturity of those instruments.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information required to be furnished pursuant to this item
is set forth under the caption "Management" in the
registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days of the end
of the fiscal year ended December 31, 1997, the period covered
by this Form 10-KSB, and is incorporated herein by reference.
<PAGE>
Item 10. Executive Compensation.
The information required to be furnished pursuant to this item
is set forth under the caption "Executive Compensation" in the
registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days of the end
of the fiscal year ended December 31, 1997, the period covered
by this Form 10-KSB, and is incorporated herein by reference.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required to be furnished pursuant to this item
is set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the registrant's
definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal
year ended December 31, 1997, the period covered by this Form
10-KSB, and is incorporated herein by reference.
<PAGE>
Item 12. Certain Relationships and Related Transactions
The information required to be furnished pursuant to this item
is set forth under the caption "Certain Relationships and
Related Transactions" in the registrant's definitive proxy
statement to be filed with the Securities and Exchange
Commission within 120 days of the end of the fiscal year ended
December 31, 1997, the period covered by this Form 10-KSB, and
is incorporated herein by reference.
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
Certain of the following exhibits, as indicated
parenthetically, were previously filed as exhibits to other
reports or registration statements filed by the Registrant
under the Securities Act of 1933 or under the Securities
Exchange Act of 1934 and are hereby incorporated by reference.
3.1 Restated Certificate of Incorporation of the
Registrant filed on July 31, 1987 and amendments
thereto filed on June 8, 1989, September 14, 1991
and December 2, 1991.
3.2 Amended and Restated By-Laws of the Registrant.
(Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1995.)
10.1 40l(k) Savings Plan of the Company as amended and
restated as of January 1, 1993. (Incorporated by
reference to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1993.)
10.2 Lease of the Company's executive offices, dated
February 29, 1996. (Incorporated by reference to
the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1996.)
10.3 Helmstar Group, Inc. 1990 Incentive Compensation
Plan. (Incorporated by reference to the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1995.)
10.4 Amendment to the Helmstar Group, Inc. 1990
Incentive Compensation Plan. (Incorporated by
reference to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1996.)
10.5 Sale of Citizens Mortgage Service Company to IMN
Financial Corp, dated September 5, 1997
(Incorporated by reference to the Registrant's
Current Report on Form 8-K, dated September 19,
1997.)
10.6 Indenture of Trust between Movieplex Realty
Leasing, L.L.C. and First Union National Bank, as
Trustee, dated November 1, 1997.1
10.7 Form of Bond.1
10.8 Master Lease between Movieplex Realty Leasing,
L.L.C., as Landlord, and Carmike Cinemas, Inc., as
Tenant, dated November 20, 1997.1
10.9 Reimbursement Agreement, dated as of November 20,
1997, among Movieplex Realty Leasing, L.L.C, the
Lenders, and Wachovia Bank, N.A., as Agent.1
<PAGE>
10.10 Form of Letter of Credit.1
10.11 Form of Bond Purchase Agreement between Movieplex
Realty Leasing, L.L.C. and {the Purchaser], dated
November 20, 1997.1
10.12 Agency and Development Agreement between Movieplex
Realty Leasing, L.L.C. and Carmike Cinemas, Inc.,
dated November 20, 1997.1
22.0 Subsidiaries of the Registrant.
(b) Reports filed on Form 8-K
On October 10, 1997, the Registrant filed a Form
8-K to report that the partnerships in which the
Company was a partner sold Blowing Rock Outlet
Center and Nags Head Outlet Center to Tanger
Factory Outlet Centers, Inc.
1 To be filed by amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 31st day of March,
1998.
Helmstar Group, Inc.
/s/George W. Benoit
-------------------------------------------
George W. Benoit, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated on the 31st day of March, 1998.
Signature Title
--------- -----
George W. Benoit Chairman of the Board, President,
(George W. Benoit) Chief Executive Officer
Roger J. Burns Director, First Vice President,
(Roger J. Burns) Chief Financial Officer, Secretary
Joseph G. Anastasi Director
(Joseph G. Anastasi)
Charles W. Currie Director
(Charles W. Currie)
James J. Murtha Director
(James J. Murtha)
David W. Dube Director
(David W. Dube)
Filed 7/31/87
RESTATED
CERTIFICATE OF INCORPORATION
OF
MATTHEWS & WRIGHT GROUP, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law)
The original Certificate of Incorporation of Matthews & Wright Group,
Inc. (the "Corporation"), was filed with the Secretary of State on April 27,
1971 under the name of Benoit and Skyrm, Inc. This Restated Certificate of
Incorporation was proposed by the directors and adopted by the stockholders of
the Corporation in the manner and by the vote prescribed by Sections 242 and 245
of the Delaware General Corporation Law and, when effective, will not result in
a reduction of the capital of the Corporation.
This Restated Certificate of Incorporation further amends the
Certificate of Incorporation of the Corporation to amend Article Fourth to
change the par value of the Corporation's Preferred Stock from $100 per share to
no par value; and to add as Article TENTH certain provisions to the Certificate
of Incorporation.
The text of the Certificate of Incorporation of the Corporation, as
amended hereby, is set forth in full as follows:
FIRST: The name of the Corporation is
Matthews & Wright Group, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act of
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares which the Corporation shall have the
authority to issue is 102,000,000 shares, of which 100,000,000 shares shall be
Common Stock, par value $.10 per share (the "Common Stock"), and 2,000,000
shares shall be Preferred Stock, no par value per share (the "Preferred Stock").
<PAGE>
The Preferred Stock may be issued from time to time in one or more
series with such designations, preferences and relative participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
as shall be stated in the resolutions adopted by the Board of Directors
providing for the issuance of such Preferred Stock or series thereof; and the
Board of Directors is hereby expressly vested with authority to fix such
designations, preferences and relative participating, optional or other special
rights or qualifications, limitations or restrictions for each series,
including, but not by way of limitation, the power to fix the redemption and
liquidation preferences, the rate of dividends payable and the time for and the
priority of payment thereof and to determine whether such dividends shall be
cumulative or not and to provide for and fix the terms of conversion of such
Preferred Stock or any series thereof into Common Stock of the Corporation and
fix the voting power, if any, of shares of Preferred Stock or any series
thereof.
FIFTH:
A. Election of directors need not be by ballot unless the
By-laws of the Corporation shall so provide.
B. A director may be removed only by the affirmative vote of
the holders of not less than 60% of the combined voting power of the
Corporation, unless such removal is approved by a majority of the
Disinterested Directors (as defined in Article Seventh), in which case
the holders of a majority of the combined voting power of the
Corporation may remove a director.
SIXTH: In furtherance and not in limitation of the power conferred upon
the Board of Directors, the Board of Directors shall have power to make, adopt,
alter, amend and repeal from time to time By-laws made by the Board of
Directors, subject to Article Ninth.
SEVENTH: The vote of shareholders of the Corporation required to
approve any Business Combination shall be as set forth in this Article Seventh.
The term "Business Combination" shall have the meaning ascribed to it in(a)(B)
of this Article; each other capitalized term used in this Article shall have the
meaning ascribed to it in (c) of this Article.
(a)(A). In addition to any affirmative vote required by law or this
Certificate of Incorporation and except as otherwise expressly provided in (b)
of this Article Seventh:
(1) Any merger or consolidation of the Corporation or any
Subsidiary with (i) any Interested Shareholder or (ii) any other corporation or
entity (whether or not itself an Interested Shareholder) which is, or after each
merger or consolidation would be, an Affiliate of an Interested Shareholder; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with an
Interested Shareholder or any Affiliate of any Interested Shareholder of assets
of the Corporation or any Subsidiary having an aggregate Fair Market Value of
$25,000,000 or more; or
<PAGE>
(3) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to an Interested Shareholder or any Affiliate
of an Interested Shareholder of assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value of $25,000,000 or more, other than the
issuance of securities upon the conversion of convertible securities of the
Corporation or any Subsidiary which were not acquired by such Interested
Shareholder (or such Affiliate) from the Corporation or a Subsidiary; or
(4) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder or any Affiliate of any Interested Shareholder; or
(5) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which in any such case has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class or
series of stock or securities convertible into stock of the Corporation or any
Subsidiary which is directly or indirectly beneficially owned by an Interested
Shareholder or any Affiliate of any Interested Shareholder; shall not be
consummated without the affirmative vote of the holders of at least 60 percent
of the combined voting power of the then outstanding shares of stock of all
classes and series of the Corporation entitled to vote generally in the election
of directors ("Voting Stock"), in each case voting together as a single class.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or by this
Certificate of Incorporation or any resolution or in any agreement with any
national securities exchange or otherwise.
(i) (if applicable) the highest per share price (including any
brokerage commission, transfer taxes and soliciting dealers' fees) paid
in order to acquire any shares of such class or series of Voting Stock
beneficially owned by the Interested Shareholder which were acquired
beneficially by such interested Shareholder (x) within the two-year
period immediately prior to the Announcement Date or (y) in the
transaction in which it became an Interested Shareholder, whichever is
higher;
(ii) (if applicable) the highest preferential amount per share
to which the holders of shares of such class or series of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
(iii) the Fair Market Value per share of such class or series
of Voting Stock on the Announcement Date or the Determination Date,
whichever is higher; and
<PAGE>
(3) the consideration to be received by holders of a
particular class or series of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as was previously paid in order to acquire
beneficially shares of such class or series of Voting Stock that are
beneficially owned by the Interested Shareholder and, if the Interested
Shareholder beneficially owns shares of any class or series of Voting Stock that
were acquired with varying forms of consideration, the form of consideration to
be received by holders of such class or series of Voting Stock shall be either
cash or the form used to acquire beneficially the largest number of shares of
such class or series of Voting Stock beneficially acquired by it prior to the
Announcement Date; and
(4) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination:
(i) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular dates therefor the full amount of any dividends (whether or not
cumulative) payable on any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation;
(ii) there shall have been (x) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a majority
of the Disinterested Directors, and (y) an increase in such annual rate
of dividends (as necessary to prevent any such reduction) in the event
of any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate was approved
by a majority of the Disinterested Directors; and
(iii) such Interested Shareholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction in which it became an Interested Shareholder;
and
(5) after such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax credits or
other tax advantages provided by the Corporation, whether in anticipation of or
in connection with such Business Combination or otherwise; and
(6) a proxy or information statement describing to the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provision replacing such Act, rules or regulations) shall be mailed
to public shareholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statements is required to be mailed pursuant to such Act or
subsequent provisions).
(c) For the purposes of this Article Seventh and Articles Eighth and
Ninth.
(A) A "person" shall mean any individual, firm, corporation or other
entity.
<PAGE>
(B) "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly, of more than 20
percent of the combined voting power of the then outstanding shares of
Voting Stock; or
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 20 percent or more of the
combined voting power of the then outstanding shares of Voting Stock;
or
(3) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock that were at any time within
the two-year period immediately prior to the date in question
beneficially owned by an Interested Shareholder, if such assignment or
succession shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the meaning of
the Securities Act of 1933.
(C) A person shall be a "beneficial owner" of any Voting Stock;
(1) which such persons or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(2) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b) the right to vote or
direct the vote pursuant to any agreement, arrangement or
understanding; or
(3) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
(D) For the purposes of determining whether a person is an Interested
Shareholder pursuant to (c)(B) of this Article Seventh, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of (c)(C) of this Article but shall not include any other shares of
Voting Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
(E) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on May 1, 1984.
(F) "Subsidiary" means any corporation of which more than 50% whose
outstanding stock having ordinary voting power in the election of directors is
owned, directly or indirectly by the Corporation or by a Subsidiary or by the
Corporation and one or more Subsidiaries; provided, however, that for the
purposes of the definition of Interested Shareholder set forth in (c)(B) of this
Article Seventh the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or indirectly, by
the Corporation.
<PAGE>
(G) "Disinterested Director" means any member of the Board of Directors
of the Corporation who is unaffiliated with, and not a nominee of, the
Interested Shareholder and was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, the
Interested Shareholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.
(H) "Fair Market Value" means:
(1) in the case of stock, the highest closing sale price during a
30-day period immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the
New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States Securities Exchange registered
under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing sales price or bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations
are available, the fair market value on the date in question of a share
of such stock as determined by a majority of the Disinterested
Directors in good faith; and
(2) in the case of stock of any class or series which is not traded on
any United States registered securities exchange nor in the
over-the-counter market or in the case of property other than cash or
stock, the fair market value of such property on the date in question
as determined by a majority of the Disinterested Directors in good
faith.
(I) In the event of any Business Combination in which the Corporation
survives, the phrase "other consideration to be received" as used in (b)(B)(1)
and (2) of this Article Seventh shall include the shares of Common Stock and/or
the shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
(J) "Announcement Date" means the date of first public announcement of
the proposed Business Combination.
(K) "Determination Date" means the date on which the Interested
Shareholder became an Interested Shareholder.
(d) A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance with this
Article Seventh, including, without limitation,
(A) whether a person is an Interested Shareholder,
(B) the number of shares of Voting Stock beneficially owned by any
person,
(C) whether a person is an Affiliate or Associate of another person,
<PAGE>
(D) whether the requirements of (b) of this Article Seventh have been
met with respect to any Business Combination, and
(E) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $25,000,000 or more. The good
faith determination of a majority of the Disinterested Directors on such matters
shall be conclusive and binding for all purposes of this Article Seventh.
(e) Nothing contained in this Article Seventh shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed by law.
(f) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
60 percent of the voting power of the Voting Stock, voting together as a single
class, shall be required to alter, amend, or repeal this Article Seventh or to
adopt any provision inconsistent therewith.
EIGHTH: Any purchase of Voting Stock by the Corporation or any
Subsidiary from an Interested Shareholder who has Beneficially Owned such
securities for less than three years prior to the date of such purchase, other
than pursuant to an offer to the holders of all of the outstanding shares of the
same class as those so purchased, at a per share price in excess of the Fair
Market Value at the time of such purchase of the shares so purchased, shall
require the affirmative vote of the holders of 60% in interest of the
outstanding Voting Stock of the Corporation, not Beneficially Owned by the
Interested Shareholder, voting together as a single class.
NINTH: Notwithstanding any other provision of this Certificate of
Incorporation or the By-laws of the Corporation (and in addition to any other
vote that may be required by law, this Certificate of Incorporation or the
By-laws), the affirmative vote, in person or by proxy, at any meeting called as
provided in the By-laws, of the holders of 60% in interest of the outstanding
Voting Stock of the Corporation (considered for this purpose as one class)
including the holders of 60% in interest of the outstanding Voting Stock of the
Corporation held by persons other than an Interested Shareholder shall be
required to amend, alter or repeal any provision of Article Seventh, Article
Eighth or this Article Ninth of this Certificate of Incorporation or to amend,
alter or repeal Section 1.2, Section 2.1, Section 2.2, Section 2.4, or Section
2.8 of the By-laws of the Corporation or to adopt any new provision inconsistent
with such Articles or By-laws; provided, however, that such provisions may be
amended, altered, repealed or adopted, by either (a) the affirmative vote of 60%
of the Disinterested Shareholders or (b) the approval of a majority of the
Disinterested Directors and the holders of a majority in interest of the
outstanding Voting Stock of the Corporation. For the purposes of this Article
Ninth the term "Disinterested Shareholders" shall mean holders of the
outstanding Voting Stock of the Corporation other than Interested Shareholders.
TENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for an transaction from which the director derived an
improper personal benefit.
<PAGE>
If the General Corporation Law of the State of Delaware is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
Any repeal or modification of this Article by the stockholders of the
Corporation shall not adversely affect any right to protection of a director of
the Corporation existing at the time of such repeal or modification.
<PAGE>
WE, THE UNDERSIGNED, George W. Benoit and Alan D. Aschner, being the
duly elected and acting President and Secretary of the above named corporation,
respectively, do make and file this restated certificate of incorporation
pursuant to the provision of Section 242 and 245 of the Delaware General
Corporation Law and hereby declare and certify that this Restated Certificate of
Incorporation has been duly adopted in accordance with the provisions of those
sections and, intending that this be an acknowledgment within the meaning of
Section 103 of the Delaware General Corporation Law, have executed this document
on May 20, 1987.
ATTEST:
/s/ Alan D. Aschner /s/ George W. Benoit
------------------------ ---------------------------
Alan D. Aschner George W. Benoit
Secretary President
(CORPORATE SEAL)
<PAGE>
Filed 6/8/89
CERTIFICATE OF AMENDMENT
OF
RESTATED
CERTIFICATE OF INCORPORATION
OF
MATTHEWS & WRIGHT GROUP, INC.
MATTHEWS & WRIGHT GROUP, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Restated Certificate of Incorporation of said
corporation was amended by changing Article FOURTH thereof so that, as
amended, said Article now reads as follows:
"FOURTH: The total number of shares which the Corporation shall have
the authority to issue is 12,000,000 shares; of which 10,000,000 shares shall be
Common Stock, par value $.10 per share (the "Common Stock"), and 2,000,000
shares shall be Preferred Stock, no par value per share (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or more
series with such designations, preferences and relative participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
as shall be stated in the resolutions adopted by the Board of Directors
providing for the issuance of such Preferred Stock or series thereof; and the
Board of Directors is hereby vested with authority to fix such designations,
preferences and relative participating, optional or other special rights or
qualifications, limitations or restrictions for each series, including, but not
by way of limitation, the power to fix the redemption and liquidation
preferences, the rate of dividends payable and the time for and the priority of
payment thereof and to determine whether such dividends shall be cumulative or
not and to provide for and fix the terms of conversion of such Preferred Stock
or any series thereof into Common Stock of the Corporation and fix the voting
power, if any, of shares of Preferred Stock or any series thereof."
SECOND: That the above amendment was approved by the Board of Directors
of said corporation, at a meeting duly held and was approved at the
1989 Annual Meeting of Shareholders, in accordance with the applicable
provisions of Section 242 of the General Corporation Law of the State
of Delaware.
THIRD: That the capital of said Corporation will not be reduced under
or by reason of said amendment.
<PAGE>
IN WITNESS WHREOF, MATTHEWS & WRIGHT GROUP, INC. has caused this
certificate to be signed by Roger J. Burns as Vice President, and attested by
Susan Forsyth, as Assistant Secretary, this 7th day of June, 1989.
MATTHEWS & WRIGHT GROUP, INC.
By: /s/ Roger J. Burns
------------------------------
Roger J. Burns, Vice President
(SEAL)
ATTEST:
/s/ Susan Forsyth
- -------------------------------
Susan Forsyth, Asst. Secretary
State of New York )
) SS.:
County of New York)
BE IT REMEMBERED that, on June 7, 1989, before me, a Notary Public duly
authorized by law to take acknowledgement of deeds, personally came Roger J.
Burns, Vice President of Matthews & Wright Group, Inc., who duly signed the
foregoing instrument before me and acknowledged that such signing is his act and
deed, that such instrument as executed is the act and deed of said corporation,
and that the facts stated therein are true.
GIVEN under my hand on June 7, 1989.
/s/ John A. Begley
--------------------------
Notary Public
<PAGE>
Filed 9/14/90
CERTIFICATE OF AMENDMENT
OF
RESTATED
CERTIFICATE OF INCORPORATION
OF
MATTHEWS & WRIGHT GROUP, INC.
MATTHEWS & WRIGHT GROUP, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Restated Certificate of Incorporation of said
corporation, as amended, was further amended by changing Article FOURTH thereof
so that, as now amended, said Article now reads as follows:
"FOURTH: The total number of shares which the Corporation shall have
the authority to issue is 10,000,000 shares, all of which shall be
Common Stock, par value $.10 per share (the "Common Stock")."
SECOND: That the above amendment was approved by the Board of Directors
of said corporation, at a meeting duly held and was approved at the 1990 Annual
Meeting of Shareholders, in accordance with the applicable provisions of Section
242 of the General Corporation Law of the State of Delaware.
THIRD: That the capital of said Corporation will not be reduced under
or by reason of said amendment.
<PAGE>
IN WITNESS WHEREOF, MATTHEWS & WRIGHT GROUP, INC. has caused this
certificate to be signed by Roger J. Burns as First Vice President, and attested
by Susan Forsyth, as Assistant Secretary, this 9th day of August, 1990.
MATTHEWS & WRIGHT GROUP, INC.
By: /s/ Roger J. Burns
----------------------------
Roger J. Burns
First Vice President
(Seal)
ATTEST:
/s/ Susan Forsyth
- ------------------------------
Susan Forsyth, Asst. Secretary
State of New York )
) SS.:
County of New York)
BE IT REMEMBERED that, on August 9, 1990, before me, a Notary Public
duly authorized by law to take acknowledgement of deeds, personally came Roger
J. Burns, First Vice President of Matthews & Wright Group, Inc., who duly signed
the foregoing instrument before me and acknowledged that such signing is his act
and deed, that such instrument as executed is the act and deed of said
corporation, and that the facts stated therein are true.
GIVEN under my hand on August 9, 1990.
/s/ John A. Begley
--------------------------
Notary Public
<PAGE>
Filed 12/2/91
CERTIFICATE OF AMENDMENT
OF
MATTHEWS & WRIGHT GROUP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is Matthews & Wright Group, Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article First thereof and by substituting in lieu of
said Article First the following new Article First:
"FIRST: The name of the corporation is Helmstar Group, Inc."
3. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware. Prompt written notice
of the adoption of the amendment herein certified has been given to those
stockholders who have not consented in writing thereto, as provided in Section
228 of the General Corporation Law of the State of Delaware.
Signed and attested to on November 27, 1991.
MATTHEWS & WRIGHT GROUP, INC.
By: /s/ George W. Benoit
---------------------------
George W. Benoit
Chairman of the Board
and President
ATTEST:
/s/ Alan D. Aschner
- ---------------------------
Alan D. Aschner, Secretary
<PAGE>
Filed 5/7/92
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
HELMSTAR GROUP, INC.
2. The registered office of the corporation within the State of Delaware is
hereby changed to 32 Loockerman Square, Suite L-100, City of Dover 19901, County
of Kent.
3. The registered agent of the corporation within the State of Delaware is
hereby changed to The Prentice-Hall Corporation System, Inc., the business
office of which is identical with the registered office of the corporation as
hereby changed.
4. The corporation has authorized the changes hereinbefore set forth by
resolution of its Board of Directors.
Signed on January 15, 1992.
/s/ Nicholas J. Letizia
-----------------------------
Nicholas J. Letizia,
Vice President
Attest:
/s/ Susan Forsyth
- ----------------------
Susan Forsyth
Assistant Secretary
EXHIBIT 22.0
List of Subsidiaries
First Tier
Matthews & Wright, Inc. (Delaware)
Snider, Williams & Co., Inc. (Delaware)
Randolph, Hudson & Co., Inc. (Delaware)
Eden Consulting, Inc. (New York)
Shaw Realty Company, Inc. (New York)
Burrows, Hayes Company, Inc. (New York)
Dover, Sussex Company, Inc. (New York)
Housing Capital Corporation (New York)
Randel, Palmer & Co., Inc. (New York)
Parker, Reld & Co., Inc. (New York)
McAdam, Taylor & Co., Inc. (New York)
Helmstar Funding, Inc. (Pennsylvania)
Ryan, Jones & Co., Inc. (New York)
Second Tier
Randolph, Hudson & Co., Inc. (99% investor)
Snider, Williams & Co., Inc. (1% investor)
Movieplex Realty Leasing, L.L.C. (New Jersey)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HELMSTAR
GROUP, INC. AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR PERIOD ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 802,352
<SECURITIES> 78,409,796
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 348,693
<DEPRECIATION> 242,565
<TOTAL-ASSETS> 81,818,752
<CURRENT-LIABILITIES> 0
<BONDS> 72,750,000
0
0
<COMMON> 674,960
<OTHER-SE> 6,074,854
<TOTAL-LIABILITY-AND-EQUITY> 6,749,814
<SALES> 0
<TOTAL-REVENUES> 6,363,911
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,152,858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 660,088
<INCOME-PRETAX> 3,190,965
<INCOME-TAX> 501,735
<INCOME-CONTINUING> 2,689,230
<DISCONTINUED> (986,570)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,702,660
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
