U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934
For the transition period from to
Commission file number 1-9224
HELMSTAR GROUP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-2689850
- ----------------------------------------- ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 World Trade Center, Suite 2112, New York, N.Y. 10048
---------------------------------------------------------------------------
(Address of Principal Executive Offices)
212-775-0400
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 30, 1998
----- -----------------------------
Common stock - par value $.10 5,516,373 shares
- ----------------------------- ----------------
<PAGE>
PART I
FINANCIAL INFORMATION
Item l. Financial Statements.
The following consolidated financial statements of Helmstar Group, Inc.
and subsidiaries (collectively referred to as the "Company," unless the context
requires otherwise) are prepared in accordance with the rules and regulations of
the Securities and Exchange Commission for Form 10-QSB and reflect all
adjustments (consisting of normal recurring accruals) and disclosures which, in
the opinion of management, are necessary for a fair statement of results for the
interim periods presented. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Form 10-KSB for the year ended December 31, 1997, which was filed
with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ........... $ 720,373 $ 802,352
Short term investments - restricted . 70,430,232 71,174,934
Marketable securities ............... 7,023,591 7,234,862
Joint ventures ...................... 191,546 185,864
Furniture, equipment and
leasehold improvements - at cost,
less accumulated depreciation and
amortization of $248,822 in
1998 and $242,565 in 1997 ....... 99,871 106,128
Deferred financing costs, less
accumulated amortization of
$35,415 in 1998 and
$11,000 in 1997 ................. 1,721,125 1,663,209
Other assets ........................ 798,240 651,403
------------ ------------
TOTAL ...................... $ 80,984,978 $ 81,818,752
============ ============
LIABILITIES
Bonds payable ....................... $ 72,750,000 $ 72,750,000
Accrued expenses and other
liabilities ..................... 1,069,614 1,509,201
Income taxes payable ................ 108,450 59,737
------------ ------------
Total liabilities .......... 73,928,064 74,318,938
------------ ------------
Due to Preferred Member ............. 750,000 750,000
============ ============
<PAGE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
STOCKHOLDERS' EQUITY
Common stock - authorized
10,000,000 shares, par value
$.10; issued 6,749,600 shares
in 1998 and 1997 ................ 674,960 674,960
Paid-in surplus ..................... 14,984,510 14,984,510
(Deficit) ........................... (6,423,958) (5,981,058)
------------ ------------
Total ...................... 9,235,512 9,678,412
Less treasury stock, at cost -
1,233,227 shares in 1998 and 1997 (2,928,598) (2,928,598)
------------ ------------
Total stockholders' equity . 6,306,914 6,749,814
------------ ------------
TOTAL ...................... $ 80,984,978 $ 81,818,752
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements (Unaudited).
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
------------------------------
1998 1997
----------- -----------
(Restated)
<S> <C> <C>
Revenues:
Profit from joint ventures ........... $ 68,682 $ 186,918
Financial consulting fees ............ 90,000
Interest income ...................... 1,061,684 28,560
Investment income .................... 117,228 544,564
----------- -----------
Total revenues .................. 1,247,594 850,042
----------- -----------
Expenses:
Compensation and related costs ....... 284,269 329,620
Occupancy cost ....................... 40,175 41,601
General and administrative ........... 96,745 97,818
Professional fees .................... 38,027 15,020
Interest ............................. 1,185,333
----------- -----------
Total expenses .................. 1,644,549 484,059
----------- -----------
(Loss) income from continuing
operations before taxes .............. (396,955) 365,983
Provision for income taxes ............... 45,945 9,780
----------- -----------
(Loss) income from
continuing operations ................ $ (442,900) $ 356,203
Loss from operations of
discontinued subsidiary .............. (315,929)
----------- -----------
NET (LOSS) INCOME ........................ $ (442,900) $ 40,274
----------- -----------
Per common share - basic and diluted:
(Loss) income from
continuing operations ................ $ (.08) $ .06
(Loss) from discontinued operations ...... (.06)
----------- -----------
Net (loss) ............................... $ (.08) $ .00
=========== ===========
Weighted average number of
common shares outstanding -
basic and diluted .................... 5,516,373 5,559,707
</TABLE>
See Notes to Condensed Consolidated Financial Statements (Unaudited).
The three month period for 1997 has been restated to reflect the results of
a Company's subsidiary as a discontinued operation.
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------------
1998 1997
----------- -----------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ..................................... $ (442,900) $ 40,274
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ....................... 6,257 6,257
Unrealized (gain) from marketable securities ........ (68,682) (186,918)
Changes in operating assets and liabilities:
Proceeds from the sale of short term
investments - net ................................. 744,702 --
Proceeds from the sale of marketable
securities - net .................................. 211,271 --
(Increase) decrease in other assets ................ (122,423) 208,448
(Decrease) increase in accrued expenses ............ (390,875) 196,741
Decrease in assets & liabilities of
disposed subsidiary ............................... -- 1,420,929
----------- -----------
Net cash (used in) provided by operating activities ..... (62,650) 1,685,731
----------- -----------
Cash flows from investing activities:
Purchase of investment securities ..................... -- (3,364,621)
Distributions from joint ventures and other investments 63,000 --
Increase in deferred financing costs .................. (82,329)
Purchase of fixed assets .............................. (28,669)
----------- -----------
Net cash (used in) investing activities ................. (19,329) (3,393,290)
----------- -----------
Cash flows from financing activities:
Proceeds of short-term borrowings - net: .............. -- 1,956,449
Purchase of treasury stock ............................ -- (3,943)
----------- -----------
Net cash provided by financing activities ............... -- 1,952,506
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .... (81,979) 244,947
Cash and cash equivalents at beginning of period ........ 802,352 165,858
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 720,373 $ 410,805
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................ $ 791,255 --
Taxes ............................................... 31,318 $ 688
</TABLE>
See Notes to Condensed Consolidated Financial Statements (Unaudited).
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
l. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in the
notes to the Company's financial statements included in its Form 10-KSB, for the
year ended December 3l, 1997, which was filed with the Securities and Exchange
Commission.
2. INCOME (LOSS) PER SHARE
Basic income (loss) per share is based on the weighted average number
of common shares outstanding. Stock options did not have an effect on the
computation of diluted earnings per share since they were anti-dilutive.
3. LITIGATION
The Company is a defendant in various lawsuits. The ultimate outcome of
the lawsuits cannot presently be determined, and no provision for any liability
that may result has been made in the financial statements, since the amounts, if
any, cannot be determined.
There were no significant changes in the status of litigation during
the three months ended March 31, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Statements of Operations for the prior period has been restated to
reflect the results of the Company's subsidary, Citizens Mortgage
Service Company, as a discontinued operation.
A. Three Months Ended March 31, 1998 Compared
with Three Months Ended March 31, 1997
Total revenues increased to $1,247,594 for the three months ended March
31, 1998 from $850,042 for the three months ended March 31, 1997.
Profit from joint ventures decreased to $68,682 for the three months
ended March 31, 1998 from $186,918 for the three months ended March 31,
1997, primarily as a result of the sale of the outlet shopping malls
during the fourth quarter of 1997 by two partnerships in which the
Company has a majority financial interest. The income for the current
quarter represents percentage rents collected during the period, but
attributable to a prior period per the terms of the sales contract.
Financial consulting fees were nil for the three months ended March 31,
1998 compared to $90,000 for the three months ended March 31, 1997.
Although providing financial structuring advice to clients on a fee
basis remains an integral component of the Company's merchant banking
business, significant variations in revenues are likely because of the
transactional nature of this business. The Company currently is engaged
in advising clients with respect to the structuring of transactions
which are expected to generate fees later in 1998.
Interest income increased to $1,061,684 for the three months ended
March 31, 1998 from $28,560 for the three months ended March 31, 1997,
primarily due to interest earned during the development period on the
net 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 and investing activities of the
Company.
Investment income decreased to $117,228 for the three months ended
March 31, 1998 compared to $544,564 for the three months ended March
31, 1997. This category principally consists of net income or loss from
cash management and investing in futures, puts, calls, equities,
municipal securities, and other securities activities.
Total expenses increased to $1,644,549 for the three months ended March
31, 1998 from $484,059 for the three months ended March 31, 1997,
primarily due to interest paid on the $72,750,000 bond offering made by
the Company.
Compensation and related costs decreased to $284,269 for the three
months ended March 31, 1998 from $329,620 for the three months ended
March 31, 1997, primarily due to discretionary bonuses paid in the
first quarter of 1997.
Occupancy costs decreased to $40,175 for the three months ended March
31, 1998 from $41,601 for the three months ended March 31, 1997.
<PAGE>
General and administrative expenses decreased to $96,745 for the three
months ended March 31, 1998 from $97,818 for the three months ended
March 31, 1997.
Professional fees increased to $38,027 for the three months ended March
31, 1998 from $15,020 for the three months ended March 31, 1997. The
increase is due in large part to increased legal expenses incurred for
the quarter ended March 31, 1998.
Interest expense increased to $1,185,333 for the three months ended
March 31, 1998 from nil for the three months ended March 31, 1997, due
to interest paid on the $72,750,000 bond offering made by the Company
for the purpose of obtaining land and constructing Theaters.
On a pre-tax basis, from continuing operations the Company had a loss
of $396,955 for the three months ended March 31, 1998 compared with a
profit of $365,983 for the three months ended March 31, 1997. Provision
for income taxes for the three months ended March 31, 1998 increased to
$45,945 compared to $9,780 for the three months ended March 31, 1997.
The current provision consists solely of state and local taxes for the
current period and an adjustment for the prior period. For Federal
income tax purposes, as of December 31, 1997, the Company had 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 will expire in 2002.
The first quarter 1997 operating loss for Citizens was $315,929 and is
recorded as "Loss from Discontinued Operations."
The Company's net loss for the three months ended March 31, 1998 was
$442,900 compared with a net profit of $40,274 for the three months
ended March 31, 1997. For the three months ended March 31, 1998, net
loss from continuing operations was $.08 per share. For the three
months ended March 31, 1997, net income from continuing operations was
$.06 per share decreased by a net loss from discontinued operations of
$.06 per share, resulting in no income or loss per share. The Company
adopted Statements of Financial Accounting Standards No. 128 in 1997
and has retroactively applied the effects thereof to the quarter ended
March 31, 1997. 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 5,516,373 for the three months
ended March 31, 1998 and 5,559,707 for the three months ended March 31,
1997.
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.
<PAGE>
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, on November 20, 1997, 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. 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 of 1997.
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 March 31, 1998, except for the development
of the Theaters with funds provided by the issuance of the Bonds.
The Company is a defendant in various lawsuits. An unfavorable result
in certain of these lawsuits 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>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: -- A statement regarding the computation of per share
earnings is omitted because the computation is described in Note 2
of the Notes to Consolidated Financial Statements (Unaudited) in
this Form 10-QSB.
Exhibit 27 -- Financial Data Schedule - see below
(b) Reports on Form 8-K:
-- The Company did not file any reports on Form 8-K during the
three months ended March 31, 1998.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HELMSTAR GROUP, INC.
s/ George W. Benoit
----------------------------------------
Date: May 15, 1998 George W. Benoit, Chairman of the
Board of Directors, President,
Chief Executive Officer
s/ Roger J. Burns
----------------------------------------
Date: May 15, 1998 Roger J. Burns, First Vice President,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HELMSTAR
GROUP, INC. AND SUBSIDIARIES' CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE INTERIM
PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 720,373
<SECURITIES> 70,430,232
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 348,693
<DEPRECIATION> 248,822
<TOTAL-ASSETS> 80,984,978
<CURRENT-LIABILITIES> 0
<BONDS> 72,750,000
0
0
<COMMON> 674,960
<OTHER-SE> 5,631,954
<TOTAL-LIABILITY-AND-EQUITY> 80,984,978
<SALES> 0
<TOTAL-REVENUES> 1,247,594
<CGS> 0
<TOTAL-COSTS> 459,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,185,333
<INCOME-PRETAX> (396,955)
<INCOME-TAX> 45,945
<INCOME-CONTINUING> (442,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (442,900)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
