U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934
For the transition period from to
Commission file number 1-9224
HELMSTAR GROUP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-2689850
- ----------------------------------------- ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 World Trade Center, Suite 2112, New York, N.Y. 10048
---------------------------------------------------------------------------
(Address of Principal Executive Offices)
212-775-0400
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at July 31, 1999
----- ----------------------------
Common stock - par value $.10 5,435,673 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, 1998, which was filed
with the Securities and Exchange Commission.
The results of operations for the three months ended June 30, 1999 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents .................. $ 1,664,257 $ 1,040,955
Marketable securities ...................... 6,932,145 7,856,410
Other short term investments -
restricted ......................... 29,743,670 52,020,895
Real estate to be leased, under
development ........................ 45,929,664 19,979,854
Furniture, equipment and
leasehold improvements - at cost,
less accumulated depreciation and
amortization of $350,538 in
1999 and $302,482 in 1998 .......... 315,319 211,634
Deferred financing costs, less
accumulated amortization of $164,447
in 1999 and $109,998 in 1998 ....... 1,761,728 1,816,177
Other assets ............................... 1,038,494 614,210
------------ ------------
TOTAL ...................... $ 87,385,277 $ 83,540,135
============ ============
LIABILITIES
Bonds payable .............................. $ 72,750,000 $ 72,750,000
Accrued expenses and other
liabilities ........................ 7,226,499 3,260,661
------------ ------------
Total liabilities .......... 79,976,499 76,010,661
------------ ------------
Due to Preferred Member .................... 2,250,000 1,500,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - authorized
10,000,000 shares, par value
$.10; issued 6,749,600 shares
in 1999 and 1998 ................... 674,960 674,960
Paid-in surplus ............................ 14,984,510 14,984,510
(Deficit) .................................. (7,452,983) (6,605,467)
------------ ------------
Total ...................... 8,206,487 9,054,003
Less treasury stock, at cost -
1,313,927 shares in 1999 and
1,296,227 shares in 1998 ........... (3,047,709) (3,024,529)
------------ ------------
Total stockholders' equity . 5,158,778 6,029,474
------------ ------------
TOTAL ...................... $ 87,385,277 $ 83,540,135
============ ============
</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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Revenues:
Profit (loss) from
joint ventures ................. $ -- $ (59,155) $ -- $ 9,527
Financial consulting fees ....... -- -- 51,578 --
Technology placement and
consulting fees ................ 183,924 -- 240,436 --
Interest income ................. 555,548 1,067,469 1,258,017 2,129,152
Investment income ............... 890,015 796,274 1,081,856 913,503
----------- ----------- ----------- -----------
Total revenues .......... 1,629,487 1,804,588 2,631,887 3,052,182
----------- ----------- ----------- -----------
Expenses:
Compensation and related costs .. 670,613 289,609 1,120,246 573,878
Occupancy cost .................. 42,497 47,193 83,964 87,369
General and administrative ...... 190,074 85,353 313,160 182,098
Professional fees ............... 151,906 90,000 243,092 128,027
Interest ........................ 773,106 1,155,373 1,705,419 2,340,706
----------- ----------- ----------- -----------
Total expenses .......... 1,828,196 1,667,528 3,465,881 3,312,078
----------- ----------- ----------- -----------
Income (loss) before taxes .............. (198,709) 137,060 (833,994) (259,896)
Provision (benefit) for
income taxes .................... 680 (22,008) 13,522 23,937
----------- ----------- ----------- -----------
Income (loss) ........................... (199,389) 159,068 (847,516) (283,833)
=========== =========== =========== ===========
Per common share - basic and diluted:
Income (loss) ........................... $ (.04) $ .03 $ (.16) $ (.05)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding - basic 5,435,673 5,514,373 5,436,108 5,515,376
Effect of dilutive employee
stock options ................... 60,000
----------- ----------- ----------- -----------
Weighted average number of
common shares - diluted
income (loss) per share ......... 5,435,673 5,574,373 5,436,108 5,515,376
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements (Unaudited).
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
--------------------------------
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................. $ (847,516) $ (283,833)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ......................... 102,505 14,106
Unrealized (gain) from joint ventures
and other investments ................................ -- (9,527)
Changes in operating assets and liabilities:
Increase (decrease) in other assets .................. (424,284) 146,757
Sale (purchase) of marketable securities - net ....... 924,265 (360,968)
Increase (decrease) in accrued expenses .............. 3,965,838 (377,128)
------------ ------------
Net cash provided by (used in) operating activities ................... 3,720,808 (870,593)
------------ ------------
Cash flows from investing activities:
Sale of investment securities - net ........................... 22,277,225 10,027,316
Distributions from joint ventures and other investments ....... -- 76,980
Purchase of land .............................................. -- (9,117,495)
Increase in construction in progress .......................... (25,949,810) (125,058)
Increase in deferred financing costs .......................... -- (16,210)
Purchase of fixed assets ...................................... (151,741) (13,174)
Increase in due to preferred member ........................... 750,000 --
------------ ------------
Net cash provided by investing activities ............................. (3,074,326) 832,359
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock .................................... (23,180) (2,330)
------------ ------------
Net cash provided by (used in) financing activities ................... (23,180) (2,330)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. 623,302 (40,564)
Cash and cash equivalents at beginning of period ...................... 1,040,955 802,352
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 1,664,257 $ 761,788
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................. $ 2,486,827 $ 1,968,698
Taxes ................................................. $ 7,375 $ 39,718
</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, 1998, 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. Employee stock options did not have an effect on the
computation of diluted earnings per share since they were anti-dilutive.
3. REAL ESTATE TO BE LEASED, UNDER DEVELOPMENT
Real Estate to be Leased, Under Development consists of the following:
June 30, December 31
1999 1998
(Unaudited)
Land $17,058,866 $13,697,418
Construction in progress 28,870,798 6,282,436
----------- -----------
Total $45,929,664 $19,979,854
=========== ===========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
A. Three Months Ended June 30, 1999 Compared
-----------------------------------------
with Three Months Ended June 30, 1998
-------------------------------------
Total revenues decreased to $1,629,487 for the three months
ended June 30, 1999 from $1,804,588 for the three months ended June 30, 1998.
There was no profit or loss from joint ventures for the three
months ended June 30, 1999, as opposed to a loss of $59,155 for the three months
ended June 30, 1998. The properties underlying the joint ventures were sold in
the fourth quarter of 1997 and the loss for the three months ended June 30, 1998
represented final adjustments per the terms of the sales contract.
Technology placement and consulting fees increased to $183,924
in the three months ended June 30, 1999 from nil for the three months ended June
30, 1998 due to the Company's establishment of a technology related subsidiary,
CareerEngine, Inc., in the third quarter of 1998.
Interest income decreased to $555,548 for the three months ended
June 30, 1999 from $1,067,469 for the three months ended June 30, 1998 as the
Company commenced development of multiplex movie theaters in the fourth quarter
of 1998 which reduced the amount of funds available for investment.
Investment income increased to $890,015 for the three months
ended June 30, 1999 compared to $796,274 for the three months ended June 30,
1998 principally from the results of the Company's cash management and investing
activities. These activities include transactions involving futures, puts,
calls, equities, municipal securities, and other investment instruments.
Total expenses increased to $1,828,196 for the three months
ended June 30, 1999 from $1,667,528 for the three months ended June 30, 1998.
Compensation and related costs increased to $670,613 for the
three months ended June 30, 1999 from $289,609 for the three months ended June
30, 1998, primarily due to the increase in the number of employees in our
technology related business.
Occupancy costs decreased to $42,497 for the three months ended
June 30, 1999 from $47,193 for the three months ended June 30, 1998.
General and administrative expenses increased to $190,074 for
the three months ended June 30, 1999 from $85,253 for the three months ended
June 30, 1998. The increase was due primarily to the operations of the Company's
technology related business.
Professional fees increased to $151,906 for the three months
ended June 30, 1999 from $90,000 for the three months ended June 30, 1998. The
increase is due to the incurrence of direct costs associated with consulting
fees earned, and increased legal and accounting fees for the three months ended
June 30, 1999.
Interest expense decreased to $773,106 for the three months
ended June 30, 1999 from $1,155,373 for the three months ended June 30, 1998 due
to the capitalization of interest expense during the development phase of the
multiplex movie theaters.
<PAGE>
On a pre-tax basis, the Company had a loss of $198,709 for the
three months ended June 30, 1999 compared with a profit of $137,060 for the
three months ended June 30, 1998. Provision for income taxes for the three
months ended June 30, 1999 decreased to $680 compared to a benefit of $22,008
for the three months ended June 30, 1998. The current provision consists solely
of state and local taxes for the current period while the benefit for the three
months ended June 30, 1998 was an adjustment for a prior period. For Federal
income tax purposes, as of December 31, 1998, the Company had net operating loss
carryforwards of approximately $12,166,000 available to reduce future taxable
income. These carryforwards expire in the years 2005 through 2018.
The Company's net loss for the three months ended June 30, 1999
was $199,389 compared with a net profit of $159,068 for the three months ended
June 30, 1998. For the three months ended June 30, 1999, net loss was $.04 per
share. For the three months ended June 30, 1998, net profit was $.03 per share.
Six Months Ended June 30, 1999 Compared
---------------------------------------
with Six Months Ended June 30, 1998
-----------------------------------
Total revenues decreased to $2,631,887 for the six months ended
June 30, 1999 from $3,052,182 for the six months ended June 30, 1998.
There was no profit or loss from joint ventures for the six
months ended June 30, 1999, as opposed to a profit of $9,527 for the six months
ended June 30, 1998. The properties underlying the joint ventures were sold in
the fourth quarter of 1997 and the profit for the six months ended June 30, 1998
represented final adjustments per the terms of the sales contract.
Financial consulting fees were $51,578 for the six months ended
June 30, 1999 compared to nil for the six months ended June 30, 1998.
Significant variations in this category of revenue are likely to occur due to
the transactional nature of the Company's financial consulting business.
Technology placement and consulting fees increased to $240,436
for the six months ended June 30, 1999 from nil for the six months ended June
30, 1998 due to the Company's establishment of a technology related subsidiary,
CareerEngine, Inc., in the third quarter of 1998.
Interest income decreased to $1,258,017 for the six months ended
June 30, 1999 from $2,129,152 for the six months ended June 30, 1998 as the
Company commenced development of multiplex movie theaters in the fourth quarter
of 1998 which reduced the amount of funds available for investment.
Investment income increased to $1,081,856 for the six months
ended June 30, 1999 compared to $913,503 for the six months ended June 30, 1998
principally from the results of the Company's cash management and investing
activities. These activities include transactions involving futures, puts,
calls, equities, municipal securities, and other investment instruments.
Total expenses increased to $3,465,881 for the six months ended
June 30, 1999 from $3,312,078 for the six months ended June 30, 1998.
Compensation and related costs increased to $1,120,246 for the
six months ended June 30, 1999 from $573,878 for the six months ended June 30,
1998, primarily due to the increase in the number of employees in our technology
related business.
<PAGE>
Occupancy costs decreased to $83,964 for the six months ended
June 30, 1999 from $87,369 for the six months ended June 30, 1998.
General and administrative expenses increased to $313,160 for
the six months ended June 30, 1999 from $182,098 for the six months ended June
30, 1998. The increase was due primarily to the operations of the Company's
technology related business.
Professional fees increased to $243,092 for the six months ended
June 30, 1999 from $128,027 for the six months ended June 30, 1998. The increase
is due to the incurrence of direct costs associated with consulting fees earned,
and increased legal and accounting fees for the six months ended June 30, 1999.
Interest expense decreased to $1,705,419 for the six months
ended June 30, 1999 from $2,340,706 for the six months ended June 30, 1998 due
to the capitalization of interest expense during the development phase of the
multiplex movie theaters.
On a pre-tax basis, the Company had a loss of $833,994 for the
six months ended June 30, 1999 compared with a loss of $259,896 for the six
months ended June 30, 1998. Provision for income taxes for the six months ended
June 30, 1999 decreased to $13,522 compared to $23,937 for the six months ended
June 30, 1998. The provision consists solely of state and local taxes for the
current period. For Federal income tax purposes, as of December 31, 1998, the
Company had net operating loss carryforwards of approximately $12,166,000
available to reduce future taxable income. These carryforwards expire in the
years 2005 through 2018.
The Company's net loss for the six months ended June 30, 1999
was $847,516 compared with a net loss of $283,833 for the six months ended June
30, 1998. For the six months ended June 30, 1999, net loss was $.16 per share.
For the six months ended June 30, 1998, net loss was $.05 per share.
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.
The Company issued $72,750,000 of adjustable rate tender
securities due November 1, 2015 (the "Bonds") during 1997. 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 the
Preferred Member of the Company's Lessor subsidiary, Movieplex Realty Leasing,
L.L.C.
<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 commenced in 1998. In
addition, a preferred return on capital contributed is due to the Preferred
Member, 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 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 the Preferred
Member will be paid from rent which commences on December 1, 1999. In addition,
the rent 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 multiplex movie 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, as well as future operational costs of the
newly formed technology and consulting focused ventures, 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 June 30, 1999, except the development of the
multiplex movie theaters with funds provided by the issuance of the Bonds.
Year 2000 Issue
---------------
The Company has reviewed all of its computer systems (hardware
and related software) and 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 Condensed
Consolidated Financial Statements (Unaudited) of this
Form 10-QSB.
Exhibit 27 - Financial Data Schedule -- See below.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during
the three months ended June 30, 1999.
<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: August 13, 1999 George W. Benoit,
Chairman of the Board
of Directors, President,
Chief Executive Officer
/s/ Anthony S. Conigliaro
-------------------------
Date: August 13, 1999 Anthony S. Conigliaro,
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HELMSTAR
GROUP, INC. AND SUBSIDIARIES' CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE INTERIM 6
MONTH PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,664,257
<SECURITIES> 36,675,815
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 46,595,521
<DEPRECIATION> 350,538
<TOTAL-ASSETS> 87,385,277
<CURRENT-LIABILITIES> 0
<BONDS> 72,750,000
0
0
<COMMON> 674,960
<OTHER-SE> 4,483,818
<TOTAL-LIABILITY-AND-EQUITY> 87,385,277
<SALES> 0
<TOTAL-REVENUES> 2,631,877
<CGS> 0
<TOTAL-COSTS> 1,760,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,705,419
<INCOME-PRETAX> (833,994)
<INCOME-TAX> 13,522
<INCOME-CONTINUING> (847,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (847,516)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
