SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
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, 1998
[ ] 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.
- - --------------------------------------------------------------------------------
(Name of Small Business Issuer 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) (Zip Code)
212-775-0400
- - --------------------------------------------------------------------------------
(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
------------------- -----------------------
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.
Issuer's revenues for 1998, its most recent fiscal year, were
$6,508,859.
As of February 28, 1999, the aggregate market value of voting stock
held by non-affiliates of the Issuer was approximately $5,178,980.
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, 1999
Common stock - par value $.10 5,436,973 shares
- - ----------------------------- ----------------
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 3, l999.
(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, concentrating on real estate projects, and
technology and consulting services.
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 1998, 1997, 1996, and 1995 approximately
16%, 4%, 9%, and 12% of the Company's total revenues in each
year were realized in connection with providing financial
consulting services.
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.
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.
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") to finance 97%
of the total expected cost of the Theaters. 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.
<PAGE>
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 came from equity
invested by 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 $1,500,000 was paid
as of December 31, 1998, with the balance due prior to the end
of the Project Development Period).
During 1998, the Company purchased land in Mobile, AL, El
Paso, TX, Franklin, TN, Albany, GA, and Delmont, PA for an
aggregate cost of $13,697,418 to be used for the development
of five movie theater complexes. The Company commenced
construction on three of these sites --Mobile, AL, El Paso,
TX, and Franklin, TN. See "Management Discussion and Analysis
- Liquidity and Capital Resources."
Technology Focused Venture
--------------------------
During 1998, the Company formed a wholly-owned subsidiary,
CareerEngine, Inc. an information technology focused venture
featuring three areas of concentration: comprehensive
Internet-based job search services; a full-service recruiting
and placement unit; and an information technology consulting,
design and integration business.
Online Career Recruiting and Placement
CareerEngine (www.careerengine.com) offers a categorical
search capability on a job function basis for employers and
job applicants so that relevant skills can be efficiently
matched to available positions. The firm is involved with all
level of searches, including programmers, chief information
and chief technology officers, as well as consultants for
clients with short-term project needs.
A significant characteristic of CareerEngine's web site is its
secure environment. The site is able to attract high-caliber
candidates as a result of its ability to promote their skills
to potential employers without revealing their individual
identities. The ability of prospects to register themselves in
the job market in this manner is a significant advantage over
many online placement services.
<PAGE>
Resumes have been received from around the world, and the
database is rapidly growing through the establishment of
numerous partnerships, including "advertising exchange
agreements" that incorporate Web site hyperlinks and print
advertising exposure within career fair and technology media.
Among the over 100 companies registered to review
CareerEngine's candidates' resumes online are a select group
of "featured employers." These select companies receive
unlimited and prominent job postings in exchange for
guaranteeing that CareerEngine would be considered by these
firms as a vendor for any placement agency services they may
require.
Technology Consulting and Management
During 1998, CareerEngine acquired Advanced Digital Networks,
Inc. ("ADN"), an established information technology consulting
firm based in New York, New York. ADN provides software
consulting, design, and integration services to small to
midsize companies that are typically underserved by the major
firms in this field. ADN's objective is to become a customer's
primary information technology consulting and implementation
partner. The acquisition created a synergistic relationship
allowing ADN to reduce the cost of recruiting personnel for
its consulting assignments while simultaneously providing job
openings for posting to ITClassifieds.com, one of
CareerEngine's web sites.
ADN is currently establishing strategic relationships with
various Internet Access Providers and commercial building
owners/managers so as to position itself as the preferred
vendor of information technology services (IT) to their
respective customers. The Company believes that small to
midsized companies seek, and are extremely loyal to, reliable
IT vendors of high quality, such as ADN. ADN continues to
develop IT services relevant to the business challenges faced
by this market segment so as to build a strong customer base.
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");
Shaw Realty Company, Inc. ("Shaw"); Helmstar Funding, Inc.
("Funding"); 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.
<PAGE>
("McAdam"); Ryan, Jones & Co., Inc. ("Ryan"); CareerEngine,
Inc. ("Career"); and Advanced Digital Networks, Inc. ("ADN").
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.
As of March l, 1999, the Company had 17 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. 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.
The Company's subsidiary, CareerEngine, Inc., and its web site
compete with numerous large and small organizations and their
related web sites in the Internet-based personnel recruiting
market. These web sites can be described as either
"generalist" (a web site that covers employment opportunities
in all industries) or "vertical/category specific" (a web site
that covers employment opportunities in a specific industry).
The Company expects to have significant Internet-based
competition for the foreseeable future. Additionally, the
traditional print media, specifically major city newspapers,
are major competitors of the Company. Almost all of the
Company's competitors in this area are vastly larger, have
attained significant name recognition, possess large
advertising budgets, and have established significant
strategic alliances within the recruitment industry.
CareerEngine, Inc.'s subsidiary, Advanced Digital Networks,
Inc. faces competition from a very large number of entrenched
information technology service providers and in-house
information technology departments. Due to the explosive
growth in new information technologies and the application
thereof, competition is expected to remain fierce for the
well-positioned firm in the foreseeable future.
<PAGE>
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.
The Company owns land at the aggregate cost of $13,697,418 in
the following locations: Mobile, AL, El Paso, TX, Franklin,
TN, Albany, GA, and Delmont, PA. The Company is in the
process of developing movie theater complexes on these
properties.
<PAGE>
Item 3. Legal Proceedings.
Fred W. Wasserman, et al. v. Jeffrey P. Christopher, et al.,
------------------ --------------------------------- -------
Case No. 278699
---------------
In May 1996, the Company was served with a summons and
complaint in connection with a class action commenced in March
1996 against multiple parties. This action was filed in the
Superior Court of California, County of Riverside and is
currently pending in the court. 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 that in connection with the issuance and underwriting
of the Bonds the defendants negligently and fraudulently
misrepresented that the interest on the Bonds would be exempt
from federal income tax. 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.
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, 1999 was 278.
Equity Sale Prices:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
1998 1 1/8 5/8 1 3/16 3/4 3 1/8 13/16 2 1
1997 1 3/4 15/16 11/16 7/8 5/8 1 1/4 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. 1998 Compared to 1997
------------------------
Total revenue increased to $6,508,859 for 1998 from 6,363,911
for 1997.
Profit from joint ventures decreased to $22,101 for 1998 from
$5,656,080 for 1997. 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.
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 residual
operations for 1998 totaled $22,101 compared to operations
through the sale in September 1997 of $383,651.
Financial consulting fees increased to $1,040,000 for 1998
from $255,938 for 1997. 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 $3,919,885 for 1998 from $725,412
for 1997, 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.
Investment income increased to a profit of $1,526,873 for 1998
from a loss of $273,519 for 1997. This category includes net
profit or loss from cash management and investing in futures,
puts, calls, municipals and other securities activities.
Total expenses increased to $7,241,065 for 1998 from
$3,172,946 in 1997.
Compensation and related costs increased to $1,601,163 for
1998 from $1,495,720 for 1997. The increase is due principally
to the additional employees hired by the Company in connection
with the technology and consulting focused ventures.
<PAGE>
Occupancy costs increased to $174,706 for 1998 from $164,943
for 1997. This increase is due to minor increase in
maintenance expense.
General and administrative expenses decreased to $268,164 for
1998 from $677,929 for 1997. This decrease was primarily due
to payments received from licensing excess office space and
services and the recording of a bad debt expense in 1997.
Professional fees increased to $203,253 for 1998 from $174,266
for 1997. This increase was due in large part to legal fees
incurred in connection with the formation of our wholly-owned
subsidiary, CareerEngine, and its acquisition of Advanced
Digital Networks.
Interest expense increased to $4,993,779 for 1998 from
$660,088 for 1997. 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 loss from continuing operations of $624,409
for 1998 compared with a profit of $2,689,230 for 1997. In
1998, the Company had a tax benefit of $107,797 compared to a
tax expense of $501,735 for 1997. In 1997, the Company
incurred Federal alternative minimum tax together with state
and local taxes. For Federal income tax purposes, as of
December 31, 1998, the Company has 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 1998 was $624,409 compared with net
income of $1,702,660 for 1997. For 1998, loss per share (basic
and diluted) from continuing operations was $(.11) per share.
For 1997, net income per share (basic and diluted) from
continuing operations was $.48 per share decreased by a net
loss from discontinued operations of $(.17) per share,
resulting in a net income of $.31 per share (basic and
diluted).
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.
<PAGE>
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. See "Description of Business
- Real Estate Development Program." The 3% balance,
$2,250,000, was provided as a capital contribution from
Preferred Members (shareholders) of the Company's Lessor
subsidiary, Movieplex Realty Leasing, L.L.C.
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 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.
<PAGE>
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 December
31, 1998, except for the development of the Theaters with
funds provided by the issuance of the Bonds.
The Company is a defendant in a lawsuit. An unfavorable result
could have a significant adverse effect upon the Company's
liquidity and capital resources.
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>
Item 7. Financial Statements.
The Company's financial statements to be filed hereunder
follow, beginning with page F.
<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, 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the two-year period then ended. 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. The 1997 financial
statements of two joint ventures described in Note C have been audited by other
auditors whose reports have been furnished to us; insofar as our opinion on the
1997 consolidated financial statements relates to data included for such
ventures, it is based solely on their reports.
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, for 1997, 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, 1998, and the consolidated results of their
operations and their consolidated cash flows for each of the years in the
two-year period then ended in conformity with generally accepted accounting
principles.
As described in Note H to the consolidated financial statements, the Company is
a defendant in litigation.
/s/Richard A. Eisner & Company, LLP
- - -----------------------------------
Richard A. Eisner & Company, LLP
New York, New York
February 23, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................................................... $ 1,040,955
Marketable securities .............................................................. 7,856,410
Other short-term investments - restricted .......................................... 52,020,895
Real estate to be leased, under development:
Land ............................................................................ $ 13,697,418
Construction in progress ........................................................ 6,282,436 19,979,854
Furniture, equipment and leasehold improvements - at cost, less accumulated ------------
depreciation and amortization of $302,482 ....................................... 211,634
Deferred financing costs, less accumulated amortization of $109,998 ................ 1,816,177
Other assets ....................................................................... 614,210
------------
$ 83,540,135
============
LIABILITIES
Bonds payable ...................................................................... $ 72,750,000
Accrued expenses and other liabilities ............................................. 3,260,661
------------
Total liabilities ............................................................ 76,010,661
------------
Due to preferred member ............................................................ 1,500,000
------------
Commitments and contingencies (Notes G and H)
STOCKHOLDERS' EQUITY
Common stock - authorized 10,000,000 shares, par value $.10; issued 6,749,600 shares 674,960
Paid-in surplus .................................................................... 14,984,510
Deficit ............................................................................ (6,605,467)
------------
9,054,003
Less treasury stock, at cost - 1,296,227 shares .................................... (3,024,529)
------------
6,029,474
------------
$ 83,540,135
============
</TABLE>
See notes to financial statements. F-2
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Profit from joint ventures, including gain on sale of venture assets of
$5,193,018 in 1997 ................................................. $ 22,101 $ 5,656,080
Financial consulting fees ............................................. 1,040,000 255,938
Income (loss) on securities transactions .............................. 1,526,873 (273,519)
Interest income ....................................................... 3,919,885 725,412
----------- -----------
6,508,859 6,363,911
----------- -----------
Expenses:
Compensation and related costs ........................................ 1,601,163 1,495,720
Occupancy cost ........................................................ 174,706 164,943
General and administrative ............................................ 268,164 677,929
Professional fees ..................................................... 203,253 174,266
Interest and other financing expense .................................. 4,993,779 660,088
----------- -----------
7,241,065 3,172,946
----------- -----------
(Loss) income from continuing operations before income taxes ............. (732,206) 3,190,965
Income tax (benefit) provision ........................................... (107,797) 501,735
----------- -----------
(Loss) income from continuing operations ................................. (624,409) 2,689,230
Discontinued operations:
Loss from operations of discontinued subsidiary ....................... (755,409)
Loss on disposal of subsidiary ........................................ (231,161)
----------- -----------
Net (loss) income ........................................................ $ (624,409) $ 1,702,660
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(continued)
Year Ended December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Per common share - basic and diluted:
(Loss) income from continuing operations .............................. $ (.11) $ .48
Loss from discontinued operations ..................................... (.17)
----------- -----------
Net (loss) income ..................................................... $ (.11) $ .31
=========== ===========
Weighted average number of common shares outstanding - basic
(loss) income per share ............................................... 5,489,376 5,520,958
Effect of dilutive employee stock options ................................ 30,770
----------- -----------
Weighted average number of common shares outstanding -
diluted (loss) income per share ....................................... 5,489,376 5,551,728
=========== ===========
</TABLE>
See notes to financial statements F-3
<PAGE>
<TABLE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Common Stock Treasury Stock
--------------------- Paid-in -------------------------
Shares Amount Surplus Deficit Shares Amount Total
------ ------ ------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 ..... 6,749,600 $ 674,960 $14,984,510 $ (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 ... 6,749,600 674,960 14,984,510 (5,981,058) 1,233,227 (2,928,598) 6,749,814
Treasury stock acquired at cost 63,000 (95,931) (95,931)
Net loss ...................... (624,409) (624,409)
Balance - December 31, 1998 ... 6,749,600 $ 674,960 $14,984,510 $ (6,605,467) 1,296,227 $ (3,024,529) $6,029,474
</TABLE>
See notes to financial statements. F-4
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
---------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
(Loss) income from continuing operations $ (624,409) $ 2,689,230
Adjustments to reconcile (loss) income from continuing operations to net
cash provided by (used in) operating activities:
Depreciation and amortization 79,409 27,576
Share of income from joint ventures (22,101) (463,062)
Realized gain from joint ventures - sale of assets (5,193,018)
Provision for bad debts 85,000
Realized loss on sale or disposal of marketable securities 235,585
Unrealized loss from marketable securities 2,934
(Gain) loss on sale of furniture and equipment (166) 2,653
Purchase of marketable securities (26,361,024) (12,415,814)
Sales of marketable securities 25,739,476 6,292,874
Changes in:
Other assets 38,767 4,133
Accrued expenses and other liabilities 1,691,723 822,229
----------- ------------
Net cash provided by (used in) operating activities - continuing operations 541,675 (7,909,680)
Net cash used in operating activities - discontinued operations (477,951)
----------- ------------
Net cash provided by (used in) operating activities 541,675 (8,387,631)
----------- ------------
Cash flows from investing activities:
Purchase of other short-term investments - restricted (71,174,934)
Sales of other short-term investments - restricted 19,154,039
Distributions from joint ventures - operations 195,391 473,360
Distributions from joint ventures - refinancings 1,420,000
Distributions from joint ventures - sale of assets 4,995,239
Purchase of land (13,697,418)
Construction in progress (6,271,436)
Purchase of furniture and equipment (202,242) (38,546)
Other 17,493 (85,000)
----------- ------------
Net cash used in investing activities - continuing operations (804,173) (64,409,881)
Net cash provided by investing activities - discontinued operations 110,393
----------- ------------
Net cash (used in) investing activities (804,173) (64,299,488)
----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
Year Ended December 31,
---------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from financing activities:
Deferred financing costs (152,968) (1,674,209)
Purchase of treasury stock (95,931) (15,774)
Proceeds from bonds payable 72,750,000
Proceeds from preferred member 750,000 750,000
----------- ------------
Net cash provided by financing activities 501,101 71,810,017
----------- ------------
Net increase (decrease) in cash and cash equivalents 238,603 (877,102)
Cash and cash equivalents at beginning of year 802,352 1,679,454
----------- ------------
Cash and cash equivalents at end of year $ 1,040,955 $ 802,352
=========== =============
Supplemental disclosures of cash flow information from continuing operations:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 4,643,493 $ 123,603
Income taxes $ 71,763 $ 888
</TABLE>
See notes to financial statements. F-5
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note A - The Company and its Significant Accounting Policies
Helmstar Group, Inc. and subsidiaries (the "Company") are primarily engaged in
merchant banking activities concentrating on real estate projects and also
provide financial consulting services. During 1997, the Company entered into a
real estate development and lease financing program for the construction of
multiplex movie theaters (see Note D). During 1998, the Company formed a wholly
owned subsidiary to provide information technology placement and consulting
services and in December 1998, the subsidiary acquired the assets of a
technology consulting firm for a consideration that was not material. In
connection therewith, Internet category-specific career sites will be created to
provide resume hosting and job postings for career candidates. The Company sold
its mortgage banking subsidiary in 1997 (see Note J).
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Helmstar Group, Inc. and its subsidiaries. Results of operations of the
mortgage banking subsidiary have been reflected as discontinued operations
in the accompanying 1997 financial statements.
All significant intercompany balances and transactions have been
eliminated.
[2] Real estate to be leased:
Movie theaters to be leased, which are under development, are carried at
cost. During the development period, interest cost incurred on the bonds
issued to finance the acquisition of land and construction thereon of the
theaters is being capitalized based on the average amount of accumulated
expenditures incurred to develop the theaters. During the year ended
December 31, 1998, approximately $516,000 of interest, letter of credit
fees and amortization of deferred financing costs, were capitalized and
included in construction in progress. Upon commencement of rental income,
under leases to be accounted for as operating leases (see Note D), the
theaters will be depreciated using the straight-line method over an
estimated useful life of 39 years.
[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 being amortized over the eighteen year term
of the related bonds.
[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.
F-6
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note A - The Company and its Significant Accounting Policies (CONTINUED)
[5] Income (loss) per share:
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 1998, employee stock options were
anti-dilutive.
[6] Income taxes:
Deferred income taxes are measured by applying enacted statutory rates in
effect at the balance sheet date to net operating loss carryforwards and
to the differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements. The resulting deferred
tax asset as of December 31, 1998 was fully reserved since the likelihood
of realization of future tax benefits cannot be established.
[7] Marketable securities and other short-term investments:
Investments are classified 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. Unrealized gains and
losses on available-for-sale securities are reported in a separate
component of stockholders' equity.
The Company's marketable securities consist of United States Treasury
Bills which are classified as trading securities. At December 31, 1998,
cost approximates market value.
Other 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] Derivative financial instruments:
As part of its investment strategies to profit from anticipated market
movements, the Company maintains trading positions in a variety of
derivative financial instruments consisting principally of futures
contracts in treasuries, stocks and municipal securities. All positions
are reported at fair value, and changes in fair value are reflected in
operations as they occur. The Company realized a net gain on derivatives
sold during 1998 of approximately $1,526,000 and a net loss of
approximately $239,000 on derivatives sold in 1997. Such amounts are
included in income (loss) on securities transactions in the accompanying
statements of operations. At December 31, 1998, no derivative financial
instruments were held by the Company and the average fair value of such
instruments held during the years was not material.
F-7
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note A - The Company and its Significant Accounting Policies (CONTINUED)
[9] 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.
[10] 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 1997, the Company issued $72,750,000 of adjustable rate tender
securities 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 securities were issued, the Company is restricted as to
the term and the investment instruments (the "Eligible Investments") in which it
can invest proceeds of the securities 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, 1998 and 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 the cost of these
investments upon disposition.
Short-term investments at December 31, 1998 consist of:
Municipal auction rate certificates $ 46,503,536
Adjustable rate repurchase agreements 5,517,359
-------------
$ 52,020,895
=============
F-8
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note C - Investment 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. As of December 31, 1998, the partnerships' assets consist of cash and
receivables and they are in the process of being liquidated. The Company
accounts for its investment in the ventures under the equity method.
A reconciliation of the change in the carrying amount of the Company's
investment in real estate joint ventures for the years ended December 31, 1998
and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Balance, beginning of year $ 185,864 $ 1,418,383
----------- -----------
Income:
From operations ....... 22,101 383,151
From refinancing ...... 79,911
From sale ............. 5,193,018
----------- -----------
22,101 5,656,080
Cash distributions:
From operations ....... (195,391) (473,360)
From refinancing ...... (1,420,000)
From sale ............. (4,995,239)
----------- -----------
(195,391) (6,888,599)
----------- -----------
Balance, end of year ..... $ 12,574(a) $ 185,864
=========== ============
</TABLE>
(a) Included in other assets
Note D - Real Estate Development and Financing
The Company is in the process of developing and/or acquiring state-of-the-art,
multiplex movie theaters (the "Theaters") in various states throughout the
continental United States. The cost of the Theaters is expected to be
approximately $75,000,000. A major film exhibitor, Carmike Cinemas, Inc. (the
"Lessee"), is acting as the 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 leases.
Rents will commence on all Theaters at the completion 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 has the option to extend the lease as
F-9
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note D - Real Estate Development and Financing (continued)
to all the Theaters for a term of ten years and thereafter for an additional
term of five years at rental rates provided in the lease. In addition, at the
end of the initial lease term, the Lessee has an option to purchase all the
Theaters at fair market value, as defined in the lease. Monthly rental payments
under the leases will fluctuate with required debt service payments on the
Bonds. Rental income from the leases will be accounted for on a straight-line
basis, subject to increases or decreases, principally based on changes in the
variable base rate of the Bonds described below. During 1998, the Company
purchased land for the development of five theaters and commenced construction
on three of such sites.
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 LOC with an initial term of five years. The Company
expects to continue to use LOCs of this nature to secure the Bonds throughout
their terms.
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 (5.9% at
December 31, 1998) is reset weekly and interest is payable monthly. 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. The
fair value of the Bonds approximates their carrying amount in the financial
statements.
Scheduled maturities of bonds payable for the five years subsequent to December
31, 1998 and thereafter are as follows:
Year Ending
December 31, Amount
------------ -------------
2000 $ 970,000
2001 1,035,000
2002 1,105,000
2003 1,180,000
Thereafter 68,460,000
-------------
$ 72,750,000
=============
The remaining 3% of the total expected cost of the Theaters is being financed
from equity invested by 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, these 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 $1,500,000 has been paid at December 31, 1998, with the balance due
prior to the end of the Project Development Period). Preferred Membership
interests are entitled to a preferred rate of return based on three month LIBOR.
F-10
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note E - Income Taxes
The income tax (benefit) provision, all of which is current, consists of the
following:
Year Ended
December 31,
-----------------------------
1998 1997
------------ -----------
Federal $ (22,143) $ 53,000
State and local (85,654) 448,735
------------ -----------
$ (107,797) $ 501,735
============ ===========
At December 31, 1998, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $12,166,000, which expires from
2005 to 2018.
The Company's deferred tax asset consists of the following as of December 31,
1998:
Net operating loss carryforward $ 5,597,000
AMT tax credit carryforward 10,000
Litigation provision 207,000
Accounts receivable and other reserves 161,000
5,975,000
Valuation allowance (5,975,000)
-----------
Net asset $ 0
===========
The valuation allowance increased by approximately $650,000 during 1998 and
decreased by $1,225,000 during 1997.
F-11
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note E - Income Taxes (CONTINUED)
The effective tax rate applicable to continuing operations varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
1998 1997
---- ----
<S> <C> <C>
Statutory rate (34.0)% 34.0%
State and local taxes, net of federal income tax effect 4.3 9.3
Nondeductible expenses 3.9 .7
Other .6
Reversal of prior year tax overaccrual (7.2)
Utilization of carryforward losses (28.9)
Valuation allowance 18.2
----- -----
Effective rate (14.8)% 15.7%
===== ====
</TABLE>
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 which results in a tax deficiency of approximately
$348,000 (exclusive of interest). The Company has consented to the proposed
adjustments and awaits the IRS's final approval. In a prior year, the Company
had recorded a liability amounting to $487,000 for income tax and interest
related to the years under examination and, accordingly, after giving effect to
$60,000 of additional state and local tax deficiencies related to the IRS
adjustments, in 1998, the Company accrued additional interest expense of
$312,000 related to the tax deficiency, thereby increasing the liability to
$799,000 at December 31, 1998.
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. As of December 31, 1998, there are 100,000
outstanding options to purchase common stock, all of which are exercisable.
F-12
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note G - Commitments
[1] The Company occupies office space under a lease expiring on February 28,
2006. Rental expense for such lease was $164,819 and $151,200 for the
years ended December 31, 1998 and 1997, respectively.
Minimum future annual rental payments at December 31, 1998 are as follows:
1999 $ 127,900
2000 127,900
2001 127,900
2002 127,900
2003 127,900
Thereafter 276,900
-----------
$ 916,400
===========
[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 1998 and 1997 applicable to
continuing operations was approximately $9,800 and $9,000, respectively.
Note H - Litigation
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 and is
currently pending in that court. 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 that in
connection with the issuance and underwriting of the Bonds, the defendants
negligently and fraudulently misrepresented that the interest on the Bonds would
be exempt from federal income tax. 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.
The Company plans to defend vigorously against all of the plaintiffs'
allegations involving it. The ultimate resolution of this action is not
presently determinable.
F-13
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note I - Financial Information Relating to Operating Segments
The Company's reportable segments are strategic business units that offer
different services as described in Note A. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance of a segment based on
income or loss from operations before income taxes.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------------------
Financial
Merchant Consulting Technology
Banking Services Services Total
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Equity in net income of investees $ 22,101 $ 22,101
Interest income 3,919,885 3,919,885
Other revenues 1,526,873 $ 1,040,000 2,566,873
Interest expense 4,993,779 4,993,779
Depreciation and amortization 36,779 $ 42,630 79,409
Income (loss) from operations (551,938) 171,077 (351,345) (732,206)
Segment assets 83,377,206 21,100 141,829 83,540,135
Capital expenditures 20,077,022 94,074 20,171,096
Investment in equity method investee 12,574 12,574
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------
Financial
Merchant Consulting
Banking Services Total
-------------- -------------- ---------------
<S> <C> <C> <C>
Equity in net income of investees $ 5,656,080 $ 5,656,080
Interest income 725,412 725,412
Other revenues (273,519) $ 255,938 (17,581)
Interest expense 660,088 660,088
Depreciation and amortization 27,576 27,576
Income from operations 3,062,072 128,893 3,190,965
Segment assets 81,627,959 190,793 81,818,752
Capital expenditures 38,546 38,546
Investment in equity method investee 185,864 185,864
</TABLE>
All of the Company's revenues are attributable to, and all of its long-lived
assets are located, in the United States.
F-14
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998
Note J - 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, 1998 of approximately $264,000 which is past due. The
Company has commenced arbitration proceedings for breach of contract seeking to
recover the amount due, including accrued interest.
For the year ended December 31, 1997, condensed results of operations of
Citizens, which are reflected as discontinued operations in the accompanying
financial statements, are presented below:
Revenues $ 1,106,519
Expenses (1,861,928)
-------------
Loss from operations $ (755,409)
=============
F-15
<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, 1998, the period covered
by this Form 10-KSB, and is incorporated herein by reference.
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, 1998, the period covered
by this Form 10-KSB, and is incorporated herein by reference.
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, 1998, the period covered by this Form
10-KSB, and is incorporated herein by reference.
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, 1998, 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, 1990
and December 2, 1991. Certificate of change of
location of registered office and of registered
agent filed on May 7, 1992. (Incorporated by
reference to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1997.)
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 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.)
10.2 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.)
10.3 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.)
10.4 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.)
10.5 Indenture of Trust between Movieplex Realty
Leasing, L.L.C. and First Union National Bank, as
Trustee, dated November 1, 1997. (Incorporated by
reference to the Registrant's Annual Report on
Form 10-KSB/A for the year ended December 31,
1997.)
<PAGE>
10.6 Form of Bond. (Incorporated by reference to the
Registrant's Annual Report on Form 10-KSB/A for
the year ended December 31, 1997.)
10.7 Master Lease between Movieplex Realty Leasing,
L.L.C., as Landlord, and Carmike Cinemas, Inc., as
Tenant, dated November 20, 1997. (Incorporated by
reference to the Registrant's Annual Report on
Form 10-KSB/A for the year ended December 31,
1997.)(1)
10.8 Reimbursement Agreement, dated as of November 20,
1997, among Movieplex Realty Leasing, L.L.C, the
Lenders, and Wachovia Bank, N.A., as Agent.
(Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB/A for the year ended
December 31, 1997.)(1)
10.9 Form of Letter of Credit. (Incorporated by
reference to the Registrant's Annual Report on
Form 10-KSB/A for the year ended December 31,
1997.)
10.10 Form of Bond Purchase Agreement between Movieplex
Realty Leasing, L.L.C. and {the Purchaser], dated
November 20, 1997. (Incorporated by reference to
the Registrant's Annual Report on Form 10-KSB/A
for the year ended December 31, 1997.)
10.11 Agency and Development Agreement between Movieplex
Realty Leasing, L.L.C. and Carmike Cinemas, Inc.,
dated November 20, 1997. (Incorporated by
reference to the Registrant's Annual Report on
Form 10-KSB/A for the year ended December 31,
1997.)
21.0 Subsidiaries of the Registrant.
(b) No reports on Form 8-K have been filed during the
last quarter covered by this report.
----------
(1) Portions of this exhibit have been deleted per the
Registrant's request for confidential treatment
and filed seperately with the Commission pursuant
to Rule 24b-2.
<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,
1999.
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, 1999.
Signature Title
--------- -----
/s/George W. Benoit Chairman of the Board, President,
- - ------------------- Chief Executive Officer
(George W. Benoit)
/s/Joseph G. Anastasi Director
- - ---------------------
(Joseph G. Anastasi)
/s/Charles W. Currie Director
- - --------------------
(Charles W. Currie)
/s/James J. Murtha Director
- - ------------------
(James J. Murtha)
/s/David W. Dube Director
- - ----------------
(David W. Dube)
List of Subsidiaries
Matthews & Wright, Inc. (Delaware)
Snider, Williams & Co., Inc. (Delaware)
Randolph, Hudson & Co., Inc. (Delaware)
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)
Movieplex Realty Leasing, L.L.C. (New Jersey)
CareerEngine, Inc. (New York)
Advanced Digital Networks, Inc. (New York)
<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, 1998 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> 1,040,955
<SECURITIES> 59,877,305
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 20,493,970
<DEPRECIATION> 302,482
<TOTAL-ASSETS> 83,540,135
<CURRENT-LIABILITIES> 0
<BONDS> 72,750,000
0
0
<COMMON> 674,960
<OTHER-SE> 5,354,514
<TOTAL-LIABILITY-AND-EQUITY> 83,540,135
<SALES> 0
<TOTAL-REVENUES> 6,508,859
<CGS> 0
<TOTAL-COSTS> 2,247,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,993,779)
<INCOME-PRETAX> (732,206)
<INCOME-TAX> (107,797)
<INCOME-CONTINUING> (624,409)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (624,409)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
