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, 1997


[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 (No fee required)

             For the transition period from __________ to __________

                          Commission file number l-9224


                              HELMSTAR GROUP, INC.
--------------------------------------------------------------------------------
                 (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. [X]

         Issuer's   revenues  for  1997,  its  most  recent  fiscal  year,  were
$6,363,911.

         As of February 28,  1998,  the  aggregate  market value of voting stock
held by non-affiliates of the Issuer was approximately $2,802,274.

         The number of shares  outstanding  of each of the  issuer's  classes of
common equity, as of the latest practicable date.

           Class                    Outstanding at February 28, 1998

Common stock - par value $.10                5,516,373 shares
-----------------------------                ----------------

                DOCUMENTS INCORPORATED BY REFERENCE

         Part  III of this  Form  l0-KSB  incorporates  by  reference  from  the
issuer's definitive proxy statement for the annual meeting of stockholders to be
held on June 4, l998.



                           (Cover page 2 of 2 pages)

<PAGE>

                                     PART I

Item l.  Description of Business.

                  Background and History

                  Helmstar  Group,  Inc.,  ("Group"),  through its  subsidiaries
                  (collectively  referred to as the "Company" unless the context
                  requires  otherwise),  is engaged primarily in the business of
                  merchant banking.

                  Merchant Banking - General

                  Joint Venture Criteria

                  Since  1988,  the  Company  has  engaged in  merchant  banking
                  activities primarily concentrating on real estate projects and
                  real  estate-related  services  companies.  The Company  seeks
                  projects  that offer strong upside  potential  because of high
                  short-term  risk,   albeit   manageable  risk,  and  financial
                  leverage. Although real estate development,  rehabilitation or
                  "value-added"   transactions  are  of  primary  interest,  the
                  Company will  consider most  industries  with the exception of
                  those requiring a highly specialized scientific analysis.

                  The  Company's  exacting  standards of selecting  ventures and
                  co-venturers  are  directed  toward   middle-market   oriented
                  activities.  Co-venturers  must be thoroughly  experienced and
                  financially  stable,  as well as having a  demonstrated  track
                  record  in  the   particular   business   activity.   Talented
                  co-venturers are expected to execute each venture's day-to-day
                  management plan developed  through the combined efforts of the
                  Company and the co-venturers.

                  The  Company  does not  intend to take  excessive  risk in its
                  joint venture  activities either through a single venture or a
                  series of  interdependent  ventures  which result in excessive
                  risk when  taken in the  aggregate.  The  Company  intends  to
                  consider the risks of any potential undertaking  independently
                  as well as how the risks of the proposed venture impact on the
                  Company in light of its other  ventures.  This risk evaluation
                  is based on a facts and circumstances analysis at the time the
                  feasibility of a potential  joint venture is being  evaluated.
                  Facts and  circumstances  are  subject  to change  over  time.
                  Accordingly,  the Company has established flexible criteria in
                  selecting  its  venture  activities  to meet  changing  market
                  conditions.

                  The Company  plans to limit its equity  infusion in any single
                  transaction to a maximum of $3 million.  Also, a predetermined
                  exit  strategy  is  paramount.   The  holding   period  for  a
                  particular  venture will be based on facts and  circumstances,
                  including  maximizing the Company's potential return and other
                  opportunities available at the time of a possible disposition.
<PAGE>
                  Beginning in 1990,  drawing on its  experience  in real estate
                  project   finance,   the  Company  began  to  offer  financial
                  consulting  services to clients on a fee basis.  This  permits
                  the Company to increase its revenue by utilizing  its merchant
                  banking expertise  without  deploying a significant  amount of
                  capital.  The  Company's  primary  focus in this area has been
                  assisting  clients in realizing  lower cost of capital through
                  creative financial  structuring.  This business is transaction
                  oriented,  and potential  revenue therefrom is subject to wide
                  variation. During 1997, 1996, 1995, and 1994 approximately 4%,
                  9%, 12% and 20% of the Company's  total  revenues in each year
                  were  realized  in   connection   with   providing   financial
                  consulting  services  to a  single  financial  institution  in
                  several transactions.

                  Joint Ventures - Sale of Outlet Shopping Centers

                  During 1997, one of the Company's  outlet shopping centers was
                  refinanced  generating a cash  distribution  to the Company of
                  $1,420,000 and a profit of approximately $80,000. Later in the
                  year,   the  two  outlet   shopping   centers   owned  by  the
                  partnerships  in which the Company is a general  partner  were
                  sold  generating  a profit  of  approximately  $5,200,000  and
                  providing  a cash  distribution  of  approximately  $4,500,000
                  prior to  estimated  tax payments of  approximately  $460,000.
                  During the year,  operations  of the outlet  shopping  centers
                  prior to sale generated profits of approximately  $380,000 and
                  provided  cash of  $373,000.  The Company  still  maintains an
                  investment in the  partnerships  and expects to liquidate them
                  in the future.

                  Mortgage Banking - Sale of Citizens

                  During  the  third   quarter   1997,   the  Company  sold  its
                  wholly-owned  subsidiary,  Citizens  Mortgage  Service Company
                  ("Citizens"),   to  IMN  Financial  Corp.  for   approximately
                  $375,000,  of which $111,000 has been  received.  The purchase
                  price  may be  increased  based  on  the  outcome  of  certain
                  transactions still in progress. Prior to the sale, the Company
                  recorded an operational  loss of  approximately  $755,000.  In
                  addition,   the  Company  recorded  a  loss  on  the  sale  of
                  approximately  $231,000. The operating results of Citizens has
                  been  reflected as  discontinued  operations  in the Company's
                  financial statements.

                  Real Estate Development Program

                  The Company is developing  and/or acquiring  state-of-the-art,
                  multiplex  movie  theaters (the  "Theaters") in various states
                  throughout the  continental  United States.  The cost and fair
                  market value of the  Theaters is expected to be  approximately
                  $75 million.  A major film exhibitor,  Carmike  Cinemas,  Inc.
                  (the "Lessee"),  will act as development agent for the Company
                  in this  endeavor  over  the  course  of a  two-year  "Project
                  Development Period" and will lease and operate each Theater as
                  it is completed.
<PAGE>
                  All  leases  will  be  triple  net,  credit-type  leases  (the
                  "Leases"). Such Leases require that the Lessee, in addition to
                  paying Basic Rent,  also (i) pay all utilities,  insurance and
                  local  real  estate,   corporate  and  franchise  taxes;  (ii)
                  reimburse the Lessor for all of its  necessary and  reasonable
                  direct  expenses  incurred in fulfilling its role as Landlord;
                  and (iii) assume full operating, maintenance and environmental
                  responsibilities  for  the  preservation  and,  if  necessary,
                  restoration  of  the  Theaters.  Rents  will  commence  on all
                  Theaters  at the end of the  Project  Development  Period  and
                  extend over an ensuing initial Lease term of sixteen years. At
                  the end of the initial Lease term, the Lessee can purchase the
                  properties,  renew the Leases or vacate the Theaters, in which
                  event the  Company may sell or  re-lease  the  Theaters to any
                  third party of its choosing.

                  In order to  finance  97% of the  total  expected  cost of the
                  Theaters,  on  November  20,  1997 the  Company's  subsidiary,
                  Movieplex  Realty  Leasing,  L.L.C.  (the  "Lessor"),   issued
                  $72,750,000 of adjustable rate tender  securities due November
                  1, 2015 (the "Bonds"). The Bonds bear interest from their date
                  of  delivery  at a variable  base rate  indexed to the 30-day,
                  high-grade  commercial  paper  rate.  This  rate will be reset
                  weekly and  interest  for the prior  four or five week  period
                  will be payable  on the first  Monday of each  calendar  month
                  commencing Monday,  January 5, 1998. Principal on the Bonds is
                  payable  annually on the first Monday of each November.  Prior
                  to maturity,  $59,775,000  of the original  Bond  principal is
                  scheduled to be amortized. The Bonds may be tendered at par by
                  investors on any interest  rate reset date, in which event the
                  Remarketing  Agent  would try to  remarket  the bonds to other
                  investors.  The Bonds are  issued in three  sets.  Each set is
                  secured  by  irrevocable,  direct pay  letters-of-credit  (the
                  "LOCs") from a highly-rated  commercial  bank and each with an
                  initial  LOC  term  of five  years.  In  such  instances,  the
                  investors  look to the  financial  strength  of the LOC  banks
                  rather than to the  creditworthiness  of either the Company as
                  the Lessor or Carmike as the Lessee.  The  Company  expects to
                  continue  to use  LOCs of this  nature  to  secure  the  Bonds
                  throughout their 18-year term.

                  The  remaining 3% of the cost of the  Theaters  will come from
                  equity invested in the Lessor. Subsidiaries of the Company own
                  100% of the Common  Membership (or shareholding) of the Lessor
                  entity which is a Limited Liability Corporation.  In addition,
                  the same  subsidiaries  own 1% of the Preferred  Membership of
                  the Lessor in return for a cash  investment  of $22,500  and a
                  third party owns 99% of the Preferred Membership in return for
                  a cash investment of $2,227,500 (of which $750,000 was paid in
                  1997,  with the  balance  due prior to the end of the  Project
                  Development Period). See "Management Discussion and Analysis -
                  Liquidity and Capital Resources."
<PAGE>
                  General

                  The  Company was  incorporated  under the laws of the State of
                  Delaware  in  1968.  It  maintains  offices  at 2 World  Trade
                  Center, Suite 2112, New York, New York 10048 and its telephone
                  number  is  (2l2)  775-0400.   Unless  the  context   requires
                  otherwise,  the term "Company" refers to Helmstar Group,  Inc.
                  ("Group")  and  its  wholly-owned  subsidiaries:   Matthews  &
                  Wright,  Inc. ("Matthews & Wright");  Snider,  Williams & Co.,
                  Inc. ("Snider");  Randolph,  Hudson & Co., Inc.  ("Randolph");
                  Eden  Consulting,  Inc.  ("Eden");  Shaw Realty Company,  Inc.
                  ("Shaw");  Helmstar  Funding,  Inc.  ("Funding,"  formerly CMS
                  Insurance  Agency,   Inc.);   Burrows,   Hayes  Company,  Inc.
                  ("Burrows");  Dover, Sussex Company,  Inc. ("Dover");  Housing
                  Capital Corporation  ("Housing");  Randel,  Palmer & Co., Inc.
                  ("Randel");  Parker,  Reld &  Co.,  Inc.  ("Parker"),  McAdam,
                  Taylor & Co.,  Inc.  ("McAdam")  and Ryan,  Jones & Co.,  Inc.
                  ("Ryan").  The term Company  also  includes  Movieplex  Realty
                  Leasing,  L.L.C.  ("Movieplex"),  a limited liability company,
                  all of whose common membership  interests are indirectly owned
                  by the  Company.  Additionally,  unless the  context  requires
                  otherwise, "Company" includes all wholly-owned subsidiaries of
                  Group   including    Citizens    Mortgage    Service   Company
                  ("Citizens"),  a wholly-owned  subsidiary of McAdam.  Citizens
                  was sold during 1997.

                  As of March l, 1998, the Company had 8 employees.

                  Competition

                  Competition  in the  Company's  business of  merchant  banking
                  focusing  on middle  market  oriented,  real  estate and other
                  businesses  is  widespread  and  highly  fragmented.   In  its
                  activities  as a  co-venturer  with a focus on  smaller,  more
                  specialized  ventures  having defined  markets,  institutional
                  joint venturers  including large public real estate or venture
                  capital  partnerships and real estate investment trusts should
                  not be significant  competitors.  Likely  competition  will be
                  encountered  from  small  syndicators;  individual  investors,
                  typically from the local market;  smaller insurance companies;
                  and  participating  mortgage  lenders.  Many of the  Company's
                  likely  competitors  have  greater  access to capital than the
                  Company.  Similarly,  the Company encounters stiff competition
                  from a broad range of  financial  services  firms when seeking
                  financial consulting  assignments.  Other major parties in the
                  marketplace  for  off-balance   sheet   structures  are  large
                  developers,  commercial banks with synthetic lease structures,
                  and real estate investment trusts.

                  Regulation

                  In the course of conducting its business of merchant  banking,
                  the Company may acquire  interests  in  regulated  activities.
                  Such regulation may be either  directly or indirectly  related
                  to the Company's interest.

                  With  respect to real estate joint  ventures,  the Company may
                  encounter  Federal,  state and local  regulation in connection
                  with land use, building code requirements,  environmental, and
                  similar restrictions on development and/or operations.
<PAGE>
Item 2. Description of Property.

                  The Company leases  approximately  7,000 square feet of office
                  space at 2 World Trade Center,  New York, New York 10048 under
                  the terms of a lease that  expires  February  28,  2006.  This
                  office  is  utilized  as the  Company's  executive  office  in
                  addition to housing its merchant banking activities.

                  The future minimum annual base rental  commitments  under this
                  lease are reflected  in the  amounts  provided in Note G[1] in
                  Notes to Financial  Statements  included in Part II, Item 7 of
                  this Form 10-KSB.
<PAGE>
Item 3.           Legal Proceedings.

                  Cross Creek Village v. Housing Authority of the County of
                  Riverside, et al., Case No.  236813

                  This  action was filed in the  Superior  Court of the State of
                  California,  County of Riverside,  in July 1993, and a summons
                  was served on  Matthews  & Wright in  September  1993.  It was
                  indexed as Case No. 93-7732.  The complaint  asserts  numerous
                  claims against multiple defendants arising out of the issuance
                  of $13,000,000  Housing  Authority of the County of Riverside,
                  Multi-Family  Housing  Revenue Bonds,  Series 1985A  (Ironwood
                  Apartments  Project),  issued by the Housing  Authority of the
                  County of  Riverside,  California  ("Housing  Authority")  and
                  underwritten by Matthews & Wright for the  construction of the
                  Ironwood  Apartments  project.  The complaint alleges that the
                  bonds were issued pursuant to a "sham closing" in 1985 when in
                  fact the bonds were not actually issued until 1986,  resulting
                  in an assertion by the  Internal  Revenue  Service (the "IRS")
                  that  the  interest  on  the  bonds  is  not  tax-exempt.  The
                  plaintiff in this action is Cross Creek Village, a partnership
                  which  allegedly   acquired  the  project  from  the  original
                  developer.  The plaintiff maintains that the Housing Authority
                  claimed to have  incurred more than $500,000 in legal costs in
                  contesting the IRS' assertion for which the Housing  Authority
                  seeks indemnity from the plaintiff.

                  The original  complaint in this action asserted claims against
                  Matthews  &  Wright  for  equitable   indemnity,   fraud,  and
                  negligent misrepresentation.  In September 1993, the plaintiff
                  dismissed the complaint  without  prejudice against Matthews &
                  Wright and others.  In October  1993,  the  plaintiff  filed a
                  First Amended  Complaint  arising out of the same facts as the
                  initial     complaint,     and    named     Group    as    the
                  successor-in-interest   to   Matthews   &  Wright   among  the
                  defendants.  The  First  Amended  Complaint  alleged  the same
                  claims  against  Group as had formerly  been  alleged  against
                  Matthews & Wright.  In  November  1993,  Group filed an answer
                  denying all liability.
<PAGE>
                  In   addition,   cross-claims   have  been  filed  by  certain
                  co-defendants  in this  action  against  Group and  Matthews &
                  Wright.  One  co-defendant,   legal  counsel  to  the  Housing
                  Authority,  filed a cross-complaint  for  indemnification  and
                  apportionment  of fault  against  multiple  parties  including
                  Group.  In addition,  the County of Riverside,  California and
                  the  Housing  Authority,   two  other  co-defendants  filed  a
                  cross-complaint  that, in addition to alleging  claims arising
                  out of the Ironwood  Apartments bonds, adds claims arising out
                  of the issuance of $17,500,000 Housing Authority of the County
                  of Riverside, Multi-Family Housing Revenue Bonds, Series 1985A
                  (Whitewater Garden Apartments Project),  issued by the Housing
                  Authority and underwritten by Matthews & Wright. The claims in
                  the second cross-complaint arise out of allegations concerning
                  the  manner in which the  closings  on both bond  issues  were
                  conducted.  The second cross-complaint  alleges claims against
                  "Matthews  &  Wright,   Inc.,   dba  Helmstar"  for  equitable
                  indemnity,     intentional    misrepresentation,     negligent
                  misrepresentation,  fraudulent  concealment of material facts,
                  negligence,  breach of fiduciary duty, RICO, and conspiracy to
                  make   intentional  or  negligent   misrepresentations.   Both
                  cross-complaints  assert claims against  defendants already in
                  the case as well as against new  defendants.  By a  standstill
                  agreement dated January 21, 1994,  cross-claimants and certain
                  other  parties,  including  Group and Matthews & Wright,  have
                  agreed not to pursue cross-claims  against one another at this
                  time. The parties also agreed to extend the time to respond to
                  the pending  cross-claims  until 30 days after  termination of
                  the agreement.

                  The plaintiff seeks  compensatory and punitive damages as well
                  as  indemnification  and equitable relief. In four counts, two
                  of which involve the Company as well as other defendants,  the
                  plaintiff seeks  compensatory  damages plus interest estimated
                  to be not less than $5 million.  It is too early to assess the
                  potential  for,  and the amount of, any damages in  connection
                  with this action.

                  In October  1995,  the United  States Tax Court held in Harbor
                  Bancorp v. Commissioner, 105 T.C. No. 19, that the interest on
                  the bonds  forming the basis of the Cross Creek  Village  case
                  was not excludable from the bondholders'  taxable income.  The
                  United   States  Court  of  Appeals  for  the  Ninth   Circuit
                  subsequently  affirmed  this  decision  and the United  States
                  Supreme Court declined to review the case.

                  In late 1997 and early 1998,  the parties to the case signed a
                  stipulation   agreeing   to   dismiss   the   action  and  all
                  cross-actions  without  prejudice,  and to toll the applicable
                  statutes  of  limitation  for a period of three years from the
                  date of the dismissal.  This stipulation is currently awaiting
                  action by the Court.
<PAGE>
                  Fred W. Wasserman, et al. v. Jeffrey P. Christopher, et al.,
                  Case No. 278699

                  In May  1996,  the  Company  was  served  with a  summons  and
                  complaint in connection with a class action commenced in March
                  1996 against  multiple  parties.  This action was filed in the
                  Superior  Court  of  California,   County  of  Riverside.  The
                  plaintiffs brought this action on behalf of themselves and all
                  other  purchasers of bonds issued by the Housing  Authority of
                  the County of Riverside for the Whitewater  Garden  Apartments
                  project and the Ironwood Apartments project (the "Bonds"). The
                  plaintiffs  maintain the  defendants  misrepresented  that the
                  interest on the Bonds would be exempt from federal income tax.
                  The plaintiffs allege negligent misrepresentation,  fraudulent
                  misrepresentation,    and   concealment    against    multiple
                  defendants,  including  the Company,  relating to actions with
                  respect to the issuance and  underwriting of the Bonds in 1985
                  and 1986. The plaintiffs also filed claims involving breach of
                  written contract, breach of oral contract, breach of fiduciary
                  duty, and negligent representation against multiple defendants
                  other than the Company. The plaintiffs are seeking damages for
                  taxes, penalties, and interest they have paid or are obligated
                  to pay,  attorneys fees, costs,  punitive  damages,  and other
                  relief the court  deems just.  The  plaintiffs  maintain  that
                  taxes,  interest, and penalties are in excess of $3 million or
                  an amount to be proved at the time of trial.

                  Matthews  &  Wright,  Inc.  entered  into a  stipulation  with
                  plaintiffs to stay all proceedings  without  prejudice pending
                  the  outcome  of the  appeal  to the  United  States  Court of
                  Appeals for the Ninth Circuit in Harbor Bancorp.

                  After the Ninth Circuit affirmed the judgment of the Tax Court
                  in  Harbor   Bancorp,   the  FDIC,   as  receiver   for  First
                  RepublicBank  Houston,   formerly  known  as  InterFirst  Bank
                  Houston,  intervened and removed the case to the United States
                  District  Court for the Central  District of  California.  The
                  FDIC  subsequently  moved to transfer venue of the case to the
                  United  States  District  Court for the  Southern  District of
                  Texas. It appears that the claims against the FDIC as receiver
                  have  been  transferred,  and the  claims  against  all  other
                  parties   remain   pending  in  federal   district   court  in
                  California.

                  The  Company  plans to defend  vigorously  against  all of the
                  plaintiffs'  allegations  involving  it.  It is too  early  to
                  assess the  potential  for,  and the amount of, any damages in
                  connection with this action.
<PAGE>
Item 4.  Submission of Matters to a Vote of Security-Holders.

                  None.
<PAGE>
                                     PART II

Item 5.  Market For Common Equity and Related Stockholder
                  Matters.

                  Exchange Listing:

                  The common  stock of  Helmstar  Group,  Inc.  is listed on the
                  American Stock Exchange (trading symbol HLM).

                  The approximate  number of recordholders of Common Stock as of
                  February 28, 1998 was 285.


                  Equity Sale Prices:

        1st Quarter      2nd Quarter      3rd Quarter       4th Quarter
        High    Low      High    Low      High    Low       High    Low

1997      1     3/4     15/16   11/16      7/8    5/8       1 1/4   3/4

1996    1 5/16  7/8     1 1/8    3/4     1 1/2    3/4       1 3/8   3/4


                  Dividends:

                  The  Company has not  previously  paid cash  dividends  on its
                  common stock. The Board of Directors does not presently intend
                  to pay cash  dividends  on the  outstanding  shares  of common
                  stock  in the  foreseeable  future.  The  payments  of  future
                  dividends  and  the  amount   thereof  will  depend  upon  the
                  Company's earnings,  financial condition, capital requirements
                  and such other  factors as the Board of Directors may consider
                  relevant.
<PAGE>
Item 6.  Management's Discussion and Analysis.

                  A. Results of Operations

                  1. 1997 Compared to 1996

                  Total revenue increased to $6,363,911 for 1997 from $1,353,015
                  for 1996.

                  Profit from joint  ventures  increased to $5,656,080  for 1997
                  from $557,037 for 1996.  This  classification  represents  the
                  Company's  share of income and losses,  computed in accordance
                  with the  equity  method of  accounting,  from  various  joint
                  ventures in which the Company is  participating.  The types of
                  ventures  being  pursued  typically  require  several years of
                  careful  management  before they provide the projected returns
                  envisioned.

                  Profit for 1997  included  profit from  refinancing  Nags Head
                  Outlet  Partners  (Nags  Head)  in  June  1997,  the  sale  in
                  September  1997 of both  Nags  Head and  Blowing  Rock  Outlet
                  Partners (Blowing Rock), the two outlet shopping centers,  and
                  operating income through the time of sale.

                  The refinancing of Nags Head produced income of $79,911, while
                  the sale of Nags  Head and  Blowing  Rock  produced  income of
                  $5,193,018.  The  Company's  share of income  from  operations
                  through the sale in September  1997 was  $383,651  compared to
                  income from operations for 1996 of $357,037.

                  During 1996,  this category  included  $200,000  received from
                  certain  individuals who had guaranteed the obligations of the
                  co-venturer in Stoneledge  with respect to a project which had
                  been sold at a foreclosure  sale in 1992. The guarantors  made
                  such payment in  satisfaction  of the  co-venturer's  existing
                  obligations to the Company. In 1991, the Company had created a
                  loss  provision  equal  to the  full  carrying  amount  of the
                  partnership interest.

                  Financial  consulting fees increased to $255,938 for 1997 from
                  $116,000 for 1996. The Company provides financial  structuring
                  advice on a fee basis.  Typically, an engagement is based on a
                  specific  assignment  to  assist a client to lower its cost of
                  capital.  Due to the  transactional  nature of this  business,
                  significant variations in revenue are likely.

                  Interest  income  increased to $725,412 for 1997 from $245,024
                  for  1996,   primarily  due  to  interest  earned  during  the
                  development  period on the proceeds from the $72,750,000  bond
                  offering made by the Company for the purpose of obtaining land
                  and constructing  Theaters,  and on the securities held in the
                  cash  management,  trading  and  investing  activities  of the
                  Company.
<PAGE>
                  Investment  income  decreased  to a loss of $273,519  for 1997
                  from a benefit of $428,954 for 1996.  This category  includes:
                  (1) net profit or loss from cash  management  and investing in
                  futures,   puts,   calls,   municipals  and  other  securities
                  activities and (2) a reserve against an investment made by the
                  Company.

                  Other  income was nil for 1997  compared to a profit of $6,000
                  in 1996.

                  Total   expenses   increased  to  $3,172,946   for  1997  from
                  $2,147,130 in 1996.

                  Compensation  and related costs  increased to  $1,495,720  for
                  1997 from $1,363,314 for 1996. The increase is due principally
                  to the  accrual in 1997 of an  incentive  bonus in  connection
                  with  the  profits  generated  from  the  sale  of  the  joint
                  ventures.  The  increase,  due  to  the  bonus,  was  somewhat
                  mitigated by a reduction in staff.

                  Occupancy  costs  decreased to $164,943 for 1997 from $185,737
                  for  1996.   This  reduction   primarily   resulted  from  the
                  termination  of the lease for a small  office which was closed
                  in the fourth quarter of 1996.

                  General and administrative  expenses increased to $677,929 for
                  1997 from $447,864 for 1996. This increase was due principally
                  to the creation of a reserve in  connection  with the sales of
                  various assets of the Company.

                  Professional  fees increased to $174,266 for 1997 from $86,212
                  for 1996.  This  increase  was due in large part to legal fees
                  incurred in connection with a potential  acquisition which was
                  not consummated.

                  Interest  expense  increased to $660,088 for 1997 from $64,003
                  for  1996.  The  principal  reason  for this  increase  is the
                  interest  expense and letter of credit fees (which are treated
                  as interest)  incurred on the $72,750,000 Bonds issued for the
                  development of Theaters.  Also included in this account is the
                  interest cost incurred in the Company's  cash  management  and
                  investing activities.

                  The  Company  had  a  profit  from  continuing  operations  of
                  $2,689,230 for 1997 compared with a loss of $786,230 for 1996.
                  In 1997, the Company had a tax expense of $501,735 compared to
                  a tax  benefit  of  $7,885  for  1996.  In 1997,  the  Company
                  incurred Federal  alternative  minimum tax together with state
                  and local taxes  compared with 1996 when the Company  recorded
                  only state and local taxes.  For Federal  income tax purposes,
                  as of December 31, 1997,  the Company has net  operating  loss
                  carryforwards of approximately  $7,300,000 available to reduce
                  future taxable income. These carryforwards expire in the years
                  2005  through  2011.  The  Company  has  a  net  capital  loss
                  carryforward  of  approximately  $3,400,000  which  expires in
                  2002.
<PAGE>
                  The Company's net income for 1997 was $1,702,660 compared with
                  net  loss of  $2,364,080  for  1996.  For  1997,  income  from
                  continuing operations was $.48 per share reduced by a net loss
                  from discontinued operations of $(.17) per share, resulting in
                  a net  income  of $.31 per  share.  For  1996,  net loss  from
                  continuing  operations was $(.14) per share increased by a net
                  loss  from  discontinued   operations  of  $(.29)  per  share,
                  resulting  in a net loss of  $(.43)  per  share.  The  Company
                  adopted Statements of Financial  Accounting  Standards No. 128
                  in 1997 and has  retroactively  applied the effects thereof to
                  the year ended  December 31, 1996.  Statement No. 128 replaces
                  the  calculation  of primary and fully  diluted  earnings  per
                  share  with  basic and  diluted  earnings  per  share.  Unlike
                  primary earnings per share,  basic earnings per share excludes
                  any  dilutive  effects of options,  warrants  and  convertible
                  securities.  Diluted earnings per share is very similar to the
                  previously  reported  fully  diluted  earnings per share.  The
                  number of shares used in the  computations  were 5,520,958 for
                  1997 and 5,544,480 for 1996.

                  Inflation

                  Inflation  may affect the Company in certain areas of its cash
                  management,  real estate  development  program,  and  merchant
                  banking activities. Changes in interest rates typically follow
                  actual or expected changes in the inflation rate. Accordingly,
                  interest  rates  usually   increase  during  periods  of  high
                  inflation and decrease during periods of low inflation.

         B.       Liquidity and Capital Resources

                  Management of the Company  believes that funds  generated from
                  operations, supplemented by its available assets, will provide
                  it  with   sufficient   resources  to  meet  all  present  and
                  reasonably  foreseeable  future capital  needs.  Currently the
                  Company's  assets  consist  primarily of cash and  investments
                  which are readily convertible into cash.

                  The  Company  invests  excess  funds  in  liquid,   short-term
                  financial  instruments  in order to maximize  its current cash
                  return with minimum  interest rate risk,  while preserving the
                  ability to move quickly in funding attractive merchant banking
                  ventures.   Such  investments   include  U.S.  Government  and
                  municipal  obligations,  futures  contracts  and money  market
                  funds.

                  Additionally,  in the fourth  quarter of 1997 on November  20,
                  the  Company  issued  $72,750,000  of  adjustable  rate tender
                  securities due November 1, 2015 (the "Bonds").  The Bonds were
                  issued to finance 97% of the cost of the Company's Real Estate
                  Development  Program.  See  "Description  of  Business  - Real
                  Estate Development  Program." The 3% balance,  $2,250,000,  is
                  being  provided  as  a  capital  contribution  from  Preferred
                  Members  (shareholders)  of the Company's  Lessor  subsidiary,
                  Movieplex Realty Leasing,  L.L.C. $772,500 of this capital was
                  contributed during the fourth quarter.
<PAGE>
                  The Bonds pay interest  from the date of delivery on the first
                  Monday  of each  month  for the  preceding  four or five  week
                  period  commencing  January 5, 1998 and principal  annually on
                  the first  Monday of  November  commencing  in the year  2000.
                  Various  commercial  banks  which  provided  letters of credit
                  securing payment on the Bonds are due letter of credit ("LOC")
                  fees which are payable on the same dates as the Bond  interest
                  and also commence in 1998. In addition,  a preferred return on
                  capital  contributed is due to the Preferred Members,  payable
                  on the same due  dates as is the  interest  on the  Bonds  but
                  commencing in January of the year 2000.

                  All debt  service on the Bonds,  while bank  letters of credit
                  are effectively in force, is paid directly from draws on those
                  LOCs.  The banks are then  reimbursed by the Lessor.  Fees and
                  the Preferred return are due from the Lessor directly.  During
                  the period from  November  1997  through  November  1999,  all
                  reimbursements  to the  banks  and bank fees will be paid from
                  Bond proceeds.  Thereafter all reimbursements to the banks for
                  debt  service  on the Bonds as well as fees and the  preferred
                  return to Preferred  Members will be paid from the Rents which
                  commence  on  December 1, 1999.  In  addition,  the Rents will
                  cover all other costs of owning and  operating the real estate
                  other than  Federal,  state or local income taxes due on a net
                  income basis.  Prior to the  utilization  of these proceeds to
                  pay for the costs in connection  with the  construction of the
                  Theaters,   they  will  be  invested   in  liquid   short-term
                  instruments.

                  While the Company believes that currently available funds will
                  provide it with  sufficient  resources to meet all present and
                  reasonably  foreseeable  future capital needs, the Company may
                  seek various  forms of credit in order to finance its merchant
                  banking or other  activities  in the future.  The Company does
                  not have any material  commitments for capital expenditures as
                  of  December  31,  1997,  except  for the  development  of the
                  Theaters with funds provided by the issuance of the Bonds.

                  The Company is a defendant in various  lawsuits.  Although the
                  Company  has  reached   settlements  in  some  instances,   an
                  unfavorable result in those remaining could have a significant
                  adverse  effect  upon  the  Company's  liquidity  and  capital
                  resources.

                  Year 2000 Issue

                  The Company does not  anticipate  that the cost of  addressing
                  the "Year 2000" issue will be material to its future operating
                  results or financial condition.
<PAGE>
Item 7.  Financial Statements.

                  The  Company's  financial  statements  to be  filed  hereunder
                  follow,  beginning  with  page  F.  Following  such  financial
                  statements,  are  the  financial  statements  for  each of the
                  operating real estate joint ventures in which the Company is a
                  joint venturer.
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Helmstar Group, Inc.
New York, New York


We have  audited the  consolidated  balance  sheet of Helmstar  Group,  Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the two-year period ended December 31, 1997.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial  statements based on our audits.  We did not audit
the  1997 and 1996  financial  statements  of the  real  estate  joint  ventures
described in Note C. The  Company's  equity in these joint  ventures  aggregated
$185,864 at December  31, 1997 and they account for  $5,656,580  and $357,037 of
income included in income (loss) from continuing  operations before income taxes
for the years ended  December  31, 1997 and 1996,  respectively.  The  financial
statements of these  entities were audited by other  auditors whose reports have
been furnished to us, and our opinion insofar as it relates to these entities is
based solely on the reports of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that our audits and the  reports  of the other  auditors  provide a
reasonable basis for our opinion.

In our  opinion,  based on our audits and the  reports  of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the consolidated  financial position of Helmstar Group, Inc. and subsidiaries as
of December 31, 1997, and the consolidated results of their operations and their
consolidated  cash  flows for each of the  years in the  two-year  period  ended
December 31, 1997 in conformity with generally accepted accounting principles.

As described more fully in Note H to the consolidated financial statements,  the
Company was a defendant in various lawsuits.


/s/RICHARD A. EISNER & COMPANY, LLP

New York, New York
February 27, 1998
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES


Consolidated Balance Sheet
December 31, 1997
<S>                                                                                          <C>
ASSETS
Cash and cash equivalents (Note A) .....................................................     $    802,352
Short-term investments - restricted (Notes A, B and C) .................................       71,174,934
Marketable securities (Note A) .........................................................        7,234,862
Investment in joint ventures (Notes A and B) ...........................................          185,864
Furniture, equipment and leasehold improvements - at cost, less accumulated depreciation
   and amortization of $242,565 (Note A) ...............................................          106,128
Deferred financing costs, less accumulated amortization of $11,000 (Note D) ............        1,663,209
Other assets ...........................................................................          651,403
                                                                                             ------------

                                                                                             $ 81,818,752
                                                                                             ============

LIABILITIES
Bonds payable (Note D) .................................................................     $ 72,750,000
Accrued expenses and other liabilities (Note A) ........................................        1,509,201
Income taxes payable ...................................................................           59,737
                                                                                             ------------

      Total liabilities ................................................................       74,318,938
                                                                                             ------------

Due to preferred member (Note D) .......................................................          750,000
                                                                                             ------------

Commitments and contingencies (Notes E, F, G, H and J)

STOCKHOLDERS' EQUITY (Notes D and F)
Common stock - authorized 10,000,000 shares, par value $.10; issued 6,749,600 shares ...          674,960
Paid-in surplus ........................................................................       14,984,510
Deficit ................................................................................       (5,981,058)
                                                                                             ------------

                                                                                                9,678,412
Less treasury stock, at cost - 1,233,227 shares ........................................       (2,928,598)
                                                                                             ------------

                                                                                                6,749,814
                                                                                             ------------

                                                                                             $ 81,818,752
                                                                                             ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
                                                                                  Year Ended December 31,
                                                                                   1997             1996
                                                                              -----------      -----------
<S>                                                                           <C>              <C>
Revenues:
   Profit from joint ventures including gain on sale of venture assets of
      $5,193,018 in 1997 (Note C) .......................................     $ 5,656,080      $   557,037
   Financial consulting fees ............................................         255,938          116,000
   Interest income ......................................................         725,412          245,024
   Investment income (loss) .............................................        (273,519)         428,954
   Other income .........................................................                            6,000
                                                                              -----------      -----------

                                                                                6,363,911        1,353,015
                                                                              -----------      -----------
Expenses:
   Compensation and related costs .......................................       1,495,720        1,363,314
   Occupancy cost .......................................................         164,943          185,737
   General and administrative ...........................................         677,929          447,864
   Professional fees ....................................................         174,266           86,212
   Interest .............................................................         660,088           64,003
                                                                              -----------      -----------

                                                                                3,172,946        2,147,130
                                                                              -----------      -----------

Income (loss) from continuing operations before income taxes ............       3,190,965         (794,115)
Income tax provision (benefit) (Note E) .................................         501,735           (7,885)
                                                                              -----------      -----------

Income (loss) from continuing operations ................................       2,689,230         (786,230)

Discontinued operations:
   Loss from the operation of discontinued subsidiary ...................        (755,409)      (1,577,850)
   Loss on disposal of subsidiary .......................................        (231,161)
                                                                              -----------      -----------

   Net income (loss) ....................................................     $ 1,702,660      $(2,364,080)
                                                                              ===========      ===========
Per common share - basic and diluted (Note A):
   Income (loss) from continuing operations .............................     $       .48      $      (.14)
   Loss from discontinued operations ....................................            (.17)            (.29)
                                                                              -----------      -----------

Net income (loss) .......................................................     $       .31      $      (.43)
                                                                              ===========      ===========

Weighted average number of common shares outstanding - basic
   income (loss) per share ..............................................       5,520,958        5,544,480
Effect of dilutive employee stock options ...............................          30,770
                                                                              -----------      -----------

Adjusted weighted average number of common shares - diluted income
   (loss) per share .....................................................       5,551,728        5,544,480
                                                                              ===========      ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
(Note __)


                                             Common Stock
                                    -------------------------------        Paid-in
                                         Shares          Amount            Surplus
                                         ------          ------            -------
<S>                                 <C>               <C>               <C>
Balance - January 1, 1996 .....        6,749,600      $    674,960      $ 14,984,510
Treasury stock acquired at cost
Net loss ......................
                                    ------------      ------------      ------------

Balance - December 31, 1996 ...        6,749,600           674,960        14,984,510
Treasury stock acquired at cost
Net income ....................
                                    ------------      ------------      ------------

Balance - December 31,1997 ....        6,749,600      $    674,960      $ 14,984,510
                                    ============      ============      ============

<CAPTION>
                                                               Treasury Stock
                                                      ------------------------------
                                       Deficit            Shares          Amount            Total
                                       -------            ------          ------            -----
<S>                                 <C>               <C>              <C>               <C>
Balance - January 1, 1996 .....     $ (5,319,638)        1,203,227     $ (2,905,102)     $  7,434,730
Treasury stock acquired at cost                             10,000           (7,722)           (7,722)
Net loss ......................       (2,364,080)                                          (2,364,080)
                                    ------------      ------------     ------------      ------------

Balance - December 31, 1996 ...       (7,683,718)        1,213,227       (2,912,824)        5,062,928
Treasury stock acquired at cost                             20,000          (15,774)          (15,774)
Net income ....................        1,702,660                                            1,702,660
                                    ------------      ------------     ------------      ------------

Balance - December 31,1997 ....     $ (5,981,058)        1,233,227     $ (2,928,598)     $  6,749,814
                                    ============      ============     ============      ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows

                                                                                         Year Ended December 31,
                                                                                    ------------------------------
                                                                                        1997              1996
                                                                                    ------------      ------------
<S>                                                                                 <C>               <C>
Cash flows from operating activities:
   Income (loss) from continuing operations ...................................     $  2,689,230      $   (786,230)
   Adjustments to reconcile income (loss) from continuing operations to net
      cash used in operating activities:
        Depreciation and amortization .........................................           27,576            27,987
        Share of (income) from joint ventures .................................         (463,062)         (357,037)
        Realized (gain) from joint ventures sale of net assets ................       (5,193,018)         (200,000)
        Provision for bad debts ...............................................           85,000
        Realized loss (gain) on sale or disposal of marketable securities .....          235,585          (440,906)
        Unrealized loss from marketable securities ............................            2,934            12,012
        Loss on sale of fixed assets ..........................................            2,653           143,377
        Purchase of marketable securities .....................................      (12,415,814)      (63,221,393)
        Sales of marketable securities ........................................        6,292,874        62,816,478
        Changes in:
           Other assets .......................................................            4,133        (1,364,143)
           Accrued expenses ...................................................          762,492          (417,895)
           Income taxes .......................................................           59,737
                                                                                    ------------      ------------
   Cash used in continuing operations .........................................       (7,909,680)       (3,787,750)
   Cash used in discontinued operations .......................................         (477,951)       (1,477,771)
                                                                                    ------------      ------------

              Net cash used in operating activities ...........................       (8,387,631)       (5,265,521)
                                                                                    ------------      ------------

Cash flows from investing activities:
   Purchase of short-term investments .........................................      (71,174,934)
   Sales of short-term investments ............................................                          3,805,767
   Distributions from joint ventures - operations..............................          473,360
   Distributions from joint ventures - refinancings ...........................        1,420,000           262,677
   Distributions from joint ventures - sale of assets..........................        4,995,239           200,000
   Purchase of fixed assets ...................................................          (38,546)          (35,205)
   Other investment ...........................................................          (85,000)
   Other.......................................................................                                500
                                                                                    ------------      ------------
Cash (used in) provided by continuing operations ..............................      (64,409,881)        4,233,739
Cash provided by discontinued operations ......................................          110,393            57,299
                                                                                    ------------      ------------

              Net cash (used in) provided by investing activities .............      (64,229,488)        4,291,038
                                                                                    ------------      ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows

                                                                                         Year Ended December 31,
                                                                                    ------------------------------
                                                                                        1997              1996
                                                                                    ------------      ------------
<S>                                                                                 <C>               <C>
Cash flows from financing activities:
   Deferred financing costs ...................................................       (1,674,209)
   Repayment of short-term borrowings .........................................                           (593,743)
   Purchase of treasury stock .................................................          (15,774)           (7,722)
   Proceeds from bonds payable ................................................       72,750,000
   Proceeds from preferred member .............................................          750,000
Cash provided by (used in) continuing operations ..............................       71,810,017          (601,465)
Cash provided by discontinued operations ......................................                          1,896,672
                                                                                    ------------      ------------
              Net cash provided by financing activities .......................       71,810,017         1,295,207
                                                                                    ------------      ------------

Net (decrease) increase in cash and cash equivalents ..........................         (877,102)          320,724
Cash and cash equivalents at beginning of year ................................        1,679,454         1,358,730
                                                                                    ------------      ------------

Cash and cash equivalents at end of year ......................................     $    802,352      $  1,679,454
                                                                                    ============      ============

Supplemental disclosures of cash flow information from continuing operations:
   Cash paid during the year for:
      Interest ................................................................     $    123,603      $     66,102
      Taxes ...................................................................     $        888      $     16,415

</TABLE>
See notes to financial statements
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996


NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

Helmstar  Group,  Inc.  and  subsidiaries  (the  "Company")  are in the merchant
banking  business.  In 1997,  the Company sold its mortgage  banking  subsidiary
(Note K).  During  1997,  the Company  borrowed  $72,750,000  for the purpose of
acquiring and developing  movie theaters which it will lease to a major operator
under the terms of an operating lease (Note C).

The Company also has an interest in two joint ventures, each of which sold their
manufacturers' outlet shopping malls in 1997.

[1]    Principles of consolidation:

      The accompanying consolidated financial statements include the accounts of
      Helmstar  Group,  Inc.  and its  wholly  owned  subsidiaries.  Results  of
      operations  of the  mortgage  banking  subsidiary  have been  reflected as
      discontinued operations on the accompanying financial statements.

      All  significant   intercompany   balances  and  transactions   have  been
      eliminated.

[2]    Joint ventures:

      Joint ventures are accounted for under the equity method.

[3]    Depreciation and amortization:

      Furniture,  fixtures  and  equipment  are  being  depreciated  using  both
      straight-line  and  accelerated  methods over  estimated  lives of five to
      seven years. Leasehold improvements are amortized on a straight-line basis
      over the shorter of the term of the lease or their useful lives.

      Deferred  financing  costs  are  amortized  over  the  life  of the  bonds
      (eighteen years).

[4] Statements of cash flows:

      For the purpose of the statements of cash flows, the Company considers all
      highly  liquid debt  instruments  purchased  with an original  maturity of
      three months or less to be cash equivalents.

[5] Income (loss) per share:

      The Company adopted Statement of Financial  Accounting  Standards No. 128,
      "Earnings  Per  Share,"  in the  year  ended  December  31,  1997  and has
      retroactively  applied the effects  thereof to the year ended December 31,
      1996.  Statement 128 replaced the calculation of primary and fully diluted
      earnings  per share  with basic and  diluted  earnings  per share.  Unlike
      primary earnings per share, basic earnings per share excludes any dilutive
      effects of options, warrants and convertible securities.  Diluted earnings
      per  share  is very  similar  to the  previously  reported  fully  diluted
      earnings per share.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE A -THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[5]    Income (loss) per share:  (continued)

      Basic income (loss) per share is computed based upon the weighted  average
      number of common shares  outstanding  during each year.  Dilutive employee
      stock  options  did not  have an  effect  on the  computation  of  diluted
      earnings  per  share in 1997  and in 1996,  employee  stock  options  were
      anti-dilutive.

[6]    Income taxes:

      The Company  accounts for income  taxes in  accordance  with  Statement of
      Financial  Accounting  Standards  No. 109,  "Accounting  for Income Taxes"
      ("SFAS 109").  SFAS 109 measures deferred income taxes by applying enacted
      statutory  rates in effect at the  balance  sheet date to the  differences
      between the tax bases of assets and liabilities and their reported amounts
      in the financial statements.  The resulting deferred tax asset at December
      31, 1997 was fully  reserved  since the  likelihood of  realization of the
      benefit cannot be established.

[7] Marketable securities and short-term investments:

      The Company  accounts for its  investments  in marketable  securities  and
      short-term  investments  pursuant to  Statement  of  Financial  Accounting
      Standards No. 115,  "Accounting for Certain Investments in Debt and Equity
      Securities"  ("SFAS  115").  SFAS 115 requires,  among other  things,  the
      classification  of  investments  in one of three  categories  based on the
      Company's intent: trading,  available-for-sale and held-to-maturity,  with
      trading  and  available-for-sale  securities  carried  at fair  value  and
      held-to-maturity securities carried at amortized cost. Gains and losses on
      the trading  securities are included in operations for trading  securities
      are  reported  in a separate  compartment  of  stockholders'  equity,  for
      available-for-sale securities.

      The Company's  marketable  securities  consists of United States  Treasury
      Bills and Notes which are classified as trading  securities since they are
      actively traded.

      Short-term  investments were acquired with the proceeds of bonds (see Note
      B). The Trust Indenture  governing the issuance of the bonds provides that
      the bond  proceeds must always be available  for sale;  accordingly,  such
      investments  which  consist  of  taxable  municipal  debt  securities  and
      repurchase agreements are classified as available-for-sale securities.

[8] Stock-based compensation to employees:

      The Company has elected to follow Accounting  Principals Board Opinion No.
      25,  "Accounting  for Stock  Issued  to  Employees"  (APB 25) and  related
      interpretations  in accounting for its employee  stock options.  Under APB
      25,  compensation  cost is measured  as the excess,  if any, of the quoted
      market price of the stock at grant date or other measurement date over the
      amount an employee must pay to acquire the stock.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[9]    Use of estimates:

      The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure  of  contingent  assets  and  liabilities  at the  date  of the
      financial  statements  and the  reported  amounts of revenues and expenses
      during the  reporting  period.  Actual  results  could  differ  from those
      estimates.

NOTE B - SHORT-TERM INVESTMENTS

In November of 1997,  the Company issued  $72,750,000 of adjustable  rate tender
securities  (the "Bonds") in order to provide a part of the funds needed for its
new real estate  development  activities  (see Note D).  According  to the Trust
Indenture  pursuant to which these Bonds were issued,  the Company is restricted
as to the term and the investment  instruments  (the "Eligible  Investments") in
which it can invest Bond  proceeds  until spent for the purposes  defined in the
Indenture.

From the Eligible  Investments defined in the Indenture,  the Company has chosen
to invest the Bond proceeds in taxable  Municipal  Auction Rate  Certificates or
ARCs and Adjustable  Rate  Repurchase  Agreements or Repos.  ARCs are high-grade
taxable  instruments  with long-term  maturities  but with 35-day  interest rate
reset and tender dates which  function as  artificial  interim  maturities.  The
Repos  are  primarily  overnight  instruments  or  have  other  extremely  short
maturities.  Because  these  Investments  may be  redeemed  at par within  short
periods  of time,  cost  closely  approximates  market  value and there  were no
unrealized  gains and losses at December  31, 1997.  In addition,  there were no
gains or losses from the sale of any of these investments.  The Company uses the
specific  identification  method to  determine  cost of these  investments  upon
disposition.

Short-term investments at December 31, 1997 consists of:


          Auction rate certificates                             $    60,000,000
          Adjustable rate repurchase agreements                      11,174,934
                                                                ---------------

                                                                $    71,174,934
                                                                ===============
NOTE C - INVESTMENTS IN JOINT VENTURES

During  1997,  two  partnerships  in which the Company has a majority  financial
interest and a 50% voting  interest  sold their  manufacturers  outlet  shopping
malls.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE C - INVESTMENT IN JOINT VENTURES (CONTINUED)

[1]    A  reconciliation  of the change in the carrying  amount of the Company's
       investment in real estate joint ventures for the year ending December 31,
       1997 is as follows:
<TABLE>
<CAPTION>
<S>                                                                 <C>
Balance, beginning of year ...................................      $ 1,418,383
                                                                    -----------

Income:
   From operations ...........................................          383,151
   From refinancing ..........................................           79,911
   From sale .................................................        5,193,018
                                                                    -----------

                                                                      5,656,080
                                                                    -----------
Cash distributions:
   From operations ...........................................         (473,360)
   From refinancing ..........................................       (1,420,000)
   From sale..................................................       (4,995,239)
                                                                    -----------
                                                                     (6,888,599)
                                                                    -----------

Balance, end of year .........................................      $   185,864
                                                                    ===========
</TABLE>
[2] Investment in joint ventures as of December 31, 1997 consist of:


          Blowing Rock Outlet Partners ("Blowing Rock")           $   122,316
          Nags Head Outlet Partners ("Nags Head")                      63,548
                                                                  -----------

                                                                  $   185,864
                                                                  ===========
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE C - INVESTMENT IN JOINT VENTURES (CONTINUED)

[3]    Summary  selected  financial  data of the Company's  joint ventures as of
       December 31, 1997 and 1996 and for the years then ended is as follows:
<TABLE>
<CAPTION>
                                    Total           Total           Equity                           Net
                                   Assets        Liabilities      (Deficit)        Revenues         Income
                                   ------        -----------      ---------        --------         ------
<S>                            <C>              <C>             <C>             <C>             <C>
          1997:
             Blowing Rock      $     566,475    $     403,977   $     162,498   $   1,030,002   $   5,037,942   (1)
             Nags Head               375,937          176,211         199,726         758,106       2,435,450   (2)

          1996:
             Blowing Rock      $   5,787,837    $   6,546,614   $    (758,777)  $   1,365,476   $     410,432
             Nags Head             6,155,132        4,097,839       2,057,293         968,530         182,394
</TABLE>
--------------------

     (1)  Includes gain on sale of assets of $5,146,075
     (2)  Includes gain on sale of assets of $2,456,781


NOTE D - REAL ESTATE DEVELOPMENT AND FINANCING

The Company intends to develop and/or acquire state-of-the-art,  multiplex movie
theaters (the  "Theaters") in various states  throughout the continental  United
States.  The  expected  cost of the  Theaters is  expected  to be  approximately
$75,000,000. A major film exhibitor, Carmike Cinemas, Inc., (the "Lessee"), will
act as  development  agent for the Company in this endeavor over the course of a
two-year "Project Development Period" and will lease and operate each Theater as
it is  completed.  All leases  will be triple  net.  Rents will  commence on all
Theaters at the completion of the Project  Decelopment Period and extend over an
ensuing initial lease term of sixteen years.  The Company expects to continue to
use LOCs of this nature to secure the Bonds throughout their terms.

In order to finance 97% of the total expected cost of the Theaters,  on November
20,  1997 the  Company's  subsidiary,  Movieplex  Realty  Leasing,  L.L.C.  (the
"Lessor") issued $72,750,000 of adjustable rate tender securities,  due November
1, 2015 (the  "Bonds").  The Bonds were issued in sets of three series,  each of
which is secured by irrevocable,  direct pay letters-of-credit (the "LOCs") from
a commercial bank and each with an initial term of five years.

The Bonds bear  interest  from their date of  delivery  at a variable  base rate
indexed to the 30-day,  high-grade  commercial  paper rate.  This rate (5.96% at
December 31, 1997) will be reset  weekly and  interest  will be payable  monthly
commencing  in  January  1998.  Principal  on  the  Bonds  is  payable  annually
commencing in December 2000. Prior to maturity, $59,775,000 of the original Bond
principal  is  scheduled  to be  amortized.  The Bonds may be tendered at par by
investors on any interest rate reset date, in which event they may be remarketed
by a marketing agent to other investors.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE D - REAL ESTATE DEVELOPMENT AND FINANCING (CONTINUED)

Interest cost incurred on the Bonds during the Project  Development  Period will
be capitalized based on the average amount of accumulated  expenditures incurred
to develop the theatres.

The  remaining  3% of the cost of the  Theaters  will be  financed  from  equity
invested  in the  Lessor.  Subsidiaries  of the  Company  own 100% of the Common
Membership  (or  shareholdings)  of the  Lessor  which  is a  Limited  Liability
Company. In addition,  the same subsidiaries own 1% of the Preferred  Membership
of the Lessor in return for a cash  investment of $22,500 and a third party owns
99% of the Preferred  Membership  in return for a cash  investment of $2,227,500
(of which $750,000 was paid in 1997 with the balance due prior to the end of the
Project Development Period.)

Scheduled maturities of bonds payable at December 31, 1997 are as follows:

                 Year Ended
                December 31,                                      Amount
                ------------                                      ------

                   2000                                      $    970,000
                   2001                                         1,035,000
                   2002                                         1,105,000
                   Thereafter                                  69,640,000
                                                             ------------

                                                             $ 72,750,000
                                                             ============

NOTE E - INCOME TAXES

[1] Net operating loss and capital loss carryforward:

     At December 31, 1997,   the Company has a net operating  loss  carryforward
     for federal income tax purposes of  approximately  $7,300,000 which expires
     from  2005  to  2011  and a  capital  loss  carryforward  of  approximately
     $3,400,000 which expires in 2002.

[2] Provision for income taxes:

      The provision  for income taxes all of which are current,  consists of the
following:
<TABLE>
<CAPTION>
                                                  Year Ended
                                                  December 31,
                                          ------------------------
                                              1997          1996
                                          ---------      ---------
<S>                                       <C>            <C>
            Current:
            Federal .................     $  53,000
            State and local (benefit)       448,735      $  (7,885)
                                          ---------      ---------
                                          $ 501,735      $  (7,885)
                                          =========      =========
</TABLE>
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE E - INCOME TAXES  (CONTINUED)

[3]    Deferred income taxes:

      The  Company's  deferred tax assets  consists of the following at December
      31, 1997:
<TABLE>
<CAPTION>

<S>                                                    <C>
            Net operating loss carryforward  .....     $ 3,356,000
            Capital loss carryforward ............       1,564,000
            Litigation provision .................         230,000
            Accounts receivable and other reserves         175,000
                                                       -----------

                                                         5,325,000
            Valuation allowance ..................      (5,325,000)
                                                       -----------
            Net asset ............................     $     0
                                                       ===========
</TABLE>
      The valuation allowance decreased by approximately  $1,225,000 during 1997
and increased by $1,550,000 during 1996.

[4] Effective tax rate reconciliation:

      The effective tax rate applicable to continuing operations varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
                                                                          Year Ended
                                                                          December 31,
                                                                       -----------------
                                                                       1997         1996
                                                                       ----         ----
<S>                                                                    <C>        <C>
Statutory rate (benefit) ........................................       34.0%     (34.0)%
State and local taxes (benefit), net of federal income tax effect        9.3        (.1)
Nondeductible expenses ..........................................         .7
Other ...........................................................         .6
Utilization of carryforward losses ..............................      (28.9)
Valuation allowance .............................................                  34.0
                                                                        ----        ---
Effective rate ..................................................       15.7%       (.1)%
                                                                        ====       ====
</TABLE>
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996


NOTE E - INCOME TAXES  (CONTINUED)

[5]   Internal Revenue examination:

      The Internal  Revenue Service  ("IRS") is examining the Company's  federal
      income tax returns for the years 1985 through  1989.  The IRS has proposed
      certain  adjustments to the returns for possible additional income tax due
      in the amount of  approximately  $1,909,000  (exclusive  of  interest  and
      penalties.)  The Company does not agree with the proposed  adjustments and
      has engaged tax counsel to protest them.


NOTE F - INCENTIVE COMPENSATION PLAN

The Company has reserved an aggregate of 750,000  shares of its common stock for
issuance  to  officers  and  other key  employees  in the form of  incentive  or
nonqualified  stock options,  stock  appreciation  rights,  or restricted  stock
awards pursuant to its 1990 Incentive Compensation Plan (the "Plan").  Incentive
stock options  granted under the Plan must be  exercisable  at a price per share
not less than 100% (110% in the case of a 10%  stockholder)  of the fair  market
value of the  Company's  common  stock on the date of grant.  Options  cannot be
exercised after ten years (five years in the case of a 10% stockholder) from the
date of grant.  Nonqualified stock options cannot be exercised prior to one year
or after ten years from the date of grant.  During  1992,  options  to  purchase
150,000 shares were granted at an exercise  price of $.5625 per share.  In 1996,
50,000 options were cancelled. There are 100,000 outstanding options to purchase
common stock at December 31, 1997, all of which are exercisable.


NOTE G - COMMITMENTS

[1]    The Company  occupies office space under a lease expiring on February 28,
       2006.  Rental  expense for such lease was  $151,200  and $153,700 for the
       years ended December 31, 1997 and 1996, respectively.

      Minimum future annual rental payments are as follows:

                1998                                         $   127,900
                1999                                             127,900
                2000                                             127,900
                2001                                             127,900
                2002                                             127,900
                Thereafter                                       404,800
                                                             -----------
                                                             $ 1,044,300
                                                             ===========

[2]   The Company has a Retirement  Savings Plan for its employees,  pursuant to
      Section  401(k)  of  the  Internal  Revenue  Code.  The  Company,  at  its
      discretion, may match 25% of contributions.  Employee contributions to the
      Plan  and the  Company's  matching  contributions  vest  immediately.  The
      Company's  contribution  to the  Plan  in  1997  and  1996  applicable  to
      continuing operations was approximately $9,000 and $5,500, respectively.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996


NOTE H - LITIGATION

[1]   In July  1993,  an  action  was  commenced  against  multiple  defendants,
      including the Company,  in the California  Superior  Court.  The plaintiff
      asserts  numerous  claims  in  connection  with the  issuance  of  Housing
      Authority of the County of Riverside,  Multi-Family Housing Revenue Bonds,
      Series 1985A ("Ironwood Bonds").
      The Company was the underwriter of the Ironwood Bonds.

      The plaintiff  allegedly  acquired an apartment  project financed with the
      proceeds  of such bond  issue from the  original  developer.  The  Housing
      Authority  sought  indemnity  from the plaintiff for expenses it allegedly
      incurred in contesting  the IRS's  assertion  that the Ironwood Bonds were
      not tax-exempt.

      A  cross-claim  was  filed  against  multiple  defendants,  including  the
      Company,  by one co-defendant  for  indemnification  and  apportionment of
      fault. Two other co-defendants filed a cross-complaint  alleging claims in
      connection  with the  Ironwood  Bonds  and  another  bond  issue,  Housing
      Authority of the County of Riverside,  Multi-Family Housing Revenue Bonds,
      Series 1985A ("Whitewater Bonds") against multiple  defendants,  including
      the  Company.   By  a  standstill   agreement   dated  January  21,  1994,
      cross-claimants  and certain parties,  including the Company,  have agreed
      not to pursue cross-claims against one another at this time.

      The  plaintiff  seeks   compensation  and  punitive  damages  as  well  as
      indemnification and equitable relief. In four counts, two of which involve
      the Company as well as other defendants,  the plaintiff seeks compensatory
      damages plus interest estimated to be no less than $5 million per count.

      In October  1995,  the United  States Tax Court  determined  that interest
      earned on the Ironwood Bonds and the Whitewater  Bonds was not tax-exempt.
      The United  States  Court of Appeals  for the Ninth  Circuit  subsequently
      affirmed the  decision and the United  States  Supreme  Court  declined to
      review the case.

      In late 1997 and early 1998,  the parties to the case signed a stipulation
      agreeing to dismiss the action and all cross-actions without prejudice and
      to toll the applicable  statutes of limitation for a period of three years
      from the date of the  dismissal.  The  stipulation  is currently  awaiting
      action by the Court.

      The Company  believes  that the action is without  merit and is vigorously
      defending  its  position.  The ultimate  resolution  of this action is not
      presently determinable.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE H - LITIGATION  (CONTINUED)

[2]   In May 1996,  the  Company  was served  with a summons  and  complaint  in
      connection  with a class action  commenced in March 1996 against  multiple
      parties. This action was filed in the Superior Court of California, County
      of Riverside.  The plaintiffs  brought this action on behalf of themselves
      and all other  purchasers of bonds issued by the Housing  Authority of the
      County of Riverside for the Whitewater Garden  Apartments  project and the
      Ironwood  Apartments  project (the "Bonds").  The plaintiffs  maintain the
      defendants  misrepresented  that the interest on the Bonds would be exempt
      from   federal    income   tax.   The    plaintiffs    allege    negligent
      misrepresentation,  fraudulent misrepresentation,  and concealment against
      multiple  defendants,  including  the  Company,  relating to actions  with
      respect to the  issuance and  underwriting  of the Bonds in 1985 and 1986.
      The plaintiffs  also filed claims  involving  breach of written  contract,
      breach  of  oral  contract,   breach  of  fiduciary  duty,  and  negligent
      representation  against multiple  defendants  other than the Company.  The
      plaintiffs  are seeking  damages for taxes,  penalties,  and interest they
      have  paid  or are  obligated  to pay,  attorneys  fees,  costs,  punitive
      damages,  and other relief the court deems just. The  plaintiffs  maintain
      that  taxes,  interest,  and  penalties  are in excess of $3 million or an
      amount to be proved at the time of trial.

      Matthews & Wright,  Inc. (a  subsidiary  of the  Company)  entered  into a
      stipulation  with  plaintiffs to stay all  proceedings  without  prejudice
      pending  the outcome of the appeal to the United  States  Court of Appeals
      for the Ninth Circuit in Harbor Bancorp.

      After the Ninth  Circuit  affirmed the judgment of the Tax Court in Harbor
      Bancorp,  that interest earned on the Bonds was not tax exempt,  the FDIC,
      as receiver for first RepublicBank  Houston,  formerly known as InterFirst
      Bank  Houston,  intervened  and  removed  the  case to the  United  States
      District  Court  for  the  Central   District  of  California.   The  FDIC
      subsequently  moved to  transfer  venue of the case to the  United  States
      District  Court for the  Southern  District of Texas.  It appears that the
      claims against the FDIC as receiver have been transferred,  and the claims
      against all other  parties  remain  pending in federal  district  court in
      California.

      The Company  plans to defend  vigorously  against  all of the  plaintiffs'
      allegations  involving  it. The ultimate  resolution of this action is not
      presently determinable.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE I - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS

As a result of the sale in 1997 of its mortgage banking subsidiary (Note K), the
Company operates in one segment-merchant banking.


NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

      In the normal  course of  business,  the Company is a party to  derivative
      financial  instruments  which have  off-balance-sheet  risk. The Company's
      risk  of  accounting  loss  due to  the  credit  risks  and  market  risks
      associated with these  off-balance-sheet  instruments varies with the type
      of financial instrument.  Credit risk represents the possibility of a loss
      occurring from the failure of another party to perform in accordance  with
      the terms of a  contract.  Market risk  represents  the  possibility  that
      future  changes in market prices may make a financial  instrument  more or
      less valuable.

      As part of its  investment and risk  management  strategies to profit from
      anticipated market movements, the Company maintains trading positions in a
      variety of derivative  financial  instruments  consisting  principally  of
      future contracts in treasury and municipal securities.

      All  positions  are reported at fair value,  and changes in fair value are
      reflected in operations as they occur.

      At December 31, 1997, no  derivative  financial  instruments  were held or
      issued by the Company and the average fair value of such  instruments held
      or issued during the year was not material.

      The  Company  realized  a net  loss on  derivatives  sold  during  1997 of
      approximately  $239,000 versus a gain of  approximately  $428,000 in 1996.
      Such amounts are included in investment  income (loss) on the accompanying
      statements of operations.

<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1997 and 1996

NOTE K - SALE OF MORTGAGE BANKING SUBSIDIARY

During 1997,  the Company sold its wholly owned  subsidiary,  Citizens  Mortgage
Service Company ("Citizens"), to IMN Financial Corp. for approximately $375,000.
The Company recorded a loss from this transaction of approximately $231,000. The
Company  has  received  approximately  $111,000  from  the  purchaser  and has a
receivable at December 31, 1997 of approximately $264,000 which is past due.

Condensed results of operations of Citizens, which are reflected as discontinued
operations in the accompanying financial statements, are presented below:
<TABLE>
<CAPTION>
                                                        Year Ended
                                                       December 31,
                                              ---------------------------------
                                                  1997                   1996
                                              -----------           -----------
<S>                                           <C>                   <C>
Revenues ...........................          $ 1,106,519           $ 2,136,580
Expenses ...........................           (1,861,928)           (3,714,430)
                                              -----------           -----------

Loss from operations ...............          $  (755,409)          $(1,577,850)
                                              ===========           ===========

</TABLE>
<PAGE>


                          BLOWING ROCK OUTLET PARTNERS

                      FINANCIAL STATEMENTS AND AUDIT REPORT

                                December 31, 1997



<PAGE>



                          BLOWING ROCK OUTLET PARTNERS
                                    CONTENTS





REPORT OF INDEPENDENT ACCOUNTANTS

BALANCE SHEET

STATEMENTS OF INCOME AND VENTURERS' EQUITY

STATEMENTS OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS
<PAGE>
                  (letterhead of Joseph Decosimo and Company)


              A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP

Private Companies Practice Section          Member AICPA Division for CPA Firms
                              SEC Practice Section



                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Co-Venturers
Blowing Rock Outlet Partners
Nashville, Tennessee

We have audited the  accompanying  balance sheet of Blowing Rock Outlet Partners
(a joint venture) as of December 31, 1997, and the related  statements of income
and  venturers'  equity and cash flows for the years ended December 31, 1997 and
1996. These financial  statements are the  responsibility of the joint venture's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Blowing Rock Outlet Partners as
of December 31, 1997,  and the results of its  operations and its cash flows for
the years  ended  December  31,  1997 and 1996,  in  conformity  with  generally
accepted accounting principles.






/s/Joseph Decosimo and Company, LLP
-----------------------------------
Joseph Decosimo and Companh, LLP


Chattanooga, Tennessee
January 20, 1998
<PAGE>
<TABLE>
<CAPTION>
                          BLOWING ROCK OUTLET PARTNERS
                                  BALANCE SHEET
                                December 31, 1997







          ASSETS
<S>                                                                     <C>
Cash and Cash Equivalents ...................................           $528,529
Receivables, net of allowance for
  uncollectible accounts of $52,535 .........................             37,946
                                                                        --------

TOTAL ASSETS ................................................           $566,475
                                                                        ========


          LIABILITIES AND VENTURERS' EQUITY

LIABILITIES
  Accounts Payable and Deferred Revenue .....................           $  6,190
  State Income Taxes Payable ................................            397,787
                                                                        --------

          Total Liabilities .................................            403,977

VENTURERS' EQUITY ...........................................            162,498
                                                                        --------

TOTAL LIABILITIES AND VENTURERS' EQUITY .....................           $566,475
                                                                        ========


</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                          BLOWING ROCK OUTLET PARTNERS
                   STATEMENTS OF INCOME AND VENTURERS' EQUITY
                     Years Ended December 31, 1997 and 1996



                                                      1997              1996
                                                  -----------       -----------
<S>                                               <C>               <C>
REVENUES
  Rental Revenue ...........................      $ 1,030,002       $ 1,365,476
                                                  -----------       -----------

EXPENSES
  Management Fees ..........................           50,042            68,274
  Leasing Commissions ......................           20,278            21,869
  Professional Services ....................            9,746            11,298
  Common Area Maintenance, net of
    recoveries from tenants ................           10,318            18,215
  Landlord Repairs .........................              834             5,815
  Bad Debt Expense .........................           45,370             7,165
  Other ....................................           15,913              --
                                                  -----------       -----------
                                                      152,501           132,636
                                                  -----------       -----------

INCOME FROM OPERATIONS .....................          877,501         1,232,840
                                                  -----------       -----------

OTHER INCOME (EXPENSE)
  Interest Income ..........................           14,171             7,488
  Interest Expense .........................         (421,768)         (556,815)
  Depreciation .............................         (151,985)         (199,695)
  Amortization .............................          (27,598)          (36,797)
  Gain on Sale of Assets ...................        5,146,075              --
  State Income Tax .........................         (398,454)          (33,877)
  Real Estate Taxes, net of recoveries
    from tenants ...........................             --              (2,712)
                                                  -----------       -----------
                                                    4,160,441          (822,408)
                                                  -----------       -----------

NET INCOME .................................        5,037,942           410,432

VENTURERS' DEFICIT -
  beginning of year ........................         (758,777)         (764,209)

  Distributions ............................       (4,116,667)         (405,000)
                                                  -----------       -----------

VENTURERS' EQUITY (DEFICIT) -
  end of year ..............................      $   162,498       $  (758,777)
                                                  ===========       ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                          BLOWING ROCK OUTLET PARTNERS
                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 1997 and 1996




                                                     1997                1996
                                                 -----------        -----------
<S>                                              <C>                <C>
RECONCILIATION OF NET INCOME TO
  NET CASH PROVIDED BY OPERATING
  ACTIVITIES
  Net Income .............................       $ 5,037,942        $   410,432
  Adjustments to Reconcile Net
    Income to Net Cash Provided by
    Operating Activities -
    Depreciation and Amortization ........           179,583            236,492
    Bad Debt Expense .....................            45,370              7,165
    Gain on Sale of Assets ...............        (5,146,075)              --
    Changes in Operating Assets and
      Liabilities -
      Decrease (Increase) in -
        Receivables ......................           (68,619)           (20,207)
        Prepaid Expenses .................           104,668            (33,566)
        Deferred Leasing Fees ............           (59,645)           (15,722)
      Increase (Decrease) in -
        Accounts Payable and Deferred
          Revenue ........................            (3,112)           (21,647)
        Tenant Deposits ..................            52,017              8,012
        Due to Related Parties ...........           (43,930)             4,188
        State Income Taxes Payable .......           363,910              2,812
                                                 -----------        -----------

       Net Cash Provided by Operating
         Activities ......................           462,109            577,959
                                                 -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital Expenditures ...................              --              (71,975)
  Proceeds from Sale of Assets ...........         4,194,291               --
                                                 -----------        -----------

       Net Cash Provided (Used) by
         Investing Activities ............         4,194,291            (71,975)
                                                 -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of Notes Payable .............           (57,029)           (79,486)
  Distributions to Venturers .............        (4,116,667)          (405,000)
                                                 -----------        -----------

       Net Cash Used by Financing
         Activities ......................        (4,173,696)          (484,486)
                                                 -----------        -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                          BLOWING ROCK OUTLET PARTNERS
                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 1997 and 1996



                                                        1997              1996
                                                    ----------        ----------
<S>                                                 <C>               <C>
NET INCREASE IN CASH AND CASH
  EQUIVALENTS ..............................        $  482,704        $   21,498

CASH AND CASH EQUIVALENTS -
    beginning of year ......................            45,825            24,327
                                                    ----------        ----------

CASH AND CASH EQUIVALENTS -
    end of year ............................        $  528,529        $   45,825
                                                    ==========        ==========


SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION
  Cash Paid During the Year for -
    Interest ...............................        $  421,768        $  556,815
    Income Taxes ...........................        $   34,544        $   31,064


SUPPLEMENTAL DISCLOSURE OF
  NONCASH FINANCING AND INVESTING
  ACTIVITIES
  Repayment of Note Payable
    at Closing of Sale of Assets ...........        $6,364,526        $     --



</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
                          BLOWING ROCK OUTLET PARTNERS
                          NOTES TO FINANCIAL STATEMENTS



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant  accounting policies and practices followed by the joint venture
are as follows:

DESCRIPTION  OF  BUSINESS - Blowing  Rock  Outlet  Partners  is a joint  venture
engaged in the business of renting retail space to manufacturers'  outlet stores
in Watauga County, North Carolina.

RENTAL  INCOME - Rent is reported as income over the lease term as it is earned.
Rent received from tenants in advance is accounted for as deferred revenue.

CASH  EQUIVALENTS - The venture  considers all money market  accounts and highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash  equivalents.  The venture  maintains cash and cash equivalent  accounts at
various  financial  institutions  which may at times  exceed  federally  insured
amounts and which may at times exceed  balance sheet amounts due to  outstanding
checks.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Expenditures
for repairs and maintenance are charged to expense as incurred and additions and
improvements that significantly extend the lives of assets are capitalized. Upon
sale or other  retirement  of  depreciable  property,  the cost and  accumulated
depreciation  are  removed  from the  related  accounts  and any gain or loss is
reflected in operations.

Depreciation is provided on the  straight-line  method over the estimated useful
lives of the depreciable assets.

INTANGIBLE  ASSETS - Developmental  and other costs incurred  before  operations
commenced  are  capitalized  as start-up  costs.  Initial  and  renewal  leasing
commissions  are  amortized  over  the  remaining  lease  periods.  The  cost of
intangible assets is amortized using the straight-line method over the following
estimated useful lives:

                                                                  Years

         Deferred Leasing Fees                                      5
         Loan Fees                                                  7

INCOME  TAXES - No  provision  for  federal  income  taxes is  reflected  in the
financial  statements  since the tax effects of the venture's income or loss are
passed  through to the individual  venturer.  State income taxes in the State of
North Carolina are paid by the venture on behalf of the venturers.

ESTIMATES  AND  UNCERTAINTIES  - The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.
<PAGE>
                          BLOWING ROCK OUTLET PARTNERS
                          NOTES TO FINANCIAL STATEMENTS



ORGANIZATION

Blowing Rock Outlet  Partners was organized under the laws of the State of North
Carolina  on June  10,  1988,  for the  purpose  of  acquiring,  developing  and
operating a shopping center in Watauga County, North Carolina. The two venturers
are Burrows,  Hayes  Company,  Inc. (BHC) and Company  Stores  Management  Corp.
(CSMC).

The joint venture agreement provides that net cash flow, as defined therein,  is
allocated  and  distributed  first to BHC up to the amount of the  current  year
preferred return and any unpaid preferred return from prior years. Any remaining
balance is allocated 55% to BHC and 45% to CSMC.  The preferred  return is equal
to  10%  per  annum  of  BHC's  capital  contribution  of  $1,449,000  less  any
distributions  in excess of the preferred  return paid from sale or  refinancing
proceeds.  In April 1995, the joint venture  refinanced the rental  property and
BHC  received  a  distribution  from loan  proceeds  in  excess  of  $1,449,000.
Accordingly,  the  joint  venture  no  longer  has to  make a  preferred  return
allocation. All net cash flow is distributable 55% to BHC and 45% to CSMC.

Taxable income is allocated first to BHC to the extent of all  distributions  of
the  preferred  return for the current  year and for all prior  years,  less all
prior   allocations  of  taxable  income   relating  to  the  preferred   return
distributions  made in previous years.  Thereafter,  taxable income is allocated
55% to BHC and 45% to CSMC.


SALE OF PROPERTY

Effective September 30, 1997, the joint venture sold the outlet mall operated as
Shoppes on the Parkway for $11,160,000.  Net proceeds from the sale,  except for
amounts  withheld  to pay  anticipated  state  taxes,  were  distributed  to the
venturers  during  October,  1997.  The joint venture  plans to  distribute  any
remaining assets to the venturers during 1998 and cease operations.


RELATED PARTY TRANSACTIONS

Effective  April 1, 1995, CS Partners (CSP) began  managing the rental  property
for 5% of  total  rents  collected.  CSP is an  affiliate  of  CSMC,  one of the
venturers.  Prior to such time, CSMC managed the rental property for 5% of total
rents  collected.  Management fees paid totaled $50,042 for 1997 and $68,274 for
1996.

CSP also assumed  leasing  agent  responsibilities  on April 1, 1995.  The joint
venture  pays CSP an  initial  fee of 12.5% of the  total  base  rental  dollars
accruing  for the first  year of new  leases  and 3% of the base and  percentage
rents each year thereafter for the term of said lease. In addition,  the venture
pays a 2% commission on any leases which are renewed.  Prior to April 1, 1995, a
different  affiliate  of CSMC  acted as  leasing  agent for the same  commission
arrangement as outlined above. Leasing commissions paid totaled $79,933 for 1997
and $37,590 for 1996.
<PAGE>
                          BLOWING ROCK OUTLET PARTNERS
                          NOTES TO FINANCIAL STATEMENTS



LEASES

The joint  venture  receives  rents from tenants under  noncancelable  operating
leases typically with five year lease terms. Virtually all tenants pay a minimum
guaranteed  rental based on square  footage and a  percentage  rental based on a
percentage of gross sales over a certain sales level per year.  Percentage rents
totaled $79,214 for 1997 and $88,282 for 1996.


FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents  approximates fair value due to
the short maturity of those instruments.
<PAGE>

                           NAGS HEAD OUTLET PARTNERS,

                         A NORTH CAROLINA JOINT VENTURE

                      FINANCIAL STATEMENTS AND AUDIT REPORT

                                December 31, 1997




<PAGE>



                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                                    CONTENTS






REPORT OF INDEPENDENT ACCOUNTANTS

BALANCE SHEET

STATEMENTS OF INCOME AND VENTURERS' EQUITY

STATEMENTS OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS


<PAGE>
                  (letterhead of Joseph Decosimo and Company)



              A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP

Private Companies Practice Section          Member AICPA Division for CPA Firms
                              SEC Practice Section



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Co-Venturers
Nags Head Outlet Partners,
  a North Carolina Joint Venture
Nags Head, North Carolina

We have audited the accompanying  balance sheet of Nags Head Outlet Partners,  a
North Carolina Joint Venture as of December 31, 1997, and the related statements
of income and venturers'  equity and cash flows for the years ended December 31,
1997  and  1996.  These  financial  statements  are  the  responsibility  of the
venture's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Nags Head Outlet Partners,  a
North  Carolina  Joint  Venture as of December 31, 1997,  and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.





/s/Joseph Decosimo and Company, LLP
-----------------------------------
Joseph Decosimo and Companh, LLP




Chattanooga, Tennessee
January 20, 1998
<PAGE>
<TABLE>
<CAPTION>
                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                                  BALANCE SHEET
                                December 31, 1997





          ASSETS
<S>                                                                     <C>
Cash and Cash Equivalents ...................................           $321,153
Receivables, net ............................................             54,784
                                                                        --------

TOTAL ASSETS ................................................           $375,937
                                                                        ========


          LIABILITIES AND VENTURERS' EQUITY

LIABILITIES
  Accounts Payable and Deferred Revenue .....................           $    488
  Tenant Deposits ...........................................              1,147
  Due to Related Parties ....................................                416
  State Income Taxes Payable ................................            174,160
                                                                        --------

          Total Liabilities .................................            176,211

VENTURERS' EQUITY ...........................................            199,726

TOTAL LIABILITIES AND VENTURERS' EQUITY .....................           $375,937
                                                                        ========


</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                   STATEMENTS  OF  INCOME  AND  VENTURERS'  EQUITY  Years  Ended
                     December 31, 1997 and 1996




                                                   1997                  1996

<S>                                              <C>                <C>
REVENUES
  Rental Revenue .........................       $   758,106        $   968,530
                                                 -----------        -----------

EXPENSES
  Management Fees ........................            38,067             48,427
  Leasing Commissions ....................            17,092             14,392
  Professional Services ..................            15,231             18,652
  Common Area Maintenance, net of
    recoveries from tenant ...............            (2,355)               949
  Landlord Repairs .......................               208             12,427
  Tenant Improvements ....................              --                2,248
  Other ..................................             3,716              4,673
                                                 -----------        -----------
                                                      71,959            101,768
                                                 -----------        -----------

INCOME FROM OPERATIONS ...................           686,147            866,762
                                                 -----------        -----------

OTHER INCOME (EXPENSE)
  Interest Income ........................            10,540              6,258
  Interest Expense .......................          (303,689)          (359,794)
  Depreciation ...........................          (196,953)          (277,934)
  Amortization ...........................           (42,860)           (30,500)
  Gain on Sale of Assets .................         2,456,781               --
  State Income Tax .......................          (174,516)           (22,398)
                                                 -----------        -----------
                                                   1,749,303           (684,368)
                                                 -----------        -----------

NET INCOME ...............................         2,435,450            182,394

VENTURERS' EQUITY - beginning of year ....         2,057,293          1,904,899

    Distributions ........................        (4,293,017)           (30,000)
                                                 -----------        -----------

VENTURERS' EQUITY - end of year ..........       $   199,726        $ 2,057,293
                                                 ===========        ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 1997 and 1996




                                                           1997             1996
                                                      -----------      -----------
<S>                                                   <C>              <C>
RECONCILIATION OF NET INCOME TO
  NET CASH PROVIDED BY
  OPERATING ACTIVITIES
  Net Income ....................................     $ 2,435,450      $   182,394
  Adjustments to Reconcile Net Income to
    Net Cash Provided by Operating Activities -
    Depreciation and Amortization ...............         239,813          308,434
    Gain on Sale of Assets ......................      (2,456,781)            --
    Changes in Operating Assets and Liabilities -
      Decrease (Increase) in -
        Receivables .............................         (54,625)           8,654
        Prepaid Expenses ........................          22,897          (38,036)
        Deferred Leasing Fees ...................         (48,162)          (4,702)
      Increase (Decrease) in -
        Accounts Payable and Deferred Revenue ...          (8,387)          (2,621)
        Accrued Interest ........................         (16,128)          (1,155)
        Tenant Deposits .........................          18,627           (8,695)
        Due to Related Parties ..................          (3,580)              82
        State Income Taxes Payable ..............         152,081            5,321
                                                      -----------      -----------

       Net Cash Provided by Operating Activities          281,205          449,676
                                                      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital Expenditures ..........................            --             (6,595)
  Proceeds from Sale of Assets ..................       2,876,556             --
                                                      -----------      -----------

       Net Cash Provided (Used) by
         Investing Activities ...................       2,876,556           (6,595)
                                                      -----------      -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 1997 and 1996




                                                        1997            1996
                                                   -----------      -----------
<S>                                                <C>              <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Loan Proceeds ..............................     $    32,980      $      --
  Repayment of Note Payable ..................        (121,209)        (287,739)
  Distributions to Venturers .................      (2,873,017)         (30,000)
  Loan Fees Paid .............................         (30,497)            --
                                                   -----------      -----------

       Net Cash Used by Financing Activities .      (2,991,743)        (317,739)
                                                   -----------      -----------

NET INCREASE IN CASH AND
  CASH EQUIVALENTS ...........................         166,018          125,342

CASH AND CASH EQUIVALENTS - beginning of
  year .......................................         155,135           29,793
                                                   -----------      -----------

CASH AND CASH EQUIVALENTS - end of year ......     $   321,153      $   155,135
                                                   ===========      ===========

SUPPLEMENTAL DISCLOSURE OF
  CASH FLOW INFORMATION
  Cash Paid During the Year for -
    Interest .................................     $   320,019      $   360,949
    Income Taxes .............................     $    22,435      $    17,077


SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING AND FINANCING
  ACTIVITIES
  Distributions Made through Issuance
    of Long-Term Debt ........................     $ 1,420,000      $      --
  Repayment of Note at Closing on
    Sale of Property .........................     $ 5,349,781      $      --

</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                          NOTES TO FINANCIAL STATEMENTS



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies and practices followed by the venture are as
follows:

DESCRIPTION  OF BUSINESS - Nags Head Outlet  Partners,  a North  Carolina  Joint
Venture,  is engaged in the business of renting  retail space to  manufacturers'
outlet stores in Nags Head, North Carolina.

RENTAL  INCOME - Rent is reported as income over the lease term as it is earned.
Rent received from tenants in advance is accounted for as deferred revenue.

CASH  EQUIVALENTS - The venture  considers all money market  accounts and highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash equivalents.

LAND,  BUILDINGS AND IMPROVEMENTS - Land,  buildings and improvements are stated
at cost.  Expenditures  for  repairs and  maintenance  are charged to expense as
incurred and additions and improvements that  significantly  extend the lives of
assets are capitalized.  Upon sale or other retirement of depreciable  property,
the cost and accumulated  depreciation are removed from the related accounts and
any gain or loss is reflected in operations.

Depreciation is provided on the  straight-line  method over the estimated useful
lives of the depreciable assets.

INTANGIBLE  ASSETS - Developmental  and other costs incurred  before  operations
commenced  are  capitalized  as start-up  costs.  Initial  and  renewal  leasing
commissions  are  amortized  over  the  remaining  lease  periods.  The  cost of
intangible assets is amortized using the straight-line method over the following
estimated useful lives:

                                                                 Years

Deferred Leasing Fees                                              5
Loan Fees                                                          4

INCOME  TAXES - No  provision  for  federal  income  taxes is  reflected  in the
financial  statements  since the tax effects of the venture's income or loss are
passed through to the individual  venturers.  State income taxes in the State of
North Carolina are paid by the venture on behalf of the venturers.

ESTIMATES  AND  UNCERTAINTIES  - The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.
<PAGE>
                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                          NOTES TO FINANCIAL STATEMENTS



ORGANIZATION

Nags Head Outlet Partners,  a North Carolina Joint Venture,  was organized under
the laws of the State of North  Carolina on December 6, 1989, for the purpose of
acquiring,  developing  and  operating  a shopping  center in Nags  Head,  North
Carolina. The two venturers are Parker, Reld & Co., Inc. (JV) and Company Stores
Capital Corp. (CSCC).

Net cash flow,  as defined in the joint  venture  agreement,  is  allocated  and
distributed  first to JV up to the amount of the current year  preferred  return
and any unpaid  preferred  return from prior  years.  Any  remaining  balance is
allocated 63% to JV and 37% to CSCC.

Taxable income is allocated  first to JV to the extent of all  distributions  of
the  preferred  return for the current  year and for all prior  years,  less all
prior   allocations  of  taxable  income   relating  to  the  preferred   return
distributions  made in previous years.  Thereafter,  taxable income is allocated
63% to JV and 37% to CSCC.

Taxable  losses,  should  they  occur,  are  allocated  to JV up to its  capital
contribution  of $1,500,000.  Any remaining  taxable loss is allocated 63% to JV
and 37% to CSCC.


SALE OF PROPERTY

Effective September 30, 1997, the joint venture sold the outlet mall operated as
Soundings Factory Stores for $8,340,000.  Net proceeds from the sale, except for
amounts  withheld  to pay  anticipated  state  taxes,  were  distributed  to the
venturers  during  October,  1997.  The joint venture  plans to  distribute  any
remaining assets to the venturers during 1998 and cease operations.


RELATED PARTY TRANSACTIONS

Effective  April 1, 1995, CS Partners (CSP) began  managing the rental  property
for 5% of  total  rents  collected.  CSP is an  affiliate  of  CSCC,  one of the
venturers.  Prior to such time, a different affiliate of CSCC managed the rental
property for 5% of total rents  collected.  Management fees paid totaled $38,067
for 1997 and $48,427 for 1996.

CSP also assumed  leasing  agent  responsibilities  on April 1, 1995.  The joint
venture  pays CSP an  initial  fee of 12.5% of the  total  base  rental  dollars
accruing  for the first  year of new  leases  and 3% of the base and  percentage
rents each year thereafter for the term of said lease. In addition,  the venture
pays a 2% commission on any leases which are renewed.  Prior to April 1, 1995, a
different  affiliate  of CSCC  acted as  leasing  agent for the same  commission
arrangement as outlined above. Leasing commissions paid totaled $65,087 for 1997
and $19,094 for 1996.
<PAGE>
                           NAGS HEAD OUTLET PARTNERS,
                         A NORTH CAROLINA JOINT VENTURE
                          NOTES TO FINANCIAL STATEMENTS



LEASES

The joint  venture  receives  rents from tenants under  noncancelable  operating
leases typically with five year lease terms. Virtually all tenants pay a minimum
guaranteed  rental based on square  footage and a  percentage  rental based on a
percentage of gross sales over a certain sales level per year.  Percentage rents
totaled $45,211 for 1997 and $31,823 for 1996.


FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents  approximates fair value due to
the short maturity of those instruments.
<PAGE>
Item 8.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure.

         None.
<PAGE>
                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act.

                  The information required to be furnished pursuant to this item
                  is  set  forth   under  the   caption   "Management"   in  the
                  registrant's  definitive  proxy statement to be filed with the
                  Securities and Exchange  Commission within 120 days of the end
                  of the fiscal year ended December 31, 1997, the period covered
                  by this Form 10-KSB, and is incorporated herein by reference.



<PAGE>
Item 10. Executive Compensation.

                  The information required to be furnished pursuant to this item
                  is set forth under the caption "Executive Compensation" in the
                  registrant's  definitive  proxy statement to be filed with the
                  Securities and Exchange  Commission within 120 days of the end
                  of the fiscal year ended December 31, 1997, the period covered
                  by this Form 10-KSB, and is incorporated herein by reference.




<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management

                  The information required to be furnished pursuant to this item
                  is set forth under the caption "Security  Ownership of Certain
                  Beneficial   Owners  and   Management"  in  the   registrant's
                  definitive proxy statement to be filed with the Securities and
                  Exchange  Commission  within 120 days of the end of the fiscal
                  year ended  December 31, 1997, the period covered by this Form
                  10-KSB, and is incorporated herein by reference.
<PAGE>
Item 12. Certain Relationships and Related Transactions

                  The information required to be furnished pursuant to this item
                  is set forth  under the  caption  "Certain  Relationships  and
                  Related  Transactions"  in the  registrant's  definitive proxy
                  statement  to  be  filed  with  the  Securities  and  Exchange
                  Commission within 120 days of the end of the fiscal year ended
                  December 31, 1997, the period covered by this Form 10-KSB, and
                  is incorporated herein by reference.
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K.

                  (a)      Exhibits

                  Certain   of   the    following    exhibits,    as   indicated
                  parenthetically,  were  previously  filed as exhibits to other
                  reports or  registration  statements  filed by the  Registrant
                  under  the  Securities  Act of 1933 or  under  the  Securities
                  Exchange Act of 1934 and are hereby incorporated by reference.

                  3.1         Restated   Certificate  of  Incorporation  of  the
                              Registrant  filed on July 31, 1987 and  amendments
                              thereto filed on June 8, 1989,  September 14, 1991
                              and December 2, 1991.

                  3.2         Amended and  Restated  By-Laws of the  Registrant.
                              (Incorporated  by  reference  to the  Registrant's
                              Annual  Report on Form  10-KSB  for the year ended
                              December 31, 1995.)

                  10.1        40l(k)  Savings Plan of the Company as amended and
                              restated as of January 1, 1993.  (Incorporated  by
                              reference  to the  Registrant's  Annual  Report on
                              Form 10-KSB for the year ended December 31, 1993.)

                  10.2        Lease of the Company's  executive  offices,  dated
                              February 29, 1996.  (Incorporated  by reference to
                              the Registrant's  Annual Report on Form 10-KSB for
                              the year ended December 31, 1996.)

                  10.3        Helmstar Group,  Inc. 1990 Incentive  Compensation
                              Plan.    (Incorporated   by   reference   to   the
                              Registrant's  Annual Report on Form 10-KSB for the
                              year ended December 31, 1995.)

                  10.4        Amendment  to  the  Helmstar   Group,   Inc.  1990
                              Incentive  Compensation  Plan.   (Incorporated  by
                              reference  to the  Registrant's  Annual  Report on
                              Form 10-KSB for the year ended December 31, 1996.)

                  10.5        Sale of Citizens  Mortgage  Service Company to IMN
                              Financial   Corp,    dated   September   5,   1997
                              (Incorporated  by  reference  to the  Registrant's
                              Current  Report on Form 8-K,  dated  September 19,
                              1997.)

                  10.6        Indenture  of  Trust  between   Movieplex   Realty
                              Leasing,  L.L.C. and First Union National Bank, as
                              Trustee, dated November 1, 1997.1

                  10.7        Form of Bond.1

                  10.8        Master Lease  between  Movieplex  Realty  Leasing,
                              L.L.C., as Landlord, and Carmike Cinemas, Inc., as
                              Tenant, dated November 20, 1997.1

                  10.9        Reimbursement Agreement,  dated as of November 20,
                              1997, among Movieplex  Realty Leasing,  L.L.C, the
                              Lenders, and Wachovia Bank, N.A., as Agent.1
<PAGE>
                  10.10       Form of Letter of Credit.1

                  10.11       Form of Bond Purchase  Agreement between Movieplex
                              Realty Leasing, L.L.C. and {the Purchaser],  dated
                              November 20, 1997.1

                  10.12       Agency and Development Agreement between Movieplex
                              Realty Leasing,  L.L.C. and Carmike Cinemas, Inc.,
                              dated November 20, 1997.1


                  22.0        Subsidiaries of the Registrant.


                  (b)          Reports filed on Form 8-K

                               On October 10, 1997, the Registrant  filed a Form
                               8-K to report that the  partnerships in which the
                               Company was a partner  sold  Blowing  Rock Outlet
                               Center  and Nags  Head  Outlet  Center  to Tanger
                               Factory Outlet Centers, Inc.


1  To be filed by amendment.
<PAGE>
                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this Report to be signed on its
behalf by the  undersigned,  thereunto duly authorized on the 31st day of March,
1998.


Helmstar Group, Inc.


/s/George W. Benoit
   -------------------------------------------
    George W. Benoit, Chairman of the Board
                  and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the  following  persons on behalf of the  Registrant in
the capacities indicated on the 31st day of March, 1998.


         Signature                         Title
         ---------                         -----


George W. Benoit          Chairman of the Board, President,
(George W. Benoit)        Chief Executive Officer


Roger J. Burns            Director, First Vice President,
(Roger J. Burns)          Chief Financial Officer, Secretary


Joseph G. Anastasi        Director
(Joseph G. Anastasi)


Charles W. Currie         Director
(Charles W. Currie)


James J. Murtha           Director
(James J. Murtha)


David W. Dube             Director
(David W. Dube)