U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB



         (Mark One)

[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
      Securities Exchange Act of 1934

      For the quarterly period ended   September 30, 1996 

[   ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934

      For the transition period from  to 

      Commission file number 1-9224


                              HELMSTAR GROUP, INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

                DELAWARE                               13-2689850          
-----------------------------------------    ------------------------------
      (State or Other Jurisdiction of               (I.R.S. Employer
       Incorporation or Organization)              Identification No.)

             2 World Trade Center, Suite 2112, New York, N.Y. 10048
  ---------------------------------------------------------------------------
                    (Address of Principal Executive Offices)

                                  212-775-0400
                (Issuer's Telephone Number, Including Area Code)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

Yes  [ X ]   No  [   ]

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

           Class                             Outstanding at October 30, 1996
           -----                             -------------------------------
                                                                         
Common stock - par value $.10                       5,544,173 shares     
-----------------------------                       ----------------     
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION


Item l.  Financial Statements.

         The following consolidated financial statements of Helmstar Group, Inc.
and subsidiaries  (collectively referred to as the "Company," unless the context
requires otherwise) are prepared in accordance with the rules and regulations of
the  Securities  and  Exchange  Commission  for  Form  10-QSB  and  reflect  all
adjustments  (consisting of normal recurring accruals) and disclosures which, in
the opinion of management, are necessary for a fair statement of results for the
interim periods  presented.  It is suggested that these financial  statements be
read in conjunction with the financial  statements and notes thereto included in
the Company's Form 10-KSB for the fiscal year ended December 31, 1995, which was
filed with the Securities and Exchange Commission.

         The results of  operations  for the three  months and nine months ended
September 30, 1996 are not necessarily  indicative of the results to be expected
for the entire fiscal year.
<PAGE>
<TABLE>
<CAPTION>
                     HELMSTAR GROUP, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                 September 31,      December 31,
                                                     1996              1995 
                                                 ------------      ------------
         ASSETS   
<S>                                              <C>               <C>
Cash and cash equivalents ..................     $  1,247,138      $  1,358,730
Marketable securities ......................        7,604,246         3,805,767
Joint ventures .............................        1,490,556         1,324,023
Mortgage servicing rights
    net of accumulated
    amortization of $1,371 .................                             46,886
Mortgage loans held for sale ...............        4,336,204         1,541,640
Due from mortgage investors ................           69,210            52,179
Furniture, equipment and
    leasehold improvements - at cost,
    less accumulated depreciation and
    amortization of $415,249 in
    1996 and $363,901 in 1995 ..............          268,165           203,373
Other assets ...............................          646,001         1,654,068
                                                 ------------      ------------
         TOTAL .............................     $ 15,661,520      $  9,986,666
                                                 ============      ============
         LIABILITIES

Notes payable ..............................     $  9,090,433      $    943,743
Accrued expenses and other
    liabilities ............................        1,082,320         1,608,193
                                                 ------------      ------------
         Total liabilities .................       10,172,753         2,551,936
                                                 ------------      ------------
             STOCKHOLDERS' EQUITY

Common stock - authorized
    10,000,000 shares, par value
    $.10; issued 6,749,600 shares ..........          674,960           674,960
Paid-in surplus ............................       14,984,510        14,984,510
(Accumulated deficit) ......................       (7,263,872)       (5,319,638)
                                                 ------------      ------------
         Total .............................        8,395,598        10,339,832

Less treasury stock, at cost -
    1,205,427 shares in 1996 and
    1,203,227 shares in 1995 ...............       (2,906,831)       (2,905,102)
                                                 ------------      ------------

         Total stockholders' equity ........        5,488,767         7,434,730
                                                 ------------      ------------
         TOTAL .............................     $ 15,661,520      $  9,986,666
                                                 ============      ============

     See Notes to Condensed Consolidated Financial Statements (Unaudited).

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                HELMSTAR GROUP, INC. AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                             (Unaudited)

                                                                    Three Months Ended                        Nine Months Ended
                                                                         Sept 30,                                Sept 30,
                                                           --------------------------------         --------------------------------
                                                                 1996                 1995               1996                1995
                                                           -----------          -----------         -----------          -----------
<S>                                                        <C>                  <C>                 <C>                  <C>
Revenues:
    Profit from joint ventures ...................         $   109,465          $   137,288         $   530,210          $ 1,917,160
    Financial consulting fees ....................                  --              170,000                  --              460,000
    Loan servicing fees net of
         guarantor fees ..........................               7,351              213,793              35,518              641,594
    Loan origination fees ........................             619,075              151,421           1,230,569              383,144
    Interest income ..............................              94,997              118,208             302,199              279,066
    Investment (loss) income .....................             (64,049)              60,547             127,545              691,857
    Gain on disposal of
         servicing rights ........................             126,281                   --             126,281                   --
    Other income .................................               9,514              226,132              11,939              263,589
                                                           -----------          -----------         -----------          -----------

         Total Revenues ..........................             902,634            1,077,389           2,364,261            4,636,410
                                                           -----------          -----------         -----------          -----------


Expenses:
    Compensation and related costs ...............           1,057,995              604,401           2,790,988            1,941,447
    Occupancy cost ...............................              95,167               96,930             281,126              320,182
    Amortization of mortgage
         servicing rights ........................               1,847               97,594               4,521              295,763
    General and administrative ...................             399,905              189,474             989,632              584,924
    Professional fees and
         litigation expenses .....................              55,210               19,929             135,780              137,127
    Interest .....................................              42,979                1,160             107,767                5,106
                                                           -----------          -----------         -----------          -----------

         Total Expenses ..........................           1,653,103            1,009,488           4,309,814            3,284,549
                                                           -----------          -----------         -----------          -----------

(Loss) profit before taxes .......................            (750,469)              67,901          (1,945,553)           1,351,861

Income tax (benefit) .............................             (22,638)               1,800              (1,319)              62,022
                                                           -----------          -----------         -----------          -----------

NET (LOSS) PROFIT ................................         $  (727,831)         $    66,101         $(1,944,234)         $ 1,289,839
                                                           ===========          ===========         ===========          ===========
Net (loss) profit
    per common share .............................         $      (.13)         $       .01         $      (.35)         $       .22
                                                           ===========          ===========         ===========          ===========
Weighted average number of
    common shares outstanding ....................           5,544,174            5,808,254           5,545,452            5,906,025
                                                           ===========          ===========         ===========          ===========


                                  See Notes to Condensed Consolidated Financial Statements (Unaudited).

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                         HELMSTAR GROUP, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (Unaudited)


                                                                  Nine Months Ended
                                                                     September 30     
                                                            --------------------------                              
                                                                 1996           1995
                                                            -----------    -----------
<S>                                                         <C>            <C>
Cash flows from operating activities:
  Net income (loss) .....................................   $(1,944,234)   $ 1,289,839
  Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
    Depreciation and amortization .......................        73,007        367,270
    Unrealized (gain) on joint ventures
     and other investments ..............................      (330,210)      (623,111)
    (Gain) on sale or disposal of investments ...........      (200,000)    (1,276,267)
    (Gain) on sale of mortgage loans held for sale ......      (126,281)
    Loss on sale of fixed assets ........................                        1,912
    Changes in operating assets and liabilities:
     (Increase) in mortgage loans held for sale .........    (2,794,564)    (1,721,203)
     (Increase) in due for mortgage loans sold ..........       (17,031)      (100,895)
     Decrease in other assets ...........................       990,929         24,208
     (Decrease) in accrued expenses .....................      (525,873)      (399,231)
                                                            -----------    -----------

Net cash (used in) operating activities .................    (4,874,257)    (2,437,478)
                                                            -----------    -----------

Cash flows from investing activities:
 (Purchase) of investment securities - net:
    U.S. Government obligations .........................    (3,798,479)      (381,976)
  Distributions from joint ventures and other investments       163,677      2,445,996
  Purchase of mortgage servicing rights .................                      (78,423)
  Proceeds from the settlement or sale of joint ventures        200,000      1,681,622
  Proceeds from the sale or disposal of fixed assets ....       168,646          8,752
  Purchase of fixed assets ..............................      (116,140)       (17,522)
                                                            -----------    -----------

Net cash (used in) provided by investing activities .....    (3,382,296)     3,658,449
                                                            -----------    -----------

Cash flows from financing activities:
  Proceeds (repayment) of short term borrowings - net: ..     8,146,690       (379,479)
  Purchase of treasury stock ............................        (1,729)      (384,787)
                                                            -----------    -----------

Net cash provided by (used in) financing activities .....     8,144,961       (764,266)
                                                            -----------    -----------
<PAGE>
<CAPTION>
                         HELMSTAR GROUP, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (Unaudited)
                                      (CONTINUED)  


                                                                  Nine Months Ended
                                                                     September 30     
                                                            --------------------------                              
                                                                 1996           1995
                                                            -----------    -----------
<S>                                                         <C>            <C>

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ....      (111,592)       456,705
Cash and cash equivalents at beginning of period ........     1,358,730        739,624
                                                            -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ..............   $ 1,247,138    $ 1,196,329
                                                            ===========    ===========

Supplemental  disclosures of cash flow information:
 Cash paid during the period for:
    Interest ............................................   $   107,767    $     5,106
    Taxes ...............................................        16,415         10,693
  Non-cash increase in value of assets available for sale                      355,635

         See Notes to Condensed Consolidated Financial Statements (Unaudited). 

</TABLE>
<PAGE>
                      HELMSTAR GROUP, INC. AND SUBSIDIARIES
                                      NOTES
                 TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



l.       SIGNIFICANT ACCOUNTING POLICIES

         The  accounting  policies  followed by the Company are set forth in the
notes to the Company's financial statements included in its Form 10-KSB, for the
fiscal year ended  December 3l, 1995,  which was filed with the  Securities  and
Exchange Commission (the "SEC").

2.       JOINT VENTURES

         In  June  1996,  the  Company  received  $200,000  in  connection  with
Stoneledge Associates, a general partnership.  The partnership was developing an
industrial/warehouse  business park. In 1991, the construction  loan matured and
the partnership was not successful in negotiating an extension of such loan. The
lender  completed its  foreclosure  in 1992. In 1991,  the Company had created a
loss provision equal to the full carrying  amount of the  partnership  interest.
The amount received in June 1996 was from certain individuals who had guaranteed
the obligations of the other partner in Stoneledge  Associates.  Such amount was
paid in satisfaction of the other partner's existing obligations to the Company.
Since the Company had created a loss provision  equal to its entire  investment,
the $200,000 receipt constitutes income.

         On February 22, 1995,  First  Highpoint  Limited  Partnership  sold its
principal asset, an apartment project located in Plano, Texas. Subsequently, the
partnership was dissolved.

         On  April  11,  1995,  Blowing  Rock  Outlet  Partners  refinanced  its
principal  asset, a  manufacturers  outlet shopping  center,  located in Blowing
Rock, North Carolina.  The Company's share of the proceeds distributed after the
refinancing  was in excess of the carrying  amount of the Company's  interest in
such venture prior to the distribution.
<PAGE>
                      HELMSTAR GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



2.  JOINT VENTURES (continued)

         Summary combined  operating  results of the joint ventures in which the
Company is a co-venturer are as follows:
<TABLE>
<CAPTION>
                                                         Three Months Ended 
                                                            September 30,
                                                     --------------------------
                                                        1996             1995 
                                                     ---------        ---------
<S>                                                  <C>              <C>
Rental income ................................       $ 564,682        $ 531,957
Operating expenses ...........................          42,539           40,196
                                                     ---------        ---------

Net operating income .........................         522,143          491,761
Other income (expense) .......................        (370,428)        (399,201)
                                                     ---------        ---------

Net income ...................................       $ 151,715        $  92,560
                                                     =========        =========

Company's share of profit
   from joint ventures .......................       $ 109,465        $  81,380

Gain from receiving cash
   distributions in excess of
   the book value of the Company's
   interest in a joint venture ...............               _           55,908
                                                     ---------        ---------

Profit from joint ventures ...................       $ 109,465        $ 137,288
                                                     =========        =========

</TABLE>
<PAGE>
                                  HELMSTAR GROUP, INC. AND SUBSIDIARIES
                           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                               (Unaudited)



2.  JOINT VENTURES (continued)
<TABLE>
<CAPTION>
                                                          Nine Months Ended 
                                                            September 30,
                                                   -----------------------------
                                                       1996             1995 
                                                   -----------      -----------
<S>                                                <C>              <C>            
Rental income ................................     $ 1,700,747      $ 1,842,590
Operating expenses ...........................        (132,010)        (217,449)
                                                   -----------      -----------

Net operating income .........................       1,568,737        1,625,141 
Other income (expense) .......................      (1,107,626)      (1,153,879)
                                                   -----------      -----------

Net income ...................................     $   461,111      $   471,262
                                                   ===========      ===========

Company's share of profit
   from joint ventures .......................     $   330,210      $   343,300

Receipt from the guarantors of a
   co-venturer's  obligations in
   connection  with  the development
   of a project which had been sold at
   a foreclosure sale in 1992 ................         200,000             --

Company's share of gain on sale
   of an apartment project ...................              --        1,264,773

Gain from receiving cash
   distributions in excess of
   the book value of the Company's
   interest in a joint venture ...............              --          309,087
                                                   -----------      -----------

Profit from joint ventures ...................     $   530,210      $ 1,917,160
                                                   ===========      ===========
</TABLE>
<PAGE>
                      HELMSTAR GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



2.  JOINT VENTURES (continued)


    Pro forma summary combined  operating results of the joint ventures in which
the Company is a co-venturer, excluding First Highpoint Limited Partnership, are
as follows:

<TABLE>
<CAPTION>
                                                         Three Months Ended 
                                                            September 30,
                                                   -----------------------------
                                                      1996               1995 
                                                   ---------          ---------
<S>                                                <C>                <C>
Rental income ............................         $ 564,682          $ 531,957
Operating expenses .......................           (42,539)           (40,196)
                                                   ---------          ---------

Net operating income .....................           522,143            491,761
Other income (expense) ...................          (370,428)          (399,201)
                                                   ---------          ---------
Net income ...............................         $ 151,715          $  92,560
                                                   =========          =========

Company's share of profit
   from joint ventures ...................         $ 109,465          $  81,380
                                                   =========          =========

</TABLE>
<TABLE>
<CAPTION>
                                                        Nine Months Ended 
                                                           September 30,
                                                --------------------------------
                                                    1996                1995 
                                                -----------         ------------
<S>                                             <C>                 <C>
Rental income ..........................        $ 1,700,747         $ 1,653,165
Operating expenses .....................           (132,010)           (110,980)
                                                -----------         -----------

Net operating income ...................          1,568,737           1,542,185
Other income (expense) .................         (1,107,626)         (1,082,416)
                                                -----------         -----------
Net income .............................        $   461,111         $   459,769
                                                ===========         ===========

Company's share of profit
   from joint ventures .................        $   330,210         $   331,807
                                                ===========         ===========

</TABLE>
<PAGE>
                      HELMSTAR GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



3.       INCOME (LOSS) PER SHARE

         Income  (loss)  per share is  computed  based on the  weighted  average
number of common shares outstanding during each period. Common share equivalents
relating to the Company's  incentive  compensation  plan have been excluded from
the  computation  for the three months and nine months ended  September 30, 1996
because the effect of their inclusion would be antidilutive.

4.       LITIGATION

         The Company is a defendant in various  lawsuits.  In those instances in
which  liability  can  be  estimated,  provisions  have  been  reflected  in the
financial  statements.  The ultimate  outcome of the remaining  lawsuits  cannot
presently be determined,  and no provision for any liability that may result has
been made in the  financial  statements,  since the amounts,  if any,  cannot be
determined.

         There were no  significant  changes in the status of litigation  during
the three months ended September 30, 1996.
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         In May 1995,  the Company  began a new business of  arranging  viatical
settlements.  A viatical settlement is the payment of a discounted death benefit
on an insurance  policy to the insured  while the insured is still  living.  The
insured transfers  ownership of the policy to the entity that makes the payment.
The insured must be critically ill, i.e., have a life threatening disease with a
limited life  expectancy.  The Company would receive a fee from the purchaser of
the life insurance policy.  Historically,  many critically ill persons who chose
to enter into viatical  settlements had AIDS.  Considering the  breakthroughs in
life  extending  medication  now  available  to AIDS  patients,  the Company has
decided to curtail this line of business  and is  currently  seeking a marketing
arrangement with some outside party.

         The  Company  has  undertaken  a cost  containment  program at Citizens
Mortgage Service Company ("Citizens"),  in conjunction with its loan origination
operations.  The program  includes  reevaluating  the  procedures for processing
loans to  increase  efficiency  and to  reduce  the cost  per  loan,  as well as
revising  product  pricing  criteria  and product  offerings to return a greater
gross profit per loan.  Cost  reductions may be  accomplished  by  consolidating
functions,  requiring loan  originators to more  efficiently  present loans, and
possibly by adjusting the staffing levels of certain  departments.  By adjusting
the pricing  criteria  of loans to better  reflect  the cost of  producing  that
particular  loan type, the Company hopes to increase gross profits and to adjust
its product  offering to take better  advantage of niche  market  opportunities.
While this  pricing  method may result in a slight  decline in loan  origination
volume,  it is  anticipated  that the greater  profits per loan,  combined  with
reduced costs, would increase  profitability.  In addition,  the Company will be
increasing  the  resources  available to the  non-conforming  market,  which has
higher profit margins than the traditional conforming credit market.

A.       Three Months Ended  September 30, 1996 Compared with Three Months Ended
         September 30, 1995

         Total  revenues  decreased  to  $902,634  for the  three  months  ended
September  30, 1996 from  $1,077,389  for the three months ended  September  30,
1995.

         Profit from joint  ventures  decreased to $109,465 for the three months
ended  September 30, 1996 from $137,288 for the three months ended September 30,
1995. 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  decline  is   attributable  to  the  reduction  in  the  Company's
percentage  share of income in the Blowing Rock venture.  The Company's share of
income  and  cash  declined,  in  accordance  with  Blowing  Rock's  partnership
agreement,  following the Company's  receipt of a distribution  from refinancing
proceeds in excess of its capital contribution during 1995.

         At the  partnership  level,  rental  income  increased  slightly  while
operating  expenses  remained  constant for the three months ended September 30,
1996 as compared to the three months ended  September  30, 1995,  resulting in a
small increase in profit.
<PAGE>
         Although  operating  results  should  improve as a result of  increased
rents, some variation in profit or loss for a specific interim period may result
due to such factors as receiving annual payments of percentage  rent;  incurring
periodic  operating  expenses which will occur every few years, such as painting
the entire project;  accounting  adjustments between interim periods;  lost rent
due to the  turnover  of a tenant  notwithstanding  that a new  tenant  has been
secured at a higher rent; etc.

         The Company did not realize any financial consulting fees for the three
months ended  September 30, 1996 compared to $170,000 for the three months ended
September 30, 1995. Although providing  financial  structuring advice to clients
on a fee basis remains an integral  component of the Company's  merchant banking
business,   significant  variations  in  revenues  are  likely  because  of  the
transactional  nature of this business.  Typically,  an engagement is based on a
specific assignment to assist a client to lower its cost of capital. The Company
currently  is engaged in advising  clients with  respect to the  structuring  of
transactions which are expected to generate fees later in 1996, or early 1997.

         Loan  servicing  fees  decreased  to $7,351 for the three  months ended
September 30, 1996  compared with $213,793 for the three months ended  September
30,  1995.  The decrease is the result of the sale of  substantially  all of the
Company's mortgage  servicing  portfolio in December 1995 for approximately $2.3
million. The balance of the mortgage servicing portfolio was sold in the quarter
just ended for approximately $170,000. The Company has repositioned its mortgage
banking operation to originate residential mortgage loans and sell the servicing
rights to other mortgage banking companies.

         Loan  origination fees increased to $619,075 for the three months ended
September 30, 1996 from $151,421 for the three months ended  September 30, 1995,
as a result of the increased  origination  volume.  This category  includes fees
earned in connection  with the  origination  of mortgage loans and the profit or
loss from sales of mortgage  loans to permanent  investors.  The increase is the
result of the Company's expanded loan origination efforts.

         Interest  income  decreased  to  $94,997  for the  three  months  ended
September 30, 1996 from $118,208 for the three months ended  September 30, 1995,
due in part to the large decline in interest earning escrow deposits,  resulting
from the sale of substantially all of the Company's mortgage servicing portfolio
in December  1995 and the balance of the  portfolio  during the third quarter of
1996. This decline was somewhat mitigated by increased earnings in the Company's
hedging activities.

         Investment income decreased  dramatically to a negative $64,049 for the
three  months ended  September  30, 1996 from $60,547 for the three months ended
September  30, 1995.  This category  principally  consists of net profit or loss
from hedging and investing in futures,  puts, calls,  equities,  U.S. government
securities,  municipal securities, and other securities activities. Large swings
can occur due to volatility in the financial markets.

         Gain on the sale of  mortgage  servicing  rights was  $126,281  for the
three months ended September 30, 1996 compared to nil for the three months ended
September 30, 1995. The Company sold substantially all of its mortgage servicing
in  December  1995  for  approximately  $2.3  million,  realizing  a  profit  of
approximately  $380,000;  the  balance  was sold in the third  quarter  1996 for
approximately  $170,000.  The Company has exited the mortgage servicing business
as a separate activity.
<PAGE>
         Other income  declined to $9,514 for the three  months ended  September
30, 1996 from $226,132 for the three months ended September 30, 1995. During the
third  quarter  of 1995,  the  Company  received  payment  of an item  which was
previously considered uncollectible.  This category also consists of sundry fees
and revenues earned in connection with the Company's  mortgage  banking business
other than servicing or origination fees.

         Total  expenses  increased  to  $1,653,103  for the three  months ended
September  30, 1996 from  $1,009,488  for the three months ended  September  30,
1995.

         Compensation  and related costs  increased to $1,057,995  for the three
months  ended  September  30,  1996 from  $604,401  for the three  months  ended
September 30, 1995. This increase  principally was  attributable to the addition
of professional  staff;  higher commission expense for mortgage loan originators
as a result of the increased  volume of  originations;  and additional  salaried
employees in the mortgage loan  origination  area to support the higher level of
production.  Increased  compensation in mortgage loan originations partially was
offset by salary savings from a reduction in mortgage  servicing  personnel as a
result of the sale of  substantially  all of the  Company's  mortgage  servicing
portfolio.

         Occupancy  costs  decreased  to  $95,167  for the  three  months  ended
September 30, 1996 from $96,930 for the three months ended September 30, 1995.

         Amortization of mortgage  servicing  rights decreased to $1,847 for the
three  months ended  September  30, 1996 from $97,594 for the three months ended
September  30, 1995,  as the result of the sale of the majority of the servicing
portfolio in December 1995 and the sale of the  remaining  portfolio in July and
August 1996.

         General and administrative expenses increased to $399,905 for the three
months  ended  September  30,  1996 from  $189,474  for the three  months  ended
September 30, 1995.  This increase  reflects  higher  mortgage loan  origination
activity;  bad debt  reserves in  connection  with the  mortgage  activity;  and
expenses related to the Company's viatical settlements business.

         Professional  fees  increased  to $55,210  for the three  months  ended
September  30, 1996 from $19,929 for the three months ended  September 30, 1995.
This increase is principally  due to consulting  expenses  incurred in upgrading
the Company's computer facilities.

         Interest  expense was $42,979 for the three months ended  September 30,
1996  compared with $1,160 for the three months ended  September 30, 1995.  This
increase was due in part to greater use of the  Company's  credit  facilities to
fund mortgage loans held for sale.  Additionally,  the Company incurred interest
expense in connection with its hedging and investing activities.

         On a pre-tax  basis,  the Company had a loss of $750,469  for the three
months ended  September 30, 1996 compared with a profit of $67,901 for the three
months ended September 30, 1995. Provision for income taxes for the three months
ended  September 30, 1996 was a benefit of $22,638  compared with a provision of
$1,800 for the three months ended September 30, 1995. These  provisions  consist
solely of state and local taxes. For Federal income tax purposes, as of December
31, 1995,  the Company had net operating  loss  carryforwards  of  approximately
$10,211,000  available to reduce  future  taxable  income.  These  carryforwards
expire in the years 2006 through 2009.
<PAGE>
         The  Company's  net loss for the three months ended  September 30, 1996
was  $727,831  compared  with net income of $66,101 for the three  months  ended
September 30, 1995. On a per share basis,  the net loss was $(.13) for the three
months ended September 30, 1996,  compared with net income of $.01 for the three
months ended  September  30,  1995.  Income per share for the three months ended
September 30, 1995 was computed  based on the weighted  average number of common
shares actually  outstanding plus the shares that would be outstanding  assuming
the exercise of stock options relating to the Company's  incentive  compensation
plan which are considered to be common stock  equivalents.  The assumed exercise
of stock options relating to the Company's incentive  compensation plan were not
included in the  computation  of the loss per share for the three  months  ended
September 30, 1996, because the effect of their inclusion would be antidilutive.
The  number  of  shares  used in the  computations  were  5,544,174  in 1996 and
5,808,254 in 1995.

         Nine Months Ended  September  30, 1996  Compared with Nine Months Ended
         September 30, 1995

         Total  revenues  decreased  to  $2,364,261  for the nine  months  ended
September 30, 1996 from $4,636,410 for the nine months ended September 30, 1995.

         Profit from joint  ventures  decreased  to $530,210 for the nine months
ended September 30, 1996 from $1,917,160 for the nine months ended September 30,
1995. 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.  During the nine months  ended
September  30, 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.  In contrast,
during the nine months ended September 30, 1995,  this category  included a gain
of approximately $1,260,000 from the sale of First Highpoint's apartment project
and  $250,000  as a result of the  Company's  receipt of cash  distributions  in
excess of the book value of its interest in Blowing Rock. In April 1995, Blowing
Rock refinanced its mortgage debt to $6,550,000 from $3,757,828.

         Excluding the effects of Stoneledge,  First Highpoint,  and the Blowing
Rock  refinancing,  the Company's  share of profit from joint ventures  declined
from  $331,807 for the nine months ended  September 30, 1995 to $330,210 for the
nine months ended  September 30, 1996.  The  Company's  share of income and cash
declined, in accordance with Blowing Rock's partnership agreement, following the
Company's receipt of a distribution  from refinancing  proceeds in excess of its
capital contribution.

         Although  operating  results  should  improve as a result of  increased
rents, some variation in profit or loss for a specific interim period may result
due to such factors as receiving annual payments of percentage  rent;  incurring
periodic  operating  expenses which will occur every few years, such as painting
the entire project;  accounting  adjustments between interim periods;  lost rent
due to the  turnover  of a tenant  notwithstanding  that a new  tenant  has been
secured at a higher rent; etc.
<PAGE>
         The Company did not realize any financial  consulting fees for the nine
months ended  September  30, 1996 compared to $460,000 for the nine months ended
September 30, 1995. Although providing  financial  structuring advice to clients
on a fee basis remains an integral  component of the Company's  merchant banking
business,   significant  variations  in  revenues  are  likely  because  of  the
transactional  nature of this business.  Typically,  an engagement is based on a
specific assignment to assist a client to lower its cost of capital. The Company
currently  is engaged in advising  clients with  respect to the  structuring  of
transactions which are expected to generate fees later in 1996, or early 1997.

         Loan  servicing  fees  decreased  to $35,518 for the nine months  ended
September 30, 1996 from  $641,594 for the nine months ended  September 30, 1995.
The  decrease is the result of the sale of  substantially  all of the  Company's
mortgage servicing portfolio in December 1995 for approximate $2.3 million.  The
balance of the mortgage  servicing  portfolio was sold in the third quarter just
ended for  approximately  $170,000.  The Company has  repositioned  its mortgage
banking operation to originate residential mortgage loans and sell the servicing
rights to other mortgage banking companies.

         Loan origination fees increased to $1,230,569 for the nine months ended
September 30, 1996 from  $383,144 for the nine months ended  September 30, 1995.
This increase is the result of the expanded loan origination efforts.

         Interest  income  increased  to  $302,199  for the  nine  months  ended
September 30, 1996 from  $279,066 for the nine months ended  September 30, 1995,
due in  large  part to  interest  earned  on  securities  held in its  investing
activity.

         Investment  income  decreased  to $127,545  for the nine  months  ended
September 30, 1996 from  $691,857 for the nine months ended  September 30, 1995.
This  category  primarily  consists  of:  net  profit or loss from  hedging  and
investing  in  futures,  puts,  calls,  equities,  U.S.  government  securities,
municipal securities and other securities activities.

         Gain on the sale of mortgage servicing rights was $126,281 for the nine
months  ended  September  30, 1996  compared  to nil for the nine  months  ended
September 30, 1995. The Company sold substantially all of its mortgage servicing
in  December  1995  for  approximately  $2.3  million,  realizing  a  profit  of
approximately  $380,000;  the balance was sold in the third  quarter of 1996 for
approximately  $170,000.  The Company has exited the mortgage servicing business
as a separate activity.

         Other income  decreased to $11,939 for the nine months ended  September
30, 1996 from $263,589 for the nine months ended September 30, 1995.  During the
third  quarter  of 1995,  the  Company  received  payment  of an item  which was
previously considered uncollectible.  This category also consists of sundry fees
and revenues earned in connection with the Company's  mortgage  banking business
other than loan servicing and origination fees.

         Total  expenses  increased  to  $4,309,814  for the nine  months  ended
September 30, 1996 from $3,284,549 for the nine months ended September 30, 1995.

         Compensation  and related costs  increased to  $2,790,988  for the nine
months  ended  September  30, 1996 from  $1,941,447  for the nine  months  ended
September 30, 1995.  The increase is due  principally  to the higher  commission
payments  to loan  originators  as a result  of an  increase  in  mortgage  loan
originations  and the hiring of  additional  support  staff to process and close
loans.
<PAGE>
         Occupancy  costs  decreased  to  $281,126  for the  nine  months  ended
September 30, 1996 from  $320,182 for the nine months ended  September 30, 1995.
Effective  March 1, 1996, the Company entered into a new lease for its executive
offices at a  significantly  lower  rent.  This was the  primary  reason for the
substantial decrease in rent expense for the period.

         Amortization of mortgage  servicing  rights decreased to $4,521 for the
nine months  ended  September  30, 1996 from  $295,763 for the nine months ended
September  30, 1995 as the result of the sale of the  majority  of the  mortgage
servicing portfolio in December 1995, and the sale of the remaining portfolio in
July and August 1996.

         General and administrative  expenses increased to $989,632 for the nine
months  ended  September  30,  1996  from  $584,924  for the nine  months  ended
September 30, 1995.  This increase  reflects  higher  mortgage loan  origination
activity;  bad debt  reserve  in  connection  with the  mortgage  activity;  and
expenses related to the Company's viatical settlements business.

         Professional  fees  decreased  to $135,780  for the nine  months  ended
September 30, 1996 from $137,127 for the nine months ended September 30, 1995.

         Interest  expense  increased  to  $107,767  for the nine  months  ended
September 30, 1996 from $5,106 for the nine months ended September 30, 1995. The
increase  in interest  expense  was due in part to greater use of the  Company's
credit  facilities  to fund  mortgage  loans  held for sale.  Additionally,  the
Company  incurred  interest expense in connection with its hedging and investing
activities.

         On a pre-tax  basis,  the Company had a loss of $1,945,553 for the nine
months ended  September 30, 1996  compared  with a profit of $1,351,861  for the
nine months ended  September 30, 1995. The benefit for income taxes for the nine
months ended  September 30, 1996 was $1,319 compared with a provision of $62,022
for the nine months ended September 30, 1995. These provisions consist solely of
state and local taxes. For Federal income tax purposes, as of December 31, 1995,
the Company  has net  operating  loss  carryforwards  aggregating  approximately
$10,211,000  available to reduce  future  taxable  income.  These  carryforwards
expire in the years 2006 through 2009.

         The Company's net loss for the nine months ended September 30, 1996 was
$1,944,234  compared with a net profit of  $1,289,839  for the nine months ended
September 30, 1995.  On a per share basis,  the net loss was $(.35) for the nine
months ended September 30, 1996, compared with a net profit of $.22 for the nine
months  ended  September  30,  1995.  Income per share for the nine months ended
September  1995 was  computed  based on the  weighted  number of  common  shares
actually  outstanding  plus the shares that would be  outstanding  assuming  the
exercise of stock options relating to the Company's incentive  compensation plan
which are  considered to be common stock  equivalents.  The assumed  exercise of
stock options  relating to the Company's  incentive  compensation  plan were not
included  in the  computation  of the loss per share for the nine  months  ended
September 30, 1996, because the effect of their inclusion would be antidilutive.
The number of shares used in  computations  were 5,545,452 in 1996 and 5,906,025
in 1995.
<PAGE>
B.      Liquidity and Capital Resources

         Management  of  the  Company   believes  that  funds   generated   from
operations,   its  credit   facility,   warehouse  line  of  credit,   and  cash
distributions  from joint  ventures,  supplemented  by its available  assets and
hedging  activities,  will  provide  it with  sufficient  resources  to meet all
present and reasonably  foreseeable future capital needs. A significant  portion
of the Company's assets are readily convertible into cash.

         The Company  invests  excess  funds in liquid,  short-  term  financial
instruments  to  preserve  the  ability to move  quickly  in funding  attractive
merchant banking ventures.  Such investments  primarily include U.S.  Government
obligations,  municipal securities,  futures contracts,  and money market funds.
Additionally,  since  commencing  the mortgage loan  origination  business,  the
Company  may use its own cash to carry a portion of its  inventory  of  mortgage
loans originated for resale. Typically,  prior to funding any loans, the Company
procures firm commitments from investors to purchase such loans. Fifteen days is
the usual time between  funding a mortgage  loan and  receiving  payment from an
investor.  The Company utilizes hedging strategies to minimize the interest rate
risk  associated  with: (1) its mortgage loan  origination  activities;  (2) its
share of income and cash flow from the real  estate  joint  venture  which has a
variable rate loan; and (3) its ownership of fixed rate financial instruments.

         The  Company's  primary  financing  needs are in its  mortgage  banking
activities.  In  addition  to its own cash  resources,  the  Company  meets  its
mortgage funding  requirements by borrowing the necessary  amounts either from a
$2.25 million  "credit  facility"  maintained with a savings bank or from one of
two $5 million  mortgage  warehouse lines of credit with two mortgage  warehouse
lenders. One $5 million line was opened in June 1996, and the other in September
1996.

         Under  the  terms of these  mortgage  warehouse  lines of  credit,  the
Company  can draw down up to 98% of the face  amount of an  individual  mortgage
loan.  Borrowings under these facilities are repaid from the purchase price paid
by the investor who had committed to purchase the loan.

         Through  September  30,  1996,  the Company had a separate  $11 million
warehouse  facility  with a  bank  that  participated  in a  mortgage  warehouse
facility  sponsored by the Federal Home Loan Bank of  Pittsburgh.  On August 29,
1996, the bank notified the Company that it was withdrawing its participation in
this  program.  Other  lenders  were  available,  but the  Company  opted not to
participate in the program any longer. This warehouse facility was replaced with
the latter mortgage warehouse line of credit mentioned above.

         The mortgage  warehouse lines of credit now utilized by the Company are
to fund loans from the time of settlement with the homeowner  through payment by
the investor.  In the past, the warehouse  facility used in conjunction with the
participation  in the Federal  Home Loan Bank program was  replenished  from the
purchase price paid by the investor who had committed to purchase such loan.

         In  connection  with its  interests  in real  estate,  the Company uses
separate  subsidiaries for each venture.  The Company utilizes the equity method
of accounting for its interests in real estate joint ventures.  Accordingly, the
assets and  liabilities  of such  ventures  are not  included  in the  Company's
consolidated balance sheets.
<PAGE>
         The two  operating  real  estate  projects  in which the  Company  is a
co-venturer  currently  have strong  occupancies  and positive  cash flow.  Cash
maintained by each  partnership,  supplemented  with cash flow from  operations,
should be sufficient to cover all operating costs and debt service  requirements
of  each  venture.  Additional  cash  contributions  from  the  Company  or  its
co-venturers  would not be  necessary.  Facts and  circumstances,  however,  are
subject to change for reasons  beyond the  Company's  control.  Based on current
estimates,  the Company expects to continue to receive cash  distributions  from
its real estate joint ventures during 1996.

         In April 1993, one of the Company's real estate joint ventures  entered
into a modification  agreement  with the lender  holding the venture's  mortgage
loan. The lender converted the loan from a short-term, variable rate loan into a
four-year,  fixed rate loan.  Interest  is payable at 8.5% per annum and regular
principal   amortization  is  determined  on  a  15-year  schedule.   Additional
amortization payments equal to 50% of "excess cash flow" also are required.  The
loan matures on April 1, 1997. The  partnership is currently  exploring  various
refinancing options.

         In April 1995, the Company's other real estate joint venture refinanced
the mortgage loan on its project.  The interest rate equals Citibank's six-month
LIBOR rate plus 3.10% and resets each September and March.  The maximum interest
rate is 13.5375%.  Principal amortization is based on a 25-year schedule and the
loan matures on May 1, 2002. The current interest rate through February 28, 1997
is 8.85%.

         The carrying amounts  reflected on the Company's  consolidated  balance
sheet for its joint  venture  interests is  determined  in  accordance  with the
equity method of accounting.  Such carrying amounts may not be representative of
the  realizable  value  on a sale of those  interests.  Management  reviews  the
carrying amount of each venture to determine if an adjustment for any impairment
other than a temporary decline is required. If management believes in good faith
that any  impairment is other than  temporary,  a loss  provision  equal to such
amount will be included in the Company's consolidated statement of operations.

         Cash  distributions  from joint  ventures  are  reflected  in investing
activities  in the  Company's  consolidated  statements  of cash  flows.  Equity
contributions  to joint  ventures as well as any advances to joint ventures also
are reflected in investing activities in the Company's  consolidated  statements
of cash flows.

         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,  mortgage  banking or other  activities  in the
future.  The  Company  does  not  have  any  material  commitments  for  capital
expenditures as of September 30, 1996.

         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.
<PAGE>
                                     PART II

                                OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K.

         (a)  Exhibits:  A  statement  regarding  the  computation  of per share
         earnings is omitted  because the  computation is described in Note 3 of
         the Notes to Condensed Consolidated Financial Statements (Unaudited) of
         this Form 10-QSB.

         Exhibit 27 - Financial Data Schedule -- See below.

         (b)  Reports on Form 8-K:

         --The  Company  did not file any  reports  on Form 8-K during the three
         months ended September 30, 1996.

<PAGE>
                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                             HELMSTAR GROUP, INC.



                                             /s/ George W. Benoit 
                                             --------------------
Date: November 14, 1996                      George W. Benoit 
                                             Chairman of the Board of Directors,
                                             President, Chief Executive Officer




                                             /s/ Roger J. Burns   
                                             ------------------
Date: November 14, 1996                      Roger J. Burns 
                                             First Vice President,
                                             Chief Financial Officer