UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28168
Strategic Capital Resources, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 11-3289981
(State or other jurisdiction (I.R.S. Identification number)
of incorporation or organization)
2500 Military Trail North, Suite 260, Boca Raton, Florida 33431
(Address of principal executive offices)
(561)995-0043
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 { }
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of
common stock, par value $.001 per share, outstanding as of November 13, 2000
was 15,491,725.
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Condensed Consolidated Balance Sheets as of 3
September 30, 2000 (unaudited) and June 30, 2000.
Condensed Consolidated Statements of Operations 4
for the three months ended September 30, 2000,
and the three months ended September 30, 1999
(unaudited)
Condensed Consolidated Statements of Cash Flows 5
for the three months ended September 30, 2000,
and the three months ended September 30, 1999
(unaudited)
Notes to Condensed Consolidated Financial Statements 6-7
(unaudited)
Item 2. Management's Discussion and Analysis of Financial 8-13
Condition and Results of Operations.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
ASSETS 2000 2000
----------- -----------
Revenue producing assets:
Model homes on lease, at cost, net of accumulated
depreciation of $0 on September 30, 2000 and
$16,645 on June 30, 2000 $43,278,739 $42,008,875
Residential real estate on lease 20,546,010 -
Multi-family residential properties 10,227,999 10,227,999
----------- -----------
Total revenue producing assets 74,052,748 52,236,874
----------- -----------
Other assets:
Cash 1,143,723 1,451,548
Net assets realizable on divestiture 1,000,000 1,000,000
Note receivable 650,000 650,000
Deferred charges 604,066 445,810
Other 387,574 345,207
----------- -----------
Total other assets 3,785,363 3,892,565
----------- -----------
Total assets $77,838,111 $56,129,439
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable $66,367,616 $45,399,792
Stockholder loans 1,391,920 1,141,920
Accounts payable & accrued expenses 1,164,391 834,869
Unearned rental revenue 384,393 356,855
Preferred distribution payable 10,000 -
----------- -----------
Total liabilities 69,318,320 47,733,436
----------- -----------
Stockholders' equity:
Convertible preferred stock, $.01 par value
5,000,000 shares authorized
400,000 shares issued and outstanding 4,000 4,000
Common stock, $.001 par value
25,000,000 shares authorized and 17,012,005 issued
15,566,725 shares outstanding at September 30, 2000 17,012 -
15,661,725 shares outstanding at June 30, 2000 - 17,012
Additional paid-in capital 8,346,552 8,346,552
Less treasury stock at cost, 1,445,280 and
1,350,280 shares respectively at
September 30, 2000 and June 30, 2000 (356,766) (343,176)
Retained earnings 508,993 371,615
----------- -----------
Total stockholders' equity 8,519,791 8,396,003
----------- -----------
Total liabilities and stockholders' equity $77,838,111 $56,129,439
=========== ===========
See accompanying notes.
(3)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2000 and September 30, 1999
(Unaudited)
Three Months Ended
September 30,
2000 1999
---------- ----------
Revenues:
Model home lease revenue $1,369,864 $ 937,701
Sale of model homes 7,080,069 7,786,215
Residential real estate
lease revenue 238,599 -
Multi-family residential 344,553 322,612
Other income 28,583 109,068
---------- ----------
Total revenues 9,061,668 9,155,596
---------- ----------
Costs and expenses:
Interest and financing costs 1,308,122 729,712
Cost of model homes sold 6,903,874 7,713,126
Multi-family residential 90,361 87,699
Depreciation & amortization 178,898 122,274
Corporate 341,035 335,755
---------- ----------
Total operating expenses 8,822,290 8,988,566
---------- ----------
Income before income taxes 239,378 167,030
Deferred income tax expense 72,000 49,000
---------- ----------
Net income 167,378 118,030
Preferred stock distribution 30,000 30,000
---------- ----------
Income applicable to
common shareholders $ 137,378 $ 88,030
========== ==========
Net income per share
Basic $ 0.01 $ 0.01
Diluted $ 0.01 $ 0.00
Weighted average number of shares
Basic 15,621,345 15,903,870
Diluted 16,791,853 18,978,851
See accompanying notes.
(4)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 2000 and September 30, 1999
(Unaudited)
Three Months Ended
September 30,
2000 1999
----------- ----------
Net income $ 167,378 $ 118,030
----------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization expense 173,661 112,440
Depreciation expense 5,237 9,835
Gain on sale of model homes (176,195) (73,089)
Changes in assets and liabilities:
Increase in miscellaneous assets (34,355) (141,752)
Increase in accounts payable & accrued expenses 294,615 73,621
Increase in unearned rental revenue 27,538 42,200
----------- ----------
Total adjustments 290,501 23,255
----------- ----------
Net cash provided by operating activities 457,879 141,285
----------- ----------
Cash flows from investing activities
Purchase of model homes (482,502) (2,124,640)
Proceeds from sale of model homes 1,048,429 1,343,766
Purchase of residential real estate assets (1,059,742) -
----------- ----------
Net cash use in investing activities (493,815) (780,874)
----------- ----------
Cash flows from financing activities:
Proceeds from mortgages payable - 1,116,858
Principal payments on mortgages payable (169,868) (225,232)
Deferred financing costs (318,431) (106,216)
Proceeds from stockholder loans 250,000 -
Purchase of treasury stock (13,590) -
Preferred distributions (20,000) (30,000)
----------- -----------
Net cash provided by (used in)
financing activities (271,889) 755,410
----------- -----------
Net increase (decrease) in cash (307,825) 115,821
Cash at beginning of period 1,451,548 690,719
----------- -----------
Cash at end of period $1,143,723 $ 806,540
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid - $1,062,339 $ 762,615
See accompanying notes.
(5)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(unaudited)
Note 1. Unaudited Interim Financial Statements
These statements do not contain all information required by generally accepted
accounting principles that are included in a full set of financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of Strategic Capital Resources, Inc. and
subsidiaries collectively called ("the Company") at September 30, 2000 and the
results of its operations and its cash flows for the period then ended and the
period ended September 30, 1999. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes contained in the Company's Form 10-K for the year ended
June 30, 2000. Results of operations for this period are not necessarily
indicative of results to be expected for the full year.
Note 2. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
Three Months Ended
September 30,
2000 1999
--------- ---------
Earnings
Net income $ 167,378 $ 118,030
Dividends on preferred shares 30,000 30,000
--------- ---------
Income applicable to
common shareholders $ 137,378 $ 88,030
========= =========
Basic:
Income applicable to
common shareholders $ 137,378 $ 88,030
Weighted average shares
outstanding during the period 15,621,345 15,903,870
Basic $ 0.01 $ 0.01
Diluted:
Income applicable to
common shareholders $ 137,378 $ 88,030
Weighted average shares
outstanding during the period 15,621,345 15,903,870
Effect of dilutive securities:
Stock Options 235,333 1,089,384
Warrants 935,175 1,985,597
--------- ---------
Diluted weighted common
shares outstanding 16,791,853 18,978,851
Diluted $ 0.01 $ 0.00
(6)
Note 3. Commitments & Contingencies
We make preliminary commitments to acquire revenue producing assets and to
enter into various types of purchase and leaseback transactions as well as
financing arrangements. We disclose these commitments as part of our routine
reporting. Such preliminary commitments are subject to routine changes in
size, dollar amounts, and closing time, prior to finalization. Such changes
arise from a variety of factors, including changes in client needs, economic
conditions, and completion of financing agreements.
Legal Proceedings
Reference is made to our annual report on Form 10-K for fiscal year ended
June 30, 2000.
We are not presently involved in any other material litigation nor, to our
knowledge, is any material litigation threatened against us or our properties,
other than routine litigation arising in the ordinary course of business.
Model home sales contracts
Sales contracts are pending on seven (7) model homes. The aggregate sales
price for the eight homes is $1,322,740, which we originally purchased for
$1,251,419.
Financing Activities
At September 30, 2000, we had approximately $36 million of unused, committed
credit facilities available under existing revolving loan agreements which may
be utilized to acquire revenue producing assets in accordance with the terms
of those agreements.
As a part of our ongoing business, we are in constant discussion with
financial institutions for new credit facilities, as well as private or public
placements of our debt or equity securities. A public offering or private
placement of senior notes with warrants, convertible preferred stock or
similar type of security is currently being evaluated. However as of the date
of this report, we do not have a written commitment from any investment banking
firm or any other entity who has agreed to underwrite either a public or
private offering of our securities. As a result, there can be no assurances
that we will be successful in obtaining additional capital. Failure to obtain
such capital may have a negative impact on our future growth.
It is our policy not to incur costs from activation of credit facilities
unless and until needed.
(7)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
and may be identified by the use of such words as "believe," "expect,"
"anticipate," "should," "planned," "estimated" and "potential." Examples of
forward-looking statements include, but are not limited to, estimates with
respect to our financial condition, results of operations and business that
are subject to various factors which could cause actual results to differ
materially from these estimates. These factors include, but are not limited
to, general economic conditions, changes in interest rates, real estate
values, and competition; changes in accounting principals, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors that may
affect our operations, pricing, products and services.
As used in this Form 10-Q, "we", "us" and "our" refer to Strategic Capital
Resources, Inc. and its consolidated subsidiaries, depending on the context.
OVERVIEW
Strategic Capital Resources, Inc. (the "Company" or "SCRI"), is a Delaware
corporation organized in 1995. The Company's principal operations consist of
the following business lines:
1) The purchase and leaseback of fully furnished model homes.
2) The acquisition, development and sale of residential real estate.
3) The purchase and leaseback of multi-family residential / commercial real
estate.
(8)
A summary of operating results for the three months ended September 30, 2000,
and September 30, 1999 are presented below.
Three Months Ended
September 30, September 30,
-----------------------------------
2000 % 1999 %
---------- ---- ---------- ----
Revenues:
Model home lease revenue $1,369,864 15% $ 937,701 10%
Model home sales 7,080,069 78% 7,786,215 85%
Residential real estate lease revenue 238,599 3% - -
Multi-family residential income 344,553 4% 322,612 4%
Other income 28,583 - 109,068 1%
---------- ---- ---------- ----
Total revenues 9,061,668 100% 9,155,596 100%
---------- ---- ---------- ----
Costs and expenses:
Interest expense 1,308,122 14% 729,712 8%
Cost of model home sales 6,903,874 76% 7,713,126 84%
Multi-family residential expenses 90,361 1% 87,699 1%
Depreciation & amortization 178,898 2% 122,274 1%
Corporate 341,035 4% 335,755 4%
---------- ---- ---------- ----
Total costs and expenses 8,822,290 97% 8,988,566 98%
---------- ---- ---------- ----
Income before income taxes 239,378 3% 167,030 2%
Deferred income tax expense 72,000 1% 49,000 1%
---------- ---- ---------- ----
Net income $ 167,378 2% $ 118,030 1%
========== ==== ========== ====
Results of Operations:
Three Months Ended September 30, 2000 compared to September 30, 1999.
For the period from July 1, 2000 through September 30, 2000, we had revenues
of $9,061,668 of which lease revenues on model homes totaled $1,369,864,
revenues from the sale of model homes were $7,080,069, multi-family
residential income totaled $344,553, and residential real estate lease
revenue totaled $238,599.
Lease revenues increased approximately $432,000 (a 46% increase) during the
three months ended September 30, 2000 as compared to the three months ended
September 30, 1999. Average model homes on lease during the period were
approximately $45.7 million compared to $31.3 million for the three month
period ended September 30, 1999, resulting in the increased revenue.
Revenues from the sale of model homes decreased $.7 million (or 9%) compared
to the prior year period. Our average holding period for model homes from
acquisition to resale has been approximately 18 months. The holding period
for each model home varies depending on the stage of completion of the
communities at the time of acquisition, and the expected completion of each
community from start to finish, which typically ranges from 2 to 7 years.
Revenues from the sale of model homes fluctuate subject to the mix in our
model home portfolio and other economic conditions.
(9)
Net income for the period was $167,378 compared to net income of $118,030 (a
42% increase) for the prior year period. The increase was primarily
attributable to the increase in gains on the sale of model homes compared to
the prior year fiscal period.
Corporate costs increased $5,280 (a 2% increase) from $335,755 for the quarter
ended September 30, 1999 to $341,035 for the quarter ended September 30, 2000.
Corporate costs as a percentage of total revenues was consistent with the
prior year period.
Model Home Sale Leaseback Program
We purchase and leaseback on a "triple net" basis, fully furnished model homes
complete with options and upgrades to major publicly traded homebuilders
and real estate developers.
Since inception, we have purchased a total of 463 model homes at an aggregate
purchase price in excess of $102,000,000. The following is a summary of model
home purchases by year since inception:
Fiscal Units Total
Year Ended Purchased Cost
---------- --------- -----------
6/30/96 61 $11,836,729
6/30/97 75 14,512,772
6/30/98 110 26,170,860
6/30/99 61 16,813,539
6/30/2000 118 25,725,869
6/30/2001 (*) 38 7,834,480
--------- ------------
Total 463 $102,894,249
--------- ------------
(*) Three month period ended September 30, 2000.
The following is a breakdown of model home costs and units by state:
September 30, 2000 September 30, 1999
------------------------- -----------------------
State Units Amount Units Amount
---------------- ------------------------- -----------------------
Arizona 11 $ 1,222,078 19 $ 2,124,640
California 52 13,125,493 - -
Colorado - - 5 1,086,175
Florida 3 836,403 12 2,592,506
Iowa 15 2,622,695 - -
Minnesota 18 4,070,715 1 258,377
Nevada 13 1,667,790 13 1,667,790
New Jersey 36 9,752,795 54 14,851,650
New York 3 883,291 6 2,386,435
North Carolina 7 1,648,741 - -
Pennsylvania 13 3,124,311 18 4,409,042
Texas 18 3,828,330 2 342,430
Utah 3 496,097 5 837,726
------- ------------- ------- ------------
Total 192 $ 43,278,739 135 $ 30,556,771
======= ============= ======= ============
(10)
The following is a breakdown of model home lease revenue by state:
Three Months Ended
September 30,
State 2000 1999
---------------------------------------------
Arizona $ 44,822 $ 708
California 441,064 -
Colorado - 32,585
Florida 27,678 91,483
Iowa 67,682 -
Minnesota 109,056 15,610
Nevada 50,034 35,935
New Jersey 301,086 520,471
New York 33,701 76,655
North Carolina 55,671 5,478
Pennsylvania 107,448 148,503
Texas 116,739 10,273
Utah 14,883 -
---------- ----------
Total $1,369,864 $ 937,701
========== ==========
Acquisition, Development, and Sale of Residential Real Estate
We purchase parcels of residential real estate selected by the homebuilders
from non-affiliated third parties. The parcels are acquired at the lower of
appraised value or contract price. The land may require development or
consist of finished lots. If development work is required, the homebuilder
enters into a fixed price development agreement to develop the land for us,
and is required to provide completion bonds for all work by a surety company
acceptable to us. Reimbursement for development work performed is determined
on a transaction by transactions basis. A lease and exclusive option to
purchase agreement are entered into with the homebuilder simultaneously with
the land acquisition. The terms and conditions of each transaction are project
specific (lease rate, term, option deposit, takedown schedule, etc.). We
obtain various forms of insurance coverage to insure the performance of the
homebuilder as well as the value of the real estate acquired.
Since inception, we have entered into two (2) Acquisition, Development and
Sale agreements.
In September 1996, we purchased 70 acres in Florida at a purchase price of
$8,591,956, to be subdivided into 370 lots for the development of single
family estate homes, zero lot single family homes, townhouses, and villas.
Simultaneous with the acquisition, we entered into a development agreement and
option to purchase agreement with our homebuilder client. On July 3, 1997,
the homebuilder exercised their option and purchased the property for the sum
of $8,591,956.
On August 31, 2000, we acquired two parcels of land in California consisting
of 66 finished lots at a cost of approximately $20,500,000 and simultaneously
leased the property to a major publicly traded homebuilder. We also granted
the homebuilder an exclusive option to purchase the finished lots at prices
ranging from approximately $218,000 to $477,000 per finished lot. We obtained
insurance coverage to insure the performance of the homebuilder as well as the
value of the real estate acquired.
(11)
Multi-family Residential Property / Commercial Sale Leaseback Program
On July 15, 1999 we purchased a 288 unit multi-family residential property in
Jacksonville, Florida for a purchase price of $10,228,000.
Simultaneously, we entered into an operation, maintenance, and management
agreement which provides for payment of a minimum income stream per month.
The agreement also requires the management company to purchase the property at
the end of five years. The performance under the agreement is insured jointly
and severally by two insurance companies rated "AAA" and "BB" respectively by
Standard & Poors.
Liquidity and Capital Resources
General - Our business is capital-intensive requiring constant infusions of
cash as the number, size, and complexity of transactions in which the Company
is involved increases. To date, we have been financed by secured loans from
financial institutions, the sale of equity, loans provided by shareholders,
and cash flows from operations.
Our cash uses during the three months ended September 30, 2000 were for revenue
producing asset acquisitions, operating expenses, and our repurchase of common
stock described below.
Borrowings from financial institutions are pursuant to various secured
revolving and term loan agreements. The following is a summary of new loans
and asset acquisitions during the three months ended September 30, 2000:
New Acquisition
Date Facilities Use of Proceeds Cost
-------- ------------ ------------------------------------ -----------
07/2000 $45,000,000 $19,513,000 of the facility was $20,546,010
utilized to acquire two land parcels
in California.
07/2000 7,352,000 Purchase of 38 model homes in Iowa, 7,834,480
Minnesota and New Jersey.
------------ -----------
Total $52,352,000 $28,380,490
------------ -----------
In November 1999, we announced that our Board of Directors had authorized the
purchase of an additional 1,000,000 shares to its existing Share Repurchase
Program. During the fiscal year ended June 30, 2000, we repurchased 242,145
additional shares. During the three months ended September 30, 2000, we have
repurchased an additional 95,000 shares. We anticipate the continued purchase
of our shares from time-to-time in open market and privately negotiated
transactions subject to market conditions and our capital requirements for the
acquisition of revenue producing assets.
(12)
Secured loans from financial institutions and capital contributions have been
adequate to permit us to carry on operations to date. However, it may be
necessary to finance the expansion of operations over the coming fiscal year
with additional funds raised through the issuance of debt or equity
securities. Should the need arise, we will attempt to complete a securities
offering of debt or equity. The net proceeds of an offering, together with
existing cash and credit facilities, as well as new facilities obtained on an
"as needed" basis, should enable us to finance our growing level of
operations. (See Financing Activities for additional information.)
However, as of the date of this report, we do not have a written commitment
from any investment banking firm or any other entity who has agreed to
underwrite either a public or private offering of our securities. As a
result, there can be no assurances that we will be successful in obtaining
additional capital. Failure to obtain such capital will have a negative
impact on our future growth.
Cash Flow - Three Months Ended September 30, 2000.
Net cash provided by operating activities comprised net income of $167,378,
plus net adjustments for non-cash items of $2,703, and a net change in
other operating assets and liabilities of $287,798.
Net cash used in investing activities comprised purchases of model homes of
$482,502 plus $1,059,742 in residential real estate asset purchases, offset by
$1,048,429 in proceeds from model home sales.
Net cash used in financing activities comprised principal payments on
mortgages payable of $169,868, plus deferred financing costs of $318,431,
purchase of treasury stock of $13,590, and preferred distributions of $20,000,
offset by proceeds from stockholder loans of $250,000.
(13)
PART II - OTHER INFORMATION
Item 2. Changes In Securities And Use Of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K: A report on form 8-K was filed with the Securities
and Exchange Commission on September 11, 2000 relating to the acquisition of
two parcels of land for approximately $20,500,000 and the simultaneous leasing
of the property to a major publicly traded homebuilder.
(14)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Strategic Capital Resources, Inc.
By: /s/John P. Kushay
John P. Kushay, Treasurer
Chief Financial Officer and
Chief Accounting Officer
(Duly Authorized Officer)
Date: November 13, 2000
(15)
