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 December 31, 1999
[ ] 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 January 25, 2000
was 15,728,870.
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Condensed Consolidated Balance Sheets as of 3
December 31, 1999 (unaudited) and June 30, 1999.
Condensed Consolidated Statement of Operations 4
for the three months and six months ended December 31, 1999,
and the three months and six months ended December 31, 1998
(unaudited)
Condensed Consolidated Statement of Cash Flows 5
for the six months ended December 31, 1999,
and the six months ended December 31, 1998
(unaudited)
Notes to Condensed Consolidated Financial Statements 6-8
(unaudited)
Item 2. Management's Discussion and Analysis of Financial 9-15
Condition and Results of Operations.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6(b). Exhibit 27 - Financial Data Schedules
Item 6(c). No reports on Form 8K have been filed during the
quarter for which this report is filed.
Signatures 17
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31 June 30
ASSETS 1999 1999
----------- -----------
Revenue producing assets:
Model homes on lease, at cost, net of accumulated
depreciation of $88,963 on June 30, 1999, and
$37,958 on December 31, 1999 $48,262,320 $34,612,978
Multi-family residential properties 10,227,999 -
Office buildings purchase deposit (See Note 4) 1,000,000 -
----------- -----------
Total revenue producing assets 59,490,319 34,612,978
----------- -----------
Other assets:
Cash 933,885 690,719
Net assets realizable on divestiture 1,100,000 1,100,000
Deferred charges and other assets 923,308 690,087
----------- -----------
Total other assets 2,957,193 2,480,806
----------- -----------
Total assets $62,447,512 $37,093,784
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $51,602,154 $26,642,294
Notes payable 1,315,907 1,315,907
Accounts payable & accrued expenses 614,130 597,415
Unearned rental revenue 418,852 168,246
----------- -----------
Total liabilities 53,951,043 28,723,862
----------- -----------
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
15,763,870 shares outstanding at December 31, 1999 17,012 -
15,903,870 shares outstanding at June 30, 1999 - 17,012
Additional paid-in capital 8,346,552 8,346,552
Less treasury stock at cost, 1,248,135 and
1,108,135 shares respectively at
December 31, 1999 and June 30, 1999 (319,086) (282,786)
Retained earnings 447,991 285,144
----------- -----------
Total stockholders' equity 8,496,469 8,369,922
----------- -----------
Total liabilities and stockholders' equity $62,447,512 $37,093,784
=========== ===========
See accompanying notes.
(3)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months and Six Months Ended December 31, 1999 and
Three Months and Six Months Ended December 31, 1998
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
--------- ---------- ---------- ----------
Revenues:
Model Home Lease revenue $1,215,505 $1,167,033 $ 2,153,206 $2,387,894
Model Home sales 4,909,852 3,930,800 12,696,067 10,349,588
Multi-family residential 344,553 - 667,165 -
Other income 18,557 30,011 127,625 59,621
--------- ---------- ---------- ----------
Total Revenues 6,488,467 5,127,844 15,644,063 12,797,103
--------- ---------- ---------- ----------
Costs and expenses:
Interest expense 945,146 699,061 1,674,858 1,470,297
Cost of model homes sold 4,784,602 3,735,829 12,497,728 9,864,924
Multi-family residential 88,344 - 176,043 -
Depreciation & Amortization 143,136 135,561 265,410 282,438
Corporate 376,421 352,261 712,176 716,972
--------- ---------- ---------- ----------
Total Operating Expenses 6,337,649 4,922,712 15,326,215 12,334,631
--------- ---------- ---------- ----------
Income before income taxes 150,818 205,132 317,848 462,472
Deferred income tax expense 46,000 61,862 95,000 139,000
--------- ---------- ---------- ----------
Net income 104,818 143,270 222,848 323,472
Preferred stock distribution 30,000 30,000 60,000 30,000
--------- ---------- ---------- ----------
Income applicable to
common shareholders 74,818 113,270 162,848 293,472
========== ========== =========== ==========
Net income per share
Basic $ 0.00 0.01 0.01 0.02
Diluted $ 0.00 0.01 0.01 0.02
Weighted average number of shares
Basic 15,834,142 15,904,085 15,869,006 16,381,096
Diluted 17,668,463 17,679,734 19,060,040 18,156,745
See accompanying notes.
(4)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended December 31, 1999 and December 31, 1998
(Unaudited)
Six Months Six Months
Ended Ended
12/31/99 12/31/98
----------- ----------
Net income $ 222,848 $ 323,472
----------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization expense 248,069 221,640
Depreciation expense 17,341 60,798
Gain on sale of model homes (198,339) (484,664)
Changes in assets and liabilities:
Increase in miscellaneous assets (40,990) (33,215)
Increase (decrease) in accounts payable
and accrued expenses 130,392 (27,383)
Increase in unearned rental revenue 250,606 1,372
----------- ----------
Total adjustments 407,079 (261,452)
----------- ----------
Net cash provided by operating activities 629,927 62,020
----------- ----------
Cash flows from investing activities
Purchase of model homes (5,105,645) (2,018,015)
Proceeds from sale of model homes 2,184,904 2,486,928
Capital expenditures - (14,594)
Office buildings acquisition deposit (1,000,000) -
----------- ----------
Net cash provided by (used in)
investing activities (3,920,741) 454,319
----------- ----------
Cash flows from financing activities:
Proceeds from mortgages payable 4,519,463 635,100
Principal payments on mortgages payable (347,830) (930,770)
Deferred financing costs (531,353) (150,036)
Proceeds from stockholder loans - 150,000
Purchase of treasury stock (36,300) (262,378)
Preferred distributions (70,000) -
----------- -----------
Net cash provided by (used in)
financing activities 3,533,980 (558,084)
----------- -----------
Net increase (decrease) in cash 243,166 (41,745)
Cash at beginning of period 690,719 365,227
----------- -----------
Cash at end of period $933,885 $ 323,482
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid - $1,528,688 $1,407,496
See accompanying notes.
(5)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(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 December 31, 1999 and
results of its operations and its cash flows for the period then ended and
period ended December 31, 1998. 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, 1999. 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 Six Months Ended
December 31, December 31,
1999 1998 1999 1998
--------- ---------- ---------- ----------
Earnings
Net income 104,818 143,270 222,848 323,472
Dividends on preferred shares 30,000 30,000 60,000 30,000
--------- ---------- ---------- ----------
Income(loss) applicable to
common shareholders 74,818 113,270 162,848 293,472
========== ========== =========== ==========
Basic:
Income(loss) applicable to
common shareholders 74,818 113,270 162,848 293,472
Weighted average shares
outstanding during the period 15,834,142 15,904,085 15,869,006 16,381,096
Basic $ 0.00 0.01 0.01 0.02
Diluted:
Income(loss) applicable to
common shareholders 74,818 113,270 162,848 293,472
Weighted average shares
outstanding during the period 15,834,142 15,904,085 15,869,006 16,381,096
Effect of dilutive securities:
Stock Options 549,793 547,379 1,109,382 547,379
Warrants 1,284,528 1,228,270 2,081,652 1,228,270
--------- ---------- ---------- ----------
Diluted weighted common
shares outstanding 17,668,463 17,679,734 19,060,040 18,156,745
Diluted $ 0.00 0.01 0.01 0.02
(6)
Note 3. Multi-family Residential Property Acquisition
On July 15, 1999 we purchased a 288 unit multi-family residential property in
Jacksonville, Florida for a purchase price of $10,228,000. The purchase price
was paid as follows:
Assumption of existing first mortgage $ 4,928,000
New loan 5,300,000
-----------
Total purchase price $10,228,000
===========
$1,500,000 of the purchase price is to be utilized to improve, modernize and
enhance the value of the property. As of the date of this report date,
$745,000 in improvements have been completed.
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.
Note 4. 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 as described below. 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 its fiscal year ended
June 30, 1999.
We have been named a defendant in a lawsuit filed in Palm Beach County,
Florida, case No. CL0000433AD seeking to collect upon an indebtedness that may
or may not be owed by a subsidiary of the Company, and a non party to the
action.
A Motion to Dismiss Improper Party Defendant has been filed by counsel on our
behalf. It is the opinion of counsel that this motion should be granted.
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 four (4) model homes. The aggregate sales
price for the four homes is $1,295,000, which we originally purchased for
$1,284,355.
(7)
Commercial real estate purchase contracts
We have entered into a contract to purchase and lease back four (4) office
buildings.
The office buildings are located in Nevada and have an aggregate purchase price
of $16,650,000.
Upon entering into the contract, we advanced the seller $1,000,000 of the
purchase price in the form of a loan bearing interest at the rate of 12% per
annum. The loan is secured by a Deed of Trust recorded on three (3) of the
four (4) office buildings, and is guaranteed by a third party.
Under the terms of the contract, the seller will lease three (3) office
buildings for a period of 36 months. The leases are full payout, triple net,
hell or high water, providing for monthly lease payments on each of the
properties.
The contract provides for a 36 month management agreement on the fourth office
building which will generate a predetermined income stream per month.
The seller has the option to repurchase the properties at any time after the
first anniversary of the commencement date. The purchase price for the
properties will be predetermined and include outstanding principal and
interest, termination fees, and any other amounts due under the agreement.
The sellers performance under the three lease agreements and management
agreement will be assured by a surety rated "A" or higher by Standard & Poors
throughout the term of the agreements.
Financing Activities
In order to finance our growth, we conduct ongoing discussions and
negotiations with various financial institutions to raise additional capital.
At December 31, 1999, we had $51.6 million outstanding in secured loans
provided by financial institutions and $1.3 million in loans from
shareholders. We borrow under various secured revolving and term loan credit
facilities, and at December 31, 1999, had available additional borrowings of
$18 million.
(8)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a Delaware Corporation organized in November 1995. Principal
operations consist of the following business lines:
1) The purchase and leaseback on a "triple net" basis of fully furnished
model homes complete with options and upgrades to major publicly traded
homebuilders and real estate developers.
2) The land acquisition and contract development program for major publicly
traded homebuilders and real estate developers. The Company purchases
the real estate, simultaneously enters into a bonded (not to exceed)
development contract with the builder supported by a performance
(completion) bond, who then develops the real estate. The builder
simultaneously contracts to purchase the finished lots from the Company
on a scheduled basis to coincide with the community build out and sale.
3) The purchase and leaseback of commercial real estate which includes
office buildings, multi-family residential properties, industrial,
manufacturing and warehouse facilities. The Company purchases the
properties and enters into fixed term agreements with the clients which
allow the Company to recover principal and earn a minimum return. The
clients performance is supported by surety bonds issued by insurance
companies rated "A" to "AAA" by the major rating agencies.
Since inception, we have purchased a total of 425 model homes and sold 218,
leaving a portfolio of 207 model homes owned at December 31, 1999. The
following is a summary of model home purchases and sales by year since
inception:
Fiscal Units Amount Units Cost of Model
Year Ended Purchased Purchased Sold Homes Sold
- ---------- --------- ----------- ---- ------------
6/30/96 61 $11,836,729 3 $ 503,165
6/30/97 75 14,512,772 23 4,437,087
6/30/98 110 26,170,860 49 8,892,378
6/30/99 61 16,813,539 95 20,799,329
6/30/2000 (YTD) 118 25,725,869 48 12,127,532
--------- ----------- ----- ------------
Total 425 $95,059,769 218 $46,759,491
--------- ----------- ----- ------------
Model Homes on Lease at cost at December 31, 1999 - 207 $48,300,278
(9)
A summary of operating results for the three months ended December 31, 1999,
and December 31, 1998 are presented below.
Three Months Three Months
Ended Ended
December 31 December 31
1999 % 1998 %
-----------------------------------
Revenues:
Model home lease revenue $1,215,505 19% $1,167,033 23%
Model home sales 4,909,852 76% 3,930,800 76%
Multi-family residential income 344,553 5% - -
Other income 18,557 -% 30,011 1%
-----------------------------------
Total revenues $6,488,467 100% 5,127,844 100%
-----------------------------------
Costs and expenses:
Interest expense 945,146 14% 699,061 14%
Cost of model home sales 4,784,602 74% 3,735,829 72%
Multi-family residential expenses 88,344 1% - -
Depreciation & amortization 143,136 2% 135,561 3%
Corporate 376,421 6% 352,261 7%
-----------------------------------
Total costs and expenses 6,337,649 97% 4,922,712 96%
-----------------------------------
Income before income taxes 150,818 3% 205,132 4%
Deferred income tax expense 46,000 1% 61,862 1%
-----------------------------------
Net income $104,818 2% 143,270 3%
===================================
Results of Operations:
Three Months Ended December 31, 1999 compared to December 31, 1998.
For the period from October 1, 1999 through December 31, 1999, we had revenues
of $6,488,467 of which lease revenues on model homes totaled $1,215,505,
revenues from the sale of model homes were $4,909,852, and multi-family
residential income totaled $344,553.
Lease revenues increased approximately $48,000 (a 4% increase) during the
three months ended December 31, 1999 as compared to the three months ended
December 31, 1998. Average model homes on lease during the period were
approximately $40.5 million compared to $38.9 million for the three month
period ended December 31, 1998, resulting in the increased revenue.
Model homes sales increased $979,000 (a 25% increase) during the period
compared to the three months ended December 31, 1998. Gains on the sale of
model homes totaled $125,000 for the three months ended December 31, 1999
compared to $195,000 for the prior year fiscal period, a $70,000 decrease.
Net income for the period was $104,818 compared to net income of $143,270 (a
27% decrease) for the prior year fiscal period. The decrease was primarily
attributable to a $70,000 decrease in gains on the sale of model homes
compared to the prior year fiscal period.
(10)
Corporate costs increased $24,000 (a 7% increase) from $352,000 for the
quarter ended December 31, 1998 to $376,000 for the quarter ended December 31,
1999. Corporate costs as a percentage of revenues was consistent with the
prior year fiscal quarter.
A summary of our operating results for the six months ended December 31,
1999, and December 31, 1998 are presented below.
Six Months Six Months
Ended Ended
December 31 December 31
1999 % 1998 %
----------------------------------
Revenues:
Model home lease revenue $ 2,153,206 14% $ 2,387,894 19%
Model home sales 12,696,067 81% 10,349,588 81%
Multi-family residential income 667,165 4% - -
Other income 127,625 1% 59,621 -
----------------------------------
Total revenues $15,644,063 100% 12,797,103 100%
----------------------------------
Costs and expenses:
Interest expense 1,674,858 11% 1,470,297 11%
Cost of model home sales 12,497,728 80% 9,864,924 77%
Multi-family residential expenses 176,043 1% - -
Depreciation & amortization 265,410 2% 282,438 2%
Corporate 712,176 4% 716,972 6%
----------------------------------
Total costs and expenses 15,326,215 98% 12,334,631 96%
----------------------------------
Income before income taxes 317,848 2% 462,472 4%
Deferred income tax expense 95,000 1% 139,000 1%
-----------------------------------
Net income $222,848 1% 323,472 3%
===================================
Results of Operations:
Six Months Ended December 31, 1999 compared to December 31, 1998.
For the period from July 1, 1999 through December 31, 1999, we had revenues of
$15,644,063 of which lease revenues on model homes totaled $2,153,206,
revenues from the sale of model homes were $12,696,067, and multi-family
residential income totaled $667,165.
Lease revenues decreased approximately $235,000 (a 10% decrease) during the
six months ended December 31, 1999 as compared to the six months ended
December 31, 1998. Average model homes on lease during the period were
approximately $36 million compared to $40 million for the six month period
ended December 31, 1998, resulting in the decreased revenues.
(11)
Model home sales increased $2.3 million (a 23% increase) during the period
compared to the six months ended December 31, 1998. Gains on the sale of
model homes totaled $198,000 for the six months ended December 31, 1999
compared to $485,000 for the prior year fiscal period, a $287,000 decrease.
Net income for the period was $222,848 compared to net income of $323,472 (a
31% decrease) for the prior year fiscal period. The decrease was primarily
attributable to decreased gains on the sale of model homes compared to the
prior year fiscal period.
Corporate costs decreased $5,000 from $717,000 for the six months ended
December 31, 1998 to $712,000 for the quarter ended December 31, 1999.
Corporate costs as a percentage of total revenues was consistent with the
prior year fiscal period.
Model Homes
Model homes on lease have increased to $48,300,278 at December 31, 1999 from
$39,043,518 at December 31, 1998, an increase of 24%.
The following is a breakdown of model home costs and units by state:
# Model Homes Model Home # Model Homes Model Home
Owned at Cost Owned at Cost
State 12/31/99 12/31/99 12/31/98 12/31/98
- ------------------------------------------------------------------------------
Arizona 19 $ 2,124,640 - $ -
California 62 16,267,394 - -
Colorado 3 612,085 9 1,997,393
Florida 8 1,879,183 36 8,108,301
Minnesota - - 2 564,570
Nevada 13 1,667,790 - -
New Jersey 47 12,715,548 78 20,262,602
New York 5 2,118,291 5 2,150,000
North Carolina 8 1,875,873 3 694,372
Pennsylvania 15 3,709,042 21 4,698,939
Texas 22 4,492,706 2 342,430
Utah 5 837,726 - -
Virginia - - 1 224,911
------- ------------- ------- ------------
Total 207 $ 48,300,278 157 $ 39,043,518
======= ============= ======= ============
The following is a summary of model homes sold, sales revenues, and average
holding periods (in months) by year:
Number of Model Home Average Holding
Period Models Sold Sale Revenues Period (In Months)
- ------------------------- ----------- ------------- ------------------
Six months ended 12/31/99 48 $ 12,696,067 22.0
Year ended 6/30/99 95 21,495,935 20.0
Year ended 6/30/98 49 9,027,514 15.1
Year ended 6/30/97 23 4,528,600 7.2
Year ended 6/30/96 3 515,000 5.8
----------- ------------- ------------------
Total 218 $ 48,263,116 17.8
=========== ============= ==================
(12)
The following is a breakdown of lease rental revenues by state:
Lease Revenues Lease Revenues
From 7/1/99 From 7/1/98
State to 12/31/99 to 12/31/98
- ------------------------------------------------------------------------------
Arizona $ 64,447 $ -
California 328,517 -
Colorado 63,706 170,709
Florida 161,033 550,886
Minnesota 19,744 182
Nevada 83,846 -
New Jersey 936,083 1,127,082
New York 141,738 139,139
North Carolina 44,811 41,662
Pennsylvania 267,386 307,555
Texas 20,546 26,456
Utah 21,349 -
Virginia - 24,223
----------- -----------
Total $2,153,206 $2,387,894
=========== ===========
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 six months ended December 31, 1999 were for revenue
producing asset acquisitions, operating expenses, and the repurchase of common
stock.
Borrowings from financial institutions are pursuant to various secured
revolving and term loan agreements. The following is a summary of new loans,
borrowings under existing credit facilities, and asset acquisitions during the
six months ended December 31, 1999:
New Acquisition
Date Facilities Use of Proceeds Cost
-------- ------------ ------------------------------------ -----------
Purchase of 288 unit multi-family
07/99 10,227,999 residential property in Florida. $10,227,999
09/99 710,000 Purchase of 5 model homes in Utah. 837,726
09/99 422,964 Purchase of 4 model homes in Nevada. 469,690
09/99 1,858,191 Purchase of 19 model homes in Arizona. 2,124,640
09/99 894,000 Purchase of 9 model homes in Nevada. 1,197,830
10/99 6,603,500 Purchase of 23 model homes in California. 6,603,500
12/99 4,150,000 Purchase of 20 model homes in Texas. 4,150,276
------------ -----------
Total $24,866,654 $25,611,661
------------ -----------
(13)
Existing Credit Acquisition
Date Facilities Use of Proceeds Cost
-------- ------------ ------------------------------------ -----------
10/29/99 $ 1,676,744 Purchase of 8 model homes in N. Carolina. 1,875,873
11/02/99 8,214,166 Purchase of 39 model homes in California. 9,663,894
------------ -----------
Total $ 9,890,910 $11,539,767
------------ -----------
Grand Total $34,757,564 $37,151,428
============ ===========
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. As of January 25, 2000, we have repurchased 175,000 additional shares.
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 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.)
Cash Flow - Six Months Ended December 31, 1999.
Net cash provided by operating activities comprised net income of $222,848,
plus net adjustments for non-cash items of $67,071, and a net change in
other operating assets and liabilities of $340,008.
Net cash used by investing activities comprised purchases of model homes of
$5,105,645 plus $1,000,000 in office buildings acquisition deposit, offset by
$2,184,904 in proceeds from model home sales.
Net cash provided by financing activities comprised proceeds of mortgages
payable of $4,519,463, offset by principal payments on mortgages payable of
$347,830, deferred financing costs of $531,353, purchase of treasury stock
of $36,300, and preferred distributions of $70,000.
Trends in Operations
Our operations continue to grow at an accelerated rate. Such growth has
resulted from the ongoing acquisition of model homes under lease and from the
implementation of our commercial real estate sale leaseback program. These
programs have generated significant interest from national home builders and
real estate developers. Our successful implementation of these programs has
led to increased credit facilities. (See Liquidity and Capital Resources)
For the six months ended December 31, 1999, purchases of model homes totaled
approximately $25,700,000, increasing total model homes on lease at December
31, 1999 to approximately $48,300,000.
(14)
Year 2000 Issues
SCRI's State of Readiness
SCRI has completed a review of its software and hardware and determined,
through a combination of internal testing and vendor representations that
their products have been tested and are compliant.
The Costs to Address SCRI's Year 2000 Issues
Based on current estimates and plans, SCRI believes the costs of addressing
Year 2000 issues will not be material.
The Risks and Worst Case Scenario of SCRI's Year 2000 Issues
SCRI believes the most reasonable worst case scenario will be indirect in
nature involving third parties such as clients, vendors and suppliers which
may not have successfully dealt with their Year 2000 issues. SCRI continues
to assess the key third parties that it relies upon, however, SCRI has not yet
been assured that all of the computer systems of its clients, vendors and
suppliers will be Year 2000 compliant. For example, if suppliers of SCRI's
energy or telecommunications fail to become Year 2000 compliant, such failure
could have an adverse effect on SCRI's ability to conduct daily operations or
to communicate with its clients and vendors. While SCRI continues to analyze
these risks, it is possible that information relevant to such analysis will
not be made available to SCRI, or that potential solutions will not be within
SCRI's control. In addition, there can be no guarantee that SCRI's efforts
will prevent a material adverse impact on its results of operations, financial
condition and cash flows. SCRI believes that its readiness program, including
the contingency plans discussed below, should significantly reduce the adverse
effect any disruption may have.
SCRI's Contingency Plans
SCRI will continue to monitor and evaluate its key clients, vendors and
suppliers to determine the extent that SCRI is vulnerable to those third
parties' possible failure to become Year 2000 compliant.
As of the time of the filing of this report, our computer systems have rolled
over to the year 2000 without any significant issues and there has been no
interruption of normal business activities and operations. The Company will
continue to monitor its systems and contingency plans throughout 2000 and
beyond.
Forward Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") concerning
the Company's operations, economic performance and financial conditions,
including, in particular, the likelihood of the Company's success in
developing and bringing to market the products which it currently has under
development, as well as procuring the necessary financing to acquire these
products. These statements are based upon a number of assumptions and
estimates which are inherently subject to significant uncertainties, and
contingencies, many of which are beyond the control of the Company and reflect
future business decisions which are subject to change. Some of these
assumptions inevitably will not materialize, and unanticipated events will
occur which will affect the Company's results. Consequently, actual results
will vary from the statements contained herein and such variance may be
material. Prospective investors should not place undue reliance on this
information.
(15)
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The registrant held an Annual Meeting of Shareholders on December 1, 1999.
At the meeting the shareholders took the following actions:
1) Seven directors were elected by a vote of 10,774,733 for, and 0 against.
2) Approved the appointment of Horton & Company, LLC. as the Corporation's
independent auditors for the current fiscal year ended June 30, 2000.
10,774,733 votes for, 0 against.
(16)
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: January 25, 2000
(17)
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