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 March 31, 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 May 8, 2000
was 15,688,870.
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Condensed Consolidated Balance Sheets as of 3
March 31, 2000 (unaudited) and June 30, 1999.
Condensed Consolidated Statements of Operations 4
for the three months and nine months ended March 31, 2000,
and the three months and nine months ended March 31, 1999
(unaudited)
Condensed Consolidated Statements of Cash Flows 5
for the nine months ended March 31, 2000,
and the nine months ended March 31, 1999
(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 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 16
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 June 30
ASSETS 2000 1999
----------- -----------
Revenue producing assets:
Model homes on lease, at cost, net of accumulated
depreciation of $15,457 on March 31, 2000 and
$88,963 on June 30, 1999 $44,106,176 $34,612,978
Multi-family residential properties 10,227,999 -
Note receivable (Note 3.) 650,000 -
----------- -----------
Total revenue producing assets 54,984,175 34,612,978
----------- -----------
Other assets:
Cash 1,771,334 690,719
Net assets realizable on divestiture (Note 4.) 1,000,000 1,100,000
Deferred charges and other assets 891,600 690,087
----------- -----------
Total other assets 3,662,934 2,480,806
----------- -----------
Total assets $58,647,109 $37,093,784
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $47,886,330 $26,642,294
Notes payable 1,147,500 1,315,907
Accounts payable & accrued expenses 712,027 597,415
Unearned rental revenue 364,475 168,246
----------- -----------
Total liabilities 50,110,332 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
15,728,870 shares outstanding at March 31, 2000 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, 1,283,135 and
1,108,135 shares respectively at
March 31, 2000 and June 30, 1999 (327,836) (282,786)
Retained earnings 497,049 285,144
----------- -----------
Total stockholders' equity 8,536,777 8,369,922
----------- -----------
Total liabilities and stockholders' equity $58,647,109 $37,093,784
=========== ===========
See accompanying notes.
(3)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended March 31, 2000 and
Three Months and Nine Months Ended March 31, 1999
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- ---------- ---------- ----------
Revenues:
Model home lease revenue $1,385,045 $1,161,324 $ 3,538,251 $3,549,218
Model home sales 4,475,352 6,179,786 17,171,419 16,529,374
Multi-family residential 344,553 - 1,011,718 -
Other income 162,869 27,114 290,494 86,735
--------- ---------- ---------- ----------
Total Revenues 6,367,819 7,368,224 22,011,882 20,165,327
--------- ---------- ---------- ----------
Costs and expenses:
Interest expense 891,155 676,335 2,213,910 2,146,632
Cost of model homes sold 4,330,288 5,828,064 16,828,016 15,692,988
Multi-family residential 300,159 - 888,026 -
Depreciation & Amortization 204,539 144,695 469,949 427,133
Corporate 429,620 400,024 1,082,075 1,116,996
Loss reserve 100,000 - 100,000 -
--------- ---------- ---------- ----------
Total Operating Expenses 6,255,761 7,049,118 21,581,976 19,383,749
--------- ---------- ---------- ----------
Income before income taxes 112,058 319,106 429,906 781,578
Deferred income tax expense 33,000 95,000 128,000 234,000
--------- ---------- ---------- ----------
Net income 79,058 224,106 301,906 547,578
Preferred stock distribution 30,000 30,000 90,000 60,000
--------- ---------- ---------- ----------
Income applicable to
common shareholders $ 49,058 $ 194,106 $ 211,906 $ 487,578
========== ========== =========== ==========
Net income per share
Basic $ 0.00 $ 0.01 $ 0.01 $ 0.03
Diluted $ 0.00 $ 0.01 $ 0.01 $ 0.03
Weighted average number of shares
Basic 15,735,024 15,933,967 15,824,670 16,197,314
Diluted 18,002,791 18,291,633 19,490,930 18,157,126
See accompanying notes.
(4)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2000 and March 31, 1999
(Unaudited)
Nine Months Nine Months
Ended Ended
3/31/2000 3/31/1999
----------- ----------
Net income $ 301,906 $ 547,578
----------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization expense 446,514 343,574
Depreciation expense 23,435 83,559
Gain on sale of model homes (343,403) (836,386)
Changes in assets and liabilities:
(Increase) decrease in miscellaneous assets (108,203) 216,585
Decrease in net assets realizable of divestiture 100,000 -
Increase in accounts payable & accrued expenses 228,290 125,292
Increase in unearned rental revenue 196,229 44,878
----------- ----------
Total adjustments 542,862 (22,498)
----------- ----------
Net cash provided by operating activities 844,768 525,080
----------- ----------
Cash flows from investing activities
Purchase of model homes (5,105,645) (3,018,824)
Proceeds from sale of model homes 2,881,947 3,660,983
Capital expenditures (3,933) (14,594)
Office buildings acquisition deposit (650,000) -
----------- ----------
Net cash provided by (used in)
investing activities (2,877,631) 627,565
----------- ----------
Cash flows from financing activities:
Proceeds from mortgages payable 4,519,463 765,982
Principal payments on mortgages payable (461,172) (1,162,952)
Deferred financing costs (631,356) (381,494)
Proceeds from stockholder loans - 738,000
Repayment of stockholder loans (168,407) (418,000)
Purchase of treasury stock (45,050) (262,432)
Preferred distributions (100,000) (40,000)
----------- -----------
Net cash provided by (used in)
financing activities 3,113,478 (760,896)
----------- -----------
Net increase in cash 1,080,615 391,749
Cash at beginning of period 690,719 365,227
----------- -----------
Cash at end of period $1,771,334 $ 756,976
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid - $2,678,873 $2,065,501
See accompanying notes.
(5)
STRATEGIC CAPITAL RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 2000 and the
results of its operations and its cash flows for the period then ended and the
period ended March 31, 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,
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 Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- ---------- ---------- ----------
Earnings
Net income $ 79,058 $ 224,106 $ 301,906 $ 547,578
Dividends on preferred shares 30,000 30,000 90,000 60,000
--------- ---------- ---------- ----------
Income(loss) applicable to
common shareholders $ 49,058 $ 194,106 $ 211,906 $ 487,578
========== ========== =========== ==========
Basic:
Income(loss) applicable to
common shareholders $ 49,058 $ 194,106 $ 211,906 $ 487,578
Weighted average shares
outstanding during the period 15,735,024 15,933,967 15,824,670 16,197,314
Basic $ 0.00 $ 0.01 $ 0.01 $ 0.03
Diluted:
Income(loss) applicable to
common shareholders $ 49,058 $ 194,106 $ 211,906 $ 487,578
Weighted average shares
outstanding during the period 15,735,024 15,933,967 15,824,670 16,197,314
Effect of dilutive securities:
Stock Options 706,203 549,793 1,239,358 547,379
Warrants 1,561,564 1,284,528 2,426,902 1,228,270
--------- ---------- ---------- ----------
Diluted weighted common
shares outstanding 18,002,791 17,768,288 19,490,930 17,972,963
Diluted $ 0.00 $ 0.01 $ 0.01 $ 0.03
(6)
Note 3. Note Receivable
During December 1999, we entered into a contract to purchase and lease back four
(4) office buildings in Nevada for an aggregate purchase price of $16,650,000.
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.
During March 2000, we agreed to terminate the purchase and lease back
contracts at the request of our client due to their desire to sell the
properties to non-affiliated third parties. Our client has entered into
contracts for the sale of the office buildings and anticipates closing prior
to June 30, 2000.
Repayment of principal and interest due under the loan is to be paid out of
the proceeds of sale of the office buildings to third parties as well as
reimburse us up to $250,000 in expenses incurred by us relating to the
transaction.
On March 21, 2000, the client repaid $350,000 principal amount of the loan
together with interest on the loan through March 31, 2000.
Note 4. Net Assets Realizable on Divestiture
We filed a lawsuit in June 1999 against Monarch Investment Properties, Inc.,
formerly known as Iron Holdings Corp., Iron Eagle Contracting and Mechanical,
Inc., Tahoe Realty Corp., Anthony Gurino, Dennis Sommesso, and "John and Jane
Doe 1-15, in the Supreme Court of the State of New York, County of Queens. The
Action asserts seven separate causes of action arising out of a default in
payment of a $1,100,000 promissory note evidencing moneys due to the Company
from Monarch/Iron Holdings as a result of its purchase of certain corporate
stock of Iron Eagle from the Company.
The Court granted our motion for summary judgment during March 2000 against
Monarch/Iron Holdings in the sum of $1,100,000 plus interest from January 1,
1999, a judgment of possession of all collateral pledged by Monarch/Iron
Holdings and judgment that we are the rightful owner and entitled to
immediate possession of the collateral and impressing a trust on said
collateral and declaring defendants to be trustees of said collateral and
directing said trustees to deliver such collateral to us.
We have set up a reserve of $100,000 against the $1,100,000 judgment awarded
and we are awaiting the formal entry of judgment in order for us to enforce
our rights.
Note 5. 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.
(7)
Legal Proceedings
Reference is made to our annual report on Form 10-K for fiscal year ended
June 30, 1999. See Note 4 for updated information on the Monarch/Iron
Holdings litigation.
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 eight (8) model homes. The aggregate sales
price for the eight homes is $1,861,000, which we originally purchased for
$1,652,000.
Financing Activities
At March 31, 2000, we had approximately $15 million of unused,
committed credit facilities available under existing revolving loan
agreements which may be utilized to acquire model homes in accordance with
the terms of those agreements.
As a part of our ongoing business, we are in constant discussion with
financial institutions for 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 will 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.
(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.
A summary of operating results for the three months ended March 31, 2000,
and March 31, 1999 are presented below.
Three Months Ended
March 31, March 31,
-----------------------------------
2000 % 1999 %
---------- ---- ---------- ----
Revenues:
Model home lease revenue $1,385,045 22% $1,161,324 16%
Model home sales 4,475,352 71% 6,179,786 84%
Multi-family residential income 344,553 5% - -
Other income 162,869 2% 27,114 -%
---------- ---- ---------- ----
Total revenues 6,367,819 100% 7,368,224 100%
---------- ---- ---------- ----
Costs and expenses:
Interest expense 891,155 14% 676,335 9%
Cost of model home sales 4,330,288 68% 5,828,064 79%
Multi-family residential expenses 300,159 5% - -
Depreciation & amortization 204,539 3% 144,695 2%
Corporate 429,620 7% 400,024 6%
Loss reserve 100,000 1% - -
---------- ---- ---------- ----
Total costs and expenses 6,255,761 98% 7,049,118 96%
---------- ---- ---------- ----
Income before income taxes 112,058 2% 319,106 4%
Deferred income tax expense 33,000 1% 95,000 1%
---------- ---- ---------- ----
Net income $ 79,058 1% $ 224,106 3%
========== ==== ========== ====
(9)
Results of Operations:
Three Months Ended March 31, 2000 compared to March 31, 1999.
For the period from January 1, 2000 through March 31, 2000, we had revenues
of $6,367,819 of which lease revenues on model homes totaled $1,385,045,
revenues from the sale of model homes were $4,475,352, and multi-family
residential income totaled $344,553.
Lease revenues increased approximately $224,000 (a 19% increase) during the
three months ended March 31, 2000 as compared to the three months ended
March 31, 1999. Average model homes on lease during the period were
approximately $46.2 million compared to $38.7 million for the three month
period ended March 31, 1999, resulting in the increased revenue.
Model homes sales decreased $1.7 million (a 27% decrease) during the period
compared to the three months ended March 31, 1999. Gains on the sale of model
homes decreased $206,000 (a 59% decrease) during the three months ended March
31, 2000 compared to the prior year fiscal period.
Net income for the period was $79,058 compared to net income of $224,106 (a
65% decrease) for the prior year fiscal period. The decrease was primarily
attributable to the $206,000 decrease in gains on the sale of model homes
compared to the prior year fiscal period.
Corporate costs increased $29,000 (a 7% increase) from $400,000 for the
quarter ended March 31, 1999 to $429,000 for the quarter ended March 31, 2000.
Corporate costs as a percentage of total revenues was consistent with the
prior year fiscal period and it is anticipated that our costs of operations
will continue to be equal to or less than the current percentage of total
revenues in the foreseeable future.
A summary of our operating results for the nine months ended March 31,
2000, and March 31, 1999 are presented below.
Nine Months Ended
March 31, March 31,
-----------------------------------
2000 % 1999 %
---------- ---- ---------- ----
Revenues:
Model home lease revenue $ 3,538,251 16% $ 3,549,218 18%
Model home sales 17,171,419 78% 16,529,374 82%
Multi-family residential income 1,011,718 5% - -
Other income 290,494 1% 86,735 -
---------- ---- ---------- ----
Total revenues 22,011,882 100% 20,165,327 100%
---------- ---- ---------- ----
Costs and expenses:
Interest expense 2,213,910 10% 2,146,632 11%
Cost of model home sales 16,828,016 77% 15,692,988 78%
Multi-family residential expenses 888,026 4% - -
Depreciation & amortization 469,949 2% 427,133 2%
Corporate 1,082,075 5% 1,116,996 5%
Loss reserve 100,000 - - -
---------- ---- ---------- ----
Total costs and expenses 21,581,976 98% 19,383,749 96%
---------- ---- ---------- ----
Income before income taxes 429,906 2% 781,578 4%
Deferred income tax expense 128,000 1% 234,000 1%
---------- ---- ---------- ----
Net income $301,906 1% $ 547,578 3%
========== ==== ========== ====
(10)
Results of Operations:
Nine Months Ended March 31, 2000 compared to March 31, 1999.
For the period from July 1, 1999 through March 31, 2000, we had revenues of
$22,011,882 of which lease revenues on model homes totaled $3,538,251,
revenues from the sale of model homes were $17,171,419, and multi-family
residential income totaled $1,011,718.
Lease revenues decreased approximately $10,000 during the nine months ended
March 31, 2000 as compared to the nine months ended March 31, 1999. Average
model homes on lease during the period were approximately the same for the
nine month periods ended March 31, 1999 and March 31, 2000.
Model home sales increased $642,000 (a 4% increase) during the period compared
to the nine months ended March 31, 1999. Gains on the sale of model homes
decreased $493,000 (a 59% decrease) for the nine months ended March 31, 2000
compared to the prior year fiscal period.
Net income for the nine month period was $302,000 compared to net income of
$548,000 (a 45% 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 $35,000 from $1,117,000 for the nine months ended
March 31, 1999 to $1,082,000 for the quarter ended March 31, 2000 (a 3%
decrease). Corporate costs as a percentage of total revenues was consistent
with the prior year fiscal period.
Model Home Sale Leaseback Program
Since inception, we have purchased a total of 425 model homes at an aggregate
purchase price in excess of $95,000,000. The following is a summary of model
home purchases and average cost per home by year since inception:
Fiscal Units Total Average Cost
Year Ended Purchased Cost Per Model Home
- ---------- --------- ----------- --------------
6/30/96 61 $11,836,729 $ 194,045
6/30/97 75 14,512,772 193,504
6/30/98 110 26,170,860 237,917
6/30/99 61 16,813,539 275,632
6/30/2000 (*) 118 25,725,869 218,016
--------- -----------
Total 425 $95,059,769 $ 223,670
--------- -----------
(*) Nine month period ended March 31, 2000.
(11)
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 3/31/2000 3/31/2000 3/31/99 3/31/99
- ------------------------------------------------------------------------------
Arizona 16 $ 1,790,445 - $ -
California 62 16,267,394 - -
Colorado 1 274,536 8 1,765,605
Florida 5 1,122,689 25 5,644,376
Minnesota - - 2 564,570
Nevada 13 1,667,790 - -
New Jersey 40 10,698,641 75 19,980,015
New York 4 1,518,291 8 3,047,435
North Carolina 8 1,875,873 3 694,372
Pennsylvania 15 3,709,042 26 5,990,542
Texas 21 4,359,206 2 342,430
Utah 5 837,726 - -
Virginia - - 1 224,911
------- ------------- ------- ------------
Total 190 $ 44,121,633 150 $ 38,254,256
======= ============= ======= ============
The following is a breakdown of lease rental revenues by state:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
State 3/31/2000 3/31/1999 3/31/2000 3/31/1999
- ------------------------------------------------------------------------------
Arizona $ 62,285 $ - $ 126,732 $ -
California 488,022 - 816,539 -
Colorado 15,029 56,280 78,735 226,989
Florida 51,321 207,851 212,354 758,737
Minnesota - 16,937 19,744 17,119
Nevada 50,034 - 133,880 -
New Jersey 325,742 607,684 1,261,825 1,734,766
New York 61,214 76,787 202,952 215,926
North Carolina 55,433 20,832 100,244 62,494
Pennsylvania 114,801 159,860 382,187 467,415
Texas 136,034 8,347 156,580 34,803
Utah 25,130 - 46,479 -
Virginia - 6,746 - 30,969
---------- ---------- ---------- ----------
Total $1,385,045 $1,161,324 $3,538,251 $3,549,218
========== ========== ========== ==========
Commercial Real Estate Sale Leaseback Program
Multi-family Residential Property
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
===========
(12)
$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,
$1,224,454 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.
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 nine months ended March 31, 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,
borrowings under existing credit facilities, and asset acquisitions during the
nine months ended March 31, 2000:
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
------------ -----------
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
============ ===========
(13)
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 May 8, 2000, we have repurchased 215,000 additional 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.
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 - Nine Months Ended March 31, 2000.
Net cash provided by operating activities comprised net income of $301,906,
plus net adjustments for non-cash items of $126,546, and a net change in
other operating assets and liabilities of $416,316.
Net cash used in investing activities comprised purchases of model homes of
$5,105,645 plus $650,000 in office buildings acquisition deposit and $3,933 in
capital expenditures, offset by $2,881,947 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
$461,172, deferred financing costs of $631,356, purchase of treasury stock
of $45,050, repayment of stockholder loans of $168,407, and preferred
distributions of $100,000.
Trends in Operations
Our operations continue to grow. 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 nine months ended March 31, 2000, purchases of model homes totaled
approximately $25,700,000, increasing total model homes on lease at March
31, 2000 to approximately $44,100,000.
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.
(14)
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.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
(15)
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: May 9, 2000
(16)
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