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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ended ______________ to ______________
Commission file number 333-35063
Baron Capital Trust
(Exact name of small business issuer
as specified in its charter)
Delaware 31-1574856
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7826 Cooper Road, Cincinnati, Ohio 45242
(Address of principal executive offices)
(513) 984-5001
(Issuer's telephone number)
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 [ ]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BARON CAPITAL TRUST
CONDENSED BALANCE SHEET
September 30, 1998
(UNAUDITED)
ASSETS
Investment in Baron Capital Properties, L.P. $ 2,293,432
Cash 291,387
Cash held in escrow 16,300
Other Receivables 400
-----------
Total assets $ 2,601,519
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities:
Managing shareholder --
Commissions --
-----------
--
-----------
Shareholders' Equity:
Common shares, no par value; 25,000,000 shares 3,476,228
authorized; 379,496 shares issued and outstanding,
a change of 186,373 shares
Deficit (874,709)
-----------
2,601,519
-----------
Total liabilities and shareholders' equity $ 2,601,519
===========
See notes to financial statements
1
<PAGE>
BARON CAPITAL TRUST
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND FROM COMMENCEMENT OF OPERATIONS
(FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
From Commencement
of Operations
Three Months Ended (February 3, 1998) To
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenue:
Interest Income $ 657 $ 1,064
Costs and Expenses:
Advisory and investment fees - managing shareholder 84,102 182,110
General and administrative expenses 13,695 13,855
--------- ---------
Total costs and expenses 97,797 195,965
--------- ---------
Net Loss from Investment in Baron Capital Properties, LP (679,808) (679,808)
--------- ---------
Net Loss $(776,948) $(874,709)
========= =========
Net Loss per Common Share $ (4.17) $ (2.25)
========= =========
</TABLE>
See notes to financial statements
2
<PAGE>
BARON CAPITAL TRUST
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
-------------------------
Shares Amount Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Capital Contribution -- $ 100 $ -- $ 100
Issuance of Common Shares 379,496 3,491,362 -- 3,491,362
Return of Capital -- (15,234) -- (15,234)
Net Loss -- -- (874,709) $ (874,709)
----------- ----------- ----------- -----------
Balance, September 30, 1998 379,496 $ 3,476,228 $ (874,709) $ 2,601,519
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
BARON CAPITAL TRUST
CONDENSED STATEMENT OF CASH FLOWS
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net loss $ (874,709)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in accounts payable and accrued liabilities, --
managing shareholder
Increase in accounts receivable (400)
-----------
Net cash used in operating activities (875,109)
-----------
Cash Flows from Investing Activities:
Investment in Baron Capital Properties, L.P. (2,293,432)
-----------
Cash Flows from Financing Activities:
Proceeds from issuance of common shares 3,476,228
Accrued comm in connection with issuance of common shares --
Cash held in escrow (16,300)
-----------
Net cash provided by financing activities 3,459,928
-----------
Net Increase in Cash 291,387
Cash, Beginning --
-----------
Cash, Ending $ 291,387
===========
See notes to financial statements
4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Investment in real estate limited partnerships $2,260,150
Investment in limited partnership interests 341,280
Cash 183,459
Prepaid expenses and other assets 52,500
Other receivables 126,948
Property and equipment 106,358
----------
Total assets $3,070,695
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable 575,000
Other accrued liabilities 102,263
----------
677,263
----------
Partners' Capital
General partner $ --
Limited partners, 25,000,000 units authorized:
472,309 units issued and outstanding 2,393,432
----------
2,393,432
----------
Total liabilities and shareholders' equity $3,070,695
==========
See notes to financial statements
5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED STATEMENT OF OPERATIONS
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
From Commencement
of Operations
Three Months Ended (February 3, 1998) To
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenue:
Interest Income $ 383 $ 712
Income from real estate 21,644 21,644
--------- ---------
22,027 22,356
--------- ---------
Costs and Expenses:
Personnel $ 111,177 $ 237,815
Professional services 80,930 119,900
Managed properties expenses 224,157 259,042
Other general and administrative expenses 199 85,407
--------- ---------
Total costs and expenses 416,463 702,164
--------- ---------
Net Loss $(394,436) $(679,808)
========= =========
</TABLE>
See notes to financial statements
6
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED STATEMENT OF PARTNERS' CAPITAL
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Initial Capital Contribution (89,018 units) $ -- $ 100,000 $ 100,000
Issuance of limited partnership interests (379,496 units) -- 2,973,240 2,973,240
Net Loss -- (679,808) (679,808)
----------- ----------- -----------
Balance, September 30, 1998 $ -- $ 2,393,432 $ 2,393,432
=========== =========== ===========
</TABLE>
See notes to financial statements
7
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED STATEMENT OF CASH FLOWS
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net loss $ (679,808)
Adjustments to reconcile net loss to net cash
used in operating activities:
Changes in operating assets and liabilities:
Increase in prepaid expenses and other assets (52,500)
Increase in other receivables (126,948)
Increase in accrued liabilities 102,263
-----------
Net cash used in operating activities (756,993)
-----------
Cash Flows from Investing Activities:
Investment in real estate limited partnerships (2,260,150)
Investment in limited partnership interests (341,280)
Purchase of property and equipment (106,358)
Due on purchase of limited partnership interests --
-----------
Net cash used in investing activities (2,707,788)
-----------
Cash Flows from Financing Activities:
Issuance of limited partnership interests 2,973,240
Initial capital contribution 100,000
Increase in notes payable 575,000
Loan from related party --
-----------
Net cash provided by financing activities 3,648,240
-----------
Net Increase in Cash 183,459
Cash, Beginning --
-----------
Cash, Ending $ 183,459
===========
See notes to financial statements
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements at September 30,
1998 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB promulgated by the Securities and Exchange Commission. These
condensed financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position as of September 30, 1998 and results of operations for the three
months and the nine months ended September 30, 1998 and cash flows for the
nine months ended September 30, 1998. All such adjustments are of a normal
recurring nature. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year.
NOTE 2. Material Subsequent Events and Contingencies
In October 1998, the Operating Partnership acquired an approximately 12.3%
limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Partnership"), a Delaware limited partnership which is the
owner and developer of a 168-unit residential apartment property under
construction in Alexandria, Kentucky. Thirty eight of the 168 residential
units (approximately 22.6%) have been completed and are in the rent-up
stage. The Operating Partnership paid $400,000 for the acquired partnership
interest and retains an option to acquire the remaining limited partnership
interests at the same price per percentage interest (for a total price of
approximately $3,250,000 for the entire limited partnership interest). The
option is exercisable as additional apartment buildings are completed and
rented. An affiliate of Mr. McGrath, the founder and Chief Executive
Officer of the Registrant and the Operating Partnership, sold the
partnership interest in the Alexandria Partnership to the Operating
Partnership and also serves as the managing general partner of the
Alexandria Partnership. During the construction stage of the apartment
property, the Operating Partnership's limited partnership interest in the
Alexandria Partnership is entitled to an annual 12% preferential return
which is senior to the other limited partnership interests and the general
partner's nominal 1% interest.
In September 1998, the Registrant entered in an agreement with three real
estate development companies to acquire two luxury residential apartment
properties in the development stage upon the completion of construction.
The development companies are controlled by Mr. McGrath. The properties
will have a total of 652 units, comprised of one, two and three bedroom/one
or two bathroom apartments. Construction on one of the properties, located
in Louisville, Kentucky, is expected to be completed prior to the end of
2000, and construction of the other property, located in Burlington,
Kentucky (part of the Cincinnati metropolitan area), is expected to be
completed by the end of 2001. The aggregate purchase price for the two
properties is in the range of approximately $41,000,000 to $43,000,000.
In connection with the transaction, the Registrant agreed to co-guarantee
(along with Mr. McGrath), for a period of 60 days (plus any extensions
which may be granted), up to $3,000,000 of the development portion of
long-term bank construction loans with an aggregate principal amount of up
to $36,000,000 to be made to the development companies in connection with
the development and construction of the two apartment properties and an
111,000 square foot shopping center in Burlington, Kentucky. The Registrant
also agreed that, if the loans are not repaid prior to the expiration of
the guarantee, it will either buy out the bank's position on the entire
amount of the construction loans or arrange for a third party to do so. The
construction loans are expected to be replaced by a long-term credit
facility within 180 days.
9
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Baron Capital Trust, the Registrant, and Baron Capital Properties, L.P.
(the "Operating Partnership") (which will conduct all of the Registrant's
real estate operations and hold title to all of its real estate assets and
of which the Registrant is the sole general partner and a limited partner)
commenced operations in February 1998. In June 1998, the Operating
Partnership acquired beneficial ownership of a 67-unit residential
apartment property located in Kissimmee, Florida. In July 1998, the
Operating Partnership acquired beneficial ownership of an 80-unit
residential apartment property located in Lakewood, Florida. In July 1998,
the Operating Partnership acquired a limited partnership interest in 20
real estate limited partnerships managed by affiliates of Gregory K.
McGrath (a founder and Chief Executive Officer of the Registrant and the
Operating Partnership) in consideration of a capital contribution ranging
from $2,000 to $59,000 in each such partnership (aggregate amount
approximately $341,000).
In September 1998, the Operating Partnership acquired beneficial ownership
of a 50-unit residential apartment property located in New Smyrna Beach,
Florida. In September 1998, the Registrant entered into an agreement to
acquire two luxury residential apartment properties (total 652 units) in
Louisville and Burlington, Kentucky upon the completion of construction for
an aggregate purchase price in the range of approximately $41,000,000 to
$43,000,000. In connection therewith, the Registrant agreed to co-guarantee
(along with Mr. McGrath), for a period of 60 days (plus any extensions
which may be granted), up to $3,000,000 of the development portion of
long-term construction loans to be made by an institutional lender to three
development companies controlled by Mr. McGrath in connection with the
development and construction of the two residential apartment properties
and a shopping center in Burlington, Kentucky.
The Registrant intends to continue to acquire similar property interests
using proceeds from its registered public offering of 2,500,000 Common
Shares at $10.00 per share.
The Registrant has the ability to satisfy its cash requirements for the
foreseeable future. However, it will be necessary to raise additional
capital during the next 12 months to make acquisitions and to meet
management's revenue and cash flow goals. The Operating Partnership intends
to conduct an exchange offering under which it will offer to issue units
("Units") of limited partnership interest to be registered, with an initial
assigned value of $25,000,000, in exchange for limited partnership
interests in real estate limited partnerships which directly or indirectly
own interests in residential apartment properties. The Registrant and the
Operating Partnership intend to investigate making an additional public or
private offering of Common Shares and/or Units within the next 12 months.
The Registrant and the Operating Partnership expect no material change in
the number of employees over the next 12 months.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant is a claimant in the Georgia Pacific class action law
suit.
Item 2. Changes in Securities and Use of Proceeds
The Registrant's Form SB-2 Registration Statement (the "Registration
Statement") (Commission file number 333-35063) was declared effective
by the Commission on May 15, 1998. On May 18, 1998, the Registrant
commenced its public offering (the "Offering") of common shares of
beneficial interest in the Registrant ("Common Shares"), the class of
securities registered, and the Offering is currently ongoing. The name
of the managing underwriter of the Offering is Sigma Financial
Corporation. The amount of Common Shares registered is 2,500,000
shares. The offering price per Common Share is $10.00, and the
aggregate price of the offering amount registered is $25,000,000. As
of the date of this report, 429,099 Common Shares have been sold in
the Offering, for an aggregate offering price of $4,290,991.
From the effective date of the Registration Statement through
September 30, 1998, the following expenses have been incurred for the
Registrant's account in connection with the issuance and distribution
of the registered Common Shares:
Underwriting discounts and commissions: $ 303,597 (plus five-year
warrants to acquire 33,107
Common Shares at an exercise
price of $13.00 per share)
Finder's Fees: $0
Expenses Paid to or for Underwriter: $0
Other Expenses (reimbursement for
advisory and investment expenses): $194,901
Total Expenses: $498,498
11
<PAGE>
Of such expense payments, $182,110 were made directly to Baron
Advisors, Inc., the Managing Shareholder of the Registrant. The
remaining payments of $316,388 were made directly or indirectly to
others. The net offering proceeds to the Registrant after deducting
the foregoing total expenses were $3,281,327.
From the effective date of the Registration Statement through
September 30, 1998, the net offering proceeds to the Registrant were
used for the following purposes:
Improvements to buildings and facilities: $0
Purchase and installation of equipment: $0
Repayment of indebtedness: $0
Working capital: $308,087
Temporary investments: $0
Investment in Baron Capital Properties,
L.P. (the Operating Partnership) - 9/30/98
value $2,293,432
Other purposes for which 5% or more of net
offering proceeds or $100,000 (whichever
is less) have been used: $0
Of such net proceeds, $2,973,240 was directly contributed to the
Operating Partnership in exchange for Units of limited partnership
interest therein. The $679,808 year-to-date net loss of the Operating
Partnership has reduced the value of the investment to $2,293,432. The
Operating Partnership will conduct all of the real estate operations
of the Registrant and hold all of its real property assets. In
September 1998, the Registrant made a return of capital to
Shareholders in the amount of $15,234.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As reported on a Form 8-K Current Report dated July 15, 1998, on June 30,
1998, the Operating Partnership acquired beneficial ownership of a 67-unit
residential apartment property located in Kissimmee, Florida referred to as
the Heatherwood Apartments - Phase I (the "Heatherwood Property").
12
<PAGE>
As reported on a Form 10-QSB Quarterly Report dated August 14, 1998 for the
quarter ended June 30, 1998, on July 31, 1998, the Operating Partnership
acquired beneficial ownership of a second property, an 80-unit residential
apartment property located in Lakewood, Florida referred to as Crystal
Court Apartments - Phase II (the "Crystal Court Property").
The Registrant filed with the Commission a Form 8-K Current Report dated
September 14, 1998 which included the financial statements required under
item 7 of Form 8-K (statements of revenue and certain expenses for the
years ended December 31, 1996 and December 31, 1997 (audited) and for the
five-month period ended May 31, 1998 (unaudited)) in connection with the
acquisition of beneficial ownership of the Heatherwood Property and the
Crystal Court Property.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits attached.
(b) The Registrant filed with the Commission a Form 8-K Current Report
dated September 14, 1998 which included the financial statements
required under item 7 of Form 8-K (statements of revenue and certain
expenses for the years ended December 31, 1996 and December 31, 1997
(audited) and for the five-month period ended May 31, 1998
(unaudited)) in connection with the acquisition of beneficial
ownership of the Heatherwood Property and the Crystal Court Property.
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.
November 23, 1998
BARON CAPITAL TRUST
By: /s/ Gregory K. McGrath
-------------------------------
Gregory K. McGrath
Chief Executive Officer
By: /s/ Mark L. Wilson
-------------------------------
Mark L. Wilson
Interim-Chief Financial Officer
13
