<PAGE>
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 June 30, 1999
[ ] 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
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND JUNE 30, 1999
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
<S> <C> <C>
ASSETS
Rental Apartments:
Land $ 1,178,693 $ 1,178,693
Depreciable Property 6,189,095 6,189,095
----------- -----------
7,367,788 7,367,788
Less: Accumulated Depreciation (1,246,627) (1,319,534)
----------- -----------
6,121,161 6,048,254
Investments in Partnerships 709,970 1,538,877
Cash and Cash Equivalents 177,299 145,964
Restricted Cash 66,199 158,545
Property Management Reimbursements Rec., Affiliates 155,071 116,595
Other Receivables 80,112 (872)
Advances to Affiliates 10,750 0
Other Property and Equipment 168,982 157,241
Other Assets 212,761 243,655
----------- -----------
871,174 821,128
----------- -----------
$ 7,702,305 $ 8,408,259
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities:
Mortgages Payable $ 4,039,718 $ 4,291,076
Note Payable 375,000 120,000
Accounts Payable and Accrued Liabilities including
$15,573 due to the Managing Shareholder 388,385 374,207
Capital Lease Obligation 55,984 55,984
Security Deposits 38,336 37,496
----------- -----------
Total Liabilities 4,897,423 4,878,763
----------- -----------
Shareholder's Equity:
Common Shares of beneficial interest, no par value;
2,500,000 shares authorized, 644,696 shares issued
and outstanding $ 4,257,101 $ 5,938,754
Distribution to Owners (72,159) (239,755)
Deficit (1,380,060) (2,169,503)
----------- -----------
Total Shareholder's Equity 2,804,882 3,529,496
----------- -----------
Total Liabilities and Shareholder's Equity $ 7,702,305 $ 8,408,259
----------- -----------
----------- -----------
</TABLE>
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED INCOME STATEMENT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
<TABLE>
<CAPTION>
3 MOS. ENDED 3 MOS. ENDED 6 MOS. ENDED 6 MOS. ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
<S> <C> <C> <C> <C>
REVENUES:
Property $ 78,475 $ 258,879 $ 155,316 $ 512,133
Rental 2,947 58,824 30,927 78,372
Equity in Net Loss of Unconsolidated Partnership 0 (25,667) 0 (29,093)
Other 694 654 736 1,037
----------- ----------- ----------- -----------
Total Revenues 82,115 292,690 186,979 562,449
----------- ----------- ----------- -----------
Real Estate Expenses:
Depreciation 9,500 36,453 15,513 72,907
Interest 25,501 80,526 50,217 144,491
Repairs and Maintenance 7,072 18,176 11,598 37,727
Personnel 13,336 27,814 29,265 57,471
Property Taxes 5,505 20,680 11,011 41,276
Property Insurance 5,105 3,513 5,769 10,718
Utilities 11,809 16,714 18,367 29,601
Other 11,358 86,528 24,637 131,570
----------- ----------- ----------- -----------
Total Real Estate Expenses 89,186 290,403 166,378 525,760
----------- ----------- ----------- -----------
Administrative Expenses:
Personnel 82,036 287,711 101,091 560,372
Management, Investment, and Administrative 111,587 125,517 135,919 194,511
Professional Services 133,192 222,670 136,977 385,064
Other 177 44,352 188 139,927
----------- ----------- ----------- -----------
Total Administrative Expenses 326,991 680,249 374,175 1,279,874
----------- ----------- ----------- -----------
Total Expenses 416,177 970,653 540,553 1,805,634
Less:Reimbursed Expenses 38,856 320,577 38,856 453,742
----------- ----------- ----------- -----------
Net Expenses 377,322 650,076 501,697 1,351,892
----------- ----------- ----------- -----------
Loss Before Minority Interest (295,206) (357,386) (314,718) (789,443)
Minority Interest of Unitholders in Net Loss of
Operating Partnership 44,789 0 53,649 0
----------- ----------- ----------- -----------
Net Loss ($250,417) ($357,386) ($261,069) ($789,443)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Loss Per Common Share ($1.23) ($0.58) ($1.29) ($1.39)
</TABLE>
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss ($261,069) ($789,443)
Adjustments to Reconcile Net Loss to Net Cash Used by
Operating Activities:
Minority Interest of Unitholders in Net Loss
of Operating Partnership (53,649) 0
Depreciation and Amortization 0 94,721
Equity in Net Loss of Unconsolidated Partnership 0 29,093
(Increase) decrease in Operating Assets
Property Management Reimbursements (38,856) 38,476
Other Recievables (20,592) 80,984
Advances to Affiliates 0 10,750
Other Assets (138,183) (30,894)
Increase (decrease) in Operating Liabilities
Accounts Payable and Accrued Liabilities 259,329 (14,178)
Security Deposits 13,017 (840)
Other 5,592 0
----------- -----------
Net Cash Used by Operating Activities (234,411) (581,331)
----------- -----------
Cash Flows from Investing Activities
Acquisition of Rental Property (782,218) 0
Investment in Partnerships 0 (885,000)
Cash Distributions from Partnerships 0 27,000
Other Property and Equipment (40,420) (10,073)
----------- -----------
Net Cash Used in Investing Activities (822,638) (868,073)
----------- -----------
Cash flows from Financing Activities:
Proceeds from the Sale of Common Shares 1,868,835 1,681,653
Distributions Paid 0 (167,596)
Initial Capital Contributions 50,100 0
Proceeds from Mortgage Financing 0 273,499
Payments on Mortgages Payable 0 (22,141)
Payments on Notes Payable 0 (275,000)
Other 0 20,000
----------- -----------
Net Cash Provided by Financing Activities 1,918,935 1,510,415
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 861,886 61,011
Cash and Cash Equivalents, Beginning 0 243,498
----------- -----------
Cash and Cash Equivalents, Ending $ 861,886 $ 304,509
----------- -----------
----------- -----------
</TABLE>
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
JUNE 30, 1999
<TABLE>
<CAPTION>
Common Shares
of Beneficial Interest
Shares Amount Distributions Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 463,650 $ 4,257,101 (72,159) (1,380,060) 2,804,882
PROCEEDS FROM SALE OF
COMMON SHARES OF BENEFICIAL
INTEREST 181,046 1,681,653 1,681,653
DISTRIBUTIONS PAID (167,596) (167,596)
NET LOSS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1999 (789,443) (789,443)
------- ----------- ----------- ----------- ----------
BALANCE, JUNE 30, 1999 644,696 $ 5,938,754 ($ 239,755) ($2,169,503) $3,529,496
------- ----------- ----------- ----------- ----------
------- ----------- ----------- ----------- ----------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CAPITALIZATION
Baron Capital Trust (the "Trust") was organized as a business trust in
Delaware on July 31, 1997. The Trust and its affiliate, Baron Capital
Properties, L.P. (the "Operating Partnership"), a Delaware limited
partnership, have been organized to acquire equity interests in
residential apartment properties located in the United States and to
provide or acquire debt mortgage loans secured by such types of
property.
The Managing Shareholder of the Trust is Baron Advisors, Inc., a
Delaware corporation which will manage the operations of the Trust and
the Operating Partnership subject to the supervisory authority of the
Board of the Trust over the activities of the Trust and the Operating
Partnership and the Board's prior approval authority in respect of
certain actions of the Trust and the Operating Partnership specified in
the Declaration of Trust of the Trust.
The Trust's Declaration authorizes it to issue up to 25,000,000 shares
of beneficial interest, no par value per share, consisting of common
shares and of preferred shares of such classes with such preferences,
conversion or other rights, voting powers, restrictions, limitations as
to dividends, qualifications, or terms or conditions of redemption as
the Managing Shareholder may create and authorize from time to time in
accordance with Delaware law and the Declaration.
The Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated accounts of the Trust and the Operating Partnership. The
Trust is the general partner of the Operating Partnership and owns
approximately 81% of the limited partner units of the Operating
Partnership. The consolidated accounts of the Operating Partnership
include the accounts of three limited partnerships in which the
Operating Partnership is the controlling limited partner, by virtue of
its right to remove the general partner due to its ownership percent of
the total partnership interest in those limited partnerships.
All significant inter-company transactions and balances have been
eliminated in consolidation.
2
<PAGE>
BASIS OF PRESENTATION (CONTINUED)
The minority interest of unitholders in the Operating Partnership
represents the 1,202,160 limited partnership units owned by the
Original Investors of the Operating Partnership, and is stated at the
amount of the capital contribution by them to the Operating Partnership
($100,000), reduced by their proportionate share of the net loss of the
Operating Partnership. As of December 31, 1998, the 1,202,160 Operating
Partnership limited partnership units issued to the Original Investors
are subject to escrow restrictions and 108,757 units are convertible
into common shares of the Trust.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Trust to
concentrations of credit risk are comprised of cash and receivables.
CASH
At various times during the year the Trust had deposits in financial
institutions in excess of the federally insured limits. The Trust
maintains its cash with high quality financial institutions, which the
Trust believes limits these risks.
PROPERTY MANAGEMENT REIMBURSEMENTS AND OTHER RECEIVABLES
Receivables are comprised mainly of property management reimbursements
due to the Operating Partnership from various properties it manages and
monthly rents due. The Operating Partnership monitors exposure to
credit losses and does not maintain an allowance for these receivables,
as it believes that these receivables are fully collectible.
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION
Real estate rental properties are stated at cost less accumulated
depreciation. Ordinary repairs and maintenance are expensed as
incurred; replacements having an estimated useful life of at least one
year and improvements are capitalized and depreciated over their
estimated useful lives.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the properties as follows:
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years)
-------------
<S> <C>
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
</TABLE>
3
<PAGE>
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION (CONTINUED)
Losses in carrying values of investment assets are provided by
management when the losses become apparent and the investment asset is
considered impaired in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Management evaluates its investment properties annually to assess
whether any impairment indications are present. If any investment asset
is considered impaired, a loss is provided to reduce the carrying value
of the property to its estimated fair value. No such losses have been
required or provided in the accompanying consolidated financial
statements.
REVENUE RECOGNITION
Apartment units are leased under operating leases with terms of
generally one year or less. Rental income is recognized when due from
tenants.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Trust considers all
investments purchased with an original maturity of three months or less
to be cash equivalents.
INVESTMENTS IN PARTNERSHIPS
The Trust, through the Operating Partnership, accounts for its
investments in limited Partnerships in which it is deemed not to have
the controlling interest, but has more than a minor limited partnership
interest, utilizing the equity method of accounting. The Operating
Partnership's investment in Alexandria Development, L.P., which
represents a 12.3% interest at December 31, 1998, is accounted for
using the equity method.
Investments in partnerships in which the Operating Partnership's
interest is so minor that the Partnership has virtually no influence
over partnership operating and financial policies are accounted for
utilizing the cost method. These investments generally represent less
than 5% of the partnership interest. The investments in certain other
limited partnerships as of December 31, 1998, which represent less than
a 4% partnership interest in each case, are accounted for on the cost
method. The Trust periodically assesses the estimated realizable value
of these investments in order to ascertain that there has been no
impairment in their recorded value.
As of June 30, 1999 the Operating Partnership owned 25.7 units of
limited partnership interest for which it paid $1,285,000.
4
<PAGE>
CAPITAL RESERVE
In connection with the acquisition of the investment properties, as
required by the lending institutions, the Trust has established a
capital reserve account, which is to be used for significant
improvements to the property.
LOAN COSTS
The Trust has capitalized those costs incurred with obtaining financing
on the investment properties. Such costs (included with other assets)
are being amortized over six years, the remaining term of the
financing.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
INCOME TAXES
The Trust has not provided for federal income taxes because the Trust
believes it qualifies as a real estate investment trust (REIT) under
Section 856 to 860 of the Internal Revenue Code. A REIT will generally
not be subject to federal income taxation on that portion of its income
that qualifies a REIT taxable income to the extent that it distributes
substantially all of its taxable income to its stockholders and
complies with certain other requirements. The Trust made an REIT
election for the year ended December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments include
cash, receivables, accounts payable and accrued liabilities. Fair
values were assumed to approximate carrying values for these financial
instruments since they are short-term in nature and their carrying
amounts approximate fair values or they are receivable or payable on
demand.
The fair value of debt instruments has been estimated by using
discounted cash flow models incorporating discount rates based on
current market interest rates for similar types of instruments. At
December 31, 1998, the differences between estimated fair value and the
carrying value of debt instruments were not material.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosures about
Segments of an
5
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and displaying comprehensive income, its components, and
accumulated balances. SFAS No. 131 establishes standards for the way
that public companies report information about operating segments in
annual financial statements and requires reporting of selected
information about operating segments in interim financial statements
issued to the public. Both SFAS No. 130 and SFAS No. 131 are effective
for periods beginning after December 15, 1997. The Trust adopted these
new accounting standards in 1998, and their adoption had no effect on
the Trust's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires companies to recognize all derivatives contracts
as either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match
the timing of the gain or loss recognition of the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized
in income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Historically, the Trust has not entered into derivatives contracts to
hedge existing risks or for speculative purposes. Accordingly, the
Trust does not expect adoption of the new standard on January 1, 2000
to affect its financial statements.
NOTE 2. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
ALEXANDRIA APARTMENTS
On October 14, 1998, the Operating Partnership acquired an approximate
12.3% limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Property"), a Delaware limited partnership which is the
owner and developer of a 168-unit residential apartment property under
construction in Alexandria, Kentucky. The Operating Partnership paid
$400,000 for eight (8) units of limited partnership interest out of a
total of sixty-five (65) units and retains an option to acquire the
remaining fifty-seven (57) units of limited partnership interests for
$50,000 per unit or approximately $2,850,000. The option is exercisable
as additional apartments are completed and rented and expires on
October 15, 1999. An affiliate of the Trust, affiliated through common
ownership, sold the partnership interest in the Alexandria Property to
the Operating Partnership and also serves as the managing general
partner of the Alexandria Property. During the construction stage of
the apartment property, the Operating Partnership's limited partnership
interest in the Alexandria Property 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.
6
<PAGE>
ALEXANDRIA APARTMENTS (CONTINUED)
As of June 30, 1999 the Operating Partnership owned 25.7 units of
limited partnership interest for which it paid $1,285,000.
CONTRACT TO PURCHASE ADDITIONAL PROPERTIES
In September 1998, the Trust 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 (Brentwood at Southgate, Ltd.,
Burlington Residential, Ltd. and The Shoppes at Burlington, Ltd.) are
controlled by one of the Trust's founders and chief executive officer.
The properties are scheduled to have a total of 652 units, comprised of
one, two and three bedroom/one or two bathroom apartments. Construction
of 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. The closing of each
acquisition, which is expected to occur shortly following the
completion of construction, is conditioned on, among other things, the
completion of the respective apartment property, the availability of
first mortgage financing and the Trust's raising the balance of the
funds necessary for the acquisition in its ongoing Cash Offering or
otherwise have funds available to make the acquisition.
In connection with the transaction and in exchange for certain benefits
described below, the Trust agreed to co-guarantee (along with the chief
executive officer), up to 35% (or approximately $12,500,000) of the
development portion of long-term construction loans with an aggregate
principal amount of up to $36,000,000 to be provided by a bank to the
development companies. As of March 31, 1999, approximately $4,850,000
of such loans had been drawn down, resulting in outstanding guarantees
of approximately $1,700,000. Subject to the fulfillment of certain
closing and funding conditions, the construction loans will be made to
the development companies in connection with the development and
construction of the two apartment properties and of an 111,000 square
foot shopping center being developed in Burlington, Kentucky. The
interest rates on the construction loans range from 7.36% to 7.52%. The
Trust 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.
The Trust expects to receive significant benefits from the transaction
in addition to the acquisition of two large luxury apartment properties
located in attractive communities. In exchange for the guarantee of the
development portion of the construction loans, the Trust will receive a
discount of approximately $212,500 (representing a one-half of one
percent reduction) on the purchase price of the properties. The Trust
and the development companies are negotiating a further price reduction
which would apply if the development
7
<PAGE>
CONTRACT TO PURCHASE ADDITIONAL PROPERTIES (CONTINUED)
portion of the loans is not repaid prior to the expiration of the
guarantee period and the Trust is required to buy out or arrange for
the buyout of the lender's position on the loans.
NOTE 3. SHAREHOLDERS' EQUITY
CASH OFFERING
On May 15, 1998, pursuant to a registration statement on Form SB-2, the
Trust commenced an initial public offering of a maximum of 2,500,000
common shares of beneficial interest in the Trust at $10 per common
share, which is payable in full upon subscription, for proposed total
gross proceeds of $25,000,000 (the Cash Offering). All of the common
shares to be issued or sold by the Trust in the offering will be
tradable without restriction under the Securities Act, but will be
subject to certain restrictions designed to permit the Trust to qualify
and maintain its status as a Real Estate Investment Trust under the
Internal Revenue Code. The Cash Offering will terminate no later than
November 30, 1999.
EXCHANGE OFFERING
The Operating Partnership has filed a registration statement on Form
S-4 with the Securities and Exchange Commission covering up to
2,500,000 units of limited partnership interest ("Units") to be
registered under the Securities Act of 1933, as amended (the "Act")
("Exchange Offering").
It is proposed that these units would be exchanged for units of limited
partnership interest in 23 limited partnerships (the "Exchange
Partnerships"), which directly or indirectly own equity and/or mortgage
interests in one or more residential apartment properties. The Exchange
Partnerships are managed by corporate general partners which are
affiliated with one of the founders of the Operating Partnership, who
is the sole stockholder and director of the Managing Shareholder of the
Trust. This registration statement has not yet become effective.
The number of Units being offered in exchange for the limited
partnership interests in the Exchange Partnerships will be based on
appraisals prepared by qualified and licensed independent appraisal
firms for each underlying residential apartment property. For purposes
of the Exchange Offering, each Unit has been arbitrarily assigned an
initial value of $10, which corresponds to the offering price of each
Trust Common Share currently being offered to the public pursuant to
the Cash Offering. The value of each Unit and Common Share outstanding
will be substantially identical since Unit holders, including
recipients of Units in the Exchange Offering, will be entitled to
exchange all or a portion of their Units at any time and from time to
time for an equivalent number of Trust Common Shares, so long as the
exchange would not cause the exchanging party to own (taking into
account certain ownership attribution rules) in excess of 5% of the
then
8
<PAGE>
EXCHANGE OFFERING (CONTINUED)
outstanding shares in the Trust, subject to the Trust's right to cash
out any holder of Units who requests an exchange and subject to certain
other exceptions. To facilitate such exchanges of Units into Common
Shares, 2,500,000 Common Shares (in addition to the 2,500,000 Common
Shares being offered by the Trust in the Cash Offering) have been
registered with the Commission. As its initial investment targets in
the Exchange Offering, the Operating Partnership is offering to acquire
equity and/or subordinated mortgage interests in 26 properties (the
"Exchange Properties") directly or indirectly owned by the 23 Exchange
Partnerships. The Operating Partnership will acquire interests in a
particular property and/or mortgages by acquiring from limited partners
their units of limited partnership interest in the respective Exchange
Partnership. Each of the Exchange Partnerships directly or indirectly
owns equity and/or mortgage interests in one or more properties.
Certain of the Exchange Partnerships directly or indirectly own equity
interests in 16 properties which consist of an aggregate of 1,012
residential units (comprised of studio, one, two, three and four
bedroom units). Certain of the Exchange Partnerships directly or
indirectly own mortgage interests in 10 properties, which consist of an
aggregate of 813 existing residential units (studio and one and two
bedroom units) and 168 units (two and three bedroom units) under
development. Of the Exchange Properties, 21 properties are located in
Florida , three properties in Ohio and one property each in Georgia and
Indiana.
OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors each subscribed for 601,080 limited
partnership units of the Operating Partnership (a total of 1,202,160
units). In consideration for the units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the
Operating Partnership. If the Cash Offering and the Exchange Offering
are fully subscribed, those Units would represent 19% of the total
Common Shares outstanding after completion of the Cash Offering and
exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited
partnerships (including any exchange pursuant to the Exchange
Offering), calculated on a fully diluted basis assuming all then
outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares. If, however, as
of November 30, 1999, the Cash Offering and/or the Exchange Offering
has been completed and the number of Units subscribed for by each
Original Investment represents a percentage greater than 19% of the
then outstanding Common Shares, calculated on a fully diluted basis
assuming that all then outstanding Units (other than those acquired by
the Trust) have been exchanged into an equivalent number of Common
Shares, each Original Investor has agreed to return any excess Units to
the Operating Partnership for cancellation. The Original Investors have
deposited Units subscribed for by them into a security escrow account
for six to nine years, subject to earlier release under certain
conditions.
9
<PAGE>
OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS (CONTINUED)
The fair value of the units issued to the Original Investors amounted
to $100,000, based upon a determination made by the Independent
Trustees of the Trust as of the date of subscription for these units
(February 3, 1998). The determination of the fair value took into
consideration that (a) at the time of the subscription for the units,
the Trust and the Partnership were development stage companies, with no
cash or other significant tangible assets, operating history or revenue
and no certainty of successful offerings or future operations; the
founders had at risk their initial capital contributions plus certain
additional unreimbursed advances to cover certain offering and
operating expenses; the founders have significant experience and
developed know-how critical to the success of the Trust and the
Partnership; and the founders' units are subject to significant
transfer restrictions. The Partnership has accounted for the units as
being issued and outstanding, but subject to escrow restrictions, in
the accompanying consolidated financial statements, and has included
the units as outstanding in determining the weighted average shares
outstanding for purposes of calculating net loss per partnership unit
in the accompanying consolidated financial statements. Because the
release of the units from escrow is not dependent upon the achievement
of any specified level of profits, the release of the units from escrow
is not considered to be compensatory and, accordingly, no accounting
measurement will be given to the release of the units from escrow.
Under the subscription agreement, the Original Investors agreed to
waive future administrative fees for managing Participating Exchange
Partnerships; agreed to assign to the Operating Partnership the right
to receive all residual economic rights attributable to the general
partner interests in Participating Exchange Partnerships; and, in order
to permit management of the Exchange Properties by the Operating
Partnership, caused the Exchange Partnerships to cancel the
partnerships' prior property management agreements and agreed to forego
the right to have a property management firm controlled by the Original
Investors assume the property management role in respect of properties
in which the Trust or the Operating Partnership invest.
After the exchange with the limited partners and assignment of economic
rights of the general partner, the Operating Partnership will control
the Participating Exchange Partnerships by virtue of its ownership of
at least 90% of the limited partnership interests, which will provide
the Operating Partnership the ability to remove the general partner
under the provisions of the limited partnership agreements that limited
partners holding over 50% of total partnership interest have the right
to remove the general partner.
Based upon the total Common Shares outstanding as of June 30, 1999, the
Original Investors would be entitled to exchange their limited
partnership units for a net amount of 144,452 (three months ended June
30, 1999) or 133,486 (six months ended June 30, 1999) Common Shares.
These equivalent common shares have been taken into consideration in
the calculation of net loss per share on an as-converted basis (see
Note 4).
10
<PAGE>
NOTE 4. NET LOSS PER SHARE
The Trust computes per share data in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share". SFAS 128 requires dual presentation of basic and diluted
earnings per share on the face of the income statement.
Basic net loss per share equals net loss divided by the weighted
average shares outstanding during the year. The computation of diluted
net loss per share that includes dilutive common stock equivalents in
the weighted average shares outstanding has not been presented as it is
anti-dilutive for the three months ended June 30, 1999.
The components used in calculating basic net loss per share are as
follows:
<TABLE>
<CAPTION>
Weighted
Average Loss
Net Loss Shares Per Share
-------- ------ ---------
<S> <C> <C> <C>
Three months ended
June 30, 1999 $(357,386) 615,821 $(.58)
--------- ------- ------
--------- ------- ------
Six months ended
June 30, 1999 $(789,443) 569,074 $(1.39)
--------- ------- ------
--------- ------- ------
</TABLE>
Assuming that the Original Investors had exchanged their limited
partnership units for an equivalent net amount of 144,452 (for the
three months ended June 30, 1999) or 133,486 (for the six months ended
June 30, 1999) Common Shares, the net loss per share on an as-converted
basis would have been .47 (for the three months ended June 30, 1999)
and 1.12 (for the six months ended June 30, 1999) per share.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is a claimant in the Georgia-Pacific class action
lawsuit.
ITEM 2. CHANGES IN SECURITIES
There were no material modifications in the instruments defining the
rights of any class of registered securities. There were no sales of any
unregistered securities.
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. Registrant filed Post-Effective Amendment No. 1
with the Commission on June 2, 1999. 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, 644,696 Common Shares have been sold in the Offering, for an
aggregate offering price of $6,445,963
From the effective date of the Registration Statement through June 30,
1999, the following expenses have been incurred for the Registrant's account in
connection with the issuance and distribution of the registered Common Shares:
<TABLE>
<S> <C>
Underwriting discounts and commissions: $507,309 (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): $417,756
Total Expenses: $925,065
</TABLE>
Of such expense payments, $388,519 were made directly to Baron
Advisors, Inc., the Managing Shareholder of the Registrant. The remaining
payments of $536,546 were made directly or indirectly to others. The net
offering proceeds to the Registrant after deducting the foregoing total expenses
were $5,520,898.
12
<PAGE>
From the effective date of the Registration Statement through June 30,
1999, the net offering proceeds to the Registrant were used for the following
purposes:
<TABLE>
<S> <C>
Improvements to buildings and facilities: $0
Purchase and installation of equipment: $0
Repayment of indebtedness: $0
Working capital: $0
Temporary investments: $0
Investment in Baron Capital Properties, L.P.
(the Operating Partnership) - 6/30/99 value $4,932,240
Other purposes for which 5% or more of net
offering proceeds or $100,000 (whichever
is less) have been used: $0
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The annual meeting of shareholders of Registrant was held on
June 22, 1999.
b) The following were elected to serve as Trustees of registrant for the
coming year:
Peter Dickson
James Bownas
Baron Advisors, Inc.
c) The shareholders voted to amend the Declaration of Trust to change
the record date to a date 7 days prior to the notice of the
shareholders meeting. Votes for - 315,697; against - 2,900; and
abstain - 10,470.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<PAGE>
(a) No exhibits attached.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
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.
August 12, 1999 BARON CAPITAL TRUST
By: /s/ Gregory K. Mcgrath
------------------------------
Gregory K. McGrath
Chief Executive Officer
By: /s/ Mark L. Wilson
------------------------------
Mark L. Wilson
Chief Financial Officer
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BARON
CAPITAL TRUST FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30,1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 304,509
<SECURITIES> 0
<RECEIVABLES> 115,723
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 420,232
<PP&E> 7,525,029
<DEPRECIATION> (1,319,534)
<TOTAL-ASSETS> 8,408,259
<CURRENT-LIABILITIES> 467,687
<BONDS> 4,411,076
0
0
<COMMON> 5,938,754
<OTHER-SE> (2,409,258)
<TOTAL-LIABILITY-AND-EQUITY> 8,408,259
<SALES> 0
<TOTAL-REVENUES> 562,449
<CGS> 0
<TOTAL-COSTS> 525,760
<OTHER-EXPENSES> 1,279,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (789,443)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789,443)
<EPS-BASIC> (1.39)
<EPS-DILUTED> (1.39)
</TABLE>
